<PAGE>
As filed with the Securities and Exchange Commission on January 7, 2000
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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 Industrial (IRS Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization) ---------------
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
---------------
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
<TABLE>
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<CAPTION>
Proposed Maximum
Title of each Class of Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee(2)
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<S> <C> <C>
Common Stock, $0.001 par value per share........ $69,000,000 $18,216
- -----------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of registration
fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed
maximum aggregate offering price.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 7, 2000
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
$ and $ 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 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 4.
<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>
[INSIDE FRONT COVER]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 4
Use of Proceeds..................... 10
Dividend Policy..................... 10
Capitalization...................... 11
Dilution............................ 12
Selected Pro Forma Financial Data... 13
Management's Discussion and Analysis
of Pro Forma Results of
Operations......................... 14
Selected Financial Data............. 17
Management's Discussion and Analysis
of Historical Financial Condition
and Results of Operations.......... 18
Business............................ 22
<CAPTION>
Page
----
<S> <C>
Management......................... 32
Certain Transactions............... 40
Principal Stockholders............. 43
Description of Capital Stock....... 44
Shares Eligible for Future Sale.... 46
U.S. Federal Tax Considerations for
Non-United States Holders......... 48
Underwriting....................... 52
Notice to Canadian Residents....... 54
Legal Matters...................... 55
Experts............................ 55
Where You Can Find More
Information....................... 55
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 (25 days after the commencement of the offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<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;
. reflects the exchange upon the closing of this offering of shares of
class A preferred stock, including related accrued and unpaid dividends,
held by certain of our stockholders for shares of common stock at an
exchange rate based on an assumed initial public offering price of $
per share; and
. assumes the conversion upon the closing of this offering of a $2.0
million promissory note issued to Renaissance Worldwide, Inc. into
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 strategy-led Internet
consulting and implementation services to both dot-com and traditional
businesses to enable them to take advantage of the Internet. We help our
clients identify business objectives and create and prioritize a portfolio of
Internet initiatives that offer a variety of ways to maximize competitiveness
in the Internet economy. 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 underlies all aspects of the client engagement and
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 integrated, multidisciplinary teams of
consultants with backgrounds in business strategy, experience design,
technology and program management. This collaborative 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
not only trained in the latest practices and technologies but are leading
developers and thought leaders in these areas.
Our delivery model is based upon a proprietary methodology called ENABLE.
This methodology consists of four phases that we call 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;
. leverage 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.
1
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by ZEFER....................... shares
Common stock to be outstanding after this offering.. 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 is based on the number outstanding on December 31, 1999. However, this
number excludes 4,413,443 shares subject to outstanding options as of November
30, 1999 under our 1999 Incentive Plan and 1999 Stock Option Plan at a weighted
average exercise price of $1.16 per share and 86,557 additional shares
available for issuance under these plans.
Summary Financial Data
The following summary pro forma statement of operations data should be read
in conjunction with "Selected Pro Forma Financial Data," "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 table presents our pro forma statement of operations data 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.
"EBITDA" is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA is not intended to represent cash flows from
operations and should not be considered as an alternative to net income as an
indicator of our operating performance or to cash flows as a measure of
liquidity. Although we believe that EBITDA is a standard measure commonly
reported and widely used by analysts, investors and other interested parties in
our industry, EBITDA presented below may not be comparable to similarly titled
measures reported by other companies.
<TABLE>
<CAPTION>
Pro Forma
----------------------------------------------------------------
Three Months Ended
Year Ended Nine Months Ended ---------------------------------
December 31, September 30, March 31, June 30, September 30,
1998 1999 1999 1999 1999
------------ ----------------- --------- -------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 17,984 $ 19,781 $ 3,957 $ 5,612 $ 10,212
Loss from operations.... (17,873) (26,358) (6,881) (9,355) (10,122)
Net loss................ (20,482) (23,114) (7,620) (8,680) (6,814)
Basic and diluted net
loss per share......... $ (6.10) $ (0.90) $ (1.08) $ (0.38) $ (0.22)
Weighted average
shares................. 3,035 25,712 7,053 22,702 30,811
Other Data:
EBITDA.................. $ (3,007) $(14,009) $(3,118) $(5,471) $ (5,420)
</TABLE>
2
<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 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 the
$12.8 million subordinated promissory note issued to an affiliate of GTCR
Golder Rauner, L.L.C., or GTCR, in November 1999 and $19.4 million of
outstanding bank indebtedness under a revolving line of credit, (3) the
exchange upon the closing of this offering of 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
$ 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
shares of common stock, which is based on a conversion rate equal to 80% of the
assumed initial public offering price.
<TABLE>
<CAPTION>
September 30,
1999
------------------
As
Actual Adjusted
-------- --------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................................... $ 521 $
Working capital (deficit).................................... (16,723)
Total assets................................................. 45,496
Lines of credit.............................................. 15,820
Other debt, including current portion........................ 2,980
Redeemable preferred stock................................... 18,672
Total stockholders' equity (deficit)......................... (4,200)
</TABLE>
------------
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.
3
<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 have
acquired a number of businesses over the last nine months, each of which had a
limited operating history. Accordingly, our historical results of operations do
not reflect the current nature of our service offering.
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 $8.4 million for the period from our inception
to September 30, 1999 and a pro forma net loss of $23.1 million for the nine
months ended September 30, 1999. We expect to continue to incur significant
operating losses in the near term. 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
qualified personnel
We believe that our success 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 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. 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
Our industry is characterized by a rapidly evolving technological landscape,
evolving business methodologies and constantly changing client requirements. As
a result, our future success depends in part on our ability to anticipate and
adapt to these changes.
4
<PAGE>
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. 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 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.
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;
. the length of the sales cycle associated with our service offerings;
. the introduction of new services by us or our competitors;
. changes in our pricing policies or those of our competitors; and
. our ability to attract, train and retain skilled personnel in all areas
of our business.
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.
5
<PAGE>
Our efforts to develop brand awareness may not be successful, which could
negatively impact our ability to continue to grow our business
An important element of our growth strategy is to develop and maintain
widespread awareness of the ZEFER name among our target clients. To build name
recognition and acceptance, we plan to increase our public relations and
marketing expenses, which may cause our operating margins to decline. If our
efforts fail, we may not be able to successfully grow 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
We generally enter into fixed-price contracts with our clients. 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.
Our failure to meet client expectations or deliver error-free services could
negatively impact our reputation, as well as our results of operations and
financial condition
Many of our services are critical to our clients' businesses. Any errors in
the implementation of our Internet solutions or failure to meet a client's
expectations could result in:
. our inability to receive payment from such a client;
. requirements to provide additional services to a client at no charge;
. negative publicity about us and our services, which could adversely
affect our ability to attract or retain clients; and
. claims for substantial damages against us, regardless of our
responsibility for such failure, which may not be covered by our
insurance policies and which may not be limited by the contractual terms
of our engagement.
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.
6
<PAGE>
We may be unable to redeploy our professionals effectively if engagements are
terminated unexpectedly, which would adversely affect our revenues
Substantially all of our revenues are derived from fixed-price, fixed-time
contracts for discrete client engagements that vary in size and scope. If our
clients cancel or reduce the scope of their engagements on short notice, as
they are entitled to do, we may be unable to reassign our professionals to new
engagements without delay. The cancellation or reduction 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 on March 18, 1999 through September 30,
1999, five clients accounted for approximately 33% 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,
7
<PAGE>
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.
We may need additional capital, which may not be available to us, and which, if
raised, may dilute your ownership interest in us
We may need to raise additional funds through public or private equity or
debt financing in order to:
. support additional capital expenditures;
. take advantage of acquisition or expansion opportunities;
. develop new services; or
. address additional working capital needs.
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
Management may invest or spend the proceeds of this offering in ways which may
not benefit the business
Our management will retain broad discretion to allocate the proceeds of this
offering. Management's failure to apply these funds effectively could have an
adverse impact on our ability to implement our strategy. See "Use of Proceeds."
Our existing ownership structure and certain 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
When this offering is completed, our executive officers, directors and those
stockholders who beneficially own more than five percent of our stock will, in
the aggregate, beneficially own shares representing approximately % 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.
In addition, 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. Please refer to "Description of Capital Stock" for a more detailed
discussion of these and other provisions.
The factors discussed above could delay or prevent a change of control of
our company that stockholders may believe would result in better management. In
addition, these factors could depress our stock price because purchasers will
not be able to acquire a controlling interest in us or because investors may
perceive that potential acquirers will be less likely to even make an offer to
acquire such a controlling interest.
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
8
<PAGE>
stockholders and by persons who exercise currently outstanding options to
acquire our common stock. Accordingly, you will experience immediate and
substantial dilution of approximately $ 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
% of the aggregate price paid by all purchasers of our stock but will own only
approximately % of our common stock outstanding after this offering. See
"Dilution."
Our stock price could be volatile, which could result in substantial losses for
investors purchasing shares in this offering
The trading price of our common stock is likely to be volatile. The stock
market in general and the market for technology and Internet-related companies
in particular have experienced extreme volatility. This volatility has often
been unrelated to the operating performance of particular companies. We cannot
be sure that an active public market for our common stock will develop or
continue after this offering. Investors may not be able to sell their common
stock at or above our initial public offering price. The price for our common
stock will be determined in the marketplace and may be influenced by many
factors, including:
. variations in our financial results or those of companies that are
perceived to be similar to ours;
. changes in earnings estimates by industry research analysts;
. investors' perceptions of us; and
. general economic, industry and market conditions.
Our stock price could be adversely affected by shares becoming available for
sale
Sales of a substantial number of shares of our common stock in the public
market by existing stockholders after this offering could depress the market
price of our common stock and could impair our ability to raise capital through
the sale of additional equity securities. See "Shares Eligible for Future
Sale."
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.
9
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of shares of common
stock will be approximately $54.0 million, assuming an initial public offering
price of $ 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
$62.4 million.
We are conducting this offering primarily to enhance our ability to use our
common stock as a means of attracting and retaining key employees, to increase
our visibility and strengthen our reputation in the marketplace and to
facilitate our future access to public capital markets.
We expect to use a portion of the net proceeds from this offering to repay
outstanding subordinated indebtedness owed to an affiliate of GTCR which
totaled $12.8 million at December 31, 1999. The GTCR indebtedness, which we
incurred in November 1999 in order to fund existing operations, bears interest
at a rate of 12.0% per annum and matures on the earliest to occur of November
24, 2004, certain changes in control or the closing of this offering. We also
intend to use a portion of the net proceeds from this offering to repay $19.4
million of outstanding bank indebtedness under a revolving line of credit. This
line of credit is payable on demand and bears interest at the prime lending
rate. We intend to use the balance of the net proceeds from this offering 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 and we may not make
any acquisitions.
To the extent we receive additional proceeds from this offering upon the
exercise of the underwriters' over-allotment option or in the event the
offering price is in excess of the assumed initial public offering price or the
number of shares offered hereby is increased, we may use additional proceeds to
redeem shares of our common stock issued to holders of class A preferred stock
upon exchange of their shares of class A preferred. 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. See "Certain Transactions" for a
discussion of this exchange and redemption.
Except as described above, we have not identified specific uses for the net
proceeds of this offering and we will have discretion over their use and
investment. Pending use of the net proceeds, we intend to invest these proceeds
in short-term, investment grade, interest-bearing instruments.
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.
Certain 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.
10
<PAGE>
CAPITALIZATION
The following table sets forth our actual and as adjusted capitalization as
of September 30, 1999. The actual information reflects the amendment of our
certificate of incorporation on December 1, 1999 to provide for:
. an increase in the number of shares of authorized common stock from
35,000,000 to 100,000,000;
. a four-for-three forward stock split; and
. an adjustment in the par value of our common stock from $.01 per share
to $.001 per share.
The as adjusted information reflects:
. receipt of the estimated net proceeds from the sale by us of shares
of common stock in this offering, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses;
. the application of a portion of the net proceeds to repay the $12.8
million subordinated promissory note issued to an affiliate of GTCR in
November 1999 and to repay $19.4 million of outstanding bank
indebtedness under a revolving line of credit;
. the exchange upon the closing of this offering of 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 $ 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 shares of
common stock.
The share numbers exclude 4,413,443 shares of common stock issuable upon
exercise of stock options outstanding as of November 30, 1999 at a weighted
average exercise price of $1.16 per share and 86,557 shares of common stock
available for issuance under our 1999 Incentive Plan and 1999 Stock Option Plan
as of November 30, 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>
September 30, 1999
-------------------------------
Actual As Adjusted
-------------- ---------------
(in thousands, except
share and per share data)
<S> <C> <C>
Cash and cash equivalents....................... $ 521 $
============== ===========
Lines of credit................................. $ 15,820 $
Other debt, including current portion........... 2,980
Class A redeemable preferred stock, $0.01 par
value per share; 96,632 shares authorized;
18,143 shares outstanding, actual; no shares
outstanding, as adjusted....................... 18,672
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, as
adjusted..................................... --
Common stock, $0.001 par value per share;
100,000,000 shares authorized, actual;
39,745,249 shares outstanding, actual;
150,000,000 shares authorized, as adjusted;
shares outstanding, as adjusted.......... 40
Additional paid-in-capital.................... 5,630
Subscriptions receivable...................... (1,333)
Deferred compensation......................... (146)
Accumulated deficit........................... (8,391)
-------------- -----------
Total stockholders' equity (deficit)........ (4,200)
-------------- -----------
Total capitalization, including line of
credit and other debt, including current
portion.................................. $ 33,272 $
============== ===========
</TABLE>
11
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of September
30, 1999 was approximately $ , or $ 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 September 30, 1999, assuming (a) the exchange of 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 $ per share and (b) the conversion of a $2.0
million promissory note issued to Renaissance Worldwide, Inc. into shares
of common stock. After giving effect to the sale by us of 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 the $12.8 million subordinated promissory note issued to an
affiliate of GTCR in November 1999 and $19.4 million of outstanding bank
indebtedness under a revolving line of credit, our pro forma net tangible book
value as of September 30, 1999 would have been approximately $ , or $
per share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $ 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...................... $
Pro forma net tangible book value per share as of September 30,
1999.............................................................. $
Increase in pro forma net tangible book value per share
attributable to new investors.....................................
----
Pro forma net tangible book value per share after this offering......
----
Dilution per share to new investors.................................. $
====
</TABLE>
The following table sets forth on a pro forma basis as of September 30, 1999
the difference between the number of shares of common stock purchased from us,
assuming the issuance of 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>
Shares Average
purchased Total consideration price
-------------- ---------------------- per
Number Percent Amount Percent share
------ ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... % $ % $
New investors...................
--- --- --------- ---------
Total......................... % $ %
=== === ========= =========
</TABLE>
As of November 30, 1999, there were options outstanding to purchase a total
of 4,413,443 shares of common stock at a weighted average exercise price of
$1.16 per share under our stock plans. To the extent any of these stock options
are exercised, there will be additional dilution to new investors.
12
<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
year ended December 31, 1998 and the nine months ended September 30, 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.
"EBITDA" is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA is not intended to represent cash flows from
operations and should not be considered as an alternative to net income as an
indicator of our operating performance or to cash flows as a measure of
liquidity. Although we believe that EBITDA is a standard measure commonly
reported and widely used by analysts, investors and other interested parties in
our industry, EBITDA presented below may not be comparable to similarly titled
measures reported by other companies.
<TABLE>
<CAPTION>
Pro Forma Three Months Ended
---------------------------------
March 31, June 30, September 30,
1999 1999 1999
--------- -------- -------------
(in thousands, except per share
data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues.................................... $ 3,957 $ 5,612 $ 10,212
Operating expenses:
Cost of services.......................... 3,940 4,504 6,110
Hiring and training....................... 191 325 1,338
Research and innovation................... -- 128 406
Sales and marketing....................... 778 971 1,635
General and administrative................ 2,061 5,070 6,064
Depreciation and amortization............. 3,868 3,969 4,781
------- -------- --------
Total operating expenses................ 10,838 14,967 20,334
------- -------- --------
Loss from operations........................ (6,881) (9,355) (10,122)
Interest and other expense, net............. (739) (1,089) (689)
------- -------- --------
Loss before taxes........................... (7,620) (10,444) (10,811)
Benefit from income taxes................... -- 1,764 3,997
------- -------- --------
Net loss.................................... $(7,620) $ (8,680) $ (6,814)
======= ======== ========
Net loss per share.......................... $ (1.08) $ (0.38) $ (0.22)
======= ======== ========
Weighted average shares..................... 7,053 22,702 30,311
======= ======== ========
Other Data:
EBITDA...................................... $(3,118) $ (5,471) $ (5,420)
======= ======== ========
Operating Expenses as a Percentage of Reve-
nues:
Cost of services............................ 99.6% 80.3% 59.8%
Hiring and training......................... 4.8 5.8 13.1
Research and innovation..................... 0.0 2.3 4.0
Sales and marketing......................... 19.7 17.3 16.0
General and administrative.................. 52.1 90.3 59.4
Depreciation and amortization............... 97.7 70.7 46.8
------- -------- --------
Total operating expenses................ 273.9% 266.7% 199.1%
======= ======== ========
</TABLE>
13
<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
certain 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 business combinations,
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 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.
Most of our revenues are derived from services performed on a fixed-price
basis. 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.
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 also 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.
14
<PAGE>
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 develops 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. We expect
these 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.
Revenues
Revenues for the quarter ended June 30, 1999, as compared to the quarter
ended March 31, 1999, increased by $1.6 million, or 41.8%, to $5.6 million from
$4.0 million. Revenues for the quarter ended September 30, 1999, as compared to
the previous quarter, increased by $4.6 million, or 82.0%, to $10.2 million.
The increase in revenues in each quarter was primarily a result of an increase
in the number and type of clients to whom we provided Internet consulting and
implementation services, along with the increased scope and complexity of
engagements. We increased our capacity to deliver services to meet this demand
by increasing the number of billable professionals during these periods.
Operating Expenses
Cost of Services. Cost of services for the quarter ended June 30, 1999, as
compared to the quarter ended March 31, 1999, increased by $0.6 million to $4.5
million from $3.9 million. Cost of services for the quarter ended September 30,
1999, as compared to the previous quarter, increased by $1.6 million to $6.1
million. The increase in cost of services was due primarily to an increase in
the number of billable professionals as we expanded our capacity to meet the
increase in demand for Internet consulting and implementation services for our
clients. Cost of services as a percentage of revenues decreased in each of the
quarters presented, from 99.6% in the quarter ended March 31, 1999, to 80.3% in
the quarter ended June 30, 1999 to 59.8% in the quarter ended September 30,
1999. The decrease in cost of services as a percentage of revenues was due to
an improvement in the utilization of billable professionals.
Hiring and Training. Hiring and training expenses for the quarter ended June
30, 1999, as compared to the quarter ended March 31, 1999, increased by $0.1
million to $0.3 million from $0.2 million. Hiring and training expenses for the
quarter ended September 30, 1999, as compared to the previous quarter,
increased by $1.0 million to $1.3 million. Hiring and training expenses
increased as a percentage of revenues in each of the quarters presented from
4.8% in the quarter ended March 31, 1999, to 5.8% in the quarter ended June 30,
1999 to 13.1% in the quarter ended September 30, 1999. These increases were
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.
15
<PAGE>
Research and Innovation. We initiated our research and innovation activities
during the quarter ended June 30, 1999 and incurred $0.1 million of research
and innovation expenses in that quarter. Research and innovation expenses for
the quarter ended September 30, 1999, as compared to the previous quarter,
increased by $0.3 million to $0.4 million. Research and innovation expenses as
a percentage of revenues increased to 4.0% in the quarter ended September 30,
1999 as compared to 2.3% in the quarter ended June 30, 1999. Most of our
research and innovation expenses related to the development of our proprietary
ENABLE methodology and knowledge management infrastructure.
Sales and Marketing. Sales and marketing expenses for the quarter ended June
30, 1999, as compared to the quarter ended March 31, 1999, increased by $0.2
million to $1.0 million from $0.8 million. Sales and marketing expenses for the
quarter ended September 30, 1999, as compared to the previous quarter,
increased by $0.6 million to $1.6 million as we began to build our sales and
marketing organization to support growth. Sales and marketing expenses as a
percentage of revenues declined in each of the quarters presented from 19.7% in
the quarter ended March 31, 1999, to 17.3% in the quarter ended June 30, 1999
to 16.0% in the quarter ended September 30, 1999. This decrease in sales and
marketing expenses as a percentage of revenues was primarily due to the more
rapid growth in revenues as compared to the increase in sales and marketing
expenses.
General and Administrative. General and administrative expenses for the
quarter ended June 30, 1999, as compared to the quarter ended March 31, 1999,
increased by $3.0 million to $5.1 million from $2.1 million. General and
administrative expenses for the quarter ended September 30, 1999, as compared
to the previous quarter, increased by $1.0 million to $6.1 million. General and
administrative expenses as a percentage of revenues increased from 52.1% in the
quarter ended March 31, 1999 to 90.3% in the quarter ended June 30, 1999 and
then decreased to 59.4% in the quarter ended September 30, 1999. The increase
in general and administrative expenses reflects our investment in the
infrastructure required to rapidly scale our business.
Depreciation and Amortization. Depreciation and amortization expenses for
the quarter ended June 30, 1999, as compared to the quarter ended March 31,
1999, increased by $0.1 million to $4.0 million from $3.9 million. Depreciation
and amortization expenses for the quarter ended September 30, 1999, as compared
to the previous quarter, increased by $0.8 million to $4.8 million.
Amortization of goodwill and other intangibles related to acquisitions
represented approximately $3.8 million of total depreciation and amortization
in each quarter. The increase in depreciation and amortization in each quarter
was primarily due to the increased purchases of computer equipment, software
and furniture and fixtures to support our increase in headcount and investment
in infrastructure.
Interest and Other Expense, Net
Interest and other expense, net for the quarter ended June 30, 1999, as
compared to the quarter ended March 31, 1999, increased by $0.4 million to $1.1
million from $0.7 million. Interest and other expense, net for the quarter
ended September 30, 1999, as compared to the previous quarter, decreased by
$0.4 million to $0.7 million. The increase for the quarter ended June 30, 1999,
as compared to the quarter ended March 31, 1999, was primarily due to increased
interest expense on our class A preferred stock. The decrease for the quarter
ended September 30, 1999, as compared to the quarter ended June 30, 1999, was
primarily due to the decrease in interest expense pertaining to the divisions
of Renaissance.
Benefit from Income Taxes
The benefit from income taxes for the quarter ended June 30, 1999 was $1.8
million, as compared to the quarter ended March 31, 1999, for which there was
no benefit from income taxes. The benefit from income taxes for the quarter
ended September 30, 1999, as compared to the previous quarter, increased by
$2.2 million to $4.0 million. The benefit from income taxes reflects the
application of net operating loss carryforwards against deferred tax
liabilities recorded in connection with certain acquisitions.
16
<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 31, 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
September 30, 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 31, December 31, Ended April 30, September 30,
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 $ 11,973
Income (loss) from
operations............. 2,654 (3,763) (4,718) (562) (2,262) (12,996)
Net income (loss)....... 1,295 (4,194) (5,043) (555) (2,280) (8,391)
Basic and diluted net
income (loss) per
share.................. $ (0.34)
Weighted average
shares................. 25,032
Balance Sheet Data (at
end of period):
Cash and cash
equivalents............ $ 102 $ 312 $ 57 $ 539 $ 143 $ 521
Working capital
(deficit).............. 653 1,482 (2,653) 386 (994) (16,723)
Total assets............ 4,719 7,946 6,549 1,026 1,136 45,496
Lines of credit......... -- 1,734 1,748 -- -- 15,820
Other debt, including
current portion........ 806 341 298 -- -- 2,980
Redeemable preferred
stock.................. -- -- -- 1,200 1,200 18,672
Total stockholders'
equity (deficit)....... 1,955 2,599 (1,667) (609) (1,928) (4,200)
</TABLE>
17
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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 certain factors, including those set forth
under "Risk Factors" and elsewhere in this prospectus.
ZEFER's 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.
Period from Our Inception (March 18, 1999) to September 30, 1999 Compared to
Six Months Ended September 30, 1998 of Our Combined Predecessors
The following discussion compares our results of operations for the period
from our inception (March 18, 1999) through September 30, 1999 to the combined
results of operations of our predecessors for the six months ended September
30, 1998. Revenues for the period from inception to September 30, 1999
increased by $4.4 million to $12.0 million from $7.6 million for the six
months ended September 30, 1998. This increase was primarily due to an
increase in the number, type and scope of client engagements, along with the
increase in the number of billable professionals, including through
acquisition, available to deliver such engagements. The operating loss for the
period from inception to September 30, 1999 of $13.0 million reflects an
increase of $12.1 million from a loss of $0.9 million for the six months ended
September 30, 1998. The net loss for the period from inception to
September 30, 1999 of $8.4 million reflects an increase of $6.4 million from a
net loss of $2.0 million for the six months ended September 30, 1998. The
increase in both operating and net losses was primarily due to increased
hiring and training, sales and marketing, research and innovation and general
and administrative expenses and reflects our investment in the infrastructure
required to scale our business rapidly.
Original ZEFER
Four Months Ended April 30, 1999 Compared to Period from Inception (March 19,
1998) to April 30, 1998
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 of $0.5 million reflect an increase over the period from
inception to April 30, 1998. Similarly, operating and net losses for the four
months ended April 30, 1999 of $2.3 million reflect the increase in spending
for the 1999 period compared to the 1998 period. Spending for the four months
ended April 30, 1999 primarily relates to investment in training, sales and
marketing and the establishment of our delivery methodology.
Divisions of Renaissance
Five Months Ended May 31, 1999 Compared to Five Months Ended May 31, 1998
Revenues for the five months ended May 31, 1999 decreased by $0.6 million
to $3.9 million from $4.5 million for the five months ended May 31, 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
division. The operating loss for the five months ended May 31, 1999 of $4.7
million reflects an increase of $3.3 million from a loss of $1.4 million for
the five months ended May 31, 1998. The net loss for the five months ended May
31, 1999 of $5.0 million reflects an
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increase of $2.8 million from a loss of $2.2 million for the five months ended
May 31, 1998. The increases in both operating and net losses were primarily due
to increased expenses related to the creation of the customer relationship
management division and decreased utilization of billable professionals.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
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. The operating loss for the year ended December 31,
1998 of $3.8 million reflects a decrease of $6.5 million from operating income
of $2.7 million for the year ended December 31, 1997. The net loss for the year
ended December 31, 1998 of $4.2 million reflects a decrease of $5.5 million
from net income of $1.3 million for the year ended December 31, 1997. The
decreases in both operating and net income were primarily due to the investment
in the establishment of the customer relationship management practice.
Business Combinations
We have completed certain strategic acquisitions that have enabled us to
gain critical resources and delivery capabilities, expand in new geographic
regions and deliver larger projects. These acquisitions were:
. 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. 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 five months ended May 31, 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.
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 September 30, 1999, we had raised $22.5 million of
equity capital from the sale of common and preferred stock. As of September 30,
1999, we had $0.5 million in cash and cash equivalents. We expect that accounts
receivable will continue to increase proportionately to the extent our revenues
continue to rise. Any such increase that occurs at a greater rate than
increases in revenues is likely to have an adverse effect on cash flows from
operating activities.
We have a revolving line of credit for $20.0 million with Harris Bank and
Trust Company. Borrowings under this line of credit bear interest at the prime
lending rate. All borrowings under this line are guaranteed by GTCR. As of
September 30, 1999, there were outstanding borrowings under this line of credit
in the amount of $15.7 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 certain
restrictive covenants, including minimum levels of working capital and tangible
net worth. As of September 30, 1999, we were not in compliance with either of
our financial covenants and were in receipt of a
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waiver from the bank. We also have a capital equipment line with TLP Leasing,
Inc. 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 is
payable on May 14, 2000. The remaining unpaid principal and interest on the
notes is due on May 14, 2001.
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 may make additional borrowings from time to time subject
to the approval of the lender. 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,
certain changes in control or the completion 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. We intend to repay the outstanding balance of the loan with
net proceeds of this offering and terminate the loan agreement. Borrowings are
secured by substantially all of our assets.
During the period from inception (March 18, 1999) through September 30,
1999, our operating activities used $5.7 million of cash. Net cash used by
operating activities during this period resulted from a net loss of $8.4
million and increases in accounts receivable of $3.1 million and prepaid
expenses and other current assets of $0.8 million. These uses of cash were
partially offset by increases in accounts payable, accrued expenses and
deferred revenue of $2.2 million, $3.6 million and $0.2 million, respectively,
and non-cash charges of $0.6 million. The increase in accounts receivable is
primarily attributable to increased volume of revenues and accounts receivable
purchased from acquired entities.
During the period from inception through September 30, 1999, our investing
activities used $30.7 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 $4.0 million, and
an increase in long-term other assets of $0.4 million. The capital expenditures
were primarily for computer equipment and software required by our increase in
headcount and furniture and fixtures related to the build-out of our leased
facilities. We expect that capital expenditures will continue to increase to
the extent we continue to increase our headcount, open additional offices,
invest in research and innovation and generally expand our operations.
Additionally, while we currently have no plans to acquire additional
businesses, future investing activities may include the acquisition of
businesses.
During the period from inception through September 30, 1999, our financing
activities provided $36.9 million in cash. Net cash provided by financing
activities during this period resulted from net borrowings on lines of credit
of $15.6 million, proceeds from the issuance of redeemable preferred stock of
$17.8 million, proceeds from the issuance of common stock of $3.4 million and
proceeds from the repayment of subscriptions receivable of $0.1 million.
We believe that the net proceeds from this offering, together with our
existing cash resources and our projected cash flow from operations, will be
sufficient to fund our planned operations for at least the next twelve months.
However, we may require significant additional funds for possible future
acquisitions of businesses, products or technologies complementary to our
business. If additional funds are required, we may raise such funds from time
to time through public or private sales of equity or from borrowings.
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 certain 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
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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 (SOP) 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 certain
capitalization criteria 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
To date, we have not utilized derivative financial instruments or derivative
commodity instruments. We do not expect to employ these or other strategies to
hedge market risk in the foreseeable future. We do invest our cash in money
market funds, which are subject to minimal credit and market risk. We believe
the market risks associated with these financial instruments are immaterial.
Year 2000 Impact
We have not experienced any problems with our computer systems relating to
distinguishing twenty-first century dates from twentieth century dates, which
generally are referred to as year 2000 problems. We are also not aware of any
material year 2000 problems with our clients or vendors. Accordingly, we do not
anticipate incurring material expenses or experiencing any material operational
disruptions as a result of any year 2000 problems.
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BUSINESS
Overview
We provide strategy-led Internet consulting and implementation services to
both dot-com and traditional businesses, enabling them to take competitive
advantage of the Internet. 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 Internet initiatives that offer our clients a
variety of ways to maximize their competitiveness in the Internet economy.
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 had completed
engagements for 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, businesses have
generally engaged professional service providers with not only website design
skills but also strong technology and project management capabilities.
Third Wave. During the late 1990s, while some businesses continued to seek
first and second wave solutions, a third wave began as other businesses started
adopting Internet-based business models in response to the increasing number of
consumers and businesses using the Internet. According to International Data
Corporation, the number of Internet users will grow from 159 million in 1998 to
510 million in 2003, while worldwide e-commerce revenues will increase from
approximately $50 billion to more than $1.3 trillion over the same period. 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." This is the concept that a linear increase in the number of network
users leads to an exponential increase in the value of that network.
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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. 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, these service providers end up implementing discrete business
applications and point solutions instead of strategy-based scalable and
adaptable business solutions.
In addition, 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 underlies all
aspects of the client engagement and 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.
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.
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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.
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 not only
trained in the latest practices and technologies but are leading developers and
thought leaders in these areas. 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.
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 while
experiencing low turnover. 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.
. 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.
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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 partners, 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;
. leverage the standards, benchmarks and approaches that we have developed
so that we can deliver solutions in a rapid, repeatable and efficient
manner; and
. 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
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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.
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.
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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
With twelve information and entertainment magazines,
Publicaciones Semana is the largest publishing
company in Colombia and one of the most influential
publishing groups in Latin America.
[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 constituency 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, web-based editorial process linked to a back-end
content management system. We concurrently identified an opportunity to
leverage the Semana brand into 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 that has become
Colombia's leading portal, LaCiudad.com.
We partnered with Semana to launch LaCiudad.com and Semana.com in a 20-week
timeframe. We are now working with Semana to further enhance the sites'
functionalities 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 extending its business
model to leverage the impact of the Internet. foodline's objective was to
leverage the content from its existing electronic restaurant guide by adding
transaction capability through an online restaurant reservation system.
We began this engagement by conducting a strategic study and analysis of
foodline's Internet vision and business model to help it 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. End users log onto
foodline.com to research dining options according to their preferences and
seating availability, and can confirm 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.
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The Children's Place is a leading specialty retailer of
high quality, value-priced apparel and accessories for
children.
[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
custom-designed technical architecture. 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 a leading technology, dHTML, which
allows for enhanced functionality without any plug-ins, thereby keeping the
site easy to use.
In addition to strong sales performance, 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 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 leading healthcare distribution and
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 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 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 through a
permission-based security model. 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.
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,
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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 our alliance partners.
Clients
During the period from inception (March 18, 1999) through September 30,
1999, we derived approximately 65% of our revenues from services performed for
traditional businesses and approximately 35% from dot-com businesses. During
this period, we completed engagements for approximately 90 clients. Most of our
clients are located in the United States, although we have performed
engagements for international clients.
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 partners. ZEFER 360(degrees)
affords our employees, clients and partners 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
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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 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 and McKinsey & Company;
. traditional IT services 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.
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<PAGE>
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
David A. Lubin*+..... 49 Director
Timothy P. McAdam.... 31 Director
Richard L. Nolan*+... 58 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.
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
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<PAGE>
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.
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.
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.
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.
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<PAGE>
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 serve in the
class whose term expires in 2001, Messrs. Canfield and McAdam 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.
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. Such options, which have a weighted
average exercise price of $2.57 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, Lubin and Nolan. The audit
committee makes recommendations to the board of directors regarding the
selection of independent accountants, reviews the results and scope of the
audit and other services provided by our independent accountants and reviews
and evaluates our audit and control functions. The compensation committee
consists of Messrs. Canfield, Lubin and Nolan. 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 the Named Executive Officers for services performed in 1999. Please
see "--Senior Management Agreements."
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation
----------------
Name and Principal Position Salary Bonus
- --------------------------- -------- -------
<S> <C> <C>
William A. Seibel............................................. $267,921 $80,000
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. Up to
2,500,000 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 incentive plan.
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 certain mergers, liquidations or other acquisition events,
our board of directors may do any or all of the following:
. cause any or all outstanding awards to be exercisable;
. vest all awards;
. accelerate all deferrals;
. make a cash payment to settle the award; or
. provide for the assumption or substitution of all awards with that of
the acquiring or surviving entity.
No ISOs may be granted under this incentive plan after May 21, 2009, but the
vesting and effectiveness of ISOs previously granted may extend beyond that
date. The compensation committee may at any time amend, suspend or terminate
this incentive plan, except that no such amendment will, without the approval
of our stockholders, effectuate a change for which stockholder approval is
required in order for this incentive plan to continue to qualify under Section
422 of the Internal Revenue Code and for awards to be eligible for the
performance-based exception under Section 162(m) of the Internal Revenue Code.
1999 Stock Option Plan. Our 1999 Stock Option Plan was adopted by our board
of directors and approved by our stockholders in June 1999. Up to 2,000,000
shares of common stock, subject to adjustment in the event of stock splits and
other similar events, may be issued pursuant to awards granted under this
option plan. Employees, consultants and advisers of businesses that we acquire
are eligible to receive nonstatutory stock options under this option plan.
Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. The board of
directors or an appointed committee may grant options at an exercise price less
than, equal to or greater than the fair market value of our common stock on the
date of grant, which in no event may be less than the par value of the
underlying stock.
The board of directors has directed the compensation committee to administer
this option plan. The board of directors has the authority to adopt, amend and
repeal the administrative rules, guidelines and practices relating to the plan
and to interpret its provisions. Subject to any applicable limitations
contained in this option plan, this compensation committee:
. selects the recipients of options;
. determines the number of shares of stock subject to each option;
. determines the terms and conditions of each option;
. adopts, amends and rescinds rules and regulations for the administration
of the plan; and
. interprets the plan, decides any questions and settles all controversies
and disputes that may arise in connection with the plan.
In the event of a merger, liquidation or other acquisition event, our board
of directors may do any or all of the following:
. cause any or all outstanding options to be exercisable immediately prior
to the consummation of such transaction;
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<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.
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 directors may
increase Mr. Seibel's base salary in its discretion based upon our achievement
of certain 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, certain 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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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;
. permit us to repurchase only unvested shares of restricted stock if the
executive's employment is terminated by us;
. provide that the rights of repurchase will terminate only upon certain
changes in control;
. provide for a purchase price for repurchased shares equal to the
original purchase price of the stock paid by the executive;
. 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 Mr.
Tjan's shares of restricted stock that have not vested. Mr. Tjan's restricted
stock vests
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<PAGE>
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."
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 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 96.4% 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, the GTCR
Funds will beneficially own % of our common stock. Two of our directors,
Messrs. Canfield and McAdam, are principals 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 $ 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. We may make additional borrowings from
time to time subject to approval of the lender. 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 beginning December 31,
1999. The loan will become due upon the completion of this offering. We intend
to repay the outstanding balance of the loan with net proceeds of this offering
and terminate the loan agreement.
Concurrently with the execution of the loan agreement, we repurchased from
the GTCR Funds 1,650,450 shares of common stock at the issuance price of $0.125
per share and 1,499 shares of class A preferred stock at the issuance price of
$1,000 per share. 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. GTCR Capital Partners, LP exercised
both warrants in full in November 1999.
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 certain financial targets that have not
been met. In the event we engage in any equity or debt financing, other than
this offering and the other GTCR financing arrangements, we must pay GTCR a
placement fee equal to 1% of the aggregate gross proceeds of such financing.
This agreement will terminate upon the consummation of this offering.
Additional Equity Purchases by Management
We have entered into agreements with certain 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
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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 127 127,000
Gerard E. Dube...................... Common 82,256 23,443
A Preferred 109 109,000
Sean W. Mullaney**.................. Common 54,837 6,855
A Preferred 73 73,000
James H. Slamp...................... Common 27,419 7,814
A Preferred 36 36,000
Martha L. Stephens.................. Common 27,419 3,427
A Preferred 36 36,000
Francis J. Torbey................... Common 27,419 3,427
A Preferred 36 36,000
Thomas J. Waite..................... Common 38,160 10,876
A Preferred 51 51,000
Masood Jabbar....................... Common 100,000 1,000,000
David A. Lubin...................... Common 47,771 5,971
A Preferred 63 63,000
Richard L. Nolan.................... Common 27,419 3,427
A Preferred 36 36,000
</TABLE>
- --------
* Carol Boudreau, Mr. Seibel's wife, is the purchaser of record of these
shares.
** An investment partnership in which Mr. Mullaney exercises voting and
investment control is the purchaser of record of these shares.
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 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
shares of class A preferred stock would be exchanged for an aggregate of
shares of common stock, based on an assumed initial public offering price of
$ per share and a liquidation value for all class A preferred stock,
including accrued and unpaid dividends, of $ as of December 31, 1999. In the
event that the underwriters exercise their over-allotment option or in the
event the offering price is in excess of the assumed initial public offering
price or the number of shares offered hereby is increased, we will apply the
additional net proceeds received by us to redeem shares of common stock that
had been 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.
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. 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
41
<PAGE>
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. 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, all of our
directors and executive officers who own our securities and certain other of
our stockholders. 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. With certain exceptions, the
stockholders agreement also provides that each stockholder has the right to
participate in certain 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 certain actions with
respect to certain changes in control of our company. Also, the parties have
agreed to take certain 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 certain 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. The
following table does not give effect to the exchange of shares of class A
preferred stock into shares of common stock upon the closing of this offering.
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 (1)................. 26,640,000 66.8%
William A. Seibel (2)..... 3,135,824 7.9
Gerard E. Dube............ 882,256 2.2
Sean W. Mullaney.......... 474,837 1.2
James H. Slamp............ 427,419 1.1
Martha L. Stephens........ 447,419 1.1
Anthony K. Tjan........... 844,800 2.1
Francis J. Torbey......... 467,419 1.2
Thomas J. Waite........... 301,360 *
Philip A. Canfield (3).... -- --
Masood Jabbar............. 100,000 *
David A. Lubin ........... 447,771 1.1
Timothy P. McAdam (3)..... -- --
Richard L. Nolan ......... 27,419 *
All executive officers and
directors as a group
(13 persons) (3)......... 7,556,524 19.0%
</TABLE>
- ---------------------
* Less than 1%.
(1) GTCR's address is 6100 Sears Tower, Chicago, Illinois 60606.
(2) Includes 95,824 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) Excludes 26,640,000 shares of common stock held by GTCR. Mr. Canfield is a
Principal 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 and McAdam disclaims beneficial ownership of the shares held by
GTCR.
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<PAGE>
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:
. shares of common stock; and
. options to purchase an aggregate of 4,413,443 shares of our common stock
with a weighted average per share exercise price of $1.16.
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 Certain 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. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within the prior three years did own, 15%
or more of the corporation's voting stock.
Our certificate of incorporation divides our board of directors into three
classes with staggered three-year terms. In addition, our certificate of
incorporation provides that directors may be removed only for cause by the
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<PAGE>
affirmative vote of the holders of a majority of our shares of capital stock
entitled to vote. Under our certificate of incorporation, any vacancy on our
board of directors, including a vacancy resulting from an enlargement of our
board of directors, may only be filled by vote of a majority of our directors
then in office. The classification of our board of directors and the
limitations on the removal of directors and filling of vacancies could make it
more difficult for a third party to acquire, or discourage a third party from
seeking to acquire, control of our company. See "Management."
Our by-laws provide that stockholders must follow an advance notification
procedure for stockholder nominations of candidates for the board of directors
and for other stockholder business to be conducted at stockholder meetings. Our
by-laws further provide that special meetings of the stockholders may only be
called by our Chairman of the Board, President or the board of directors. These
provisions could have the effect of delaying until the next stockholder meeting
stockholder actions which are favored by the holders of a majority of our
outstanding voting securities.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our certificate of incorporation and by-laws
require the affirmative vote of the holders of at least /two-thirds of the
shares of our capital stock issued and outstanding and entitled to vote to
amend or repeal any of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains certain 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 certain 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 .
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<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 shares of our common stock
outstanding (assuming no exercise of outstanding options or warrants to
purchase common stock). Of these outstanding shares, the 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 shares of common stock outstanding after this offering
are deemed "restricted securities" under Rule 144. Of these securities,
. shares may be sold 90 days after the effective date of this
offering; and
. additional shares may be sold upon expiration of the 180-day lock-
up agreements described below.
Stockholders holding of record an aggregate of approximately shares of
common stock, including approximately shares held of record by our
executive officers and directors (but excluding shares beneficially held
but not held of record by such officers and directors), on the date of this
prospectus, have agreed that, for a period of 180 days after the date of this
prospectus, they will not sell, consent to sell or otherwise dispose of any
shares of our common stock, or any shares convertible into or exchangeable for
shares of our common stock, owned directly by such persons or with respect to
which they have the power of disposition, without the prior written consent of
Credit Suisse First Boston Corporation, acting on behalf of the representatives
of the underwriters.
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 (approximately
shares immediately after this offering) 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 certain 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 and, beginning 90 days after the
date of this prospectus (subject to the 180-day lock-up agreement described
above), 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 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.
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<PAGE>
Registration Rights
After this offering, the holders of approximately shares of common stock
will be entitled to rights with respect to the registration of those shares
under the Securities Act of 1933. Under the terms of the agreement between us
and the holders of those registrable shares, the holders of a majority of those
shares may at any 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 certain 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.
48
<PAGE>
Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed, absent actual knowledge to the
contrary, to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability
of a tax treaty rate. Under U.S. Treasury regulations generally effective for
payments made after December 31, 2000, however, a non-U.S. holder of our common
stock who wishes to claim the benefit of an applicable treaty rate generally
will be required to satisfy applicable certification and other requirements. In
addition, under these regulations, in the case of our common stock held by a
foreign partnership, the certification requirement will generally be applied to
the partners of the partnership and the partnership will be required to provide
specified information, including a United States taxpayer identification
number. The regulations generally effective for payments made after December
31, 2000 also provide look-through rules for tiered partnerships. Further, the
Internal Revenue Service may issue regulations under which a foreign trustee or
foreign executor of a U.S. or foreign trust or estate, depending on the
circumstances, will be required to furnish the appropriate withholding
certificate on behalf of the beneficiaries, grantor trust or estate, as the
case may be.
A non-U.S. holder of our common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for a refund with the
Internal Revenue Service.
The U.S. Treasury regulations generally effective for payments made after
December 31, 2000 also provide special rules for dividend payments made to
foreign intermediaries, U.S. or foreign wholly owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the United States, the applicable income tax treaty
jurisdiction, or both. In addition, in certain 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 certain 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.
49
<PAGE>
If a non-U.S. holder who is an individual is subject to tax on gain which is
U.S. trade or business income, such individual generally will be taxed on the
net gain derived from a sale of common stock under regular graduated United
States federal income tax rates. If an individual non-U.S. holder is subject to
tax because such individual holds our common stock as a capital asset, is
present in the United States for 183 or more days in the taxable year of the
sale or other disposition and meets other requirements, such individual
generally will be subject to a flat 30% tax on the gain derived from a sale,
which may be offset by United States capital losses, notwithstanding the fact
that such individual is not considered a resident alien of the United States.
Thus, individual non-U.S. holders who have spent (or expect to spend) more than
a de minimis period of time in the United States in the taxable year in which
they contemplate a sale of common stock are urged to consult their tax advisers
prior to the sale concerning the U.S. tax consequences of such sale.
If a non-U.S. holder that is a foreign corporation is subject to tax on gain
which is U.S. trade or business income, it generally will be taxed on its net
gain under regular graduated United States federal income tax rates and, in
addition, will be subject to the branch profits tax equal to 30% of its
"effectively connected earnings and profits," within the meaning of the
Internal Revenue Code for the taxable year, as adjusted for specific items,
unless it qualifies for a lower rate under an applicable tax treaty.
Federal Estate Tax
Common stock owned or treated as owned by an individual who is neither a
United States citizen nor a United States resident, as defined for United
States federal estate tax purposes, at the time of death will be included in
the individual's gross estate for United States federal estate tax purposes,
unless an applicable estate tax or other treaty provides otherwise and,
therefore, may be subject to United States federal estate tax.
Information Reporting and Backup Withholding Tax
Under U.S. Treasury regulations, we must report annually to the Internal
Revenue Service and to each non-U.S. holder the amount of dividends paid to
such holder and the tax withheld with respect to such dividends. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder is
a resident under the provisions of an applicable income tax treaty or
agreement.
Currently, United States backup withholding, which generally is a
withholding tax imposed at the rate of 31% on payments to persons that fail to
furnish specified information under the United States information reporting
requirements, generally will not apply:
. to dividends paid to non-U.S. holders that are subject to the 30%
withholding discussed above, or that are not so subject because a tax
treaty applies that reduces or eliminates such 30% withholding; or
. before January 1, 2001, to dividends paid to a non-U.S. holder at an
address outside of the United States unless the payor has actual
knowledge that the payee is a U.S. holder.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of our common
stock to beneficial owners that are not "exempt recipients" and that fail to
provide identifying information in the manner required.
The payment of the proceeds of the disposition of our common stock by a
holder to or through the U.S. office of a broker or through a non-U.S. branch
of a U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
non-U.S. holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a non-U.S. holder
of common stock to or through a non-U.S. office of a non-U.S. broker will not
be subject to backup withholding or information reporting unless the non-U.S.
broker has particular types of U.S. relationships. In the case of the payment
of proceeds from the disposition of our common stock effected by a foreign
office of a broker that is a U.S. person or a U.S. related person, existing
regulations require
50
<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.
51
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, First Union Securities,
Inc. and FleetBoston Robertson Stephens Inc. are acting as representatives, the
following respective numbers of shares of our common stock:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation...........................
First Union Securities, Inc. ....................................
FleetBoston Robertson Stephens Inc. .............................
----
Total..........................................................
====
</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 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.. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the common stock being offered.
We, our officers and directors and substantially all of our existing
stockholders and option holders have agreed not to offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, or file with the
SEC a registration statement under the Securities Act relating to, any
additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock, or enter into a
transaction that would have the same effect, or publicly disclose the intention
to make any such offer, sale, pledge, disposition or filing, without the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus, except in our case for issuances
pursuant to the exercise of employee stock options, employee stock purchases
pursuant to the terms of any plan in effect on the date of this prospectus or
the issuance of shares pursuant to the exercise of any warrants outstanding on
the date of this prospectus.
52
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for our employees, directors and
certain 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 certain liabilities
under the Securities Act of 1933, 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.
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.
53
<PAGE>
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.
54
<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 September 30, 1999 and for
the period from inception (March 18, 1999) to September 30, 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 nine months ended September 30,
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.
55
<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.
56
<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-23
Balance Sheets........................................................... F-24
Statements of Income..................................................... F-25
Statements of Members' Equity............................................ F-25
Statements of Cash Flows................................................. F-26
Notes to Financial Statements............................................ F-27
THE DIVISIONS OF RENAISSANCE:
Report of Independent Public Accountants................................. F-30
Combined Balance Sheets.................................................. F-31
Combined Statements of Operations and Parent Company Equity (Deficit).... F-32
Combined Statements of Cash Flows........................................ F-33
Notes to Combined Financial Statements................................... F-34
NEOGLYPHICS MEDIA CORPORATION:
Report of Independent Accountants........................................ F-38
Statement of Financial Position.......................................... F-39
Statements of Income..................................................... F-40
Statements of Cash Flows................................................. F-41
Notes to Financial Statements............................................ F-42
WAITE & COMPANY, INC.:
Report of Independent Public Accountants................................. F-49
Balance Sheets........................................................... F-50
Statements of Operations................................................. F-51
Statements of Stockholders' Equity....................................... F-51
Statements of Cash Flows................................................. F-52
Notes to Financial Statements............................................ F-53
INDEX TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
ZEFER CORP.:
Reports of Independent Public Accountants................................ F-56
Overview................................................................. F-58
Pro Forma Combined Condensed Statement of Operations for the nine months
ended
September 30, 1999...................................................... F-60
Notes to Pro Forma Combined Condensed Financial Statements............... F-61
Pro Forma Combined Condensed Statement of Operations for the year ended
December 31, 1998....................................................... F-62
Notes to Pro Forma Combined Condensed Financial Statements............... F-63
</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 September 30, 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 September 30, 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 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 ZEFER Corp. as of September
30, 1999, and the results of its operations and its cash flows for the period
from inception (March 18, 1999) through September 30, 1999, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 30, 1999
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 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 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 generally
accepted accounting principles.
/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, September 30,
1998 1999 1999
------------ ---------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............ $ 538,917 $ 143,490 $ 520,946
Accounts receivable, net............. 121,993 577,505 10,104,140
Prepaid expenses and other current
assets.............................. 6,510 -- 885,886
---------- ---------- -----------
Total current assets............... 667,420 720,995 11,510,972
Property and Equipment, net (note 2)... 342,518 391,292 5,041,041
Intangible Assets, net................. -- -- 28,511,587
Other Assets........................... 16,500 23,563 432,000
---------- ---------- -----------
$1,026,438 $1,135,850 $45,495,600
========== ========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current Liabilities:
Lines of credit...................... $ -- $ -- $15,820,000
Accounts payable..................... 121,897 215,249 2,688,328
Accrued expenses..................... 29,125 1,014,860 8,062,099
Deferred revenue..................... 46,805 344,763 707,620
Current portion of notes payable..... -- -- 680,000
Current portion of capital lease
obligations......................... 83,582 139,792 275,851
---------- ---------- -----------
Total current liabilities.......... 281,409 1,714,664 28,233,898
Notes Payable, net of current portion.. -- -- 2,300,000
Capital Lease Obligations, net of
current portion....................... 153,551 148,785 490,305
Commitments (Note 9)
Redeemable Preferred Stock (Note 10)... -- -- 18,671,859
Redeemable Convertible Preferred Stock
(Note 12)............................. 1,200,000 1,200,000 --
Stockholders' Deficit:
Common stock (Notes 10 and 12)....... 474 571 39,745
Additional paid-in capital........... -- 1,122,659 5,629,809
Subscriptions receivable............. -- -- (1,333,484)
Deferred compensation................ -- -- (146,025)
Accumulated deficit.................. (608,996) (3,050,829) (8,390,507)
---------- ---------- -----------
Total stockholders' deficit........ (608,522) (1,927,599) (4,200,462)
---------- ---------- -----------
$1,026,438 $1,135,850 $45,495,600
========== ========== ===========
</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 September 30,
1998 April 30, 1999 1999
------------- -------------- -------------
<S> <C> <C> <C>
Revenues........................... $ 620,733 $ 491,141 $11,973,439
Operating Expenses:
Cost of services................. 469,147 589,140 7,222,478
Hiring and training.............. -- -- 1,553,619
Research and innovation.......... -- -- 534,099
Sales and marketing.............. 140,310 124,540 2,133,497
General and administrative....... 518,191 1,983,447 8,133,177
Depreciation and amortization.... 54,706 55,839 5,392,320
--------- ----------- -----------
Total operating expenses....... 1,182,354 2,752,966 24,969,190
--------- ----------- -----------
Loss from operations........... (561,621) (2,261,825) (12,995,751)
Interest Income.................... 11,502 6,858 20,488
Interest Expense................... (5,058) -- (1,169,799)
Other Expense, net................. -- (25,510) (5,845)
--------- ----------- -----------
Loss before taxes.............. (555,177) (2,280,477) (14,150,907)
Benefit from Income Taxes.......... -- -- 5,760,400
--------- ----------- -----------
Net loss....................... $(555,177) $(2,280,477) $(8,390,507)
========= =========== ===========
Basic and Diluted Net Loss per
Share............................. $ (0.34)
===========
Basic and Diluted Weighted Average
Shares Outstanding................ 25,032,108
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ZEFER CORP.
STATEMENT 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 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.......... 17,695 17,695,000 -- -- -- -- -- -- --
Issuance of
common stock
and redeemable
preferred stock
to management.. 448 448,000 8,568,155 8,568 1,299,846 (1,504,525) (148,500) -- (344,611)
Issuance of
common stock
for
professional
services....... -- -- 81,124 81 10,059 -- -- -- 10,140
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.......... -- 528,859 -- -- -- -- -- -- --
Repayment of
subscriptions
receivable..... -- -- -- -- -- 171,041 -- -- 171,041
Amortization of
deferred
compensation... -- -- -- -- -- -- 2,475 -- 2,475
Net loss........ -- -- -- -- -- -- -- (8,390,507) (8,390,507)
------ ----------- ---------- ------- ---------- ----------- --------- ----------- -----------
Balance,
September 30,
1999 (The
Company)........ 18,143 $18,671,859 39,745,279 $39,745 $5,629,809 $(1,333,484) $(146,025) $(8,390,507) $(4,200,462)
====== =========== ========== ======= ========== =========== ========= =========== ===========
</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 September 30,
1998 April 30, 1999 1999
------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................... $ (555,177) $(2,280,477) $ (8,390,507)
Adjustments to reconcile net loss
to net cash used in operating
activities--
Depreciation and amortization..... 54,706 55,839 5,392,320
Stock-based compensation.......... -- 961,317 2,475
Deferred tax benefit.............. -- -- (5,760,400)
Interest expense associated with
beneficial conversion feature.... -- -- 400,000
Accretion of dividends on
redeemable preferred stock....... -- -- 528,859
Common stock issued for services.. -- -- 10,140
Gain on sale of property and
equipment........................ 6,282 -- --
Changes in current assets and
liabilities--
Accounts receivable.............. (121,993) (455,512) (3,129,702)
Prepaid expenses and other
current assets.................. (6,510) 6,510 (755,422)
Accounts payable................. 121,897 93,339 2,182,492
Accrued expenses................. 29,125 985,735 3,614,694
Deferred revenue................. 46,805 297,958 250,238
---------- ----------- ------------
Net cash used in operating
activities...................... (424,865) (335,291) (5,654,813)
---------- ----------- ------------
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) (4,005,265)
Proceeds from sales of property and
equipment......................... 81,848 -- --
Increase in other assets........... (16,500) (7,063) (432,000)
---------- ----------- ------------
Net cash used in investing
activities...................... (58,963) (9,619) (30,705,355)
---------- ----------- ------------
Cash flows from financing
activities:
Net borrowings on line of credit... -- -- 15,620,000
Proceeds from issuance of
redeemable preferred stock........ 1,146,181 -- 17,767,000
Proceeds from issuance of common
stock............................. 474 97 3,361,389
Principal payments on capital lease
obligations....................... (35,780) (50,614) (38,316)
Purchase of equipment under
financing agreement............... (88,130) -- --
Repayment of subscriptions
receivable........................ -- -- 171,041
---------- ----------- ------------
Net cash provided by (used in)
financing activities............ 1,022,745 (50,517) 36,881,114
---------- ----------- ------------
Increase (decrease) in cash and cash
equivalents........................ 538,917 (395,427) 520,946
Cash and cash equivalents, beginning
of period.......................... -- 538,917 --
---------- ----------- ------------
Cash and cash equivalents, end of
period............................. $ 538,917 $ 143,490 $ 520,946
========== =========== ============
Supplemental cash flow information:
Cash paid for interest............ $ 5,058 $ 25,210 $ 163,358
========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS
September 30, 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 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 September 30, 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-based
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. 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 September 30,
1999, the Company has a provision for estimated losses of $471,249 related to
uncompleted contracts. Included in accounts receivable at September 30, 1999
are amounts which have not yet been billed totaling approximately $2,223,000.
Billings received in advance of services performed are classified as deferred
revenue.
F-7
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 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 and short-term commercial paper that are subject to minimal
credit and market risks.
(e) 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 September 30, 1999, the Company
recorded revenues from one customer who represented 12% 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 September 30, 1999, the Company had accounts receivable from one customer
who represented 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.
(f) Fair Value of Financial Instruments The financial instruments of the
Company, including cash and cash equivalents, accounts receivable, accounts
payable, line-of-credit obligations and notes payable, are carried at cost,
which approximates their fair value because of the short-term nature of these
instruments.
(g) 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 life of the related lease for equipment under
capital lease and leasehold improvements.
(h) Long-Lived Assets The Company reviews its long-lived assets, including
goodwill and other intangible assets, for impairment as events and
circumstances indicate the carrying amount of an asset may not be recoverable.
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 September 30, 1999, none of the Company's long-lived
assets was impaired.
(i) 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.
F-8
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(j) 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.
(k) 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 weighted average shares outstanding excludes 7,884,667 shares of unvested
restricted common stock (see Note 10(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. 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).
(l) Pro Forma Net Loss per Share (Unaudited) The Company's historical
capital structure at September 30, 1999 is not indicative of its capital
structure prior to the closing of the IPO due to the automatic exchange of all
shares of 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 September 30, 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 issued in
the IPO.
(m) 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.
(n) 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 maker is a combination 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, respectively.
F-9
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
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 September 30,
1999, respectively:
<TABLE>
<CAPTION>
Original ZEFER The Company
--------------------------------------- ----------------------
December 31, 1998 April 30, 1999 September 30, 1999
------------------- ------------------- ----------------------
Percent of Percent of Percent of
Country Revenue Revenue Revenue Revenue Revenue Revenue
------- -------- ---------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Canada.................. $432,537 70% $491,141 100% $ -- -- %
United States........... 188,196 30 -- -- 11,070,296 92
Other................... -- -- -- -- 903,143 8
-------- --- -------- --- ----------- ---
$620,733 100% $491,141 100% $11,973,439 100%
======== === ======== === =========== ===
</TABLE>
(o) 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.
(p) 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-10
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(q) 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, September 30,
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............................. $ -- $ -- $ 148,500
======== ========== ============
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-11
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(2) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Original ZEFER The Company
----------------------- -------------
December 31, April 30, September 30,
1998 1999 1999
------------ ---------- -------------
<S> <C> <C> <C>
Computer equipment and software...... $ 11,632 $ 13,606 $4,196,103
Equipment under capital leases....... 236,195 338,252 591,380
Furniture and fixtures............... 36,718 36,401 846,031
Leasehold improvements............... 112,679 113,578 305,380
Construction in progress............. -- -- 233,334
-------- ---------- ----------
397,224 501,837 6,172,228
Less--Accumulated depreciation and
amortization........................ 54,706 110,545 1,131,187
-------- ---------- ----------
$342,518 $ 391,292 $5,041,041
======== ========== ==========
(3) Accrued Expenses
Accrued expenses consist of the following:
<CAPTION>
Original ZEFER The Company
----------------------- -------------
December 31, April 30, September 30,
1998 1999 1999
------------ ---------- -------------
<S> <C> <C> <C>
Accrued employee costs............... $ -- $ 96,687 $4,629,043
Accrued loss contracts............... -- 369,547 471,249
Professional fees and transaction
costs............................... 9,000 41,500 1,197,324
Software license fees................ -- -- 405,000
Other................................ 20,125 507,126 1,359,483
-------- ---------- ----------
$ 29,125 $1,014,860 $8,062,099
======== ========== ==========
</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, 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 common stock, 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 and approximately
$8,034,000 in cash.
F-12
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 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 recognized 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>
Divisions
Original 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
agreements............. 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 September 30, 1999, the Company
has recorded accumulated amortization related to its intangible assets of
$4,261,134.
(e) Pro Forma Disclosures (Unaudited) The following unaudited pro forma
consolidated amounts for the period from inception through September 30, 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 September 30, 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.................................................... $16,180,266
Net loss.................................................... (9,678,194)
Basic and diluted net loss per share........................ (0.38)
</TABLE>
(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
F-13
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
67.0% of the outstanding common stock of the Company. 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 September 30, 1999, no amounts
have been payable under the management fee arrangement. This management fee
agreement terminates upon the consummation of an IPO.
(6) Income Taxes
At September 30, 1999, the Company had approximately $9,947,000 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 September 30, 1999, the Company has
incurred losses before benefit from income taxes of approximately $14,151,000,
which is the primary component of the Company's deferred tax asset at September
30, 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 the full amount of the current
period net operating losses as an offset to this deferred tax liability.
F-14
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 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, September 30,
1998 1999 1999
------------ --------- -------------
<S> <C> <C> <C>
Deferred tax assets (liabilities)--
Net operating loss carryforwards... $ 222,000 $ 883,000 $ 3,976,000
Intangible assets--Temporary
differences....................... -- -- 599,000
Nondeductible accruals and
reserves.......................... -- -- 827,000
Less--Valuation allowance.......... (222,000) (883,000) --
--------- --------- -----------
-- -- 5,402,000
Intangible assets--Basis
differences....................... -- -- (5,402,000)
--------- --------- -----------
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 September 30, 1999, is as
follows:
<TABLE>
<CAPTION>
Original ZEFER The Company
---------------------- -------------
December 31, April 30, September 30,
1998 1999 1999
------------ --------- -------------
<S> <C> <C> <C>
Federal statutory rate................. (34)% (34)% (34)%
State taxes............................ (6) (6) (6)
Nondeductible amortization............. -- -- 5
Increase in valuation allowance........ 40 40 --
Reduction in deferred tax liability.... -- -- (3)
Other.................................. -- -- (3)
--- --- ---
Effective rate....................... -- % -- % (41)%
=== === ===
</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 Line) with a bank. Borrowings
on the Line accrue interest at the prime lending rate (8.5% at September 30,
1999) and interest is payable monthly. All borrowings under the line are
guaranteed by GTCR. The Line expires in December 1999. At September 30, 1999,
the Company had $15,670,000 outstanding under the 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 of credit
expires December 15, 1999 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-15
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
In connection with the acquisition of Original ZEFER by the Company, the
Company assumed the Revolving Line. At September 30, 1999, the Company was not
in compliance with either of its financial covenants and was in receipt of a
waiver from the bank. At September 30, 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
September 30, 1999, the Company had $237,133, $288,577 and $459,570,
respectively, outstanding under the Equipment Line, which are classified as
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 (5.4%
at September 30, 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>
Twelve Months Ending September 30,
2000........................................................... $ 680,000
2001........................................................... 1,800,000
2002........................................................... 500,000
----------
$2,980,000
==========
</TABLE>
F-16
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(9) Commitments
(a) Leases Future minimum lease payments under noncancelable operating and
capital leases at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
Twelve Months Ending September 30,
2000.................................................. $350,813 $1,206,000
2001.................................................. 291,655 685,000
2002.................................................. 145,625 599,000
2003.................................................. 71,991 580,000
2004.................................................. 43,055 522,000
-------- ----------
Total minimum lease payments........................ 903,139 $3,592,000
==========
Less--Amount representing interest...................... 136,983
--------
Present value of capital lease obligations.......... 766,156
Less--Current portion................................... 275,851
--------
Capital lease obligations, net of current portion... $490,305
========
</TABLE>
(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.
(10) Capital Stock
(a) Redeemable Preferred Stock As of September 30, 1999, the Company has
authorized a total of 96,632 shares of Class A redeemable preferred stock
(Class A Preferred Stock), of which 18,143 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.
F-17
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
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 is generally occurs over a four-year period from the issuance date until
vesting is complete.
(c) GTCR Investment On March 23, 1999, the Company entered into a stock
purchase agreement with GTCR whereby GTCR would provide up to $100,000,000 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. Under the agreement, upon the approval of the
Board and at the request of GTCR, GTCR may purchase up to 30,400,000 shares of
common stock at a price of $0.13 per share and up to 96,200 shares of Class A
Preferred Stock at a price of $1,000 per share. Through September 30, 1999,
GTCR has provided equity financing in the amount of $21,025,000, consisting of
26,640,000 shares of common stock and 17,695 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.
(d) Restricted Common Stock At various dates from the period of inception
(March 18, 1999) through September 30, 1999, the Company entered into
restricted common stock agreements with members of management and senior
management under which a total of 9,305,467 shares of common stock were issued
at prices ranging from $0.13 to $0.29 per share. The restricted common stock
vests on various dates over a period of five years; vesting accelerates
partially upon an IPO and fully upon the sale or liquidation of the Company, as
defined. If an employee terminates their employment prior to vesting, the
Company has the option to repurchase the stock at its original purchase price.
As consideration for the restricted common stock, the employees paid cash
and executed promissory notes payable to the Company in the amount of $957,073
(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 $100,000,000.
(e) Sales to Management During the period from inception (March 18, 1999)
through September 30, 1999, the Company sold 683,488 shares of common stock to
management at prices ranging from $0.13 to $0.29 per share and 448 shares of
Class A Preferred Stock at a price of $1,000 per share for total proceeds of
$559,713. As consideration for the unrestricted common and preferred stock, the
employees paid $103,257 in cash and issued promissory notes payable to the
Company in the amount of $456,456, which has been classified as subscriptions
receivable in the accompanying financial statements.
F-18
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(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,
the Company issued 1,266,667 shares at a price below the then current fair
market value, as determined by the Board of Directors and/or an appraisal by an
independent third party, resulting in deferred compensation of $148,500 that
will be charged to operations over the vesting term of the related restricted
common stock.
(11) Stock Options
(a) Equity Incentive Plans In June 1999, the Company adopted the 1999
Acquisition Stock Option Plan (the Acquisition 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 of Directors of the Company (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 Acquisition 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 2,000,000 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
Acquisition Plan and the Incentive Plan through September 30, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Options Price Price
--------- ----------- --------
<S> <C> <C> <C>
Granted...................................... 3,848,932 $0.75-$2.25 $0.78
Exercised.................................... --
Canceled..................................... (231,125) 0.75 0.75
--------- ----------- -----
Outstanding, September 30, 1999.............. 3,617,807 $0.75-$2.25 $0.78
========= =========== =====
Exercisable, September 30, 1999.............. -- $ -- $ --
========= =========== =====
</TABLE>
F-19
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
The following table summarizes information regarding the Company's stock
options outstanding and exercisable at September 30, 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 3,456,747 9.7 $0.75 -- $ --
1.50 161,060 9.9 1.50 -- --
--------- ----- --------- ----------
3,617,807 $0.78 -- $ --
========= ===== ========= ==========
</TABLE>
(b) Fair Value Disclosures The Company applies the measurement principles of
APB Opinion No. 25 in accounting for issuances of employee stock options and
SFAS No. 123 for all other stock options. Had compensation expense for employee
stock options granted been determined based on the fair value at the date of
grant as prescribed by SFAS No. 123, the net loss and net loss per share for
the period from inception through December 31, 1998, the four months ended
April 30, 1999 and the period from inception through September 30, 1999,
respectively, would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Original ZEFER The Company
------------------------ -------------
December 31, April 30, September 30,
1998 1999 1999
------------ ----------- -------------
<S> <C> <C> <C>
Net loss--
As reported...................... $(555,177) $(2,280,477) $(8,390,507)
========= =========== ===========
Pro forma........................ $(555,631) $(2,280,931) $(8,475,555)
========= =========== ===========
Basic and diluted net loss per
share--
As reported...................... $ (0.34)
===========
Pro forma........................ $ (0.40)
===========
</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, September 30,
1998 1999 1999
------------ --------- -------------
<S> <C> <C> <C>
Risk-free interest rates................ 5.61% 5.61% 6.12%
Expected lives (in years)............... 5 5 5
Dividend yield.......................... -- -- --
Expected volatility..................... -- -- 70%
</TABLE>
Based on these assumptions, the minimum fair value of options granted in the
periods indicated above was $2,272, $0 and $1,999,807, respectively. No options
were granted by original ZEFER in the four months ended April 30, 1999. Because
the determination of fair value of all options granted after such times as the
Company becomes a public entity will include an expected volatility factor in
addition to the factors described in the preceding paragraph, the above results
may not be representative of future periods.
F-20
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(12) Authorized Capital Stock--Original ZEFER
(a) Redeemable Convertible Preferred Stock Original ZEFER had authorized a
total of 20,000 shares of redeemable convertible preferred stock, of which
12,000 shares were designated Series A and 8,000 shares were designated Series
B. At December 31, 1998 and April 30, 1999, 12,000 shares of Series A were
issued and outstanding with an aggregate liquidation value of $1,200,000, and
no shares of Series B were issued or outstanding. The Series A was convertible
to Class B common stock of Original ZEFER on a one-for-one basis and had voting
rights. The Series A was entitled to receive quarterly dividends of $1.50 per
share, whether or not declared by the Board of Directors. The Series A was
redeemable on or before March 25, 2003.
(b) Common Stock Original ZEFER had authorized 168,000 shares of $.01 par
value common stock, of which 47,400 and 57,501 shares were issued and
outstanding at December 31, 1998 and April 30, 1999, respectively. All shares
of Original ZEFER common stock were subject to stock restriction agreements
whereby Original ZEFER could repurchase unvested shares of common stock for the
original purchase price of $.01 per share in the event of termination of
employment by the holder. At December 31, 1998 and April 30, 1999, 31,300
shares of common stock were vested.
In connection with the acquisition of Original ZEFER by the Company on April
30, 1999, all outstanding shares of Series A redeemable convertible preferred
stock and common stock were exchanged for the purchase consideration described
in Note 1 to the financial statements.
(13) 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 pre-tax 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.
(14) 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
September 30, 1999
(the Company)................... $ -- $278,208 $ -- $278,208
===== ======== ===== ========
</TABLE>
F-21
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(15) Subordinated Debt Financing
On November 24, 1999, the Company entered into a loan agreement with GTCR
Capital Partners, LP, 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.
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, we repurchased from GTCR 1,237,804
shares of common stock at the issuance price of $0.16 per share and 1,499
shares of class A preferred stock at the issuance price of $1,000 per share.
Simultaneously we then issued to GTCR Capital Partners, LP, the lender, a
warrant to purchase 1,237,804 shares of common stock and a warrant to purchase
1,499 shares of class A preferred stock. GTCR Capital Partners, LP exercised
both warrants in full in November 1999.
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.
F-22
<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 corporation) 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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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 31, 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 31, 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 31, 1999, and the results of its operations and cash
flows for the three months ended March 31, 1998, the nine months ended December
31, 1998, and the five months ended May 31, 1999, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 19, 1999
F-30
<PAGE>
DIVISIONS OF RENAISSANCE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, May 31,
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 31, 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-31
<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 31,
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-32
<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 31,
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-33
<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 31, 1999, cash equivalents consisted of money market
accounts and commercial paper that are readily convertible to cash.
F-34
<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 31, 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 31, 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 31, 1999, substantially all of the Company's operations and
assets have been derived from and are located in the U.S.
F-35
<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 31,
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 31, 1999) plus 1%. The
note matured on June 30, 1999. As of December 31, 1998 and May 31, 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 31, 1999) plus 1%. As of December 31,
1998 and May 31, 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 31, 1999, and extend
through 2002.
F-36
<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
31, 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-37
<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
March 12, 1998
F-38
<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-39
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
STATEMENTS 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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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-56
<PAGE>
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 nine months ended
September 30, 1999. The historical condensed financial statements for the nine
month period ended September 30, 1999 have been derived from the historical
financial statements of ZEFER Corp. (the Company) for the period from inception
(March 18, 1999) through September 30, 1999, Original ZEFER for the four months
ended April 30, 1999 and the Divisions of Renaissance for the five months ended
May 31, 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 nine months ended September
30, 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
nine months ended September 30, 1999.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 30, 1999
F-57
<PAGE>
ZEFER CORP.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
OVERVIEW:
ZEFER Corp., formerly ZEFER Acquisition Corporation (the Company), was
incorporated in Delaware on March 18, 1999. The Company provides integrated
Internet e-business solutions to its customers. 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 $100 million
to fund the Company's acquisitions.
On April 30, 1999, the Company acquired all the stock of ZEFER Corporation
(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 payable to the Spyplane founders. The note payable
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).
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
F-58
<PAGE>
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 nine
months ended September 30, 1999 combines the historical statements of
operations of (i) the Company for the period from inception (March 18, 1999)
through September 30, 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 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 and interest expense, as described in notes to
pro forma combined condensed statements of operations. The unaudited pro forma
combined condensed statements of operations do not purport to be indicative of
the results which would have been reported had the acquisitions been
consummated at this date, nor do they purport to be indicative of the results
of operations which may be expected in the future. These unaudited pro forma
combined condensed financial statements should be read in conjunction with the
audited financial statements and notes thereto of the Company, Original ZEFER,
the Divisions of Renaissance, Spyplane and Waite.
F-59
<PAGE>
ZEFER CORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Original Divisions of Subtotal Pro Forma Combined
ZEFER Renaissance Predecessor Spyplane Waite Adjustments Company
--------- ------------ ----------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 620,733 $13,798,329 $14,419,062 $314,675 $3,250,500 $ -- $ 17,984,237
Operating Expenses:
Cost of services....... 469,147 10,055,996 10,525,143 66,066 1,686,759 -- 12,277,908
Hiring and training.... 7,441 195,676 203,117 -- 13,606 -- 216,723
Research and
innovation............ -- -- -- -- -- -- --
Sales and marketing.... 140,310 4,125,725 4,266,035 8,437 128,155 -- 4,402,627
General and
administrative........ 510,749 2,843,090 3,353,839 28,657 417,291 -- 3,799,787
Depreciation and
amortization.......... 54,706 340,553 395,259 4,868 31,782 14,728,264 (1) 15,160,173
--------- ----------- ----------- -------- ---------- ------------ ------------
Total operating
expenses.............. 1,182,353 17,561,040 18,743,393 108,028 2,277,593 14,728,264 35,857,218
--------- ----------- ----------- -------- ---------- ------------ ------------
Income (loss) from
operations............ (561,620) (3,762,711) (4,324,331) 206,707 972,907 (14,728,264) (17,872,981)
Interest and Other
Income (Expense), Net.. 6,444 (431,534) (425,090) (76) 20,723 (2,204,720)(2)(3) (2,609,163)
--------- ----------- ----------- -------- ---------- ------------ ------------
Net income (loss)...... $(555,176) $(4,194,245) $(4,749,421) $206,631 $ 993,630 $(16,932,984) $(20,482,144)
========= =========== =========== ======== ========== ============ ============
PRO FORMA NET LOSS PER
SHARE:
Net loss per common and
common equivalent
share................. $ (6.10)
============
Shares used to compute
pro forma net loss per
share (4)............. 3,035,200
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-60
<PAGE>
ZEFER CORP.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 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 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:
Original ZEFER................................................... 2,611,200
Spyplane......................................................... --
Divisions of Renaissance......................................... 400,000
Waite............................................................ 24,000
---------
Pro forma weighted average shares outstanding...................... 3,035,200
=========
</TABLE>
F-61
<PAGE>
ZEFER CORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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................ $ 11,973,439 $ 491,141 $ 3,886,424 $523,653 $2,905,889 $ -- $ 19,780,546
Operating Expenses:
Cost of services....... 7,222,478 589,140 4,781,116 420,089 1,540,315 -- 14,553,138
Hiring and training.... 1,553,619 9,958 237,529 -- 53,578 -- 1,854,684
Research and
innovation............ 534,099 -- -- -- -- -- 534,099
Sales and marketing.... 2,133,497 124,540 1,012,552 29,502 84,680 -- 3,384,771
General and
administrative........ 8,133,177 1,973,489 2,383,751 118,502 584,600 -- 13,193,519
Depreciation and
amortization.......... 5,392,320 55,839 189,665 11,728 43,163 6,925,928 12,618,643
------------ ----------- ----------- -------- ---------- ----------- ------------
Total operating
expenses.............. 24,969,190 2,752,966 8,604,613 579,821 2,306,336 6,925,928 46,138,854
------------ ----------- ----------- -------- ---------- ----------- ------------
Income (loss) from
operations............ (12,995,751) (2,261,825) (4,718,189) (56,168) 599,553 (6,925,928) (26,358,308)
Interest And Other
Income (Expense), Net.. (1,155,156) (18,652) (324,528) (431) 18,082 (1,034,913)(2)(3) (2,515,598)
------------ ----------- ----------- -------- ---------- ----------- ------------
Income (loss) before
taxes................. (14,150,907) (2,280,477) (5,042,717) (56,599) 617,635 (7,960,842) (28,873,907)
Benefit From Income
Taxes.................. (5,760,400) -- -- -- -- -- (5,760,400)
------------ ----------- ----------- -------- ---------- ----------- ------------
Net income (loss)...... $ (8,390,507) $(2,280,477) $(5,042,717) $(56,599) $ 617,635 $(7,960,842) $(23,113,507)
============ =========== =========== ======== ========== =========== ============
Pro Forma Net Loss Per
Share:
Net loss per common and
common equivalent
share................. $ (0.34) $ (0.90)
============ ============
Shares used to compute
pro forma net loss per
share (4)............. 25,032,108 25,711,697
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-62
<PAGE>
ZEFER CORP.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 nine months ended September 30, 1999 and reflects the following pro forma
adjustments:
(1) Record nine 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 nine
months ended September 30, 1999 reflects the incremental effect of shares
we issued in connection with the acquisitions we made in 1999 as if all
those shares had been issued as of January 1, 1999, as follows:
<TABLE>
<S> <C>
Historical weighted average shares outstanding.................... 25,032,108
Incremental weighted average shares outstanding:
Original ZEFER.................................................. 519,506
Spyplane........................................................ --
Divisions of Renaissance........................................ 138,220
Waite........................................................... 21,864
----------
Pro forma weighted average shares outstanding..................... 25,711,697
==========
</TABLE>
F-63
<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 for an aggregate purchase price
of $3,330,000 and an aggregate of 24,195 shares of our class A
preferred stock 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 restricted common stock 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
restricted common stock 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 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.
5. In May 1999, we issued an aggregate of 200,000 shares of common
stock 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.
II-2
<PAGE>
6. In May 1999, we issued an aggregate of 3,526,000 shares of
restricted common stock to members of our management team for an
aggregate purchase price of $440,750.
7. From May 1999 through November 1999, we issued an aggregate of
683,489 shares of unrestricted common stock for an aggregate purchase
price of $111,713 and an aggregate of 905 shares of our class A
preferred stock for an aggregate purchase price of $905,000 to members
of our management team.
8. In May 1999, we issued an aggregate of 400,000 shares of common
stock to Renaissance in connection with our acquisition of certain of
its divisions pursuant to an Asset Purchase Agreement.
9. In August and September 1999, we issued an aggregate of 1,318,667
shares of restricted common stock to members of our management team for
an aggregate purchase price of $225,153.
10. In September 1999, we issued an aggregate of 400,000 shares of
restricted common stock to the former stockholders of Waite & Company
in connection with the acquisition of all of its outstanding stock
pursuant to a Stock Purchase Agreement.
11. In December 1999, we issued an aggregate of 9,000 shares of
restricted common stock to members of our management team for an
aggregate purchase price of $33,750.
12. 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 November 30, 1999, we issued
options under our 1999 stock option plan and 1999 incentive plan to
purchase an aggregate of 4,413,443 shares of common stock at a weighted
average exercise price of $1.16 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.
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).
27 Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because the
required information is given in the Registrant's consolidated financial
statements or notes to those statements.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the provisions contained in our Certificate of Incorporation and the laws of
the State of Delaware, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of us in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein and this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Registration Statement to be signed on our behalf by the
undersigned, thereunto duly authorized, in Boston, Massachusetts, on this 7th
day of January, 2000.
ZEFER CORP.
/s/ William A. Seibel
By: _________________________________
William A. Seibel
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and 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 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 officers and 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).
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
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, January 7, 2000
______________________________________ President, Chief
William A. Seibel Executive Officer and
Director
/s/ James H. Slamp Executive Vice President, January 7, 2000
______________________________________ Chief Financial Officer
James H. Slamp and Treasurer (Principal
Financial and Accounting
Officer)
/s/ Philip A. Canfield Director January 7, 2000
______________________________________
Philip A. Canfield
/s/ Masood Jabbar Director January 7, 2000
______________________________________
Masood Jabbar
/s/ David A. Lubin Director January 7, 2000
______________________________________
David A. Lubin
/s/ Timothy P. McAdam Director January 7, 2000
______________________________________
Timothy P. McAdam
/s/ Richard L. Nolan Director January 7, 2000
______________________________________
Richard L. Nolan
/s/ Anthony K. Tjan Director January 7, 2000
______________________________________
Anthony K. Tjan
</TABLE>
II-8
<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.
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).
27 Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 2.1
Execution Copy
--------------
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT (this "Agreement") is made as of March 23,
---------
1999, between ZC Acquisition Corp., a Delaware corporation (the "Company"), 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"). GTCR
---------------
Fund VI, Executive Fund and Associates Fund are collectively referred to herein
as the "Purchasers" and individually as a "Purchaser." Except as otherwise
---------- ---------
indicated herein, capitalized terms used herein are defined in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
-------------------------
1A. Authorization of the Stock. The Company shall authorize the
--------------------------
issuance and sale to the Purchasers of up to 96,200 shares of its Class A
Preferred Stock, par value $.01 per share (the "Class A Preferred"), and up to
-----------------
7,600,000 shares of its Common Stock, par value $.01 per share (the "Common
------
Stock"), each having the rights and preferences set forth in Exhibit A attached
- ----- ---------
hereto. The Class A Preferred and the Common Stock are collectively referred to
herein as the "Stock."
-----
1B. Purchase and Sale of the Stock.
------------------------------
(a) At the Closing (as defined in Section 1C below), the Company
shall sell to the Purchasers and, subject to the terms and conditions set forth
herein, the Purchasers shall purchase from the Company, 1,000,000 shares of
Common Stock at a price of $.50 per share. Each Purchaser shall purchase the
percentage of such shares set forth next to such Purchaser's name on the
signature pages attached hereto.
(b) The Company has been organized for the purpose of owning and
operating a business in the electronic commerce consulting and implementation
industry by means of first acquiring an existing business or businesses
satisfactory to the Purchasers and thereafter from time to time making
additional acquisitions which are synergistic with or otherwise complementary to
such initial acquisition. The Purchasers intend to provide up to $100 million
(including the Pre-Acquisition Funding, as defined below) in equity financing to
the Company as the equity portion of the debt and equity financing necessary to
fund such acquisitions and for other internal growth initiatives, in each case
as approved by the Board of Directors of the Company (the "Board") and the
-----
Purchasers (an "Approved Use"). The funds obtained by the Company from the
------------
Purchasers on the Closing Date, along with additional investments by the
Purchasers up to an aggregate of $3,000,000 (including the investment by the
Purchasers on the Closing Date, the "Pre-Acquisition Funding"),
-----------------------
<PAGE>
shall finance the Company's costs of conducting a search for the initial
acquisition. The Purchasers' obligation to purchase any additional stock of the
Company will be conditioned on the Company's not being in default under any of
its material agreements, adequate debt financing being available to fund any
proposed acquisition or other Approved Use on terms satisfactory to the
Purchasers, and the Company's operations and the acquisition or other Approved
Use being satisfactory to the Purchasers. In order to implement the foregoing,
the Purchasers may purchase from time to time after the Closing, upon the
written request of the Board in connection with an Approved Use, (i) first, up
to an additional 6,600,000 shares of Common Stock at a price of $.50 per share
and (ii) second, after all such shares of Common Stock have been purchased, up
to 96,200 shares of Class A Preferred at a price of $1,000 per share (the
amounts set forth in each of (i) and (ii) immediately above as adjusted from
time to time as a result of stock dividends, stock splits, recapitalization and
similar events). Each Purchaser shall purchase the percentage of such shares set
forth next to such Purchaser's name on the signature pages attached hereto. At
the time of any such purchase, each Purchaser shall be entitled to receive, and
the Company shall be obligated to deliver, satisfactory representations and
warranties and all other information and documentation as such Purchaser may
reasonably request.
1C. The Closing. The closing of the purchase and sale of the Stock
-----------
to be purchased pursuant to Section 1B(a) (the "Closing") shall take place at
-------
the offices of Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois
60601 at 10:00 a.m. on March 23, 1999, or at such other place or on such other
date as may be mutually agreeable to the Company and the Purchasers. At the
Closing, the Company shall deliver to each Purchaser stock certificates
evidencing the Stock to be purchased by such Purchaser, registered in such
Purchaser's name, upon payment of the purchase price thereof by a cashier's or
certified check, or by wire transfer of immediately available funds to such
account as designated by the Company.
Section 2. Conditions of Each Purchaser's Obligation at the Closing.
--------------------------------------------------------
The obligation of each Purchaser to purchase and pay for the Stock to be
purchased by it at the Closing is subject to the satisfaction as of the Closing
of the following conditions:
2A. Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties contained in Section 5 hereof shall be true and correct at and as
of the Closing as though then made, except to the extent of changes caused by
the transactions expressly contemplated herein, and the Company shall have
performed in all material respects all of the covenants required to be performed
by it hereunder prior to the Closing.
-2-
<PAGE>
2B. Certificate of Incorporation. The Company's certificate of
----------------------------
incorporation (the "Certificate of Incorporation") shall include the provisions
----------------------------
set forth in Exhibit A hereto, shall be in full force and effect under the laws
---------
of Delaware as of the Closing and shall not have been amended or modified.
2C. Management Agreement. The Company shall have entered into senior
--------------------
management agreements, in form and substance substantially similar to Exhibit B
---------
attached hereto (the "Management Agreements") with William Seibel and with other
---------------------
executives to be determined by William Seibel after consultation with GTCR (each
an "Executive", and collectively, the "Executives"), the Management Agreements
--------- ----------
shall not have been amended or modified and shall be in full force and effect as
of the Closing, and each Executive shall have purchased the Stock proposed to be
purchased by such Executive thereunder.
2D. Stockholders Agreement. The Company, the Purchasers and the
----------------------
Executive shall have entered into a stockholders agreement in form and substance
substantially similar to Exhibit C attached hereto (the "Stockholders
--------- ------------
Agreement"), and the Stockholders Agreement shall be in full force and effect as
- ---------
of the Closing.
2E. Professional Services Agreement. The Company and GTCR Golder
-------------------------------
Rauner, L.L.C., a Delaware limited liability company ("GTCR") shall have entered
----
into a professional services agreement in form and substance substantially
similar to Exhibit D attached hereto (the "Professional Services Agreement"),
--------- -------------------------------
and the Professional Services Agreement shall be in full force and effect as of
the Closing.
2F. Registration Agreement. The Company, the Purchasers and the
----------------------
Executive shall have entered into a registration agreement in form and substance
substantially similar to Exhibit E attached hereto (the "Registration
--------- ------------
Agreement"), and the Registration Agreement shall be in full force and effect as
- ---------
of the Closing.
2G. Closing Documents. The Company shall have delivered to the
-----------------
Purchasers all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 2A have been fully
satisfied;
(ii) certified copies of the resolutions duly adopted by the
Board authorizing the execution, delivery and performance of this
Agreement, the Management Agreement, the Stockholders Agreement, the
Professional Services Agreement, the Registration Agreement and each of the
other agreements contemplated hereby (the
-3-
<PAGE>
"Transaction Documents"), the issuance and sale of the Stock and the
---------------------
consummation of all other transactions contemplated by this Agreement; and
(iii) certified copies of the Certificate of Incorporation and
the Company's bylaws, each as in effect at the Closing.
2H. Fees and Expenses. The Company shall have reimbursed each
-----------------
Purchaser for its fees and expenses as provided in Section 7A hereof.
2I. Compliance with Applicable Laws. The purchase of Stock by the
-------------------------------
Purchasers hereunder shall not be prohibited by any applicable law or
governmental regulation, shall not subject any Purchaser to any penalty,
liability or, in each Purchaser's reasonable judgment, other onerous conditions
under or pursuant to any applicable law or governmental regulation, and shall be
permitted by laws and regulations of the jurisdictions to which such Purchaser
is subject.
2J. Waiver. Any condition specified in this Section 2 may be waived
------
only if such waiver is set forth in a writing executed by each Purchaser.
Section 3. Covenants.
---------
3A. Financial Statements and Other Information. The Company shall
------------------------------------------
deliver to each Purchaser (so long as such Purchaser holds any Stock) and to
each holder of at least 15% of the Investor Preferred and each holder of at
least 15% of the Investor Common:
(i) as soon as available but in any event within 45 days after
the end of each quarterly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such quarterly period and for the period
from the beginning of the fiscal year to the end of such quarter, and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such quarterly period, all prepared in
accordance with generally accepted accounting principles, consistently
applied, subject to the absence of footnote disclosures and to normal year-
end adjustments;
(ii) accompanying the financial statements referred to in (i)
above, an Officer's Certificate stating that neither the Company nor any of
its Subsidiaries is in default under any of its material agreements or, if
any such default exists, specifying the nature and period of existence
thereof and what actions the Company and its Subsidiaries have taken and
propose to take with respect thereto;
-4-
<PAGE>
(iii) within 120 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, setting forth in each case comparisons to the
annual budget and to the preceding fiscal year, all prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by (a) with respect to the consolidated portions of such
statements (except with respect to budget data), an opinion containing no
exceptions or qualifications (except for qualifications regarding specified
contingent liabilities) of an independent accounting firm of recognized
national standing acceptable to the Majority Holders, and (b) a copy of
such firm's annual management letter to the Board;
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning material
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(v) at least 30 days prior to the beginning of each fiscal
year, an annual budget prepared on a monthly basis for the Company and its
Subsidiaries for such fiscal year (displaying anticipated statements of
income and cash flows), and promptly upon preparation thereof any other
significant budgets prepared by the Company and any revisions of such
annual or other budgets, and within 30 days after any monthly period in
which there is a material adverse deviation from the annual budget, an
Officer's Certificate explaining the deviation and what actions the Company
has taken and proposes to take with respect thereto;
(vi) promptly (but in any event within five business days) after
the discovery or receipt of notice of any default under any material
agreement to which it or any of its Subsidiaries is a party or any other
event or circumstance affecting the Company or any Subsidiary which is
reasonably likely to have a material adverse effect on the financial
condition, operating results, assets or operations of the Company and its
Subsidiaries taken as a whole (including the filing of any material
litigation against the Company or any Subsidiary or the existence of any
material dispute with any Person which involves a reasonable likelihood of
such litigation being commenced), an Officer's Certificate specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto; and
(vii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this Section 3A may reasonably
request.
-5-
<PAGE>
Each of the financial statements referred to in subsections (i) and (iii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end audit adjustments (none of which would,
alone or in the aggregate, be materially adverse to the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole). Notwithstanding anything in this Section 3A
to the contrary, in the event that any Investor or a transferee of any Investor
distributes any of such Person's Stock to its limited partners (or its limited
liability company members or other equity holders, as the case may be), then any
such Person receiving such distribution shall not have the rights set forth in
clauses (iv), (v) and (vii) of this Section 3A unless such Person holds at least
10% of the Investor Common or the Investor Preferred.
3B. Inspection of Property. The Company shall permit any
----------------------
representatives designated by any Purchaser (so long as such Purchaser holds any
Stock) or any holder of at least 15% of the outstanding Investor Preferred or at
least 15% of the outstanding Investor Common, upon reasonable notice and during
normal business hours and 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 any such corporations with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries; provided that the Company shall have the right to have its
chief financial officer present at any meetings with the Company's independent
accountants. Notwithstanding anything in this Section 3B to the contrary, in the
event that any Investor or a transferee of any Investor distributes any of such
Person's Stock to its limited partners (or its limited liability company members
or other equity holders, as the case may be), then any such Person receiving
such distribution shall not have the rights set forth in this Section 3B unless
such Person holds at least 10% of the Investor Common or the Investor Preferred.
3C. Restrictions. The Company shall not, without the prior written
------------
consent of the Majority Holders:
(i) directly or indirectly declare or pay any dividends or make
any distributions upon any of its equity securities, other than payments of
dividends on, or redemption payments in respect of, the Class A Preferred
pursuant to the Certificate of Incorporation;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's equity securities (including, without limitation,
warrants, options and other rights to acquire equity
-6-
<PAGE>
securities) other than redemptions of Class A Preferred pursuant to the
Company's Certificate of Incorporation, and other than the repurchase of
Common Stock from an employee or former employee pursuant to the Management
Agreements or any stock option or equity incentive plan that has been
approved by the Board;
(iii) except as expressly contemplated by this Agreement or the
Management Agreement, authorize, issue, sell or enter into any agreement
providing for the issuance (contingent or otherwise), or permit any
Subsidiary to authorize, issue, sell or enter into any agreement providing
for the issuance (contingent or otherwise) of, (a) any notes or debt
securities containing equity features (including, without limitation, any
notes or debt securities convertible into or exchangeable for equity
securities, issued in connection with the issuance of equity securities or
containing profit participation features) or (b) any equity securities (or
any securities convertible into or exchangeable for any equity securities)
or rights to acquire any equity securities, other than the issuance of
equity securities by a Subsidiary to the Company or another Subsidiary;
(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
in excess of $50,000.00, except for (A) loans to the Executives as
contemplated by the Management Agreements, (B) reasonable advances to
employees in the ordinary course of business as well as travel advances,
(C) relocation loans and (D) trade credit extended to customers in the
ordinary course of business and (E) Investments having a stated maturity no
greater than one year from the date the Company makes such Investment in
(1) obligations of the United States government or any agency thereof or
obligations guaranteed by the United States government, (2) certificates of
deposit of commercial banks having combined capital and surplus of at least
$50 million, (3) commercial paper with a rating of at least "Prime-1" by
Moody's Investors Service, Inc. or (4) money market accounts investing in
any of the foregoing or in substantially similar investments;
(v) merge or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person (other than a wholly
owned Subsidiary);
(vi) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than 5% of the
consolidated assets of the Company and its Subsidiaries (computed on the
basis of book value, determined in accordance with generally accepted
accounting principles consistently applied, or fair market value,
determined by the Board in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales of
inventory in the ordinary course of business);
-7-
<PAGE>
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into a limited liability company, a partnership or any
other non-corporate entity which is treated as a partnership for federal
income tax purposes);
(viii) acquire, or permit any Subsidiary to acquire, any interest
in any business (whether by a purchase of assets, purchase of stock, merger
or otherwise), or enter into any joint venture;
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than the
provision of business and information technology consulting and services;
(x) enter into, or permit any Subsidiary to enter into, any
transaction with any of its or any Subsidiary's officers, directors,
employees or Affiliates or any individual related by blood, marriage or
adoption to any such Person (a "Relative") or any entity in which any such
--------
Person or individual owns a beneficial interest (a "Related Entity"),
--------------
except for normal employment arrangements and benefit programs on
reasonable terms and except as otherwise expressly contemplated by this
Agreement, the Management Agreement and the Professional Services
Agreement; provided that in no event shall any Relative or Related Entity
be employed by, render services to or receive compensation from the Company
or any Subsidiary;
(xi) become subject to, or permit any of its Subsidiaries to
become subject to, any agreement or instrument which by its terms would
(under any circumstances) restrict (A) the right of any Subsidiary to make
loans or advances or pay dividends to, transfer property to, or repay any
Indebtedness owned to, the Company or any Subsidiary or (B) the Company's
right to perform the provisions of this Agreement, the Certificate of
Incorporation, the Bylaws or the other Transaction Documents;
(xii) except as expressly contemplated by this Agreement, make
any amendment to the Certificate of Incorporation or the Bylaws, or file
any resolution of the Board with the Secretary of the State of Delaware, in
each case containing any provisions which would increase the number of
authorized shares of Stock or adversely affect or otherwise impair the
rights or the relative preferences and priorities of the holders of the
Stock under this Agreement, the Certificate of Incorporation, the Bylaws or
the other Transaction Documents; or
-8-
<PAGE>
(xiii) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, Indebtedness
exceeding the amounts approved therefor by the Board in the annual budget.
3D. Affirmative Covenants. So long as any Purchaser holds any Stock,
---------------------
the Company shall, and shall cause each Subsidiary to:
(i) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets or operations of the Company and its Subsidiaries
taken as a whole, and pay and discharge when payable all taxes, assessments
and governmental charges (except to the extent the same are being contested
in good faith and adequate reserves therefor have been established); and
(ii) enter into and maintain appropriate nondisclosure and
noncompete agreements with its key employees.
3E. Current Public Information. At all times after the Company has
--------------------------
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission or (ii) a registration statement on Form S-2
or S-3 or any similar registration form hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
3F. Amendment of Other Agreements. The Company shall not amend,
-----------------------------
modify or waive any provision of the Management Agreement or any other agreement
with key executives of the Company without the prior written consent of the
Majority Holders. The Company shall enforce the provisions of the Management
Agreement and any other agreement with key executives of the Company and shall
exercise all of its rights and remedies thereunder (including, without
limitation, any repurchase options and first refusal rights) unless it is
otherwise directed by the Majority Holders.
-9-
<PAGE>
3G. Public Disclosures. The Company shall not, nor shall it permit
------------------
any Subsidiary to, disclose a Purchaser's name or identity as an investor in the
Company in any press release or other public announcement or in any document or
material filed with any governmental entity, without the prior written consent
of such Purchaser, unless such disclosure is required by applicable law or
governmental regulations or by order of a court of competent jurisdiction, in
which case prior to making such disclosure the Company shall give written notice
to such Purchaser describing in reasonable detail the proposed content of such
disclosure and shall permit such Purchaser to review and comment upon the form
and substance of such disclosure.
3H. Unrelated Business Taxable Income. The Company shall not engage
---------------------------------
in any transaction which is reasonably likely to cause GTCR Fund VI or any of
its limited partners which are exempt from income taxation under Section 501(a)
of the IRC and, if applicable, any pension plan that any such trust may be a
part of, to recognize unrelated business taxable income as defined in Section
512 and Section 514 of the IRC.
3I. Hart-Scott-Rodino Compliance. In connection with any transaction
----------------------------
in which the Company is involved (a "Transaction") which is required to be
-----------
reported under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended from time to time (the "HSR Act"), the Company shall prepare and file
-------
all documents with the Federal Trade Commission and the United States Department
of Justice which may be required to comply with the HSR Act, and shall promptly
furnish all materials thereafter requested by any of the regulatory agencies
having jurisdiction over such filings, in connection with a Transaction. The
Company shall take all reasonable actions and shall file and use reasonable best
efforts to have declared effective or approved all documents and notifications
with any governmental or regulatory bodies, as may be necessary or may
reasonably be requested under federal antitrust laws for the consummation of the
Transaction. Notwithstanding the foregoing, if GTCR Fund VI, rather than the
Company, is required to make a filing under the HSR Act in connection with a
Transaction, the Company will provide to GTCR Fund VI all necessary information
for such filing, will facilitate such filing and will pay all reasonable fees
associated with such filing.
Section 4. Transfer of Restricted Securities.
----------------------------------
(i) Restricted Securities are transferable only pursuant to
(a) public offerings registered under the Securities Act, (b) Rule 144 or Rule
144A of the Securities and Exchange Commission (or any similar rule or rules
then in force) if such rule or rules are available and (c) subject to the
conditions specified in clause (ii) below, any other legally available means of
-----------
transfer.
-10-
<PAGE>
(ii) In connection with the transfer of any Restricted
Securities (other than a transfer described in Sections 4(i)(a) or (b) above),
the holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an opinion of
Kirkland & Ellis or other counsel which (to the Company's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that such
transfer of Restricted Securities may be effected without registration of such
Restricted Securities under the Securities Act. In addition, if the holder of
the Restricted Securities delivers to the Company an opinion of Kirkland & Ellis
or such other counsel that no subsequent transfer of such Restricted Securities
shall require registration under the Securities Act, the Company shall promptly
upon such contemplated transfer deliver new certificates for such Restricted
Securities which do not bear the Securities Act legend set forth in Section 7C.
If the Company is not required to deliver new certificates for such Restricted
Securities 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 and
Section 7C.
(iii) Upon the request of any Purchaser, the Company shall
promptly supply to such Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
Section 5. Representations and Warranties of the Company. As a
---------------------------------------------
material inducement to the Purchasers to enter into this Agreement and purchase
the Stock, the Company hereby represents and warrants to the Purchasers that,
except as specifically set forth on the Disclosure Schedule attached hereto:
5A. Organization and Corporate Power. The Company is a corporation
--------------------------------
duly organized, validly existing and in good standing under the laws of Delaware
and is qualified to do business in every jurisdiction in which the failure to so
qualify might reasonably be expected to have a material adverse effect on the
financial condition, operating results, assets or operations of the Company and
its Subsidiaries taken as a whole. The Company has all requisite corporate
power and authority and all material licenses, permits and authorizations
necessary to own and operate its properties, to carry on its businesses as now
conducted and presently proposed to be conducted and to carry out the
transactions contemplated by this Agreement. The copies of the Company's
Certificate of Incorporation and bylaws which have been furnished to the
Purchaser's counsel reflect all amendments made thereto at any time prior to the
date of this Agreement and are correct and complete.
-11-
<PAGE>
5B. Capital Stock and Related Matters.
---------------------------------
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of 9,720,260 shares of Stock, of
which 96,200 shares shall be designated as Class A Preferred, all of which shall
be reserved for issuance to the Purchasers pursuant to Section 1B(b) hereof, and
of which 9,624,060 shares shall be designated as Common Stock (1,760,000 of
which shall be issued and outstanding, 6,600,000 of which shall be reserved for
issuance to the Purchasers pursuant to Section 1B(b) hereof, 760,000 of which
shall be reserved for issuances to future senior management, 480,000 of which
shall be reserved for issuances to other future management, and 24,060 of which
shall be reserved for future issuances to Heidrick & Struggles. As of the
Closing, the Company shall not have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock or containing
any profit participation features, nor shall it have outstanding any rights or
options to subscribe for or to purchase its capital stock or any stock or
securities convertible into or exchangeable for its capital stock or any stock
appreciation rights or phantom stock plans other than pursuant to and as
contemplated by this Agreement and the Management Agreement. As of the Closing,
the Company shall not be subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or any
warrants, options or other rights to acquire its capital stock, except pursuant
to this Agreement, the Management Agreement and the Company's Certificate of
Incorporation. As of the Closing, all of the outstanding shares of the
Company's capital stock shall be validly issued, fully paid and nonassessable.
(ii) There are no statutory or, to the best of the Company's
knowledge, contractual stockholders preemptive rights or rights of refusal with
respect to the issuance of the Stock hereunder or the issuance of the Stock
pursuant to Section 1B(b), except as expressly contemplated in the Shareholders
Agreement or provided herein . Based in part on the investment representations
of the Purchasers in Section 7C hereof and of the Executive in Section 1(d) of
the Management Agreement, the Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance of any of
its capital stock, and the offer, sale and issuance of the Stock here under and
pursuant to Section 1B(b) hereof do not and will not require registration under
the Securities Act or any applicable state securities laws. To the best of the
Company's knowledge, there are no agreements between the Company's stockholders
with respect to the voting or transfer of the Company's capital stock or with
respect to any other aspect of the Company's affairs, except for the
Stockholders Agreement, the Management Agreement and the Registration Agreement.
5C. Subsidiaries; Investments. The Company does not own or hold any
-------------------------
shares of stock or any other security or interest in any other Person or any
rights to acquire any such security or interest, and the Company has never had
any Subsidiary.
-12-
<PAGE>
5D. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement, the Management Agreement, the Stockholders
Agreement, the Professional Services Agreement, the Registration Agreement and
all other agreements contemplated hereby to which the Company is a party have
been duly authorized by the Company. This Agreement, the Management Agreement,
the Stockholders Agreement, the Professional Services Agreement, the
Registration Agreement, the Certificate of Incorporation and all other
agreements contemplated hereby each constitutes a valid and binding obligation
of the Company, enforceable in accordance with its terms. The execution and
delivery by the Company of this Agreement, the Management Agreement, the
Stockholders Agreement, the Professional Services Agreement, the Registration
Agreement and all other agreements contemplated hereby to which the Company is a
party, the offering, sale and issuance of the Stock hereunder and pursuant to
Section 1B(b) and the fulfillment of and compliance with the respective terms
hereof and thereof by the Company do not and will not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's capital stock or assets pursuant to,
(iv) give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body pursuant to, the Certificate of
Incorporation or bylaws of the Company, or any law, statute, rule or regulation
to which the Company is subject, or any agreement, instrument, order, judgment
or decree to which the Company is a party or by which it is bound.
5E. Conduct of Business; Liabilities. Other than the negotiation,
--------------------------------
execution and delivery of this Agreement, the Management Agreement, the
Stockholders Agreement, the Professional Services Agreement, the Registration
Agreement and the other agreements contemplated hereby and thereby, prior to the
Closing, the Company has not (i) conducted any business, (ii) incurred any
expenses, obligations or liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to the Company and whether due
or to become due and regardless of when asserted), (iii) owned any assets, (iv)
entered into any contracts or agreements, or (v) violated any laws or
governmental rules or regulations.
5F. Litigation, etc. There are no actions, suits, proceedings,
----------------
orders, investigations or claims pending or, to the best of the Company's
knowledge, threatened against or affecting the Company (or to the best of the
Company's knowledge, pending or threatened against or affecting any of the
officers, directors or employees of the Company with respect to their businesses
or proposed business activities) at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality
with respect to the transactions contemplated by this Agreement.
-13-
<PAGE>
5G. Brokerage. Except as set forth in the Professional Services
---------
Agreement, there are no claims for brokerage commissions, finders, fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon the Company. The
Company shall pay, and hold each Purchaser harmless against, any liability, loss
or expense (including, without limitation, attorneys, fees and out-of-pocket
expenses) arising in connection with any such claim.
5H. Governmental Consent, etc. No permit, consent, approval or
--------------------------
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby.
5I. Disclosure. Neither this Agreement nor any of the schedules,
----------
attachments, written statements, documents, certificates or other items prepared
or supplied to the Purchasers by or on behalf of the Company with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading. There is no fact which the Company has not disclosed to
the Purchasers in writing and of which any of its officers, directors or
executive employees is aware and which has had or might reasonably be
anticipated to have a material adverse effect upon the existing or expected
financial condition, operating results, assets, customer or supplier relations,
employee relations or business prospects of the Company.
5J. Closing Date. The representations and warranties of the Company
------------
contained in this Section 5 and elsewhere in this Agreement and all information
contained in any exhibit, schedule or attachment hereto or in any writing
delivered by, or on behalf of, the Company to the Purchasers shall be true and
correct in all material respects on the date of the Closing as though then made,
except as affected by the transactions expressly contemplated by this Agreement.
Section 6. Definitions. For the purposes of this Agreement, the
-----------
following terms have the meanings set forth below:
"Affiliate" of any particular person or entity means any other person
---------
or entity controlling, controlled by or under common control with such
particular person or entity. For purposes of this Agreement, all holdings of
Class A Preferred and Common Stock by Persons who are Affiliates of each other
shall be aggregated for purposes of meeting any threshold tests under this
Agreement.
-14-
<PAGE>
"Indebtedness" means all indebtedness for borrowed money (including
------------
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or renewable or extendible at the option of the debtor to
a date one year or more from the date of creation or incurrence thereof, all
indebtedness under revolving credit arrangements extending over a year or more,
all capitalized lease obligations and all guarantees of any of the foregoing.
"Investor Common" means (i) the Common Stock issued hereunder and (ii)
---------------
any Common Stock issued or issuable with respect to the Common Stock referred to
in clause (i) above by way of stock dividends or stock splits or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares of Investor Common, such shares
shall cease to be Investor Common when they have been (a) effectively registered
under the Securities Act and disposed of in accordance with the Registration
statement covering them or (b) distributed to the public through a broker,
dealer or market maker pursuant to Rule 144 under the Securities Act (or any
similar rule then in force).
"Investor Preferred" means (i) the Class A Preferred issued hereunder
------------------
(including, without limitation, pursuant to Section 1B(b) and (ii) any Class A
Preferred issued or issuable with respect to the Class A Preferred referred to
in clause (i) above by way of stock dividends or stock splits or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares of Investor Preferred, such shares
shall cease to be Investor Preferred when they have been (a) effectively
registered under the Securities Act and disposed of in accordance with the
Registration statement covering them or (b) distributed to the public through a
broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or
any similar rule then in force).
"Investor Stock" means the Investor Preferred and the Investor Common.
--------------
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
reference to any particular IRC Section shall be interpreted to include any
revision of or successor to that Section regardless of how numbered or
classified.
"Majority Holders" means the holders of a majority of the Investor
----------------
Preferred or, if no Investor Preferred is outstanding, the holders of a majority
of the Investor Common.
-15-
<PAGE>
"Officer's Certificate" means a certificate signed by the Company's
---------------------
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (ii) to the best of such officer's knowledge, such
certificate does not misstate any material fact and does not omit to state any
fact necessary to make the certificate not misleading.
"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.
"Restricted Securities" means (i) the Stock issued hereunder and
---------------------
pursuant to Section 1B(b) hereof and (ii) any securities issued with respect to
the securities referred to in clause (i) above by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular Restricted
Securities, such securities shall cease to be Restricted Securities when they
have (a) been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) become eligible
for sale pursuant to Rule 144(k) (or any similar provision then in force) under
the Securities Act or (c) been otherwise transferred and new certificates for
them not bearing the Securities Act legend set forth in Section 7C have been
delivered by the Company in accordance with Section 4(ii). Whenever any
particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new securities
of like tenor not bearing a Securities Act legend of the character set forth in
Section 7C.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Subsidiary" means any corporation of which the securities having a
----------
majority of the ordinary voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries.
-16-
<PAGE>
Section 7. Miscellaneous.
-------------
7A. Expenses. The Company agrees to pay, and hold each Purchaser and
--------
all holders of Investor Stock harmless against liability for the payment of, (i)
the reasonable fees and expenses of one counsel arising in connection with the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated by this Agreement (including, without limitation,
reasonable fees and expenses arising with respect to any subsequent purchase of
Stock pursuant to Section 1B(b) hereof), (ii) the reasonable fees and expenses
incurred with respect to any amendments or waivers (whether or not the same
become effective) under or in respect of this Agreement, the Management
Agreement, the Stockholders Agreement, the Professional Services Agreement, the
Registration Agreement, the other agreements contemplated hereby and the
Certificate of Incorporation, (iii) stamp and other taxes which may be payable
in respect of the execution and delivery of this Agreement or the issuance,
delivery or acquisition of any shares of Stock purchased hereunder or in
accordance with Section 1B(b) hereof, and (iv) the reasonable fees and expenses
incurred with respect to the interpretation or enforcement of the rights granted
under this Agreement, the Management Agreement, the Stockholders Agreement, the
Professional Services Agreement, the Registration Agreement, the other
agreements contemplated hereby and the Certificate of Incorporation and the
Company's bylaws.
7B. Remedies. Each holder of Investor Stock shall have all rights
--------
and remedies set forth in this Agreement and the Certificate of Incorporation
and all rights and remedies which such holders have been granted at any time
under any other agreement or contract and all of the rights which such holders
have under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
7C. Purchasers' Investment Representations. Each Purchaser hereby
--------------------------------------
represents (i) that it is acquiring the Restricted Securities purchased
hereunder or acquired pursuant hereto for its own account with the present
intention of holding such securities for purposes of investment, and that it has
no intention of selling such securities in a public distribution in violation of
the federal securities laws or any applicable state securities laws, (ii) that
it is an "accredited investor" and a sophisticated investor for purposes of
applicable U.S. federal and state securities laws and regulations, (iii) that
this Agreement and each of the other agreements contemplated hereby constitutes
(or will constitute) the legal, valid and binding obligation of each Purchaser,
enforceable in accordance with its terms, (iv) that the execution, delivery and
performance of this Agreement and such other agreements by such Purchaser does
not and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which such purchaser is subject, and (v) that such
Purchaser has had an opportunity to ask questions and receive answers concerning
the terms and
-17-
<PAGE>
conditions of the offering of the Class A Preferred and has had full access to
such other information concerning the Company as such Purchaser has requested.
Notwithstanding the foregoing, nothing contained herein shall prevent such
Purchaser and subsequent holders of Restricted Securities from transferring such
securities in compliance with the provisions of Section 4 hereof. Each
certificate for Restricted Securities shall be imprinted with a legend in
substantially the following form:
"The securities represented by this certificate were originally issued
on [DATE OF ISSUANCE] and have not been registered under the
Securities Act of 1933, as amended. The transfer of the securities
represented by this certificate is subject to the conditions specified
in the Purchase Agreement, dated as of March 23, 1999 by and among the
issuer (the "Company") and certain investors, and the Company reserves
-------
the right to refuse the transfer of such securities until such
conditions have been fulfilled with respect to such transfer. A copy
of such conditions shall be furnished by the Company to the holder
hereof upon written request and without charge."
7D. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement 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 written consent of the
Majority Holders. No other course of dealing between the Company and the holder
of any Stock or any delay in exercising any rights hereunder or under the
Certificate of Incorporation shall operate as a waiver of any rights of any such
holders. For purposes of this Agreement, shares of Stock held by the Company or
any Subsidiaries shall not be deemed to be outstanding.
7E. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or 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, regardless of any
investigation made by the Purchasers or on their behalf.
7F. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained 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, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the Purchasers' benefit as a
purchaser or holder of Stock are also for the benefit of, and enforceable by,
any subsequent holder of such Stock. The rights and obligations of each
Purchaser under this Agreement and the agreements contemplated hereby may be
assigned by such Purchaser at any time, in whole or in part, to any investment
fund
-18-
<PAGE>
managed by GTCR Golder Rauner, L.L.C., or any successor thereto, provided that
such fund makes the representations contained in Section 7C.
7G. Generally Accepted Accounting Principles. 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 generally accepted accounting principles,
consistently applied, except that if because of a change in generally accepted
accounting principles the Company would have to alter a previously utilized
accounting method or policy in order to remain in compliance with generally
accepted accounting principles, such determination or calculation shall continue
to be made in accordance with the Company's previous accounting methods and
policies.
7H. 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.
7I. 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.
7J. Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
Section of this Agreement. The use of the word "including" in this Agreement
shall be by way of example rather than by limitation.
7K. 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.
7L. 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 express 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 the Purchasers and to the Company at the address
indicated below:
-19-
<PAGE>
If to the Company:
-----------------
ZC Acquisition Corp.
1048 Tremont Street
Duxbury, MA 02332
Attention: General Counsel
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, Illinois 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David E. Redlick
If to the Purchasers:
--------------------
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
-20-
<PAGE>
with a copy to:
--------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie
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.
* * * * *
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement on the date first written above.
ZC ACQUISITION CORP.
By: /s/ William Seibel
---------------------------------
Name: William Seibel
-------------------------------
Its: President
Investment Percentage
- ---------------------
99.0655% 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
0.7102% 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
0.2243% 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
SIGNATURE PAGE TO THE PURCHASE AGREEMENT
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A - Certificate of Incorporation
Exhibit B - Form of Management Agreement
Exhibit C - Form of Stockholders Agreement
Exhibit D - Form of Professional Services Agreement
Exhibit E - Form of Registration Agreement
<PAGE>
EXHIBIT 2.2
FIRST AMENDMENT AND SUPPLEMENT NO. 1 TO PURCHASE AGREEMENT
----------------------------------------------------------
THIS FIRST AMENDMENT AND SUPPLEMENT NO. 1 TO PURCHASE AGREEMENT (this
"Amendment and Supplement") is made as of April 30, 1999, by and among ZC
------------------------
Acquisition Corp., a Delaware corporation (the "Company") and 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 a "Purchaser" and
--------------- ---------
collectively the "Purchasers"). Except as otherwise indicated herein,
----------
capitalized terms used and not otherwise defined herein shall have the meanings
ascribed to such terms in the Purchase Agreement (as defined below).
WHEREAS, the parties to this Amendment and Supplement are all of the
parties to that certain Purchase Agreement dated March 23, 1999 (the "Purchase
--------
Agreement"), by and among the Company, GTCR Fund VI, Executive Fund and
- ---------
Associates Fund;
WHEREAS, the parties hereto desire to make certain amendments to the
Purchase Agreement in accordance with Section 7D thereof; and
WHEREAS, pursuant to Section 1B of the Purchase Agreement, the
Purchasers desire to purchase, and the Company desires to sell, 5,660,000 shares
of Common Stock for an aggregate purchase price of $2,830,000, and 4,370 shares
of Class A Preferred for an aggregate purchase price of $4,370,000. The Class A
Preferred and the Common Stock are collectively referred to herein as the
"Stock." The Stock purchased by the Purchasers hereunder constitutes Investor
-----
Stock and Restricted Securities under the Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I -- FIRST AMENDMENT TO PURCHASE AGREEMENT
Section 1. Amendments to Purchase Agreement.
--------------------------------
1A. Section 1A of the Purchase Agreement shall be amended and
restated as follows:
Authorization of the Stock. The Company shall authorize the issuance
--------------------------
and sale to the Purchasers of up to 96,632 shares of its Class A
Preferred Stock, par value $.01 per share (the "Class A Preferred"),
-----------------
and up to 6,736,000 shares of its Common Stock, par value $.01 per
share (the "Common Stock"), each having the rights and preferences set
------------
forth in Exhibit A attached hereto. The Class A Preferred and the
---------
Common Stock are collectively referred to herein as the "Stock."
-----
1B. Section 1B(b) of the Purchase Agreement shall be amended and
restated as follows:
<PAGE>
The Company has been organized for the purpose of owning and operating
a business in the electronic commerce consulting and implementation
industry by means of first acquiring an existing business or
businesses satisfactory to the Purchasers and thereafter from time to
time making additional acquisitions which are synergistic with or
otherwise complementary to such initial acquisition. The Purchasers
intend to provide up to $100 million (including the Pre-Acquisition
Funding, as defined below) in equity financing to the Company as the
equity portion of the debt and equity financing necessary to fund such
acquisitions and for other internal growth initiatives, in each case
as approved by the Board of Directors of the Company (the "Board") and
-----
the Purchasers (an "Approved Use"). The funds obtained by the Company
------------
from the Purchasers on the Closing Date, along with additional
investments by the Purchasers up to an aggregate of $3,000,000
(including the investment by the Purchasers on the Closing Date, the
"Pre-Acquisition Funding"), shall finance the Company's costs of
-----------------------
conducting a search for the initial acquisition. The Purchasers'
obligation to purchase any additional stock of the Company will be
conditioned on the Company's not being in default under any of its
material agreements, adequate debt financing being available to fund
any proposed acquisition or other Approved Use on terms satisfactory
to the Purchasers, and the Company's operations and the acquisition or
other Approved Use being satisfactory to the Purchasers. In order to
implement the foregoing, the Purchasers may purchase from time to time
after the Closing, upon the written request of the Board in connection
with an Approved Use, (i) up to an additional 5,736,000 shares of
Common Stock at a price of $.50 per share and (ii) up to 96,632 shares
of Class A Preferred at a price of $1,000 per share (the amounts set
forth in each of (i) and (ii) immediately above as adjusted from time
to time as a result of stock dividends, stock splits, recapitalization
and similar events). Each Purchaser shall purchase the percentage of
such shares set forth next to such Purchaser's name on the signature
pages attached hereto. At the time of any such purchase, each
Purchaser shall be entitled to receive, and the Company shall be
obligated to deliver, satisfactory representations and warranties and
all other information and documentation as such Purchaser may
reasonably request.
Section 2. Limitations. Except as expressly amended by this Article
-----------
I, all of the terms and provisions of the Purchase Agreement shall remain in
full force and effect. This Article I supersedes any prior understandings,
agreements or representations by or between the Parties, written or oral, which
may have related to the subject matter hereof in any way.
ARTICLE II -- SUPPLEMENT NO. 1 TO PURCHASE AGREEMENT
Section 1. Authorization and Closing
-------------------------
1A. Authorization of the Stock. The Company has authorized the
--------------------------
issuance and sale to the Purchasers of up to 6,736,000 shares of Common Stock
and up to 96,632 shares of Class A Preferred, each having the rights and
preferences set forth in the Company's certificate of incorporation (the
"Certificate of Incorporation").
----------------------------
2
<PAGE>
1B. Purchase and Sale of Common Stock. At the Closing (as defined in
---------------------------------
Section 1C below), subject to the terms and conditions set forth herein, (i)
- ----------
GTCR Fund VI shall purchase from the Company and the Company shall sell to GTCR
Fund VI, 5,607,108 shares of Common Stock for $2,803,554, and 4,329 shares of
Class A Preferred for $4,329,000, (ii) the Executive Fund shall purchase from
the Company and the Company shall sell to the Executive Fund, 40,197 shares of
Common Stock for $20,098.50, and 31 shares of Class A Preferred for $31,000, and
(iii) the Associates Fund shall purchase from the Company and the Company shall
sell to the Associates Fund, 12,695 shares of Common Stock for $6,347.50, and 10
shares of Class A Preferred for $10,000.
1C. The Closing. The closing of the purchase and sale of the Common
-----------
Stock (the "Closing") shall take place at the offices of Kirkland & Ellis, 200
-------
East Randolph Drive, Chicago, Illinois 60601 at 10:00 a.m. on April __, 1999.
At the Closing, the Company shall deliver to each Purchaser a stock certificate
evidencing the shares of Common Stock to be purchased by such Purchaser,
registered in such Purchaser's name, upon payment of the purchase price thereof
by a cashier's or certified check, or by wire transfer of immediately available
funds to such account as designated by the Company.
Section 2. Representations and Warranties of the Company. As a
---------------------------------------------
material inducement to the Purchasers to enter into this Agreement and purchase
the Common Stock, the Company hereby represents and warrants to the Purchasers
that: (i) the execution, delivery and performance of this Agreement and all
other agreements contemplated hereby to which the Company is a party have been
duly authorized by the Company; (ii) this Agreement constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms;
(iii) to the knowledge of the Company, each of the representations and
warranties set forth in Articles II and III of that certain Share Exchange
Agreement dated April __, 1999, by and among the Company., ZEFER Corp. and
certain stockholders of Zefer Corp. (the "Acquisition Agreement") is true in all
---------------------
respects; and (iv) the execution and delivery by the Company of this Agreement,
the offering, sale and issuance of the Common Stock hereunder and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, do not and shall not (A) conflict with or result in a breach of the
terms, conditions or provisions of, (B) constitute a default under, (C) result
in the creation of any lien, security interest, charge or encumbrance upon the
capital stock or assets of the Company or any of its Subsidiaries pursuant to,
(D) give any third party the right to modify, terminate or accelerate any
obligation under, (E) result in a violation of, or (F) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body pursuant to, the Certificate of
Incorporation or bylaws of the Company or any of its Subsidiaries, or any law,
statute, rule or regulation to which the Company is subject, or any agreement,
instrument, order, judgment or decree to which the Company or any of its
Subsidiaries is a party or by which it is bound.
Section 3. Purchasers' Investment Representations. Each Purchaser
--------------------------------------
hereby represents that it is acquiring the Restricted Securities purchased
hereunder or acquired pursuant hereto for its own account with the present
intention of holding such securities for purposes of investment, and that it has
no intention of selling such securities in a public distribution in violation of
the federal securities laws or any applicable state securities laws; provided
that nothing contained herein shall prevent such Purchaser and any subsequent
holders of Restricted Securities from
3
<PAGE>
transferring such securities in compliance with the provisions of Section 4 of
the Purchase Agreement.
Section 4. Miscellaneous.
-------------
4A. Remedies. Each holder of Investor Stock shall have all rights
--------
and remedies set forth in the Purchase Agreement, this Agreement and the
Certificate of Incorporation and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
4B. Legend. Each certificate for Restricted Securities issued
------
pursuant to this Agreement shall be imprinted with a legend in substantially the
following form:
"The securities represented by this certificate were
originally issued on April __, 1999, and have not been
registered under the Securities Act of 1933, as
amended. The transfer of the securities represented by
this certificate is subject to the conditions specified
in a Purchase Agreement, dated as of March 23, 1999,
between the issuer (the "Company") and certain
investors, and the Company reserves the right to refuse
the transfer of such securities until such conditions
have been fulfilled with respect to such transfer. A
copy of such conditions shall be furnished by the
Company to the holder hereof upon written request and
without charge. The securities represented by this
certificate are subject to a Stockholders Agreement
dated as of March 23, 1999, among 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."
4C. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement 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 written consent of the
holders of a majority of the Investor Stock. No other course of dealing between
the Company and the holder of any Class A Preferred or Common Stock or any delay
in exercising any rights hereunder or under the Certificate of Incorporation
shall operate as a waiver of any rights of any such holders. For purposes of
this Agreement, shares of Class A Preferred or Common Stock held by the Company
shall not be deemed to be outstanding.
4D. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or 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, regardless of any
investigation made by any Purchaser or on its behalf
4E. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto
4
<PAGE>
shall bind and inure to the benefit of the respective successors and assigns of
the parties hereto whether so expressed or not.
4F. 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.
4G. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts (including by means of telecopied signature pages), 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.
4H. Descriptive Headings, Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a part
of this Agreement. The use of the word "including" in this Agreement shall be
by way of example rather than by limitation.
4I. 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.
4J. 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 express 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 the Purchasers and to the Company at the
addresses indicated in the Purchase Agreement 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.
* * * *
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment and Supplement No. 1 to the Purchase Agreement on 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, LLC
Its: General Partner
By: /s/ [ILLEGIBLE]
------------------------------------------
Its: President
GTCR VI EXECUTIVE FUND, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, LLC
Its: General Partner
By: /s/ [ILLEGIBLE]
------------------------------------------
Its: President
GTCR ASSOCIATES VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, LLC
Its: General Partner
By: /s/ [ILLEGIBLE]
------------------------------------------
Its: President
/s/ William Seibel
------------------------------------------------
William Seibel
SIGNATURE PAGE TO FIRST AMENDMENT AND SUPPLEMENT NO. 1
TO PURCHASE AGREEMENT
<PAGE>
EXHIBIT 2.3
SECOND AMENDMENT TO PURCHASE AGREEMENT
AND
REPURCHASE AND SALE AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AGREEMENT AND REPURCHASE AND SALE
AGREEMENT (this "Amendment and Agreement") is made as of November 24, 1999, by
-----------------------
and among ZEFER Corp., a Delaware corporation (the "Company") and 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 a "Purchaser" and
--------------- ---------
collectively, the "Purchasers"). Except as otherwise indicated, capitalized
----------
terms used herein and not otherwise defined shall have the meanings ascribed to
such terms in the Purchase Agreement (as defined below).
WHEREAS, the parties to this Amendment and Agreement are all of the
parties to that certain Purchase Agreement, dated as of March 23, 1999 (as
amended and modified from time to time), by and among the Company, GTCR Fund VI,
Executive Fund and Associates Fund (the "Purchase Agreement");
------------------
WHEREAS, subject to the terms and conditions of the Purchase
Agreement, the Purchasers were to provide up to $97,500,000 as the equity
portion of the debt and equity financing necessary to fund acquisitions and
other internal growth initiatives of the Company;
WHEREAS, the Company now desires to restructure the financing
available to the Company for acquisitions and other internal growth initiatives;
WHEREAS, as part of such restructuring, the Company and an affiliate
of the Purchasers, GTCR Capital Partners, L.P., a Delaware limited partnership
(the "Lender"), have entered into a Loan Agreement, dated as of the date hereof
------
(as amended, modified and supplemented from time to time, the "Loan Agreement"),
--------------
and a Warrant Agreement, dated as of the date hereof (as amended, modified and
supplemented from time to time, the "Warrant Agreement"), pursuant to which the
-----------------
Lender intends to provide up to $32,196,296 in loans to the Company (the
"Aggregate Loan Amount") in exchange for a note of the Company and warrants
- ----------------------
representing the right to purchase shares of the Company's Common Stock and
Class A Preferred;
WHEREAS, in furtherance of such restructuring, the Company and the
Purchasers desire to make certain amendments to the Purchase Agreement in
accordance with Section 7D thereof to reduce the equity portion of the financing
available from the Purchasers by an amount equal to the Aggregate Loan Amount;
and
WHEREAS, in furtherance of such restructuring, the Company desires to
repurchase from the Purchasers, and the Purchasers desire to sell to the
Company, 1,237,804 shares of Common Stock at a purchase price of $0.167 per
share, and 1499 shares of Class A Preferred at a purchase price of $1000.00 per
share.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements hereinafter set forth, and the benefits to be derived
herefrom by the Company and the Purchasers, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I - SECOND AMENDMENT TO PURCHASE AGREEMENT
<PAGE>
Section 1. Amendments to Purchase Agreement.
--------------------------------
1A. Section 1A of the Purchase Agreement shall be amended and
restated as follows:
Authorization of the Stock. The Company shall authorize the issuance
--------------------------
and sale to the Purchasers of up to 61,973.704 shares (as adjusted
from time to time as a result of stock dividends, stock splits,
recapitalization and/or similar events) of its Class A Preferred
Stock, par value $.01 per share (the "Class A Preferred"), and up to
-----------------
6,660,000 shares (as adjusted from time to time as a result of stock
dividends, stock splits, recapitalization and/or similar events) of
its Common Stock, par value $.01 per share (the "Common Stock"), each
------------
having the rights and preferences set forth in Exhibit A attached
---------
hereto. The Class A Preferred and the Common Stock are collectively
referred to herein as the "Stock."
-----
1B. Section 1B(b) of the Purchase Agreement shall be amended and
restated as follows:
The Company has been organized for the purpose of owning and operating
a business in the electronic commerce consulting and implementation
industry by means of first acquiring an existing business or
businesses satisfactory to the Purchasers and thereafter from time to
time making additional acquisitions which are synergistic with or
otherwise complementary to such initial acquisition. The Purchasers
intend to provide up to $65,303,704 (including the Pre-Acquisition
Funding (as defined below)) as the equity portion of the debt and
equity financing necessary to fund such acquisitions and for other
internal growth initiatives, in each case as approved by the Board of
Directors of the Company (the "Board") and the Purchasers (an
-----
"Approved Use"). The funds obtained by the Company from the Purchasers
------------
on the Closing Date, along with additional equity investments by the
Purchasers up to an aggregate of $3,000,000 (including the investment
by the Purchasers on the Closing Date, the "Pre-Acquisition Funding"),
-----------------------
shall finance the Company's costs of conducting a search for the
initial acquisition. The Purchasers' obligation to purchase any
additional stock of the Company will be conditioned on the Company's
not being in default under any of its material agreements, adequate
debt financing being available to fund any proposed acquisition or
other Approved Use on terms satisfactory to the Purchasers, and the
Company's operations and the acquisition or other Approved Use being
satisfactory to the Purchasers. In order to implement the foregoing,
the Purchasers may purchase from time to time after the Closing, upon
the written request of the Board in connection with an Approved Use,
(i) up to an additional 5,660,000 shares of Common Stock at a price of
$.50 per share and (ii) up to 61,973.704 shares of Class A Preferred
at a price of $1,000 per share (the amounts and prices set forth in
each of (i) and (ii) immediately above as adjusted from time to time
as a result of stock dividends, stock splits, recapitalization and/or
similar events). Each Purchaser shall purchase the percentage of such
shares set forth next to such Purchaser's name on the signature pages
attached hereto. At the time of any such purchase, each Purchaser
shall be entitled to receive, and the Company shall be obligated to
deliver, satisfactory representations and warranties and all other
information and documentation as such Purchaser may reasonably
request.
2
<PAGE>
Section 2. Limitations. Except as expressly amended by this Amendment and
-----------
Agreement, all of the terms and provisions of the Purchase Agreement shall
remain in full force and effect.
ARTICLE II - REPURCHASE AND SALE AGREEMENT
Section 1. Repurchase and Sale of Common Stock. At the Closing (as defined
-----------------------------------
in Section 2 below), (i) GTCR Fund VI shall sell to the Company and the Company
---------
shall purchase from GTCR Fund VI, 1,226,237 shares of Common Stock for an
aggregate purchase price of $204,781.00, and 1,485 shares of Class A Preferred
for an aggregate purchase price of $1,485,000.00, (ii) the Executive Fund shall
sell to the Company and the Company shall purchase from the Executive Fund,
8,791 shares of Common Stock for an aggregate purchase price of $1,468.00, and
11 shares of Class A Preferred for an aggregate purchase price of $11,000.00,
and (iii) the Associates Fund shall sell to the Company and the Company shall
purchase from the Associates Fund, 2,776 shares of Common Stock for $463.00, and
3 shares of Class A Preferred for $3,000.00.
Section 2. The Closing. The closing of each repurchase and sale of Common
-----------
Stock and Class A Preferred (the "Closing") shall take place at the offices of
-------
Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois 60601 at 10:00 a.m.
on November 24, 1999. At the Closing, each Purchaser shall deliver to the
Company stock certificates evidencing the shares of Common Stock and Class A
Preferred to be repurchased by the Company, upon payment by the Company to the
Purchasers of the purchase price thereof by a cashier's or certified check, or
by wire transfer of immediately available funds to such account(s) designated by
the Purchasers.
ARTICLE III - MISCELLANEOUS
Section 1. Counterparts. This Amendment and Agreement may be executed
------------
simultaneously in two or more counterparts (including by means of faxed
signature pages), any one of which need not contain the signature of more than
one party, but all such counterparts taken together shall constitute one and the
same Amendment and Agreement.
Section 2. Descriptive Headings, Interpretation. The descriptive headings
------------------------------------
of this Amendment and Agreement are inserted for convenience only and do not
constitute a part of this Amendment and Agreement. The use of the word
"including" in this Amendment and Agreement shall be by way of example rather
than by limitation.
Section 3. 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.
Section 4. Governing Law. The laws of the State 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 Amendment and Agreement, without giving effect to any choice of law or
other conflict of law provision or rule (whether of the State of
3
<PAGE>
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.
* * * *
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Purchase Agreement and Repurchase and Sale Agreement on the date
first written above.
ZEFER 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, LLC
Its: General Partner
By: /s/ illegible
------------------------------------
Its: Principal
GTCR VI EXECUTIVE FUND, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, LLC
Its: General Partner
By: /s/ illegible
------------------------------------
Its: Principal
GTCR ASSOCIATES VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, LLC
Its: General Partner
By: /s/ illegible
------------------------------------
Its: Principal
SIGNATURE PAGE TO SECOND AMENDMENT TO PURCHASE AGREEMENT AND
REPURCHASE AND SALE AGREEMENT
<PAGE>
EXHIBIT 2.4
Execution Copy
--------------
================================================================================
SHARE EXCHANGE AGREEMENT
BY AND AMONG
ZC ACQUISITION CORP.
AND
ZEFER CORP.
AND
THE STOCKHOLDERS OF ZEFER CORP.
Dated as of April 30, 1999
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
EXCHANGE OF SHARES.................................................... 1
SECTION 1.1 Basic Transaction....................................... 1
SECTION 1.2 Exchange Consideration.................................. 1
SECTION 1.3 The Closing............................................. 2
SECTION 1.4 Deliveries at the Closing............................... 2
SECTION 1.5 Stockholder Representatives............................. 2
SECTION 1.6 Material Adverse Effect................................. 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.................... 3
SECTION 2.1 Stockholders............................................ 3
SECTION 2.2 Authority............................................... 3
SECTION 2.3 Noncontravention........................................ 3
SECTION 2.4 Brokers' Fees........................................... 4
SECTION 2.5 The Shares.............................................. 4
SECTION 2.6 Qualification of the Stockholders....................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY................. 4
SECTION 3.1 Organization, Qualification and Other Equity Interests.. 4
SECTION 3.2 Articles of Incorporation and By-Laws................... 5
SECTION 3.3 Capitalization.......................................... 5
SECTION 3.4 Authority Relative to this Agreement.................... 5
SECTION 3.5 No Conflict; Required Filings and Consents.............. 5
SECTION 3.6 Compliance, Permits..................................... 7
SECTION 3.7 Financial Statements.................................... 7
SECTION 3.8 Absence of Certain Changes or Events.................... 7
SECTION 3.9 No Undisclosed Liabilities.............................. 7
SECTION 3.10 Absence of Litigation................................... 8
SECTION 3.11 Employee Benefit Plans, Employment Agreements........... 8
SECTION 3.12 Labor Matters........................................... 9
SECTION 3.13 Restrictions on Business Activities..................... 9
SECTION 3.14 Title to Property....................................... 9
SECTION 3.15 Taxes................................................... 10
SECTION 3.16 Environmental Matters................................... 11
SECTION 3.17 Intellectual Property................................... 12
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 3.18 Immigration Compliance............................................. 12
SECTION 3.19 Insurance.......................................................... 13
SECTION 3.20 Accounts Receivable................................................ 13
SECTION 3.21 Brokers............................................................ 13
SECTION 3.22 Change in Control Payments......................................... 13
SECTION 3.23 Expenses........................................................... 13
SECTION 3.24 Books and Records.................................................. 13
SECTION 3.25 Full Disclosure.................................................... 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ZC............................................. 14
SECTION 4.1 Organization and Qualification; Subsidiaries....................... 14
SECTION 4.2 Charter and By-Laws................................................ 14
SECTION 4.3 Capitalization..................................................... 14
SECTION 4.4 Authority Relative to this Agreement............................... 15
SECTION 4.5 No Conflict, Required Filings and Consents......................... 15
SECTION 4.6 No Prior Activities................................................ 15
SECTION 4.7 Validity of ZC Common Stock........................................ 16
SECTION 4.8 Brokers............................................................ 16
SECTION 4.9 Tax-Free Exchange.................................................. 16
SECTION 4.10 Full Disclosure.................................................... 16
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING.......................................... 16
SECTION 5.1 Conduct of Business by the Company Pending the Closing............. 16
SECTION 5.2 No Solicitation.................................................... 18
ARTICLE VI
ADDITIONAL AGREEMENTS............................................................ 19
SECTION 6.1 Access to Information.............................................. 19
SECTION 6.2 Consents; Approvals................................................ 19
SECTION 6.3 Notification of Certain Matters.................................... 19
SECTION 6.4 Further Action/Tax Treatment....................................... 20
SECTION 6.5 Public Announcements............................................... 20
SECTION 6.6 Conveyance Taxes................................................... 20
SECTION 6.7 Board Observation Right............................................ 20
SECTION 6.8 Tjan Board Seat.................................................... 20
SECTION 6.9 Noncompetition/Nonsolicitation..................................... 20
SECTION 6.10 Issuance of Options................................................ 21
SECTION 6.11 Employee Bonus..................................................... 21
SECTION 6.12 Third Party Securities............................................. 21
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
CONDITIONS TO THE EXCHANGE....................................................... 22
SECTION 7.1 Conditions to Obligation of Each Party to Effect the Exchange
of Shares......................................................... 22
SECTION 7.2 Additional Conditions to Obligations of ZC......................... 22
SECTION 7.3 Additional Conditions to Obligation of the Company................. 23
ARTICLE VIII
GENERAL PROVISIONS............................................................... 24
SECTION 8.1 Indemnification.................................................... 24
SECTION 8.2 Survival........................................................... 26
SECTION 8.3 Notices............................................................ 27
SECTION 8.4 Certain Definitions................................................ 28
SECTION 8.5 Amendment.......................................................... 29
SECTION 8.6 Waiver............................................................. 29
SECTION 8.7 Headings........................................................... 29
SECTION 8.8 Severability....................................................... 29
SECTION 8.9 Entire Agreement................................................... 29
SECTION 8.10 Assignment......................................................... 29
SECTION 8.11 Payment of Expenses................................................ 29
SECTION 8.12 Parties in Interest................................................ 30
SECTION 8.13 Failure or Indulgence Not Waiver; Remedies Cumulative.............. 30
SECTION 8.14 Governing Law...................................................... 30
SECTION 8.15 Counterparts....................................................... 30
</TABLE>
-iv-
<PAGE>
SHARE EXCHANGE AGREEMENT
SHARE EXCHANGE AGREEMENT, dated as of April 30, 1999 (this "Agreement"),
among ZC Acquisition Corp., a Delaware corporation ("ZC"), ZEFER Corp., a
--
Delaware corporation (the "Company"), and the stockholders of the Company set
-------
forth on the signature pages hereto (the "Stockholders").
------------
WITNESSETH:
WHEREAS, the Stockholders own all of the outstanding shares (the "Shares")
------
of the Company's capital stock (the "Company Stock");
-------------
WHEREAS, ZC wishes to acquire the Shares from the Stockholders in exchange
for shares (the "ZC Shares") of ZC's common stock, $.01 par value ("ZC Common
--------- ---------
Stock"), and cash as set forth in Section 1.2 below (the "Cash Consideration"
- ----- ------------------
and, together with the ZC Shares, the "Exchange Consideration"), to the
----------------------
Stockholders, and the Stockholders wish to surrender the Shares in exchange for
such Exchange Consideration, all upon and subject to the terms and conditions
set forth herein; and
WHEREAS, it is intended that the exchange of the Shares for the ZC Shares,
along with the purchase of shares of ZC Common Stock pursuant to the First
Amendment and Supplement No. 1 to Purchase Agreement dated as of the date hereof
among ZC, GTCR Fund VI, L.P., GTCR VI Executive Fund, L.P. and GTCR Associates
VI (the "GTCR Purchase Agreement"), shall qualify as tax-free transfers to ZC
-----------------------
pursuant to Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations promulgated thereunder.
- -----
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, ZC,
the Stockholders and the Company hereby agree as follows:
ARTICLE I
EXCHANGE OF SHARES
SECTION 1.1 Basic Transaction. The Stockholders hereby agree to transfer
the Shares to ZC, and ZC hereby agrees to issue and pay the Exchange
Consideration to the Stockholders, at the Closing, subject to and upon the terms
and conditions contained herein.
SECTION 1.2 Exchange Consideration. The Exchange Consideration which ZC
shall issue and pay to the Stockholders at the Closing for the Shares and in
consideration of the agreements and covenants of the Stockholders contained
herein shall consist of 864,000 ZC Shares and seven million one hundred thousand
dollars ($7,100,000.00) in cash. Each Stockholder shall be entitled to the
number of ZC Shares and the amount of cash set forth across from his or her name
on Exhibit 1.2 hereto.
-----------
<PAGE>
SECTION 1.3 The Closing. The closing of the exchange of the Shares for the
Exchange Consideration and the other transactions contemplated hereby (the
"Closing") shall take place at the office of Ropes & Gray, One International
-------
Place, Boston, Massachusetts, or at such other place as may be agreed to by ZC
and the Stockholders, on April 30, 1999 or on such other date as may be agreed
to by ZC and the Stockholders (the "Closing Date").
------------
SECTION 1.4 Deliveries at the Closing. At the Closing (i) the Company shall
deliver to ZC the various certificates, instruments, and documents referred to
in Section 7.2 below, (ii) ZC will deliver to the Company the various
certificates, instruments, and documents referred to in Section 7.3 below, (iii)
each of the Stockholders shall deliver to ZC stock certificates representing all
of his, her or its Shares of Company Stock endorsed in blank or accompanied by
duly executed assignment documents and the various certificates, instruments and
documents referred to in Section 7.2 below, and (iv) ZC will deliver to each of
the Stockholders, in exchange for such Shares of Company Stock so delivered, the
number of shares of ZC Common Stock to which such Stockholder is entitled
pursuant to Section 1.2 hereof (subject to the restrictions set forth in the
Employment Agreements and Stock Restriction Agreement delivered pursuant to
Sections 7.2(f) and 7.2(g) hereof, respectively) and the amount of cash to which
such Stockholder is entitled pursuant to Section 1.2 hereof.
SECTION 1.5 Stockholder Representatives. The Stockholders hereby constitute
and appoint, effective as of the Closing, 1261417 Ontario Limited "Mosaic") and
------
Anthony Tjan (together with their permitted successors, the "Stockholder
-----------
Representatives") as their true and lawful agents and attorneys-in-fact to enter
- ---------------
into any agreement in connection with the transactions contemplated by this
Agreement, to exercise all or any of the powers, authority and discretion
conferred on them under any such agreement, to waive any terms and conditions of
any such agreement (other than the Exchange Consideration), to give and receive
notices on their behalf and to be their exclusive representatives with respect
to any matter, suit, claim, action or proceeding arising with respect to any
transaction contemplated by any such agreement, including, without limitation,
the defense, settlement or compromise of any claim, action or proceeding for
which ZC may be entitled to indemnification and the Stockholder Representatives
agree to act as, and to undertake the duties and responsibilities of, such
agents and attorneys-in-fact. This power of attorney is coupled with an
interest. The Stockholder Representatives shall not be liable for any action
taken or not taken by them in connection with their obligations under this
Agreement (i) with the consent of stockholders who, as of the date of this
Agreement, owned a majority in number of the outstanding shares of the Company
Stock or (ii) in the absence of their own gross negligence or wilful misconduct.
If the Stockholder Representatives shall be unable or unwilling to serve in such
capacity or if the Stockholders otherwise desire to replace the Stockholder
Representatives, their successor shall be named by those persons holding a
majority of the shares of the Company Stock outstanding at the Closing Date who
shall serve and exercise the powers of Stockholder Representatives hereunder.
SECTION 1.6 Material Adverse Effect. When used in connection with the
Company or ZC, as the case may be, the term "Material Adverse Effect" means any
-----------------------
change, effect or
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<PAGE>
circumstance that, individually or when taken together with all other similar or
related changes, effects or circumstances that have occurred prior to the date
of determination of the occurrence of the Material Adverse Effect, is or is
reasonably likely to be materially adverse to the business, prospects, assets
(including intangible assets), financial condition or results of operations of
the Company or ZC, as the case may be, taken as a whole, as applicable based on
the party making the representation, warranty or disclosure.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders hereby represents and warrants to ZC, as to
himself or itself but not jointly, that, except as set forth in the written
disclosure schedule delivered on or prior to the date hereof by the Stockholders
to ZC that is arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article II (the "Stockholder Disclosure Schedule"):
-------------------------------
SECTION 2.1 Stockholders. Such Stockholder (other than Mosaic) is an
individual residing at the address indicated on Section 2.1 of the Stockholder
Disclosure Schedule. Mosaic is an Ontario corporation having its principal
executive office at the address indicated on Section 2.1 of the Stockholder
Disclosure Schedule.
SECTION 2.2 Authority. Such Stockholder has full legal capacity, power and
authority to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement has been duly and validly authorized, executed and
delivered by such Stockholder and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes the valid and legally binding
obligation of such Stockholder, enforceable in accordance with its terms and
conditions. No Stockholder need give any notice to, make any filing with or
obtain any authorization, consent or approval of any government or governmental
agency or any other third party in order to consummate the transactions
contemplated by this Agreement.
SECTION 2.3 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any charter, by-law or other governing document of such
Stockholder or, to the knowledge of such Stockholder, any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge or other
restriction of any government, governmental agency or court to which such
Stockholder is subject to or (ii) 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 under
any agreement, contract, lease, license, instrument or other legally binding
arrangement to which any Stockholder is a party or by which he or it is bound or
to which any of his or its assets is subject.
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<PAGE>
SECTION 2.4 Brokers' Fees. No Stockholder has any liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement for which ZC or the Company
could become liable or obligated.
SECTION 2.5 The Shares. Each Stockholder holds of record and owns
beneficially that number of the issued and outstanding shares of Company Stock
indicated in Section 2.5 of the Stockholder Disclosure Schedule, free and clear
of any restrictions on transfer (other than restrictions under applicable
securities laws), mortgages, pledges, liens, encumbrances, charges, security
interests, options, warrants, purchase rights, contracts, commitments, equities,
claims and demands. No Stockholder is a party to any option, warrant, purchase
right or other contract or commitment that could require such Stockholder to
sell, transfer or otherwise dispose of any capital stock of the Company (other
than this Agreement). No Stockholder is a party to any voting trust, proxy or
other Agreement or understanding with respect to the voting of any capital stock
of the Company.
SECTION 2.6 Qualification of the Stockholders. (a) Each Stockholder is
acquiring the ZC Common Stock for his or its own account and not with a view to
or for resale in connection with any distribution thereof; (b) such Stockholder
understands that such shares of ZC Common Stock have not been registered under
the Securities Act or any state securities laws by reason of specified
exemptions from the registration provisions of the Securities Act which depend
upon, among other things, the bona fide nature of his or its investment intent
as expressed herein; (c) such Stockholder is able to bear the economic risk of
investment in the ZC Common Stock and is experienced and has such knowledge and
experience in financial and business matters that he or it is capable of
evaluating the risks and merits of the transactions contemplated by this
Agreement; and (d) such Stockholder acknowledges that such shares of ZC Common
Stock will bear a legend restricting transfer unless (i) the transfer is exempt
from the registration requirements of the Securities Act and an opinion of
counsel reasonably satisfactory to ZC that such transfer is exempt therefrom is
delivered to ZC, or (ii) the transfer is made pursuant to an effective
registration statement under the Securities Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Company and the Stockholders (other than Mosaic) hereby represent and
warrant to ZC that, except as set forth in the written disclosure schedule
delivered on or prior to the date hereof by the Stockholders to ZC that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article III (the "Company Disclosure Schedule"):
---------------------------
SECTION 3.1 Organization, Qualification and Other Equity Interests. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite corporate power
and authority necessary to own, lease and operate the properties it purports to
own, operate or lease and to carry on its business as it is now being conducted.
The Company is duly qualified or licensed as a foreign corporation to do
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<PAGE>
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not have a Material
Adverse Effect. Except as set forth in Section 3.1 of the Company Disclosure
Schedule, the Company does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity.
SECTION 3.2 Articles of Incorporation and By-Laws. The Company has
heretofore furnished to ZC a complete and correct copy of its Certificate of
Incorporation and By-Laws as amended to date. Such Certificate of Incorporation
and By-Laws are in full force and effect. The Company is not in violation of any
of the provisions of its Certificate of Incorporation or By-Laws.
SECTION 3.3 Capitalization. The authorized capital stock of the Company
consists of 168,000 shares of Class A Common Stock, $.01 par value (the "Class A
-------
Common"), 12,000 shares of Class B Common Stock, $.01 par value (the "Class B
- ------ -------
Common"), 12,000 shares of Series A Convertible Preferred Stock, $100 par value
- ------
(the "Series A Preferred"), and 8,000 shares of Series B Non-Voting Preferred
------------------
Stock, $100 par value (the "Series B Preferred"). 50,976.5886287627 shares of
------------------
Class A Common, zero shares of Class B Common, 12,000 shares of Series A
Preferred and zero shares of Series B Preferred are issued and outstanding, all
of which are validly issued, fully paid and nonassessable, and zero shares are
held in treasury. There are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or obligating the Company to issue or sell any
shares of capital stock of, or other equity interests in, the Company. There are
no obligations, contingent or otherwise, of the Company to repurchase, redeem or
otherwise acquire any shares of Company Stock.
SECTION 3.4 Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by the other parties hereto,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting generally the enforcement of creditors' rights and
except as the remedy of specific performance and other injunctive relief may be
unavailable in certain cases.
SECTION 3.5 No Conflict; Required Filings and Consents.
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<PAGE>
(a) Section 3.5(a) of the Company Disclosure Schedule includes a list of
(i) all loan agreements, indentures, mortgages, pledges, conditional sale or
title retention agreements, security agreements, equipment obligations,
guaranties, standby letters of credit, equipment leases or lease purchase
agreements to which the Company is a party or by which it is bound and (ii) all
contracts, agreements, commitments or other understandings or arrangements to
which the Company is a party or by which it or any of its properties or assets
are bound or affected, but excluding contracts, agreements, commitments or other
understandings or arrangements entered into in the ordinary course of business
and involving, in each case, payments or receipts by the Company of amounts
reasonably expected to be less than $25,000 in any single instance but not more
than $100,000 in the aggregate (collectively, the "Contracts").
---------
(b) (i) The Company has not materially breached, is not in material default
under, and has not received written notice of any material breach of or material
default under, any of the Contracts, (ii) to the knowledge of the Company, no
other party to any of the Contracts has materially breached or is in material
default of any of its obligations thereunder, and (iii) to the knowledge of the
Company, each of the Contracts is in full force and effect.
(c) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate the
Certificate of Incorporation or By-Laws of the Company, (ii) conflict with or
violate any federal, foreign, state or provincial law, rule, regulation, order,
judgment or decree (collectively, "Laws") applicable to the Company or by which
----
any of its properties is bound or affected, or (iii) result in any material
breach of or constitute a material default (or, to the knowledge of the Company
and the Stockholders, an event that with notice or lapse of time or both would
become a default) under, or impair the Company's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a security interest, lien, claim, encumbrance or any other
restriction on any of the properties or assets of the Company pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company is a party or
by which the Company or any of its properties is bound or affected.
(d) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit on the part of the Company of, or
filing with or notification on the part of the Company to, any federal, foreign,
state or provincial governmental or regulatory authority except for (i)
applicable requirements, if any, of the Securities Act of 1933, as amended, and
the rules and regulations thereunder (the "Securities Act"), the Securities
--------------
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and state securities laws ("Blue Sky Laws") and (ii) where the
------------ -------------
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or materially delay
consummation of the transactions contemplated by this Agreement, or otherwise
prevent the Company from performing its obligations under this Agreement, and
would not have a Material Adverse Effect.
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<PAGE>
SECTION 3.6 Compliance, Permits.
(a) The Company is in compliance, in all material respects, with all Laws
applicable to the Company or by which any of its assets or properties are bound
or affected.
(b) The Company holds all material permits, licenses, easements, variances,
exemptions, consents, certificates, orders and approvals from governmental
authorities which are necessary for the operation of the business of the Company
as it is now being conducted (collectively, the "Company Permits"), except where
---------------
the failure to hold such Company Permits would not have a Material Adverse
Effect. The Company is in compliance in all material respects with the terms of
the Company Permits.
SECTION 3.7 Financial Statements.
(a) Attached to the Company Disclosure Schedule are (i) the unaudited
balance sheet of the Company as of December 31, 1998, together with the related
statement of income, cash flow and stockholders' equity for the fiscal year then
ended (the "December Financial Statements"), and (ii) the unaudited balance
-----------------------------
sheet of the Company as of March 31, 1999 and the related statement of income,
cash flow and stockholders' equity for the three months then ended (the "Interim
-------
Financial Statements") and, together with the December Financial Statements, the
- --------------------
"Financial Statements").
--------------------
(b) Each of the Financial Statements was prepared in accordance with GAAP
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto), and each fairly presents in all material
respects the consolidated financial position of the Company as at the respective
dates thereof and the consolidated results of its operations, cash flows and
stockholder equity for the periods indicated, except that the Financial
Statements are subject to normal and recurring year-end adjustments which were
not or are not expected to be material in amount and do not contain complete
footnotes required by GAAP.
SECTION 3.8 Absence of Certain Changes or Events. Since December 31, 1998,
the Company has conducted its business in the ordinary course and there has not
occurred: (a) any Material Adverse Effect; (b) any amendments to the Certificate
of Incorporation or By-laws of the Company; (c) any damage to, destruction, sale
or loss of any asset of the Company (whether or not covered by insurance) that
has had or could reasonably be expected to have a Material Adverse Effect; (d)
except as required by law, any material change by the Company in its accounting
methods, principles or practices; (e) any material revaluation by the Company of
any of its assets, including, without limitation, writing off notes or accounts
receivable other than in the ordinary course of business; or (g) any sale of the
property or assets of the Company, except in the ordinary course of business.
Since December 31, 1998, the Company has not taken any action that would require
ZC's consent under Section 5.1 had that provision been in effect at the time.
SECTION 3.9 No Undisclosed Liabilities. The Company has no liabilities
(absolute, accrued, contingent or otherwise), except liabilities (a) adequately
provided for in the Financial
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<PAGE>
Statements, (b) which are current liabilities incurred since March 31, 1999 in
the ordinary course of business consistent with past practice, or (c) incurred
in connection with this Agreement.
SECTION 3.10 Absence of Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any properties or rights of the Company before
any federal, foreign, state or provincial court, arbitrator or administrative,
governmental or regulatory authority or body.
SECTION 3.11 Employee Benefit Plans, Employment Agreements.
(a) Section 3.11 (a) of the Company Disclosure Schedule lists all employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all employee welfare plans (as
-----
defined in Section 3(1) of ERISA), and all other bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
for the benefit of, or relating to, any present or former employee (including
any beneficiary of any such employee) of, or any present or former consultant
(including any beneficiary of any such consultant) to the Company, or any trade
or business (whether or not incorporated) which is a member of a controlled
group including the Company or which is under common control with the Company
(an "ERISA Affiliate") within the meaning of Section 414 of the Code (all such
---------------
plans, practices and programs are referred to as the "Company Employee Plans").
----------------------
The Company has made available to ZC copies of (i) the most recent annual report
on Form 5500 series, with accompanying schedules and attachments, filed with
respect to each Company Employee Plan required to make such a filing, and (ii)
the most recent Internal Revenue Service determination or opinion letter with
respect to each Company Employee Plan intended to be qualified under Section
401(a) of the Code.
(b) (i) None of the Company Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person (other than post-
employment coverage mandated by law), and neither the Company nor any ERISA
Affiliate has ever maintained, contributed to, or been required to contribute
to, any plan that is or was a "multiemployer plan" as such term is defined in
Section 3(37) of ERISA, a pension plan subject to Title IV of ERISA or a plan
subject to Part 3 of subtitle B of Title I of ERISA; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Company Employee Plan, which could
result in any material liability of the Company; (iii) all Company Employee
Plans are in compliance in all material respects with the requirements
prescribed by any and all Laws (including ERISA and the Code), currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, Internal Revenue
Service (the "IRS") or Secretary of the Treasury), and the Company has performed
---
all material obligations required to be performed by it under, is not in any
material respect in default under or violation of, and has no knowledge of any
such default or violation by any other party to, any of the Company Employee
Plans; (iv) each Company Employee Plan intended to qualify under Section 401(a)
of the Code and each trust intended to qualify under Section 501(a) of the Code
is the subject of a favorable determination or opinion letter from the IRS, and
nothing has occurred which would reasonably be expected to impair such
determination (other than required
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<PAGE>
changes where the time for making such changes has not yet expired); and (v)
there are no lawsuits or other claims (other than claims for benefits in the
ordinary course) pending or, to the best knowledge of the Company, threatened
with respect to any Company Employee Plan.
(c) Section 3.11(c) of the Company Disclosure Schedule sets forth a true
and complete list of: (i) all employment agreements with officers of the Company
or; (ii) all agreements with consultants who are individuals obligating the
Company to make minimum annual cash payments in an amount exceeding $50,000
(iii) all employees of, or consultants to, the Company who have executed a non-
competition agreement with the Company; (iv) all severance agreements, programs
and policies of the Company with or relating to its employees, in each case with
outstanding commitments exceeding $50,000, excluding programs and policies
required to be maintained by law; and (v) all plans, programs, agreements and
other arrangements of the Company with or relating to its employees which
contain change in control provisions.
SECTION 3.12 Labor Matters. (i) There are no controversies pending or, to
the knowledge of the Company, threatened between the Company and any of its
employees; (ii) the Company is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company, and to the knowledge of the Company there are no activities or
proceedings of any labor union to organize any such employees; and (iii) to the
knowledge of the Company there are not currently and there have not been any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of the Company.
SECTION 3.13 Restrictions on Business Activities. Except for this
Agreement, to the Company's knowledge, there is no agreement, judgment,
injunction, order or decree binding upon the Company or any other person which
has or would reasonably be expected to have the adverse effect of prohibiting or
impairing any material business practice of the Company or the acquisition of
property by the Company.
SECTION 3.14 Title to Property. The Company has good and marketable title
to all of its properties and assets, free and clear of all liens, charges and
encumbrances, except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
would not have a Material Adverse Effect; and, to the knowledge of the Company,
all leases pursuant to which the Company leases from others real or personal
property, are in good standing, valid and effective in accordance with their
respective terms, and there is not, to the knowledge of the Company, under any
of such leases, any existing material default or event of default (or event
which with notice or lapse of time, or both, would constitute a material
default). The Company does not own any real property.
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<PAGE>
SECTION 3.15 Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes,
fees, levies, duties, tariffs, imposts, and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including, without limitation, (i)
income, franchise, profits, gross receipts, ad valorem, net worth, value added,
sales, use, service, real or personal property, special assessments, capital
stock, license, payroll, withholding, employment, social security (or similar),
workers' compensation, unemployment compensation, environmental (including Taxes
under Code section 59A) utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes, and (ii)
interest, penalties, additional taxes and additions to tax imposed with respect
thereto; and "Tax Returns" shall mean returns, reports, declarations, forms and
information statements with respect to Taxes required to be filed with the IRS
or any other federal, foreign, state or provincial taxing authority, domestic or
foreign, including, without limitation, consolidated, combined and unitary tax
returns, including any amendments thereto.
(b) (i) All Tax Returns of, relating to or which include the Company which
are required to have been filed have been filed on a timely basis with the
appropriate authorities and all such Tax Returns are true, correct and complete
in all material respects, (ii) all material Taxes required to have been paid by
the Company (whether or not shown on any Tax Return) have been paid in full on a
timely basis to the appropriate authorities, and (iii) all material Taxes or
other material amounts required to have been collected or withheld by the
Company have been timely and properly collected or withheld and paid to the
appropriate authorities.
(c) (1) No claim has ever been made by an authority in a jurisdiction where
the Company does not file Tax Returns that the Company is or may be subject to
Tax by that jurisdiction, (2) no Taxing authority has asserted in writing any
adjustment, deficiency, or assessment that could result in additional Tax for
which the Company is or may be liable, (3) there is no pending audit,
examination, investigation, dispute, proceeding or claim for which the Company
has received notice relating to any Tax for which the Company is or may be
liable, (4) no statute of limitations with respect to any Tax for which the
Company is or may be liable has been waived or extended, (5) the Company is not
currently the beneficiary of any extension of time within which to file any Tax
Return, (6) the Company is not a party to any Tax sharing or Tax allocation
agreement, arrangement or understanding and (7) there are no powers of attorney
with respect to Taxes of the Company currently in force.
(d) There are no liens on any of the assets of the Company which arose in
connection with any failure or asserted failure to pay any Tax, other than liens
for current Taxes not yet due and payable.
(e) The Company is not a party to any contract, agreement, plan or
arrangement that, individually or collectively, could give rise to any payment
in the nature of compensation that
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<PAGE>
would not be deductible by reason of Sections 162, 280G or 404 of the Code. No
consent has been filed under Section 341(f) of the Code with respect to the
Company.
(f) The Company has not been a member of an affiliated group filing a
consolidated federal income Tax Return, and the Company is not liable for the
Taxes of any person under Treasury Regulation 1.1502-6 (or any similar provision
of state, local, or foreign law) as transferee or successor, by contract or
otherwise. The Company is not a party to any joint venture, partnership or other
arrangement that could be treated as a partnership for Tax purposes.
(g) Copies of (i) any Tax examinations, (ii) extensions of statutes of
limitations, (iii) the federal, state, local and foreign income Tax Returns of
the Company, and (iv) substantive correspondence between the Company and all
Taxing authorities for its last three (3) taxable years have previously been
furnished or made available to ZC.
(h) Section 3.15(h) of the Company Disclosure Schedule lists (A) the
Company's Tax basis in its assets as of December 31, 1998 and as utilized in the
Tax Returns, (B) the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign Tax, excess charitable contribution,
adjustments under Section 481 of the Code and other Tax attributes allocable to
the Company as shown on the Tax Returns, and (C) the amount of any deferred gain
or loss allocable to the Company arising out of any deferred intercompany
transaction and any excess loss account attributable to the Company.
(i) The unpaid Taxes of the Company (A) did not as of December 31, 1998
materially exceed the reserve for Taxes (other than deferred Taxes established
to reflect book-tax timing differences) set forth on the Company's December
Financial Statements and (B) do not materially exceed that reserve as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of the Company in filing its Tax Returns.
(j) No Tax is required to be withheld by ZC as a result of the payment of
the Exchange Consideration pursuant to this Agreement, except as set forth in
Section 3.15(j) of the Company Disclosure Schedule.
SECTION 3.16 Environmental Matters. The Company: (i) to its knowledge, has
obtained all material approvals which are required to be obtained under all
applicable federal, state or local laws or any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, or hazardous or toxic materials or wastes
into ambient air, surface water, ground water, or land or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes by the Company ("Environmental Laws"); (ii) to its
------------------
knowledge, is in material compliance with all terms and conditions of such
required approvals, and also is in material compliance with all other
limitations, restrictions, conditions, standards, prohibitions,
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<PAGE>
requirements, obligations, schedules and timetables contained in applicable
Environmental Laws; and (iii) as of the date hereof, is not aware of nor has
received notice of any past or present violations by the Company of
Environmental Laws or any event, condition, circumstance, activity, practice,
incident, action or plan which is reasonably likely to interfere with or prevent
continued material compliance with or which would give rise to any material
common law or statutory liability, or otherwise form the basis of any material
claim, action, suit or proceeding, against the Company based on or resulting
from the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge or release into the
environment, of any pollutant, contaminant or hazardous or toxic material or
waste.
SECTION 3.17 Intellectual Property. The Company owns or licenses all
patents, patent applications, trademarks, service marks, trade names, corporate
names, copyrights, trade secrets or other proprietary rights necessary to the
conduct of the business of the Company. Except as listed in Section 3.17 of the
Company Disclosure Schedule, the Company has not licensed from any third party
any proprietary rights or, to the knowledge of the Company, infringed,
misappropriated or otherwise conflicted with any proprietary rights of any third
parties. To the Company's knowledge, no activity of any third party infringes
upon any proprietary rights of the Company. All of the Company's trademarks and
trade names are listed in Section 3.17 of the Company Disclosure Schedule and
the Company has good title to all of such trademarks and trade names free and
clear of any lien, charge, license or other encumbrance.
SECTION 3.18 Immigration Compliance. (a) The Company is in compliance in
all material respects with all applicable foreign, federal, state and local
laws, rules, directives and regulations relating to the employment authorization
of its employees (including, without limitation, the Immigration Reform and
Control Act of 1986, as amended and supplemented, and Section 212(n) and 274A of
the Immigration and Nationality Act, as amended and supplemented, and all
implementing regulations relating thereto), and the Company has not employed nor
is it currently employing any unauthorized aliens (as such term is defined under
8 CFR 274a.1(a)).
(b) The Company has not received any notice from the Immigration and
Naturalization Service (the "INS") or the U.S. Department of Labor (the "DOL")
--- ---
of the disapproval or denial of any visa petition pending before the INS or
labor certification pending before the DOL on behalf of any employee or
prospective employee of the Company.
(c) Section 3.18 (c) of the Company Disclosure Schedule contains a true,
complete and accurate list of all non-immigrant or immigrant visa petitions
pending before the INS and labor certifications pending before the DOL on behalf
of any of the employees or prospective employees of the Company.
(d) Since the approval of each of their respective visa petitions, there
has been no material change in the terms and conditions of employment of any
employees of the Company, provided that it is acknowledged that certain
employees from time to time unilaterally breach the terms of their employment
with the Company.
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SECTION 3.19 Insurance. Section 3.19 of the Company Disclosure Schedule
describes each insurance policy maintained by the Company with respect to the
Company's properties, assets and operations and sets forth the date of
expiration of each such insurance policy. All of such insurance policies are in
full force and effect. The Company is not in default with respect to its
obligations under any of such insurance policies.
SECTION 3.20 Accounts Receivable. The accounts receivable of the Company
as reflected in the most recent Financial Statements, to the extent uncollected
on the date hereof, and the accounts receivable reflected on the books of the
Company are valid and existing and represent monies due, and the Company has
made reserves reasonably considered adequate for receivables not collectible in
the ordinary course of business, and (subject to the aforesaid reserves) are
subject to no refunds or other adjustments and to no defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions enforceable by third
parties on or affecting any thereof.
SECTION 3.21 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or its affiliates.
SECTION 3.22 Change in Control Payments. Except as set forth in Section
3.22 of the Company Disclosure, the Company has no plans, programs or agreements
to which it is a party, or to which it is subject, pursuant to which payments
may be required or acceleration of benefits may be required upon a change of
control of the Company.
SECTION 3.23 Expenses. Section 3.23 of the Company Disclosure Schedule
attached hereto sets forth a description of all of the estimated third party
expenses of the Company, including those payable to auditors, consultants and
other professionals, as of the date hereof which the Company expects to incur,
or has incurred, in connection with the transactions contemplated by this
Agreement. Notwithstanding anything else to the contrary herein, the
information set forth in Section 3.23 of the Company Disclosure Schedule shall
not act as a limitation on such third party expenses or otherwise limit the
rights of such third parties against the Company.
SECTION 3.24 Books and Records. The books of account, stock records,
minute books and other records of the Company are true and complete in all
material respects. The minute books of the Company made available to ZC contain
a complete and accurate record of all corporate actions of directors and
stockholders since the time of incorporation of the Company through the date of
this Agreement.
SECTION 3.25 Full Disclosure. No representation or warranty made by the
Company contained in this Agreement and no statement contained in any
certificate or schedule furnished by the Company to ZC in, or pursuant to the
provisions of, this Agreement, including without limitation the Company
Disclosure Schedule, contains any untrue statement of a material fact or
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omits or will at the Closing omit to state any material fact necessary, in the
light of the circumstances under which it was made, in order to make statements
herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ZC
ZC hereby represents and warrants to the Company and the Stockholders that,
except as set forth in the written disclosure schedule delivered on or prior to
the date hereof by ZC to the Company that is arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
IV (the "ZC Disclosure Schedule"):
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SECTION 4.1 Organization and Qualification; Subsidiaries. ZC is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted. ZC is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not have a Material
Adverse Effect. ZC does not have any subsidiaries.
SECTION 4.2 Charter and By-Laws. ZC has heretofore furnished to the
Company a complete and correct copy of its Certificate of Incorporation and By-
Laws, as amended to date. Such Certificate of Incorporation and By-Laws are in
full force and effect.
SECTION 4.3 Capitalization. The authorized capital stock of ZC consists
of (i) 9,624,060 shares of ZC Common Stock and (ii) 96,200 shares of Class A
Preferred Stock, par value $.01 per share ("Preferred Stock"). Immediately
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following the Closing (giving effect to the transactions contemplated by the
GTCR Purchase Agreement), the issued and outstanding capital stock of ZC will be
as set forth in Section 4.3 of the ZC Disclosure Schedule. The shares of ZC
Common Stock to be issued pursuant to the GTCR Purchase Agreement will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and
subject to no preemptive rights, and shall be issued in compliance with
applicable securities laws. Except as set forth in Section 4.3 of the ZC
Disclosure Schedule, there are no options, warrants or other rights, agreements,
trusts, proxies, arrangements or commitments of any character relating to the
issued or unissued shares of capital stock of ZC or obligating ZC to issue or
sell any shares of capital stock of, or other equity interests in, ZC. There
are no obligations, contingent or otherwise, of ZC to repurchase, redeem or
otherwise acquire shares of ZC Common Stock. Assuming the accuracy of the
Stockholders' representations, the issuance of the Shares is not required to be
registered under the Securities Act of 1933 or any state securities laws.
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SECTION 4.4 Authority Relative to this Agreement. ZC has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by ZC and the
consummation by ZC of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of ZC, and no
other corporate proceedings on the part of ZC are necessary to authorize this
Agreement or to consummate the transactions contemplated thereby. This
Agreement has been duly and validly executed and delivered by ZC and, assuming
the due authorization, execution and delivery by the Company and the
Stockholders, constitutes a legal, valid and binding obligation of ZC
enforceable against it in accordance with its terms.
SECTION 4.5 No Conflict, Required Filings and Consents.
(a) Except as set forth in Section 4.5(a) of the ZC Disclosure Schedule,
the execution and delivery of this Agreement by ZC does not, and the performance
of this Agreement by ZC will not, (i) conflict with or violate the Certificate
of Incorporation or By-Laws of ZC, (ii) conflict with or violate any Laws
applicable to ZC or by which its properties are bound or affected, or (iii)
result in any material breach of or constitute a material default (or an event
which with notice or lapse of time or both would become a default) under, or
impair ZC's rights or alter the rights or obligations of any third party under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of ZC pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which ZC is a party or by which ZC or any of its properties are
bound or affected.
(b) The execution and delivery of this Agreement by ZC does not, and the
performance of this Agreement by ZC will not, require any consent, approval,
authorization or permit on the part of ZC of, or filing with or notification on
the part of ZC to, any federal foreign, state or provincial governmental or
regulatory authority except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, and the Blue Sky Laws, and (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay consummation of
the transactions contemplated by this Agreement, or otherwise prevent ZC from
performing its obligations under this Agreement, and would not have a Material
Adverse Effect.
SECTION 4.6 No Prior Activities. ZC is a newly formed corporation which
has conducted no material business activity other than entering into the
financing agreements and any ancillary agreements related thereto listed in
Section 4.6 of the ZC Disclosure Schedule (the "Initial Financing Agreements"),
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true and correct copies of which ZC has furnished to the Company and the
Stockholders prior to the date hereof. As of the date hereof and the Closing
Date, except for obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated by this
Agreement and except for this Agreement and the Initial Financing Agreements and
any other agreements or arrangements contemplated
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hereby or thereby, ZC has not and will not have incurred, directly or
indirectly, through any subsidiary or affiliate, any obligations or liabilities
or engaged in any business activities of any type or kind whatsoever or entered
into any agreements or arrangements with any person. ZC is not a party to any
material contracts or agreements other than those set forth in Section 4.6 of
the ZC Disclosure Schedule.
SECTION 4.7 Validity of ZC Common Stock. The shares of ZC Common Stock to
be issued pursuant to this Agreement will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and subject to no preemptive
rights.
SECTION 4.8 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of ZC or its affiliates.
SECTION 4.9 Tax-Free Exchange. ZC has not taken any action which would
disqualify the share exchange contemplated hereby from being a tax-free exchange
under Section 351 of the Code.
SECTION 4.10 Full Disclosure. No representation or warranty made by ZC
contained in this Agreement and no statement contained in any certificate or
schedule furnished by ZC to the Company in, or pursuant to the provisions of,
this Agreement, including without limitation the ZC Disclosure Schedule,
contains any untrue statement of a material fact or omits to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make the statements herein not misleading.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
SECTION 5.1 Conduct of Business by the Company Pending the Closing. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the Closing, unless ZC shall otherwise agree in
writing, which agreement shall not be unreasonably withheld, the Company shall
conduct its business only in, and the Company shall not take any action except
in, the ordinary course of business and in a manner consistent with past
practice other than actions expressly provided for in this Agreement; and the
Company shall use all reasonable commercial efforts to preserve intact the
business organization of the Company, to keep available the services of the
present officers, employees and consultants of the Company and to preserve the
present relationships of the Company with customers, suppliers and other persons
with which the Company has business relations. By way of amplification and not
limitation, except as expressly provided for in this Agreement, the Company
shall not, during the period from the date of this Agreement and continuing
until the Closing, directly or indirectly do, or propose to do, any of the
following without the prior written consent of ZC, which consent shall not be
unreasonably withheld:
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(a) amend the Certificate of Incorporation or By-Laws of the Company;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) in the
Company;
(c) except in the ordinary course of business, sell, pledge, dispose of
or encumber any assets (tangible or intangible) of the Company except for (i)
dispositions of obsolete or worthless assets and (ii) sales of assets not in
excess of $10,000 in the aggregate;
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, (ii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) amend the terms or change the period of exercisability
of, purchase, repurchase, redeem or otherwise acquire, any of its securities
including without limitation, shares of Company Stock or any option, warrant or
right, directly or indirectly, to acquire shares of Company Stock, or propose to
do any of the foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) except in the ordinary course of business and only under the
Company's revolving line of credit, incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person or, except
in the ordinary course of business consistent with past practice, make any loans
or advances; (iii) enter into or amend any material contract or agreement; (iv)
authorize any capital expenditures or purchases of fixed assets which are, in
the aggregate, in excess of $25,000; or (v) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the matters prohibited by
this Section 5.1(e);
(f) increase the compensation payable or to become payable to its
officers, increase compensation payable or to become payable to its employees
other than in the ordinary course of business, or grant any severance or
termination pay to, or enter into any employment or severance agreement with any
director, officer or other employee of the Company, or establish, adopt, enter
into or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any current or former
directors, officers or employees, except, in each case, as may be required by
law;
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(g) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable), except as
may be required by law;
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the Financial Statements or incurred in the ordinary course of business and
consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1 (a) through (i) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect in any material respect or prevent the Company
from performing or cause the Company not to perform its covenants hereunder.
SECTION 5.2 No Solicitation.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company, (i) solicit,
initiate or encourage the initiation of any inquiries or proposals regarding any
merger, sale of substantial assets, sale of shares of capital stock (including
without limitation by way of a tender offer) or similar transactions involving
the Company other than the transactions contemplated by this Agreement (any of
the foregoing inquiries or proposals being referred to herein as an "Acquisition
-----------
Proposal"), (ii) engage in negotiations or discussions concerning, or provide
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any nonpublic information to any person relating to, any Acquisition Proposal or
(iii) agree to, approve or recommend any Acquisition Proposal.
(b) The Company shall immediately notify ZC after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company in
connection with an Acquisition Proposal or for access to the properties, books
or records of the Company by any person or entity that informs the Board of
Directors or any officer of the Company that it is considering making, or has
made, an Acquisition Proposal. Such notice to ZC shall be made orally and in
writing.
(c) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than ZC) conducted
heretofore with respect to any of the foregoing. The Company agrees not to
release any third party from the confidentiality provisions of any
confidentiality agreement to which the Company is a party, except as required
under the terms of such agreement.
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(d) The Company shall ensure that the officers, directors and employees
of the Company and any investment banker or other advisor or representative
retained by the Company are aware of the restrictions described in this Section
5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Access to Information. Upon reasonable notice, the Company
and ZC shall each afford to the officers, employees, accountants, counsel and
other representatives of the other, reasonable access during business hours,
during the period from the date of this Agreement to the Closing, to all its
properties, books, contracts, commitments and records and, during such period,
the Company and ZC each shall furnish promptly to the other all information
concerning its business, properties and personnel as such other party may
reasonably request, and each shall make available to the other the appropriate
individuals (including attorneys, accountants and other professionals) for
discussion of the other's business, properties and personnel as either ZC or the
Company may reasonably request.
SECTION 6.2 Consents; Approvals. The Company and ZC shall each use their
reasonable efforts to obtain all consents, waivers, approvals, authorizations or
orders (including, without limitation, all United States governmental and
regulatory rulings and approvals), and the Company and ZC shall make all filings
(including, without limitation, all filings with United States governmental or
regulatory agencies) required in connection with the authorization, execution
and delivery of this Agreement by the Company, on the one hand, and ZC, on the
other hand, and the consummation by them of the transactions contemplated
hereby, in each case as promptly as practicable, except where the failure to
obtain the consent or authorization or the failure to make the filing would not
have a Material Adverse Effect. The Company and ZC shall furnish promptly all
information required to be included in any application or other filing to be
made pursuant to the rules and regulations of any United States or foreign
governmental body in connection with the transactions contemplated by this
Agreement.
SECTION 6.3 Notification of Certain Matters. The Company shall give
prompt notice to ZC, and ZC shall give prompt notice to the Company, of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to become untrue or inaccurate in any material respect, or (ii) any
failure of the Company, the Stockholders or ZC, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder in any material respect; provided, however, that the
delivery of any notice pursuant to this Section shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice; and
provided further that failure to give such notice shall not be treated as a
breach of covenant for the purposes of Sections 7.2(a) or 7.3(a) unless the
failure to give such notice results in material prejudice to the other party.
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SECTION 6.4 Further Action/Tax Treatment. Upon the terms and subject to
the conditions hereof each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under this Agreement. ZC shall not intentionally take or cause to be taken any
action that would disqualify the share exchange contemplated by this Agreement
from being tax-free under Section 351 of the Code.
SECTION 6.5 Public Announcements. ZC and the Company shall consult with
each other before issuing any press release with respect to this Agreement or
the transactions contemplated hereby and shall not issue any such press release
or make any such public statement without the prior consent of the other party,
which shall not be unreasonably withheld. This covenant is not for the benefit
of the Stockholders after the Closing.
SECTION 6.6 Conveyance Taxes. ZC and the Company shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications,
or other documents regarding any gains, sales, use, transfer, value added, stock
transfer and stamp taxes, any transfer, recording, registration and other fees,
and any similar taxes which become payable in connection with the transactions
contemplated hereby that are required or permitted to be filed at or before the
Closing.
SECTION 6.7 Board Observation Right. So long as it owns at least 50% of
the shares of ZC Common Stock issued to it in connection with the transactions
contemplated by this Agreement, Mosaic shall have the right to designate one
individual to observe all meetings of the Board of Directors of ZC. Mosaic
shall be entitled to the same notice of such meetings and information relating
to such meetings as the members of the Board of Directors.
SECTION 6.8 Tjan Board Seat. ZC shall cause Anthony Tjan to be elected to
the Board of Directors as a Class I Director contemporaneously with the Closing.
SECTION 6.9 Noncompetition/Nonsolicitation. (a) For the period of years
after the Closing Date specified across from such Stockholder's name on Exhibit
6.9 hereto (the "Noncompete Period"), each Stockholder shall not, within the
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United States or Canada, directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business engaged in Internet consulting and/or implementation services or
any business in which ZC or any of its subsidiaries has requested and received
information relating to the acquisition of such business by ZC and the
subsidiaries; provided that passive ownership of less than 5% of the outstanding
stock of any publicly-traded corporation shall not, in and of itself, be deemed
to violate this Section 6.9.
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(b) During the Noncompete Period, each Stockholder shall not directly
or indirectly through another entity (i) induce or attempt to induce any
employee of ZC or its subsidiaries to leave the employ of ZC or such subsidiary,
or in any way interfere with the relationship between ZC and any subsidiary and
any employee thereof, (ii) hire any person who was an employee of ZC or any
subsidiary within 180 days prior to the time such employee was hired by the
Stockholder, (iii) induce or attempt to induce any customer, supplier, licensee
or other business relation of ZC or any subsidiary to cease doing business with
ZC or such subsidiary or in any way interfere with the relationship between any
such customer, supplier, licensee or business relation and ZC and any subsidiary
or (iv) directly or indirectly acquire or attempt to acquire an interest in any
business relating to the business of ZC and any subsidiary and with which ZC and
any subsidiary has entertained discussions or has requested and received
information relating to the acquisition of such business by ZC and any
subsidiary.
(c) If, at the time of enforcement of this Section 6.9, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum duration, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum duration, scope and area
permitted by law. The parties hereto agree that money damages would be an
inadequate remedy for any breach of this Section 6.9. Therefore, in the event a
breach or threatened breach of this Section 6.9, ZC or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
SECTION 6.10 Issuance of Options. ZC agrees to reserve for issuance to
non-stockholder employees of the Company options to purchase 20,000 shares of ZC
Common Stock. The options so reserved shall be issued pursuant to a stock
option plan yet to be approved, but shall in any event be non-qualified options
with an exercise price of $0.50, have a 10 year term (subject to earlier
termination) and vest over a four year period.
SECTION 6.11 Employee Bonus. ZC agrees that, within 5 business days
following the Closing, it shall make, or shall cause the Company to make, a one-
time bonus payment in the aggregate amount of $300,000 to the individuals and in
the amounts set forth on Exhibit 6.11 hereto.
SECTION 6.12 Third Party Securities. The Stockholders acknowledge and
agree that any and all securities issued or issuable by Frictionless, Inc.,
Bernard's Gallery, Ltd., Accompany, Inc. and Foodline, LLC pursuant to any
applicable agreements or arrangements with the Company or in connection with the
provision of services by the Company (the "Third Party Securities") are and
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shall at all times remain the sole and exclusive property of the Company and
that the Stockholders have no right or claim thereto. The Stockholders agree to
take all actions necessary
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or appropriate to ensure that the Third Party Securities are issued in the
proper corporate name of the Company.
ARTICLE VII
CONDITIONS TO THE EXCHANGE OF SHARES
SECTION 7.1 Conditions to Obligation of Each Party to Effect the Exchange
of Shares. The respective obligations of each party to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect, nor shall any proceeding brought by any administrative agency or
commission or other governmental authority or instrumentality, seeking any of
the foregoing be pending; and there shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the transactions contemplated by this Agreement, which makes the
consummation of the transactions contemplated by this Agreement illegal; and
(b) Governmental Actions. There shall not have been instituted, pending
or threatened any action or proceeding (or any investigation or other inquiry
that might result in such an action or proceeding) by any governmental authority
or administrative agency before any governmental authority, administrative
agency or court of competent jurisdiction, nor shall there be in effect any
judgment, decree or order of any governmental authority, administrative agency
or court of competent jurisdiction, in either case, seeking to prohibit or limit
ZC from exercising all material rights and privileges pertaining to its
ownership of the Company or the ownership or operation by ZC or any of its
subsidiaries of all or a material portion of the business or assets of ZC or any
of its subsidiaries, as a result of the transactions contemplated by this
Agreement.
SECTION 7.2 Additional Conditions to Obligations of ZC. The obligations
of ZC to effect the transactions contemplated by this Agreement are also subject
to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company and the Stockholders contained in this Agreement shall have been
true and correct in all material respects at and as of the date made, and shall
be true and correct in all material respects as of the Closing Date with the
same effect as though made on and as of the Closing Date. In addition, all
representations and warranties of the Company and the Stockholders that are
qualified by materiality or similar words shall have been true and correct
(giving effect to such qualification) in all respects when made and as of the
Closing Date. ZC shall have received a certificate to such effect signed on
behalf of the Company by the President and the Chief Financial Officer of the
Company and on behalf of the Stockholders by the Stockholder Representatives;
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(b) Agreements and Covenants. The Company and the Stockholders shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by each of
them at or prior to the Closing Date, and ZC shall have received a certificate
to such effect signed on behalf of the Company by the President and the Chief
Financial Officer of the Company and on behalf of the Stockholders by the
Stockholder Representatives;
(c) Consents Obtained. All consents, waivers, approvals, authorizations
or orders required to be obtained, and all filings required to be made, by the
Company and the Stockholders for the due authorization, execution and delivery
of this Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained and made by the Company and the Stockholders,
except where the failure to obtain such consents, waivers approvals,
authorizations or orders or to make such filings would not have a Material
Adverse Effect;
(d) Opinion of Counsel to the Company. ZC shall have received opinions of
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC, counsel to the Company, and
Foley, Hoag & Eliot, LLP, special counsel to the Copmany, which together are in
substantially the form attached hereto as Exhibit 7.2(d);
(e) Stockholder Agreement. ZC shall have received executed Stockholder
Agreements (or counterpart signature pages thereto) from each of the
Stockholders;
(f) Employment Agreements. ZC shall have received executed Employment
Agreements, substantially in the form of Exhibit 7.2(f), from all of the
Stockholders other than Mosaic; and
(g) Stock Restriction Agreement. ZC shall have received an executed Stock
Restriction Agreement, substantially in the form of Exhibit 7.2(g), from Mosaic.
SECTION 7.3 Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the transactions contemplated by this
Agreement is also subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of ZC contained in this Agreement shall have been true and correct in all
material respects at and as of the date made, and shall be true and correct in
all material respects as of the Closing Date with the same effect as though made
on and as of the Closing Date. In addition, all representations and warranties
of ZC that are qualified by materiality or similar words shall have been true
and correct (giving effect to such qualification) in all respects when made and
as of the Closing Date. The Company shall have received a certificate to such
effect signed by the President and the Chief Financial Officer of ZC;
(b) Agreements and Covenants. ZC shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or
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complied with by it on or prior to the Closing Date, and the Company shall have
received a certificate to such effect signed by the President and the Chief
Financial Officer of ZC;
(c) Consents Obtained. All consents, waivers, approvals, authorizations or
orders required to be obtained, and all filings required to be made, by ZC for
the due authorization, execution and delivery of this Agreement and the
consummation by it of the transactions contemplated hereby shall have been
obtained and made by ZC;
(d) Opinion of Counsel to ZC. The Company shall have received an opinion
of Ropes & Gray, counsel to ZC, in substantially the form attached hereto as
Exhibit 7.3(d); and
(e) Registration Rights Agreement. ZC shall have entered into a
Registration Rights Agreement with the Stockholders in substantially the form
attached hereto as Exhibit 7.3(e).
(f) Investment by GTCR Funds. The transactions contemplated by the GTCR
Purchase Agreement shall be consummated simultaneously with the Closing.
(g) Employment Agreements. ZC shall have executed Employment Agreements,
substantially in the form of Exhibit 7.2(f), in favor of all Stockholders other
than Mosaic.
ARTICLE VII
GENERAL PROVISIONS
SECTION 8.1 Indemnification.
(a) Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the Company, the Stockholders and ZC made in this Agreement and in
the documents and certificates delivered in connection herewith shall survive
the Closing until the first anniversary of the Closing Date (except for those
contained in Sections 2.5 (The Shares), 3.3 (Capitalization), 3.11 (Employee
Benefit Plans, Employment Agreements) and 3.15 (Taxes), which shall survive the
Closing and shall continue in full force and effect without limit as to time
(subject to any applicable statutes of limitations and any extensions or waivers
thereof with respect to Tax matters))(the "Indemnity Period") and shall remain
----------------
operative and in full force and effect through the end of the Indemnity Period
regardless of any investigation made by or on behalf of any other party hereto,
any person controlling any such party or any of their officers or directors,
whether prior to or after the execution of this Agreement. No claim for
indemnification under this Section 8.1 for breach of a representation or
warranty may be commenced after the Indemnity Period, provided, however, that
-------- ------
claims made within the applicable time period shall survive to the extent of
such claim until such claim is finally determined and, if applicable, paid.
(b) Indemnification of ZC. The Stockholders agree to jointly and
---------------------
severally indemnify, defend, protect, and hold harmless each of ZC, the Company
and each of their respective subsidiaries and affiliates (each in its capacity
as an indemnified party, an "Indemnitee") at all
----------
-24-
<PAGE>
times from and after the date of this Agreement from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) (collectively "Damages") incurred
-------
by such Indemnitee as a result of or incident to (i) any breach of any
representation or warranty of the Company or the Stockholders set forth herein
or in any certificate or other document delivered in connection herewith as of
the date made (as such representation or warranty would read if all
qualifications as to knowledge, materiality and Material Adverse Effect were
deleted from it) with respect to which a claim for indemnification is brought by
an Indemnitee within the applicable survival period, if any, described in
Section 8.1(a) and (ii) any breach or nonfulfillment by the Company or the
Stockholders, or any noncompliance by the Company or the Stockholders with, any
covenant, agreement, or obligation contained herein or in any certificate or
other document delivered in connection herewith.
(c) Third Person Claims. Promptly after an Indemnitee has received notice
-------------------
of or has knowledge of any claim by a person not a party to this Agreement
("Third Person") or the commencement of any action or proceeding by a Third
-------------
Person, the Indemnitee shall give the Stockholder Representatives written notice
of such claim or the commencement of such action or proceeding; provided,
--------
however, that the failure to give such notice will not effect the Indemnitees'
- -------
right to indemnification hereunder with respect to such claim, action or
proceeding, except to the extent that the Stockholder Representatives have, or
the Stockholders have, been actually and materially prejudiced as a result of
such failure. If the Stockholder Representatives notify the Indemnitee within
thirty (30) days from the receipt of the foregoing notice that they wish to
defend against the claim by the Third Person, then the Stockholder
Representatives shall have the right to assume and control the defense of the
claim by appropriate proceedings with counsel reasonably acceptable to
Indemnitee. The Indemnitee may participate in the defense, at its sole expense,
of any such claim for which the Stockholder Representatives shall have assumed
the defense pursuant to the preceding sentence, provided, however that counsel
-------- -------
for the Stockholder Representatives shall act as lead counsel in all matters
pertaining to the defense or settlement of such claims, suit or proceedings;
provided, further, however, that Indemnitee shall control the defense of any
- -------- ------- -------
claim or proceeding that in the reasonable judgment of the Indemnitee and the
Stockholder Representatives could have a material and adverse effect on
Indemnitee's business apart from the payment of money damages. The Indemnitee
shall be entitled to indemnification for the reasonable fees and expenses of its
counsel for any period during which the Stockholder Representatives have not
assumed the defense of any claim. Whether or not the Stockholder Representatives
shall have assumed the defense of any claim, neither the Indemnitee nor the
Stockholder Representatives shall make any settlement with respect to any such
claim, suit or proceeding without the prior written consent of the other, which
consent shall not be unreasonably withheld or delayed. It is understood and
agreed that in situations where failure to settle a claim expeditiously would
reasonably be expected to have an adverse effect on the party wishing to settle,
the failure of a party controlling the defense to act upon a request for consent
to such settlement within five business days of receipt of notice thereof shall
be deemed to constitute consent to such settlement for purposes of this Section
8.1.
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<PAGE>
(d) Limitations on Indemnifications. No Indemnitee shall be entitled to
-------------------------------
indemnification under this Section 8.1 for Damages relating to breaches of
representations and warranties set forth herein or in any certificate or
document delivered in connection herewith until the aggregate amount of Damages
incurred by such Indemnitee, together with Damages suffered with respect to all
other claims for indemnification pursuant to this Agreement by all other
Indemnitees, exceeds $71,000, at which time such Indemnitees shall be entitled
to indemnification for the entire aggregate cumulative amount of all Damages in
excess of $71,000 up to a maximum aggregate liability equal to the Cash
Consideration; provided, however, that with respect to the matters set forth in
-------- -------
Section 3.15, ZC shall be entitled to indemnification for the entirety of such
Damages (which indemnification amount shall not be included in determining
whether Damages exceed $71,000 for purposes of this Section 8.1(d)). In
addition, the Stockholders shall indemnify ZC for the entirety of any Damages
incurred by ZC as a result of (i) a failure to withhold taxes from the Exchange
Consideration paid to the Stockholders because of an inaccuracy contained in
Section 3.15(j) of the Company Disclosure Schedule or (ii) any claims by any
Stockholder arising from the recapitalization of the Company prior to the
Closing (which indemnification amount in the case of both (i) and (ii) shall not
be included in determining whether Damages exceed $71,000 for purposes of this
Section 8.1(d)). At its option, Mosaic may satisfy any of its indemnification
obligations hereunder by either (i) forfeiting to the Company a number of shares
of its ZC Common Stock sufficient to satisfy such obligations, (ii) paying such
obligations in cash or (iii) using a combination of ZC Common Stock and cash.
For purposes of the foregoing sentence, each share of ZC Common Stock to be
forfeited by Mosaic shall be valued at fair market value at the time of the
applicable claim for indemnification, which shall be (i) the average of the high
and low sale prices of the ZC Common Stock on the applicable reference date if
the ZC Common Stock is listed or traded on a national stock exchange or market
or (ii) the good faith determination of the Board of Directors of ZC of the fair
value of such share as of the applicable reference date. The maximum liability
of any individual Stockholder shall not exceed the Cash Consideration received
by such Stockholder.
(e) Indemnification by ZC. Subject to the provisions of this Section 8.1,
---------------------
ZC agrees to indemnify, defend, protect and hold harmless each of the
Stockholders (the "Stockholder Indemnitees") from and against any and all
Damages incurred or suffered by such Stockholder Indemnitees as a result of or
incident to (i) any breach of any representation or warranty of ZC set forth
herein or in any certificate or other document delivered in connection herewith
as of the date made (as such representation or warranty would read if all
qualifications as to knowledge, materiality and Material Adverse Effect were
deleted from it) with respect to which a claim for indemnification is brought by
such Stockholder Indemnitees within the applicable survival period, if any,
described in Section 8.1(a), (ii) any breach or nonfulfillment by ZC, or any
noncompliance by ZC with, any covenant, agreement, or obligation of ZC contained
herein or in any certificate or other document delivered in connection herewith
as of the date made (the "Stockholder Damages").
(f) Certain Adjustments. The Indemnitees and Stockholder Indemnitees
-------------------
agree that for purposes of computing the amount of Damages incurred by any
Indemnitee or Stockholder
-26-
<PAGE>
Indemnitee, there shall be deducted (i) an amount equal to the amount of any tax
benefit received, or an amount equal to the present value of any tax benefit
receivable, by such Indemnitee or Stockholder Indemnitee in connection with such
Damages or the circumstances giving rise thereto and (ii) an amount equal to the
amount of any insurance proceeds, indemnification payments, contribution
payments or reimbursements received or receivable by such Indemnitee or
Stockholder Indemnitee in connection with such Damages or the circumstances
giving rise thereto.
SECTION 8.2 Survival. The agreements set forth in Section 8.1 shall
survive independently and Article I and Sections 6.4 and 6.7 shall survive the
Closing indefinitely.
SECTION 8.3 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to ZC:
ZC Acquisition Corp.
105 South Street
Boston, MA 02110
Attention: General Counsel
Telephone No.: (617) 292-7888
Telecopier No.: (617) 292-7880
With copies to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Keith F. Higgins, Esq.
Telephone No.: (617) 951-7000
Telecopier No.: (617) 951-7050
GTCR Fund VI, L.P.
GTCR VI Executive Fund, L.P.
GTCR Associates VI
c/o GTCR Golder Rauner, LLC
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Telephone No.: (312) 382-2200
Telecopier No.: (312) 382-2201
-27-
<PAGE>
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Stephen L. Ritchie, Esq.
Telephone No.: (312) 861-2000
Telecopier No.: (312) 861-2200
(b) If to the Company:
ZEFER Corp.
105 South Street
Boston, MA 02110
Attention: Anthony Tjan
Telephone No.: (617) 290-7888
Telecopier No.: (617) 292-7880
With a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC
One Financial Center
Boston, MA 02111
Attention: William T. Whelan, Esq.
Telephone No.: (617) 542-6000
Telecopier No.: (617) 542-2241
SECTION 8.4 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "business day" means any day in which the New York Stock Exchange is
open for trading;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "knowledge" when used herein means the actual knowledge after
reasonable investigation of any director or executive officer of the Company.
-28-
<PAGE>
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act); and
(f) "subsidiary" or "subsidiaries" of the Company, ZC or any other person
means any corporation, partnership, joint venture or other legal entity of which
the Company, ZC or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
more than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
SECTION 8.5 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Closing. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.6 Waiver. At any time prior to the Closing, any party hereto may
with respect to any other party hereto (a) extend the time for the performance
of any of the obligations or other acts, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 8.7 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.8 Severability. If any term or other provision of this Agreement
is held to be invalid, illegal or unenforceable under by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not materially affected in
any manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or unenforceable, in lieu of such invalid, illegal
or unenforceable provision, there shall be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in economic and
legal effect to such invalid, illegal or unenforceable provision as may be
possible.
SECTION 8.9 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
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<PAGE>
SECTION 8.10 Assignment. This Agreement shall not be assigned by any
party, by operation of law or otherwise.
SECTION 8.11 Payment of Expenses. Each of the parties hereto shall assume
and bear all expenses, costs and fees including, without limitation, attorney's
and accountant's fees (collectively, "Expenses") incurred or assumed by such
--------
party in the preparation and execution of this Agreement and compliance
herewith, it being understood that the Stockholders shall be responsible for all
Expenses of the Company in connection herewith; provided, however, that the
-------- -------
Company shall pay the reasonable attorney's fees and expenses of the Company and
the Stockholders in connection herewith, including those set forth on Schedule
3.23 hereto.
SECTION 8.12 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation.
SECTION 8.13 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 8.14 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of The Commonwealth of Massachusetts
without giving effect to the conflict of laws principles thereof.
SECTION 8.15 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement (or
caused this Agreement to be executed by an officer thereunto duly authorized) as
of the date first written above.
By: /s/ William Seibel
-----------------------------------------
William Seibel
President
ZEFER CORP.
By: /s/ Anthony Tjan
-----------------------------------------
Anthony Tjan
President and Chief Executive Officer
<PAGE>
[Share Exchange Agreement]
1261417 ONTARIO LIMITED
By: /s/ David [Illegible]^^
-----------------------------------------
Name: David [Illegible]^^
Title:
By: /s/ Anthony Tjan
-----------------------------------------
Anthony Tjan
By: /s/ Kaming Ng
-----------------------------------------
Kaming Ng
By: /s/ Ian Colliety
-----------------------------------------
Ian Colliety
By: /s/ Alexandre Scherer
-----------------------------------------
Alexandre Scherer
By: /s/ Matthew Burkley
-----------------------------------------
Matthew Burkley
By: /s/ Stephen DiMarco
-----------------------------------------
Stephen DiMarco
By: /s/ Deborah Frieze
-----------------------------------------
Deborah Frieze
By: /s/ Edmond Jay
-----------------------------------------
Edmond Jay
<PAGE>
Exhibit 1.2
Allocation of Exchange Consideration
Stockholder # of ZC Shares Amount of Cash Consideration
- ----------- -------------- ----------------------------
1261417 Ontario Limited 192,000 $1,505,523.53
Anthony Tjan 211,200 $2,356,569.71
Kaming Ng 72,000 $ 757,917.67
Ian Colliety 64,800 $ 500,122.54
Alexandre Scherer 64,800 $ 577,461.08
Matthew Burkley 64,800 $ 500,122.54
Stephen DiMarco 64,800 $ 335,133.66
Deborah Frieze 64,800 $ 335,133.66
Edmond Jay 64,800 $ 232,015.61
======= =============
Total: 864,000 $7,100,000.00
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<PAGE>
Exhibit 6.9
Noncompete Periods
Stockholder Noncompete Period
- ----------- -----------------
1261417 Ontario Limited Two years
Anthony Tjan Two years
Kaming Ng Two years
Ian Colliety Two years
Alexandre Scherer Two years
Matthew Burkley Two years
Stephen DiMarco One year
Deborah Frieze One year
Edmond Jay One year
-34-
<PAGE>
MEMBERSHIP SHARE PURCHASE AGREEMENT
MEMBERSHIP SHARE PURCHASE AGREEMENT, dated as of May __, 1999 (this
"Agreement"), among ZEFER Corp., a Delaware corporation ("ZEFER"), ZEFER Corp.
-----
Northeast, a Delaware corporation and wholly-owned subsidiary of ZEFER ("ZEFER
Northeast"), spyplane LLC, a California limited liability company (the
"Company"), and the equityholders of the Company set forth on the signature
-------
pages hereto (the "Equityholders").
-------------
WITNESSETH:
WHEREAS, the Equityholders own all of the outstanding membership share
interests (the "Units") of the Company;
-----
WHEREAS, ZEFER and ZEFER Northeast wish to acquire the Units from the
Equityholders in exchange for shares (the "ZEFER Shares") of ZEFER's common
------------
stock, $.01 par value ("ZEFER Common Stock"), and payment of the amounts set
------------------
forth in Section 1.2 below (the "Cash/Note Consideration" and, together with the
-----------------------
ZEFER Shares, the "Consideration") to the Equityholders, and the Equityholders
-------------
wish to surrender the Units in exchange for such Consideration, all upon and
subject to the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein and in the Employment Agreements dated as of the
date hereof between ZEFER and each of the Equityholders, and intending to be
legally bound hereby, ZEFER, ZEFER Northeast, the Equityholders and the Company
hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF UNITS
SECTION 1.1 Basic Transaction. The Equityholders hereby agree to transfer
99% of the Units to ZEFER and 1% of the Units to ZEFER Northeast, and ZEFER
hereby agrees to issue the ZEFER Shares and pay the Cash/Note Consideration to
the Equityholders, at the Closing, subject to and upon the terms and conditions
contained herein.
SECTION 1.2 Exchange Consideration. The Consideration which ZEFER shall
issue and pay to the Equityholders at the Closing for all of the Units and in
consideration of the agreements and covenants of the Equityholders contained
herein shall consist of 50,000 ZEFER Shares and one million nine hundred and
eighty thousand dollars ($1,980,000.00), subject to adjustment as set forth in
Section 1.3, payable as follows: (a) $1,000,000 in cash payable by wire
transfer to the Equityholders in the amounts set forth opposite each
Equityholder's name on Schedule 1.2 hereto and in accordance with written
instructions of such Equityholder given to ZEFER at least two business days
prior to the Closing and (b) the execution and delivery to each Equityholder of
a Subordinated Promissory Note (a "ZEFER Note") having a principal amount of
----------
$490,000 (in the form of Exhibit B hereto). Each Equityholder shall be entitled
to the number of ZEFER Shares and the amount of cash set forth across from his
or her name on Schedule 1.2 hereto.
------------
<PAGE>
SECTION 1.3 [Intentionally Omitted.]
SECTION 1.4 The Closing. Subject to the satisfaction or waiver of the
conditions set forth in Article VII hereto, the closing of the exchange of the
Units for the Consideration and the other transactions contemplated hereby (the
"Closing") shall take place at the office of Ropes & Gray, One International
-------
Place, Boston, Massachusetts, or at such other place as may be agreed to by
ZEFER and the Equityholders, on May 14, 1999 or on such other date as may be
agreed to by ZEFER and the Equityholders (the "Closing Date"); provided,
------------
however, that such Closing may be effected via exchange of facsimile signature
pages to the Agreement by the parties hereto.
SECTION 1.5 Deliveries at the Closing. At the Closing (i) the Company
shall deliver to ZEFER and ZEFER Northeast the various certificates,
instruments, and documents referred to in Section 7.2 below, (ii) ZEFER and
ZEFER Northeast will deliver to the Company the various certificates,
instruments, and documents referred to in Section 7.3 below, (iii) each of the
Equityholders shall deliver to ZEFER and ZEFER Northeast documents sufficient to
transfer all of the outstanding Units to ZEFER and ZEFER Northeast, accompanied
by duly executed assignment documents and the various certificates, instruments
and documents referred to in Section 7.2 below, (iv) ZEFER will deliver to each
of the Equityholders, in exchange for such Units so delivered to ZEFER and ZEFER
Northeast, the number of shares of ZEFER Common Stock to which such Equityholder
is entitled pursuant to Section 1.2 hereof (subject to the restrictions set
forth in the Employment Agreements delivered pursuant to Section 7.2(f) hereof),
the amount of cash to which such Equityholder is entitled pursuant to Section
1.2 hereof and the respective ZEFER Notes.
SECTION 1.6 Material Adverse Effect. When used in connection with the
Company, ZEFER or ZEFER Northeast, as the case may be, the term "Material
--------
Adverse Effect" means any change, effect or circumstance that, individually or
- --------------
when taken together with all other similar or related changes, effects or
circumstances that have occurred prior to the date of determination of the
occurrence of the Material Adverse Effect, is or is reasonably likely to be
materially adverse to the business, prospects, assets (including intangible
assets), financial condition or results of operations of the Company, ZEFER or
ZEFER Northeast, as the case may be, taken as a whole, as applicable based on
the party making the representation, warranty or disclosure.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE EQUITYHOLDERS
Each of the Equityholders hereby represents and warrants to ZEFER and ZEFER
Northeast, severally and not jointly, that, except as set forth in the written
disclosure schedule attached hereto that is arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in Articles II and III (the
"Company Disclosure Schedule"):
- ----------------------------
SECTION 2.1 Equityholders. Each Equityholder is an individual residing
at the address indicated on Schedule 2.1 hereto.
SECTION 2.2 Authority. Each Equityholder has full legal capacity, power
and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This
-2-
<PAGE>
Agreement has been duly and validly authorized, executed and delivered by each
Equityholder and, assuming the due authorization, execution and delivery by the
other parties hereto, constitutes the valid and legally binding obligation of
such Equityholder, enforceable in accordance with its terms and conditions. No
Equityholder need give any notice to, make any filing with or obtain any
authorization, consent or approval of any government or governmental agency or
any other third party in order to consummate the transactions contemplated by
this Agreement.
SECTION 2.3 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any charter, by-law or other governing document of such
Equityholder or any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which the Equityholder is subject to or (ii)
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 under any Agreement, contract, lease, license,
instrument or other legally binding arrangement to which any Equityholder is a
party or by which he is bound or to which any of his assets is subject which
will have a Material Adverse Effect on the Company.
SECTION 2.4 Brokers' Fees. No Equityholder has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which ZEFER,
ZEFER Northeast or the Company could become liable or obligated.
SECTION 2.5 The Units. Each Equityholder holds of record and owns
beneficially the issued and outstanding Units indicated in Schedule 2.5 attached
hereto, free and clear of any restrictions on transfer (other than restrictions
under applicable securities laws), mortgages, pledges, liens, encumbrances,
charges, security interests, options, warrants, purchase rights, contracts,
commitments, equities, claims and demands. No Equityholder is a party to any
option, warrant, purchase right or other contract or commitment that could
require such Equityholder to sell, transfer or otherwise dispose of any
membership interests of the Company (other than this Agreement). No
Equityholder is a party to any voting trust, proxy or other Agreement or
understanding with respect to the voting of any membership interests of the
Company.
SECTION 2.6 Qualification of the Equityholders. (a) Each Equityholder is
acquiring the ZEFER Common Stock for his or its own account and not with a view
to or for resale in connection with any distribution thereof; (b) such
Equityholder understands that such shares of ZEFER Common Stock have not been
registered under the Securities Act or any state securities laws by reason of
specified exemptions from the registration provisions of the Securities Act
which depend upon, among other things, the bona fide nature of his or its
investment intent as expressed herein; (c) such Equityholder is able to bear the
economic risk of investment in the ZEFER Common Stock and is experienced and has
such knowledge and experience in financial and business matters that he or it is
capable of evaluating the risks and merits of the transactions contemplated by
this Agreement; and (e) such Equityholder acknowledges that such shares of ZEFER
Common Stock will bear a legend restricting transfer unless (i) the transfer is
exempt from the registration requirements of the Securities Act and an opinion
of counsel reasonably satisfactory to ZEFER that
-3-
<PAGE>
such transfer is exempt therefrom is delivered to the ZEFER, or (ii) the
transfer is made pursuant to an effective registration statement under the
Securities Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Company and the Equityholders hereby represent and warrant to ZEFER and
ZEFER Northeast, jointly and severally, that, except as set forth in the Company
Disclosure Schedule attached hereto:
SECTION 3.1 Organization, Qualification and Other Equity Interests. The
Company is a limited liability company duly organized, validly existing and in
good standing under the laws of California and has the requisite corporate power
and authority necessary to own, lease and operate the properties it purports to
own, operate or lease and to carry on its business as it is now being conducted.
The Company is duly qualified or licensed as a foreign corporation or entity to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except where the
failure to be so duly qualified or licensed and in good standing would not have
a Material Adverse Effect. The Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
SECTION 3.2 Articles of Organization and Operating Agreement. The
Company has heretofore furnished to ZEFER and ZEFER Northeast a complete and
correct copy of its Articles of Organization and Operating Agreement as amended
to date. Such Articles of Organization and Operating Agreement are in full
force and effect. The Company is not in violation of any of the provisions of
its Articles of Organization or Operating Agreement.
SECTION 3.3 Capitalization. Schedule 3.3 attached hereto sets forth, as
of the date hereof, all of the outstanding Units of the Company. All of such
Units are validly issued, fully paid and nonassessable. There are no options,
warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued membership share interests of the
Company or obligating the Company to issue or sell any membership share
interests of, or other equity interests in, the Company. Except as set forth on
Schedule 3.3, there are no obligations, contingent or otherwise, of the Company
to repurchase, redeem or otherwise acquire any Units.
SECTION 3.4 Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action,
and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by the Company
and, assuming the due authorization, execution and
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<PAGE>
delivery by the other parties hereto, constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
SECTION 3.5 No Conflict; Required Filings and Consents.
(1) Schedule 3.5(a) hereto includes a list of (i) all loan agreements,
indentures, mortgages, pledges, conditional sale or title retention agreements,
security agreements, equipment obligations, guaranties, standby letters of
credit, equipment leases or lease purchase agreements to which the Company is a
party or by which it is bound and (ii) all contracts, agreements, commitments or
other understandings or arrangements to which the Company is a party or by which
it or any of its properties or assets are bound or affected, but excluding
contracts, agreements, commitments or other understandings or arrangements
entered into in the ordinary course of business and involving, in each case,
payments or receipts by the Company of amounts reasonably expected to be less
than $10,000 in any single instance but not more than $50,000 in the aggregate
(collectively, the "Contracts").
---------
(2) (i) The Company has not breached, is not in default under, and has not
received written notice of any breach of or default under, any of the Contracts,
(ii) to the knowledge of the Company, no other party to any of the Contracts has
materially breached or is in material default of any of its obligations
thereunder, and (iii) except as set forth in Schedule 3.5(b) attached hereto, to
the knowledge of the Company, each of the Contracts is in full force and effect.
(3) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate the
Articles of Organization or Operating Agreement of the Company, (ii) conflict
with or violate any federal, foreign, state or provincial law, rule, regulation,
order, judgment or decree (collectively, "Laws") applicable to the Company or by
----
which any of its properties is bound or affected, or (iii) result in any
material breach of or constitute a material default (or an event that with
notice or lapse of time or both would become a default) under, or impair the
Company's rights or alter the rights or obligations of any third party under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a security interest, lien, claim,
encumbrance or any other restriction on any of the properties or assets of the
Company pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company is a party or by which the Company or any of its properties is bound or
affected.
(4) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit on the part of the Company of, or
filing with or notification on the part of the Company to, any federal, foreign,
state or provincial governmental or regulatory authority except for (i)
applicable requirements, if any, of the Securities Act of 1933, as amended, and
the rules and regulations thereunder (the "Securities Act"), the Securities
--------------
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and state securities laws ("Blue Sky Laws") and (ii) where the
------------ -------------
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay consummation of
the transactions
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<PAGE>
contemplated by this Agreement, or otherwise prevent the Company from performing
its obligations under this Agreement, and would not have a Material Adverse
Effect.
SECTION 3.6 Compliance, Permits.
(1) The Company is in compliance, in all material respects, with all Laws
applicable to the Company or by which any of its assets or properties are bound.
(2) The Company holds all material permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals from
governmental authorities which are necessary for the operation of the business
of the Company as it is now being conducted (collectively, the "Company
-------
Permits").
- -------
The Company is in compliance in all material respects with the terms
of the Company Permits.
SECTION 3.7 Financial Statements.
(1) Attached to Schedule 3.7 hereto are (i) the unaudited balance sheet of
the Company as of December 31, 1998, together with the related statement of
income, cash flow and Equityholders' equity for the fiscal year then ended, and
(ii) the unaudited balance sheet of the Company as of March 31, 1999 and the
related statement of income, cash flow and equityholders' equity for the three
months then ended (collectively, the "Financial Statements").
--------------------
(2) Each of the Financial Statements fairly presents in all material
respects the consolidated financial position of the Company as at the respective
dates thereof and the consolidated results of its operations, cash flows and
equityholder equity for the periods indicated, except that the Financial
Statements for the three month period ended March 31, 1999 are subject to normal
and recurring year-end adjustments which were not or are not expected to be
material in amount.
SECTION 3.8 Absence of Certain Changes or Events. Since December 31,
1998, the Company has conducted its business in the ordinary course and there
has not occurred: (a) any Material Adverse Effect; (b) any amendments to the
Articles of Organization or Operating Agreement of the Company; (c) any damage
to, destruction, sale or loss of any asset of the Company (whether or not
covered by insurance) that has had or could reasonably be expected to have a
Material Adverse Effect; (d) any material change by the Company in its
accounting methods, principles or practices; (e) any material revaluation by the
Company of any of its assets, including, without limitation, writing off notes
or accounts receivable other than in the ordinary course of business; (f) any
other action or event that would have required the consent of ZEFER pursuant to
Section 5.1 had such action or event occurred after the date of this Agreement
except where such an action or event would not have a Material Adverse Effect;
or (g) any sale of the property or assets of the Company, except in the ordinary
course of business.
SECTION 3.9 No Undisclosed Liabilities. The Company has no liabilities
(absolute, accrued, contingent or otherwise), except liabilities (a) adequately
provided for in the Financial Statements, (b) which are current liabilities
incurred since March 31, 1999 in the ordinary course of business consistent with
past practice, or (c) incurred in connection with this Agreement.
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<PAGE>
SECTION 3.10 Absence of Litigation. Except as set forth on Schedule 3.10
hereto, there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of the Company, threatened against the Company or
any properties or rights of the Company before any federal, foreign, state or
provincial court, arbitrator or administrative, governmental or regulatory
authority or body.
SECTION 3.11 Employee Benefit Plans, Employment Agreements.
(1) Schedule 3.11 (a) hereto lists all employee pension plans (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), all employee welfare plans (as defined in Section 3(1) of
-----
ERISA), and all other bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements, and any current employment,
executive compensation, consulting or severance agreements, written or
otherwise, for the benefit of, or relating to, any present or former employee
(including any beneficiary of any such employee) of, or any present or former
consultant (including any beneficiary of any such consultant) to the Company,
any trade or business (whether or not incorporated) which is a member of a
controlled group including the Company or which is under common control with the
Company (an "ERISA Affiliate") within the meaning of Section 414 of the Code
---------------
(all such plans, practices and programs are referred to as the "Company Employee
----------------
Plans"). The Company has made available to ZEFER copies of (i) the most recent
- -----
annual report on Form 5500 series, with accompanying schedules and attachments,
filed with respect to each Company Employee Plan required to make such a filing,
and (ii) the most recent Internal Revenue Service determination letter with
respect to each Company Employee Plan intended to be qualified under Section
401(a) of the Code, if any.
(2) (i) None of the Company Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person, and neither the Company
nor any ERISA Affiliate has ever maintained, contributed to, or been required to
contribute to, any plan that is or was a "multiemployer plan" as such term is
defined in Section 3(37) of ERISA, a pension plan subject to Title IV of ERISA
or a plan subject to Part 3 of Title I of ERISA; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Company Employee Plan, which could
result in any material liability of the Company; (iii) all Company Employee
Plans are in compliance in all material respects with the requirements
prescribed by any and all Laws (including ERISA and the Code), currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, Internal Revenue
Service (the "IRS") or Secretary of the Treasury), and the Company has performed
---
all material obligations required to be performed by it under, is not in any
material respect in default under or violation of, and have no knowledge of any
default or violation by any other party to, any of the Company Employee Plans;
(iv) each Company Employee Plan intended to qualify under Section 401(a) of the
Code and each trust intended to qualify under Section 501(a) of the Code is the
subject of a favorable determination letter from the IRS, and nothing has
occurred which may reasonably be expected to impair such determination; and (v)
there are no lawsuits or other claims (other than claims for benefits in the
ordinary course) pending or, to the best knowledge of the Company, threatened
with respect to any Company Employee Plan.
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<PAGE>
(3) Schedule 3.11(c) hereto sets forth a true and complete list of: (i)
all employment agreements with officers of the Company; (ii) all agreements with
consultants who are individuals obligating the Company to make minimum annual
cash payments in an amount exceeding $50,000; (iii) all employees of, or
consultants to, the Company who have executed a non-competition agreement with
the Company; (iv) all severance agreements, programs and policies of the Company
with or relating to its employees, in each case with outstanding commitments
exceeding $50,000, excluding programs and policies required to be maintained by
law; and (v) all plans, programs, agreements and other arrangements of the
Company with or relating to its employees which contain change in control
provisions.
SECTION 3.12 Labor Matters. (i) There are no controversies pending or, to
the knowledge of the Company, threatened between the Company and any of its
employees except as set forth on Schedule 3.12 hereto; (ii) the Company is not a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by the Company, and to the knowledge of the
Company there are no activities or proceedings of any labor union to organize
any such employees; and (iii) to the knowledge of the Company there are not
currently and there have not been any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of the
Company.
SECTION 3.13 Restrictions on Business Activities. Except for this
Agreement, to the Company's knowledge, there is no agreement, judgment,
injunction, order or decree binding upon the Company or any other person which
has or could reasonably be expected to have the effect of prohibiting or
impairing any material business practice of the Company or the acquisition of
property by the Company.
SECTION 3.14 Title to Property. The Company has good and marketable title
to all of its properties and assets, free and clear of all liens, charges and
encumbrances, except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
would not have a Material Adverse Effect; and, to the knowledge of the Company,
all leases pursuant to which the Company leases from others real or personal
property, are in good standing, valid and effective in accordance with their
respective terms, and there is not, to the knowledge of the Company, under any
of such leases, any existing material default or event of default (or event
which with notice or lapse of time, or both, would constitute a material
default). The Company does not own any real property.
SECTION 3.15 Taxes.
(1) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes,
fees, levies, duties, tariffs, imposts, and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including, without limitation, (i)
income, franchise, profits, gross receipts, ad valorem, net worth, value added,
sales, use, service, real or personal property, special assessments, capital
stock, license, payroll, withholding, employment, social security (or similar),
workers' compensation, unemployment compensation, environmental (including Taxes
under Code section 59A) utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes, and (ii)
interest, penalties, additional taxes and additions to tax imposed with respect
thereto; and "Tax
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<PAGE>
Returns" shall mean returns, reports, declarations, forms and information
statements with respect to Taxes required to be filed with the IRS or any other
federal, foreign, state or provincial taxing authority, domestic or foreign,
including, without limitation, consolidated, combined and unitary tax returns,
including any amendments thereto.
(2) (i) All Tax Returns of, relating to or which include the Company which
are required to have been filed have been filed on a timely basis with the
appropriate authorities and all such Tax Returns are true, correct and complete
in all respects, (ii) all Taxes required to have been paid by the Company
(whether or not shown on any Tax Return) have been paid in full on a timely
basis to the appropriate authorities, and (iii) all Taxes or other amounts
required to have been collected or withheld by the Company have been timely and
properly collected or withheld and paid to the appropriate authorities.
(3) (1) No claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax Returns that the Company is or may be
subject to Tax by that jurisdiction, (2) no Taxing authority has asserted in
writing any adjustment, deficiency, or assessment that could result in
additional Tax for which the Company is or may be liable, (3) there is no
pending audit, examination, investigation, dispute, proceeding or claim for
which the Company has received notice relating to any Tax for which the Company
is or may be liable, (4) no statute of limitations with respect to any Tax for
which the Company is or may be liable has been waived or extended, (5) the due
date of any Tax Returns that the Company is required to file has not been
extended, (6) the Company is not a party to any Tax sharing or Tax allocation
agreement, arrangement or understanding and (7) there are no powers of attorney
with respect to Taxes of the Company currently in force.
(4) There are no liens on any of the assets of the Company which arose in
connection with any failure or asserted failure to pay any Tax, other than liens
for current Taxes not yet due and payable.
(5) The Company is not a party to any contract, agreement, plan or
arrangement that, individually or collectively, could give rise to any payment
in the nature of compensation that would not be deductible by reason of Sections
162, 280G or 404 of the Code.
(6) The Company has not been treated as a corporation at any time since
its inception for federal income Tax purposes and is not responsible for any
federal income Taxes, including the federal income Taxes of any other party, as
transferee or successor, by contract or otherwise. The Company is not a party
to any joint venture, partnership or other arrangement that could be treated as
a partnership for Tax purposes.
(7) Copies of (i) any Tax examinations, (ii) extensions of statutes of
limitations, (iii) the federal, state, local and foreign income Tax Returns of
the Company, and (iv) substantive correspondence between the Company and all
Taxing authorities for its last three (3) taxable years have previously been
furnished to the ZEFER and ZEFER Northeast.
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<PAGE>
(8) Schedule 3.15(h) lists (A) the Company's Tax basis in its assets as of
December 31, 1998 and as utilized in the Tax Returns and (B) the amount of any
net operating loss, net capital loss, unused investment or other credit, unused
foreign Tax, excess charitable contribution, adjustments under Section 481 of
the Code and other Tax attributes allocable to the Company as shown on the Tax
Returns.
(9) The unpaid Taxes of the Company (A) did not as of December 31, 1998
exceed the reserve for Taxes (other than deferred Taxes established to reflect
book-tax timing differences) set forth on the Company's Audited Financial
Statements and (B) do not exceed that reserve as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
the Company in filing its Tax Returns.
(10) No Tax is required to be withheld by ZEFER or ZEFER Northeast as a
result of the payment of the Consideration pursuant to this Agreement.
SECTION 3.16 Environmental Matters. The Company: (i) has obtained all
material approvals which are required to be obtained under all applicable
federal, state or local laws or any regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into ambient
air, surface water, ground water, or land or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes by the Company ("Environmental Laws"); (ii) is in material
------------------
compliance with all terms and conditions of such required approvals, and also is
in material compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in applicable Environmental Laws; and (iii) as of the date hereof, is
not aware of nor has received notice of any past or present violations by the
Company of Environmental Laws or any event, condition, circumstance, activity,
practice, incident, action or plan which is reasonably likely to interfere with
or prevent continued material compliance with or which would give rise to any
material common law or statutory liability, or otherwise form the basis of any
material claim, action, suit or proceeding, against the Company based on or
resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge or release
into the environment, of any pollutant, contaminant or hazardous or toxic
material or waste.
SECTION 3.17 Intellectual Property. Except as set forth on Schedule 3.17
hereto, the Company owns or licenses all patents, patent applications,
trademarks, service marks, trade names, corporate names, copyrights, trade
secrets or other proprietary rights necessary to the conduct of the business of
the Company. Except as listed in Schedule 3.17 hereto, the Company has not
licensed from any third party any proprietary rights or, to the knowledge of the
Company, infringed, misappropriated or otherwise conflicted with any proprietary
rights of any third parties. To the Company's knowledge, no activity of any
third party infringes upon any proprietary rights of the Company. All of the
Company's trademarks and trade names are listed in Schedule 3.17 hereto and the
Company has good title to all of such trademarks and trade names free and clear
of any lien, charge, license or other encumbrance.
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<PAGE>
SECTION 3.17 Immigration Compliance. (a) The Company is in compliance in
all material respects with all applicable foreign, federal, state and local
laws, rules, directives and regulations relating to the employment authorization
of its employees (including, without limitation, the Immigration Reform and
Control Act of 1986, as amended and supplemented, and Section 212(n) and 274A of
the Immigration and Nationality Act, as amended and supplemented, and all
implementing regulations relating thereto), and the Company has not employed nor
is it currently employing any unauthorized aliens (as such term is defined under
8 CFR 274a.1(a)).
(b) The Company has not received any notice from the Immigration and
Naturalization Service (the "INS") or the U.S. Department of Labor (the "DOL")
--- ---
of the disapproval or denial of any visa petition pending before the INS or
labor certification pending before the DOL on behalf of any employee or
prospective employee of the Company.
(c) Schedule 3.18 (c) of the Company Disclosure Schedule contains a true,
complete and accurate list of all non-immigrant or immigrant visa petitions
pending before the INS and labor certifications pending before the DOL on behalf
of any of the employees or prospective employees of the Company.
(d) Since the approval of each of their respective visa petitions, there
has been no material change in the terms and conditions of employment of any
employees of the Company, provided that it is acknowledged that certain
employees from time to time unilaterally breach the terms of their employment
with the Company.
SECTION 3.18 Insurance. Schedule 3.19 of the Company Disclosure Schedule
attached hereto describes each insurance policy maintained by the Company with
respect to the Company's properties, assets and operations and sets forth the
date of expiration of each such insurance policy. All of such insurance policies
are in full force and effect. The Company is not in default with respect to its
obligations under any of such insurance policies.
SECTION 3.19 Accounts Receivable. The accounts receivable of the Company
as reflected in the most recent Financial Statements, to the extent uncollected
on the date hereof, and the accounts receivable reflected on the books of the
Company are valid and existing and represent monies due, and the Company has
made reserves reasonably considered adequate for receivables not collectible in
the ordinary course of business, and (subject to the aforesaid reserves) are
subject to no refunds or other adjustments and to no defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions enforceable by third
parties on or affecting any thereof.
SECTION 3.20 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or its affiliates.
SECTION 3.21 Change in Control Payments. The Company has no plans,
programs or agreements to which it is a party, or to which it is subject,
pursuant to which payments may be required or acceleration of benefits may be
required upon a change of control of the Company.
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SECTION 3.22 Expenses. Schedule 3.23 of the Company Disclosure Schedule
attached hereto sets forth a description of all of the estimated third party
expenses of the Company, including those payable to auditors, consultants and
other professionals, as of the date hereof which the Company expects to incur,
or has incurred, in connection with the transactions contemplated by this
Agreement. Notwithstanding anything else to the contrary herein, the
information set forth in Schedule 3.23 of the Company Disclosure Schedule shall
not act as a limitation on such third party expenses or otherwise limit the
rights of such third parties against the Company.
SECTION 3.23 Books and Records. The books of account, corporate records,
documents reflecting the issuance of the outstanding Units and other records of
the Company are true and complete in all material respects and have been made
available to ZEFER.
SECTION 3.24 Transactions with Affiliates. Except as set forth in Schedule
3.25 of the Company Disclosure Schedule attached hereto, neither any
Equityholder nor any other Affiliate of the Company nor any member of the
immediate family of any Equityholder or any other affiliate of the Company (a)
is a competitor, customer or supplier of the Company or any of its Subsidiaries,
(b) is a party to any Contract with the Company or any of its Subsidiaries, (c)
has any right to or interest in any asset, tangible or intangible, which is used
in the operations of the Company or any of its Subsidiaries or (d) has any
Indebtedness to or from the Company or any of its Subsidiaries.
SECTION 3.25 Full Disclosure. No representation or warranty made by the
Company contained in this Agreement and no statement contained in any
certificate or schedule furnished by the Company to ZEFER and ZEFER Northeast
in, or pursuant to the provisions of, this Agreement, including without
limitation the Company Disclosure Schedule, contains any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in the
light of the circumstances under which it was made, in order to make statements
herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ZEFER
ZEFER hereby represents and warrants to the Company and the Equityholders
that, except as set forth in the written disclosure schedule attached hereto
that is arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article IV (the "ZEFER Disclosure Schedule"):
-------------------------
SECTION 4.1 Organization and Qualification; Subsidiaries. ZEFER is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted. ZEFER is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such
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failures to be so duly qualified or licensed and in good standing that would not
have a Material Adverse Effect. ZEFER does not have any subsidiaries other than
as set forth in Schedule 4.1 of the ZEFER Disclosure Schedule.
SECTION 4.2 Charter and By-Laws. ZEFER has heretofore furnished to the
Company a complete and correct copy of its Certificate of Incorporation and By-
Laws, as amended to date. Such Certificate of Incorporation and By-Laws are in
full force and effect.
SECTION 4.3 Capitalization. The authorized capital stock of ZEFER
consists of (i) 9,684,060 shares of ZEFER Common Stock and (ii) 96,632 shares of
Class A Preferred Stock, par value $.01 per share ("Preferred Stock"). As of
---------------
the date hereof, there were (i) 8,288,411 shares of ZEFER Common Stock issued
and outstanding and (ii) 4,370 shares of Preferred Stock issued and outstanding.
Except as otherwise set forth in Schedule 4.3 of the ZEFER Disclosure Schedule,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued shares of
capital stock of ZEFER or obligating ZEFER to issue or sell any shares of
capital stock of, or other equity interests in, ZEFER.
SECTION 4.4 Authority Relative to this Agreement. ZEFER has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by ZEFER and
the consummation by ZEFER of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of ZEFER,
and no other corporate proceedings on the part of ZEFER are necessary to
authorize this Agreement or to consummate the transactions contemplated thereby.
This Agreement has been duly and validly executed and delivered by ZEFER and,
assuming the due authorization, execution and delivery by the Company and the
Equityholders, constitutes a legal, valid and binding obligation of ZEFER
enforceable against it in accordance with its terms.
SECTION 4.5 No Conflict, Required Filings and Consents.
(1) Except as set forth in Schedule 4.5(a) of the ZEFER Disclosure
Schedule, the execution and delivery of this Agreement by ZEFER do not, and the
performance of this Agreement by ZEFER will not, (i) conflict with or violate
the Certificate of Incorporation or By-Laws of ZEFER, (ii) conflict with or
violate any Laws applicable to ZEFER or by which its properties are bound or
affected, or (iii) result in any material breach of or constitute a material
default (or an event which with notice or lapse of time or both would become a
default) under, or impair ZEFER's rights or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of ZEFER pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which ZEFER is a party or by
which ZEFER or any of its properties are bound or affected.
(2) The execution and delivery of this Agreement by ZEFER does not, and
the performance of this Agreement by ZEFER will not, require any consent,
approval, authorization or permit on the part of the ZEFER of, or filing with or
notification on the part of the ZEFER to, any
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federal foreign, state or provincial governmental or regulatory authority except
(i) for applicable requirements, if any, of the Securities Act, the Exchange
Act, and the Blue Sky Laws, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the transactions contemplated by this
Agreement, or otherwise prevent ZEFER from performing its obligations under this
Agreement, and would not have a Material Adverse Effect.
SECTION 4.6 Validity of ZEFER Common Stock. The shares of ZEFER Common
Stock to be issued pursuant to this Agreement will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and subject to no
preemptive rights.
SECTION 4.7 Financial Statements. Attached to Schedule 4.7 hereto is the
unaudited balance sheet of ZEFER as of March 31, 1999, together with the related
statement of income, cash flow and stockholders' equity for the three months
then ended (the "ZEFER Financial Statements"). The ZEFER Financial Statements
--------------------------
fairly present in all material respects the consolidated financial position of
ZEFER as at the date thereof and the consolidated results of its operations,
cash flows and stockholder equity for the period indicated, subject to normal
and recurring year-end adjustments which were not or are not expected to be
material in amount.
SECTION 4.8 Absence of Litigation. Except as set forth on Schedule 4.8
hereto, there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of ZEFER, threatened against ZEFER or any
properties or rights of ZEFER before any federal, foreign, state or provincial
court, arbitrator or administrative, governmental or regulatory authority or
body.
SECTION 4.9 Insurance. The insurance policies maintained by ZEFER with
respect to its properties, assets and operations are sufficient for operating
its business and are in full force and effect. ZEFER is not in default with
respect to its obligations under any of its insurance policies.
SECTION 4.10 Absence of Certain Changes or Events. Since May 5, 1999,
ZEFER has conducted its business in the ordinary course and there has not
occurred (a) any Material Adverse Effect; (b) any amendments to the Certificate
of Incorporation or By-laws of ZEFER; (c) any material change by ZEFER in its
accounting methods, principles or practices; or (d) any material breach or
material default (or an event that with notice or lapse of time or both would
become such a breach or default) under that certain Purchase Agreement dated as
of March 23, 1999 by and among ZEFER, GTCR Fund VI, L.P., GTCR VI Executive
Fund, L.P. and GTCR Associates VI.
SECTION 4.11 Full Disclosure. No representation or warranty made by ZEFER
contained in this Agreement and no statement contained in any certificate or
schedule furnished by ZEFER to the Company in, or pursuant to the provisions of,
this Agreement, including without limitation the ZEFER Disclosure Schedule,
contains any untrue statement of a material fact or omits to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make the statements herein not misleading.
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ARTICLE IV A
REPRESENTATIONS AND WARRANTIES OF ZEFER NORTHEAST
ZEFER Northeast hereby represents and warrants to the Company and the
Equityholders that, except as set forth in the written disclosure schedule
attached hereto that is arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article IV A (the "ZEFER Northeast
---------------
Disclosure Schedule"):
- -------------------
SECTION 4.1A. Organization and Qualification; Subsidiaries. ZEFER
Northeast is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite corporate power
and authority necessary to own, lease and operate the properties it purports to
own, operate or lease and to carry on its business as it is now being conducted.
ZEFER Northeast is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not have a
Material Adverse Effect.
SECTION 4.2A. Charter and By-Laws. ZEFER Northeast has heretofore
furnished to the Company a complete and correct copy of its Certificate of
Incorporation and By-Laws, as amended to date. Such Certificate of
Incorporation and By-Laws are in full force and effect.
SECTION 4.3A. Authority Relative to this Agreement. ZEFER Northeast has
all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by ZEFER Northeast and the consummation by ZEFER Northeast of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of ZEFER Northeast, and no other corporate
proceedings on the part of ZEFER Northeast are necessary to authorize this
Agreement or to consummate the transactions contemplated thereby. This Agreement
has been duly and validly executed and delivered by ZEFER Northeast and,
assuming the due authorization, execution and delivery by the Company and the
Equityholders, constitutes a legal, valid and binding obligation of ZEFER
Northeast enforceable against it in accordance with its terms.
SECTION 4.4A. No Conflict, Required Filings and Consents.
(1) Except as set forth in Schedule 4.4A(a) of the ZEFER Northeast
Disclosure Schedule, the execution and delivery of this Agreement by ZEFER
Northeast do not, and the performance of this Agreement by ZEFER Northeast will
not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of
ZEFER Northeast, (ii) conflict with or violate any Laws applicable to ZEFER
Northeast or by which its properties are bound or affected, or (iii) result in
any material breach of or constitute a material default (or an event which with
notice or lapse of time or both would become a default) under, or impair ZEFER
Northeast's rights or alter the rights or obligations of any third party under,
or give to others any rights of termination, amendment,
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acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of ZEFER Northeast pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which ZEFER Northeast is
a party or by which ZEFER Northeast or any of its properties are bound or
affected.
(2) The execution and delivery of this Agreement by ZEFER Northeast does
not, and the performance of this Agreement by ZEFER Northeast will not, require
any consent, approval, authorization or permit on the part of the ZEFER
Northeast of, or filing with or notification on the part of the ZEFER Northeast
to, any federal foreign, state or provincial governmental or regulatory
authority except (i) for applicable requirements, if any, of the Securities Act,
the Exchange Act, and the Blue Sky Laws, and (ii) where the failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the transactions
contemplated by this Agreement, or otherwise prevent ZEFER Northeast from
performing its obligations under this Agreement, and would not have a Material
Adverse Effect.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
SECTION 5.1 Conduct of Business by the Company Pending the Closing. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the Closing, unless ZEFER shall otherwise agree
in writing, which agreement shall not be unreasonably withheld, the Company
shall conduct its business only in, and the Company shall not take any action
except in, the ordinary course of business and in a manner consistent with past
practice other than actions expressly provided for in this Agreement; and the
Company shall use all reasonable commercial efforts to preserve intact the
business organization of the Company, to keep available the services of the
present officers, employees and consultants of the Company and to preserve the
present relationships of the Company with customers, suppliers and other persons
with which the Company has business relations. By way of amplification and not
limitation, except as expressly provided for in this Agreement, the Company
shall not, during the period from the date of this Agreement and continuing
until the Closing, directly or indirectly do, or propose to do, any of the
following without the prior written consent of ZEFER:
(1) amend the Articles of Organization or Operating Agreement of the
Company;
(2) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any membership share
interests of the Company of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital stock,
or any other ownership interest (including, without limitation, any phantom
interest) in the Company;
(3) except in the ordinary course of business, sell, pledge, dispose of or
encumber any assets (tangible or intangible) of the Company except for (i)
dispositions of obsolete or worthless assets and (ii) sales of assets not in
excess of $10,000 in the aggregate;
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(4) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its membership share interests, (ii) split, combine or
reclassify any of its membership share interests or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for its membership share interests or (iii) amend the terms or
change the period of exercisability of, purchase, repurchase, redeem or
otherwise acquire, any of its securities including without limitation, Units or
any option, warrant or right, directly or indirectly, to acquire Units, or
propose to do any of the foregoing;
(5) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) except in the ordinary course of business and only under the
Company's revolving line of credit, incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person or, except
in the ordinary course of business consistent with past practice, make any loans
or advances; (iii) enter into or amend any material contract or agreement; (iv)
authorize any capital expenditures or purchases of fixed assets which are, in
the aggregate, in excess of $25,000; or (v) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the matters prohibited by
this Section 5.1(e);
(6) increase the compensation payable or to become payable to its
officers, increase compensation payable or to become payable to its employees
other in the ordinary course of business, or grant any severance or termination
pay to, or enter into any employment or severance agreement with any director,
officer or other employee of the Company, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law;
(7) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable);
(8) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations;
(9) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the Financial Statements or incurred in the ordinary course of business and
consistent with past practice; or
(10) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1 (a) through (i) above, or any action which would make
any of the representations or warranties
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<PAGE>
of the Company contained in this Agreement untrue or incorrect or prevent the
Company from performing or cause the Company not to perform its covenants
hereunder.
SECTION 5.2 No Solicitation.
(1) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company, (i) solicit,
initiate or encourage the initiation of any inquiries or proposals regarding any
merger, sale of substantial assets, sale of membership share interests
(including without limitation by way of a tender offer) or similar transactions
involving the Company other than the transactions contemplated by this Agreement
(any of the foregoing inquiries or proposals being referred to herein as an
"Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
--------------------
or provide any nonpublic information to any person relating to, any Acquisition
Proposal or (iii) agree to, approve or recommend any Acquisition Proposal.
(2) The Company shall immediately notify ZEFER after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company in
connection with an Acquisition Proposal or for access to the properties, books
or records of the Company by any person or entity that informs the Board of
Directors or any officer of the Company that it is considering making, or has
made, an Acquisition Proposal. Such notice to ZEFER shall be made orally and in
writing.
(3) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than ZEFER)
conducted heretofore with respect to any of the foregoing. The Company agrees
not to release any third party from the confidentiality provisions of any
confidentiality agreement to which the Company is a party.
(4) The Company shall ensure that the officers, directors and employees
of the Company and any investment banker or other advisor or representative
retained by the Company are aware of the restrictions described in this Section
5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Access to Information. Upon reasonable notice, the Company
and ZEFER shall each afford to the officers, employees, accountants, counsel and
other representatives of the other, reasonable access, during the period from
the date of this Agreement to the Closing, to all its properties, books,
contracts, commitments and records and, during such period, the Company and
ZEFER each shall furnish promptly to the other party, and shall send copies
within a reasonable time upon reasonable request, all information concerning its
business, properties and personnel as such other party may reasonably request,
and each shall make available to the other the appropriate individuals
(including attorneys, accountants and other professionals) for discussion of the
other's business, properties and personnel as either ZEFER or the Company may
reasonably request.
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<PAGE>
SECTION 6.2 Consents; Approvals. The Company and ZEFER shall each use
their reasonable efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all United States
governmental and regulatory rulings and approvals), and the Company and ZEFER
shall make all filings (including, without limitation, all filings with United
States governmental or regulatory agencies) required in connection with the
authorization, execution and delivery of this Agreement by the Company, on the
one hand, and ZEFER, on the other hand, and the consummation by them of the
transactions contemplated hereby, in each case as promptly as practicable. The
Company and ZEFER shall furnish promptly all information required to be included
in any application or other filing to be made pursuant to the rules and
regulations of any United States or foreign governmental body in connection with
the transactions contemplated by this Agreement.
SECTION 6.3 Notification of Certain Matters. The Company shall give
prompt notice to ZEFER and ZEFER Northeast, and ZEFER and ZEFER Northeast shall
give prompt notice to the Company, of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in this Agreement to become materially
untrue or inaccurate, or (ii) any failure of the Company, the Equityholders,
ZEFER or ZEFER Northeast, as the case may be, materially to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and provided further that failure
to give such notice shall not be treated as a breach of covenant for the
purposes of Sections 7.2(a) or 7.3(a) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 6.4 Further Action. Upon the terms and subject to the conditions
hereof each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to its obligations under this Agreement.
SECTION 6.5 Public Announcements. ZEFER and the Company shall consult
with each other before issuing any press release with respect to this Agreement
or the transactions contemplated hereby and shall not issue any such press
release or make any such public statement without the prior consent of the other
party, which shall not be unreasonably withheld; provided, however, that ZEFER
may, without the prior consent of the Company, issue such press release or make
such public statement as may upon the advice of counsel be required by law if it
has used reasonable efforts to consult with the Company prior thereto.
SECTION 6.6 Conveyance Taxes. ZEFER, ZEFER Northeast and the Company
shall cooperate in the preparation, execution and filing of all returns,
questionnaires, applications, or other documents regarding any gains, sales,
use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
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payable in connection with the transactions contemplated hereby that are
required or permitted to be filed at or before the Closing.
SECTION 6.7 Reservation of Shares. ZEFER agrees to reserve 10,000 shares
of ZEFER Common Stock for future grants of stock or options to employees of the
Company following the Closing Date, which shares shall be separate and apart
from any additional shares that may be issued under any employee benefit plan of
ZEFER in which such employees are entitled to participate.
SECTION 6.8 Noncompetition/Nonsolicitation. (a) For a period of 18
months after the Closing Date (the "Noncompete Period"), each Equityholder shall
-----------------
not, within the United States, directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the web page design, digital branding and consulting
businesses of ZEFER, ZEFER Northeast or their subsidiaries or any such business
in which ZEFER, ZEFER Northeast or any of their subsidiaries has requested and
received information relating to the acquisition of such business by ZEFER,
ZEFER Northeast and the subsidiaries and of which such Equityholder had
knowledge prior to the termination of such Equityholder's Employment Period (as
defined in the Employment Agreement); provided that passive ownership of less
than 5% of the outstanding stock of any publicly-traded corporation shall not,
in and of itself, be deemed to violate this Section 6.8.
(b) During the Noncompete Period, each Equityholder shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of ZEFER, ZEFER Northeast or their subsidiaries to leave the employ
of ZEFER, ZEFER Northeast or such subsidiary, or in any way interfere with the
relationship between ZEFER, ZEFER Northeast and any subsidiary and any employee
thereof, (ii) hire any person who was an employee of ZEFER, ZEFER Northeast or
any subsidiary within 180 days prior to the time such employee was hired by the
Equityholder, (iii) induce or attempt to induce any customer, supplier, licensee
or other business relation of ZEFER, ZEFER Northeast or any subsidiary to cease
doing business with ZEFER, ZEFER Northeast or such subsidiary or in any way
interfere with the relationship between any such customer, supplier, licensee or
business relation and ZEFER, ZEFER Northeast and any subsidiary or (iv) directly
or indirectly acquire or attempt to acquire an interest in any business relating
to the web page design, digital branding and consulting business of ZEFER, ZEFER
Northeast and any subsidiary or with which ZEFER, ZEFER Northeast or any
subsidiary has entertained discussions or has requested and received information
relating to the acquisition of such business by ZEFER, ZEFER Northeast and any
subsidiary and of which such Equityholder had knowledge prior to the termination
of such Equityholder's Employment Period (as defined in the Employment
Agreement).
(c) If, at the time of enforcement of this Section 6.8, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum duration, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum duration, scope and area
permitted by law. The parties hereto agree that money damages would be an
inadequate remedy for any breach of this Section 6.8. Therefore, in the event a
breach or threatened breach of this Section 6.8, ZEFER,
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ZEFER Northeast or its successors or assigns may, in addition to other rights
and remedies existing in their favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce, or prevent any violations of, the provisions hereof (without posting
a bond or other security).
SECTION 6.9 Employee Bonus Pool. On the date that is six months after the
Closing Date (the "Employee Bonus Date"), or in any event, not later than thirty
-------------------
(30) days thereafter, ZEFER shall cause the Company to pay to each employee
listed on Schedule 6.9 attached hereto a bonus in the amount listed on such
schedule, provided that such employee was employed by the Company (or another
division or subsidiary of ZEFER) on the Employee Bonus Date, and provided
further that in the event such employee is not so employed on the Employee Bonus
Date, the Company shall, if so directed by the Equityholders, pay such bonus to
such employee. The aggregate amount of bonuses paid pursuant to this Section 6.9
shall not exceed $1.0 million.
ARTICLE VII
CONDITIONS TO THE PURCHASE AND SALE OF SHARES
SECTION 7.1 Conditions to Obligation of Each Party to Effect the Purchase
and Sale of Units. The respective obligations of each party to effect the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of the following conditions:
(1) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect, nor shall any proceeding brought by any administrative agency or
commission or other governmental authority or instrumentality, seeking any of
the foregoing be pending; and there shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the transactions contemplated by this Agreement, which makes the
consummation of the transactions contemplated by this Agreement illegal; and
(2) Governmental Actions. There shall not have been instituted, pending
or threatened any action or proceeding (or any investigation or other inquiry
that might result in such an action or proceeding) by any governmental authority
or administrative agency before any governmental authority, administrative
agency or court of competent jurisdiction, nor shall there be in effect any
judgment, decree or order of any governmental authority, administrative agency
or court of competent jurisdiction, in either case, seeking to prohibit or limit
ZEFER or ZEFER Northeast from exercising all material rights and privileges
pertaining to its ownership of the Company or the ownership or operation by
ZEFER, ZEFER Northeast or any of their subsidiaries of all or a material portion
of the business or assets of ZEFER, ZEFER Northeast or any of their
subsidiaries, as a result of the transactions contemplated by this Agreement.
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SECTION 7.2 Additional Conditions to Obligations of ZEFER and ZEFER
Northeast. The obligations of ZEFER and ZEFER Northeast to effect the
transactions contemplated by this Agreement are also subject to the following
conditions:
(3) Representations and Warranties. The representations and warranties of
the Company and the Equityholders contained in this Agreement shall have been
true and correct in all material respects at and as of the date made, and shall
be true and correct in all material respects as of the Closing Date with the
same effect as though made on and as of the Closing Date. In addition, all
representations and warranties of the Company and the Equityholders that are
qualified by materiality or similar words shall have been true and correct
(giving effect to such qualification) in all respects when made and as of the
Closing Date. ZEFER and ZEFER Northeast shall have received a certificate to
such effect signed on behalf of the Company and on behalf of the Equityholders
by the Equityholders;
(4) Agreements and Covenants. The Company and the Equityholders shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by each of
them at or prior to the Closing Date, and ZEFER and ZEFER Northeast shall have
received a certificate to such effect signed on behalf of the Company and on
behalf of the Equityholders by the Equityholders;
(5) Consents Obtained. All consents, waivers, approvals, authorizations
or orders required to be obtained, and all filings required to be made, by the
Company and the Equityholders for the due authorization, execution and delivery
of this Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained and made by the Company and the Equityholders;
(6) Opinion of Counsel to the Company. ZEFER and ZEFER Northeast shall
have received an opinion of Britton, Silberman & Cervantez LLP, counsel to the
Company, in substantially the form attached hereto as Exhibit 7.2(d);
(7) Stockholders Agreement. ZEFER shall have received executed
Stockholders Agreements (or counterpart signature pages thereto) from each of
the Equityholders; and
(8) Employment Agreements. ZEFER shall have received executed Employment
Agreements, substantially in the form of Exhibit 7.2(f), from Jason Zada and
Greg Hipwell.
SECTION 7.3 Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the transactions contemplated by this
Agreement is also subject to the following conditions:
(9) Representations and Warranties. The representations and warranties
of the ZEFER and ZEFER Northeast contained in this Agreement shall have been
true and correct in all material respects at and as of the date made, and shall
be true and correct in all material respects as of the Closing Date with the
same effect as though made on and as of the Closing Date. In addition, all
representations and warranties of the ZEFER and ZEFER Northeast that are
qualified by materiality
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or similar words shall have been true and correct (giving effect to such
qualification) in all respects when made and as of the Closing Date. The Company
shall have received a certificate to such effect signed by the President of
ZEFER and ZEFER Northeast;
(10) Agreements and Covenants. ZEFER shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date, and the Company shall have received a certificate to such effect signed by
the President of ZEFER and ZEFER Northeast;
(11) Consents Obtained. All consents, waivers, approvals, authorizations
or orders required to be obtained, and all filings required to be made, by ZEFER
and ZEFER Northeast for the due authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
shall have been obtained and made by ZEFER and ZEFER Northeast;
(12) Opinion of Counsel to ZEFER and ZEFER Northeast. The Company shall
have received an opinion of Ropes & Gray, counsel to ZEFER and ZEFER Northeast,
in substantially the form attached hereto as Exhibit 7.3(d); and
(13) Registration Agreement. ZEFER shall have entered into a Registration
Agreement with the Equityholders in substantially the form attached hereto as
Exhibit 7.3(e).
(14) Employment Agreements. The Equityholders shall have received
executed Employment Agreements, substantially in the form of Exhibit 7.2(f),
from ZEFER.
ARTICLE VII
INDEMNIFICATION
SECTION 8.1 Indemnification.
(1) Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the Company, the Equityholders, ZEFER and ZEFER Northeast made in
this Agreement and in the documents and certificates delivered in connection
herewith shall survive the Closing until the second anniversary of the Closing
Date (except for those contained in (i) Sections 2.2 (Authority), 2.5 (The
Units), 3.3 (Capitalization), 3.4 (Authority Relative to this Agreement) and
3.11 (Employee Benefit Plans, Employment Agreements), which shall survive the
Closing and shall continue in full force and effect without limit as to time
(subject to any applicable statutes of limitations and any extensions or waivers
thereof with respect to employee benefit matters) and (ii) Section 3.15 (Taxes),
which shall survive the Closing and shall continue in full force and effect
until 60 days after the expiration of the applicable statute of limitations,
including any extensions or waivers thereof)(the "Indemnity Period") and shall
----------------
remain operative and in full force and effect through the end of the Indemnity
Period regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their officers or
directors, whether prior to or after the execution of this Agreement. No claim
for indemnification under this Section 8.1 for
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breach of a representation or warranty may be commenced after the Indemnity
Period, provided, however, that claims made within the applicable time period
-------- -------
shall survive to the extent of such claim until such claim is finally determined
and, if applicable, paid.
(2) Indemnification of ZEFER and ZEFER Northeast. The Equityholders agree
--------------------------------------------
to jointly and severally indemnify, defend, protect, and hold harmless each of
ZEFER, ZEFER Northeast the Company and each of their respective subsidiaries and
affiliates (each in its capacity as an indemnified party, an "Indemnitee") at
----------
all times from and after the date of this Agreement from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) (collectively "Damages") incurred
-------
by such Indemnitee as a result of or incident to (i) any breach of any
representation or warranty of the Company or the Equityholders set forth herein
or in any certificate or other document delivered in connection herewith as of
the date made (as such representation or warranty would read if all
qualifications as to knowledge, materiality and Material Adverse Effect were
deleted from it) with respect to which a claim for indemnification is brought by
an Indemnitee within the applicable survival period, if any, described in
Section 8.1(a) and (ii) any breach or nonfulfillment by the Company or the
Equityholders, or any noncompliance by the Company or the Equityholders with,
any covenant, agreement, or obligation contained herein or in any certificate or
other document delivered in connection herewith.
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(3) Third Person Claims. Promptly after an Indemnitee has received notice
-------------------
of or has knowledge of any claim by a person not a party to this Agreement
("Third Person") or the commencement of any action or proceeding by a Third
- --------------
Person, the Indemnitee shall give the Equityholders written notice of such claim
or the commencement of such action or proceeding; provided, however, that the
-------- -------
failure to give such notice will not effect the Indemnitees' right to
indemnification hereunder with respect to such claim, action or proceeding,
except to the extent that the Equityholders have been actually and materially
prejudiced as a result of such failure. If the Equityholders notify the
Indemnitee within thirty (30) days from the receipt of the foregoing notice that
they wish to defend against the claim by the Third Person, then the
Equityholders shall have the right to assume and control the defense of the
claim by appropriate proceedings with counsel reasonably acceptable to
Indemnitee. The Indemnitee may participate in the defense, at its sole expense,
of any such claim for which the Equityholders shall have assumed the defense
pursuant to the preceding sentence, provided, however that counsel for the
-------- -------
Equityholders shall act as lead counsel in all matters pertaining to the defense
or settlement of such claims, suit or proceedings; provided, further, however,
-------- ------- -------
that Indemnitee shall control the defense of any claim or proceeding that in
Indemnitee's reasonable judgment could have a material and adverse effect on
Indemnitee's business apart from the payment of money damages. The Indemnitee
shall be entitled to indemnification for the reasonable fees and expenses of its
counsel for any period during which the Equityholders have not assumed the
defense of any claim. Whether or not the Equityholders shall have assumed the
defense of any claim, neither the Indemnitee nor the Equityholders shall make
any settlement with respect to any such claim, suit or proceeding without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed. It is understood and agreed that in situations where
failure to settle a claim expeditiously could have an adverse effect on the
party wishing to settle, the failure of a party controlling the defense to act
upon a request for consent to such settlement within five business days of
receipt of notice thereof shall be deemed to constitute consent to such
settlement for purposes of this Section 8.1.
(4) Limitations on Indemnifications. No Indemnitee shall be entitled to
-------------------------------
indemnification under this Section 8.1 for Damages relating to breaches of
representations and warranties set forth herein or in any certificate or
document delivered in connection herewith until the aggregate amount of Damages
incurred by such Indemnitee, together with Damages suffered with respect to all
other claims for indemnification pursuant to this Agreement by all other
Indemnitees, exceeds $25,000, at which time such Indemnitees shall be entitled
to indemnification for the entire aggregate cumulative amount of all Damages up
to a maximum aggregate liability equal to the Cash/Note Consideration; provided,
--------
however, that with respect to the matters set forth in Section 3.15, ZEFER and
- -------
ZEFER Northeast shall be entitled to indemnification for the entirety of such
Damages (which indemnification amount shall not be included in determining
whether Damages exceed $25,000 for purposes of this Section 8.1(d)).
(5) Indemnification by ZEFER. Subject to the provisions of this Section
------------------------
8.1, ZEFER agrees to indemnify, defend, protect and hold harmless each of the
Equityholders (the "Equityholder Indemnitees") from and against any and all
Damages incurred or suffered by such Equityholder Indemnitees as a result of or
incident to (i) any breach of any representation or warranty of ZEFER or ZEFER
Northeast set forth herein or in any certificate or other document delivered in
connection herewith as of the date made (as such representation or warranty
would read
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if all qualifications as to knowledge, materiality and Material Adverse Effect
were deleted from it) with respect to which a claim for indemnification is
brought by such Equityholder Indemnitees within the applicable survival period,
if any, described in Section 8.1(a), (ii) any breach or nonfulfillment by ZEFER
or ZEFER Northeast, or any noncompliance by ZEFER or ZEFER Northeast with, any
covenant, agreement, or obligation of ZEFER or ZEFER Northeast contained herein
or in any certificate or other document delivered in connection herewith as of
the date made (the "Equityholder Damages"). ZEFER shall reimburse the
Equityholder Indemnitees for any Equityholder Damages to which this Section 8.1
relates only if a claim for indemnification is made by the Equityholder
Indemnitees within the Indemnity Period.
(6) Set-Off. ZEFER, as maker of the ZEFER Notes, may set off and apply
-------
the amount of any Damages referenced in this Section 8.1 against any amounts
payable under the ZEFER Notes.
SECTION 8.2 Survival. The agreements set forth in Section 8.1 shall
survive independently and Article I and Sections 6.4 and 6.7 shall survive the
Closing indefinitely.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(1) If to ZEFER or ZEFER Northeast:
ZEFER Corp.
105 South Street
Boston, MA 02110
Attention: General Counsel
Telephone No.: (617) 292-7888
Telecopier No.: (617) 292-7880
With copies to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Keith F. Higgins, Esq.
Telephone No.: (617) 951-7000
Telecopier No.: (617) 951-7050
GTCR Fund VI, L.P.
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<PAGE>
GTCR VI Executive Fund, L.P.
GTCR Associates VI
c/o GTCR Golder Rauner, LLC
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Telephone No.: (312) 382-2200
Telecopier No.: (312) 382-2201
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Stephen L. Ritchie, Esq.
Telephone No.: (312) 861-2000
Telecopier No.: (312) 861-2200
(2) If to the Company:
spyplane LLC
300 Branner Street, Suite 511
San Francisco, CA 94107
Attention: Jason Zada
Telephone No.: (415) 247-9920
Telecopier No.: (415) 247-9929
With a copy to:
Britton, Silberman & Cervantez LLP
The ClockTower Building
461 2nd Street, Suite 332
San Francisco, CA 94107
Attention: Thomas Cervantez
Telephone No.: (415) 538-9000
Telecopier No.: (415) 538-9001
SECTION 9.2 Certain Definitions. For purposes of this Agreement, the
term:
(1) "affiliate" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(2) "business day" means any day in which the New York Stock Exchange is
open for trading;
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<PAGE>
(3) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(4) "knowledge" when used herein means the actual knowledge after
reasonable investigation of any director or executive officer of the Company.
(5) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act); and
(6) "subsidiary" or "subsidiaries" of the Company, ZEFER or any other
person means any corporation, partnership, joint venture or other legal entity
of which the Company, ZEFER or such other person, as the case may be (either
alone or through or together with any other subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
SECTION 9.3 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Closing. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 9.4 Waiver. At any time prior to the Closing, any party hereto
may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby.
SECTION 9.5 Expenses of Transaction. Whether or not the transactions
provided for herein are consummated, each of the parties hereto will assume and
bear all expenses, costs and fees (including legal and accounting fees and
expenses) incurred by such party in connection with the preparation, negotiation
and execution of this Agreement and the transactions contemplated hereby;
provided, however, that the Equityholders will assume and bear all expenses,
costs and fees (including legal and accounting fees and expenses) in excess of
$45,000 incurred by the Company in connection with the preparation, negotiation
and execution of this Agreement and the transactions contemplated hereby.
Expenses, costs and fees of the Company which total, in the aggregate, less than
$45,000 as of the Closing Date shall be paid by ZEFER as of the Closing Date
provided that one or more reasonably detailed invoices are provided to ZEFER one
business day prior to the Closing.
SECTION 9.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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<PAGE>
SECTION 9.7 Severability. If any term or other provision of this
Agreement is held to be invalid, illegal or unenforceable under any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not materially affected in
any manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or unenforceable, in lieu of such invalid, illegal
or unenforceable provision, there shall be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in economic and
legal effect to such invalid, illegal or unenforceable provision as may be
possible.
SECTION 9.8 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
SECTION 9.9 Assignment. This Agreement shall not be assigned by any
party, by operation of law or otherwise; provided, however, that ZEFER and ZEFER
-------- -------
Northeast may assign this agreement to any entity controlling, controlled by or
under common control with ZEFER.
SECTION 9.10 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation.
SECTION 9.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
SECTION 9.12 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of The Commonwealth of Massachusetts
without giving effect to the conflict of laws principles thereof.
SECTION 9.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement (or
has caused this Agreement to be executed by an officer thereunto duly
authorized) as of the date first written above.
ZEFER CORP.
By: /s/ Sean W. Mullaney
--------------------------
Sean W. Mullaney
Vice President
ZEFER CORP. NORTHEAST
By: /s/ Sean W. Mullaney
--------------------------
Sean W. Mullaney
Vice President
SPYPLANE LLC
By: /s/ illegible
--------------------------
Name:
Title:
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<PAGE>
[Membership Share Purchase Agreement]
By: /s/ Jason Zada
-----------------------------
Jason Zada
By: /s/ Greg Hipwell
-----------------------------
Greg Hipwell
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<PAGE>
EXHIBIT 2.7
================================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
ZEFER CORP.
WAITE & COMPANY, INC.
THOMAS WAITE
ALLAN COHEN
AND
FRED LUCONI
Dated as of September 13, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
PURCHASE AND SALE OF THE SHARES...................................... 1
SECTION 1.1 Basic Transaction.................................. 1
SECTION 1.2 Purchase Price..................................... 1
SECTION 1.3 The Closing........................................ 2
SECTION 1.4 Material Adverse Effect............................ 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS........................ 2
SECTION 2.1 Sellers............................................ 3
SECTION 2.2 Authority.......................................... 3
SECTION 2.3 Noncontravention................................... 3
SECTION 2.4 Brokers' Fees...................................... 3
SECTION 2.5 The Shares......................................... 3
SECTION 2.6 Investment Representations......................... 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY................ 4
SECTION 3.1 Organization and Qualification and Other
Equity Interests................................. 4
SECTION 3.2 Authority.......................................... 4
SECTION 3.3 Articles of Organization and By-Laws............... 4
SECTION 3.4 Capitalization..................................... 4
SECTION 3.5 No Conflict; Required Filings and Consents......... 5
SECTION 3.6 Compliance, Permits................................ 6
SECTION 3.7 Financial Statements............................... 6
SECTION 3.8 Absence of Certain Changes or Events............... 6
SECTION 3.9 No Undisclosed Liabilities......................... 7
SECTION 3.10 Absence of Litigation............................. 7
SECTION 3.11 Employee Benefit Plans, Employment Agreements..... 7
SECTION 3.12 Labor Matters..................................... 9
SECTION 3.13 Restrictions on Business Activities............... 9
SECTION 3.14 Title to Property................................. 9
SECTION 3.15 Taxes............................................. 9
SECTION 3.16 Environmental Matters............................. 11
SECTION 3.17 Intellectual Property............................. 11
SECTION 3.18 Immigration Compliance............................ 11
SECTION 3.19 Insurance......................................... 12
</TABLE>
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<TABLE>
<S> <C>
SECTION 3.20 Accounts Receivable............................... 12
SECTION 3.21 Brokers........................................... 12
SECTION 3.22 Change in Control Payments........................ 13
SECTION 3.23 Expenses.......................................... 13
SECTION 3.24 Full Disclosure................................... 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER......................... 13
SECTION 4.1 Organization and Qualification..................... 13
SECTION 4.2 Charter and By-Laws................................ 13
SECTION 4.3 Authority Relative to this Agreement............... 14
SECTION 4.4 No Conflict, Required Filings and Consents......... 14
SECTION 4.5 Capitalization..................................... 14
SECTION 4.6 Purchase for Investment............................ 15
SECTION 4.7 Financial Condition................................ 15
SECTION 4.8 Title; Condition of Property....................... 15
SECTION 4.9 Intellectual Property Rights....................... 15
SECTION 4.10 Litigation........................................ 16
SECTION 4.11 No Defaults....................................... 16
SECTION 4.12 Taxes............................................. 16
SECTION 4.13 Agreements........................................ 16
SECTION 4.14 Compliance........................................ 17
SECTION 4.15 Validity of Shares................................ 17
SECTION 4.16 Related Party Transactions........................ 17
SECTION 4.17 Exemptions from Securities Laws................... 17
SECTION 4.18 Disclosure........................................ 17
SECTION 4.19 Brokers........................................... 17
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING............................. 17
SECTION 5.1 Conduct of Business by the Company Pending
the Closing..................................... 17
SECTION 5.2 No Solicitation.................................... 19
ARTICLE VI
ADDITIONAL AGREEMENTS................................................ 20
SECTION 6.1 Access to Information............................... 20
SECTION 6.2 Consents; Approvals................................. 20
SECTION 6.3 Notification of Certain Matters..................... 21
SECTION 6.4 Further Action...................................... 21
SECTION 6.5 Public Announcements................................ 21
SECTION 6.6 Conveyance Taxes.................................... 21
</TABLE>
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<TABLE>
<S> <C>
SECTION 6.7 Preparation and Filing of Tax Returns and
Liability for Taxes.............................. 21
SECTION 6.8 Partnership Interest; Artwork...................... 22
SECTION 6.9 Reservation of Shares.............................. 22
SECTION 6.10 Noncompetition/Nonsolicitation.................... 22
SECTION 6.11 Confidentiality................................... 23
SECTION 6.12 Repayment of Loan................................. 24
SECTION 6.13 Pre-Closing Date Distribution..................... 24
ARTICLE VII
CONDITIONS TO CLOSING................................................ 25
SECTION 7.1 Conditions to Obligation of Each Party to Closing.. 25
SECTION 7.2 Additional Conditions to Obligations of Buyer...... 26
SECTION 7.3 Additional Conditions to Obligation of the Sellers. 27
ARTICLE VIII
TERMINATION.......................................................... 28
SECTION 8.1 Termination........................................ 28
SECTION 8.2 Effect of Termination.............................. 29
SECTION 8.3 Fees and Expenses.................................. 29
ARTICLE IX
INDEMNIFICATION...................................................... 29
SECTION 9.1 Survival of Representations and Warranties......... 29
SECTION 9.2 Indemnification by the Sellers..................... 29
SECTION 9.3 Indemnification by the Buyer....................... 30
SECTION 9.4 Third Person Claims................................ 30
SECTION 9.5 Limitations on Indemnification..................... 31
SECTION 9.6 Method of Payment.................................. 31
SECTION 9.7 Exclusive Remedy........................................ 31
ARTICLE X
GENERAL PROVISIONS................................................... 31
SECTION 10.1 Disclosure........................................ 32
SECTION 10.2 Notices........................................... 32
SECTION 10.3 Certain Definitions............................... 33
SECTION 10.4 Amendment......................................... 33
SECTION 10.5 Waiver............................................ 33
SECTION 10.6 Headings.......................................... 34
</TABLE>
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<TABLE>
<S> <C>
SECTION 10.7 Severability...................................... 34
SECTION 10.8 Entire Agreement.................................. 34
SECTION 10.9 Assignment........................................ 34
SECTION 10.10 Parties in Interest.............................. 34
SECTION 10.11 Failure or Indulgence Not Waiver; Remedies
Cumulative.................................... 34
SECTION 10.12 Governing Law.................................... 35
SECTION 10.13 Counterparts..................................... 35
</TABLE>
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<PAGE>
SCHEDULE AND EXHIBIT LIST
Schedule 1.2 Allocation of Buyer Common Stock
Schedule 2.6 Investment Representations
Exhibit 6.9 Allocation of Employee Stock Options
Exhibit 7.2(e) Form of Senior Management Agreement
Exhibit 7.2(f) Stockholders Agreement and Form of Joinder
Exhibit 7.3(f) Registration Agreement and Form of Joinder
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<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is dated as of September 13, 1999 (this
"Agreement"), among ZEFER Corp., a Delaware corporation (the "Buyer"), Waite &
Company, Inc., a Massachusetts corporation (the "Company"), Thomas Waite, Allan
Cohen and Fred Luconi (each a "Seller" and collectively the "Sellers").
Recitals
Whereas, the Sellers are the beneficial and record owners of all of the
outstanding capital stock of the Company (the "Shares");
Whereas, the Buyer desires to purchase the Shares from the Sellers, and the
Sellers desire to sell the Shares to the Buyer; and
Whereas, the payments provided for herein and the agreements set forth
herein constitute good and valuable consideration to the Sellers and the Sellers
acknowledge that the Buyer is relying upon the promises and indemnities made by
the Sellers herein as a material inducement to enter into this Agreement.
Now, Therefore, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
SECTION 1.1 Basic Transaction. The Sellers hereby agree to sell to the
Buyer, and the Buyer hereby agrees to purchase from the Sellers, at the Closing,
subject to and upon the terms and conditions contained herein, the Shares.
SECTION 1.2 Purchase Price. The purchase price (the "Purchase Price")
which the Buyer shall pay for the Shares and in consideration of the agreements
and covenants of the Sellers contained herein is as follows:
(a) Cash Consideration. At the Closing, the Buyer shall pay to the
Sellers an aggregate of $8,034,051.95 in cash, payable at Sellers' option by
bank or certified check or by wire transfer of immediately available funds.
(b) Stock Consideration. At the Closing, Buyer shall issue to each Seller
the number of shares of its common stock, $.01 par value per share (the "Buyer
Common Stock") set forth next to such Seller's name on Schedule 1.2.
<PAGE>
SECTION 1.3 The Closing. The closing of the purchase and sale of the
Shares and the other transactions contemplated hereby (the "Closing") shall take
place at the offices of Ropes & Gray, One International Place, Boston
Massachusetts 02110, or at such other place as may be agreed to by the Buyer and
the Sellers, on September 13, 1999 or on such date not later than September 17,
1999 as may be agreed to by the Buyer and the Sellers (the "Closing Date").
(a) At the Closing:
(i) the Company and the Sellers shall deliver to the Buyer the
various certificates, instruments and documents referred to in Section 7.2
below;
(ii) the Buyer shall deliver to the Company and the Sellers the
various certificates, instruments and documents referred to in Section 7.3
below;
(iii) the Sellers will deliver to the Buyer stock certificates
representing the Shares, endorsed in blank or accompanied by duly executed
assignment documents; and
(iv) the Buyer shall deliver to the Sellers the cash portion of the
Purchase Price payable at Closing and, subject to the terms and conditions
of the Senior Management Agreements, shall issue to the Sellers the Buyer
Common Stock to be held by the Company as provided in the Senior Management
Agreements.
SECTION 1.4 Material Adverse Effect. When used in connection with the
Company, or Buyer or any of its subsidiaries, as the case may be, the term
"Material Adverse Effect" means any change, effect or circumstance that,
individually or when taken together with all other such changes, effects or
circumstances that have occurred prior to the date of determination of the
occurrence of the Material Adverse Effect, (a) is or is reasonably likely to be
materially adverse to the business, properties, assets (including intangible
assets), prospects, financial condition or results of operations of the Company
or Buyer and its subsidiaries, as the case may be, in the case of the Buyer and
its subsidiaries taken as a whole, or (b) is delaying or preventing or is
reasonably likely to delay or prevent the consummation of the transactions
contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers hereby represents and warrants to the Buyer, severally
and not jointly, that, except as set forth in the written disclosure schedule
delivered on or prior to the date hereof by the Sellers to Buyer that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in Articles II and III (the "Seller Disclosure Schedule"):
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<PAGE>
SECTION 2.1 Sellers. Such Seller is an individual residing at the address
indicated on the signature page hereto.
SECTION 2.2 Authority. Such Seller has full power and authority to
execute and deliver this Agreement and to perform his obligations hereunder.
This Agreement has been duly and validly executed and delivered by such Seller
and, assuming the due authorization, execution and delivery by the other parties
hereto, constitutes the valid and legally binding obligation of such Seller,
enforceable against him in accordance with its terms and conditions, except as
enforceability may be restricted, limited or delayed by applicable bankruptcy or
other laws affecting creditors' rights generally. Such Seller need not give any
notice to, make any filing with or obtain any authorization, consent or approval
of any government or governmental agency or any other third party in order to
consummate the transactions contemplated by this Agreement.
SECTION 2.3 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which such Seller is subject or (ii) 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 under any agreement, contract, lease, license,
instrument or other legally binding arrangement to which such Seller is a party
or by which he is bound or to which any of his assets is subject.
SECTION 2.4 Brokers' Fees. Except for the obligations of Thomas Waite and
Allan Cohen to Fred Luconi under the Letter Agreement dated as of September 10,
1999 among the Sellers, such Seller 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 for which the Buyer or the Company
could become liable or obligated.
SECTION 2.5 The Shares. Such Seller holds of record and owns beneficially
that number of the issued and outstanding shares of common stock of the Company
indicated on the signature page hereto, free and clear of any restrictions on
transfer (other than restrictions under applicable securities laws), mortgages,
pledges, liens, encumbrances, charges, security interests, options, warrants,
purchase rights, contracts, commitments, equities, claims and demands. Such
Seller is not a party to any option, warrant, purchase right or other contract
or commitment that could require such Seller to sell, transfer or otherwise
dispose of any capital stock of the Company (other than this Agreement). Such
Seller is not a party to any voting trust, proxy or other agreement or
understanding with respect to the voting of any capital stock of the Company.
SECTION 2.6 Investment Representations. Each of the Sellers hereby
severally makes the representations and warranties set forth in Schedule 2.6
with respect to such Seller's purchase of the Buyer Common Stock.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Company and Sellers hereby represent and warrant to Buyer, jointly and
severally, that, except as set forth in the Seller Disclosure Schedule:
SECTION 3.1 Organization and Qualification and Other Equity Interests.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts and has the
requisite corporate power and authority necessary to own, lease and operate the
properties it purports to own, lease or operate and to carry on its business as
it is now being conducted. The Company is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not have a Material Adverse Effect. Except for its interest
in Waite & Company Investment Partnership, a Massachusetts limited partnership
(the "Partnership"), the Company does not directly or indirectly own any equity
or similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
SECTION 3.2 Authority. The Company has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of the Company, and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated thereby.
This Agreement has been duly and validly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by the other parties
hereto, constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be restricted, limited or delayed by applicable bankruptcy or
other laws affecting creditors' rights generally.
SECTION 3.3 Articles of Organization and By-Laws. Attached to the Seller
Disclosure Schedule are complete and correct copies of the Articles of
Organization and By-Laws of the Company as amended to date. Such Articles of
Organization and By-Laws are in full force and effect. The Company is not in
violation of any of the provisions of its Articles of Organization or By-Laws.
SECTION 3.4 Capitalization. The authorized capital stock of the Company
consists of 200,000 shares of common stock, with no par value ("Company Common
Stock"). As of the date hereof, 1,030 shares of Company Common Stock
(constituting all of the Shares) are issued and outstanding, all of which are
validly issued, fully paid and nonassessable, subject to
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<PAGE>
no preemptive or similar rights, and no shares are held in treasury. The
ownership of the outstanding shares of Company Common Stock is set forth in
Section 3.4 of the Seller Disclosure Schedule. There are no options, warrants or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of the Company or obligating the Company
to issue or sell any shares of capital stock of, or other equity interests in,
the Company. There are no obligations, contingent or otherwise, of the Company
to repurchase, redeem or otherwise acquire any shares of Company Common Stock.
SECTION 3.5 No Conflict; Required Filings and Consents.
(a) Section 3.5(a) of the Seller Disclosure Schedule includes a list of
(i) all loan agreements, indentures, mortgages, pledges, conditional sale or
title retention agreements, security agreements, equipment obligations,
guaranties, standby letters of credit, equipment leases or lease purchase
agreements to which the Company is a party or by which it is bound and (ii) all
contracts, agreements, commitments or other understandings or arrangements to
which the Company is a party or by which it or any of its properties or assets
are bound or affected, but excluding contracts, agreements, commitments or other
understandings or arrangements entered into in the ordinary course of business
and involving, in each case, payments or receipts by the Company of less than
$10,000 in any single instance but not more than $50,000 in the aggregate
(collectively, the "Contracts"). The Company has furnished to the Buyer true
and correct copies of the agreements set forth in Section 3.5 of the Seller
Disclosure Schedule and requested by the Buyer or its authorized representative.
(b) (i) The Company has not breached, is not in default under, and has not
received written notice of any breach of or default under, any of the Contracts,
(ii) to the knowledge of the Company or the Sellers, no other party to any of
the Contracts has breached or is in default of any of its obligations
thereunder, and (iii) each of the Contracts is in full force and effect, except
in any such case for breaches, defaults or failures to be in full force and
effect that are immaterial in amount and significance.
(c) The execution and delivery of this Agreement by the Company and the
Sellers does not, and the performance of this Agreement by the Company and the
Sellers and the consummation of the transactions contemplated hereby will not,
(i) conflict with or violate the Certificate of Incorporation or By-Laws of the
Company, (ii) conflict with or violate any federal, foreign, state or provincial
law, rule, regulation, order, judgment or decree (collectively, "Laws")
applicable to the Company or by which any of its properties is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
impair the Company's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a security
interest, lien, claim, encumbrance or any other restriction on any of the
properties or assets of the Company pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company is a party or by which the
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Company or any of its properties is bound or affected, except in any such case
for conflicts, violations, breaches, defaults or other occurrences that would
not have a Material Adverse Effect.
(d) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any federal, foreign, state or provincial governmental or regulatory
authority except for applicable requirements, if any, of the Securities Act of
1933, as amended, and the rules and regulations thereunder (the "Securities
Act"), the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (the "Exchange Act"), and state securities laws ("Blue
Sky Laws").
SECTION 3.6 Compliance, Permits.
(a) The Company is not in conflict with, or in default or violation of,
any Law applicable to the Company or by which any of its properties is bound or
affected except where such conflict, default or violation would not have a
Material Adverse Effect.
(b) The Company holds all permits, licenses, easements, variances,
exemptions, consents, certificates, orders and approvals from governmental
authorities which are necessary for the operation of the business of the Company
as it is now being conducted (collectively, the "Company Permits"). The Company
is in compliance with the terms of the Company Permits, except where the failure
to so comply would not have a Material Adverse Effect.
SECTION 3.7 Financial Statements.
(a) Attached to the Seller Disclosure Schedule are (i) the unaudited
balance sheet of the Company as of December 31, 1998, together with the related
statement of income for the year then ended (the "Year-End Financial
Statements"), and (ii) the unaudited balance sheet of the Company as of July 31,
1999 and the related statement of income for the seven months then ended (the
"Seller Interim Financial Statements", and together with the Year-End Financial
Statements, collectively, the "Financial Statements").
(b) Each of the Financial Statements was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved, except for the absence of footnotes, and each
fairly presents in all material respects the financial position of the Company
as at the respective dates thereof and the results of its operations, cash flows
and stockholder equity for the periods indicated, except that the Seller Interim
Financial Statements are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
SECTION 3.8 Absence of Certain Changes or Events. Since July 31, 1999,
the Company has conducted its business in the ordinary course and there has not
occurred: (a) any Material Adverse Effect; (b) except as set forth in Section
3.8 of the Seller Disclosure
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Schedule, any amendments or changes in the Articles of Organization or By-laws
of the Company; (c) any damage to, destruction or loss of any asset of the
Company (whether or not covered by insurance) that has had a Material Adverse
Effect; (d) any material change by the Company in its accounting methods,
principles or practices; (e) any material sale or revaluation by the Company of
any of its assets, including, without limitation, writing off notes or accounts
receivable other than in the ordinary course of business; (f) any other action
or event that would have required the consent of Buyer pursuant to Section 5.1
had such action or event occurred after the date of this Agreement; or (g) any
sale of the property or assets of the Company, except in the ordinary course of
business.
SECTION 3.9 No Undisclosed Liabilities. The Company has no material
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent or otherwise), except for liabilities or
obligations (a) adequately reflected or reserved for in the Financial
Statements, (b) current liabilities incurred since June 30, 1999 in the ordinary
course of business consistent with past practice, or (c) incurred in connection
with this Agreement.
SECTION 3.10 Absence of Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company or the
Sellers, threatened against the Company or any properties or rights of the
Company before any federal, foreign, state or provincial court, arbitrator or
administrative, governmental or regulatory authority or body.
SECTION 3.11 Employee Benefit Plans, Employment Agreements.
(a) Section 3.11 (a) of the Seller Disclosure Schedule lists all employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all employee welfare plans (as
defined in Section 3(1) of ERISA), and all other bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
and any current employment or executive compensation agreement, written or
otherwise, for the benefit of, or relating to, any present or former employee
(including any beneficiary of any such employee) of, or any present or former
consultant (including any beneficiary of any such consultant) to the Company,
any trade or business (whether or not incorporated) which is a member of a
controlled group including the Company or which is under common control with the
Company (an "ERISA Affiliate") within the meaning of Section 414 of the Internal
Revenue Code of 1986, as amended (the "Code") (all such plans, practices,
programs and arrangements are referred to as the "Company Employee Plans").
There have been made available to Buyer copies of (i) the most recent annual
report on Form 5500, with accompanying schedules and attachments, filed with
respect to each Company Employee Plan required to make such a filing, and (ii)
the most recent Internal Revenue Service determination letter with respect to
each Company Employee Plan intended to be qualified under Section 401(a) of the
Code.
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(b) (i) None of the Company Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person under, and neither the
Company nor any ERISA Affiliate has ever maintained, contributed to, or been
required to contribute to, any plan that is or was a "multiemployer plan" as
such term is defined in Section 3(37) of ERISA, a pension plan subject to Title
IV of ERISA or a plan subject to Part 3 of Title I of ERISA; (ii) there has been
no "prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Company Employee Plan, which could
result in any material liability of the Company; (iii) all Company Employee
Plans are in compliance in all material respects with the requirements
prescribed by any and all Laws (including ERISA and the Code) currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, Internal Revenue
Service (the "IRS") or Secretary of the Treasury), and the Company has performed
all material obligations required to be performed by it under, is not in any
material respect in default under or violation of, and neither the Company nor
the Sellers has any knowledge of any material default or violation by any other
party to, any of the Company Employee Plans; (iv) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which may reasonably
be expected to impair such determination; and (v) there are no lawsuits or other
claims (other than claims for benefits in the ordinary course) pending or, to
the knowledge of the Company or the Sellers, threatened with respect to any
Company Employee Plan.
(c) Section 3.11(c) of the Seller Disclosure Schedule sets forth a true
and complete list of each current or former employee, officer or director of the
Company who holds (i) any option to purchase Company Common Stock as of the date
hereof, together with the number of shares of Company Common Stock subject to
such option, the option price of such option (to the extent determined as of the
date hereof), whether such option is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code (an "ISO"), and the
expiration date of such option; or (ii) any other right, directly or indirectly,
to acquire Company Common Stock, together with the number of shares of Company
Common Stock subject to such right. Section 3.11(c) of the Seller Disclosure
Schedule also sets forth the total number of such ISOs, such nonqualified
options and such other rights.
(d) Section 3.11(d) of the Seller Disclosure Schedule sets forth a true
and complete list of: (i) all employment agreements with officers of the
Company; (ii) all agreements with consultants who are individuals obligating the
Company to make annual cash payments in an amount exceeding $50,000 (iii) all
employees of, or consultants to, the Company who have executed a non-competition
agreement with the Company; (iv) all severance agreements, programs and policies
of the Company with or relating to its employees, in each case with outstanding
commitments exceeding $50,000, excluding programs and policies required to be
maintained by law; and (v) all plans, programs, agreements and other
arrangements of the Company with or relating to its employees which contain
change in control provisions.
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SECTION 3.12 Labor Matters. (i) There are no material controversies
pending or, to the knowledge of the Company or the Sellers, threatened between
the Company and any of its employees; (ii) the Company is not a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company, nor does the Company or any Seller know of any
activities or proceedings of any labor union to organize any such employees; and
(iii) neither the Company nor any Seller has knowledge of any strikes,
slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to
any employees of the Company.
SECTION 3.13 Restrictions on Business Activities. Except for this
Agreement, to the Sellers' or the Company's knowledge, there is no agreement,
judgment, injunction, order or decree binding upon the Company or, to the
Sellers' or the Company's knowledge, any other person which has or could
reasonably be expected to have the effect of prohibiting or impairing any
business practice of the Company as currently conducted or as proposed to be
conducted by the Company.
SECTION 3.14 Title to Property. The Company has good and marketable title
to all of its properties and assets, free and clear of all liens, charges and
encumbrances, except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which would have a Material Adverse Effect; and, to the knowledge of the Sellers
and the Company, all leases pursuant to which the Company leases from others
real or personal property are in good standing, valid and effective in
accordance with their respective terms, and there is not, to the knowledge of
the Sellers and the Company, under any of such leases, any existing material
default or event of default (or event which with notice or lapse of time, or
both, would constitute a material default thereunder). The Company does not own
any real property.
SECTION 3.15 Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes,
fees, levies, duties, tariffs, imposts, and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including, without limitation, (i)
income, franchise, profits, gross receipts, ad valorem, net worth, value added,
sales, use, service, real or personal property, special assessments, capital
stock, license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premiums, windfall profits, transfer and gains taxes, and
(ii) interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and "Tax Returns" shall mean returns, reports, and information
statements with respect to Taxes required to be filed with the IRS or any other
federal, foreign, state or provincial taxing authority, domestic or foreign,
including, without limitation, consolidated, combined and unitary tax returns.
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(b) Except as set forth in Section 3.15 of the Seller Disclosure
Schedule, (i) all Tax Returns of the Company which are required to have been
filed have been filed on a timely basis with the appropriate authorities and all
such Tax Returns are true, correct and complete in all material respects, (ii)
all Taxes required to have been paid by the Company have been paid in full on a
timely basis to the appropriate authorities, and (iii) all Taxes or other
amounts required to have been collected or withheld by the Company have been
timely and properly collected or withheld.
(c) Except as set forth in Section 3.15 of the Seller Disclosure Schedule,
(i) no Taxing authority has asserted in writing any adjustment, deficiency, or
assessment that could result in additional Tax for which the Company is or may
be liable, (ii) there is no pending audit, examination, investigation, dispute,
proceeding or claim for which the Company has received notice relating to any
Tax for which the Company is or may be liable, (iii) no statute of limitations
with respect to any Tax for which the Company is or may be liable has been
waived or extended, (iv) the due date of any Tax Returns that the Company is
required to file has not been extended, and (v) the Company is not a party to
any Tax sharing or Tax allocation agreement, arrangement or understanding.
(d) There are no liens on any of the assets of the Company which arose in
connection with any failure or asserted failure to pay any Tax, other than liens
for current Taxes not yet due and payable.
(e) Except to the extent arising out of the transactions contemplated by
this Agreement, the Company is not a party to any contract, agreement, plan or
arrangement that, individually or collectively, could give rise to any payment
of a compensatory nature that would not be deductible by reason of Section 162,
280G or 404 of the Code.
(f) The liability for "Accrued Special Bonuses" posted on the Closing
Balance Sheet (item 2170 on the Closing Balance Sheet) will be deductible by the
Company for federal income tax purposes no later than the year in which such
bonus or other compensation is paid.
(g) The Company has not been a member of an affiliated group filing a
consolidated federal income Tax Return, and the Company is not liable for the
Taxes of any other person, whether under Treasury Regulation 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract or otherwise.
(h) The Company at all times since November 27, 1995 has been an S
corporation within the meaning of Section 1361 of the Code.
(i) Copies of (i) any Tax examinations, (ii) extensions of statutory
limitations, (iii) the federal, state and local income Tax Returns of the
Company, and (iv) correspondence between the Company and all Taxing authorities
for its last three (3) taxable years have previously been furnished to the Buyer
and such Tax Returns are true, correct and complete in all material respects.
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SECTION 3.16 Environmental Matters. The Company: (i) has obtained all
approvals, if any (collectively, the "Environmental Approvals"), which are
required to be obtained by it under all applicable federal, state, foreign or
local laws or any regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
by the Company or its respective agents ("Environmental Laws"); (ii) is in
compliance with all terms and conditions of such required Environmental
Approvals, and also is in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in applicable Environmental Laws; and (iii) as of the date
hereof, is not aware of nor has received notice of any past or present
violations of Environmental Laws or any event, condition, circumstance,
activity, practice, incident, action or plan which is reasonably likely to
interfere with or prevent continued compliance with or which would give rise to
any common law or statutory liability, or otherwise form the basis of any claim,
action, suit or proceeding, against the Company based on or resulting from the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge or release into the
environment, of any pollutant, contaminant or hazardous or toxic material or
waste.
SECTION 3.17 Intellectual Property. The patents, patent applications,
trademarks, service marks, trade names, corporate names, copyrights, trade
secrets or other proprietary rights necessary to the conduct of the business of
the Company are owned by or licensed to the Company and listed in Section 3.17
of the Seller Disclosure Schedule. The Company has not licensed from any third
party any proprietary rights, except for commercially available software, or, to
the knowledge of the Company and the Sellers, infringed, misappropriated or
otherwise conflicted with any proprietary rights of any third parties. To the
knowledge of the Sellers or the Company, no activity of any third party
infringes upon the rights of the Company to the items listed in Section 3.17 of
the Seller Disclosure Schedule. The Company has good title to all of the
trademarks and trade names listed in Section 3.17 of the Seller Disclosure
Schedule hereto free and clear of any lien, charge, license or other
encumbrance.
SECTION 3.18 Immigration Compliance.
(a) The Company is in compliance in all material respects with all
applicable foreign, federal, state and local laws, rules, directives and
regulations relating to the employment authorization of its employees
(including, without limitation, the Immigration Reform and Control Act of 1986,
as amended and supplemented, and Section 212(n) and 274A of the Immigration and
Nationality Act, as amended and supplemented, and all implementing regulations
relating thereto), and, to its knowledge, the Company has not employed nor, to
its
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knowledge, is it currently employing any unauthorized aliens (as such term is
defined under 8 CFR 27a.1(a)).
(b) The Company has not received any notice from the Immigration and
Naturalization Service (the "INS") or the U.S. Department of Labor (the "DOL")
of the disapproval or denial of any visa petition pending before the INS or
labor certification pending before the DOL on behalf of any employee or
prospective employee of the Company.
(c) Section 3.17 (c) of the Seller Disclosure Schedule contains a true,
complete and accurate list of all non-immigrant or immigrant visa petitions
pending before the INS and labor certifications pending before the DOL on behalf
of any of the employees or prospective employees of the Company.
(d) Since the approval of each of their respective H-1B non-immigrant visa
petitions, there has been no material change in the terms and conditions of
employment of any employees of the Company, provided that it is acknowledged
that certain employees from time to time unilaterally breach the terms of their
employment with the Company.
(e) The Company shall have delivered to Buyer by the Closing Date true,
accurate and complete copies of all visa petitions (and all supporting
documents) submitted to the INS for all employees employed by the Company
pursuant to non-immigrant visa petitions filed by the Company and for all such
prospective employees of the Company.
SECTION 3.19 Insurance. All fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies maintained by the Company is in character
and amount at least equivalent to that generally carried by persons engaged in
similar businesses of comparable size as the Company, and all such policies are
with reputable insurance carriers and provide adequate coverage for all normal
risks incident to the business of the Company and its respective properties and
assets.
SECTION 3.20 Accounts Receivable. The accounts receivable of the Company
as reflected in the most recent Financial Statements, to the extent uncollected
on the date hereof and the accounts receivable reflected on the books of the
Company are valid and existing and represent monies due, and the Company has
made reserves adequate for receivables not collectible in the ordinary course of
business, and (subject to the aforesaid reserves) are subject to no refunds or
other adjustments and to no defenses, rights of setoff, assignments,
restrictions, encumbrances or conditions enforceable by third parties on or
affecting any thereof, except for such refunds, adjustments, defenses, rights of
setoff, assignments, restrictions, encumbrances or conditions as could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.21 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions
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contemplated by this Agreement based upon arrangements made by or on behalf of
the Company or the Sellers.
SECTION 3.22 Change in Control Payments. The Company is neither a party
nor subject to any plan, program or agreement pursuant to which payments may be
required or acceleration of benefits may be required upon a change of control of
the Company.
SECTION 3.23 Expenses. Section 3.23 of the Seller Disclosure Schedule
sets forth a description of all of the estimated expenses of the Company which
the Company expects to incur, or has incurred, in connection with the
transactions contemplated by this Agreement.
SECTION 3.24 Full Disclosure. No representation or warranty made by the
Sellers or the Company contained in this Agreement and no statement contained in
any certificate or schedule furnished or to be furnished by the Company or the
Sellers to Buyer in, or pursuant to the provisions of, this Agreement, including
without limitation the Seller Disclosure Schedule, contains or shall contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
Buyer hereby represents and warrants to the Company and the Sellers that,
except as set forth in the written disclosure schedule delivered on or prior to
the date hereof by Buyer to the Sellers that is arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
IV (the "Buyer Disclosure Schedule"):
SECTION 4.1 Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted. Buyer is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not reasonably be expected to have a
Material Adverse Effect.
SECTION 4.2 Charter and By-Laws. Buyer has heretofore furnished to the
Company a complete and correct copy of its Certificate of Incorporation and By-
Laws, as amended to date. Such Certificate of Incorporation and By-Laws are in
full force and effect. Buyer is not in violation of any of the provisions of
its Certificate of Incorporation or By-Laws.
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SECTION 4.3 Authority Relative to this Agreement. Buyer has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Buyer and
the consummation by Buyer of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of Buyer,
and no other corporate proceedings on the part of Buyer are necessary to
authorize this Agreement or to consummate the transactions contemplated thereby.
This Agreement has been duly and validly executed and delivered by Buyer and,
assuming the due authorization, execution and delivery by each of the other
parties hereto, constitutes a legal, valid and binding obligation of Buyer
enforceable against it in accordance with its terms.
SECTION 4.4 No Conflict, Required Filings and Consents.
(a) Except as set forth in Section 4.4 of the Buyer Disclosure Schedule,
the execution and delivery of this Agreement by Buyer does not, and the
performance of this Agreement by Buyer will not, (i) conflict with or violate
the Certificate of Incorporation or By-Laws of Buyer, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to Buyer
or any of its subsidiaries or by which its or their respective properties are
bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or impair Buyer's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Buyer or
any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Buyer or any of its subsidiaries is a party or by which
Buyer or any of its subsidiaries or its or any of their respective properties
are bound or affected, except in any such case for any such conflicts,
violations, breaches, defaults or other occurrences that could not reasonably be
expected to have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by Buyer does not, and
the performance of this Agreement by Buyer will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except for applicable
requirements, if any, of the Securities Act and Blue Sky Laws, which will be
complied with in all material respects within the applicable times required.
SECTION 4.5 Capitalization. The authorized capital stock of the Buyer
consists of (i) 35,000,000 shares of Buyer Common Stock and (ii) 96,632 shares
of Class A Preferred Stock, par value $.01 per share ("Preferred Stock"). As of
the date hereof, there were (i) 28,724,680 shares of Buyer Common Stock issued
and outstanding, (ii) 17,695 shares of Preferred Stock outstanding, and (iii)
3,000,000 shares of Buyer Common Stock reserved for future issuance pursuant to
Buyer's stock plans (the "Buyer Stock Plans"). Except for awards outstanding
under the Buyer Stock Plans or as otherwise set forth in Section 4.5 of the
Buyer Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or
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commitments of any character relating to the issued or unissued shares of
capital stock of the Buyer or obligating Buyer to issue or sell any shares of
capital stock of, or other equity interests in, the Buyer.
SECTION 4.6 Purchase for Investment. The Shares to be purchased by Buyer
pursuant to this Agreement are being acquired for investment only without a view
to any public distribution.
SECTION 4.7 Financial Condition.
(a) Attached to the Buyer Disclosure Schedule is the unaudited balance
sheet of the Buyer as of June 30, 1999 and the related statement of operations
for the six-month period then ended (the "Interim Financial Statements"). The
Interim Financial Statements have been prepared in accordance with generally
accepted accounting principles, except for the absence of footnotes. Such
balance sheet presents fairly in all material respects the financial position of
the Buyer as of June 30, 1999, and such statement of operations presents fairly
in all material respects the results of operations of the Buyer for the six
months then ended, all subject to year-end adjustments consisting of normal
recurring items that do not, individually or in the aggregate, materially and
adversely affect the financial condition or results of operations from that
presented.
(b) Except as set forth in the Interim Financial Statements, the Buyer has
no material liabilities of any nature (matured or unmatured, accrued, fixed or
contingent), except liabilities incurred in the ordinary course of business
since June 30, 1999.
(c) Since June 30, 1999 there has not been (i) any Material Adverse
Effect, (ii) any payment of dividends on, or other distribution with respect to,
or any direct or indirect redemption or acquisition of, any shares of the
capital stock of the Buyer, or any agreement or commitment therefor, (iii) any
loan by the Buyer to, or any loan to the Buyer from, any officer, director,
employee or stockholder of the Buyer, or any agreement or commitment therefor
(other than travel and other advances in the ordinary course of business), or
(iv) any damage, destruction or loss (whether or not covered by insurance)
materially and adversely affecting the assets, property or business of the
Buyer.
SECTION 4.8 Title; Condition of Property. The Buyer has good title to all
of its property and assets, real, personal or mixed, tangible or intangible,
free and clear of all liens, security interest, charges and encumbrances of any
kind, except for any liens, security interests, charges or other encumbrances
that would not have a Material Adverse Effect.
SECTION 4.9 Intellectual Property Rights. The Buyer owns or has the right
to use pursuant to license, sublicense or agreement all patents, patent
applications, trademarks, service marks, trade names, corporate names,
copyrights, trade secrets or other proprietary rights necessary to the conduct
of the business of the Buyer (the "Buyer Intellectual Property"), free and clear
of any lien, charge, license or other encumbrance. To the knowledge of the
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Buyer, (a) the Buyer has not infringed, misappropriated or otherwise conflicted
with any proprietary rights of any third parties and (b) no activity of any
third party infringes upon the rights of the Buyer with respect to the Buyer
Intellectual Property.
SECTION 4.10 Litigation. There are no claims, actions, suits, proceedings
or investigations now pending or, to the knowledge of the Buyer, threatened
against the Buyer or any properties or rights of the Buyer before any federal,
foreign, state or provincial court, arbitrator or administrative, governmental
or regulatory authority or body.
SECTION 4.11 No Defaults. The Buyer is not in violation or breach of, or
in default under, any provisions of (a) its Certificate or Incorporation or By-
Laws, any note or other obligation for borrowed money or the deferred purchase
price of property, or any other material agreement or commitment to which the
Buyer is a party or by which it or any of its property is bound or affected, or
(b) any ruling, writ, injunction, order, judgement or decree of any court,
administrative agency or other governmental body, and, to the knowledge of the
Buyer, there exists no condition which, after notice, lapse of time, or both,
would constitute a violation or breach of, or a default under, any of the
foregoing.
SECTION 4.12 Taxes. The Buyer has filed all Tax Returns which are
required to be filed by it, and all such Tax Returns were true and correct in
all material respects when filed. The Buyer has paid all Taxes pursuant to such
returns or pursuant to any assessments received by it or which it is obligated
to withhold from amounts owing to any employee, creditor or third party (and the
Buyer has withheld all Taxes that it is obligated to withhold), except, in each
case, for those which are not yet due and payable pursuant to such Tax Returns.
The Buyer has not waived any statute of limitations with respect to Taxes or
agreed to any extension of time with respect to any tax assessment or
deficiency. The Buyer has never filed a consent pursuant to Section 341(f) of
the Code relating to collapsible corporations, or filed an election pursuant to
Section 1362(a) of the Code to be treated for federal income tax purposes as an
S corporation.
SECTION 4.13 Agreements. Section 4.13 of the Buyer Disclosure Schedule
sets forth all of the following types of contracts to which the Buyer is a
party: (a) written or oral contracts not made in the ordinary course of business
and which are material to the business of the Buyer and (b) whether or not made
in the ordinary course of business, all (i) employment and consulting agreements
with the senior executive officers of the Buyer listed in Section 4.13 of the
Buyer Disclosure Schedule, (ii) bonus, pension, profit-sharing, retirement,
stock purchase, stock option and similar plans, contracts and understandings for
the benefit of any officer, director or stockholder, other than those that
benefit employees generally, (iii) agreements relating to the financing of the
Buyer, whether by means of loans to, or purchase of capital stock from, the
Buyer, (iv) any guaranties of any obligation for borrowed money or otherwise and
(v) agreements or other commitments for capital expenditures in excess of
$1,000,000 in the aggregate. The Buyer has furnished to the Sellers true and
correct copies of the agreements set forth in Section 4.13 of the Buyer
Disclosure Schedule and requested by the Sellers or their authorized
representatives.
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SECTION 4.14 Compliance. The Buyer has complied in all material respects
with all federal, state, local and foreign laws, statutes, ordinances, rules,
regulations and orders applicable to its business, the failure to comply with
which would have a Material Adverse Effect.
SECTION 4.15 Validity of Shares. The shares of Buyer Common Stock to be
issued pursuant to this Agreement will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and subject to no preemptive or similar
rights.
SECTION 4.16 Related Party Transactions. Except as set forth in Section
4.16 of the Buyer Disclosure Schedule, no current employee or current or former
stockholder, director or officer of the Buyer and no "associate" (as defined in
the rules and regulations promulgated under the Securities Exchange Act of 1934)
of any such person, is currently, directly or indirectly, a party to any
transaction (other than as an employee) with the Buyer providing for the
furnishing of services by, or the purchase, rental or licensing of real or
personal property from, or otherwise requiring cash payments to, any such
person.
SECTION 4.17 Exemptions from Securities Laws. Subject to the accuracy of
the representations and warranties of the Sellers set forth in Section 2.6
hereof, the offer, issuance, sale and delivery of the Buyer Common Stock are
exempt from the provisions of Section 5 of the Securities Act of 1933, and no
consent, approval, qualification, registration or filing under any state
securities law is required in connection therewith.
SECTION 4.18 Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to the Sellers by or on behalf of the Buyer
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading.
SECTION 4.19 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Buyer.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
SECTION 5.1 Conduct of Business by the Company Pending the Closing. The
Company and the Sellers covenant and agree that, during the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Closing, unless Buyer shall otherwise agree in writing, the
Company shall, and the Sellers shall cause the Company to, conduct its business
only in, and the Company shall not, and the Sellers shall cause the Company not
to, take any action except in, the ordinary course of business and in a manner
consistent with past practice; and the Company shall use all
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reasonable commercial efforts to preserve substantially intact the business
organization of the Company, to keep available the services of the present
officers, employees and consultants of the Company and to preserve the present
relationships of the Company with customers, suppliers and other persons with
which the Company has business relations. By way of amplification and not
limitation, except as contemplated by this Agreement, the Company shall not, and
the Sellers shall cause the Company not to, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing, directly or indirectly do, or propose to do, any of
the following without the prior written consent of Buyer:
(a) amend or otherwise change the Articles of Organization or By-Laws of
the Company;
(b) issue, sell, pledge, dispose of or voluntarily encumber, or authorize
the issuance, sale, pledge, disposition or voluntary encumbrance of, any shares
of capital stock of any class, or any options, warrants, convertible securities
or other rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) in the
Company;
(c) sell, pledge, dispose of or voluntarily encumber any assets (tangible
or intangible) of the Company except for (i) dispositions of obsolete or
worthless assets and (ii) sales of immaterial assets not in excess of $10,000 in
the aggregate;
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
(iii) amend the terms or change the period of exercisability of, purchase,
repurchase, redeem or otherwise acquire, any of its securities including without
limitation, shares of Company Common Stock or any option, warrant or right,
directly or indirectly, to acquire shares of Company Common Stock, or propose to
do any of the foregoing; provided, however, that the Company may make a
distribution to the Sellers on the day immediately preceding the Closing Date,
as set forth in Sections 6.8 and 6.13 hereof;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for, the obligations of any person or, except in the ordinary
course of business consistent with past practice, make any loans or advances;
(iii) enter into or amend any material contract or agreement; (iv) authorize any
capital expenditures or purchase of fixed assets which are, in the aggregate, in
excess of $25,000 for the Company; or (v) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the matters prohibited by
this Section 5.1(e);
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(f) increase the compensation payable or to become payable to its officers
or employees other than in the ordinary course of business, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with any director, officer or other employee of the Company, or
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees, except, in each case, as may
be required by law; provided, however, that the Company may provide for bonus
payments to be made (x) to each of Richard Kane, Kevin Kuechler and Peter Walsh
(the "Specified Employees") in an amount not to exceed $400,000 in the
aggregate, and (y) to the extent that the bonus payments made to the Specified
Employees are, in the aggregate, less than $400,000, to Thomas Waite and Allan
Cohen in an aggregate amount which, together with the bonuses paid to the
Specified Employees pursuant to this proviso, equals $400,000;
(g) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable);
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the Financial Statements or incurred in the ordinary course of business and
consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1 (a) through (i) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
SECTION 5.2 No Solicitation.
(a) The Sellers and the Company shall not, and the Sellers shall cause the
Company not to, directly or indirectly, through any officer, director, employee,
representative or agent of the Company or any Seller, during the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement and the Closing, (i) solicit, initiate or encourage the
initiation of any inquiries or proposals regarding any merger, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving the
Company other than the transactions contemplated by this Agreement (any of the
foregoing inquiries or proposals being referred to herein as an
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"Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
or provide any nonpublic information to any person relating to, any Acquisition
Proposal or (iii) agree to, approve or recommend any Acquisition Proposal.
(b) During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement and the Closing, the Company
shall immediately notify Buyer after receipt of any Acquisition Proposal, or any
modification of or amendment to any Acquisition Proposal, or any request for
nonpublic information relating to the Company in connection with an Acquisition
Proposal or for access to the properties, books or records of the Company by any
person or entity that informs the Board of Directors of the Company that it is
considering making, or has made, an Acquisition Proposal. Such notice to Buyer
shall be made orally and in writing.
(c) The Company and the Sellers shall immediately cease and cause to be
terminated any existing discussions or negotiations with any persons (other than
Buyer) conducted heretofore with respect to any of the foregoing. The Company
agrees not to release any third party from the confidentiality provisions of any
confidentiality agreement to which the Company is a party.
(d) The Company shall ensure that the officers, directors and employees of
the Company and any investment banker or other advisor or representative
retained by the Company to assist with Acquisition Proposals are aware of the
restrictions described in this Section 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Access to Information. Upon reasonable notice, the Company
shall afford to Buyer's officers, employees, accountants, counsel and other
representatives, reasonable access, during the period from the date of this
Agreement to the Closing, to all its properties, books, contracts, commitments
and records and, during such period, the Company shall furnish promptly to Buyer
all information concerning its business, properties and personnel as Buyer may
reasonably request, and shall make available to Buyer the appropriate
individuals (including attorneys, accountants and other professionals) for
discussion of its business, properties and personnel as Buyer may reasonably
request.
SECTION 6.2 Consents; Approvals. The Company and Buyer shall each use its
reasonable best efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all United States
governmental and regulatory rulings and approvals), and the Company and Buyer
shall make all filings (including, without limitation, all filings with United
States governmental or regulatory agencies) required in connection with the
authorization, execution and delivery of this Agreement by the Company and Buyer
and the consummation by them of the transactions contemplated hereby, in each
case as promptly as
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practicable. The Company and Buyer shall furnish promptly all information
required to be included in any application or other filing to be made pursuant
to the rules and regulations of any United States or foreign governmental body
in connection with the transactions contemplated by this Agreement.
SECTION 6.3 Notification of Certain Matters. The Company shall give prompt
notice to Buyer, and Buyer shall give prompt notice to the Company, of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to become materially untrue or inaccurate, or (ii) any failure of the
Company or Buyer, as the case may be, materially to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice; and provided further that failure to give such
notice shall not be treated as a breach of covenant for the purposes of Sections
7.2(b) or 7.3(b) unless the failure to give such notice results in material
prejudice to the other party.
SECTION 6.4 Further Action. Upon the terms and subject to the conditions
hereof each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to its obligations under this Agreement.
Without limiting the foregoing, each of the parties hereto agrees that it shall
file all Tax Returns in a manner that is consistent with the terms of this
Agreement.
SECTION 6.5 Public Announcements. Buyer, the Sellers and the Company shall
consult with each other before issuing any press release with respect to the
transaction contemplated by this Agreement and shall not issue any such press
release or make any such public statement without the prior consent of the other
party, which shall not be unreasonably withheld.
SECTION 6.6 Conveyance Taxes. Buyer, the Sellers and the Company shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications, or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees, and any similar
taxes, which become payable in connection with the transactions contemplated
hereby that are required or permitted to be filed at or before the Closing.
SECTION 6.7 Preparation and Filing of Tax Returns and Liability for Taxes.
(a) The Sellers shall prepare and file or cause to be prepared and filed
all Tax Returns for the Company and each entity to which the Company is a
successor in interest (whether by
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merger or otherwise) for all taxable periods that end before the Closing Date.
The Sellers shall pay all Tax liabilities of the Company and each entity to
which the Company is a successor in interest (whether by merger or otherwise)
for all taxable periods (or portions thereof) that end before the Closing Date.
(b) Each party hereto shall, and shall cause its subsidiaries and
affiliates, if any, to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in filing any
Tax Returns, amended Tax Returns or claims for refund, determining a liability
for Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall include
providing copies of all relevant portions of relevant Tax Returns, together with
relevant accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by taxing authorities and relevant
records concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party required
to file Tax Returns pursuant to this Agreement shall bear all costs of filing
such Tax Returns.
SECTION 6.8 Partnership Interest; Artwork. On the day immediately
preceding the Closing Date, the Sellers shall cause the Company to distribute to
the Sellers all of the Company's right, title and interest in and to (a) the
partnership interest held by the Company in the Partnership (the "Partnership
Interest") and (b) any and all artwork owned by the Company (the "Artwork").
SECTION 6.9 Reservation of Shares. Buyer agrees to reserve 186,000 shares
of Buyer Common Stock for the issuance of Buyer Common Stock or options to
purchase Buyer Common Stock to employees of the Company promptly following the
Closing, which shares shall be separate and apart from any additional shares
that may be issued under any employee benefit plan of the Buyer in which such
employees are entitled to participate. The allocation of such future grants of
stock or options is set forth on Exhibit 6.9.
SECTION 6.10 Noncompetition/Nonsolicitation.
(a) For a period of 12 months after the Closing Date (the "Noncompete
Period"), each of Thomas Waite and Allan Cohen agrees that he shall not, within
the United States, directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the strategic consulting business of the Company; provided that
passive ownership of less than 5% of the outstanding stock of any publicly
traded corporation shall not, in and of itself, be deemed to violate this
Section 6.10.
(b) During the Noncompete Period, each of Thomas Waite and Allan Cohen
agrees that he shall not directly, or indirectly through another entity, (i)
induce or attempt to induce any employee of the Company to leave the employ of
the Company, or in any way interfere with the relationship between the Company
and any employee thereof, (ii) hire any person who
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was an employee of the Company within 180 days prior to the time such employee
was hired, or is to be hired, by either of Thomas Waite or Allan Cohen, (iii)
induce or attempt to induce any customer, supplier, licensee or other business
relation of the Company to cease doing business with the Company or in any way
interfere with the relationship between any such customer, supplier, licensee or
business relation and the Company or (iv) directly or indirectly acquire or
attempt to acquire an interest in any business relating to the strategic
consulting business of the Company or with which the Company is entertaining
discussions or has requested and received information relating to the
acquisition of such business by the Company.
(c) For a period of 18 months after the Closing Date, each of Thomas Waite
and Allan Cohen agrees that he shall not perform strategic consulting services
for any business or entity that has been a customer or client of the Company
since January 1, 1998.
(d) If, at the time of enforcement of this Section 6.10, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum duration, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum duration, scope and area
permitted by law. The parties hereto agree that money damages would be an
inadequate remedy for any breach of this Section 6.10. Therefore, in the event
of a breach or threatened breach of this Section 6.10, the Buyer or its
successors or assigns may, in addition to other rights and remedies existing in
its or their favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions hereof (without posting a bond or other
security).
SECTION 6.11 Confidentiality.
(a) The Company and the Sellers agree that, unless and until the Closing
has been consummated, each of the Company and the Sellers will hold in strict
confidence, and will not use, any confidential or proprietary data or
information obtained from the Buyer with respect to its business or financial
condition except for the purpose of evaluating, negotiating and completing the
transaction contemplated hereby and unless the Company or the Sellers are
otherwise required to disclose such data or information by law. Information
generally known in the Buyer's industry or which has been disclosed to the
Company or the Sellers by third parties which have a right to do so shall not be
deemed confidential or proprietary information for purposes of this Agreement.
If the transactions contemplated by this Agreement are not consummated, the
Company and the Sellers will return to the Buyer (or certify that they have
destroyed) all copies of such data and information.
(b) The Buyer agrees that, unless and until the Closing has been
consummated, the Buyer will hold in strict confidence, and will not use, any
confidential or proprietary data or information obtained from the Company or the
Sellers with respect to the Company's business or financial condition except for
the purpose of evaluating, negotiating and completing the
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transaction contemplated hereby and unless the Buyer is otherwise required to
disclose such data or information by law. Information generally known in the
Company's industry or which has been disclosed to the Buyer by third parties
which have a right to do so shall not be deemed confidential or proprietary
information for purposes of this Agreement. If the transactions contemplated by
this Agreement are not consummated, the Buyer will return to the Company (or
certify that it has destroyed) all copies of such data and information.
SECTION 6.12 Repayment of Loan. Prior to the Closing Date, the Sellers
shall cause the Company to pay in full the outstanding amount of all line of
credit loans (collectively, the "Bank Loan") at any time made by BankBoston,
N.A. or any affiliate thereof to the Company, together with all interest accrued
through the date of repayment and not previously paid.
SECTION 6.13 Pre-Closing Date Distribution.
(a) On the day immediately preceding the Closing Date, the Sellers shall
cause the Company to distribute to the Sellers (i) cash and (ii) accounts
receivable of the Company (the "Distributed Receivables") having an aggregate
value, immediately prior to the Closing Date, equal to the Distribution Amount
(defined below).
(b) Subject to the provisions of Section 6.13(e) of this Agreement, the
"Distribution Amount" shall be $171,472.00.
(c) The term "Closing Balance Sheet" shall mean the balance sheet of the
Company, as of the close of business on August 31, 1999 (but in all events
following the distribution of the Partnership Interest and the Artwork and the
payment in full of the Bank Loan); provided, however, that the Closing Balance
Sheet shall not include the Partnership Interest or the Artwork as an asset, or
the Bank Loan as a liability, and provided, further, that the Closing Balance
Sheet shall include as a liability the aggregate amount of bonuses, not to
exceed $400,000, to be paid to the Specified Employees and/or Thomas Waite and
Allan Cohen, as contemplated by the proviso in Section 5.1(f) of this Agreement.
Such Closing Balance Sheet, together with a written calculation of the
Distribution Amount in reasonable detail, shall be prepared by the Sellers and
delivered to the Buyer on the Closing Date.
(d) The Distributed Receivables shall include any and all loans to the
Partnership (item 1120 on the Closing Balance Sheet) and any and all amounts due
from employees (item 1140 on the Closing Balance Sheet) as of the close of
business on the day immediately preceding the Closing Date.
(e) Buyer agrees that it will cause the Company (or any successor thereto)
to act as the agent for the Sellers for purposes of collecting the Distributed
Receivables, and that it will cause the Company (or any successor thereto), as
agent, to use its reasonable best efforts to collect in full the Distributed
Receivables. Buyer shall cause the Company (or any successor thereto) to remit
any amounts collected in respect of the Distributed Receivables to the Sellers
within five business days following the end of each week; provided, however,
that any such
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amounts collected by the Company in payment of the Distributed Receivables shall
first be applied to the payment of any liabilities (net of any prepaid expenses
paid by the Company prior to the date of the Closing Balance Sheet and not
reflected on the Closing Balance Sheet) of the Company accrued prior to the date
of the Closing Balance Sheet and assumed by the Buyer, whether or not such
liabilities are reflected on the Closing Balance Sheet, and the balance of such
amounts collected by the Company shall be remitted to the Sellers as provided in
this Section 6.13(e). All such remittances shall be made to the Sellers in
proportion to their percentage ownership in the stock of the Company immediately
prior to the Closing. In the event that a portion of the accounts receivable
owing from a single account debtor constitutes Distributed Receivables and a
portion constitutes accounts receivable retained by the Company, Buyer shall
cause the Company (or any successor thereto) to apply any payments received from
such account debtor, which payments are not designated as payment in respect of
the Distributed Receivables or the receivables retained by the Company, to the
accounts receivable owing from such account debtor in the order in which such
account receivables were billed.
(f) In the event the Buyer determines that all or a portion of the
accounts receivable or unbilled client expenses (as determined as of the close
of business on August 31, 1999) retained by the Company (i.e., accounts
receivable other than Distributed Receivables), if any, will not be able to be
collected within three months following the Closing Date despite Buyer's
reasonable best efforts, the Buyer shall give notice of such determination to
Sellers. Upon receipt of such notice, Sellers may at their option assist Buyer
in collecting the outstanding accounts receivable. In the event that not all
retained accounts receivable are collected within six months, Sellers shall pay
to the Buyer upon demand an amount equal to the uncollected accounts receivable
and, upon request of the Sellers, the Buyer shall assign such uncollected
accounts receivable (including those on account of unbilled client expenses) to
the Sellers in proportion to their percentage ownership in the stock of the
Company immediately prior to the Closing. If the Buyer reasonably determines
that an account receivable retained by the Company is or will be uncollectible,
it may withhold from amounts otherwise owing to the Sellers under paragraph (e)
of this Section 6.13 an amount equal to the amount of the uncollectible account
receivable.
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.1 Conditions to Obligation of Each Party to Closing. The
respective obligations of each party to consummate the purchase and sale of the
Shares at the Closing shall be subject to the satisfaction at or prior to the
Closing of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the purchase and sale of the Shares shall be in effect, nor
shall any proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality
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seeking any of the foregoing be pending; and there shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the sale of the Shares, which makes the consummation of the
sale of the Shares illegal; and
(b) Governmental Actions. There shall not have been instituted, pending
or threatened any action or proceeding (or any investigation or other inquiry
that might result in such an action or proceeding) by any governmental authority
or administrative agency before any governmental authority, administrative
agency or court of competent jurisdiction, nor shall there be in effect any
judgment, decree or order of any governmental authority, administrative agency
or court of competent jurisdiction, in either case seeking to prohibit or limit
Buyer from exercising all material rights and privileges pertaining to its
ownership or operation of the Company following the Closing or the ownership or
operation by Buyer or any of its subsidiaries of all or a material portion of
the business or assets of Buyer or any of its subsidiaries as a result of the
transactions contemplated by this Agreement.
SECTION 7.2 Additional Conditions to Obligations of Buyer. The obligation
of Buyer to purchase the Shares at the Closing is also subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties of
the Company and the Sellers contained in this Agreement shall have been true and
correct in all material respects at and as of the date made, and shall be true
and correct in all material respects as of the Closing Date with the same effect
as though made on and as of the Closing Date. In addition, all representations
and warranties of the Company and the Sellers that are qualified by materiality
or similar words shall have been true and correct in all respects when made and
as of the Closing Date. Buyer shall have received a certificate to such effect
signed by each of the Sellers and on behalf of the Company by the President of
the Company;
(b) Agreements and Covenants. Each of the Sellers and the Company shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by the
Sellers or the Company at or prior to the Closing, and Buyer shall have received
a certificate to such effect signed by each of the Sellers and on behalf of the
Company by the President of the Company;
(c) Consents Obtained. All consents, waivers, approvals, authorizations
or orders required to be obtained, and all filings required to be made, by the
Sellers or the Company for the due authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
shall have been obtained and made by the Sellers or the Company;
(d) Opinion of Counsel to the Company. Buyer shall have received an
opinion of Foley, Hoag & Eliot, LLP, counsel to the Company, in form and
substance reasonably satisfactory to Buyer;
(e) Senior Management Agreements. Each of Thomas Waite and Allan Cohen
shall
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<PAGE>
have executed and delivered a senior management agreement with the Buyer, in
substantially the form attached hereto as Exhibit 7.2(e) (the "Senior Management
Agreements");
(f) Stockholders Agreement. The Buyer shall have received executed
counterparts of a joinder to the Stockholders Agreement dated as of March 23,
1999 among the Buyer and certain of its stockholders (the "Stockholders
Agreement") from each of Thomas Waite, Allan Cohen and Fred Luconi, in
substantially the form attached hereto as Exhibit 7.2(f).
SECTION 7.3 Additional Conditions to Obligation of the Sellers. The
obligations of the Sellers to sell the Shares at the Closing are also subject to
the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Buyer contained in this Agreement shall have been true and correct in all
material respects at and as of the date made, and shall be true and correct, in
all material respects as of the Closing Date with the same effect as though made
on and as of the Closing Date. In addition, all representations and warranties
of the Buyer that are qualified by materiality or similar words shall have been
true and correct in all respects when made and as of the Closing Date. The
Sellers shall have received a certificate to such effect signed by the President
or a Vice President of the Buyer;
(b) Agreements and Covenants. Buyer shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing, and
the Sellers shall have received a certificate to such effect signed by the
President of the Buyer;
(c) Consents Obtained. All consents, waivers, approvals, authorizations
or orders required to be obtained, and all filings required to be made, by the
Buyer for the authorization, execution and delivery of this Agreement and the
consummation by them of the transactions contemplated hereby shall have been
obtained and made by the Buyer;
(d) Opinion of Counsel to Buyer. The Sellers shall have received an
opinion of Ropes & Gray, counsel to the Buyer, in form and substance
satisfactory to the Sellers; and
(e) Senior Management Agreements. The Buyer shall have executed and
delivered the Senior Management Agreements.
(f) Registration Agreement. The Buyer shall have executed and delivered a
joinder to the Registration Agreement dated as of March 23, 1999 among the Buyer
(as successor to ZC Acquisition Corp.), GTCR Fund VI, L.P., GTCR VI Executive
Fund, L.P., GTCR Associates VI and certain of its stockholders (the
"Registration Agreement"), in substantially the form attached hereto as Exhibit
7.3(f).
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<PAGE>
ARTICLE VII
TERMINATION
SECTION 8.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written consent duly authorized by the Boards of Directors
of the Buyer and the Company; or
(b) by either Buyer or the Company if the Closing shall not have been
consummated by September 17, 1999 (provided that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Closing to occur on or before such date); or
(c) by either Buyer or the Company if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the purchase and sale of the Shares (provided that the right to terminate this
Agreement under this Section 8.1(c) shall not be available to any party who has
not complied with its obligations under Section 6.2 and such noncompliance
materially contributed to the issuance of any such order, decree or ruling or
the taking of such action); or
(d) by Buyer, (i) if any representation or warranty of the Company or the
Sellers set forth in this Agreement shall be untrue when made, or (ii) upon a
breach of any covenant or agreement on the part of the Sellers or the Company
set forth in this Agreement, in either case, such that the conditions set forth
in Section 7.2(a) or 7.2(b) would not be satisfied (either (i) or (ii) above
being a "Seller Terminating Breach"), provided, that, if such Seller Terminating
Breach is curable prior to September 17, 1999 by the Sellers or the Company
through the exercise of their or its reasonable best efforts and for so long as
the Sellers and the Company continue to exercise such reasonable best efforts,
Buyer may not terminate this Agreement under this Section 8.1(d); or
(e) by the Company, (i) if any representation or warranty of Buyer set
forth in this Agreement shall be untrue when made, or (ii) upon a breach by
Buyer of any covenant or agreement set forth in this Agreement, in either case,
such that the conditions set forth in Section 7.3(a) or 7.3(b) would not be
satisfied (either (i) or (ii) above being a "Buyer Terminating Breach"),
provided, that, if such Buyer Terminating Breach is curable prior to September
17, 1999 by Buyer through the exercise of its reasonable best efforts and for so
long as Buyer continues to exercise such reasonable best efforts, the Company
may not terminate this Agreement under this Section 8.1(e).
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<PAGE>
SECTION 8.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.1, all obligations of the parties hereunder
shall terminate without any liability of any party to any other party (other
than with respect to the provisions of all of Articles 8 and 9, and Sections
10.1, 10.2, 10.7 and 10.12, each of which shall survive any such termination);
provided, however, that no termination shall relieve any party from any
liability arising from or relating to breach prior to termination.
SECTION 8.3 Fees and Expenses. All fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, whether or not the Closing occurs;
provided that the fees and expenses of the Company incurred in connection with
this Agreement and the transaction contemplated hereby shall be deemed to be
expenses of the Sellers.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Survival of Representations and Warranties.
(a) The representations and warranties of the Sellers made in this
Agreement and in the documents and certificates delivered in connection herewith
shall survive the Closing for a period of two years from the Closing Date,
provided, however, that (i) the representations and warranties contained in
Sections 2.5 and 3.4 shall survive indefinitely and (ii) the representations and
warranties that relate to Taxes in Section 3.15, shall survive until the
expiration of the applicable statutes of limitations for such Taxes (including
any extensions thereof), provided, further, that representations and warranties
with respect to which a claim for indemnification is made within the applicable
survival period shall survive until such claim is finally determined and paid.
(b) The representations and warranties of the Buyer made in this Agreement
and in the documents and certificates delivered in connection herewith shall
survive the Closing for a period of two years following the Closing Date,
provided, however, that representations and warranties with respect to which a
claim for indemnification is made within such two-year period shall survive
until such claim is finally determined and paid.
(c) No claim for indemnification may be made with respect to a
representation and warranty after the expiration of the applicable survival
period, other than claims based on fraud.
SECTION 9.2 Indemnification by the Sellers. The Sellers, jointly and
severally, (each in his capacity as an indemnifying party, an "Indemnifying
Party") covenants and agrees that he will indemnify, defend, protect, and hold
harmless the Buyer and the Company and each of their respective subsidiaries and
affiliates (each in its capacity as an indemnified party, an "Indemnitee") at
all times from and after the date of this Agreement from and against all
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<PAGE>
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) (collectively "Damages") incurred
by such Indemnitee as a result of or incident to:
(a) any breach of any representation or warranty of the Sellers set forth
herein or in any certificate or other document delivered in connection herewith
(as each such representation or warranty would read if all qualifications as to
materiality were deleted therefrom);
(b) any breach or nonfulfillment by the Sellers or the Company of, or any
noncompliance by the Sellers or the Company with, any covenant, agreement, or
obligation contained herein; and
(c) any Taxes of any kind relating to or arising in connection with the
transfer of the Shares to the Buyer;
provided, however, that in the case of any breach by any Seller of any
representation or warranty contained in Section 2 or any covenant, agreement or
obligation contained in this Agreement, such breaching Seller shall be severally
(and not jointly and severally) liable, for any indemnification obligations
under this Section 9 resulting from such breach, and each non-breaching Seller
shall have no liability for any indemnification obligations under this Section 9
resulting from such breach.
SECTION 9.3 Indemnification by the Buyer. The Buyer (in its capacity as
an indemnifying party, an "Indemnifying Party") covenants and agrees that it
will indemnify, defend, protect and hold harmless each of the Sellers (each in
his capacity as an indemnified party, an "Indemnitee") at all times from and
after the date of this Agreement from and against all Damages incurred by such
Indemnitee as a result of or incident to (a) any breach of any representation or
warranty of the Buyer set forth herein or in any certificate or other document
delivered in connection herewith (as each such representation or warranty would
read if all qualifications as to materiality were deleted therefrom) and any
misrepresentation in connection with this Agreement or the transactions
contemplated hereby; and (b) any breach or nonfulfillment by the Buyer of, or
noncompliance by the Buyer with, any covenant, agreement or obligation contained
herein or in any certificate or other document delivered in connection herewith.
SECTION 9.4 Third Person Claims. Promptly after an Indemnitee has
received notice of or has knowledge of any claim by a person not a party to this
Agreement ("Third Person") or the commencement of any action or proceeding by a
Third Person as to which such Indemnitee desires to seek indemnification
hereunder, the Indemnitee shall give the Indemnifying Party written notice of
such claim or the commencement of such action or proceeding; provided, however,
that the failure to give such notice will not affect the Indemnitees' right to
indemnification hereunder with respect to such claim, action or proceeding,
except to the extent that the Indemnifying Party has been actually prejudiced as
a
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<PAGE>
result of such failure. If the Indemnifying Party notifies the Indemnitee within
30 days from the receipt of the foregoing notice that he wishes to defend
against the claim by the Third Person, then the Indemnifying Party shall have
the right to assume and control the defense of the claim by appropriate
proceedings with counsel reasonably acceptable to Indemnitee. The Indemnitee may
participate in the defense, at its sole expense, of any such claim for which the
Indemnifying Party shall have assumed the defense pursuant to the preceding
sentence, provided that counsel for the Indemnifying Party shall act as lead
counsel in all matters pertaining to the defense or settlement of such claims,
suit or proceedings; provided, however, that Indemnitee shall control the
portion of defense of any claim or proceeding seeking equitable relief against
Indemnitee that in Indemnitee's reasonable judgment could have a material and
adverse effect on Indemnitee's business apart from the payment of money damages.
The Indemnitee shall be entitled to indemnification for the reasonable fees and
expenses of its counsel for any period during which the Indemnifying Party has
not assumed the defense of any claim. Whether or not the Indemnifying Party
shall have assumed the defense of any claim, neither the Indemnitee nor the
Indemnifying Party shall make any settlement with respect to any such claim,
suit or proceeding without the prior consent of the other, which consent shall
not be unreasonably withheld or delayed. It is understood and agreed that in
situations where failure to settle a claim expeditiously could have an adverse
effect on the party wishing to settle, the failure of a party controlling the
defense to act upon a request for consent to such settlement within ten business
days of receipt of notice thereof shall be deemed to constitute consent to such
settlement for purposes of this Article 9.
SECTION 9.5 Limitations on Indemnification. No Indemnitee shall be
entitled to indemnification under this Article 9 for Damages for breaches of
representations and warranties until the aggregate amount of such Damages
incurred by Indemnitee exceeds $100,000, in which event such persons shall be
entitled to indemnification for the aggregate cumulative amount of all Damages
in excess of $100,000; provided, however, that the liability of any Seller for
any indemnification obligations under this Section 9 shall be limited to the
amount of the Purchase Price paid to such Seller.
SECTION 9.6 Method of Payment. All claims for indemnification shall be
payable in cash.
SECTION 9.7 Exclusive Remedy. This Section 9 shall provide the sole and
exclusive remedy for any and all losses sustained or incurred by the Sellers,
the Buyer and the Company or the successors and assigns of the foregoing other
than for equitable action and fraud.
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<PAGE>
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Disclosure. Any disclosure made with reference to one or
more sections of the Seller Disclosure Schedule or the Buyer Disclosure Schedule
shall be deemed disclosed only with respect to such section or sections.
SECTION 10.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to the Buyer:
ZEFER Corp.
711 Atlantic Avenue
Boston, MA 02111
Attention: Executive Vice President and General Counsel
Telephone No.: (617) 451-8000
Telecopier No.: (617) 451-8001
With a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Keith F. Higgins, Esq.
Telephone No.: (617) 951-7000
Telecopier No.:(617) 951-7050
(b) If to the Sellers, at such persons address shown on the signature page
hereto and if to the Company:
Waite & Company, Inc.
20 Park Plaza, 11th Floor
Boston, Massachusetts 02116
Attention: Managing Director
Telephone No.: (617) 574-8000
Telecopier No: (617) 574-8080
With a copy to:
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<PAGE>
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: Robert Birnbaum, Esq.
Telephone No.: (617) 832-1106
Telecopier No.:(617) 832-7000
SECTION 10.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; including, without limitation, any partnership
or joint venture in which the first mentioned person (either alone, or through
or together with any other subsidiary) has, directly or indirectly, an interest
of 5% or more;
(b) "business day" means any day other than a day on which banks in The
Commonwealth of Massachusetts are required or authorized to be closed;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "knowledge" means actual knowledge after reasonable investigation and,
with respect to the Company, means the actual knowledge after reasonable
investigation of any director or executive officer of the Company, including,
without limitation, each Seller and Lynne Richardson;
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act); and
(f) "subsidiary" or "subsidiaries" of the Company, Buyer or any other
person means any corporation, partnership, joint venture or other legal entity
of which the Company, the Buyer or such other person, as the case may be (either
alone or through or together with any other subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
SECTION 10.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 10.5 Waiver. At any time prior to the Closing, any party hereto
may with respect to any other party hereto (a) extend the time for the
performance of any of the
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<PAGE>
obligations or other acts, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, or (c)
waive compliance with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
SECTION 10.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 10.8 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
SECTION 10.9 Assignment. Neither party may assign any of its rights under
this Agreement, except that Buyer may assign all or any of its rights hereunder
to any wholly-owned subsidiary of the Buyer provided that no such assignment
shall relieve the Buyer of its obligations hereunder. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon and
inure to the benefit of the successors and permitted assigns, including any
heirs, executors or administrators, of the parties.
SECTION 10.10 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation.
SECTION 10.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. Subject to the provisions of
Section 9.7, all rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
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<PAGE>
SECTION 10.12 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of The Commonwealth of Massachusetts
without giving effect to the conflict of laws principles thereof.
SECTION 10.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the Buyer, the Company and the Sellers have caused this
Stock Purchase Agreement to be executed as of the date first written above.
ZEFER CORP.
By: /s/ Sean Mullaney
-----------------------------------
Name: Sean Mullaney
Title: Vice President
WAITE & COMPANY, INC.
By: /s/ Thomas Waite
-----------------------------------
Name: Thomas Waite
Title: President
/s/ Thomas Waite
-----------------------------------
Thomas Waite
No. of Shares of Common Stock: 203,883
-------
Address: 113 Marlborough Street
Boston, Massachusetts 02116
/s/ Allan Cohen
-------------------------------------
Allan Cohen
No. of Shares of Common Stock: 87,379
------
Address: 541 Franklin Street
Cambridge, Massachusetts 02139
/s/ Fred Luconi
-------------------------------------
Fred Luconi
No. of Shares of Common Stock: 8,738
-----
Address: 116 Popponesset Island Road
Mashpee, Massachusetts 02649
<PAGE>
EXHIBIT 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/10/1999
991093638 - 3015093
CERTIFICATE OF INCORPORATION
OF
ZC ACQUISITION CORP.
ARTICLE ONE
The name of the corporation is ZC Acquisition Corp.
ARTICLE TWO
The address of the corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle 19801.
The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOUR
The total number of shares of stock which the corporation has
authority to issue is one thousand (1,000) shares of Common Stork, par value one
cent ($0.01) per share.
ARTICLE FIVE
The name and mailing address of the sole incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
Thaddine G. Gomez 200 East Randolph Drive
Suite 5700
Chicago, Illinois 60601
ARTICLE SIX
The corporation is to have perpetual existence.
<PAGE>
ARTICLE SEVEN
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the corporation is expressly authorized to
make, alter or repeal the by-laws of the corporation.
ARTICLE EIGHT
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the corporation. Election of directors need not be by written ballot unless
the by-laws of the corporation so provide.
ARTICLE NINE
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, a director of
this corporation shall not be liable to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE NINE shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE TEN
The corporation expressly elects not to be governed by (S)203 of the
General Corporation Law of the State of Delaware.
ARTICLE ELEVEN
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 herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, being the sole Incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that this is my act and deed and the facts stated herein are true,
and accordingly have hereunto set my hand on the 10th day of March, 1999.
/s/ Thaddine G. Gomez
---------------------
Thaddine G. Gomez
Sole Incorporator
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<PAGE>
CERTIFICATE
OF
RESTATED CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
OF
ZC ACQUISITION CORP.
* * * *
Adopted in accordance with the provisions
of (S)241(b) and (S)245 of the General Corporation Law
of the State of Delaware
* * * *
The undersigned on behalf of ZC Acquisition Corp., a corporation duly
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as follows:
FIRST: The Corporation filed its original Certificate of
Incorporation with the Delaware Secretary of State on March 10, 1999 (the
"Certificate") under the name of ZC Acquisition Corp.
SECOND: The Board of Directors of the Corporation, pursuant to
unanimous written consent, adopted resolutions authorizing the Corporation to
amend, integrate and restate the Corporation's Certificate in its entirety to
read as set forth in EXHIBIT A attached hereto and made a part hereof (the
"Restated Certificate").
THIRD: The Corporation has not received payment for any of its stock.
FOURTH: The Restated Certificate was duly adopted in accordance with
(S)241(b) of the General Corporation Law of the State of Delaware by the Board
of Directors of the Corporation.
* * * * *
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/10/1999
991093638 - 3015093
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<PAGE>
IN WITNESS WHEREOF, the undersigned on behalf of the Corporation for
the purpose of amending and restating the Restated Certificate of Incorporation
before payment of capital of the Corporation pursuant to the General Corporation
Law of the State of Delaware, under penalties of perjury does hereby declare and
certify that this is the act and deed of the Corporation and the facts stated
herein are true, and accordingly has hereunto signed this Certificate of
Restated Certificate of Incorporation this 23rd day of March, 1999.
ZC Acquisition Corp.,
a Delaware corporation
By: /s/ William Seibel
------------------
William Seibel
President
<PAGE>
Exhibit A
---------
RESTATED CERTIFICATE OF INCORPORATION
OF
ZC ACQUISITION CORP.
ARTICLE ONE
The name of the Corporation is ZC Acquisition Corp.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the corporation's registered
agent at such address is The Corporation Trust Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOUR
Part A. Authorized Capital Stock.
The total number of shares of stock which the Corporation has
authority to issue is 9,720,260 consisting of:
(A) 96,200 shares of Class A Preferred Stock, par value $0.01 per
share (the "Class A Preferred"); and
-----------------
(B) 9,624,060 shares of Common Stock, par value $0.01 per share (the
"Common Stock").
------------
<PAGE>
Part B. Powers, Preferences and Special Rights of the Class A Preferred
Stock.
Section 1. Dividends.
---------
1.A. General Obligation. When and as declared by the Corporation's
------------------
Board of Directors and to the extent permitted under the General Corporation Law
of Delaware, the Corporation shall pay preferential dividends to the holders of
the Class A Preferred Stock (the "Class A Preferred") as provided in this
-----------------
Section 1. Dividends on each share of the Class A Preferred (a "Share") shall
-----
accrue on a daily basis at the rate of 8% per annum of the sum of the
Liquidation Value thereof plus all accumulated and unpaid dividends thereon from
and including the date of issuance of such Share to and including the first to
occur of (i) the date on which the Liquidation Value of such Share (plus all
accrued and unpaid dividends thereon) is paid to the holder thereof in
connection with the liquidation of the Corporation or the redemption of such
Share by the Corporation or (ii) the date on which such share is otherwise
acquired by the Corporation. Such dividends shall accrue whether or not they
have been declared and whether or not there are profits, surplus or other funds
of the Corporation legally available for the payment of dividends, and such
dividends shall be cumulative such that all accrued and unpaid dividends shall
be fully paid or declared with funds irrevocably set apart for payment before
any dividends, distributions, redemptions or other payments may be made with
respect to any Junior Securities. The date on which the Corporation initially
issues any Share shall be deemed to be its "date of issuance" regardless of the
number of times transfer of such Share is made on the stock records maintained
by or for the Corporation and regardless of the number of certificates which may
be issued to evidence such Share. Notwithstanding anything in this Section 1A
to the contrary, dividends shall accrue and not be paid in cash (and shall
accumulate as provided in Section 1B) until the first to occur of a Public
Offering, a Change in Ownership or a Fundamental Change, or achievement of
earnings by the Corporation reasonably sufficient (as determined by the Board)
to cover payment of such dividends.
1.B. Dividend Reference Dates. To the extent not paid on March 31,
------------------------
June 30, September 30 and December 31 of each year, beginning March 31, 1999
(the "Dividend Reference Dates"), all dividends which have accrued on each Share
------------------------
outstanding during the three-month period (or other period in the case of the
initial Dividend Reference Date) ending upon each such Dividend Reference Date
shall be accumulated and shall remain accumulated dividends with respect to such
Share until paid to the holder thereof.
1.C. Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Class A Preferred, such payment
shall be distributed pro rata among the holders thereof based upon the aggregate
accrued but unpaid dividends on the Shares held by each such holder.
Section 2. Liquidation. Upon any liquidation, dissolution or winding
-----------
up of the Corporation (whether voluntary or involuntary), each holder of Class A
Preferred shall be entitled to be paid, before any distribution or payment is
made upon any Junior Securities, an amount in cash equal to the aggregate
Liquidation Value of all Shares held by such holder (plus all accrued and unpaid
dividends thereon), and the holders of Class A Preferred shall not be entitled
to any further payment. If upon any such
<PAGE>
liquidation, dissolution or winding up of the Corporation the Corporation's
assets to be distributed among the holders of the Class A Preferred are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid under this Section 2, then the entire assets
---------
available to be distributed to the Corporation's stockholders shall be
distributed pro rata among such holders based upon the aggregate Liquidation
Value (plus all accrued and unpaid dividends) of the Class A Preferred held by
each such holder. Prior to the liquidation, dissolution or winding up of the
Corporation, the Corporation shall declare for payment all accrued and unpaid
dividends with respect to the Class A Preferred, but only to the extent of funds
of the Corporation legally available for the payment of dividends. Not less than
30 days prior to the payment date stated therein, the Corporation shall mail
written notice of any such liquidation, dissolution or winding up to each record
holder of Class A Preferred, setting forth in reasonable detail the amount of
proceeds to be paid with respect to each Share and each share of Common Stock in
connection with such liquidation, dissolution or winding up.
Section 3. Priority of Class A Preferred on Dividends and Redemptions.
----------------------------------------------------------
So long as any Class A Preferred remains outstanding, without the prior written
consent of the holders of a majority of the outstanding shares of Class A
Preferred, the Corporation shall not, nor shall it permit any Subsidiary to,
redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities, nor shall the Corporation directly or indirectly pay or declare any
dividend or make any distribution upon any Junior Securities; provided that the
Corporation may repurchase shares of Common Stock from present or former
employees of the Company or its Subsidiaries in accordance with the provisions
of the Management Agreements.
Section 4. Redemptions.
-----------
4.A. Optional Redemptions. The Corporation may at any time and from
--------------------
time to time redeem all or any portion of the Shares of Class A Preferred then
outstanding. Upon any such redemption, the Corporation shall pay a price per
Share equal to the Liquidation Value thereof (plus all accrued and unpaid
dividends thereon). No redemption pursuant to this Section may be made for less
than 1,000 Shares (or such lesser number of Shares then outstanding).
4.B. Redemption After Public Offering. The Corporation shall, at the
--------------------------------
request (by written notice given to the Corporation) of the holders of a
majority of the Class A Preferred, apply the net cash proceeds from any Public
Offering remaining after deduction of all discounts, underwriters' commis sions
and other reasonable expenses to redeem Shares of Class A Preferred at a price
per Share equal to the Liquidation Value thereof (plus all accrued and unpaid
dividends thereon). Such redemption shall take place on a date fixed by the
Corporation, which date shall be not more than five days after the Corporation's
receipt of such proceeds.
<PAGE>
4.C. Redemption Payments. For each Share which is to be redeemed
-------------------
hereunder, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) an amount in immediately
available funds equal to the Liquidation Value of such Share (plus all accrued
and unpaid dividends thereon). If the funds of the Corporation legally available
for redemption of Shares on any Redemption Date are insufficient to redeem the
total number of Shares to be redeemed on such date, those funds which are
legally available shall be used to redeem the maximum possible number of Shares
pro rata among the holders of the Shares to be redeemed based upon the aggregate
Liquidation Value of such Shares held by each such holder (plus all accrued and
unpaid dividends thereon). At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Shares, such funds shall
immediately be used to redeem the balance of the Shares which the Corporation
has become obligated to redeem on any Redemption Date but which it has not
redeemed.
4.D. Notice of Redemption. Except as otherwise provided herein, the
--------------------
Corporation shall mail written notice of each redemption of any shares of Class
A Preferred to each record holder thereof not more than 60 nor less than 30 days
prior to the date on which such redemption is to be made. In case fewer than the
total number of Shares represented by any certificate are redeemed, a new
certificate representing the number of unredeemed Shares shall be issued to the
holder thereof without cost to such holder within five business days after
surrender of the certificate representing the redeemed Shares.
4.E. Determination of the Number of Each Holder's Shares to be Redeemed.
------------------------------------------------------------------
The number of Shares of Class A Preferred to be redeemed from each holder
thereof in redemptions hereunder shall be the number of Shares determined by
multiplying the total number of Shares to be redeemed times a fraction, the
numerator of which shall be the total number of Shares then held by such holder
and the denominator of which shall be the total number of Shares then
outstanding.
4.F. Dividends After Redemption Date. No Share shall be entitled to
-------------------------------
any dividends accruing after the date on which the Liquidation Value of such
Share (plus all accrued and unpaid dividends thereon) is paid to the holder of
such Share. On such date, all rights of the holder of such Share shall cease,
and such Share shall no longer be deemed to be issued and outstanding.
4.G. Redeemed or Otherwise Acquired Shares. Any Shares which are
-------------------------------------
redeemed or otherwise acquired by the Corporation shall be canceled and retired
to authorized but unissued shares and shall not be reissued, sold or
transferred.
4.H. Other Redemptions or Acquisitions. The Corporation shall not, nor
---------------------------------
shall it permit any Subsidiary to, redeem or otherwise acquire any Shares of
Class A Preferred, except as expressly authorized herein.
<PAGE>
4.I. Special Redemptions.
-------------------
(i) If a Change in Ownership has occurred or the Corporation obtains
knowledge that a Change in Ownership is proposed to occur, the Corporation
shall give prompt written notice of such Change in Ownership describing in
reasonable detail the material terms and date of consummation thereof to
each holder of Class A Preferred, but in any event such notice shall not be
given later than five days after the occurrence of such Change in
Ownership, and the Corporation shall give each holder of Class A Preferred
prompt written notice of any material change in the terms or timing of such
transaction. The holder or holders of a majority of the Class A Preferred
then outstanding may require the Corporation to redeem all or any portion
of the Class A Preferred owned by such holders at a price per Share equal
to the Liquidation Value thereof (plus all accrued and unpaid dividends
thereon) by giving written notice to the Corporation of such election prior
to the later of (a) 21 days after receipt of the Corporation's notice and
(b) five days prior to the consummation of the Change in Ownership (the
"Expiration Date"). The Corporation shall give prompt written notice of any
---------------
such election to all other holders of Class A Preferred within five days
after the receipt thereof, and each such holder shall have until the later
of (a) the Expiration Date or (b) ten days after receipt of such second
notice to request redemption hereunder (by giving written notice to the
Corporation) of all or any portion of the Class A Preferred owned by such
holder.
Upon receipt of such election(s), the Corporation shall be obligated to
redeem the aggregate number of Shares specified therein on the later of (a) the
occurrence of the Change in Ownership or (b) five days after the Corporation's
receipt of such election(s). If any proposed Change in Ownership does not occur,
all requests for redemption in connection therewith shall be automatically
rescinded, or if there has been a material change in the terms or the timing of
the transaction, any holder of Class A Preferred may rescind such holder's
request for redemption by delivering written notice thereof to the Corporation
prior to the consummation of the transaction.
The term "Change in Ownership" means any sale, transfer or issuance or
series of sales, transfers and/or issuances of Common Stock by the Corporation
or any holders thereof which results in any Person or group of Persons (as the
term "group" is used under the Securities Exchange Act of 1934), other than the
holders of Common Stock and Class A Preferred as of the date of the Purchase
Agreement, owning more than 50% of the Common Stock outstanding at the time of
such sale, transfer or issuance or series of sales, transfers and/or issuances.
(ii) If a Fundamental Change is proposed to occur, the Corporation
shall give written notice of such Fundamental Change describing in
reasonable detail the material terms and date of consummation thereof to
each holder of Class A Preferred not more than 45 days nor less than 20
days prior to the consummation of such Fundamental Change, and the
Corporation shall give each holder of Class A Preferred prompt written
notice of any material change in the terms or timing of such transaction.
The holder or holders of a majority of the Shares then outstanding, may
require the Corporation to
<PAGE>
redeem all or any portion of the Class A Preferred owned by such holders at
a price per Share equal to the Liquidation Value thereof (plus all accrued
and unpaid dividends thereon) by giving written notice to the Corporation
of such election prior to the later of (a) ten days prior to the
consummation of the Fundamental Change or (b) ten days after receipt of
notice from the Corporation. The Corporation shall give prompt written
notice of such election to all other holders of Class A Preferred (but in
any event within five days prior to the consummation of the Fundamental
Change), and each such holder shall have until two days after the receipt
of such notice to request redemption (by written notice given to the
Corporation) of all or any portion of the Class A Preferred owned by such
holder.
Upon receipt of such election(s), the Corporation shall be obligated
to redeem the aggregate number of Shares specified therein upon the
consummation of such Fundamental Change. If any proposed Fundamental Change
does not occur, all requests for redemption in connection therewith shall
be automatically rescinded, or if there has been a material change in the
terms or the timing of the transac tion, any holder of Class A Preferred
may rescind such holder's request for redemption by delivering written
notice thereof to the Corporation prior to the consummation of the
transaction.
The term "Fundamental Change" means (a) any sale or transfer of more
------------------
than 50% of the assets of the Corporation and its Subsidiaries on a
consolidated basis (measured either by book value in accordance with
generally accepted accounting principles consistently applied or by fair
market value determined in the reasonable good faith judgment of the
Corporation's Board of Directors) in any transac tion or series of
transactions (other than sales in the ordinary course of business) and (b)
any merger or consolidation to which the Corporation is a party, except for
a merger in which the Corporation is the surviving corporation, the terms
of the Class A Preferred are not changed and the Class A Preferred is not
exchanged for cash, securities or other property, and after giving effect
to such merger, the holders of the Corporation's outstanding capital stock
possessing a majority of the voting power (under ordinary circumstances) to
elect a majority of the Corporation's Board of Directors immediately prior
to the merger shall continue to own the Corporation's outstanding capital
stock possessing the voting power (under ordinary circumstances) to elect a
majority of the Corporation's Board of Directors.
Section 5. Voting Rights. Except as otherwise provided herein and as
-------------
otherwise required by applicable law, the Class A Preferred shall have no voting
rights; provided that each holder of Class A Preferred shall be entitled to
notice of all stockholders meetings at the same time and in the same manner as
notice is given to all stockholders entitled to vote at such meetings.
<PAGE>
Section 6. Registration of Transfer. The Corporation shall keep at
------------------------
its principal office a register for the registration of Class A Preferred. Upon
the surrender of any certificate representing Class A Preferred at such place,
the Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of Shares as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Class A Preferred represented by such new certificate from
the date to which dividends have been fully paid on such Class A Preferred
represented by the surrendered certificate.
Section 7. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing Shares of Class A Preferred, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (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 such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Class A Preferred represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
Section 8. Definitions.
-----------
"Change in Ownership" has the meaning set forth in Section 4I hereof.
------------------- ----------
"Common Stock" means, collectively, the Corporation's Common Stock and
any capital stock of any class of the Corporation hereafter authorized which is
not limited to a fixed sum or percentage of par or stated value in respect to
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon any liquidation, dissolution or winding up of the
Corporation.
"Fundamental Change" has the meaning set forth in Section 4I hereof.
------------------ ----------
"Junior Securities" means any capital stock or other equity securities
of the Corporation, except for the Class A Preferred.
"Liquidation Value" of any Share as of any particular date shall be
-----------------
equal to $1,000.00.
"Management Agreements" has the meaning specified in the Purchase
---------------------
Agreement.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, a limited liability, 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 any offering by the Corporation of its capital
---------------
stock or equity securities to the public pursuant to an effective registration
statement under the Securities Act of 1933, as then in effect, or any comparable
statement under any similar federal statute then in force.
<PAGE>
"Purchase Agreement" means the Purchase Agreement, dated as of March
------------------
__, 1999, by and among the Corporation and certain investors, as such agreement
may from time to time be amended in accordance with its terms.
"Redemption Date" as to any Share means the date specified in the
---------------
notice of any redemption at the Corporation's option or at the holder's option
or the applicable date specified herein in the case of any other redemption;
provided that no such date shall be a Redemption Date unless the Liquidation
Value of such Share (plus all accrued and unpaid dividends thereon and any
required premium with respect thereto) is actually paid in full on such date,
and if not so paid in full, the Redemption Date shall be the date on which such
amount is fully paid.
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing general partner of such limited liability
company, partnership, association or other business entity.
Section 9. Amendment and Waiver. No amendment, modification or
-------------------
waiver shall be binding or effective with respect to any provision hereof
without the prior written consent of the holders of a majority of the Class A
Preferred outstanding at the time such action is taken.
Section 10. Notices. Except as otherwise expressly provided
-------
hereunder, all notices referred to herein shall be in writing and shall be
delivered by registered or certified mail, return receipt requested and postage
prepaid, or by reputable overnight courier service, charges prepaid, and shall
be deemed to have been given when so mailed or sent (i) to the Corporation, at
its principal executive offices and (ii) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation (unless otherwise
indicated by any such holder).
Part C. Powers, Preferences and Special Rights of the Common Stock.
Except as otherwise provided in this Part C or as otherwise required
by applicable law, all shares of Common Stock, shall be identical in all
respects and shall entitle the holders thereof to the same rights and
privileges, subject to the same qualifications, limitations and restrictions.
Section 1. Voting Rights.
-------------
Except as otherwise provided in this Part C or as otherwise required
by applicable law, the holders of Common Stock shall be entitled to one vote per
share on all matters to be voted on by the stockholders of the Corporation.
<PAGE>
Section 2. Dividends.
---------
As and when dividends are declared or paid with respect to shares of
Common Stock, whether in cash, property or securities of the Corporation, the
holders of Common Stock shall be entitled to receive such dividends pro rata at
the same rate per share. The rights of the holders of Common Stock to receive
dividends are subject to the provisions of the Class A Preferred.
Section 3. Liquidation.
-----------
Subject to the provisions of the Class A Preferred, the holders of the
Common Stock shall be entitled to participate pro rata at the same rate per
share in all distributions to the holders of Common Stock in any liquidation,
dissolution or winding up of the Corporation.
Section 4. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office (or such other
place as the Corporation reasonably designates) a register for the registration
of shares of Common Stock. Upon the surrender of any certificate representing
shares of any class of Common Stock at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares of such class represented by
the surrendered certificate and the Corporation shall forthwith cancel such
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of shares of such class as is requested by
the holder of the surrendered certificate and shall be substantially identical
in form to the surrendered certificate. The issuance of new certificates shall
be made without charge to the holders of the surrendered certificates for any
issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such issuance.
Section 5. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation
(provided, that an affidavit of the registered holder will be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of any class of Common Stock, and in the case of
any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
<PAGE>
Section 6. Notices.
-------
All notices referred to herein shall be in writing, and shall be
delivered by registered or certified mail, return receipt requested, postage
prepaid, and shall be deemed to have been given when so mailed (i) to the
Corporation at its principal executive offices and (ii) to any stockholder at
such holder's address as it appears in the stock records of the Corporation
(unless otherwise specified in a written notice to the Corporation by such
holder).
Section 7. Amendment and Waiver.
--------------------
No amendment or waiver of any provision of this Part C shall be
effective without the prior consent of the holders of a majority of the then
outstanding shares of Common Stock voting as a single class.
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, alter or repeal the by-laws of the corporation.
ARTICLE SEVEN
Meetings of stockholders may be held within or outside of the State of
Delaware, as the by-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the Corporation. Election of directors need not be by written ballot unless
the by-laws of the Corporation so provide.
ARTICLE EIGHT
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, a director of
this Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE EIGHT shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE NINE
The Corporation expressly elects not to be governed by (S)203 of the
General Corporation Law of the State of Delaware.
<PAGE>
ARTICLE TEN
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 herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/10/1999
991093638 - 3015093
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
ZC ACQUISITION CORP.
* * * *
Adapted in accordance with the provisions of (S)242 of the
General Corporation Law of the State of Delaware
* * * *
William Seibel, being the President of ZC Acquisition Corp., a
corporation duly organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY as follows:
FIRST: The Board of Directors of the Corporation adopted the
resolution set forth below proposing an amendment to the Certificate of
Incorporation of the Corporation (the "Amendment") and directed that the
Amendment be submitted to the holders of the issued and outstanding shares of
Common Stock of the Corporation entitled to vote thereon for their consideration
and approval:
"RESOLVED, that the Certificate of Incorporation of the Corporation
be, and hereby is, amended in accordance with (S)242 of the General
Corporation Law of the State of Delaware by deleting Part A. of ARTICLE
FOUR thereof in its entirety and substituting therefor Part A ARTICLE FOUR
as follows:
"ARTICLE FOUR
Part A. Authorized Capital Stock.
The total number of shares of stock which the Corporation has
authority to issue is 9,720,962 consisting of:
(A) 96,632 shares of Class A Preferred Stock, par value $0.01 per
share (the "Class A Preferred"); and
-----------------
(B) 9,624,060 shares of Common Stock, par value $0.01 per share (the
"Common Stock")."
------------
<PAGE>
SECOND: The Amendment was duly adopted in accordance with (S)228 and
(S)242 of the General Corporation Law of the State of Delaware by the holders of
the issued and outstanding shares of the Capital Stock of the Corporation
entitled to vote thereon. Written notice has been given to the holders of the
issued and outstanding shares of Capital Stock of the Corporation who have not
consented in writing to the Amendment.
* * * * * * * *
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned does hereby certify under
penalties of perjury that this Certificate of Amendment to the Restated
Certificate of Incorporation of the Corporation is the act and deed of the
undersigned and the facts stated herein are true and accordingly has hereunto
set his hand this 29th day of April 29, 1999.
ZC Acquisition Corp.,
a Delaware corporation
By: /s/ William Seibel
------------------
William Seibel
President
-3-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ZC ACQUISITION CORP.
--------------------
ZC Acquisition Corp. (the "Corporation"), a corporation duly organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
FIRST: That all of the Directors of the Corporation by written
consent, adopted the following resolutions:
"RESOLVED: That the Board of Directors hereby declares it advisable
and in the best interests of this Corporation that ARTICLE ONE of the
Certificate of Incorporation be amended to read as follows, and that such
amendment be submitted to the Corporation's stockholders for their consideration
and approval:
ARTICLE ONE
The name of the Corporation is ZEFER Corp."
"RESOLVED: That the Board of Directors hereby declares it advisable
and in the best interests of this Corporation that the Certificate of
Incorporation be amended by deleting Part A of ARTICLE FOUR thereof in its
entirety and substituting therefor Part A of ARTICLE FOUR as follows:
ARTICLE FOUR
Part A. Authorized Capital Stock.
The total number of shares of stock which the Corporation has
authority to issue is 9,780,962 consisting of:
(A) 96,632 shares of Class A Preferred Stock, par value $0.01 per
share (the "Class A Preferred"); and
-----------------
(B) 9,684,060 shares of Common Stock, par value $0.01 per share (the
"Common Stock")."
------------
SECOND: That the aforesaid amendments were duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by William Seibel, its President.
EXECUTED this 5th day of May, 1999.
/s/ William Seibel
------------------
Name: William Seibel
Title: President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ZEFER CORP.
----------
ZEFER Corp. (the "Corporation"), a corporation duly organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
FIRST: That all of the Directors of the Corporation by written
consent, adopted the following resolution:
"RESOLVED: That the Board of Directors hereby declares it advisable
and in the best interests of this Corporation that the Certificate of
Incorporation be amended by deleting Part A of ARTICLE FOUR thereof in its
entirety and substituting therefor Part A of ARTICLE FOUR as follows:
ARTICLE FOUR
Part A. Authorized Capital Stock.
The total number of shares of stock which the Corporation has
authority to issue is 35,096,632 consisting of:
(A) 96,632 shares of Class A Preferred Stock, par value $0.01 per
share (the "Class A Preferred"); and
-----------------
(B) 35,000,000 shares of Common Stock, par value $0.01 per share
(the "Common Stock")."
------------
SECOND: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by William Seibel, its President.
EXECUTED this 14th day of June, 1999.
/s/ William Seibel
------------------
Name: William Seibel
Title: President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ZEFER CORP.
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
------------------------------------------------
ZEFER Corp. (hereinafter called the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
Pursuant to a Written Action of Directors by Unanimous Consent in Lieu
of a Meeting dated as of November 30, 1999, a resolution was duly adopted,
pursuant to Sections 141(f) and 242 of the General Corporation Law of the State
of Delaware, setting forth an amendment to the Certificate of Incorporation of
the Corporation and declaring said amendment to be advisable. The stockholders
of the Corporation duly approved said proposed amendment by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware. The resolution setting forth the amendment is as follows:
RESOLVED: That Part A of Article FOURTH of the Certificate of Incorporation
of the Corporation, as amended, be and hereby is deleted in its
entirety and the following paragraphs are inserted in lieu
thereof:
Part A. Authorized Capital Stock.
Upon the filing date of this Certificate of Amendment of this
Certificate of Incorporation, filed with the Secretary of State of
Delaware on November 30, 1999 (the "Effective Date"), (i) a four-for-
three forward stock split of the Corporation's common stock shall
become effective and (ii) a reduction in the par value of the
Corporation's common stock from $.01 per share to $.001 per share
shall become effective. Upon the Effective Date, each three shares of
the Corporation's common stock, par value $.01 ("Old Common Stock"),
outstanding and held of record by each stockholder of the Corporation
(including treasury shares) immediately prior to the Effective Date
shall be reclassified and split into four shares of the Corporation's
common stock, par value $.001 ("Common
<PAGE>
Stock"), automatically and without any action by the holder thereof
upon the Effective Date and shall represent four shares of Common
Stock from and after the Effective Date. No fractional shares of
Common Stock shall be issued as a result of such reclassification and
combination. In lieu of any fractional shares to which the stockholder
would otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the then fair market value of the Common
Stock as determined by the Board of Directors of the Corporation.
The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 100,096,632,
consisting of:
(A) 96,632 shares of Class A Preferred Stock, par value $.01 per
share (the "Class A Preferred"); and
-----------------
(B) 100,000,000 shares of Common Stock, par value $.001 per
share (the "Common Stock")."
------------
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be affixed hereto and this Certificate of Amendment to be signed by its
President this 30th day of November, 1999.
ZEFER CORP.
By: /s/ Sean W. Mullaney
--------------------
Sean W. Mullaney
Vice President and Secretary
<PAGE>
CERTIFICATE OF MERGER
OF
ZEFER Corp. CRM, LLC
(a Delaware limited liability company)
AND
ZEFER Corp. Midwest, LLC
(a Delaware limited liability company)
WITH AND INTO
ZEFER Corp.
(a Delaware corporation)
ZEFER Corp., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the name and state of organization of each of the
-----
constituent business entities of the merger are as follows:
Name State of Organization
---- ---------------------
ZEFER Corp. Delaware
ZEFER Corp. CRM, LLC Delaware
ZEFER Corp. Midwest, LLC Delaware
SECOND: That an Agreement and Plan of Merger (the "Merger Agreement")
------
among the parties to the merger has been approved, adopted, certified, executed
and acknowledged by each of the constituent business entities in accordance with
the requirements of Sections 251 and 264 of the General Corporation Law of the
State of Delaware and Section 18-209 of the Delaware Limited Liability Company
Act.
THIRD: That the name of the surviving corporation of the merger is
-----
ZEFER Corp.
FOURTH: That the Certificate of Incorporation, as amended, of ZEFER
------
Corp., a Delaware corporation which will survive the merger, shall be the
Certificate of Incorporation of the surviving corporation.
<PAGE>
FIFTH: That the executed Merger Agreement is on file at the principal
-----
place of business of the surviving corporation. The address of said principal
place of business is 711 Atlantic Avenue, Boston, Massachusetts 02111.
SIXTH: That a copy of the Merger Agreement will be furnished by the
-----
surviving corporation upon request and without cost to any member or stockholder
of any constituent business entity.
SEVENTH: That this Certificate of Merger shall be effective at 11:59
-------
p.m. on December 31, 1999.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, ZEFER Corp. has caused this Certificate to be
executed by its Secretary this 28th day of December, 1999.
ZEFER Corp.
(a Delaware corporation)
By: /s/ Sean Mullaney
________________________
Name: Sean Mullaney
Title: Secretary
<PAGE>
EXHIBIT 3.2
BY-LAWS
-------
OF
--
ZC ACQUISITION CORP.
--------------------
(Adopted as of March 23, 1999)
A Delaware Corporation
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of the
--------- -----------------
corporation in the State of Delaware shall be located at The Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of the corporation's registered agent at such address shall be The
Corporation Trust Company. The registered office and/or registered agent of the
corporation may be changed from time to time by action of the board of
directors.
Section 2. Other Offices. The corporation may also have offices at
--------- -------------
such other places, both within and without the State of Delaware, as the board
of directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place and Time of Meetings. An annual meeting of the
--------- --------------------------
stockholders shall be held each year within one hundred twenty (120) days after
the close of the immediately preceding fiscal year of the corporation for the
purpose of electing directors and conducting such other proper business as may
come before the meeting. The date, time and place of the annual meeting shall be
determined by the highest ranking officer of the corporation then in office;
provided, that if such officer does not act, the board of directors shall
determine the date, time and place of such meeting.
Section 2. Special Meetings. Special meetings of stockholders may
--------- ----------------
be called for any purpose and may be held at such time and place, within or
outside of the State of Delaware, as shall be stated in a notice of meeting or
in a duly executed waiver of notice thereof. Except as otherwise provided in
the certificate of incorporation, such meetings may be called at any time by the
board of directors or the highest ranking officer then in office (the "Ranking
Officer") and shall be called by the Ranking Officer upon the written request of
holders of shares entitled to cast not less than fifty percent of the votes at
the meeting. Such written request shall state the purpose or purposes of the
meeting and shall be delivered to the Ranking Officer. On such written request,
the Ranking Officer shall fix a date and time for such meeting within two days
of the date requested for such meeting in such written request.
Section 3. Place of Meetings. The board of directors may designate
--------- -----------------
any place, either within or outside of the State of Delaware, as the place of
meeting for any annual meeting
<PAGE>
or for any special meeting called by the board of directors. If no designation
is made, or if a special meeting be otherwise called, the place of meeting shall
be the principal executive office of the corporation.
Section 4. Notice. Whenever stockholders are required or permitted
--------- ------
to take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting.
All such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the Chief Executive Officer, the President
or the Secretary, and if mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the
--------- -----------------
stock ledger of the corporation shall make, at least 10 days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at such meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the annual meeting at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 6. Quorum. The holders of a majority of the outstanding
--------- ------
shares of capital stock entitled to vote, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders, except as
otherwise provided by statute or by the certificate of incorporation. If a
quorum is not present, the holders of a majority of the shares of capital stock
present in person or represented by proxy at the meeting, and entitled to vote
at the meeting, may adjourn the meeting to another time and/or place. When a
quorum is once present to commence a meeting of stockholders, it is not broken
by the subsequent withdrawal of any stockholders or their proxies.
Section 7. Adjourned Meetings. When a meeting is adjourned to
--------- ------------------
another time and place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative
--------- -------------
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
-2-
<PAGE>
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting Rights. Except as otherwise provided by the
--------- -------------
General Corporation Law of the State of Delaware or by the certificate of
incorporation of the corporation or any amendments thereto and subject to
Section 3 of Article VI hereof, every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
common stock held by such stockholder and no votes for any other class or series
of capital stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting
---------- -------
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
Section 11. Action by Written Consent. Unless otherwise provided in
---------- -------------------------
the certificate of incorporation, any action required to be taken at any annual
or special meeting of stockholders of the corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the state of Delaware, or the corporation's principal place of business, or an
officer or agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered to the
corporation as required by this section, written consents signed by the holders
of a sufficient number of shares to take such corporate action are so recorded.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing and who, if the action had been taken at a meeting, would
have been entitled to notice of the meeting if the record date for such meeting
had been the date that written consents signed by a sufficient number of holders
to take the action were delivered to the corporation. Any action taken pursuant
to such written consent or consents of the stockholders shall have the same
force and effect as if taken by the stockholders at a meeting thereof.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the
--------- --------------
corporation shall be managed by or under the direction of the board of
directors.
-3-
<PAGE>
Section 2. Number, Election and Term of Office. The number of
--------- -----------------------------------
directors which shall constitute the first board shall be no more than seven
(7). At no time shall the number of directors be less than three. The exact
number of directors within the limitations specified in the preceding sentence
shall be fixed from time to time by resolution of the board. The directors
shall be elected at the annual meeting of stockholders by such stockholders as
have the right to vote on such election. Directors need not be stockholders of
the corporation. The board of directors shall be and is divided into three
classes: Class I, Class II and Class III. The exact number of directors in each
Class shall be fixed from time to time by resolution of the board. Each
director shall serve for a term ending on the date of the third annual meeting
at which such director was elected; provided that each initial director in Class
I shall serve for a term expiring at the corporation's annual meeting held in
2000; each initial director in Class II shall serve for a term expiring at the
corporation's annual meeting held in 200 1; and each initial director in Class
III shall serve for a term expiring at the corporation's annual meeting held in
2002; provided further, that the term of each director shall continue until the
election and qualification of his successor and shall be subject to his earlier
designation, resignation or removal. The provisions contained in this Article
III shall be subject to the terms and conditions of any stockholders agreement
then in effect by and among the corporation and any of its stockholders (the
"Stockholders Agreement") and the certificate of incorporation.
Section 3. Removal and Resignation. Subject to the provisions of
--------- -----------------------
the Stockholders Agreement, any director or the entire board of directors may be
removed at any time, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors. Whenever the holders
of any class or series are entitled to elect one or more directors by the
provisions of the Corporation's certificate of incorporation or the Stockholders
Agreement, the provisions of this section shall apply, in respect to the removal
without cause of a director or directors so elected, to the vote of the holders
of the outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Subject to the provisions of the Stockholders
--------- ---------
Agreement, vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the shares
then entitled to vote at an election of directors and in accordance with the
Stockholders Agreement. Each director so chosen shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly
--------- ---------------
elected board of directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than
--------- -------------------------
the annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the Ranking Officer on at least twenty-four (24) hours notice to each
director, either personally, by telephone, by mail, or by facsimile; in like
manner and on like notice the Ranking Officer must call a special meeting on the
written request of at least two of the directors.
-4-
<PAGE>
Section 7. Quorum, Required Vote and Adjournment. Each director
--------- -------------------------------------
shall be entitled to one vote except as otherwise provided in the Certificate of
Incorporation. Directors then in office (and specifically excluding any
vacancies) and holding a majority of the votes of all directors (or such greater
number required by applicable law) shall constitute a quorum for the transaction
of business. The vote of directors holding a majority of votes present at a
meeting at which a quorum is present shall be the act of the board of directors.
If a quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 8. Committees. Subject to the provisions of the
--------- ----------
Stockholders Agreement, the board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation, which to the extent
provided in such resolution or these by-laws shall have and may exercise the
powers of the board of directors in the management and affairs of the
corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of
--------- ---------------
directors may fix its own rules of procedure and shall hold its meetings as
provided by such rules, except as may otherwise be provided by a resolution of
the board of directors designating such committee.
Section 10. Communications Equipment. Members of the board of
---------- ------------------------
directors or any committee thereof may participate in and act at any meeting of
such board or committee through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Consent. Any member
---------- -------------------------------------------
of the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have consented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted
---------- -------------------------
by the certificate of incorporation, any action required or permitted to be
taken at any meeting of the board of directors, or of any committee thereof, may
be taken without a meeting if all members
-5-
<PAGE>
of the board or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the board
or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected
--------- ------
by the board of directors and may consist of a chief executive officer,
president, any number of vice presidents, a secretary, a chief financial
officer, any number of assistant secretaries and such other officers and
assistant officers as may be deemed necessary or desirable by the board of
directors. Any number of offices may be held by the same person. In its
discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of chief executive
officer, president and secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the
--------- ---------------------------
corporation shall be elected annually by the board of directors at its first
meeting held after each annual meeting of stockholders or as soon thereafter as
conveniently may be. Vacancies may be filled or new offices created and filled
at any meeting of the board of directors. Each officer shall hold office until
a successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
--------- -------
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because
--------- ---------
of death, resignation, removal, disqualification or otherwise, may be filled by
the board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be
--------- ------------
fixed by the board of directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a director of the
corporation.
Section 6. Chief Executive Officer. The Chief Executive Officer
--------- -----------------------
shall, subject to the powers of the board of directors, be in the general and
active charge of the entire business and affairs of the corporation, and shall
be its chief policy making officer. He or she shall preside at all meetings of
the board of directors and stockholders and shall have such other powers and
perform such other duties as may be prescribed by the board of directors or
provided in these by-laws. Whenever the President is unable to serve, by reason
of sickness, absence or otherwise, the Chief Executive Officer shall perform all
the duties and responsibilities and exercise all the powers of the President.
Section 7. President. The President of the corporation, subject to
--------- ---------
the powers of the board of directors and the Chief Executive Officer, shall have
general charge of the business affairs and property of the corporation, and
control over its officers, agents and employees, and
-6-
<PAGE>
shall see that all orders and resolutions of the board of directors are carried
into effect. The President shall execute bonds, mortgages and other contracts
which the board of directors have authorized to be executed, except where
required or permitted by law to be otherwise signed and executed or except where
the signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation. The President shall
have such other powers and perform such other duties as may be prescribed by the
Chief Executive Officer, the board of directors or as may be provided in these
By-laws. The offices of President and Chief Executive Officer may be held by a
single individual.
Section 8. Chief Financial Officer. The Chief Financial Officer of
--------- -----------------------
the corporation shall, under the direction of the Chief Executive Officer, be
responsible for all financial and accounting matters of the corporation. The
Chief Financial Officer shall have such other powers and perform such other
duties as may be prescribed by the Chief Executive Officer, the President or the
board of directors or as may be provided in these By-laws.
Section 9. Vice-Presidents. The Vice-President, or if there shall
--------- ---------------
be more than one, the Vice-Presidents in the order determined by the board of
directors, shall, in the absence or disability of the President and the Chief
Executive Officer, act with all of the powers and be subject to all the
restrictions of the President. The Vice-Presidents shall also perform such other
duties and have such other powers as the board of directors, the Chief Executive
Officer, the President or these By-laws may, from time to time, prescribe.
Section 10. The Secretary and Assistant Secretaries. The Secretary
---------- ---------------------------------------
shall attend all meetings of the board of directors, all meetings of the
committees thereof and all meetings of the stockholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose.
Under the Chief Executive Officer's supervision, the Secretary shall give, or
cause to be given, all notices required to be given by these by-laws or by law;
shall have such powers and perform such duties as the board of directors, the
Chief Executive Officer, the President or these by-laws may, from time to time,
prescribe; and shall have custody of the corporate seal of the corporation. The
Secretary, or an Assistant Secretary, shall have authority to affix any
corporate seal to any instrument requiring it and when so affixed, it may be
attested by his or her signature or by the signature of such Assistant
Secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
or her signature. The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the board of directors, shall,
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such other duties and have such
other powers as the board of directors, the Chief Executive Officer, the
President or the Secretary may, from time to time, prescribe.
Section 11. The Treasurer and Assistant Treasurer. The Treasurer
---------- -------------------------------------
shall have the custody of the corporate funds and securities; shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the Chief Executive Officer, the President and the board of
directors, at its regular meeting or when the board of directors so requires, an
account of the corporation; shall have such powers
-7-
<PAGE>
and perform such duties as the board of directors, the Chief Executive Officer,
the President or these by-laws may, from time to time, prescribe. If required by
the board of directors, the Treasurer shall give the corporation a bond (which
shall be rendered every six (6) years) in such sums and with such surety or
sureties as shall be satisfactory to the board of directors for the faithful
performance of the duties of the office of Treasurer and for the restoration to
the corporation, in case of death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in the possession or under the control of the Treasurer belonging to the
corporation. The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the board of directors, shall in
the absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer. The Assistant Treasurers shall perform such other
duties and have such other powers as the board of directors, the Chief Executive
Officer, the President or Treasurer may, from time to time, prescribe.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
---------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 13. Absence or Disability of Officers. In the case of the
---------- ---------------------------------
absence or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
---------
INDEMNIFICATION
---------------
Section 1. Indemnify for Third Party Actions. The corporation
--------- ---------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person is
or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, officer, member, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement ("collectively, Losses") actually and reasonably incurred by such
------
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner reasonably believed to be within the scope of the
authority conferred on such person by the corporation or such other entity, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful, except that a person shall not be
indemnified for any such Losses incurred by reason of such person's gross
negligence, willful misconduct or breach of an agreement by such person with the
corporation. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interest of the corporation, and, with
-8-
<PAGE>
respect to any criminal action or proceeding, had reasonable cause to believe
that such person's conduct was unlawful.
Section 2. Indemnity for Action by or in right of Corporation. The
--------- --------------------------------------------------
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the corporation, or is
or was serving at the request of the corporation as a director, officer or
member of another corporation, partnership, joint venture, trust or other
enterprise, against Losses actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner reasonably believed to be within the scope
of the authority conferred on such person by the corporation or such other
entity, except that a person shall not be indemnified for any such Losses
incurred by reason of such person's gross negligence, willful misconduct or
breach of an agreement by such person with the corporation, and except that no
such indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such suit or action was brought shall be determined upon
application that, despite the adjudication of liability but in consideration of
all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which such court shall deem proper.
Section 3. Employees. The corporation may, to the extent deemed
--------- ---------
advisable by the Board of Directors, indemnify any person who is or was an
employee or agent (other than a director or officer) of the corporation if such
person would be entitled to such indemnity under the provisions of Section 1 or
2 if such person had been a director or officer of the corporation.
Section 4. Procedure for Indemnity. Any indemnification to be
--------- -----------------------
provided under Section 1, 2 or 3 (unless ordered by a court) shall be made by
the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, member, employee or agent is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in Sections 1 and 2. Such determination shall be made (1)
by a majority vote of directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 5. Expenses. Expenses (including attorneys' fees) incurred
--------- --------
by an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding unless
otherwise determined by the Board of Directors in the specific case, upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this Article V.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
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<PAGE>
Section 6. Article Not Exclusive. The indemnification and
--------- ---------------------
advancement of expenses provided by, or granted pursuant to, this Article V
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office, and shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, member, employee or agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.
Section 7. Insurance. The corporation shall have the power to
--------- ---------
purchase and maintain insurance on behalf of any person who was or is a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, member, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of this Article V or of the General Corporation
Law of the State of Delaware.
Section 8. References to "the Corporation". For the purposes of
--------- -------------------------------
this Article V, references to "the corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger and the
corporation which, if its separate existence had continued, would have had power
and authority to (or in fact did) indemnify its directors, officers, employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, member, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had continued.
ARTICLE VI
----------
CERTIFICATES OF STOCK; RECORD DATE
----------------------------------
Section 1. Form. Every holder of stock in the corporation shall
--------- ----
be entitled to have a certificate, signed by, or in the name of the corporation
by the Chief Executive Officer, the President, the Chief Financial Officer or a
Vice-President and the Secretary or an Assistant Secretary of the corporation,
certifying the number of shares owned by such holder in the corporation. If such
a certificate is countersigned (1) by a transfer agent or an assistant transfer
agent other than the corporation or its employee or (2) by a registrar, other
than the corporation or its employee, the signature of any such Chief Executive
Officer, President, Chief Financial Officer, Vice-President, Secretary, or
Assistant Secretary may be facsimiles. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
corporation whether because of death, resignation or otherwise before such
certificate or certificates have been delivered by the corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
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<PAGE>
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the corporation. All certificates for shares shall
be consecutively numbered or otherwise identified. The name of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the books of the corporation. Shares of stock
of the corporation shall only be transferred on the books of the corporation by
the holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer, authorization, and
other matters as the corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates, and record the transaction on its books.
The board of directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a
--------- -----------------
new certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the Corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order
--------- ---------------------------------------------
that the corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by
the board of directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In
--------- --------------------------------------------------
order that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to
-11-
<PAGE>
corporate action in writing without a meeting, when no prior action by the board
of directors is required by statute, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by statute, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the board of
directors adopts the resolution taking such prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that
--------- ---------------------------------------
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment or any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purposes of any other lawful action,
the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty (60) days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
--------- -----------------------
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for
--------- -----------------------
in the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at such times, as shall be determined by
the board of directors. In case of default in the payment of any installment or
call when such payment is due, the corporation may proceed to collect the amount
due in the same manner as any debt due the corporation.
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
--------- ---------
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing
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<PAGE>
dividends, or for repairing or maintaining any property of the corporation, or
any other purpose and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other
--------- ------------------------
orders for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any
--------- ---------
officer or officers, or any agent or agents, of the corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The corporation may lend money to, or guarantee
--------- -----
any obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be
--------- -----------
fixed by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors shall provide a
--------- --------------
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting
--------- --------------------------------------
securities in any other corporation held by the corporation shall be voted by
the Ranking Officer, unless the board of directors specifically confers
authority to vote with respect thereto, which authority may be general or
confined to specific instances, upon some other person or officer. Any person
authorized to vote securities shall have the power to appoint proxies, with
general power of substitution.
Section 8. Inspection of Books and Records. Any stockholder of
--------- -------------------------------
record, in person or by attorney or other agent, shall, upon written demand
under oath stating the purpose thereof, have the right during the usual hours
for business to inspect for any proper purpose the Corporation's stock ledger, a
list of its stockholders, and its other books and records, and to make copies or
extracts therefrom. A proper purpose shall mean any purpose reasonably related
to such person's interest as a stockholder. In every instance where an attorney
or other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act
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<PAGE>
on behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in the State of Delaware or at its
principal place of business.
Section 9. Section Headings. Section headings in these by-laws are
--------- ----------------
for convenience of reference only and shall not be given any substantive effect
in limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any
---------- -----------------------
provision of these by-laws is or becomes inconsistent with any provision of the
certificate of incorporation, the General Corporation Law of the State of
Delaware, the Stockholders Agreement or any other applicable law, the provision
of these by-laws shall not be given any effect to the extent of such
inconsistency but shall otherwise be given full force and effect. Each
Reference to the Stockholders Agreement shall be given effect only at such times
as a Stockholders Agreement is then in effect.
ARTICLE VIII
------------
AMENDMENTS
----------
These by-laws may be amended, altered, or repealed and new by-laws adopted
at any meeting of the board of directors by a majority vote. The fact that the
power to adopt, amend, alter, or repeal the by-laws has been conferred upon the
board of directors shall not divest the stockholders of the same power.
-14-
<PAGE>
EXHIBIT 10.4
Execution Copy
--------------
SENIOR MANAGEMENT AGREEMENT
---------------------------
THIS SENIOR MANAGEMENT AGREEMENT (this "Agreement") is made as of
---------
March 23, 1999, between ZC Acquisition Corp., a Delaware corporation (the
"Company "), and William Seibel ("Executive").
------- ---------
The Company and Executive desire to enter into an agreement pursuant
to which Executive will purchase, and the Company will sell, up to 760,000
shares of the Company's Common Stock, par value $.01 per share (the "Common
------
Stock"). All shares of Common Stock acquired by Executive are referred to
- -----
herein as "Executive Stock." In addition, the Company desires to employ the
---------------
Executive and the Executive desires to be employed by the Company. Certain
definitions are set forth in Section 10 of this Agreement.
The execution and delivery of this Agreement by the Company and
Executive is a condition to the purchase of shares of Common Stock and shares of
the Class A Preferred by 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")
--------------- -------- ---------
pursuant to a purchase agreement between the Company and the Investors dated as
of the date hereof (the "Purchase Agreement"). Certain provisions of this
------------------
Agreement are intended for the benefit of, and will be enforceable by, 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 EXECUTIVE STOCK
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive will purchase, and the
Company will sell, 760,000 shares of Common Stock at a price of $.50 per share.
The Company will deliver to Executive the certificates representing such
Executive Stock, and Executive will deliver to the Company a cashier's or
certified check or wire transfer of funds in the aggregate amount of $1,900.00
and a promissory note in the form of Exhibit A attached hereto in an aggregate
---------
principal amount of $378,100.00 (the "Executive Note").
--------------
(b) Within 30 days after the date hereof, Executive 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.
- ---------
<PAGE>
EXECUTION COPY
--------------
(c) Until the occurrence of a Sale of the Company or a Public
Offering, all certificates evidencing shares of Executive Stock shall be held by
the Company for the benefit of the Executive and the other holder(s) of
Executive Stock. Upon the occurrence of a Sale of the Company or a Public
Offering, the Company will return the certificates for the Executive Stock to
the record holders thereof.
(d) In connection with the purchase and sale of the Executive Stock,
Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to
this Agreement will be acquired for Executive'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 Executive
Stock will not be disposed of in contravention of the Securities Act or any
applicable state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time because
the Executive 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) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
(vi) Executive 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 Executive is a party to or by which
Executive is bound.
(vii) Executive is a resident of the State of Massachusetts.
(e) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive acknowledges and agrees that
neither the issuance of the Executive Stock to Executive nor any provision
contained herein shall entitle Executive to remain
-2-
<PAGE>
EXECUTION COPY
--------------
in the employment of the Company or any of its Subsidiaries or affect the right
of the Company to terminate Executive's employment at any time for any reason,
subject, however, to the terms of this Agreement.
(f) Concurrently with the execution of this Agreement, (i) Executive
shall execute in blank ten stock transfer powers in the form of Exhibit C
---------
attached hereto (the "Stock Powers") with respect to the Executive 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 Executive
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
Executive's spouse shall execute the consent in the form of Exhibit D attached
---------
hereto.
2. Vesting of Executive Stock.
--------------------------
(a) All of the shares of Executive Stock acquired hereunder shall be
subject to vesting in the manner specified in this Section 2. Except as
otherwise provided in Sections 2(b) and 2(c) below, the Executive Stock will
become vested in accordance with the following schedule (the "Vesting
-------
Schedule"), if as of each such date Executive is still employed by the Company
- --------
or any of its Subsidiaries:
<TABLE>
<CAPTION>
Cumulative Percentage of
Date Executive Stock to be Vested
---- ----------------------------
<S> <C>
1st Anniversary of Closing 20%
2nd Anniversary of Closing 40%
3rd Anniversary of Closing 60%
4th Anniversary of Closing 80%
5/th/ Anniversary of Closing 100%
</TABLE>
(b) Upon the occurrence of an initial Public Offering, the above
Vesting Schedule shall remain effective until the first to occur of (x) June
23, (y) September 23, and (z) December 23 (the first to occur of clauses (x),
(y) and (z) is referred to herein as the "Modification Date"), at which time
-----------------
the Vesting Schedule shall be modified such that, so long as Executive is still
employed by the Company or any of its Subsidiaries, the Executive Stock will
vest as follows:
(i) If the Modification Date is June 23, then an additional 5%
of the Executive Stock will vest on such Modification Date and an
additional 5% of Executive Stock will vest on each subsequent September 23,
December 23, March 23 and June 23 so that the Executive Stock will be 100%
vested on the 5th Anniversary of Closing.
(ii) If the Modification Date is September 23, then an
additional 10% of the Executive Stock will vest on such Modification date
and an additional 5% of Executive
-3-
<PAGE>
EXECUTION COPY
--------------
Stock will vest on each subsequent December 23, March 23, June 23 and
September 23 so that the Executive Stock will be 100% vested on the 5th
Anniversary of Closing.
(iii) If the Modification Date is December 23, then an additional
15% of the Executive Stock will vest on such Modification Date and an
additional 5% of Executive Stock will vest on each subsequent March 23,
June 23, September 23 and December 23 so that the Executive Stock will be
100% vested on the 5th Anniversary of Closing.
(c) Upon the occurrence of a Transaction, all shares of Executive
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 Executive Stock which have become vested are referred to herein as
"Vested Shares" and all other shares of Executive Stock are referred to herein
-------------
as "Unvested Shares."
---------------
3. Repurchase Option.
-----------------
(a) In the event (i) Executive ceases to be employed by the Company
and its Subsidiaries for any reason (the "Separation") or (ii) Executive fails
----------
to make any principal or interest payment under the Executive Note after such
payment becomes due and after giving effect to any applicable grace period (a
"Triggering Event"), the Executive Stock (whether held by Executive or one or
----------------
more of Executive'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 Executive Stock will be Executive's Original Cost for such
share and (ii) the purchase price for each Vested Share of Executive Stock will
be the Fair Market Value for such share as at the date of the Separation;
provided, however, that if Executive's employment is terminated with Cause, the
- -------- -------
purchase price for each Vested Share of Executive Stock will be Executive'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 Executive Stock (whether a Vested Share or
Unvested Share) will be Executive'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 Executive 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 Executive Stock held by Executive at the time of delivery of the
Repurchase Notice. If the number of shares of Executive Stock then held by
Executive is less than the total number of shares of Executive 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
-4-
<PAGE>
EXECUTION COPY
--------------
Executive Stock under this Agreement, pro rata according to the number of shares
of Executive 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 Executive and the other holders of Executive Stock (if any)
pro rata according to the number of shares of Executive Stock to be purchased
from such person.
(d) If for any reason the Company does not elect to purchase all of
the Executive Stock pursuant to the Repurchase Option, all other 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 Executive 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 Executive Stock as to the 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 Executive 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 Executive Stock
to be purchased by each of them.
(e) The closing of the purchase of the Executive 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 Executive 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 Executive Stock to be repurchased
at Executive's Original Cost and (B) in the case of Executive Stock to be
repurchased at Fair Market Value, that portion of such Executive Stock which is
equal to the Executive's Original Cost, and (ii) in the case of Executive Stock
to be repurchased at Fair Market Value, a subordinate note or notes for that
-5-
<PAGE>
EXECUTION COPY
--------------
portion of such Executive Stock which exceeds the Executive'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 Executive to the Company.
Each Senior Manager and each Investor will pay for the Executive 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 Executive Stock.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive 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 Executive 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 Executive Stock is finally
determined to be an amount at least 10% greater than the per share repurchase
price for such share of Executive Stock in the Repurchase Notice or in the
Supplemental Repurchase Notice, each of the Company and the Investors shall have
the right to revoke its exercise of the Repurchase Option for all or any portion
of the Executive Stock elected to be repurchased by it by delivering notice of
such revocation in writing to the holders of Executive Stock during the thirty-
day period beginning on the date that the Company and/or the Investors are given
written notice that the Fair Market Value of a share of Executive Stock was
finally determined to be an amount at least 10% greater than the per share
repurchase price for Executive 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 Executive Stock.
-------------------------------------------
(a) Transfer of Executive Stock. The holder of Executive Stock shall
---------------------------
not Transfer any interest in any shares of Executive 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 Executive Stock if made (i)
pursuant to applicable laws of descent
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and distribution or to such Person's legal guardian in the case of any mental
incapacity or among such Person's Family Group, or (ii) at a time when (A) the
Common Stock of the Company has been trading for at least 45 consecutive days
(including the day immediately preceding such Transfer) at a price that exceeds
the initial Public Offering price by at least 20% and (B) the Common Stock bid
and asked price on the day of such Transfer was at least 20% greater than the
initial Public Offering price, but in the case of this clause (ii) only an
amount of shares per calendar year up to the lesser of (X) the number of Vested
Shares owned by Executive at the time of such Transfer and (y) 10% of the total
number of shares of Common Stock owned by Executive at the time of the Company's
initial Public Offering, or (iii) at such time as the Investors sell shares of
Common Stock in a Public Sale, but in the case of this clause (iii) only an
amount of shares (the "Transfer Amount") equal to the lesser of (C) the number
---------------
of Vested Shares of Common Stock owned by Executive at the time of such Transfer
and (D) the number of shares of Common Stock owned by Executive multiplied by a
fraction (the "Transfer Fraction"), the numerator of which is the number of
-----------------
shares of Common Stock sold by the Investors in such Public Sale and the
denominator of which is the total number of shares of Common Stock held by the
Investors prior to the Public Sale; provided that, if at the time of a Public
-------- ----
Sale of shares by the Investors, Executive chooses not to Transfer the Transfer
Amount, Executive shall retain the right to Transfer an amount of Executive
Stock at a future date equal to the lesser of (x) the number of Vested Shares
owned by Executive at such future date and (y) the number of shares of Executive
Stock owned by Executive at such future date multiplied by the Transfer
Fraction; provided further, that at any particular point in time during any
-------- -------
given calendar year the number of shares of Common Stock which the Executive has
a right to Transfer pursuant to clause (ii) above shall be reduced by the number
of shares of Common Stock which the Executive has Transferred in such calendar
year pursuant to clause (iii) above and the number of shares of Common Stock
which the Executive has a right to Transfer pursuant to clause (iii) above shall
be reduced by the number of shares of Common Stock which the Executive has
Transferred in such calendar year pursuant to clause (ii) above. Notwithstanding
anything in this Section 4 to the contrary, the restrictions contained in this
Section 4 will continue to be applicable to the Executive Stock after any
Transfer of the type referred to in clause (i) and the transferees of such
Executive Stock will agree in writing to be bound by the provisions of this
Agreement. Any transferee of Executive Stock pursuant to a transfer in
accordance with the provisions of this Section 4(b)(i) is herein referred to as
a "Permitted Transferee." Upon the transfer of Executive Stock pursuant to this
--------------------
Section 4(b), the transferring Executive Stockholder will deliver a written
notice (a "Transfer Notice") to the Company. In the case of a Transfer
---------------
pursuant to clause (i) hereof, the Transfer Notice will disclose in reasonable
detail the identity of the Permitted Transferee(s). In addition, following the
completion of an initial Public Offering, Executive, in his sole discretion, may
pledge up to $2 million worth of Vested Shares as collateral for a loan so long
as the pledgee of such stock and the Executive enter into a pledge agreement in
form and substance reasonably satisfactory to the Board, pursuant to which
pledgee, among other things, agrees that pledgee may only sell such stock in a
Public Sale.
(c) Termination of Restrictions. The restrictions set forth in this
---------------------------
Section 4 will continue with respect to each share of Executive Stock until the
earlier of (i) the date on which such
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share of Executive Stock has been transferred in a Public Sale permitted by this
Section 4, or (ii) the consummation of an Approved Sale.
5. Additional Restrictions on Transfer of Executive Stock.
------------------------------------------------------
(a) Legend. The certificates representing the Executive Stock will
------
bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED AS OF MARCH 23, 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
SENIOR MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND AN EXECUTIVE
OF THE COMPANY DATED AS OF MARCH 23,1999. 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 Executive Stock may sell,
------------------
transfer or dispose of any Executive Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an 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 Executive Stock delivers to the
Company an opinion of counsel that no subsequent transfer of such Executive
Stock shall require registration under the Securities Act, the Company shall
promptly upon such contemplated transfer deliver new certificates for such
Executive 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 Executive 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.
PROVISIONS RELATING TO EMPLOYMENT
6. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning as of the date hereof and
ending upon his separation pursuant to Section 6(c) hereof (the "Employment
----------
Period").
- ------
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(a) Position and Duties.
-------------------
(i) During the Employment Period, Executive shall serve as the
President and Chief Executive Officer of the Company and shall have the
normal duties, responsibilities and authority of the President and Chief
Executive Officer, including, without limitation, the responsibilities
associated with all aspects of the daily operations of the Company and the
identification, negotiation, completion and integration of any acquisitions
made by the Company, subject to the power of the board of directors of the
Company (the "Board") to expand or limit such duties, responsibilities
-----
and authority and to override actions of the Chief Executive Officer and
President.
(ii) Executive shall report to the Board, and Executive shall
devote his best efforts and his full business time and attention to the and
affairs of the Company and its subsidiaries; it being understood and agreed
that the Executive may serve on the board of directors of up to three other
corporations that do not compete with the businesses of the Company or its
Subsidiaries so long as such service does not unduly interfere with
Executive's duties or obligations to the Company.
(b) Salary, Bonus and Benefits. During the Employment Period, the
--------------------------
Company will pay the Executive a base salary (the "Annual Base Salary") of
------------------
$375,000 per annum, subject to any increase as determined by the Board based
upon the Company's achievements of budgetary and other objectives set by the
Board. Notwithstanding the foregoing, the Executive's Annual Base Salary shall
be $325,000 per annum until the Company determines (i) that its EBITDA for the
previous 30 days has been sufficient to cover an increase in the Executive's
Annual Base Salary from $325,000 to $375,000 together with any increases in the
annual base salary of the Company's other 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 increases. Executive's Annual Base
Salary for any partial year will be prorated based upon the number of days
elapsed in such year. Upon execution of this Agreement, the Company agrees to
pay to the Executive a one-time special bonus in the amount of $80,000. During
the Employment Period, the Executive shall also be eligible for an annual bonus
in an amount not to exceed 50% of Executive's then applicable Annual Base Salary
for such year; such bonus to be determined by the Board based upon the Company's
achievement of budgetary and other objectives set by the Board. In addition,
during the Employment Period, the Company will provide the Executive with (i)
medical insurance benefits, (ii) a term life insurance policy with a death
benefit amount of $2,000,000, and (iii) such other benefits approved by the
Board and made available to the Company's senior management.
(c) Events of Separation. The Employment Period will continue until
--------------------
Executive's resignation, disability (as determined by the Board in its good
faith judgment) or death or until the Board decides to terminate Executive's
employment.
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(d) Separation Without Cause; Resignation for Good Reason. In the
-----------------------------------------------------
event that (i) the Company terminates the Executive's employment without Cause
or (ii) the Executive resigns from his position with the Company for Good
Reason, then the Executive shall be entitled to the following:
(i) the Company shall pay to the Executive, in a lump sum
within 15 days after such termination or resignation, an amount equal to
the sum of (A) any unpaid base salary owed to the Executive for services
performed prior to such termination, plus (B) the amount of any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not previously paid (the obligations set forth in
clauses (A) and (B) are collectively referred to herein as the "Accrued
-------
Obligations");
-----------
(ii) the Company shall pay each month to the Executive,
beginning on the date of the first normal executive payroll of the Company
that occurs more than 30 days after such termination or resignation, an
amount equal to one-twelfth (1/12) of the Executive's Annual Base Salary as
of the date immediately before such termination or resignation; provided
--------
however, that such payments shall immediately cease upon the earliest to
-------
occur of (x) the Executive's death, (y) the close of business on the 90th
day after the Company provides the notice referenced in Section 8(a), and
(z) the second anniversary of such termination or resignation.
Notwithstanding anything in this Section 6(c) to the contrary, in the event
that the Executive becomes employed with another employer, then the
payments to be made by the Company pursuant to this Section 6(c)(ii) shall
be reduced (on a dollar for dollar basis) in an amount equal to the cash
compensation received by Executive from such employer; and
(iii) the Company shall continue to provide medical insurance
benefits to the Executive and to the Executive's family at least equal to
those medical insurance benefits that would have been provided to them in
the absence of such termination or resignation; provided however, that such
-------- -------
medical insurance benefits shall immediately cease upon the earliest to
occur of (x) the close of business on the 90th day after the Company
provides the notice referenced in Section 8(a), and (y) the second
anniversary of such termination or resignation. Notwithstanding anything
in this Section 6(c) to the contrary, in the event that the Executive
becomes employed with another employer and is eligible for medical
insurance benefits under another employer-provided plan, then the medical
insurance benefits to be provided by the Company pursuant to this Section
6(c)(iii) shall be reduced to the extent that the Executive and his family
is eligible to receive medical insurance benefits under such other
employer-provided plan.
(e) Other Separations. In the event of a Separation other than a
-----------------
termination by the Company without cause or a resignation by the Executive for
Good Reason, the Company shall pay to the Executive (or his estate, if
applicable), in a lump sum in cash within 15 days after such Separation, an
amount equal to any Accrued Obligations.
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7. Confidential Information. Executive acknowledges that the
------------------------
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company, including
information concerning acquisition opportunities in or reasonably related to the
Company's business or industry of which Executive becomes aware during the
Employment Period. Therefore, Executive agrees that he will not disclose to any
unauthorized person or use for his own account any of such information,
observations or data without the Board's written consent, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive agrees to deliver to the Company at a Separation, or at any
other time the Company may request in writing, all memoranda, notes, plans,
records, reports and other documents (and copies thereof) relating to the
business of the Company and its affiliates (including, without limitation, all
acquisition prospects, lists and contact information) which he may then possess
or have under his control.
8. Noncompetition and Nonsolicitation. Executive acknowledges that
----------------------------------
in the course of his employment with the Company he will become familiar with
the Company's and its Subsidiaries' trade secrets and with other confidential
information concerning the Company and such Subsidiaries and that his services
will be of special, unique and extraordinary value to the Company. Therefore,
Executive agrees that:
(a) Noncompetition. During the Employment Period and for a period of
--------------
two years thereafter (the "Noncompete Period"), Executive shall not, within the
-----------------
United States, directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the businesses of the Company or its Subsidiaries or any business
in which the Company or any of its Subsidiaries has requested and received
information relating to the acquisition of such business by the Company and the
Subsidiaries prior to the Separation; provided that passive ownership of less
than 5% of the outstanding stock of any publicly-traded corporation shall not,
in and of itself, be deemed to violate this Section 8(a). Notwithstanding
anything in this Section 8 to the contrary, the Company (in its sole discretion)
can terminate the Noncompete Period effective at anytime after the first
anniversary of a Separation by delivering 90 days prior to such effective date
written notice to the Executive of the Company's intention to terminate the
Noncompete Period.
(b) Nonsolicitation. During the Noncompete Period, Executive shall
---------------
not directly or indirectly through another entity (i) induce or attempt to
induce any employee of the Company or its Subsidiaries to leave the employ of
the Company or such Subsidiary, or in any way interfere with the relationship
between the Company and any Subsidiary and any employee thereof, (ii) hire any
person who was an employee of the Company and any Subsidiary within 180 days
prior to the time such employee was hired by the Executive, (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company and any Subsidiary to cease doing business with the Company or such
Subsidiary or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company and any
Subsidiary or (iv) directly or indirectly acquire or attempt to acquire an
interest in any business relating to the
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business of the Company and any Subsidiary and with which the Company and any
Subsidiary has entertained discussions or has requested and received information
relating to the acquisition of such business by the Company and any Subsidiary
in the two-year period immediately preceding a Separation.
(c) Enforcement. If, at the time of enforcement of Section 7 or this
-----------
Section 8, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
duration, scope or geographical area reasonable under such circumstances shall
be substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
duration, scope and area permitted by law. Because Executive's services are
unique and because Executive has access to confidential information, the parties
hereto agree that money damages would be an inadequate remedy for any breach of
this Agreement. Therefore, in the event a breach or threatened breach of this
Agreement, the Company or its successors or assigns may, in addition to other
rights and remedies existing in their favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce, or prevent any violations of, the provisions hereof (without posting
a bond or other security).
(d) Additional Acknowledgments. Executive acknowledges that the
--------------------------
provisions of this Section 8 are in consideration of: (i) employment with the
Company, (ii) the issuance of the Executive Stock and (iii) additional good and
valuable consideration as set forth in this Agreement. In addition, Executive
agrees and acknowledges that the restriction contained in Section 7 and this
Section 8 do not preclude Executive from earning a livelihood, nor do they
unreasonably impose limitations on Executive's ability to earn a living. In
addition, Executive agrees and acknowledges that the potential harm to the
Company of the non-enforcement of Section 7 and this Section 8 outweighs any
potential harm to Executive of its enforcement by injunction or otherwise.
Executive acknowledges that he has carefully read this Agreement and has given
careful consideration to the restraints imposed upon Executive by this
Agreement, and is in full accord as to their necessity for the reasonable and
proper protection of confidential and proprietary information of the Company now
existing or to be developed in the future. Executive expressly acknowledges and
agrees that each and every restraint imposed by this Agreement is reasonable
with respect to subject matter, time period and geographical area.
GENERAL PROVISIONS
10. Definitions.
-----------
"Affiliate" of an Investor means any direct or indirect general or
---------
limited partner of such Investor, or any employee 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.
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"Base Acquisition" means an acquisition or series of acquisitions by
----------------
the Company of targets that in the aggregate have EBITDA of at least $2 million
on a pro forma basis (giving effect to such acquisitions) before expenditures
for Corporate Overhead over the twelve full calendar months preceding the most
recent of such acquisitions.
"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
Executive as reasonably directed by the Board, (iv) gross negligence or willful
misconduct with respect to the Company or any of its Subsidiaries or (v) any
material breach of Section 6(a)(ii), 7 or 8 of this Agreement.
"Closing" shall have the meaning set forth in the Purchase Agreement.
-------
"Corporate Overhead" means costs and expenses, including expenditures
------------------
required to be capitalized on a balance sheet prepared in accordance with GAAP,
incurred by the Company which are not directly attributable to or incurred for
the provision of electronic commerce consulting and implementation services, and
includes, without duplication, costs and expenses of software and hardware for
management information systems and financial reporting and control systems, home
office rent and related expenses, general and administrative expenses and
management and other fees payable to the Company's stockholders or their
affiliates. Corporate Overhead does not include (a) amounts paid as the purchase
price of a target of any acquisition or (b) transaction expenses of
acquisitions.
"EBITDA" means, for any period, the Company's earnings before
------
interest, taxes, depreciation and amortization for such period, determined on a
consolidated basis in accordance with GAAP.
"Executive's Family Group" means Executive's spouse and descendants
------------------------
(whether natural or adopted), any trust solely for the benefit of Executive
and/or Executive's spouse and/or descendants and any retirement plan for the
Executive.
"Executive Stock" will continue to be Executive Stock in the hands of
---------------
any holder other than Executive (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 Executive Stock will succeed to all rights and
obligations attributable to Executive as a holder of Executive Stock hereunder.
Executive Stock will also include shares of the Company's capital stock issued
with respect to Executive 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.
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"Fair Market Value" of each share of Executive Stock means the average
-----------------
of the closing prices of the sales of such Executive Stock on all securities
exchanges on which such Executive 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 Executive 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 Executive 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 Executive 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 Executive Stock as
determined in good faith by the Board. If the Executive reasonably disagrees
with such determination, the Executive 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 Executive's written notice
of objection, the Board and the Executive 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 Executive, which appraiser shall submit to the Board and
the Executive 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.
"Good Reason" means an action by the Company which results in (i) a
-----------
significant diminution of the duties of Executive from the standard duties of
senior executives of companies comparable to the Company, or (ii) a reduction of
the Executive's Annual Base Salary.
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"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 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 of even date
----------------------
herewith 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).
11. 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:
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If to the Company:
-----------------
ZC Acquisition Corp.
1048 Tremont Street
Duxbury, MA 02332
Attention: President
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, Illinois 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David E. Redlick
If to the Executive:
-------------------
William Seibel
7 Amherst Road
Wellesley, MA 02181
with copies to:
--------------
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David E. Redlick
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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
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.
12. General Provisions.
------------------
(a) Expenses. The Company agrees to pay the reasonable legal expenses
--------
of the Executive incurred in connection with the negotiation and execution of
this Agreement. In addition, expenses (including reasonable attorneys' fees)
incurred by the Executive in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding, unless otherwise
determined by the Outside Directors (as defined in that certain Stockholders
Agreement, dated as of March 23, 1999, by and among the Company, the Investors,
the Executive and certain other stockholders), upon receipt of an undertaking by
or on behalf of the Executive to repay such amount if it shall ultimately be
determined that the Executive is not entitled to indemnification by the Company.
(b) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive 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 Executive Stock as the owner of such
stock for any purpose.
(c) 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
-17-
<PAGE>
EXECUTION COPY
--------------
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.
(d) 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, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(e) 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.
(f) Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(g) 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.
(h) 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.
(i) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, the
Executive and the Majority Holders (as defined in the Purchase Agreement).
(j) 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 Executive in any amount or amounts considered available. Executive agrees to
cooperate in any medical or other examination,
-18-
<PAGE>
EXECUTION COPY
--------------
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. Executive hereby represents that he has no reason to believe
that his life is not insurable at rates now prevailing for healthy men of his
age.
(k) 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 executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(l) Indemnification and Reimbursement of Payments on Behalf of
----------------------------------------------------------
Executive. The Company and its Subsidiaries shall be entitled to deduct or
- ---------
withhold from any amounts owing from the Company or any of its Subsidiaries to
the Executive any federal, state, local or foreign withholding taxes, excise
taxes, or employment taxes ("Taxes") imposed with respect to the Executive's
-----
compensation or other payments from the Company or any of its Subsidiaries or
the Executive'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 Executive 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.
(m) Termination. This Agreement (except for the provisions of 7)
-----------
shall survive a Separation and shall remain in full force and effect after such
Separation.
(n) 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 generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with generally accepted accounting principles, 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.
(o) Deemed Transfer of Executive 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 Executive 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
-19-
<PAGE>
EXECUTION COPY
--------------
deemed the owner and holder of such shares, whether or not the certificates
therefor have been delivered as required by this Agreement.
(p) No Pledge or Security Interest. The purpose of the Company's
------------------------------
retention of the Executive'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 Executive of, or the granting of a security
interest in, the underlying stock.
(q) Rights Granted to GTCR and its Affiliates. Any rights granted to
-----------------------------------------
GTCR and its Affiliates hereunder may also be exercised (in whole or in part) by
its designees (which may be Affiliates).
* * * * *
-20-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Senior
Management Agreement on the date first written above.
ZC ACQUISITION CORP.
By:/s/ Sean W. Mullaney
------------------------
Its: Vice President
----------------------
/s/ William Seibel
---------------------------
William Seibel
Agreed and Accepted:
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ Philip 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
SIGNATURE PAGE TO THE SENIOR MANAGEMENT AGREEMENT
<PAGE>
EXHIBIT A
---------
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.
_________________________________________
William Seibel - Maker
<PAGE>
EXHIBIT B
---------
March 23, 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 ZC Acquisition Corp. (the "Company") on March 23, 1999
------ -------
(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
March 23, 1999 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:
William Seibel
7 Amherst Road
Wellesley, MA 02181
Social Security Number: ___________________
2. A description of the property with respect to which the election
is being made: 760,000 shares of Common Stock, par value $.01 per share, of the
Company.
3. The date on which the property was transferred March 23, 1999.
The taxable year for which such election is made: calendar year 1999.
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 March 23, 1999 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $.50 per share of Common Stock.
6. The amount paid for such property: $.50 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: March 23, 1999
___________________________
William Seibel
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, William Seibel does hereby sell, assign and
transfer unto _________, ________ shares of the Common Stock, par value $.01 per
share, of ZC Acquisition 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:____________ __, ____ ______________________________
William Seibel
<PAGE>
EXHIBIT D
---------
SPOUSAL CONSENT
---------------
The undersigned spouse of the Executive hereby acknowledges that I
have read the foregoing Senior Management Agreement and Stockholders Agreement
and Registration Agreement referred to therein, each executed by the Executive
and dated as of the date hereof, and that I understand their contents. I am
aware that the foregoing Senior Management 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: March 23,1999
_________________________ --------------------
Spouse's
Name:____________________
Date: March 23,1999
_________________________ --------------------
Witness'
Name:____________________
<PAGE>
EXHIBIT 10.5
SENIOR MANAGEMENT AGREEMENT
---------------------------
This SENIOR MANAGEMENT AGREEMENT (this "Agreement") is made as of
---------
August 17, 1999, between ZEFER Corp., a Delaware corporation (the "Company"),
-------
and Gerard E. Dube ("Executive").
---------
The Company and Executive desire to enter into an agreement pursuant
to which Executive will purchase, and the Company will sell, up to 600,000
shares of the Company's Common Stock, par value $.01 per share (the "Common
------
Stock"). All shares of Common Stock acquired by Executive hereunder are
- -----
referred to herein as "Executive Stock." In addition, the Company desires to
---------------
employ the Executive and the Executive desires to be employed by the Company.
Certain definitions are set forth in Section 10 of this Agreement.
The execution and delivery of this Agreement by the Company and
Executive was contemplated as a condition to the purchase of shares of Common
Stock and shares of the Class A Preferred by 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") pursuant to a purchase agreement between the Company and the
- ----------
Investors dated as of March 23, 1999 (the "Purchase Agreement"). Certain
------------------
provisions of this Agreement are intended for the benefit of, and will be
enforceable by, 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 EXECUTIVE STOCK
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive will purchase, and
the Company will sell, 600,000 shares of Common Stock at a price of $0.17 per
share. To the extent that the fair market value of the common stock exceeds
$0.17 per share, the Company will make a grossed-up "make whole" payment to you
for the amount of taxes due on your purchase as a result of your 83(b) election.
The Company will deliver to Executive the certificates representing such
Executive Stock, and Executive will deliver to the Company a cashier's or
certified check or wire transfer of funds in the aggregate amount of $21,445.50
and a promissory note in the form of Exhibit A attached hereto in an aggregate
---------
principal amount of $80,554.50 (the "Executive Note").
--------------
(b) Within 30 days after the date hereof, Executive 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.
- ---------
<PAGE>
(c) Until the occurrence of a Sale of the Company or a Public
Offering, all certificates evidencing shares of Executive Stock shall be held by
the Company for the benefit of the Executive and the other holder(s) of
Executive Stock. Upon the occurrence of a Sale of the Company or a Public
Offering, the Company will return the certificates for the Executive Stock to
the record holders thereof.
(d) In connection with the purchase and sale of the Executive Stock,
Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to
this Agreement will be acquired for Executive'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 Executive
Stock will not be disposed of in contravention of the Securities Act or any
applicable state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of her
investment in the Executive Stock for an indefinite period of time because
the Executive 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) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
(vi) Executive 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 Executive is a party to or by which
Executive is bound.
(vii) Executive is a resident of the State of Massachusetts.
(e) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive acknowledges and agrees that
neither the issuance of the
<PAGE>
Executive Stock to Executive nor any provision contained herein shall entitle
Executive to remain in the employment of the Company or any of its Subsidiaries
or affect the right of the Company to terminate Executive's employment at any
time for any reason, subject, however, to the terms of this Agreement.
(f) Concurrently with the execution of this Agreement, Executive
shall execute in blank ten stock transfer powers in the form of Exhibit C
---------
attached hereto (the "Stock Powers") with respect to the Executive 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 Executive Stock to the
appropriate acquiror thereof pursuant to Section 3 below or Section 5 of the
Stockholders Agreement and under no other circumstances.
2. Vesting of Executive Stock.
--------------------------
(a) All of the shares of Executive Stock acquired hereunder shall be
subject to vesting in the manner specified in this Section 2. Except as
otherwise provided in Sections 2(b) and 2(c) below, the Executive Stock will
become vested in accordance with the following schedule (the "Vesting
-------
Schedule"), if as of each such date Executive is still employed by the Company
- ---------
or any of its Subsidiaries:
Date Cumulative Percentage of
----
Executive 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 Executive is still employed by the Company or any
of its Subsidiaries, the Executive 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
-3-
<PAGE>
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 Executive Stock will vest on each subsequent June 30, September 30,
December 31 and March 31 so that the Executive Stock will be 100% vested
on March 31, 2004.
(c) Upon the occurrence of a Transaction, all shares of Executive 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 Executive Stock which have become vested
are referred to herein as "Vested Shares" and all other shares of
-------------
Executive Stock are referred to herein as "Unvested Shares."
---------------
(d) In the event that the Executive is separated by the Company without
Cause or the Executive resigns for Good Reason on or before March 31,
2000, then 20% of the Executive Stock shall become vested one day
prior to such separation and, notwithstanding anything herein to the
contrary, when such 20% of Executive Stock becomes vested under this
or any other provision of this agreement, such shares shall not be
subject to the provisions of Section 3 hereof.
3. Repurchase Option.
-----------------
(a) In the event (i) Executive ceases to be employed by the
Company and its Subsidiaries for any reason (the "Separation") or (ii) Executive
----------
fails to make any principal or interest payment under the Executive Note after
such payment becomes due and after giving effect to any applicable grace period
(a "Triggering Event"), the Executive Stock (whether held by Executive or one or
----------------
more of Executive'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 Executive Stock will be Executive's Original Cost for
such share and (ii) the purchase price for each Vested Share of Executive Stock
will be the Fair Market Value for such share as at the date of the Separation;
provided, however, that if Executive's employment is terminated with Cause, the
- -------- -------
purchase price for each Vested Share of Executive Stock will be Executive'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 Executive Stock (whether a Vested Share or
Unvested Share) will be Executive's Original Cost for such shares.
-4-
<PAGE>
(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 Executive 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 Executive Stock held by Executive at the time of delivery of the Repurchase
Notice. If the number of shares of Executive Stock then held by Executive is
less than the total number of shares of Executive 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 Executive Stock under this Agreement,
pro rata according to the number of shares of Executive 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 Executive and
the other holders of Executive Stock (if any) pro rata according to the number
of shares of Executive Stock to be purchased from such person.
(d) If for any reason the Company does not elect to purchase all
of the Executive Stock pursuant to the Repurchase Option, all other 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 Executive 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 Executive Stock as to the 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 Executive 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 Executive Stock
to be purchased by each of them.
-5-
<PAGE>
(e) The closing of the purchase of the Executive 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 Executive
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 Executive Stock to be
repurchased at Executive's Original Cost and (B) in the case of Executive Stock
to be repurchased at Fair Market Value, that portion of such Executive Stock
which is equal to the Executive's Original Cost, and (ii) in the case of
Executive Stock to be repurchased at Fair Market Value, a subordinate note or
notes for that portion of such Executive Stock which exceeds the Executive'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 Executive to
the Company. Each Senior Manager and each Investor will pay for the Executive
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 Executive Stock.
(g) Notwithstanding anything to the contrary contained in this
Agreement, if the Fair Market Value of a share of Executive Stock is finally
determined to be an amount at least 10% greater than the per share repurchase
price for such share of Executive Stock in the Repurchase Notice or in the
Supplemental Repurchase Notice, each of the Company and the Investors shall have
the right to revoke its exercise of the Repurchase Option for all or any portion
of the Executive Stock elected to be repurchased by it by delivering notice of
such revocation in writing to the holders of Executive Stock during the thirty-
day period beginning on the date that the Company and/or the Investors are given
written notice that the Fair Market Value of a share of Executive Stock was
finally determined to be an amount at least 10% greater than the per share
repurchase price for Executive 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 Executive Stock.
-------------------------------------------
(a) Transfer of Executive Stock. The holder of Executive Stock
---------------------------
shall not Transfer any interest in any shares of Executive 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
-6-
<PAGE>
of Section 4(b) below.
(b) Certain Permitted Transfers. The restrictions in this
---------------------------
Section 4 will not apply with respect to any Transfer of Executive Stock if made
(i) 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, or (ii) at a time when (A) the Common Stock of the Company has
been trading for at least 45 consecutive days (including the day immediately
preceding such Transfer) at a price that exceeds the initial Public Offering
price by at least 20% and (B) the Common Stock bid and asked price on the day of
such Transfer was at least 20% greater than the initial Public Offering price,
but in the case of this clause (ii) only an amount of shares per calender year
up to the lesser of (x) the number of Vested Shares owned by Executive at the
time of such Transfer and (y) 10% of the total number of shares of Common Stock
owned by Executive at the time of the Company's initial Public Offering, or
(iii) at such time as the Investors sell shares of Common Stock in a Public
Sale, but in the case of this clause (iii) only an amount of shares (the
"Transfer Amount") equal to the lesser of (C) the number of Vested Shares of
---------------
Common Stock owned by Executive at the time of such Transfer and (D) the number
of shares of Common Stock owned by Executive multiplied by a fraction (the
"Transfer Fraction"), the numerator of which is the number of shares of Common
-----------------
Stock sold by the Investors in such Public Sale and the denominator of which is
the total number of shares of Common Stock held by the Investors prior to the
Public Sale; provided that, if at the time of a Public Sale of shares by the
-------- ----
Investors, Executive chooses not to Transfer the Transfer Amount, Executive
shall retain the right to Transfer an amount of Executive Stock at a future date
equal to the lesser of (x) the number of Vested Shares owned by Executive at
such future date and (y) the number of shares of Executive Stock owned by
Executive at such future date multiplied by the Transfer Fraction; provided
--------
further, that at any particular point in time during any given calendar year the
- -------
number of shares of Common Stock which the Executive has a right to Transfer
pursuant to clause (ii) above shall be reduced by the number of shares of Common
Stock which the Executive has Transferred in such calendar year pursuant to
clause (iii) above and the number of shares of Common Stock which the Executive
has a right to Transfer pursuant to clause (iii) above shall be reduced by the
number of shares of Common Stock which the Executive has Transferred in such
calendar year pursuant to clause (ii) above. Notwithstanding anything in this
Section 4 to the contrary, the restrictions contained in this Section 4 will
continue to be applicable to the Executive Stock after any Transfer of the type
referred to in clause (i) and the transferees of such Executive Stock will agree
in writing to be bound by the provisions of this Agreement. Any transferee of
Executive Stock pursuant to a transfer in accordance with the provisions of this
Section 4(b)(i) is herein referred to as a "Permitted Transferee." Upon the
--------------------
transfer of Executive Stock pursuant to this Section 4(b), the transferring
Executive Stockholder will deliver a written notice (a "Transfer Notice") to the
---------------
Company. In the case of a Transfer pursuant to clause (i) hereof, the Transfer
Notice will disclose in reasonable detail the identity of the Permitted
Transferee(s). In addition, following the completion of an initial Public
Offering, Executive, in his sole discretion, may pledge up to $2 million worth
of Vested Shares as collateral for a loan so long as the pledgee of such stock
and the Executive enter into a pledge agreement in form and substance reasonably
satisfactory to the Board of Directors of the Company (the "Board"), pursuant to
which pledgee, among other things, agrees that pledgee may only sell such stock
in a Public Sale.
-7-
<PAGE>
(c) Termination of Restrictions. The restrictions set forth in
---------------------------
this Section 4 will continue with respect to each share of Executive Stock until
the earlier of (i) the date on which such share of Executive Stock has been
transferred in a Public Sale permitted by this Section 4, or (ii) the
consummation of an Approved Sale.
5. Additional Restrictions on Transfer of Executive Stock.
------------------------------------------------------
(a) Legend. The certificates representing the Executive Stock will
------
bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED AS OF AUGUST 17, 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
SENIOR MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND AN EXECUTIVE
OF THE COMPANY DATED AS OF AUGUST 17, 1999. 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 Executive Stock may sell,
------------------
transfer or dispose of any Executive Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an 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 Executive Stock delivers to the
Company an opinion of counsel that no subsequent transfer of such Executive
Stock shall require registration under the Securities Act, the Company shall
promptly upon such contemplated transfer deliver new certificates for such
Executive 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 Executive 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.
-8-
<PAGE>
PROVISIONS RELATING TO EMPLOYMENT
6. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning the date hereof and ending upon
his separation pursuant to Section 6(c) hereof (the "Employment Period").
-----------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, Executive shall serve as
Executive Vice President for Client and Market Development and shall
have the normal duties, responsibilities and authority of such office
subject to the power of the President and Chief Executive Officer of
the Company (the "President") to expand or limit such duties,
----------
responsibilities and authority.
(ii) Executive shall report to the President and Executive shall
devote his/her best efforts and his/her full business time and attention to
the business and affairs of the Company and its subsidiaries.
(b) Salary, Bonus and Benefits. During the Employment Period, the
--------------------------
Company will pay the Executive a base salary (the "Annual Base Salary") of
------------------
$300,000 per annum, subject to any increase as determined by the President.
Executive's Annual Base Salary for any partial year will be prorated based upon
the number of days elapsed in such year. During the Employment Period, the
Executive shall also be eligible for an annual bonus in an amount not to exceed
66.67% of Executive's then applicable Annual Base Salary for such year; such
bonus to be determined by the President based upon the Company's achievement of
budgetary and other objectives set by the President. In addition, during the
Employment Period, the Company will provide the Executive with (i) medical
insurance benefits, and (ii) such other benefits approved by the President and
made available to the Company's senior management.
(c) Events of Separation. The Employment Period will continue until
--------------------
Executive's resignation, disability (as determined by the President in his good
faith judgment) or death or until the President decides to terminate Executive's
employment.
(d) Separation Without Cause; Resignation for Good Reason. In the
-----------------------------------------------------
event that (i) the Company terminates the Executive's employment without Cause
or (ii) the Executive resigns from his/her position with the Company for Good
Reason, then the Executive shall be entitled to the following:
(i) the Company shall pay to the Executive, in a lump sum within
15 days after such termination or resignation, an amount equal to the sum
of (A) any unpaid base salary owed to the Executive for services performed
prior to such termination, plus (B) the amount of any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the extent
not
-9-
<PAGE>
previously paid (the obligations set forth in clauses (A) and (B) are
collectively referred to herein as the "Accrued Obligations");
-------------------
(ii) the Company shall pay each month to the Executive,
beginning on the date of the first normal executive payroll of the Company
that occurs more than 30 days after such termination or resignation, an
amount equal to one-twelfth (1/12) of the Executive's Annual Base Salary as
of the date immediately before such termination or resignation; provided
--------
however, that such payments shall immediately cease upon the earliest to
-------
occur of (x) the Executive's death and (y) the six month anniversary of
such termination or resignation. Notwithstanding anything in this Section
6(d) to the contrary, in the event that the Executive becomes employed with
another employer, then the payments to be made by the Company pursuant to
this Section 6(d)(ii) shall be reduced (on a dollar for dollar basis) in an
amount equal to the cash compensation received by Executive from such
employer; and
(iii) the Company shall continue to provide medical insurance
benefits to the Executive and to the Executive's family at least equal to
those medical insurance benefits that would have been provided to them in
the absence of such termination or resignation; provided however, that such
-------- -------
payments shall immediately cease upon the earliest to occur of (x) the
Executive's death and (y) the six month anniversary of such termination or
resignation. Notwithstanding anything in this Section 6(d) to the
contrary, in the event that the Executive becomes employed with another
employer and is eligible for medical insurance benefits under another
employer-provided plan, then the medical insurance benefits to be provided
by the Company pursuant to this Section 6(d)(iii) shall be reduced to the
extent that the Executive and his/her family is eligible to receive medical
insurance benefits under such other employer-provided plan.
(e) Other Separations. In the event of a Separation other than a
-----------------
termination by the Company without cause or a resignation by the Executive for
Good Reason, the Company shall pay to the Executive (or his/her estate, if
applicable), in a lump sum in cash within 15 days after such Separation, an
amount equal to any Accrued Obligations.
7. Confidential Information. Executive acknowledges that the
------------------------
information, observations and data obtained by him during the course of his/her
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company, including
information concerning acquisition opportunities in or reasonably related to the
Company's business or industry of which Executive becomes aware during the
Employment Period. Therefore, Executive agrees that he will not disclose to any
unauthorized person or use for his/her own account any of such information,
observations or data without the Company's written consent, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive agrees to deliver to the Company at a Separation, or at any other
time the Company may request in writing, all memoranda, notes, plans, records,
reports and other documents (and copies thereof) relating to the business of the
Company and its affiliates (including, without limitation, all
-10-
<PAGE>
acquisition prospects, lists and contact information) which he may then possess
or have under his/her control.
8. Noncompetition and Nonsolicitation. Executive acknowledges that
----------------------------------
in the course of his/her employment with the Company he will become familiar
with the Company's and its Subsidiaries' trade secrets and with other
confidential information concerning the Company and such Subsidiaries and that
his/her services will be of special, unique and extraordinary value to the
Company. Therefore, Executive agrees that:
(a) Noncompetition. During the Employment Period and for a period of
--------------
six months thereafter (the "Noncompete Period"), Executive shall not, within the
-----------------
United States, directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any internet
services business which directly competes with the business of the Company or
its Subsidiaries or any business in which the Company or any of its Subsidiaries
has requested and received information relating to the acquisition of such
business by the Company and the Subsidiaries prior to the Separation; provided
--------
that passive ownership of less than 5% of the outstanding stock of any publicly-
traded corporation shall not, in and of itself, be deemed to violate this
Section 8(a).
(b) Nonsolicitation. During the Noncompete Period, Executive shall
---------------
not directly or indirectly through another entity (i) induce or attempt to
induce any employee of the Company or its Subsidiaries to leave the employ of
the Company or such Subsidiary, or in any way interfere with the relationship
between the Company and any Subsidiary and any employee thereof, (ii) hire any
person who was an employee of the Company and any Subsidiary within 180 days
prior to the time such employee was hired by the Executive, (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company and any Subsidiary to cease doing business with the Company or such
Subsidiary or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company and any
Subsidiary or (iv) directly or indirectly acquire or attempt to acquire an
interest in any business relating to the business of the Company and any
Subsidiary and with which the Company and any Subsidiary has entertained
discussions or has requested and received information relating to the
acquisition of such business by the Company and any Subsidiary in the two-year
period immediately preceding a Separation.
(c) Enforcement. If, at the time of enforcement of Section 7 or this
-----------
Section 8, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
duration, scope or geographical area reasonable under such circumstances shall
be substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
duration, scope and area permitted by law. Because Executive's services are
unique and because Executive has access to confidential information, the parties
hereto agree that money damages would be an inadequate remedy for any breach of
this Agreement. Therefore, in the event a breach or threatened breach of this
Agreement, the Company or its successors or assigns may, in addition to other
rights and remedies existing in their favor, apply to any court of competent
jurisdiction for specific performance
-11-
<PAGE>
and/or injunctive or other relief in order to enforce, or prevent any violations
of, the provisions hereof (without posting a bond or other security).
(d) Additional Acknowledgments. Executive acknowledges that the
--------------------------
provisions of this Section 8 are in consideration of: (i) employment with the
Company, (ii) the issuance of the Executive Stock and (iii) additional good and
valuable consideration as set forth in this Agreement. In addition, Executive
agrees and acknowledges that the restriction contained in Section 7 and this
Section 8 do not preclude Executive from earning a livelihood, nor do they
unreasonably impose limitations on Executive's ability to earn a living. In
addition, Executive agrees and acknowledges that the potential harm to the
Company of the non-enforcement of Section 7 and this Section 8 outweighs any
potential harm to Executive of its enforcement by injunction or otherwise.
Executive acknowledges that he has carefully read this Agreement and has given
careful consideration to the restraints imposed upon Executive by this
Agreement, and is in full accord as to their necessity for the reasonable and
proper protection of confidential and proprietary information of the Company now
existing or to be developed in the future. Executive expressly acknowledges and
agrees that each and every restraint imposed by this Agreement is reasonable
with respect to subject matter, time period and geographical area.
GENERAL PROVISIONS
10. Definitions.
-----------
"Affiliate" of an Investor means any direct or indirect general or
---------
limited partner of such Investor, or any employee 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 material 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 Executive as reasonably directed by the President after written
notice and a reasonable opportunity to cure, (iv) gross negligence or willful
misconduct with respect to the Company or any of its Subsidiaries or (v) any
material breach of Section 6(a)(ii), 7 or 8 of this Agreement.
"Closing" shall have the meaning set forth in the Purchase Agreement.
-------
"Executive's Family Group" means Executive's spouse and descendants
------------------------
(whether natural or adopted), any trust solely for the benefit of Executive
and/or Executive's spouse and/or descendants and any retirement plan for the
Executive.
"Executive Stock" will continue to be Executive Stock in the hands of
---------------
any holder
-12-
<PAGE>
other than Executive (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 Executive Stock will succeed to all rights and obligations
attributable to Executive as a holder of Executive Stock hereunder. Executive
Stock will also include shares of the Company's capital stock issued with
respect to Executive 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.
"Fair Market Value" of each share of Executive Stock means the average
-----------------
of the closing prices of the sales of such Executive Stock on all securities
exchanges on which such Executive 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 Executive 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 Executive 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 Executive 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 Executive Stock as
determined in good faith by the Board. If the Executive reasonably disagrees
with such determination, the Executive 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 Executive's written notice
of objection, the Board and the Executive 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 Executive, which appraiser shall submit to the Board and the
Executive 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.
-13-
<PAGE>
"Good Reason" means an action by the Company which results in (i) a
-----------
significant diminution of the duties of Executive from the standard duties of
senior executives of companies comparable to the Company, or (ii) a reduction of
the Executive's Annual Base Salary.
"Original Cost" means, with respect to each share of Common Stock
-------------
purchased hereunder, $.17 (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 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 of even date
----------------------
herewith 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).
11. 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
-14-
<PAGE>
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 Atlantic Avenue
Boston, MA 02111
Attention: General Counsel
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, Illinois 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Keith Higgins, Esq.
If to the Executive:
-------------------
Gerard E. Dube
223 Beacon Street
Boston, MA 02116
-15-
<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, Esq.
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.
12. General Provisions.
------------------
(a) Expenses. The Company agrees to pay the reasonable legal expenses
--------
of the Executive incurred in connection with the negotiation and execution of
this Agreement. In addition, expenses (including reasonable attorneys' fees)
incurred by the Executive in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding, unless otherwise
determined by the Outside Directors (as defined in that certain Stockholders
Agreement, dated as of March 23, 1999, by and among the Company, the Investors,
the Executive and certain other stockholders), upon receipt of an undertaking by
or on behalf of the Executive to repay such amount if it shall ultimately be
determined that the Executive is not entitled to indemnification by the Company.
(b) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive 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 Executive Stock as the owner of such
stock for any purpose.
(c) 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
-16-
<PAGE>
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.
(d) 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, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(e) 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.
(f) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(g) 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.
(h) 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.
(i) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, the
Executive and the Majority Holders (as defined in the Purchase Agreement).
(j) 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 Executive in any amount or amounts considered available. Executive agrees to
cooperate in any medical or other examination, supply any information, and to
execute and deliver any applications or other instruments in writing
-17-
<PAGE>
as may be reasonably necessary to obtain and constitute such insurance.
Executive hereby represents that he has no reason to believe that her life is
not insurable at rates now prevailing for healthy persons of his/her age.
(k) 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 executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(l) Indemnification and Reimbursement of Payments on Behalf of
----------------------------------------------------------
Executive. The Company and its Subsidiaries shall be entitled to deduct or
- ---------
withhold from any amounts owing from the Company or any of its Subsidiaries to
the Executive any federal, state, local or foreign withholding taxes, excise
taxes, or employment taxes ("Taxes") imposed with respect to the Executive's
-----
compensation or other payments from the Company or any of its Subsidiaries or
the Executive'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 Executive 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.
(m) Termination. This Agreement (except for the provisions of Section
-----------
7) shall survive a Separation and shall remain in full force and effect after
such Separation.
(n) 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 generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with generally accepted accounting principles, 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.
-18-
<PAGE>
(o) Deemed Transfer of Executive 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 Executive 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.
(p) No Pledge or Security Interest. The purpose of the Company's
------------------------------
retention of the Executive'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 Executive of, or the granting of a security
interest in, the underlying stock.
(q) Rights Granted to GTCR and its Affiliates. Any rights granted to
-----------------------------------------
GTCR and its Affiliates hereunder may also be exercised (in whole or in part) by
its designees (which may be Affiliates).
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Senior
Management Agreement on the date first written above.
ZEFER CORP.
By: /s/ Sean W. Mullaney
--------------------------------------------
Sean W. Mullaney
Executive Vice President and General Counsel
/s/ Gerard E. Dube
--------------------------------------------
Gerard E. Dube
Agreed and Accepted:
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ illegible
--------------------------------
Name:
--------------------------------
Its: Principal
GTCR VI EXECUTIVE FUND, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ illegible
--------------------------------
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: /s/ illegible
--------------------------------
Name:
--------------------------------
Its: Principal
SIGNATURE PAGE TO THE SENIOR MANAGEMENT AGREEMENT
<PAGE>
EXHIBIT A
- ---------
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 B
---------
August 17, 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 August 17, 1999 (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 August 17, 1999
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:
Gerard E. Dube
223 Beacon Street
Boston, MA 02116
Social Security Number: ______________
2. A description of the property with respect to which the election
is being made: 600,000 shares of Common Stock, par value $.01 per share, of the
Company.
3. The date on which the property was transferred August 17, 1999.
The taxable year for which such election is made: calendar year 1999.
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. The Shares become vested
in accordance with the terms of a certain employment agreement between the
undersigned and the issuer over a five year period.
<PAGE>
5. The fair market value on August 17, 1999 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $0.38 per share of Common Stock.
6. The amount paid for such property: $0.17 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: August 17, 1999
______________________________
Gerard E. Dube
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, Gerard E. Dube 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:_________ __, _____ _________________________
Gerard E. Dube
<PAGE>
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>
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, Gerard E. Dube 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:_________ __, _____ /s/ Gerard E. Dube
----------------------------------
Gerard E. Dube
<PAGE>
August 17, 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 August 17, 1999 (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 August 17, 1999
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:
Gerard E. Dube
223 Beacon Street
Boston, MA 02116
Social Security Number:
-----------
2. A description of the property with respect to which the election
is being made: 600,000 shares of Common Stock, par value $.01 per share, of the
Company.
3. The date on which the property was transferred August 17, 1999.
The taxable year for which such election is made: calendar year 1999.
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. The Shares become vested
in accordance with the terms of a certain employment agreement between the
undersigned and the issuer over a five year period.
<PAGE>
5. The fair market value on August 17, 1999 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $0.38 per share of Common Stock.
6. The amount paid for such property: $0.17 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: August 17, 1999
/s/ Gerard E. Dube
---------------------------------------
Gerard E. Dube
<PAGE>
EXHIBIT 10.6
SENIOR MANAGEMENT AGREEMENT
---------------------------
THIS SENIOR MANAGEMENT AGREEMENT (this "Agreement") is made as of May
---------
21, 1999, between ZEFER Corp., a Delaware corporation (the "Company"), and Sean
-------
W. Mullaney ("Executive").
---------
The Company and Executive desire to enter into an agreement pursuant
to which Executive will purchase, and the Company will sell, up to 105,000
shares of the Company's Common Stock, par value $.01 per share (the "Common
------
Stock"). All shares of Common Stock acquired by Executive are referred to
- -----
herein as "Executive Stock." In addition, the Company desires to employ the
---------------
Executive and the Executive desires to be employed by the Company. Certain
definitions are set forth in Section 10 of this Agreement.
The execution and delivery of this Agreement by the Company and
Executive was contemplated as a condition to the purchase of shares of Common
Stock and shares of the Class A Preferred by 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") pursuant to a purchase agreement between the Company and the
---------
Investors dated March 23, 1999 (the "Purchase Agreement"). Certain provisions
------------------
of this Agreement are intended for the benefit of, and will be enforceable by,
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 EXECUTIVE STOCK
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive will purchase, and
the Company will sell, 105,000 shares of Common Stock at a price of $.50 per
share. The Company will deliver to Executive the certificates representing such
Executive Stock, and Executive will deliver to the Company a cashier's or
certified check or wire transfer of funds in the aggregate amount of $4,606.88
and a promissory note in the form of Exhibit A attached hereto in an aggregate
---------
principal amount of $47,893.13 (the "Executive Note").
--------------
(b) Within 30 days after the date hereof, Executive 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.
- ---------
<PAGE>
(c) Until the occurrence of a Sale of the Company or a Public
Offering, all certificates evidencing shares of Executive Stock shall be held by
the Company for the benefit of the Executive and the other holder(s) of
Executive Stock. Upon the occurrence of a Sale of the Company or a Public
Offering, the Company will return the certificates for the Executive Stock to
the record holders thereof.
(d) In connection with the purchase and sale of the Executive Stock,
Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to
this Agreement will be acquired for Executive'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 Executive
Stock will not be disposed of in contravention of the Securities Act or any
applicable state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time because
the Executive 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) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
(vi) Executive 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 Executive is a party to or by which
Executive is bound.
(vii) Executive is a resident of the State of Massachusetts.
(e) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive acknowledges and agrees that
neither the issuance of the
-2-
<PAGE>
Executive Stock to Executive nor any provision contained herein shall entitle
Executive to remain in the employment of the Company or any of its Subsidiaries
or affect the right of the Company to terminate Executive's employment at any
time for any reason, subject, however, to the terms of this Agreement.
(f) Concurrently with the execution of this Agreement, (i) Executive
shall execute in blank ten stock transfer powers in the form of Exhibit C
---------
attached hereto (the "Stock Powers") with respect to the Executive 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 Executive
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
Executive's spouse shall execute the consent in the form of Exhibit D attached
---------
hereto.
2. Vesting of Executive Stock.
--------------------------
(a) All of the shares of Executive Stock acquired hereunder shall be
subject to vesting in the manner specified in this Section 2. Except as
otherwise provided in Sections 2(b) and 2(c) below, the Executive Stock will
become vested in accordance with the following schedule (the "Vesting
-------
Schedule"), if as of each such date Executive is still employed by the Company
- --------
or any of its Subsidiaries:
Date Cumulative Percentage of
----
Executive 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 Executive is still employed by the Company or any
of its Subsidiaries, the Executive 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%
-3-
<PAGE>
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 Executive Stock will vest on each subsequent June 30, September 30,
December 31 and March 31 so that the Executive Stock will be 100% vested on
March 31, 2004.
(c) Upon the occurrence of a Transaction, all shares of Executive 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 Executive Stock which have become vested
are referred to herein as "Vested Shares" and all other shares of
-------------
Executive Stock are referred to herein as "Unvested Shares."
---------------
3. Repurchase Option.
-----------------
(a) In the event (i) Executive ceases to be employed by the Company
and its Subsidiaries for any reason (the "Separation") or (ii) Executive fails
----------
to make any principal or interest payment under the Executive Note after such
payment becomes due and after giving effect to any applicable grace period (a
"Triggering Event"), the Executive Stock (whether held by Executive or one or
----------------
more of Executive'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 Executive Stock will be Executive's Original Cost for such
share and (ii) the purchase price for each Vested Share of Executive Stock will
be the Fair Market Value for such share as at the date of the Separation;
provided, however, that if Executive's employment is terminated with Cause, the
- -------- -------
purchase price for each Vested Share of Executive Stock will be Executive'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 Executive Stock (whether a Vested Share or
Unvested Share) will be Executive'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 Executive 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
-4-
<PAGE>
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 Executive Stock held by Executive at the time of delivery of the
Repurchase Notice. If the number of shares of Executive Stock then held by
Executive is less than the total number of shares of Executive 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 Executive Stock under this
Agreement, pro rata according to the number of shares of Executive 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 Executive and the other holders of Executive Stock (if any) pro rata
according to the number of shares of Executive Stock to be purchased from such
person.
(d) If for any reason the Company does not elect to purchase all of
the Executive Stock pursuant to the Repurchase Option, all other 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 Executive 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
Executive Stock as to the 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 Executive 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 Executive Stock to be purchased by each of them.
(e) The closing of the purchase of the Executive Stock pursuant to
the Repurchase Option shall take place on the date designated by the Company in
the Repurchase Notice
-5-
<PAGE>
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 Executive 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 Executive Stock to be repurchased at Executive's Original
Cost and (B) in the case of Executive Stock to be repurchased at Fair Market
Value, that portion of such Executive Stock which is equal to the Executive's
Original Cost, and (ii) in the case of Executive Stock to be repurchased at Fair
Market Value, a subordinate note or notes for that portion of such Executive
Stock which exceeds the Executive'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 Executive to the Company. Each Senior Manager
and each Investor will pay for the Executive 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 Executive Stock.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive 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 Executive 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 Executive Stock is finally
determined to be an amount at least 10% greater than the per share repurchase
price for such share of Executive Stock in the Repurchase Notice or in the
Supplemental Repurchase Notice, each of the Company and the Investors shall have
the right to revoke its exercise of the Repurchase Option for all or any portion
of the Executive Stock elected to be repurchased by it by delivering notice of
such revocation in writing to the holders of Executive Stock during the thirty-
day period beginning on the date that the Company and/or the Investors are given
written notice that the Fair Market Value of a share of Executive Stock was
finally determined to be an amount at least 10% greater than the per share
repurchase price for Executive 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 Executive Stock.
-------------------------------------------
-6-
<PAGE>
(a) Transfer of Executive Stock. The holder of Executive Stock shall
---------------------------
not Transfer any interest in any shares of Executive 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 Executive Stock if made (i)
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, or (ii) at a time when (A) the Common Stock of the Company has
been trading for at least 45 consecutive days (including the day immediately
preceding such Transfer) at a price that exceeds the initial Public Offering
price by at least 20% and (B) the Common Stock bid and asked price on the day of
such Transfer was at least 20% greater than the initial Public Offering price,
but in the case of this clause (ii) only an amount of shares per calender year
up to the lesser of (x) the number of Vested Shares owned by Executive at the
time of such Transfer and (y) 10% of the total number of shares of Common Stock
owned by Executive at the time of the Company's initial Public Offering, or
(iii) at such time as the Investors sell shares of Common Stock in a Public
Sale, but in the case of this clause (iii) only an amount of shares (the
"Transfer Amount") equal to the lesser of (C) the number of Vested Shares of
---------------
Common Stock owned by Executive at the time of such Transfer and (D) the number
of shares of Common Stock owned by Executive multiplied by a fraction (the
"Transfer Fraction"), the numerator of which is the number of shares of Common
-----------------
Stock sold by the Investors in such Public Sale and the denominator of which is
the total number of shares of Common Stock held by the Investors prior to the
Public Sale; provided that, if at the time of a Public Sale of shares by the
-------- ----
Investors, Executive chooses not to Transfer the Transfer Amount, Executive
shall retain the right to Transfer an amount of Executive Stock at a future date
equal to the lesser of (x) the number of Vested Shares owned by Executive at
such future date and (y) the number of shares of Executive Stock owned by
Executive at such future date multiplied by the Transfer Fraction; provided
--------
further, that at any particular point in time during any given calendar year the
- -------
number of shares of Common Stock which the Executive has a right to Transfer
pursuant to clause (ii) above shall be reduced by the number of shares of Common
Stock which the Executive has Transferred in such calendar year pursuant to
clause (iii) above and the number of shares of Common Stock which the Executive
has a right to Transfer pursuant to clause (iii) above shall be reduced by the
number of shares of Common Stock which the Executive has Transferred in such
calendar year pursuant to clause (ii) above. Notwithstanding anything in this
Section 4 to the contrary, the restrictions contained in this Section 4 will
continue to be applicable to the Executive Stock after any Transfer of the type
referred to in clause (i) and the transferees of such Executive Stock will agree
in writing to be bound by the provisions of this Agreement. Any transferee of
Executive Stock pursuant to a transfer in accordance with the provisions of this
Section 4(b)(i) is herein referred to as a "Permitted Transferee." Upon the
--------------------
transfer of Executive Stock pursuant to this Section 4(b), the transferring
Executive Stockholder will deliver a written notice (a "Transfer Notice") to the
---------------
Company. In the case of a Transfer pursuant to clause (i) hereof, the Transfer
Notice will disclose in reasonable detail the identity of the Permitted
Transferee(s). In addition, following
-7-
<PAGE>
the completion of an initial Public Offering, Executive, in his sole discretion,
may pledge up to $2 million worth of Vested Shares as collateral for a loan so
long as the pledgee of such stock and the Executive enter into a pledge
agreement in form and substance reasonably satisfactory to the Board of
Directors of the Company (the "Board"), pursuant to which pledgee, among other
things, agrees that pledgee may only sell such stock in a Public Sale.
(c) Termination of Restrictions. The restrictions set forth in this
---------------------------
Section 4 will continue with respect to each share of Executive Stock until the
earlier of (i) the date on which such share of Executive Stock has been
transferred in a Public Sale permitted by this Section 4, or (ii) the
consummation of an Approved Sale.
5. Additional Restrictions on Transfer of Executive Stock.
------------------------------------------------------
(a) Legend. The certificates representing the Executive 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 SENIOR MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND
AN EXECUTIVE OF THE COMPANY DATED AS OF MAY 21, 1999. 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 Executive Stock may sell,
------------------
transfer or dispose of any Executive Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an 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 Executive Stock delivers to the
Company an opinion of counsel that no subsequent transfer of such Executive
Stock shall require registration under the Securities Act, the Company shall
promptly upon such contemplated transfer deliver new certificates for such
Executive Stock which
-8-
<PAGE>
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 Executive
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.
PROVISIONS RELATING TO EMPLOYMENT
6. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning as of the date hereof and
ending upon his separation pursuant to Section 6(c) hereof (the "Employment
----------
Period").
- ------
(a) Position and Duties.
-------------------
During the Employment Period, Executive shall serve as Executive Vice
President for Corporate Development and General Counsel of the Company and
shall have the normal duties, responsibilities and authority of such office
subject to the power of the President and Chief Executive Officer of the
Company (the "President") to expand or limit such duties, responsibilities
----------
and authority.
(ii) Executive shall report to the President and Executive shall
devote his best efforts and his full business time and attention to the
business and affairs of the Company and its subsidiaries.
(b) Salary, Bonus and Benefits. During the Employment Period, the
--------------------------
Company will pay the Executive a base salary (the "Annual Base Salary") of
------------------
$165,000 per annum, subject to any increase as determined by the President.
Executive's Annual Base Salary for any partial year will be prorated based upon
the number of days elapsed in such year. During the Employment Period, the
Executive shall also be eligible for an annual bonus in an amount not to exceed
35% of Executive's then applicable Annual Base Salary for such year; such bonus
to be determined by the President based upon the Company's achievement of
budgetary and other objectives set by the President; provided, that, for the
--------
year ended December 31, 1999, sixty percent (60%) of such bonus shall be
guaranteed; provided further that the Executive shall also receive a one time
-------- -------
bonus in the amount of $50,000 upon the first anniversary of the closing under
that certain Share Exchange Agreement dated as of May 21, 1999 between the
Company, Zefer Corp. and the other parties named therein. In addition, during
the Employment Period, the Company will provide the Executive with (i) medical
insurance benefits, and (ii) such other benefits approved by the President and
made available to the Company's senior management.
(c) Events of Separation. The Employment Period will continue until
--------------------
Executive's resignation, disability (as determined by the President in his good
faith judgment) or death or until the President decides to terminate Executive's
employment.
-9-
<PAGE>
(d) Separation Without Cause; Resignation for Good Reason. In the
-----------------------------------------------------
event that (i) the Company terminates the Executive's employment without Cause
or (ii) the Executive resigns from his position with the Company for Good
Reason, then the Executive shall be entitled to the following:
(i) the Company shall pay to the Executive, in a lump sum
within 15 days after such termination or resignation, an amount equal to
the sum of (A) any unpaid base salary owed to the Executive for services
performed prior to such termination, plus (B) the amount of any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not previously paid (the obligations set forth in
clauses (A) and (B) are collectively referred to herein as the "Accrued
-------
Obligations");
-----------
(ii) the Company shall pay each month to the Executive,
beginning on the date of the first normal executive payroll of the Company
that occurs more than 30 days after such termination or resignation, an
amount equal to one-twelfth (1/12) of the Executive's Annual Base Salary as
of the date immediately before such termination or resignation; provided
--------
however, that such payments shall immediately cease upon the earliest to
-------
occur of (x) the Executive's death and (y) the six month anniversary of
such termination or resignation. Notwithstanding anything in this Section
6(d) to the contrary, in the event that the Executive becomes employed with
another employer, then the payments to be made by the Company pursuant to
this Section 6(d)(ii) shall be reduced (on a dollar for dollar basis) in an
amount equal to the cash compensation received by Executive from such
employer; and
(iii) the Company shall continue to provide medical insurance
benefits to the Executive and to the Executive's family at least equal to
those medical insurance benefits that would have been provided to them in
the absence of such termination or resignation; provided however, that such
-------- -------
payments shall immediately cease upon the earliest to occur of (x) the
Executive's death and (y) the six month anniversary of such termination or
resignation. Notwithstanding anything in this Section 6(d) to the
contrary, in the event that the Executive becomes employed with another
employer and is eligible for medical insurance benefits under another
employer-provided plan, then the medical insurance benefits to be provided
by the Company pursuant to this Section 6(d)(iii) shall be reduced to the
extent that the Executive and his family is eligible to receive medical
insurance benefits under such other employer-provided plan.
(e) Other Separations. In the event of a Separation other than a
-----------------
termination by the Company without cause or a resignation by the Executive for
Good Reason, the Company shall pay to the Executive (or his estate, if
applicable), in a lump sum in cash within 15 days after such Separation, an
amount equal to any Accrued Obligations.
7. Confidential Information. Executive acknowledges that the
------------------------
information,
-10-
<PAGE>
observations and data obtained by him during the course of his performance under
this Agreement concerning the business and affairs of the Company and its
affiliates are the property of the Company, including information concerning
acquisition opportunities in or reasonably related to the Company's business or
industry of which Executive becomes aware during the Employment Period.
Therefore, Executive agrees that he will not disclose to any unauthorized person
or use for his own account any of such information, observations or data without
the Company's written consent, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public other than
as a result of Executive's acts or omissions to act. Executive agrees to
deliver to the Company at a Separation, or at any other time the Company may
request in writing, all memoranda, notes, plans, records, reports and other
documents (and copies thereof) relating to the business of the Company and its
affiliates (including, without limitation, all acquisition prospects, lists and
contact information) which he may then possess or have under his control.
8. Noncompetition and Nonsolicitation. Executive acknowledges that
----------------------------------
in the course of his employment with the Company he will become familiar with
the Company's and its Subsidiaries' trade secrets and with other confidential
information concerning the Company and such Subsidiaries and that his services
will be of special, unique and extraordinary value to the Company. Therefore,
Executive agrees that:
(a) Noncompetition. During the Employment Period and for a period of
--------------
one year thereafter (the "Noncompete Period"), Executive shall not, within the
-----------------
United States, directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the businesses of the Company or its Subsidiaries or any business
in which the Company or any of its Subsidiaries has requested and received
information relating to the acquisition of such business by the Company and the
Subsidiaries prior to the Separation; provided that passive ownership of less
than 5% of the outstanding stock of any publicly-traded corporation shall not,
in and of itself, be deemed to violate this Section 8(a); provided further that
--------
if the Executive's Employment with the Company is terminated by the Company
without Cause or the Executive resigns for Good Reason within a twenty four
month period a following a Sale of the Company, the one year period referenced
above shall be shortened to a six month period.
(b) Nonsolicitation. During the Noncompete Period, Executive shall
---------------
not directly or indirectly through another entity (i) induce or attempt to
induce any employee of the Company or its Subsidiaries to leave the employ of
the Company or such Subsidiary, or in any way interfere with the relationship
between the Company and any Subsidiary and any employee thereof, (ii) hire any
person who was an employee of the Company and any Subsidiary within 180 days
prior to the time such employee was hired by the Executive, (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company and any Subsidiary to cease doing business with the Company or such
Subsidiary or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company and any
Subsidiary or (iv) directly or indirectly acquire or attempt to acquire an
interest in any business relating to the
-11-
<PAGE>
business of the Company and any Subsidiary and with which the Company and any
Subsidiary has entertained discussions or has requested and received information
relating to the acquisition of such business by the Company and any Subsidiary
in the two-year period immediately preceding a Separation.
(c) Enforcement. If, at the time of enforcement of Section 7 or this
-----------
Section 8, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
duration, scope or geographical area reasonable under such circumstances shall
be substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
duration, scope and area permitted by law. Because Executive's services are
unique and because Executive has access to confidential information, the parties
hereto agree that money damages would be an inadequate remedy for any breach of
this Agreement. Therefore, in the event a breach or threatened breach of this
Agreement, the Company or its successors or assigns may, in addition to other
rights and remedies existing in their favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce, or prevent any violations of, the provisions hereof (without posting
a bond or other security).
(d) Additional Acknowledgments. Executive acknowledges that the
--------------------------
provisions of this Section 8 are in consideration of: (i) employment with the
Company, (ii) the issuance of the Executive Stock and (iii) additional good and
valuable consideration as set forth in this Agreement. In addition, Executive
agrees and acknowledges that the restriction contained in Section 7 and this
Section 8 do not preclude Executive from earning a livelihood, nor do they
unreasonably impose limitations on Executive's ability to earn a living. In
addition, Executive agrees and acknowledges that the potential harm to the
Company of the non-enforcement of Section 7 and this Section 8 outweighs any
potential harm to Executive of its enforcement by injunction or otherwise.
Executive acknowledges that he has carefully read this Agreement and has given
careful consideration to the restraints imposed upon Executive by this
Agreement, and is in full accord as to their necessity for the reasonable and
proper protection of confidential and proprietary information of the Company now
existing or to be developed in the future. Executive expressly acknowledges and
agrees that each and every restraint imposed by this Agreement is reasonable
with respect to subject matter, time period and geographical area.
GENERAL PROVISIONS
10. Definitions.
-----------
"Affiliate" of an Investor means any direct or indirect general or
---------
limited partner of such Investor, or any employee 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.
-12-
<PAGE>
"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
Executive as reasonably directed by the President, (iv) gross negligence or
willful misconduct with respect to the Company or any of its Subsidiaries or (v)
any material breach of Section 6(a)(ii), 7 or 8 of this Agreement.
"Closing" shall have the meaning set forth in the Purchase Agreement.
-------
"EBITDA" means, for any period, the Company's earnings before
------
interest, taxes, depreciation and amortization for such period, determined on a
consolidated basis in accordance with GAAP.
"Executive's Family Group" means Executive's spouse and descendants
------------------------
(whether natural or adopted), any trust solely for the benefit of Executive
and/or Executive's spouse and/or descendants and any retirement plan for the
Executive.
"Executive Stock" will continue to be Executive Stock in the hands of
---------------
any holder other than Executive (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 Executive Stock will succeed to all rights and
obligations attributable to Executive as a holder of Executive Stock hereunder.
Executive Stock will also include shares of the Company's capital stock issued
with respect to Executive 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.
"Fair Market Value" of each share of Executive Stock means the average
-----------------
of the closing prices of the sales of such Executive Stock on all securities
exchanges on which such Executive 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 Executive 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 Executive 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 Executive 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 Executive Stock as
determined in good faith by the Board. If the Executive reasonably disagrees
with such determination, the Executive shall deliver to the Board a written
notice of objection within ten days after delivery of the Repurchase
-13-
<PAGE>
Notice (or if no Repurchase Notice is delivered, then within ten days after
delivery of the Supplemental Repurchase Notice). Upon receipt of the Executive's
written notice of objection, the Board and the Executive 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 Executive, which appraiser shall submit to
the Board and the Executive 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.
"Good Reason" means an action by the Company which results in (i) a
-----------
significant diminution of the duties of Executive from the standard duties of
senior executives of companies comparable to the Company, or (ii) a reduction of
the Executive's Annual Base Salary.
"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 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).
-14-
<PAGE>
"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 of even date
----------------------
herewith 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).
11. 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.
105 South Street
Boston, MA 02111
Attention: President
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, Illinois 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
-15-
<PAGE>
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David E. Redlick
If to the Executive:
-------------------
Sean W. Mullaney
20 Rowes Wharf, Apt. 605
Boston, MA 02110
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
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.
12. General Provisions.
------------------
-16-
<PAGE>
(a) Expenses. The Company agrees to pay the reasonable legal expenses
--------
of the Executive incurred in connection with the negotiation and execution of
this Agreement. In addition, expenses (including reasonable attorneys' fees)
incurred by the Executive in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding, unless otherwise
determined by the Outside Directors (as defined in that certain Stockholders
Agreement, dated as of March 23, 1999, by and among the Company, the Investors,
the Executive and certain other stockholders), upon receipt of an undertaking by
or on behalf of the Executive to repay such amount if it shall ultimately be
determined that the Executive is not entitled to indemnification by the Company.
(b) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive 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 Executive Stock as the owner of such
stock for any purpose.
(c) 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.
(d) 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, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(e) 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.
(f) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(g) 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
-17-
<PAGE>
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.
(h) 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.
(i) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, the
Executive and the Majority Holders (as defined in the Purchase Agreement).
(j) 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 Executive in any amount or amounts considered available. Executive 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. Executive hereby
represents that he has no reason to believe that his life is not insurable at
rates now prevailing for healthy men of his age.
(k) 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 executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(l) Indemnification and Reimbursement of Payments on Behalf of
----------------------------------------------------------
Executive. The Company and its Subsidiaries shall be entitled to deduct or
- ---------
withhold from any amounts owing from the Company or any of its Subsidiaries to
the Executive any federal, state, local or foreign withholding taxes, excise
taxes, or employment taxes ("Taxes") imposed with respect to the Executive's
-----
compensation or other payments from the Company or any of its Subsidiaries or
the Executive'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 Executive 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.
(m) Termination. This Agreement (except for the provisions of Section
-----------
7) shall survive a Separation and shall remain in full force and effect after
such Separation.
-18-
<PAGE>
(n) 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 generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with generally accepted accounting principles, 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.
(o) Deemed Transfer of Executive 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 Executive 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.
(p) No Pledge or Security Interest. The purpose of the Company's
------------------------------
retention of the Executive'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 Executive of, or the granting of a security
interest in, the underlying stock.
(q) Rights Granted to GTCR and its Affiliates. Any rights granted to
-----------------------------------------
GTCR and its Affiliates hereunder may also be exercised (in whole or in part) by
its designees (which may be Affiliates).
* * * * *
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Senior
Management Agreement on the date first written above.
ZEFER CORP.
By: /s/ [ILLEGIBLE]^^
------------------
Its: President
----------
/s/ Sean W. Mullaney
-------------------------------
Sean W. Mullaney
Agreed and Accepted:
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ [ILLEGIBLE]^^
------------------------------------
Name: _________________________________
Its: Principal
GTCR VI EXECUTIVE FUND, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ [ILLEGIBLE]^^
------------------------------------
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: /s/ [ILLEGIBLE]^^
------------------------------------
Name: __________________________________
Its: Principal
SIGNATURE PAGE TO THE SENIOR MANAGEMENT AGREEMENT
<PAGE>
EXHIBIT A
---------
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.
_____________________________________
Sean W. Mullaney - Maker
<PAGE>
EXHIBIT B
---------
May 21, 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 May 21, 1999 (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 May 21, 1999 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:
Sean W. Mullaney
20 Rowes Wharf, Apt. 605
Boston, MA 02110
Social Security Number: ###-##-####
2. A description of the property with respect to which the election
is being made: 105,000 shares of Common Stock, par value $.01 per share, of the
Company.
3. The date on which the property was transferred May 21, 1999. The
taxable year for which such election is made: calendar year 1999.
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.
<PAGE>
20% of the Shares become vested shares on each of the first five annual
anniversaries of the Closing Date.
5. The fair market value on May 21, 1999 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $.50 per share of Common Stock.
6. The amount paid for such property: $.50 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: May 21, 1999
______________________________
Sean W. Mullaney
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, Sean W. Mullaney 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:_________ __, _____ ______________________________
Sean W.Mullaney
<PAGE>
EXHIBIT D
---------
SPOUSAL CONSENT
---------------
The undersigned spouse of the Executive hereby acknowledges that I
have read the foregoing Senior Management Agreement and Stockholders Agreement
and Registration Agreement referred to therein, each executed by the Executive
and dated as of the date hereof, and that I understand their contents. I am
aware that the foregoing Senior Management 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: May 21, 1999
Spouse's
Name: Stacy K. Mullaney
_________________________ Date: May 21, 1999
Witness'
Name:____________________
<PAGE>
EXHIBIT 10.7
SENIOR MANAGEMENT AGREEMENT
---------------------------
This SENIOR MANAGEMENT AGREEMENT (this "Agreement") is made as of
---------
August 25, 1999, between ZEFER Corp., a Delaware corporation (the "Company"),
-------
and James H. Slamp ("Executive").
---------
The Company and Executive desire to enter into an agreement pursuant
to which Executive will purchase, and the Company will sell, up to 300,000
shares of the Company's Common Stock, par value $.01 per share (the "Common
------
Stock"). All shares of Common Stock acquired by Executive are referred to
- -----
herein as "Executive Stock." In addition, the Company desires to employ the
---------------
Executive and the Executive desires to be employed by the Company. Certain
definitions are set forth in Section 10 of this Agreement.
The execution and delivery of this Agreement by the Company and
Executive was contemplated as a condition to the purchase of shares of Common
Stock and shares of the Class A Preferred by 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") pursuant to a purchase agreement between the Company and the
---------
Investors dated as of March 23, 1999 (the "Purchase Agreement"). Certain
------------------
provisions of this Agreement are intended for the benefit of, and will be
enforceable by, 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 EXECUTIVE STOCK
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive will purchase, and
the Company will sell, 300,000 shares of Common Stock at a price of $0.34 per
share. The Company will deliver to Executive the certificates representing such
Executive Stock, and Executive will deliver to the Company a cashier's or
certified check or wire transfer of funds in the aggregate amount of $27,195.48
and a promissory note in the form of Exhibit A attached hereto in an aggregate
---------
principal amount of $74,804.52 (the "Executive Note").
--------------
(b) Within 30 days after the date hereof, Executive 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.
- ---------
<PAGE>
(c) Until the occurrence of a Sale of the Company or a Public
Offering, all certificates evidencing shares of Executive Stock shall be held by
the Company for the benefit of the Executive and the other holder(s) of
Executive Stock. Upon the occurrence of a Sale of the Company or a Public
Offering, the Company will return the certificates for the Executive Stock to
the record holders thereof.
(d) In connection with the purchase and sale of the Executive Stock,
Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to
this Agreement will be acquired for Executive'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 Executive
Stock will not be disposed of in contravention of the Securities Act or any
applicable state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of her
investment in the Executive Stock for an indefinite period of time because
the Executive 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) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
(vi) Executive 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 Executive is a party to or by which
Executive is bound.
(vii) Executive is a resident of the State of Massachusetts.
(e) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive acknowledges and agrees that
neither the issuance of the Executive Stock to Executive nor any provision
contained herein shall entitle Executive to remain
-2-
<PAGE>
in the employment of the Company or any of its Subsidiaries or affect the right
of the Company to terminate Executive's employment at any time for any reason,
subject, however, to the terms of this Agreement.
(f) Concurrently with the execution of this Agreement, (i) Executive
shall execute in blank ten stock transfer powers in the form of Exhibit C
---------
attached hereto (the "Stock Powers") with respect to the Executive 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 Executive
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
Executive's spouse shall execute the consent in the form of Exhibit D attached
---------
hereto.
2. Vesting of Executive Stock.
--------------------------
(a) All of the shares of Executive Stock acquired hereunder shall be
subject to vesting in the manner specified in this Section 2. Except as
otherwise provided in Sections 2(b) and 2(c) below, the Executive Stock will
become vested in accordance with the following schedule (the "Vesting
-------
Schedule"), if as of each such date Executive is still employed by the Company
- --------
or any of its Subsidiaries:
Date Cumulative Percentage of
---- Executive 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 Executive is still employed by the Company or any
of its Subsidiaries, the Executive 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
-3-
<PAGE>
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 Executive Stock will vest on each subsequent June 30, September 30,
December 31 and March 31 so that the Executive Stock will be 100% vested on
March 31, 2004.
(c) Upon the occurrence of a Transaction, all shares of Executive 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 Executive Stock which have become vested
are referred to herein as "Vested Shares" and all other shares of
-------------
Executive Stock are referred to herein as "Unvested Shares."
---------------
3. Repurchase Option.
-----------------
(a) In the event (i) Executive ceases to be employed by the
Company and its Subsidiaries for any reason (the "Separation") or (ii) Executive
----------
fails to make any principal or interest payment under the Executive Note after
such payment becomes due and after giving effect to any applicable grace period
(a "Triggering Event"), the Executive Stock (whether held by Executive or one or
----------------
more of Executive'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 Executive Stock will be Executive's Original Cost for
such share and (ii) the purchase price for each Vested Share of Executive Stock
will be the Fair Market Value for such share as at the date of the Separation;
provided, however, that if Executive's employment is terminated with Cause, the
- -------- -------
purchase price for each Vested Share of Executive Stock will be Executive'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 Executive Stock (whether a Vested Share or
Unvested Share) will be Executive'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 Executive 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
-4-
<PAGE>
to the extent possible from the shares of Executive Stock held by Executive at
the time of delivery of the Repurchase Notice. If the number of shares of
Executive Stock then held by Executive is less than the total number of shares
of Executive 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 Executive Stock under this Agreement, pro rata according to the number of
shares of Executive 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 Executive and the other holders of Executive
Stock (if any) pro rata according to the number of shares of Executive Stock to
be purchased from such person.
(d) If for any reason the Company does not elect to purchase all of
the Executive Stock pursuant to the Repurchase Option, all other 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 Executive 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
Executive Stock as to the 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 Executive 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 Executive Stock to be purchased by each of them.
(e) The closing of the purchase of the Executive 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 Executive Stock
to be repurchased by it pursuant to the Repurchase Option with (i) a check or
-5-
<PAGE>
wire transfer of funds for (A) any shares of Executive Stock to be repurchased
at Executive's Original Cost and (B) in the case of Executive Stock to be
repurchased at Fair Market Value, that portion of such Executive Stock which is
equal to the Executive's Original Cost, and (ii) in the case of Executive Stock
to be repurchased at Fair Market Value, a subordinate note or notes for that
portion of such Executive Stock which exceeds the Executive'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 Executive to the Company.
Each Senior Manager and each Investor will pay for the Executive 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 Executive Stock.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive 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 Executive 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 Executive Stock is finally
determined to be an amount at least 10% greater than the per share repurchase
price for such share of Executive Stock in the Repurchase Notice or in the
Supplemental Repurchase Notice, each of the Company and the Investors shall have
the right to revoke its exercise of the Repurchase Option for all or any portion
of the Executive Stock elected to be repurchased by it by delivering notice of
such revocation in writing to the holders of Executive Stock during the thirty-
day period beginning on the date that the Company and/or the Investors are given
written notice that the Fair Market Value of a share of Executive Stock was
finally determined to be an amount at least 10% greater than the per share
repurchase price for Executive 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 Executive Stock.
-------------------------------------------
(a) Transfer of Executive Stock. The holder of Executive Stock shall
---------------------------
not Transfer any interest in any shares of Executive 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
-6-
<PAGE>
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 Executive Stock if made (i)
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, or (ii) at a time when (A) the Common Stock of the Company has
been trading for at least 45 consecutive days (including the day immediately
preceding such Transfer) at a price that exceeds the initial Public Offering
price by at least 20% and (B) the Common Stock bid and asked price on the day of
such Transfer was at least 20% greater than the initial Public Offering price,
but in the case of this clause (ii) only an amount of shares per calendar year
up to the lesser of (x) the number of Vested Shares owned by Executive at the
time of such Transfer and (y) 10% of the total number of shares of Common Stock
owned by Executive at the time of the Company's initial Public Offering, or
(iii) at such time as the Investors sell shares of Common Stock in a Public
Sale, but in the case of this clause (iii) only an amount of shares (the
"Transfer Amount") equal to the lesser of (C) the number of Vested Shares of
---------------
Common Stock owned by Executive at the time of such Transfer and (D) the number
of shares of Common Stock owned by Executive multiplied by a fraction (the
"Transfer Fraction"), the numerator of which is the number of shares of Common
-----------------
Stock sold by the Investors in such Public Sale and the denominator of which is
the total number of shares of Common Stock held by the Investors prior to the
Public Sale; provided that, if at the time of a Public Sale of shares by the
-------- ----
Investors, Executive chooses not to Transfer the Transfer Amount, Executive
shall retain the right to Transfer an amount of Executive Stock at a future date
equal to the lesser of (x) the number of Vested Shares owned by Executive at
such future date and (y) the number of shares of Executive Stock owned by
Executive at such future date multiplied by the Transfer Fraction; provided
--------
further, that at any particular point in time during any given calendar year the
- -------
number of shares of Common Stock which the Executive has a right to Transfer
pursuant to clause (ii) above shall be reduced by the number of shares of Common
Stock which the Executive has Transferred in such calendar year pursuant to
clause (iii) above and the number of shares of Common Stock which the Executive
has a right to Transfer pursuant to clause (iii) above shall be reduced by the
number of shares of Common Stock which the Executive has Transferred in such
calendar year pursuant to clause (ii) above. Notwithstanding anything in this
Section 4 to the contrary, the restrictions contained in this Section 4 will
continue to be applicable to the Executive Stock after any Transfer of the type
referred to in clause (i) and the transferees of such Executive Stock will agree
in writing to be bound by the provisions of this Agreement. Any transferee of
Executive Stock pursuant to a transfer in accordance with the provisions of this
Section 4(b)(i) is herein referred to as a "Permitted Transferee." Upon the
--------------------
transfer of Executive Stock pursuant to this Section 4(b), the transferring
Executive Stockholder will deliver a written notice (a "Transfer Notice") to the
---------------
Company. In the case of a Transfer pursuant to clause (i) hereof, the Transfer
Notice will disclose in reasonable detail the identity of the Permitted
Transferee(s). In addition, following the completion of an initial Public
Offering, Executive, in her sole discretion, may pledge up to $2 million worth
of Vested Shares as collateral for a loan so long as the pledgee of such stock
and the Executive enter into a pledge agreement in form and substance reasonably
satisfactory to the Board of Directors of the Company (the "Board"), pursuant to
which pledgee, among other things, agrees that pledgee may only sell such stock
in a Public Sale.
-7-
<PAGE>
(c) Termination of Restrictions. The restrictions set forth in this
---------------------------
Section 4 will continue with respect to each share of Executive Stock until the
earlier of (i) the date on which such share of Executive Stock has been
transferred in a Public Sale permitted by this Section 4, or (ii) the
consummation of an Approved Sale.
5. Additional Restrictions on Transfer of Executive Stock.
------------------------------------------------------
(a) Legend. The certificates representing the Executive Stock will
------
bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED AS OF AUGUST ___, 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 SENIOR MANAGEMENT AGREEMENT BETWEEN
THE COMPANY AND AN EXECUTIVE OF THE COMPANY DATED AS OF AUGUST
___, 1999. 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 Executive Stock may sell,
------------------
transfer or dispose of any Executive Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an 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 Executive Stock delivers to the
Company an opinion of counsel that no subsequent transfer of such Executive
Stock shall require registration under the Securities Act, the Company shall
promptly upon such contemplated transfer deliver new certificates for such
Executive 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 Executive 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.
PROVISIONS RELATING TO EMPLOYMENT
6. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning as of the date hereof and
ending upon his/her
-8-
<PAGE>
separation pursuant to Section 6(c) hereof (the "Employment Period").
-----------------
(a) Position and Duties.
-------------------
During the Employment Period, Executive shall serve as Executive Vice
President and Chief Financial Officer of the Company and shall have the
normal duties, responsibilities and authority of such office subject to the
power of the President and Chief Executive Officer of the Company (the
"President") to expand or limit such duties, responsibilities and
-----------
authority.
(ii) Executive shall report to the President and Executive shall
devote his/her best efforts and his/her full business time and attention to
the business and affairs of the Company and its subsidiaries.
(b) Salary, Bonus and Benefits. During the Employment Period, the
--------------------------
Company will pay the Executive a base salary (the "Annual Base Salary") of
------------------
$175,000 per annum, subject to any increase as determined by the President.
Executive's Annual Base Salary for any partial year will be prorated based upon
the number of days elapsed in such year. For the fiscal year ended December 31,
1999, the Executive will be eligible for a bonus in an amount not to exceed
$35,000. Therafter, during the Employment Period, the Executive shall also be
eligible for an annual bonus in an amount not to exceed 35% of Executive's then
applicable Annual Base Salary for such year; such bonus to be determined by the
President based upon the Company's achievement of budgetary and other objectives
set by the President. In addition, during the Employment Period, the Company
will provide the Executive with (i) medical insurance benefits, and (ii) such
other benefits approved by the President and made available to the Company's
senior management. In addition, the Company will reimburse you for up to a
maximum of $50,000 of necessary and reasonable expenses incurred by you in
connection with your relocation to the greater Boston, Massachusetts area.
(c) Events of Separation. The Employment Period will continue until
--------------------
Executive's resignation, disability (as determined by the President in his good
faith judgment) or death or until the President decides to terminate Executive's
employment.
(d) Separation Without Cause; Resignation for Good Reason. In the
-----------------------------------------------------
event that (i) the Company terminates the Executive's employment without Cause
or (ii) the Executive resigns from his/her position with the Company for Good
Reason, then the Executive shall be entitled to the following:
(i) the Company shall pay to the Executive, in a lump sum within
15 days after such termination or resignation, an amount equal to the sum
of (A) any unpaid base salary owed to the Executive for services performed
prior to such termination, plus (B) the amount of any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the extent
not previously paid (the obligations set forth in clauses (A) and (B) are
collectively referred to herein as the "Accrued Obligations");
-------------------
-9-
<PAGE>
(ii) the Company shall pay each month to the Executive,
beginning on the date of the first normal executive payroll of the Company
that occurs more than 30 days after such termination or resignation, an
amount equal to one-twelfth (1/12) of the Executive's Annual Base Salary as
of the date immediately before such termination or resignation; provided
--------
however, that such payments shall immediately cease upon the earliest to
--------
occur of (x) the Executive's death and (y) the six month anniversary of
such termination or resignation. Notwithstanding anything in this Section
6(d) to the contrary, in the event that the Executive becomes employed with
another employer, then the payments to be made by the Company pursuant to
this Section 6(d)(ii) shall be reduced (on a dollar for dollar basis) in an
amount equal to the cash compensation received by Executive from such
employer; and
(iii) the Company shall continue to provide medical insurance
benefits to the Executive and to the Executive's family at least equal to
those medical insurance benefits that would have been provided to them in
the absence of such termination or resignation; provided however, that such
-------- -------
payments shall immediately cease upon the earliest to occur of (x) the
Executive's death and (y) the six month anniversary of such termination or
resignation. Notwithstanding anything in this Section 6(d) to the contrary,
in the event that the Executive becomes employed with another employer and
is eligible for medical insurance benefits under another employer-provided
plan, then the medical insurance benefits to be provided by the Company
pursuant to this Section 6(d)(iii) shall be reduced to the extent that the
Executive and his/her family is eligible to receive medical insurance
benefits under such other employer-provided plan.
(e) Other Separations. In the event of a Separation other than a
-----------------
termination by the Company without cause or a resignation by the Executive for
Good Reason, the Company shall pay to the Executive (or his/her estate, if
applicable), in a lump sum in cash within 15 days after such Separation, an
amount equal to any Accrued Obligations.
7. Confidential Information. Executive acknowledges that the
------------------------
information, observations and data obtained by him during the course of his/her
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company, including
information concerning acquisition opportunities in or reasonably related to the
Company's business or industry of which Executive becomes aware during the
Employment Period. Therefore, Executive agrees that he will not disclose to any
unauthorized person or use for his/her own account any of such information,
observations or data without the Company's written consent, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive agrees to deliver to the Company at a Separation, or at any other
time the Company may request in writing, all memoranda, notes, plans, records,
reports and other documents (and copies thereof) relating to the business of the
Company and its affiliates (including, without limitation, all acquisition
prospects, lists and contact information) which he may then possess or have
under his/her control.
-10-
<PAGE>
8. Noncompetition and Nonsolicitation. Executive acknowledges
----------------------------------
that in the course of his/her employment with the Company he will become
familiar with the Company's and its Subsidiaries' trade secrets and with other
confidential information concerning the Company and such Subsidiaries and that
his/her services will be of special, unique and extraordinary value to the
Company. Therefore, Executive agrees that:
(a) Noncompetition. During the Employment Period and for a period of
--------------
one year thereafter (the "Noncompete Period"), Executive shall not, within the
-----------------
United States, directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the businesses of the Company or its Subsidiaries or any business
in which the Company or any of its Subsidiaries has requested and received
information relating to the acquisition of such business by the Company and the
Subsidiaries prior to the Separation; provided that passive ownership of less
--------
than 5% of the outstanding stock of any publicly-traded corporation shall not,
in and of itself, be deemed to violate this Section 8(a); provided further that
--------
if the Executive's Employment with the Company is terminated by the Company
without Cause or the Executive resigns for Good Reason within a twenty four
month period following a Sale of the Company, the one year period referenced
above shall be shortened to a six month period.
(b) Nonsolicitation. During the Noncompete Period, Executive shall
---------------
not directly or indirectly through another entity (i) induce or attempt to
induce any employee of the Company or its Subsidiaries to leave the employ of
the Company or such Subsidiary, or in any way interfere with the relationship
between the Company and any Subsidiary and any employee thereof, (ii) hire any
person who was an employee of the Company and any Subsidiary within 180 days
prior to the time such employee was hired by the Executive, (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company and any Subsidiary to cease doing business with the Company or such
Subsidiary or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company and any
Subsidiary or (iv) directly or indirectly acquire or attempt to acquire an
interest in any business relating to the business of the Company and any
Subsidiary and with which the Company and any Subsidiary has entertained
discussions or has requested and received information relating to the
acquisition of such business by the Company and any Subsidiary in the two-year
period immediately preceding a Separation.
(c) Enforcement. If, at the time of enforcement of Section 7 or this
-----------
Section 8, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
duration, scope or geographical area reasonable under such circumstances shall
be substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
duration, scope and area permitted by law. Because Executive's services are
unique and because Executive has access to confidential information, the parties
hereto agree that money damages would be an inadequate remedy for any breach of
this Agreement. Therefore, in the event a breach or threatened breach of this
Agreement, the Company or its successors or assigns may, in addition to other
rights and
-11-
<PAGE>
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provisions hereof (without posting a bond or
other security).
(d) Additional Acknowledgments. Executive acknowledges that the
--------------------------
provisions of this Section 8 are in consideration of: (i) employment with the
Company, (ii) the issuance of the Executive Stock and (iii) additional good and
valuable consideration as set forth in this Agreement. In addition, Executive
agrees and acknowledges that the restriction contained in Section 7 and this
Section 8 do not preclude Executive from earning a livelihood, nor do they
unreasonably impose limitations on Executive's ability to earn a living. In
addition, Executive agrees and acknowledges that the potential harm to the
Company of the non-enforcement of Section 7 and this Section 8 outweighs any
potential harm to Executive of its enforcement by injunction or otherwise.
Executive acknowledges that he has carefully read this Agreement and has given
careful consideration to the restraints imposed upon Executive by this
Agreement, and is in full accord as to their necessity for the reasonable and
proper protection of confidential and proprietary information of the Company now
existing or to be developed in the future. Executive expressly acknowledges and
agrees that each and every restraint imposed by this Agreement is reasonable
with respect to subject matter, time period and geographical area.
GENERAL PROVISIONS
10. Definitions.
-----------
"Affiliate" of an Investor means any direct or indirect general or
---------
limited partner of such Investor, or any employee 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
Executive as reasonably directed by the President, (iv) gross negligence or
willful misconduct with respect to the Company or any of its Subsidiaries or (v)
any material breach of Section 6(a)(ii), 7 or 8 of this Agreement.
"Closing" shall have the meaning set forth in the Purchase Agreement.
-------
"Executive's Family Group" means Executive's spouse and descendants
------------------------
(whether natural or adopted), any trust solely for the benefit of Executive
and/or Executive's spouse and/or descendants and any retirement plan for the
Executive.
"Executive Stock" will continue to be Executive Stock in the hands of
---------------
any holder
-12-
<PAGE>
other than Executive (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 Executive Stock will succeed to all rights and obligations
attributable to Executive as a holder of Executive Stock hereunder. Executive
Stock will also include shares of the Company's capital stock issued with
respect to Executive 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.
"Fair Market Value" of each share of Executive Stock means the average
-----------------
of the closing prices of the sales of such Executive Stock on all securities
exchanges on which such Executive 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 Executive 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 Executive 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 Executive 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 Executive Stock as
determined in good faith by the Board. If the Executive reasonably disagrees
with such determination, the Executive 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 Executive's written notice
of objection, the Board and the Executive 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 Executive, which appraiser shall submit to the Board and the
Executive 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
-13-
<PAGE>
from time to time.
"Good Reason" means an action by the Company which results in (i) a
-----------
significant diminution of the duties of Executive from the standard duties of
senior executives of companies comparable to the Company, or (ii) a reduction of
the Executive's Annual Base Salary.
"Original Cost" means, with respect to each share of Common Stock
-------------
purchased hereunder, $.34 (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 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 of even date
----------------------
herewith 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).
11. Notices. Any notice provided for in this Agreement must be in
-------
writing and
-14-
<PAGE>
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.
105 South Street
Boston, MA 02111
Attention: President
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, Illinois 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie, Esq.
Rope & Gray
One International Place
Boston, Massachusetts 02110
Attention: Keith Higgins, Esq.
If to the Executive:
-------------------
James H. Slamp
28 Cedar Street
Cohasset, MA 02025
-15-
<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, Esq.
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.
12. General Provisions.
------------------
(a) Expenses. The Company agrees to pay the reasonable legal expenses
--------
of the Executive incurred in connection with the negotiation and execution of
this Agreement. In addition, expenses (including reasonable attorneys' fees)
incurred by the Executive in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding, unless otherwise
determined by the Outside Directors (as defined in that certain Stockholders
Agreement, dated as of March 23, 1999, by and among the Company, the Investors,
the Executive and certain other stockholders), upon receipt of an undertaking by
or on behalf of the Executive to repay such amount if it shall ultimately be
determined that the Executive is not entitled to indemnification by the Company.
(b) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive 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 Executive Stock as the owner of such
stock for any purpose.
(c) 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
-16-
<PAGE>
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.
(d) 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, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(e) 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.
(f) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(g) 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.
(h) 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.
(i) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, the
Executive and the Majority Holders (as defined in the Purchase Agreement).
(j) 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 Executive in any amount or amounts considered available. Executive agrees to
cooperate in any medical or other examination,
-17-
<PAGE>
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. Executive hereby represents that he has no reason to believe
that her life is not insurable at rates now prevailing for healthy persons of
his/her age.
(k) 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 executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(l) Indemnification and Reimbursement of Payments on Behalf of
----------------------------------------------------------
Executive. The Company and its Subsidiaries shall be entitled to deduct or
- ---------
withhold from any amounts owing from the Company or any of its Subsidiaries to
the Executive any federal, state, local or foreign withholding taxes, excise
taxes, or employment taxes ("Taxes") imposed with respect to the Executive's
-----
compensation or other payments from the Company or any of its Subsidiaries or
the Executive'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 Executive 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.
(m) Termination. This Agreement (except for the provisions of Section
-----------
7) shall survive a Separation and shall remain in full force and effect after
such Separation.
(n) 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 generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with generally accepted accounting principles, 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.
(o) Deemed Transfer of Executive 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 Executive 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
-18-
<PAGE>
deemed the owner and holder of such shares, whether or not the certificates
therefor have been delivered as required by this Agreement.
(p) No Pledge or Security Interest. The purpose of the Company's
------------------------------
retention of the Executive'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 Executive of, or the granting of a security
interest in, the underlying stock.
(q) Rights Granted to GTCR and its Affiliates. Any rights granted to
-----------------------------------------
GTCR and its Affiliates hereunder may also be exercised (in whole or in part) by
its designees (which may be Affiliates).
* * * * *
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Senior
Management Agreement on the date first written above.
ZEFER CORP.
By: /s/ Sean W. Mullaney
-------------------------------------------
Sean W. Mullaney
Executive Vice President and General Counsel
/s/ James H. Slamp
-------------------------------------------
James H. Slamp
Agreed and Accepted:
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ illegible
----------------------------------
Name:
----------------------------------
Its: Principal
GTCR VI EXECUTIVE FUND, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ illegible
----------------------------------
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: /s/ illegible
----------------------------------
Name:
----------------------------------
Its: Principal
<PAGE>
EXHIBIT A
- ---------
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.
* * * * *
<PAGE>
EXHIBIT B
---------
August 25, 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 August 25, 1999 (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 May 21, 1999 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:
James H. Slamp
28 Cedar Street
Cohasset, MA 02025
Social Security Number:
2. A description of the property with respect to which the election
is being made: 300,000 shares of Common Stock, par value $.01 per share, of the
Company.
3. The date on which the property was transferred August 25, 1999.
The taxable year for which such election is made: calendar year 1999.
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 August 25, 1999 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $0.38 per share of Common Stock.
6. The amount paid for such property: $0.34 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: August 25,1999
--------------------------
James H. Slamp
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, James H. Slamp 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:_________ __, _____
-------------------------
James H. Slamp
<PAGE>
EXHIBIT D
---------
SPOUSAL CONSENT
---------------
The undersigned spouse of the Executive hereby acknowledges that I
have read the foregoing Senior Management Agreement and Stockholders Agreement
and Registration Agreement referred to therein, each executed by the Executive
and dated as of the date hereof, and that I understand their contents. I am
aware that the foregoing Senior Management 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
Spouse's
Name:
_________________________ Date: ________, 1999
Witness'
Name:____________________
<PAGE>
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/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.
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>
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first above written.
/s/ James H. Slamp
------------------
James H. Slamp
<PAGE>
August 25, 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 August 25, 1999 (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 May 21, 1999 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:
James H. Slamp
28 Cedar Street
Cohasset, MA 02025
Social Security Number: ###-##-####
2. A description of the property with respect to which the election
is being made: 300,000 shares of Common Stock, par value $.01 per share, of the
Company.
3. The date on which the property was transferred August 25, 1999.
The taxable year for which such election is made: calendar year 1999.
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 August 25, 1999 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $0.38 per share of Common Stock.
6. The amount paid for such property: $0.34 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: August 25, 1999
/s/ James H. Slamp
------------------
James H. Slamp
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, James H. Slamp 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:_________ __, _____ /s/ James H. Slamp
------------------
James H. Slamp
<PAGE>
EXHIBIT 10.8
SENIOR MANAGEMENT AGREEMENT
---------------------------
This SENIOR MANAGEMENT AGREEMENT (this "Agreement") is made as of May
---------
21, 1999, between ZEFER Corp., a Delaware corporation (the "Company"), and
-------
Martha Stephens ("Executive").
---------
The Company and Executive desire to enter into an agreement pursuant
to which Executive will purchase, and the Company will sell, up to 105,000
shares of the Company's Common Stock, par value $.01 per share (the "Common
------
Stock"). All shares of Common Stock acquired by Executive are referred to
- -----
herein as "Executive Stock." In addition, the Company desires to employ the
---------------
Executive and the Executive desires to be employed by the Company. Certain
definitions are set forth in Section 10 of this Agreement.
The execution and delivery of this Agreement by the Company and
Executive was contemplated as a condition to the purchase of shares of Common
Stock and shares of the Class A Preferred by 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") pursuant to a purchase agreement between the Company and the
---------
Investors dated as of March 23, 1999 (the "Purchase Agreement"). Certain
------------------
provisions of this Agreement are intended for the benefit of, and will be
enforceable by, 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 EXECUTIVE STOCK
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive will purchase, and the
Company will sell, 105,000 shares of Common Stock at a price of $.50 per share.
The Company will deliver to Executive the certificates representing such
Executive Stock, and Executive will deliver to the Company a cashier's or
certified check or wire transfer of funds in the aggregate amount of $4,606.88
and a promissory note in the form of Exhibit A attached hereto in an aggregate
---------
principal amount of $47,893.13 (the "Executive Note").
--------------
(b) Within 30 days after the date hereof, Executive 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 Executive Stock shall be held by
the Company for the benefit of the
<PAGE>
Executive and the other holder(s) of Executive Stock. Upon the occurrence of a
Sale of the Company or a Public Offering, the Company will return the
certificates for the Executive Stock to the record holders thereof.
(d) In connection with the purchase and sale of the Executive Stock,
Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant
to this Agreement will be acquired for Executive'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 Executive
Stock will not be disposed of in contravention of the Securities Act or any
applicable state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of her
investment in the Executive Stock for an indefinite period of time because
the Executive 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) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
(vi) Executive 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 Executive is a party to or by which
Executive is bound.
(vii) Executive is a resident of the State of Massachusetts.
(e) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive acknowledges and agrees that
neither the issuance of the Executive Stock to Executive nor any provision
contained herein shall entitle Executive to remain in the employment of the
Company or any of its Subsidiaries or affect the right of the Company to
terminate Executive's employment at any time for any reason, subject, however,
to the terms of this Agreement.
-2-
<PAGE>
(f) Concurrently with the execution of this Agreement, (i) Executive
shall execute in blank ten stock transfer powers in the form of Exhibit C
---------
attached hereto (the "Stock Powers") with respect to the Executive 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 Executive
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
Executive's spouse shall execute the consent in the form of Exhibit D attached
---------
hereto.
2. Vesting of Executive Stock.
--------------------------
(a) All of the shares of Executive Stock acquired hereunder shall be
subject to vesting in the manner specified in this Section 2. Except as
otherwise provided in Sections 2(b) and 2(c) below, the Executive Stock will
become vested in accordance with the following schedule (the "Vesting
-------
Schedule"), if as of each such date Executive is still employed by the Company
- --------
or any of its Subsidiaries:
Date Cumulative Percentage of
----
Executive 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 Executive is still employed by the Company or any
of its Subsidiaries, the Executive 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
-3-
<PAGE>
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 Executive Stock will vest on each subsequent June 30, September 30,
December 31 and March 31 so that the Executive Stock will be 100% vested on
March 31, 2004.
(c) Upon the occurrence of a Transaction, all shares of Executive 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 Executive Stock which have become vested
are referred to herein as "Vested Shares" and all other shares of
-------------
Executive Stock are referred to herein as "Unvested Shares."
---------------
3. Repurchase Option.
-----------------
(a) In the event (i) Executive ceases to be employed by the
Company and its Subsidiaries for any reason (the "Separation") or (ii)
----------
Executive failsto make any principal or interest payment under the Executive
Note after such payment becomes due and after giving effect to any applicable
grace period (a "Triggering Event"), the Executive Stock (whether held by
----------------
Executive or one or more of Executive'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 Executive Stock will be Executive's Original Cost for
such share and (ii) the purchase price for each Vested Share of Executive Stock
will be the Fair Market Value for such share as at the date of the Separation;
provided, however, that if Executive's employment is terminated with Cause, the
- -------- -------
purchase price for each Vested Share of Executive Stock will be Executive'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 Executive Stock (whether a Vested Share or
Unvested Share) will be Executive'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 Executive 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 Executive Stock held by Executive at the time of delivery of the
Repurchase Notice. If the number of shares of Executive Stock then held by
Executive is less than the total number of shares of Executive 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 Executive Stock under this
Agreement, pro rata according to the number of shares of Executive Stock held by
such other holder(s) at the time of delivery of such Repurchase Notice
(determined as
-4-
<PAGE>
nearly as practicable to the nearest share). The number of Unvested Shares and
Vested Shares to be repurchased hereunder will be allocated among Executive and
the other holders of Executive Stock (if any) pro rata according to the number
of shares of Executive Stock to be purchased from such person.
(d) If for any reason the Company does not elect to purchase all of
the Executive Stock pursuant to the Repurchase Option, all other 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 Executive 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
Executive Stock as to the 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 Executive 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 Executive Stock to be purchased by each of them.
(e) The closing of the purchase of the Executive 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 Executive
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 Executive Stock to be
repurchased at Executive's Original Cost and (B) in the case of Executive Stock
to be repurchased at Fair Market Value, that portion of such Executive Stock
which is equal to the Executive's Original Cost, and (ii) in the case of
Executive Stock to be repurchased at Fair Market Value, a subordinate note or
notes for that portion of such Executive Stock which exceeds the Executive'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
-5-
<PAGE>
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 Executive to the Company. Each Senior Manager and each
Investor will pay for the Executive 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 Executive Stock.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive 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 Executive 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 Executive Stock is finally
determined to be an amount at least 10% greater than the per share repurchase
price for such share of Executive Stock in the Repurchase Notice or in the
Supplemental Repurchase Notice, each of the Company and the Investors shall have
the right to revoke its exercise of the Repurchase Option for all or any portion
of the Executive Stock elected to be repurchased by it by delivering notice of
such revocation in writing to the holders of Executive Stock during the thirty-
day period beginning on the date that the Company and/or the Investors are given
written notice that the Fair Market Value of a share of Executive Stock was
finally determined to be an amount at least 10% greater than the per share
repurchase price for Executive 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 Executive Stock.
-------------------------------------------
(a) Transfer of Executive Stock. The holder of Executive Stock shall
---------------------------
not Transfer any interest in any shares of Executive 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 Executive Stock if made (i)
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, or (ii) at a time when (A) the Common Stock of the Company has
been trading for at least 45 consecutive days (including the day immediately
preceding such Transfer) at a price that exceeds the initial Public Offering
price by at least 20% and (B) the Common Stock bid and asked price on the day of
such Transfer was at least 20% greater than the initial Public Offering price,
but in the case of this clause (ii) only an amount of shares per calender year
up to the lesser of (x) the number of Vested Shares owned by Executive at the
time of such Transfer and (y) 10% of the
-6-
<PAGE>
total number of shares of Common Stock owned by Executive at the time of the
Company's initial Public Offering, or (iii) at such time as the Investors sell
shares of Common Stock in a Public Sale, but in the case of this clause (iii)
only an amount of shares (the "Transfer Amount") equal to the lesser of (C) the
---------------
number of Vested Shares of Common Stock owned by Executive at the time of such
Transfer and (D) the number of shares of Common Stock owned by Executive
multiplied by a fraction (the "Transfer Fraction"), the numerator of which is
-----------------
the number of shares of Common Stock sold by the Investors in such Public Sale
and the denominator of which is the total number of shares of Common Stock held
by the Investors prior to the Public Sale; provided that, if at the time of a
-------- ----
Public Sale of shares by the Investors, Executive chooses not to Transfer the
Transfer Amount, Executive shall retain the right to Transfer an amount of
Executive Stock at a future date equal to the lesser of (x) the number of Vested
Shares owned by Executive at such future date and (y) the number of shares of
Executive Stock owned by Executive at such future date multiplied by the
Transfer Fraction; provided further, that at any particular point in time during
-------- -------
any given calendar year the number of shares of Common Stock which the Executive
has a right to Transfer pursuant to clause (ii) above shall be reduced by the
number of shares of Common Stock which the Executive has Transferred in such
calendar year pursuant to clause (iii) above and the number of shares of Common
Stock which the Executive has a right to Transfer pursuant to clause (iii) above
shall be reduced by the number of shares of Common Stock which the Executive has
Transferred in such calendar year pursuant to clause (ii) above. Notwithstanding
anything in this Section 4 to the contrary, the restrictions contained in this
Section 4 will continue to be applicable to the Executive Stock after any
Transfer of the type referred to in clause (i) and the transferees of such
Executive Stock will agree in writing to be bound by the provisions of this
Agreement. Any transferee of Executive Stock pursuant to a transfer in
accordance with the provisions of this Section 4(b)(i) is herein referred to as
a "Permitted Transferee." Upon the transfer of Executive Stock pursuant to this
--------------------
Section 4(b), the transferring Executive Stockholder will deliver a written
notice (a "Transfer Notice") to the Company. In the case of a Transfer pursuant
---------------
to clause (i) hereof, the Transfer Notice will disclose in reasonable detail the
identity of the Permitted Transferee(s). In addition, following the completion
of an initial Public Offering, Executive, in her sole discretion, may pledge up
to $2 million worth of Vested Shares as collateral for a loan so long as the
pledgee of such stock and the Executive enter into a pledge agreement in form
and substance reasonably satisfactory to the Board of Directors of the Company
(the "Board"), pursuant to which pledgee, among other things, agrees that
pledgee may only sell such stock in a Public Sale.
(c) Termination of Restrictions. The restrictions set forth in this
---------------------------
Section 4 will continue with respect to each share of Executive Stock until the
earlier of (i) the date on which such share of Executive Stock has been
transferred in a Public Sale permitted by this Section 4, or (ii) the
consummation of an Approved Sale.
5. Additional Restrictions on Transfer of Executive Stock.
------------------------------------------------------
(a) Legend. The certificates representing the Executive 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
-7-
<PAGE>
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 SENIOR MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND AN EXECUTIVE
OF THE COMPANY DATED AS OF MAY 21, 1999. 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 Executive Stock may sell,
------------------
transfer or dispose of any Executive Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an 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 Executive Stock delivers to the
Company an opinion of counsel that no subsequent transfer of such Executive
Stock shall require registration under the Securities Act, the Company shall
promptly upon such contemplated transfer deliver new certificates for such
Executive 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 Executive 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.
PROVISIONS RELATING TO EMPLOYMENT
6. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning as of the date hereof and
ending upon her separation pursuant to Section 6(c) hereof (the "Employment
----------
Period").
- ------
(a) Position and Duties.
-------------------
During the Employment Period, Executive shall serve as the Company's
Executive Vice President for People and shall have the normal duties,
responsibilities and authority of such office subject to the power of the
President and Chief Executive Officer of the Company (the "President") to
---------
expand or limit such duties, responsibilities and authority.
(ii) Executive shall report to the President and Executive shall
devote her best efforts and her full business time and attention to the
business and affairs of the Company and its subsidiaries.
(b) Salary, Bonus and Benefits. During the Employment Period, the
--------------------------
Company will pay the Executive a base salary (the "Annual Base Salary") of
------------------
$170,000 per annum, subject to
-8-
<PAGE>
any increase as determined by the President. Executive's Annual Base Salary for
any partial year will be prorated based upon the number of days elapsed in such
year. During the Employment Period, the Executive shall also be eligible for an
annual bonus in an amount not to exceed 35% of Executive's then applicable
Annual Base Salary for such year; such bonus to be determined by the President
based upon the Company's achievement of budgetary and other objectives set by
the President. In addition, during the Employment Period, the Company will
provide the Executive with (i) medical insurance benefits, and (ii) such other
benefits approved by the President and made available to the Company's senior
management.
(c) Events of Separation. The Employment Period will continue until
--------------------
Executive's resignation, disability (as determined by the President in his good
faith judgment) or death or until the President decides to terminate Executive's
employment.
(d) Separation Without Cause; Resignation for Good Reason. In the
-----------------------------------------------------
event that (i) the Company terminates the Executive's employment without Cause
or (ii) the Executive resigns from her position with the Company for Good
Reason, then the Executive shall be entitled to the following:
(i) the Company shall pay to the Executive, in a lump sum
within 15 days after such termination or resignation, an amount equal to
the sum of (A) any unpaid base salary owed to the Executive for services
performed prior to such termination, plus (B) the amount of any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not previously paid (the obligations set forth in
clauses (A) and (B) are collectively referred to herein as the "Accrued
-------
Obligations");
-----------
(ii) the Company shall pay each month to the Executive,
beginning on the date of the first normal executive payroll of the Company
that occurs more than 30 days after such termination or resignation, an
amount equal to one-twelfth (1/12) of the Executive's Annual Base Salary as
of the date immediately before such termination or resignation; provided
--------
however, that such payments shall immediately cease upon the earliest to
-------
occur of (x) the Executive's death and (y) the six month anniversary of
such termination or resignation. Notwithstanding anything in this Section
6(d) to the contrary, in the event that the Executive becomes employed with
another employer, then the payments to be made by the Company pursuant to
this Section 6(d)(ii) shall be reduced (on a dollar for dollar basis) in an
amount equal to the cash compensation received by Executive from such
employer; and
(iii) the Company shall continue to provide medical insurance
benefits to the Executive and to the Executive's family at least equal to
those medical insurance benefits that would have been provided to them in
the absence of such termination or resignation; provided however, that such
-------- -------
payments shall immediately cease upon the earliest to occur of (x) the
Executive's death and (y) the six month anniversary of such termination or
resignation. Notwithstanding anything in this Section 6(d) to the
contrary, in the event that the Executive becomes employed with another
employer and is eligible for medical insurance benefits under another
employer-provided plan, then the medical insurance
-9-
<PAGE>
benefits to be provided by the Company pursuant to this Section 6(d)(iii)
shall be reduced to the extent that the Executive and her family is
eligible to receive medical insurance benefits under such other employer-
provided plan.
(e) Other Separations. In the event of a Separation other than a
-----------------
termination by the Company without cause or a resignation by the Executive for
Good Reason, the Company shall pay to the Executive (or her estate, if
applicable), in a lump sum in cash within 15 days after such Separation, an
amount equal to any Accrued Obligations.
7. Confidential Information. Executive acknowledges that the
------------------------
information, observations and data obtained by him during the course of her
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company, including
information concerning acquisition opportunities in or reasonably related to the
Company's business or industry of which Executive becomes aware during the
Employment Period. Therefore, Executive agrees that he will not disclose to any
unauthorized person or use for her own account any of such information,
observations or data without the Company's written consent, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive agrees to deliver to the Company at a Separation, or at any other
time the Company may request in writing, all memoranda, notes, plans, records,
reports and other documents (and copies thereof) relating to the business of the
Company and its affiliates (including, without limitation, all acquisition
prospects, lists and contact information) which he may then possess or have
under her control.
8. Noncompetition and Nonsolicitation. Executive acknowledges that in
----------------------------------
the course of her employment with the Company he will become familiar with the
Company's and its Subsidiaries' trade secrets and with other confidential
information concerning the Company and such Subsidiaries and that her services
will be of special, unique and extraordinary value to the Company. Therefore,
Executive agrees that:
(a) Noncompetition. During the Employment Period and for a period of
--------------
one year thereafter (the "Noncompete Period"), Executive shall not, within the
-----------------
United States, directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the businesses of the Company or its Subsidiaries or any business
in which the Company or any of its Subsidiaries has requested and received
information relating to the acquisition of such business by the Company and the
Subsidiaries prior to the Separation; provided that passive ownership of less
--------
than 5% of the outstanding stock of any publicly-traded corporation shall not,
in and of itself, be deemed to violate this Section 8(a); provided further that
--------
if the Executive's Employment with the Company is terminated by the Company
without Cause or the Executive resigns for Good Reason within a twenty four
month period a following a Sale of the Company, the one year period referenced
above shall be shortened to a six month period.
(b) Nonsolicitation. During the Noncompete Period, Executive shall
---------------
not directly or indirectly through another entity (i) induce or attempt to
induce any employee of the Company or its Subsidiaries to leave the employ of
the Company or such Subsidiary, or in any way interfere with
-10-
<PAGE>
the relationship between the Company and any Subsidiary and any employee
thereof, (ii) hire any person who was an employee of the Company and any
Subsidiary within 180 days prior to the time such employee was hired by the
Executive, (iii) induce or attempt to induce any customer, supplier, licensee or
other business relation of the Company and any Subsidiary to cease doing
business with the Company or such Subsidiary or in any way interfere with the
relationship between any such customer, supplier, licensee or business relation
and the Company and any Subsidiary or (iv) directly or indirectly acquire or
attempt to acquire an interest in any business relating to the business of the
Company and any Subsidiary and with which the Company and any Subsidiary has
entertained discussions or has requested and received information relating to
the acquisition of such business by the Company and any Subsidiary in the two-
year period immediately preceding a Separation.
(c) Enforcement. If, at the time of enforcement of Section 7 or this
-----------
Section 8, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
duration, scope or geographical area reasonable under such circumstances shall
be substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
duration, scope and area permitted by law. Because Executive's services are
unique and because Executive has access to confidential information, the parties
hereto agree that money damages would be an inadequate remedy for any breach of
this Agreement. Therefore, in the event a breach or threatened breach of this
Agreement, the Company or its successors or assigns may, in addition to other
rights and remedies existing in their favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce, or prevent any violations of, the provisions hereof (without posting
a bond or other security).
(d) Additional Acknowledgments. Executive acknowledges that the
--------------------------
provisions of this Section 8 are in consideration of: (i) employment with the
Company, (ii) the issuance of the Executive Stock and (iii) additional good and
valuable consideration as set forth in this Agreement. In addition, Executive
agrees and acknowledges that the restriction contained in Section 7 and this
Section 8 do not preclude Executive from earning a livelihood, nor do they
unreasonably impose limitations on Executive's ability to earn a living. In
addition, Executive agrees and acknowledges that the potential harm to the
Company of the non-enforcement of Section 7 and this Section 8 outweighs any
potential harm to Executive of its enforcement by injunction or otherwise.
Executive acknowledges that he has carefully read this Agreement and has given
careful consideration to the restraints imposed upon Executive by this
Agreement, and is in full accord as to their necessity for the reasonable and
proper protection of confidential and proprietary information of the Company now
existing or to be developed in the future. Executive expressly acknowledges and
agrees that each and every restraint imposed by this Agreement is reasonable
with respect to subject matter, time period and geographical area.
-11-
<PAGE>
GENERAL PROVISIONS
10. Definitions.
-----------
"Affiliate" of an Investor means any direct or indirect general or
---------
limited partner of such Investor, or any employee 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
Executive as reasonably directed by the President, (iv) gross negligence or
willful misconduct with respect to the Company or any of its Subsidiaries or (v)
any material breach of Section 6(a)(ii), 7 or 8 of this Agreement.
"Closing" shall have the meaning set forth in the Purchase Agreement.
-------
"EBITDA" means, for any period, the Company's earnings before
------
interest, taxes, depreciation and amortization for such period, determined on a
consolidated basis in accordance with GAAP.
"Executive's Family Group" means Executive's spouse and descendants
------------------------
(whether natural or adopted), any trust solely for the benefit of Executive
and/or Executive's spouse and/or descendants and any retirement plan for the
Executive.
"Executive Stock" will continue to be Executive Stock in the hands of
---------------
any holder other than Executive (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 Executive Stock will succeed to all rights and
obligations attributable to Executive as a holder of Executive Stock hereunder.
Executive Stock will also include shares of the Company's capital stock issued
with respect to Executive 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.
"Fair Market Value" of each share of Executive Stock means the average
-----------------
of the closing prices of the sales of such Executive Stock on all securities
exchanges on which such Executive 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 Executive 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 Executive 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
-12-
<PAGE>
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 Executive 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 Executive Stock as determined in good faith
by the Board. If the Executive reasonably disagrees with such determination, the
Executive 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 Executive's written notice of objection, the Board
and the Executive 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
Executive, which appraiser shall submit to the Board and the Executive 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.
"Good Reason" means an action by the Company which results in (i) a
-----------
significant diminution of the duties of Executive from the standard duties of
senior executives of companies comparable to the Company, or (ii) a reduction of
the Executive's Annual Base Salary.
"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 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
-13-
<PAGE>
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 of even date
----------------------
herewith 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).
11. 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.
105 South Street
Boston, MA 02111
Attention: President
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, Illinois 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
-14-
<PAGE>
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David E. Redlick
If to the Executive:
-------------------
Martha Stephens
Seven Causeway St.
Medway, MA 02053
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
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.
12. General Provisions.
------------------
(a) Expenses. The Company agrees to pay the reasonable legal
--------
expenses of the Executive incurred in connection with the negotiation and
execution of this Agreement. In addition, expenses (including reasonable
attorneys' fees) incurred by the Executive in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Company in
-15-
<PAGE>
advance of the final disposition of such action, suit or proceeding, unless
otherwise determined by the Outside Directors (as defined in that certain
Stockholders Agreement, dated as of March 23, 1999, by and among the Company,
the Investors, the Executive and certain other stockholders), upon receipt of an
undertaking by or on behalf of the Executive to repay such amount if it shall
ultimately be determined that the Executive is not entitled to indemnification
by the Company.
(b) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive 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 Executive Stock as the owner of such
stock for any purpose.
(c) 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.
(d) 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, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(e) 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.
(f) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(g) 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.
(h) 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
-16-
<PAGE>
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.
(i) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, the
Executive and the Majority Holders (as defined in the Purchase Agreement).
(j) 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 Executive in any amount or amounts considered available. Executive 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. Executive hereby
represents that he has no reason to believe that her life is not insurable at
rates now prevailing for healthy women of her age.
(k) 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 executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(l) Indemnification and Reimbursement of Payments on Behalf of
----------------------------------------------------------
Executive. The Company and its Subsidiaries shall be entitled to deduct or
- ---------
withhold from any amounts owing from the Company or any of its Subsidiaries to
the Executive any federal, state, local or foreign withholding taxes, excise
taxes, or employment taxes ("Taxes") imposed with respect to the Executive's
-----
compensation or other payments from the Company or any of its Subsidiaries or
the Executive'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 Executive 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.
(m) Termination. This Agreement (except for the provisions of Section
-----------
7) shall survive a Separation and shall remain in full force and effect after
such Separation.
(n) 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 generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with generally accepted accounting principles, 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
-17-
<PAGE>
stock.
(o) Deemed Transfer of Executive 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 Executive 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.
(p) No Pledge or Security Interest. The purpose of the Company's
------------------------------
retention of the Executive'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 Executive of, or the granting of a security
interest in, the underlying stock.
(q) Rights Granted to GTCR and its Affiliates. Any rights granted to
-----------------------------------------
GTCR and its Affiliates hereunder may also be exercised (in whole or in part) by
its designees (which may be Affiliates).
* * * * *
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Senior
Management Agreement on the date first written above.
ZEFER CORP.
By: /s/ Sean W. Mullaney
----------------------
Its:
/s/ Martha Stephens
-------------------------
Martha Stephens
Agreed and Accepted:
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ [ILLEGIBLE]^^
--------------------------------
Name: _____________________________
Its: Principal
GTCR VI EXECUTIVE FUND, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ [ILLEGIBLE]^^
--------------------------------
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: /s/ [ILLEGIBLE]^^
--------------------------------
Name: _____________________________
Its: Principal
SIGNATURE PAGE TO THE SENIOR MANAGEMENT AGREEMENT
<PAGE>
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>
ZEFER CORP.
105 SOUTH STREET
BOSTON, MA 02111
May 25, 1999
MEMORANDUM TO THE PERSONS ON THE
ATTACHED DISTRIBUTION LIST
Re: ZEFER Corp. (the "Company")
As you know, the shares (the "Shares") of common stock of ZEFER Corp. (the
"Company") which you have purchased are subject to certain restrictions on
transfer under the Stock Restriction Agreement between yourself, the Company and
certain other parties thereto (the "Agreement"). The Agreement also gives the
Company the right, under certain circumstances to repurchase any or all of the
Shares (the "Restricted Shares") if your employment with the Company or its
subsidiaries terminates.
Because of these restrictions, there are certain tax consequences regarding
your purchase of the Shares of which you should be aware. So long as your right
to retain the Restricted Shares is conditioned upon certain events, your
purchase of the Restricted Shares will result in no federal income tax
liability. However, when any Shares cease to be Restricted Shares, the excess of
the aggregate fair market value of those Shares at the time the restrictions
----------------------------
lapse over the aggregate amount you paid for them becomes taxable to you at
- -----
ordinary income rates in the year in which the restrictions lapse. Appreciation
in the value of the Shares after the date the restrictions lapse will be treated
as capital gain at the time the Shares are subsequently sold. The holding period
for determining whether such gain is long- or short-term begins when the
restrictions lapse.
Pursuant to the provisions of Section 83(b) of the Internal Revenue Code,
however, you may elect to include in your gross income this year, and be taxed
upon, the difference between the current fair market value of the Shares and the
purchase price. Insofar as the purchase price you paid for the Shares is the
same as the fair market value, no tax would be owed. In addition, if you make
this election, no additional tax will be incurred until the Shares are disposed
of at a gain, and any appreciation from the date of purchase to the date of such
disposition will be taxed as a capital gain. Because the Company believes you
are paying a fair market value purchase price, it would appear to be to your
advantage to make a so-called Section 83(b) election since this election would
(i) not result in any current tax liability and (ii) allow any appreciation in
the value realized upon a future sale of the Shares to be taxed at capital gains
tax rates rather than ordinary income tax rates. While the Company believes you
are paying a fair market value purchase price, the question of fair market value
is necessarily subjective and the IRS may challenge this valuation. To the
extent such a challenge occurs and the IRS successfully argues that the fair
market value
<PAGE>
of the Restricted Shares is greater than the purchase price, the filing of a
Section 83(b) election would result in an immediate tax at ordinary income rates
on the difference.
The Section 83(b) election can be made using the enclosed forms and must
be done no later than 30 days after purchase of the Shares. To make the
election, you should complete the four enclosed copies of the Election Form, and
----------------------------------------------------------------------
return them to us. Once we have verified receipt of all required documents from
- -----------------
you, we will file one form with the Internal Revenue Sevice on your behalf. Two
copies will be returned to you. You should file one copy with your federal
income tax return for the year in which the purchase occurred and retain the
last copy for your records.
While we have attempted to summarize certain of the federal income tax
consequences of purchasing the shares, you are encouraged to consult your own
tax advisor for an examination of whether a Section 83(b) election is
appropriate for your individual circumstances. In addition, while state income
tax treatment generally follows the federal income tax treatment, please check
with your tax advisor for the availability and effect on making an equivalent
state election to the federal Section 83(b) election and for the requirements
for making such an election (filings, due dates, etc.).
If you have any questions regarding the foregoing, please call either the
undersigned at 617/292-7888 or Ryan D. Darrah, Esq. of Ropes & Gray at
617/951-7823.
Sean W. Mullaney
-2-
<PAGE>
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 May 21, 1999 (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 May 21, 1999 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 May 21, 1999 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: May 21, 1999
-----------------------
Martha Stephens
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April 30,
---------
1999, between ZC Acquisition Corp., a Delaware corporation (the "Company"), and
-------
Anthony Tjan ("Employee").
--------
The Company and Employee are parties to a certain Share Exchange
Agreement (the "Share Exchange Agreement") pursuant to which the Employee will
------------------------
be issued certain shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock"). All shares of Common Stock so issued to the
------------
Employee are referred to herein as "Employee Stock." This Agreement contains
--------------
certain restrictions with respect to the Employee Stock. In addition, the
Company desires to employ the Employee and the Employee desires to be employed
by the Company. Certain definitions are set forth in Section 10 of this
Agreement.
The execution and delivery of this Agreement by the Company and
Employee is a condition to the purchase of shares of Common Stock and shares of
the Class A Preferred by GTCR Fund VI, L.P., a Delaware limited partnership
("GTCR"), GTCR VI Executive Fund, L.P., a Delaware limited partnership
----
("Employee Fund") and GTCR Associates VI, a Delaware general partnership
-------------
("Associates Fund") (each an "Investor" and collectively, the "Investors")
--------------- -------- ---------
pursuant to a purchase agreement between the Company and the Investors dated as
of the date hereof (the "Purchase Agreement"). Certain provisions of this
------------------
Agreement are intended for the benefit of, and will be enforceable by, 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 EMPLOYEE STOCK
1. Issuance of Employee Stock.
--------------------------
(a) Upon execution of this Agreement, the Company will deliver to
Employee a certificate representing 211,200 shares of Common Stock and Employee
shall be deemed to have paid fair market value for such shares pursuant to the
Share Exchange Agreement.
(b) Within 30 days after the date hereof, Employee will make an
effective election with the Internal Revenue Service under Section 83(b) of the
Internal Revenue Code and
<PAGE>
the regulations promulgated thereunder in the form of Exhibit A attached
---------
hereto.
(c) Until the occurrence of a Sale of the Company or a Public
Offering, all certificates evidencing shares of Employee Stock shall be held by
the Company for the benefit of the Employee and the other holder(s) of Employee
Stock. Upon the occurrence of a Sale of the Company or a Public Offering, the
Company will return the certificates for the Employee Stock to the record
holders thereof.
(d) In connection with the issuance of the Employee Stock, Employee
represents and warrants to the Company that:
(i) The Employee Stock to be acquired by Employee pursuant to
the Share Exchange Agreement will be acquired for Employee'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
Employee Stock will not be disposed of in contravention of the Securities
Act or any applicable state securities laws.
(ii) Employee is sophisticated in financial matters and is able
to evaluate the risks and benefits of the investment in the Employee Stock.
(iii) Employee is able to bear the economic risk of his
investment in the Employee Stock for an indefinite period of time because
the Employee 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) Employee has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Employee Stock and has had full access to such other information concerning
the Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Employee, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Employee does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Employee is a party or any judgment, order
or decree to which Employee is subject.
(vi) Employee 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 Employee is a party to or by which
Employee is bound.
-2-
<PAGE>
(vii) Employee is a resident of the Commonwealth of
Massachusetts.
(e) As an inducement to the Company to issue the Employee Stock to
Employee, and as a condition thereto, Employee acknowledges and agrees that
neither the issuance of the Employee Stock to Employee nor any provision
contained herein shall entitle Employee to remain in the employment of the
Company or any of its Subsidiaries or affect the right of the Company to
terminate Employee's employment at any time for any reason.
(f) Concurrently with the execution of this Agreement, (i) Employee
shall execute in blank ten stock transfer powers in the form of Exhibit B
---------
attached hereto (the "Stock Powers") with respect to the Employee 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 Employee
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
Employee's spouse shall execute the consent in the form of Exhibit C attached
---------
hereto.
2. Vesting of Employee Stock.
-------------------------
(a) All of the shares of Employee Stock acquired hereunder shall be
subject to vesting in the manner specified in this Section 2. Except as
otherwise provided in Sections 2(b) and 2(c) below, the Employee Stock will
become vested in accordance with the following schedule (the "Vesting
-------
Schedule"), if as of each such date Employee is still employed by the Company or
- --------
any of its Subsidiaries:
Date Cumulative Percentage of
---- Employee Stock to be Vested
----------------------------
1st Anniversary of Closing 20%
2nd Anniversary of Closing 40%
3rd Anniversary of Closing 70%
4th Anniversary of Closing 100%
(b) Upon the occurrence of an initial Public Offering, the above
Vesting Schedule shall remain effective until the first to occur of (x) July
30, (y) October 30, and (z) January 30 (the first to occur of clauses (x), (y)
and (z) is referred to herein as the "Modification
------------
-3-
<PAGE>
Date"), at which time the Vesting Schedule shall be modified such that, so long
- ----
as Employee is still employed by the Company or any of its Subsidiaries, the
Employee Stock will vest as follows:
(i) If the Modification Date is July 30, then a percentage of
additional Employee Stock equal to the product of (A) .25 multiplied by (B)
-------------
the percentage of additional Employee Stock scheduled to become vested
(according to the original Vesting Schedule) during the year ended on the
next anniversary of the Closing will vest on such Modification Date, and a
percentage of additional Employee Stock equal to the product of (A) .25
multiplied by (B) the percentage of additional Employee Stock scheduled to
-------------
become vested (according to the original Vesting Schedule) during the year
ended on the next anniversary of the Closing will vest on each subsequent
October 30, January 30, April 30 and July 30 so that the Employee Stock
will be 100% vested on the 4th Anniversary of Closing.
(ii) If the Modification Date is October 30, then a percentage of
additional Employee Stock equal to the product of (A) .50 multiplied by (B)
-------------
the percentage of additional Employee Stock scheduled to become vested
(according to the original Vesting Schedule) during the year ended on the
next anniversary of the Closing will vest on such Modification Date, and a
percentage of additional Employee Stock equal to the product of (A) .25
multiplied by (B) the percentage of additional Employee Stock scheduled to
-------------
become vested (according to the original Vesting Schedule) during the year
ended on the next anniversary of the Closing will vest on each subsequent
January 30, April 30, July 30, and October 30 so that the Employee Stock
will be 100% vested on the 4th Anniversary of Closing.
(iii) If the Modification Date is January 30, then a percentage
of additional Employee Stock equal to the product of (A) .75 multiplied by
-------------
(B) the percentage of additional Employee Stock scheduled to become vested
(according to the original Vesting Schedule) during the year ended on the
next anniversary of the Closing will vest on such Modification Date, and a
percentage of additional Employee Stock equal to the product of (A) .25
multiplied by (B) the percentage of additional Employee Stock scheduled to
-------------
become vested (according to the original Vesting Schedule) during the year
ended on the next anniversary of the Closing will vest on each subsequent
April 30, July 30, October 30 and January 30 so that the Employee Stock
will be 100% vested on the 4th Anniversary of Closing.
-4-
<PAGE>
(c) Upon the occurrence of a Transaction, all shares of Employee
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 Employee Stock which have become vested are referred to herein as
"Vested Shares" and all other shares of Employee Stock are referred to herein as
-------------
"Unvested Shares."
----------------
3. Repurchase Option.
-----------------
(a) In the event Employee ceases to be employed by the Company and
its Subsidiaries for any reason (the "Separation"), the Employee Stock (whether
----------
held by Employee or one or more of Employee'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 Employee Stock will be Employee's Original Cost for such share
and (ii) the purchase price for each Vested Share of Employee Stock will be the
Fair Market Value for such share as at the date of the Separation; provided,
--------
however, that if Employee's employment is terminated with Cause, the purchase
- -------
price for each Vested Share of Employee Stock will be Employee's Original Cost
for such share.
(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 Employee Stock within 120
-----------------
days after the Separation. 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 Employee Stock held
by Employee at the time of delivery of the Repurchase Notice. If the number of
shares of Employee Stock then held by Employee is less than the total number of
shares of Employee 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 Employee Stock under this Agreement, pro rata according to the
number of shares of Employee 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
-5-
<PAGE>
Employee and the other holders of Employee Stock (if any) pro rata according to
the number of shares of Employee Stock to be purchased from such person.
(d) If for any reason the Company does not elect to purchase all of
the Employee Stock pursuant to the Repurchase Option, all employees and/or
executives of the Company 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 Employee 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 Employee Stock as to the 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 Employee 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 Employee Stock to be purchased by each of them.
(e) The closing of the purchase of the Employee 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 Employee Stock
to be repurchased by it pursuant to the Repurchase
-6-
<PAGE>
Option with (i) a check or wire transfer of funds for (A) any shares of Employee
Stock to be repurchased at Employee's Original Cost and (B) in the case of
Employee Stock to be repurchased at Fair Market Value, that portion of such
Employee Stock which is equal to the Employee's Original Cost, and (ii) in the
case of Employee Stock to be repurchased at Fair Market Value, a subordinate
note or notes for that portion of such Employee Stock which exceeds the
Employee'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 Employee to the Company. Each Senior Manager and each Investor will pay
for the Employee 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 Employee Stock.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Employee 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 Employee 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 Employee Stock is finally
determined to be an amount at least 10% greater than the per share repurchase
price for such share of Employee Stock in the Repurchase Notice or in the
Supplemental Repurchase Notice, each of the Company and the Investors shall have
the right to revoke its exercise of the Repurchase Option for all or any portion
of the Employee Stock elected to be repurchased by it by delivering notice of
such revocation in writing to the holders of Employee Stock during the thirty-
day period beginning on the date that the Company and/or the Investors are given
written notice that the Fair Market Value of a share of Employee Stock was
finally determined to be an amount at least 10% greater than the per share
repurchase price for Employee Stock set forth in the Repurchase Notice or in the
Supplemental Repurchase Notice.
-7-
<PAGE>
(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 Employee Stock.
------------------------------------------
(a) Transfer of Employee Stock. The holder of Employee Stock shall
--------------------------
not Transfer any interest in any shares of Employee 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 Employee Stock if made (i)
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, or (ii) at a time when (A) the Common Stock of the Company has
been trading for at least 45 consecutive days (including the day immediately
preceding such Transfer) at a price that exceeds the initial Public Offering
price by at least 20% and (B) the Common Stock bid and asked price on the day of
such Transfer was at least 20% greater than the initial Public Offering price,
but in the case of this clause (ii) only an amount of shares per calendar year
up to the lesser of (x) the number of Vested Shares owned by Employee at the
time of such Transfer and (y) 10% of the total number of shares of Common Stock
owned by Employee at the time of the Company's initial Public Offering, or (iii)
at such time as the Investors sell shares of Common Stock in a Public Sale, but
in the case of this clause (iii) only an amount of shares (the "Transfer
--------
Amount") equal to the lesser of (C) the number of Vested Shares of Common Stock
- ------
owned by Employee at the time of such Transfer and (D) the number of shares of
Common Stock owned by Employee multiplied by a fraction (the "Transfer
--------
Fraction"), the numerator of which is the number of shares of Common Stock sold
- --------
by the Investors in such Public Sale and the denominator of which is the total
number of shares of Common Stock held by the Investors prior to the Public Sale;
provided that, if at the time of a Public Sale of shares by the Investors,
- -------- ----
Employee chooses not to Transfer the Transfer Amount, Employee shall retain the
right to Transfer an amount of Employee Stock at a future date equal to the
lesser of (x) the number of Vested Shares owned by Employee at such future date
and (y) the number of shares of Employee Stock owned by Employee at such future
date multiplied by the Transfer Fraction; provided further, that at any
-------- -------
particular point in time during any given calendar year the number of shares of
Common Stock which the Employee has a right to Transfer pursuant to clause (ii)
-8-
<PAGE>
above shall be reduced by the number of shares of Common Stock which the
Employee has Transferred in such calendar year pursuant to clause (iii) above
and the number of shares of Common Stock which the Employee has a right to
Transfer pursuant to clause (iii) above shall be reduced by the number of shares
of Common Stock which the Employee has Transferred in such calendar year
pursuant to clause (ii) above. Notwithstanding anything in this Section 4 to
the contrary, the restrictions contained in this Section 4 will continue to be
applicable to the Employee Stock after any Transfer of the type referred to in
clause (i) and the transferees of such Employee Stock will agree in writing to
be bound by the provisions of this Agreement. Any transferee of Employee Stock
pursuant to a transfer in accordance with the provisions of this Section 4(b)(i)
is herein referred to as a "Permitted Transferee." Upon the transfer of
--------------------
Employee Stock pursuant to this Section 4(b), the transferring Employee
Stockholder will deliver a written notice (a "Transfer Notice") to the Company.
---------------
In the case of a Transfer pursuant to clause (i) hereof, the Transfer Notice
will disclose 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 Employee Stock until the
earlier of (i) the date on which such share of Employee Stock has been
transferred in a Public Sale permitted by this Section 4, or (ii) the
consummation of an Approved Sale.
5. Additional Restrictions on Transfer of Employee Stock.
-----------------------------------------------------
(a) Legend. The certificates representing the Employee Stock will
------
bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED AS OF APRIL 30, 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 AN
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND AN EMPLOYEE OF THE
COMPANY DATED AS OF APRIL 30, 1999.
-9-
<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 Employee Stock may sell,
------------------
transfer or dispose of any Employee Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an 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 Employee Stock delivers to the
Company an opinion of counsel that no subsequent transfer of such Employee Stock
shall require registration under the Securities Act, the Company shall promptly
upon such contemplated transfer deliver new certificates for such Employee 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
Employee 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.
PROVISIONS RELATING TO EMPLOYMENT
6. Employment. The Company agrees to employ Employee and Employee
----------
accepts such employment for the period beginning as of the date hereof and
ending upon his separation pursuant to Section 6(c) hereof (the "Employment
----------
Period").
- ------
(a) Position and Duties. During the Employment Period, Employee shall
-------------------
serve in such position as may be designated by the President of the Company from
time to time. Employee shall report to the President or his designee, and
Employee shall devote his or her best efforts and his or her full business time
and attention to t he business and affairs of the Company and its subsidiaries.
(b) Salary, Bonus and Benefits. During the Employment Period, the
--------------------------
Company will pay Employee a base salary (the "Annual Base Salary") of $165,000
------------------
per annum, subject to any increase as determined in the discretion of the
President based upon the Company's achievements of budgetary and other
objectives set by the Board. As soon as
-10-
<PAGE>
practicable following the date hereof, the Company agrees to review Employee's
Annual Base Salary in light of certain objective criteria (determined in its
sole discretion), and may (but shall have no obligation to) adjust such Annual
Base Salary as the Company deems appropriate in its sole discretion. Employee's
Annual Base Salary for any partial year will be prorated based upon the number
of days elapsed in such year. During the Employment Period, the Employee shall
also be eligible for an annual bonus of 35% of Employee's then applicable Annual
Base Salary for such year based upon Employee's attainment of individual
performance objectives and the Company's attainment of its budgetary objectives
established by the Board of Directors; such bonus to be determined by the
President or his designee. Employee shall also be entitled to participate in
such benefit plans as are made available to employees of the Company generally.
(c) Events of Separation. The Employment Period will continue until
--------------------
Employee's resignation, disability (as determined by the President in his good
faith judgment) or death or until the President decides to terminate Employee's
employment.
(d) Payments in the Event of Separation. In the event of a
-----------------------------------
Separation, the Company shall pay to the Employee, in a lump sum within 15 days
after such termination or resignation, an amount equal to the sum of (A) any
unpaid base salary owed to the Employee for services performed prior to such
termination, plus (B) the amount of any compensation previously deferred by the
Employee (together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not previously paid (the
obligations set forth in clauses (A) and (B) are collectively referred to herein
as the "Accrued Obligations").
-------------------
7. Confidential Information. Employee acknowledges that the
------------------------
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company, including
information concerning acquisition opportunities in or reasonably related to the
Company's business or industry of which Employee becomes aware during the
Employment Period. Therefore, Employee agrees that he will not disclose to any
unauthorized person or use for his own account any of such information,
observations or data without the Board's written consent, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Employee's acts or omissions to
act. Employee agrees to deliver to the Company at a Separation, or at any other
time the Company may request in writing, all memoranda, notes, plans, records,
reports and other documents (and copies thereof) relating to the business of the
Company and its affiliates (including, without limitation, all acquisition
prospects, lists and contact information) which he
-11-
<PAGE>
may then possess or have under his control.
8. Noncompetition and Nonsolicitation. Employee acknowledges
----------------------------------
that in the course of his employment with the Company he will become familiar
with the Company's and its Subsidiaries' trade secrets and with other
confidential information concerning the Company and such Subsidiaries and that
his services will be of special, unique and extraordinary value to the Company.
Therefore, Employee agrees that:
(a) Noncompetition. During the Employment Period and for a period of
--------------
one year thereafter (the "Noncompete Period"), Employee shall not, within the
-----------------
United States, directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
engaged in Internet consulting or implementation services (or any other business
directly competitive with a portion of the business of the Company or its
Subsidiaries in which Employee has participated substantially) or any business
in which the Company or any of its Subsidiaries has requested and received
information relating to the acquisition of such business by the Company and the
Subsidiaries prior to the Separation; provided that passive ownership of less
than 5% of the outstanding stock of any publicly-traded corporation shall not,
in and of itself, be deemed to violate this Section 8(a).
(b) Nonsolicitation. During the Noncompete Period, Employee shall not
---------------
directly or indirectly through another entity (i) induce or attempt to induce
any employee of the Company or its Subsidiaries to leave the employ of the
Company or such Subsidiary, or in any way interfere with the relationship
between the Company and any Subsidiary and any employee thereof, (ii) hire any
person who was an employee of the Company and any Subsidiary within 180 days
prior to the time such employee was hired by the Employee, (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company and any Subsidiary to cease doing business with the Company or such
Subsidiary or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company and any
Subsidiary or (iv) directly or indirectly acquire or attempt to acquire an
interest in any business relating to the business of the Company and any
Subsidiary and with which the Company and any Subsidiary has entertained
discussions or has requested and received information relating to the
acquisition of such business by the Company and any Subsidiary in the two-year
period immediately preceding a Separation.
(c) Enforcement. If, at the time of enforcement of Section 7 or this
-----------
Section 8,
-12-
<PAGE>
a court holds that the restrictions stated herein are unreasonable under
circumstances then existing, the parties hereto agree that the maximum duration,
scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
duration, scope and area permitted by law. Because Employee's services are
unique and because Employee has access to confidential information, the parties
hereto agree that money damages would be an inadequate remedy for any breach of
this Agreement. Therefore, in the event a breach or threatened breach of this
Agreement, the Company or its successors or assigns may, in addition to other
rights and remedies existing in their favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce, or prevent any violations of, the provisions hereof (without posting
a bond or other security).
(d) Additional Acknowledgments. Employee acknowledges that the
--------------------------
provisions of this Section 8 are in consideration of: (i) the consideration set
forth in the Share Exchange Agreement, (ii) employment with the Company, (iii)
the issuance of the Employee Stock and (iv) additional good and valuable
consideration as set forth in this Agreement. In addition, Employee agrees and
acknowledges that the restrictions contained in Section 7 and this Section 8 do
not preclude Employee from earning a livelihood, nor do they unreasonably impose
limitations on Employee's ability to earn a living. In addition, Employee agrees
and acknowledges that the potential harm to the Company of the non-enforcement
of Section 7 and this Section 8 outweighs any potential harm to Employee of its
enforcement by injunction or otherwise. Employee acknowledges that he has
carefully read this Agreement and has given careful consideration to the
restraints imposed upon Employee by this Agreement, and is in full accord as to
their necessity for the reasonable and proper protection of confidential and
proprietary information of the Company now existing or to be developed in the
future. Employee expressly acknowledges and agrees that each and every restraint
imposed by this Agreement is reasonable with respect to subject matter, time
period and geographical area.
(e) Election as Director. The Company shall cause Employee to be
--------------------
elected as a Class I Director of the Company as soon as practicable after the
date hereof.
-13-
<PAGE>
GENERAL PROVISIONS
10. Definitions.
-----------
"Affiliate" of an Investor means any direct or indirect general or
---------
limited partner of such Investor, or any employee 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 position held by
Employee as reasonably directed by the President, (iv) gross negligence or
willful misconduct with respect to the Company or any of its Subsidiaries or (v)
any material breach of Section 6(a)(ii), 7 or 8 of this Agreement.
"Closing" shall have the meaning set forth in the Share Exchange
-------
Agreement.
"Employee's Family Group" means Employee's spouse and descendants
-----------------------
(whether natural or adopted), any trust solely for the benefit of Employee
and/or Employee's spouse and/or descendants and any retirement plan for the
Employee.
"Employee Stock" will continue to be Employee Stock in the hands of
--------------
any holder other than Employee (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 Employee Stock will succeed to all rights and
obligations attributable to Employee as a holder of Employee Stock hereunder.
Employee Stock will also include shares of the Company's capital stock issued
with respect to Employee 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.
"Fair Market Value" of each share of Employee Stock means the average
-----------------
of the closing prices of the sales of such Employee Stock on all securities
exchanges on which such
-14-
<PAGE>
Employee 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 Employee
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 Employee 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 Employee
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 Employee Stock as determined in good faith by the Board. If the Employee
reasonably disagrees with such determination, the Employee 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
Employee's written notice of objection, the Board and the Employee 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 Employee, which appraiser shall
submit to the Board and the Employee 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.
"Original Cost" means, with respect to each share of Common Stock
-------------
received by
-15-
<PAGE>
the Employee under the Share Exchange Agreement, $.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 under the Securities Act of shares of the Company's Common Stock
approved by the Board of Directors of the Company.
"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 of even date
----------------------
herewith 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.
-16-
<PAGE>
"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).
11. 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:
-----------------
ZC Acquisition Corp.
105 South Street
Boston, MA 02110
Attention: General Counsel
with copies to:
--------------
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Keith F. Higgins, Esq.
If to the Employee:
------------------
Mr. Anthony Tjan
129 Franklin Street
Unit 146
Cambridge, MA 02118
-17-
<PAGE>
If to the Investors:
-------------------
GTCR Fund VI, L.P.
GTCR VI Employee 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
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.
12. General Provisions.
------------------
(a) The Company agrees to pay the reasonable legal expenses of the
Employee incurred in connection with the negotiation and execution of this
Agreement. In addition, expenses (including reasonable attorneys' fees)
incurred by the Employee in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding, unless otherwise
determined by the Outside Directors (as defined in that certain Stockholders
Agreement, dated as of March 23, 1999, by and among the Company, the Investors,
the Employee and certain other stockholders), upon receipt of an undertaking by
or on behalf of the Employee to repay such amount if it shall ultimately be
determined that the Employee is not entitled to indemnification
-18-
<PAGE>
by the Company.
(b) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Employee 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 Employee Stock as the owner of such stock
for any purpose.
(c) 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.
(d) 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, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(e) 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.
(f) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by Employee,
the Company, the Investors and their respective successors and assigns
(including subsequent holders of Employee Stock); provided that the rights and
obligations of Employee under this Agreement shall not be assignable except in
connection with a permitted transfer of Employee Stock hereunder.
(g) 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
-19-
<PAGE>
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.
(h) 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.
(i) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, the
Employee and the Majority Holders (as defined in the Purchase Agreement).
(j) 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 Employee in any amount or amounts considered available. Employee 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. Employee hereby
represents that he has no reason to believe that his life is not insurable at
rates now prevailing for healthy men of his age.
(k) 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 executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(l) Indemnification and Reimbursement of Payments on Behalf of
----------------------------------------------------------
Employee. The Company and its Subsidiaries shall be entitled to deduct or with
- --------
hold from any amounts owing from the Company or any of its Subsidiaries to the
Employee any federal, state, local or foreign withholding taxes, excise taxes,
or employment taxes ("Taxes") imposed with respect to
-----
-20-
<PAGE>
the Employee's compensation or other payments from the Company or any of its
Subsidiaries or the Employee'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 Employee shall
indemnify the Company and its Subsidiaries for any amounts paid with respect to
any such Texas, together with any interest, penalties and related expenses
thereto.
(m) Termination. This Agreement (except for the provisions of Section
-----------
7) shall survive a Separation and shall remain in full force and effect after
such Separation .
(n) 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 generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with generally accepted accounting principles, 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.
(o) Deemed Transfer of Employee 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 Employee 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.
(p) No Pledge or Security Interest. The purpose of the Company's
------------------------------
retention of the Employee'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 Employee of, or
-21-
<PAGE>
the granting of a security interest in, the underlying stock.
(q) Rights Granted to GTCR and its Affiliates. Any rights granted to
-----------------------------------------
GTCR and its Affiliates hereunder may also be exercised (in whole or in part) by
its designees (which may be Affiliates).
* * * * *
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the date first written above.
ZC ACQUISITION CORP.
By: [ILLEGIBLE]^^
----------------------------------
Its: President
----------------------------------
/s/ Anthony Tjan
------------------------------------
Anthony Tjan
Agreed and Accepted:
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ Philip 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
SIGNATURE PAGE TO EMPLOYEE AGREEMENT
<PAGE>
EXHIBIT A
---------
April ___, 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 ZC Acquisition Corp. (the "Company") on April ___, 1999
------ -------
(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 April __, 1999 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:
[Name]
[Address]
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 April ___, 1999.
The taxable year for which such election is made: calendar year 1999.
4. The restrictions to which the property is subject: If during the
first four years after the Closing Date, the undersigned ceases to be employed
by the Company or any of
<PAGE>
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 and second anniversaries of the Closing Date and 30% of the
Shares become vested on each of the third and fourth anniversary thereof.
5. The fair market value on April __, 1999 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $.50 per share of Common Stock.
6. The amount paid for such property: $.50 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: April ____, 1999
______________________________
Name:
<PAGE>
EXHIBIT B
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, [Name of Individual] does hereby sell, assign and
transfer unto _______________, _____________ shares of the Common Stock, par
value $.01 per share, of ZC Acquisition 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:_________ __, _____
______________________________
[NAME]
<PAGE>
EXHIBIT C
---------
SPOUSAL CONSENT
---------------
The undersigned spouse of the Employee hereby acknowledges that I have
read the foregoing Employment Agreement and Stockholders Agreement and
Registration Agreement referred to therein, each executed by the Employee and
dated as of the date hereof, and that I understand their contents. I am aware
that the foregoing Employment 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: April ___, 1999
Spouse's
Name:____________________
_________________________ Date: April ___, 1999
Witness'
Name:____________________
<PAGE>
EXHIBIT 10.10
SENIOR MANAGEMENT AGREEMENT
---------------------------
This SENIOR MANAGEMENT AGREEMENT (this "Agreement") is made as of May
---------
21, 1999, between ZEFER Corp., a Delaware corporation (the "Company"), and
-------
Frank Torbey ("Executive").
---------
The Company and Executive desire to enter into an agreement pursuant
to which Executive will purchase, and the Company will sell, up to 110,000
shares of the Company's Common Stock, par value $.01 per share (the "Common
------
Stock"). All shares of Common Stock acquired by Executive are referred to
- -----
herein as "Executive Stock." In addition, the Company desires to employ the
---------------
Executive and the Executive desires to be employed by the Company. Certain
definitions are set forth in Section 10 of this Agreement.
The execution and delivery of this Agreement by the Company and
Executive was contemplated as a condition to the purchase of shares of Common
Stock and shares of the Class A Preferred by 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") pursuant to a purchase agreement between the Company and the
- ----------
Investors dated as of March 23, 1999 (the "Purchase Agreement"). Certain
------------------
provisions of this Agreement are intended for the benefit of, and will be
enforceable by, 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 EXECUTIVE STOCK
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive will purchase, and
the Company will sell, 110,000 shares of Common Stock at a price of $.50 per
share. The Company will deliver to Executive the certificates representing such
Executive Stock, and Executive will deliver to the Company a cashier's or
certified check or wire transfer of funds in the aggregate amount of $4,826.25
and a promissory note in the form of Exhibit A attached hereto in an aggregate
---------
principal amount of $50,173.75 (the "Executive Note").
--------------
(b) Within 30 days after the date hereof, Executive 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.
- ---------
<PAGE>
(c) Until the occurrence of a Sale of the Company or a Public
Offering, all certificates evidencing shares of Executive Stock shall be held by
the Company for the benefit of the Executive and the other holder(s) of
Executive Stock. Upon the occurrence of a Sale of the Company or a Public
Offering, the Company will return the certificates for the Executive Stock to
the record holders thereof.
(d) In connection with the purchase and sale of the Executive Stock,
Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to
this Agreement will be acquired for Executive'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 Executive
Stock will not be disposed of in contravention of the Securities Act or any
applicable state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time because
the Executive 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) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
(vi) Executive 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 Executive is a party to or by which
Executive is bound.
(vii) Executive is a resident of the State of Massachusetts.
(e) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive acknowledges and agrees that
neither the issuance of the
-2-
<PAGE>
Executive Stock to Executive nor any provision contained herein shall entitle
Executive to remain in the employment of the Company or any of its Subsidiaries
or affect the right of the Company to terminate Executive's employment at any
time for any reason, subject, however, to the terms of this Agreement.
(f) Concurrently with the execution of this Agreement, (i) Executive
shall execute in blank ten stock transfer powers in the form of Exhibit C
---------
attached hereto (the "Stock Powers") with respect to the Executive 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 Executive
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
Executive's spouse shall execute the consent in the form of Exhibit D attached
---------
hereto.
2. Vesting of Executive Stock.
--------------------------
(a) All of the shares of Executive Stock acquired hereunder shall be
subject to vesting in the manner specified in this Section 2. Except as
otherwise provided in Sections 2(b) and 2(c) below, the Executive Stock will
become vested in accordance with the following schedule (the "Vesting
-------
Schedule"), if as of each such date Executive is still employed by the Company
- --------
or any of its Subsidiaries:
Date Cumulative Percentage of
---- Executive 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 Executive is still employed by the Company or any
of its Subsidiaries, the Executive 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%
-3-
<PAGE>
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 Executive Stock will vest on each subsequent June 30, September 30,
December 31 and March 31 so that the Executive Stock will be 100% vested on
March 31, 2004.
(c) Upon the occurrence of a Transaction, all shares of Executive 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 Executive Stock which have
become vested are referred to herein as "Vested Shares" and all other
-------------
shares of Executive Stock are referred to herein as "Unvested Shares."
---------------
3. Repurchase Option.
-----------------
(a) In the event (i) Executive ceases to be employed by the Company
and its Subsidiaries for any reason (the "Separation") or (ii) Executive fails
----------
to make any principal or interest payment under the Executive Note after such
payment becomes due and after giving effect to any applicable grace period (a
"Triggering Event"), the Executive Stock (whether held by Executive or one or
----------------
more of Executive'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 Executive Stock will be Executive's Original Cost for such
share and (ii) the purchase price for each Vested Share of Executive Stock will
be the Fair Market Value for such share as at the date of the Separation;
provided, however, that if Executive's employment is terminated with Cause, the
- -------- -------
purchase price for each Vested Share of Executive Stock will be Executive'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 Executive Stock (whether a Vested Share or
Unvested Share) will be Executive'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 Executive 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
-4-
<PAGE>
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 Executive Stock held by Executive at the time of delivery of the Repurchase
Notice. If the number of shares of Executive Stock then held by Executive is
less than the total number of shares of Executive 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 Executive Stock under this Agreement,
pro rata according to the number of shares of Executive 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 Executive and
the other holders of Executive Stock (if any) pro rata according to the number
of shares of Executive Stock to be purchased from such person.
(d) If for any reason the Company does not elect to purchase all of
the Executive Stock pursuant to the Repurchase Option, all other 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 Executive 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
Executive Stock as to the 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 Executive 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 Executive Stock to be purchased by each of them.
(e) The closing of the purchase of the Executive Stock pursuant to
the Repurchase Option shall take place on the date designated by the Company in
the Repurchase Notice
-5-
<PAGE>
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 Executive 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 Executive Stock to be repurchased at Executive's Original
Cost and (B) in the case of Executive Stock to be repurchased at Fair Market
Value, that portion of such Executive Stock which is equal to the Executive's
Original Cost, and (ii) in the case of Executive Stock to be repurchased at Fair
Market Value, a subordinate note or notes for that portion of such Executive
Stock which exceeds the Executive'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 Executive to the Company. Each Senior Manager and each
Investor will pay for the Executive 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 Executive Stock.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive 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 Executive 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 Executive Stock is finally
determined to be an amount at least 10% greater than the per share repurchase
price for such share of Executive Stock in the Repurchase Notice or in the
Supplemental Repurchase Notice, each of the Company and the Investors shall have
the right to revoke its exercise of the Repurchase Option for all or any portion
of the Executive Stock elected to be repurchased by it by delivering notice of
such revocation in writing to the holders of Executive Stock during the thirty-
day period beginning on the date that the Company and/or the Investors are given
written notice that the Fair Market Value of a share of Executive Stock was
finally determined to be an amount at least 10% greater than the per share
repurchase price for Executive 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 Executive Stock.
-------------------------------------------
-6-
<PAGE>
(a) Transfer of Executive Stock. The holder of Executive Stock shall
---------------------------
not Transfer any interest in any shares of Executive 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 Executive Stock if made (i)
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, or (ii) at a time when (A) the Common Stock of the Company has
been trading for at least 45 consecutive days (including the day immediately
preceding such Transfer) at a price that exceeds the initial Public Offering
price by at least 20% and (B) the Common Stock bid and asked price on the day of
such Transfer was at least 20% greater than the initial Public Offering price,
but in the case of this clause (ii) only an amount of shares per calender year
up to the lesser of (x) the number of Vested Shares owned by Executive at the
time of such Transfer and (y) 10% of the total number of shares of Common Stock
owned by Executive at the time of the Company's initial Public Offering, or
(iii) at such time as the Investors sell shares of Common Stock in a Public
Sale, but in the case of this clause (iii) only an amount of shares (the
"Transfer Amount") equal to the lesser of (C) the number of Vested Shares of
- ----------------
Common Stock owned by Executive at the time of such Transfer and (D) the number
of shares of Common Stock owned by Executive multiplied by a fraction (the
"Transfer Fraction"), the numerator of which is the number of shares of Common
- ------------------
Stock sold by the Investors in such Public Sale and the denominator of which is
the total number of shares of Common Stock held by the Investors prior to the
Public Sale; provided that, if at the time of a Public Sale of shares by the
-------- ----
Investors, Executive chooses not to Transfer the Transfer Amount, Executive
shall retain the right to Transfer an amount of Executive Stock at a future date
equal to the lesser of (x) the number of Vested Shares owned by Executive at
such future date and (y) the number of shares of Executive Stock owned by
Executive at such future date multiplied by the Transfer Fraction; provided
--------
further, that at any particular point in time during any given calendar year the
- -------
number of shares of Common Stock which the Executive has a right to Transfer
pursuant to clause (ii) above shall be reduced by the number of shares of Common
Stock which the Executive has Transferred in such calendar year pursuant to
clause (iii) above and the number of shares of Common Stock which the Executive
has a right to Transfer pursuant to clause (iii) above shall be reduced by the
number of shares of Common Stock which the Executive has Transferred in such
calendar year pursuant to clause (ii) above. Notwithstanding anything in this
Section 4 to the contrary, the restrictions contained in this Section 4 will
continue to be applicable to the Executive Stock after any Transfer of the type
referred to in clause (i) and the transferees of such Executive Stock will agree
in writing to be bound by the provisions of this Agreement. Any transferee of
Executive Stock pursuant to a transfer in accordance with the provisions of this
Section 4(b)(i) is herein referred to as a "Permitted Transferee." Upon the
--------------------
transfer of Executive Stock pursuant to this Section 4(b), the transferring
Executive Stockholder will deliver a written notice (a "Transfer Notice") to the
---------------
Company. In the case of a Transfer pursuant to clause (i) hereof, the Transfer
Notice will disclose in reasonable detail the identity of the Permitted
Transferee(s). In addition, following
-7-
<PAGE>
the completion of an initial Public Offering, Executive, in his sole discretion,
may pledge up to $2 million worth of Vested Shares as collateral for a loan so
long as the pledgee of such stock and the Executive enter into a pledge
agreement in form and substance reasonably satisfactory to the Board of
Directors of the Company (the "Board"), pursuant to which pledgee, among other
things, agrees that pledgee may only sell such stock in a Public Sale.
(c) Termination of Restrictions. The restrictions set forth in this
---------------------------
Section 4 will continue with respect to each share of Executive Stock until the
earlier of (i) the date on which such share of Executive Stock has been
transferred in a Public Sale permitted by this Section 4, or (ii) the
consummation of an Approved Sale.
5. Additional Restrictions on Transfer of Executive Stock.
------------------------------------------------------
(a) Legend. The certificates representing the Executive 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
SENIOR MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND AN EXECUTIVE
OF THE COMPANY DATED AS OF MAY 21, 1999. 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 Executive Stock may sell,
------------------
transfer or dispose of any Executive Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an 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 Executive Stock delivers to the
Company an opinion of counsel that no subsequent transfer of such Executive
Stock shall require registration under the Securities Act, the Company shall
promptly upon such contemplated transfer deliver new certificates for such
Executive 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 Executive Stock not bearing such legend, the holder
thereof shall not transfer the same until the prospective transferee has
confirmed to the Company in
-8-
<PAGE>
writing its agreement to be bound by the conditions contained in this Section 5.
PROVISIONS RELATING TO EMPLOYMENT
6. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning as of the date hereof and
ending upon his separation pursuant to Section 6(c) hereof (the "Employment
----------
Period").
- ------
(a) Position and Duties.
-------------------
During the Employment Period, Executive shall serve as Chief Technology
Officer of the Company and shall have the normal duties, responsibilities
and authority of such office subject to the power of the President and
Chief Executive Officer of the Company (the "President") to expand or limit
----------
such duties, responsibilities and authority.
(ii) Executive shall report to the President and Executive shall
devote his best efforts and his full business time and attention to the
business and affairs of the Company and its subsidiaries.
(b) Salary, Bonus and Benefits. During the Employment Period, the
--------------------------
Company will pay the Executive a base salary (the "Annual Base Salary") of
------------------
$200,000 per annum, subject to any increase as determined by the President.
Notwithstanding the foregoing, the Executive's Annual Base Salary shall be
$160,000 per annum until the Company determines (i) that its EBITDA for the
previous 30 days has been sufficient to cover an increase in the Executive's
Annual Base Salary from $160,000 to $200,000 together with any increases in the
annual base salary of the Company's other 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 increases. Executive's Annual Base
Salary for any partial year will be prorated based upon the number of days
elapsed in such year. During the Employment Period, the Executive shall also be
eligible for an annual bonus in an amount not to exceed 35% of Executive's then
applicable Annual Base Salary for such year; such bonus to be determined by the
President based upon the Company's achievement of budgetary and other objectives
set by the President. In addition, during the Employment Period, the Company
will provide the Executive with (i) medical insurance benefits, and (ii) such
other benefits approved by the President and made available to the Company's
senior management.
(c) Events of Separation. The Employment Period will continue until
--------------------
Executive's resignation, disability (as determined by the President in his good
faith judgment) or death or until the President decides to terminate Executive's
employment.
(d) Separation Without Cause; Resignation for Good Reason. In the
-----------------------------------------------------
event that (i) the Company terminates the Executive's employment without Cause
or (ii) the Executive resigns
-9-
<PAGE>
from his position with the Company for Good Reason, then the Executive shall be
entitled to the following:
(i) the Company shall pay to the Executive, in a lump sum with
in 15 days after such termination or resignation, an amount equal to the
sum of (A) any unpaid base salary owed to the Executive for services
performed prior to such termination, plus (B) the amount of any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not previously paid (the obligations set forth in
clauses (A) and (B) are collectively referred to herein as the "Accrued
-------
Obligations");
-----------
(ii) the Company shall pay each month to the Executive,
beginning on the date of the first normal executive payroll of the Company
that occurs more than 30 days after such termination or resignation, an
amount equal to one-twelfth (1/12) of the Executive's Annual Base Salary as
of the date immediately before such termination or resignation; provided
--------
however, that such payments shall immediately cease upon the earliest to
-------
occur of (x) the Executive's death and (y) the six month anniversary of
such termination or resignation. Notwithstanding anything in this Section
6(d) to the contrary, in the event that the Executive becomes employed with
another employer, then the payments to be made by the Company pursuant to
this Section 6(d)(ii) shall be reduced (on a dollar for dollar basis) in an
amount equal to the cash compensation received by Executive from such
employer; and
(iii) the Company shall continue to provide medical insurance
benefits to the Executive and to the Executive's family at least equal to
those medical insurance benefits that would have been provided to them in
the absence of such termination or resignation; provided however, that such
-------- -------
payments shall immediately cease upon the earliest to occur of (x) the
Executive's death and (y) the six month anniversary of such termination or
resignation. Notwithstanding anything in this Section 6(d) to the
contrary, in the event that the Executive becomes employed with another
employer and is eligible for medical insurance benefits under another
employer-provided plan, then the medical insurance benefits to be provided
by the Company pursuant to this Section 6(d)(iii) shall be reduced to the
extent that the Executive and his family is eligible to receive medical
insurance benefits under such other employer-provided plan.
(e) Other Separations. In the event of a Separation other than a
-----------------
termination by the Company without cause or a resignation by the Executive for
Good Reason, the Company shall pay to the Executive (or his estate, if
applicable), in a lump sum in cash within 15 days after such Separation, an
amount equal to any Accrued Obligations.
7. Confidential Information. Executive acknowledges that the
------------------------
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the
-10-
<PAGE>
Company, including information concerning acquisition opportunities in or
reasonably related to the Company's business or industry of which Executive
becomes aware during the Employment Period. Therefore, Executive agrees that he
will not disclose to any unauthorized person or use for his own account any of
such information, observations or data without the Company's written consent,
unless and to the extent that the aforementioned matters become generally known
to and available for use by the public other than as a result of Executive's
acts or omissions to act. Executive agrees to deliver to the Company at a
Separation, or at any other time the Company may request in writing, all
memoranda, notes, plans, records, reports and other documents (and copies
thereof) relating to the business of the Company and its affiliates (including,
without limitation, all acquisition prospects, lists and contact information)
which he may then possess or have under his control.
8. Noncompetition and Nonsolicitation. Executive acknowledges
----------------------------------
that in the course of his employment with the Company he will become familiar
with the Company's and its Subsidiaries' trade secrets and with other
confidential information concerning the Company and such Subsidiaries and that
his services will be of special, unique and extraordinary value to the Company.
Therefore, Executive agrees that:
(a) Noncompetition. During the Employment Period and for a period of
--------------
one year thereafter (the "Noncompete Period"), Executive shall not, within the
-----------------
United States, directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the businesses of the Company or its Subsidiaries or any business
in which the Company or any of its Subsidiaries has requested and received
information relating to the acquisition of such business by the Company and the
Subsidiaries prior to the Separation; provided that passive ownership of less
--------
than 5% of the outstanding stock of any publicly-traded corporation shall not,
in and of itself, be deemed to violate this Section 8(a); provided further that
--------
if the Executive's Employment with the Company is terminated by the Company
without Cause or the Executive resigns for Good Reason within a twenty four
month period a following a Sale of the Company, the one year period referenced
above shall be shortened to a six month period.
(b) Nonsolicitation. During the Noncompete Period, Executive shall
---------------
not directly or indirectly through another entity (i) induce or attempt to
induce any employee of the Company or its Subsidiaries to leave the employ of
the Company or such Subsidiary, or in any way interfere with the relationship
between the Company and any Subsidiary and any employee thereof, (ii) hire any
person who was an employee of the Company and any Subsidiary within 180 days
prior to the time such employee was hired by the Executive, (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company and any Subsidiary to cease doing business with the Company or such
Subsidiary or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company and any
Subsidiary or (iv) directly or indirectly acquire or attempt to acquire an
interest in any business relating to the business of the Company and any
Subsidiary and with which the Company and any Subsidiary has entertained
discussions or has requested and received information relating to the
acquisition of such
-11-
<PAGE>
business by the Company and any Subsidiary in the two-year period immediately
preceding a Separation.
(c) Enforcement. If, at the time of enforcement of Section 7 or this
-----------
Section 8, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
duration, scope or geographical area reasonable under such circumstances shall
be substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
duration, scope and area permitted by law. Because Executive's services are
unique and because Executive has access to confidential information, the parties
hereto agree that money damages would be an inadequate remedy for any breach of
this Agreement. Therefore, in the event a breach or threatened breach of this
Agreement, the Company or its successors or assigns may, in addition to other
rights and remedies existing in their favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce, or prevent any violations of, the provisions hereof (without posting
a bond or other security).
(d) Additional Acknowledgments. Executive acknowledges that the
--------------------------
provisions of this Section 8 are in consideration of: (i) employment with the
Company, (ii) the issuance of the Executive Stock and (iii) additional good and
valuable consideration as set forth in this Agreement. In addition, Executive
agrees and acknowledges that the restriction contained in Section 7 and this
Section 8 do not preclude Executive from earning a livelihood, nor do they
unreasonably impose limitations on Executive's ability to earn a living. In
addition, Executive agrees and acknowledges that the potential harm to the
Company of the non-enforcement of Section 7 and this Section 8 outweighs any
potential harm to Executive of its enforcement by injunction or otherwise.
Executive acknowledges that he has carefully read this Agreement and has given
careful consideration to the restraints imposed upon Executive by this
Agreement, and is in full accord as to their necessity for the reasonable and
proper protection of confidential and proprietary information of the Company now
existing or to be developed in the future. Executive expressly acknowledges and
agrees that each and every restraint imposed by this Agreement is reasonable
with respect to subject matter, time period and geographical area.
GENERAL PROVISIONS
10. Definitions.
-----------
"Affiliate" of an Investor means any direct or indirect general or
---------
limited partner of such Investor, or any employee 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
-12-
<PAGE>
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 Executive as reasonably directed by the President,
(iv) gross negligence or willful misconduct with respect to the Company or any
of its Subsidiaries or (v) any material breach of Section 6(a)(ii), 7 or 8 of
this Agreement.
"Closing" shall have the meaning set forth in the Purchase Agreement.
-------
"EBITDA" means, for any period, the Company's earnings before
------
interest, taxes, depreciation and amortization for such period, determined on a
consolidated basis in accordance with GAAP.
"Executive's Family Group" means Executive's spouse and descendants
------------------------
(whether natural or adopted), any trust solely for the benefit of Executive
and/or Executive's spouse and/or descendants and any retirement plan for the
Executive.
"Executive Stock" will continue to be Executive Stock in the hands of
---------------
any holder other than Executive (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 Executive Stock will succeed to all rights and
obligations attributable to Executive as a holder of Executive Stock hereunder.
Executive Stock will also include shares of the Company's capital stock issued
with respect to Executive 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.
"Fair Market Value" of each share of Executive Stock means the average
-----------------
of the closing prices of the sales of such Executive Stock on all securities
exchanges on which such Executive 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 Executive 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 Executive 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 Executive 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 Executive Stock as
determined in good faith by the Board. If the Executive reasonably disagrees
with such determination, the Executive 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 Executive's written notice
of objection, the
-13-
<PAGE>
Board and the Executive 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
Executive, which appraiser shall submit to the Board and the Executive 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.
"Good Reason" means an action by the Company which results in (i) a
-----------
significant diminution of the duties of Executive from the standard duties of
senior executives of companies comparable to the Company, or (ii) a reduction of
the Executive's Annual Base Salary.
"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 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)
-14-
<PAGE>
(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 of even date
----------------------
herewith 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).
11. 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.
105 South Street
Boston, MA 02111
Attention: President
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, Illinois 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
-15-
<PAGE>
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David E. Redlick
If to the Executive:
-------------------
Mr. Frank Torbey
321 Wianno Avenue
Osterville, MA 02655
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
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.
12. General Provisions.
------------------
(a) Expenses. The Company agrees to pay the reasonable legal
--------
expenses of the
-16-
<PAGE>
Executive incurred in connection with the negotiation and execution of this
Agreement. In addition, expenses (including reasonable attorneys' fees) incurred
by the Executive in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding, unless otherwise
determined by the Outside Directors (as defined in that certain Stockholders
Agreement, dated as of March 23, 1999, by and among the Company, the Investors,
the Executive and certain other stockholders), upon receipt of an undertaking by
or on behalf of the Executive to repay such amount if it shall ultimately be
determined that the Executive is not entitled to indemnification by the Company.
(b) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive 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 Executive Stock as the owner of such
stock for any purpose.
(c) 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.
(d) 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, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(e) 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.
(f) Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(g) 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
-17-
<PAGE>
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware.
(h) 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.
(i) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, the
Executive and the Majority Holders (as defined in the Purchase Agreement).
(j) 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 Executive in any amount or amounts considered available. Executive 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. Executive hereby
represents that he has no reason to believe that his life is not insurable at
rates now prevailing for healthy men of his age.
(k) 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 executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(l) Indemnification and Reimbursement of Payments on Behalf of
----------------------------------------------------------
Executive. The Company and its Subsidiaries shall be entitled to deduct or
- ---------
withhold from any amounts owing from the Company or any of its Subsidiaries to
the Executive any federal, state, local or foreign withholding taxes, excise
taxes, or employment taxes ("Taxes") imposed with respect to the Executive's
-----
compensation or other payments from the Company or any of its Subsidiaries or
the Executive'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 Executive 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.
(m) Termination. This Agreement (except for the provisions of
-----------
Section7) shall survive a Separation and shall remain in full force and effect
after such Separation.
-18-
<PAGE>
(n) 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 generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with generally accepted accounting principles, 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.
(o) Deemed Transfer of Executive 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 Executive 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.
(p) No Pledge or Security Interest. The purpose of the Company's
------------------------------
retention of the Executive'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 Executive of, or the granting of a security
interest in, the underlying stock.
(q) Rights Granted to GTCR and its Affiliates. Any rights granted to
-----------------------------------------
GTCR and its Affiliates hereunder may also be exercised (in whole or in part) by
its designees (which may be Affiliates).
* * * * *
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Senior
Management Agreement on the date first written above.
ZEFER CORP.
By: /s/ Sean W. Mullaney
--------------------------------
Its: General Counsel
------------------------------
/s/ Frank Torbey
-----------------------------------
Frank Torbey
Agreed and Accepted:
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ [LLEGIBLE]^^
----------------------------------
Name: ________________________________
Its: Principal
GTCR VI EXECUTIVE FUND, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ [ILLEGIBLE]^^
---------------------------------
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: /s/ [ILLEGIBLE]^^
--------------------------------
Name: _______________________________
Its: Principal
<PAGE>
EXHIBIT A
- ---------
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 B
---------
May 21, 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 May 21, 1999 (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 May 21, 1999 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 May 21, 1999 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: May 21, 1999
----------------
Frank Torbey
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, Frank Torbey 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:_________ __, _____
__________________
Frank Torbey
<PAGE>
EXHIBIT D
---------
SPOUSAL CONSENT
---------------
The undersigned spouse of the Executive hereby acknowledges that I
have read the foregoing Senior Management Agreement and Stockholders Agreement
and Registration Agreement referred to therein, each executed by the Executive
and dated as of the date hereof, and that I understand their contents. I am
aware that the foregoing Senior Management 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:
------------------------
Spouse's
Name:
------------------
Date:
------------------------
Witness'
Name: Sean Mullaney
------------------
<PAGE>
EXHIBIT 10.11
SENIOR MANAGEMENT AGREEMENT
This SENIOR MANAGEMENT AGREEMENT (this "Agreement") is made as of
September 13, 1999, between ZEFER Corp., a Delaware corporation (the "Company"),
and Thomas Waite ("Executive").
The Company and Executive are entering into a stock purchase agreement
(the "Stock Purchase Agreement") pursuant to which Executive will receive, and
the Company will issue, 197,400 shares of the Company's Common Stock, par value
$.01 per share (the "Common Stock"), as partial consideration for the delivery
by Executive of all of Executive's shares of capital stock of Waite & Company,
Inc. All such 197,400 shares of Common Stock acquired by Executive are referred
to herein as "Executive Stock." In addition, the Company desires to employ the
Executive and the Executive desires to be employed by the Company. Certain
definitions are set forth in Section 9 of this Agreement.
In consideration of the mutual covenants and premises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties agree as follows:
PROVISIONS RELATING TO EXECUTIVE STOCK
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) In connection with the Stock Purchase Agreement, the Company
will, concurrently with the execution hereof and subject to the terms and
conditions set forth herein, issue to Executive 197,400 shares of Common Stock
at a price of $.38 per share.
(b) Within 30 days after the date hereof, Executive 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 A attached hereto.
- ---------
(c) Until the occurrence of a Sale of the Company or a Public
Offering, all certificates evidencing shares of Executive Stock shall be held by
the Company for the benefit of the Executive and the other holder(s) of
Executive Stock. Upon the occurrence of a Sale of the Company or a Public
Offering, the Company will return the certificates for the Executive Stock to
the record holders thereof.
(d) Executive acknowledges and agrees that neither the issuance of
the Executive Stock to Executive nor any provision contained herein shall
entitle Executive to remain in the employment of the Company or any of its
Subsidiaries or affect the right of the Company to
<PAGE>
terminate Executive's employment at any time for any reason, subject, however,
to the terms of this Agreement.
(e) Concurrently with the execution of this Agreement, (i) Executive
shall execute in blank ten stock transfer powers in the form of Exhibit B
---------
attached hereto (the "Stock Powers") with respect to the Executive 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 Executive
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
Executive's spouse shall execute the consent in the form of Exhibit C attached
---------
hereto.
2. Vesting of Executive Stock.
--------------------------
(a) All of the shares of Executive Stock acquired hereunder shall be
subject to vesting in the manner specified in this Section 2. Except as
otherwise provided in Sections 2(b) and 2(c) below, the Executive Stock will
become vested in accordance with the following schedule (the "Vesting
Schedule"), if as of each such date Executive is still employed by the Company
or any of its Subsidiaries:
Date Cumulative Percentage of
---- Executive Stock to be Vested
----------------------------
March 31, 2000 30%
March 31, 2001 60%
March 31, 2002 73%
March 31, 2003 86%
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 Executive is still employed by the Company or any
of its Subsidiaries, the Executive Stock will vest as follows:
(i) If the Modification Date is June 30 of any year, then an
additional 25% of the amount of Executive Stock that would have vested pursuant
to the Vesting Schedule on March 31 of the following year will vest on such
Modification Date and an additional 25% of the amount of Executive Stock that
would have vested pursuant to the Vesting Schedule on March 31 of the following
year will vest on September 30 and December 31 of such year and on March 31 of
such following year, and, thereafter, beginning with June 30 of each year, 25%
of the amount of Executive Stock that would have
-2-
<PAGE>
have vested pursuant to the Vesting Schedule on March 31 of each subsequent year
will vest on such June 30 and on the following September 30, December 31 and
March 31, so that the Executive Stock will be 100% vested on March 31, 2004.
(ii) If the Modification Date is September 30 of any year, then an
additional 50% of the amount of Executive Stock that would have vested pursuant
to the Vesting Schedule on March 31 of the following year will vest on such
Modification Date and an additional 25% of the amount of Executive Stock that
would have vested pursuant to the Vesting Schedule on March 31 of the following
year will vest on December 31 of such year and on March 31 of such following
year, and, thereafter, beginning with June 30 of each year, 25% of the amount of
Executive Stock that would have vested pursuant to the Vesting Schedule on March
31 of each subsequent year will vest on such June 30 and on the following
September 30, December 31 and March 31, so that the Executive Stock will be 100%
vested on March 31, 2004.
(iii) If the Modification Date is December 31 of any year, then an
additional 75% of the amount of Executive Stock that would have vested pursuant
to the Vesting Schedule on March 31 of the following year will vest on such
Modification Date and an additional 25% of the amount of Executive Stock that
would have vested pursuant to the Vesting Schedule on March 31 of the following
year will vest on such March 31, and, thereafter, beginning with June 30 of each
year, 25% of the amount of Executive Stock that would have vested pursuant to
the Vesting Schedule on March 31 of each subsequent year will vest on such June
30 and on the following September 30, December 31 and March 31, so that the
Executive Stock will be 100% vested on March 31, 2004.
(iv) If the Modification Date is March 31 of any year, then beginning
with June 30 of such year and each subsequent year, 25% of the amount of
Executive Stock that would have vested pursuant to the Vesting Schedule on March
31 of each following year will vest on such June 30 and on the following
September 30, December 31 and March 31, so that the Executive Stock will be 100%
vested on March 31, 2004.
(c) If, at any time, Executive's employment is terminated by the Company
without Cause or Executive terminates his employment with the Company for Good
Reason, all shares of Executive Stock which have not yet vested shall
automatically vest immediately prior to the termination.
(d) Shares of Executive Stock which have become vested are referred to
herein as "Vested Shares" and all other shares of Executive Stock are referred
to herein as "Unvested Shares."
-3-
<PAGE>
3. Repurchase Option.
-----------------
(a) In the event Executive is terminated for Cause or resigns without
Good Reason (the "Triggering Event"), the Unvested Shares of Executive Stock
(whether held by Executive or one or more of Executive'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 Triggering Event, the purchase price for each
Unvested Share of Executive Stock repurchased pursuant to the Repurchase Option
will be Executive's Original Cost for such Unvested Share.
(c) The Company may elect to purchase all or any portion of the
Unvested Shares by delivering written notice (the "Repurchase Notice") to the
holder or holders of the Executive Stock within 120 days after the Triggering
Event. The Repurchase Notice will set forth the number of Unvested 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 Unvested Shares held by Executive at the time of delivery of
the Repurchase Notice. If the number of Unvested Shares then held by Executive
is less than the total number of Unvested Shares which the Company has elected
to purchase, the Company shall purchase the remaining shares elected to be
purchased from the other holder(s) of Unvested Shares under this Agreement, pro
rata according to the number of Unvested Shares 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 to be
repurchased hereunder will be allocated among Executive and the other holders of
Unvested Shares (if any) pro rata according to the number of Unvested Shares to
be purchased from such person.
(d) If for any reason the Company does not elect to purchase all of
the Unvested Shares pursuant to the Repurchase Option, all other 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 Triggering Event and the Investors
shall be entitled to exercise the Repurchase Option for all or any portion of
the Unvested Shares 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 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.
-4-
<PAGE>
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
Unvested Shares as to the 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 Unvested Shares, 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 to be repurchased hereunder shall be allocated among the
Company, Senior Management and the Investors pro rata according to the number of
Unvested Shares to be purchased by each of them.
(e) The closing of the purchase of the Unvested Shares 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 Unvested Shares
to be repurchased by it pursuant to the Repurchase Option with a check or wire
transfer of funds in an amount equal to the Executive's Original Cost.
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 Executive to the Company.
Each Senior Manager and each Investor will pay for the Unvested Shares 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 Unvested Shares.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Unvested Shares 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 Unvested Shares hereunder which
the Company is otherwise entitled or required to make, the Company shall make
such repurchases as soon as it is permitted to do so under such restrictions.
4. Restrictions on Transfer of Executive Stock.
-------------------------------------------
(a) Transfer of Executive Stock. The holder of Executive Stock shall
---------------------------
not Transfer any interest in any shares of Executive Stock, except pursuant to
(i) the provisions of Section 3 hereof, (ii) the provisions of Section 4 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 Executive Stock if made (i)
pursuant to applicable laws of descent
-5-
<PAGE>
and distribution or to such Person's legal guardian in the case of any mental
incapacity or among such Person's Family Group, or (ii) at a time when the
Common Stock of the Company has been trading for at least 45 consecutive days,
or (iii) at such time as the Investors sell shares of Common Stock in a Public
Sale or (iv) pursuant to the Registration Agreement dated March 23, 1999 (the
"Registration Agreement") among the Company (as successor to ZC Acquisition
Corp.), the Investors and certain other stockholders of the Company, to which
Executive, as of the date hereof, is a party; provided, however, that Executive
-------- -------
acknowledges and agrees that at the time of a Public Offering, Executive will be
subject to a lockup agreement, as contemplated by Section 3(a) of the
Registration Agreement, unless the underwriters managing such Public Offering
otherwise agree. Notwithstanding anything in this Section 4 to the contrary, the
restrictions contained in this Section 4 will continue to be applicable to the
Executive Stock after any Transfer of the type referred to in clause (i) and the
transferees of such Executive Stock will agree in writing to be bound by the
provisions of this Agreement. Any transferee of Executive Stock pursuant to a
transfer in accordance with the provisions of this Section 4(b)(i) is herein
referred to as a "Permitted Transferee." Upon the transfer of Executive Stock
pursuant to this Section 4(b), the transferring holder of Executive Stock will
deliver a written notice (a "Transfer Notice") to the Company. In the case of a
Transfer pursuant to clause (i) hereof, the Transfer Notice will disclose 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 Executive Stock until the
earlier of (i) the date on which such share of Executive Stock has been
transferred in a Public Sale permitted by this Section 4, or (ii) the
consummation of an Approved Sale.
5. Additional Restrictions on Transfer of Executive Stock.
------------------------------------------------------
(a) Legend. The certificates representing the Executive Stock will
------
bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON [DATE], 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 SENIOR MANAGEMENT
AGREEMENT BETWEEN THE COMPANY AND AN EXECUTIVE OF THE COMPANY
DATED [DATE]. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF "BUSINESS
WITHOUT CHARGE."
-6-
<PAGE>
(b) Opinion of Counsel. No holder of Executive Stock may sell,
------------------
transfer or dispose of any Executive 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 Executive Stock delivers to the
Company an opinion of counsel that no subsequent transfer of such Executive
Stock shall require registration under the Securities Act, the Company shall
promptly upon such contemplated transfer deliver new certificates for such
Executive 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 Executive 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.
PROVISIONS RELATING TO EMPLOYMENT
6. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning as of the date hereof and
ending upon his separation pursuant to Section 6(c) hereof (the "Employment
Period").
(a) Position and Duties. During the Employment Period, Executive
-------------------
shall serve as an Executive Vice President of the Company. In such capacity,
Executive shall serve as the executive line officer for global business strategy
competency and global strategic marketing activities and shall have the normal
duties, responsibilities and authority of such office subject to the power of
the President and Chief Executive Officer of the Company (the "President") to
expand or limit such duties, responsibilities and authority. Executive shall
report to the President and Executive shall devote his best efforts and his full
business time and attention to the business and affairs of the Company and its
Subsidiaries; provided, however, that Executive may, to the extent not
-------- -------
materially interfering with Executive's duties to the Company and its
Subsidiaries, participate in charitable activities, make passive investments,
write books, articles and other publications for publication in Executive's name
as author, serve on industry conference panels and engage in public speaking
and, subject to the reasonable approval of the Board, serve on boards of
directors of companies that do not compete with the Company.
(b) Salary, Bonus and Benefits. During the Employment Period, the
--------------------------
Company will pay the Executive a base salary (the "Annual Base Salary") of
$225,000.00 per annum, subject to any increase as determined by the President.
Executive's Annual Base Salary for any partial year will be prorated based upon
the number of days elapsed in such year. During the Employment Period, the
Executive shall also be eligible for an annual bonus in an amount not to exceed
35% of Executive's then applicable Annual Base Salary for such year; such bonus
to be determined by the President based upon the Company's achievement of
budgetary and other objectives set by the President. In addition, during the
Employment Period, the Company will provide the Executive with
-7-
<PAGE>
medical insurance benefits and such other benefits approved by the President and
made available to the Company's senior management. Executive will be eligible
for other bonuses, stock options and other benefits at the same level that is
generally made available to the Company's senior management, provided that the
--------
final determination of the amount of any award of bonuses, stock options and
other forms of compensation shall be made by the compensation committee of the
Board, and provided, further, that the Executive Stock (and any other capital
-------- -------
stock of the Company acquired by Executive other than pursuant to such an award)
will not be considered in any determination of Executive's eligibility for any
such award.
(c) Events of Separation. The Employment Period will continue until
--------------------
Executive's resignation, disability (as determined by the President in his good
faith judgment) or death or until the President decides to terminate Executive's
employment.
(d) Separation Without Cause; Resignation for Good Reason. In the
-----------------------------------------------------
event that (i) the Company terminates the Executive's employment without Cause
or (ii) the Executive resigns from his position with the Company for Good
Reason, then the Executive shall be entitled to the following:
(i) the Company shall pay to the Executive, in a lump sum within 15
days after such termination or resignation, an amount equal to the sum of
(A) any unpaid base salary owed to the Executive for services performed
prior to such termination, plus (B) the amount of any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the extent
not previously paid (the obligations set forth in clauses (A) and (B) are
collectively referred to herein as the "Accrued Obligations");
(ii) the Company shall pay each month to the Executive, beginning on
the date of the first normal executive payroll of the Company that occurs more
than 30 days after such termination or resignation, an amount equal to one-
twelfth (1/12) of the Executive's Annual Base Salary as of the date immediately
before such termination or resignation; provided, however, that such payments
-------- -------
shall immediately cease upon the earliest to occur of (x) the Executive's death
and (y) the date on which one-half (1/2) of the Executive's Annual Base Salary
as of the date immediately before such termination or resignation is paid to the
Executive. Notwithstanding anything in this Section 6(d) to the contrary, in the
event that the Executive becomes employed with another employer, then the
payments to be made by the Company pursuant to this Section 6(d)(ii) shall be
reduced (on a dollar for dollar basis) in an amount equal to the cash
compensation received by Executive from such employer; and
(iii) the Company shall continue to provide medical insurance benefits
to the Executive and to the Executive's family at least equal to those medical
insurance benefits that would have been provided to them in the absence of such
termination or resignation;
-8-
<PAGE>
provided, however, that such payments shall immediately cease upon the earliest
- -------- -------
to occur of (x) the Executive's death and (y) the six month anniversary of such
termination or resignation. Notwithstanding anything in this Section 6(d) to the
contrary, in the event that the Executive becomes employed with another employer
and is eligible for medical insurance benefits under another employer-provided
plan, then the medical insurance benefits to be provided by the Company pursuant
to this Section 6(d)(iii) shall be reduced to the extent that the Executive and
his family are eligible to receive medical insurance benefits under such other
employer-provided plan.
(e) Other Separations. In the event of a Separation other than a
-----------------
termination by the Company without Cause or a resignation by the Executive for
Good Reason, the Company shall pay to the Executive (or his estate, if
applicable), in a lump sum in cash within 15 days after such Separation, an
amount equal to any Accrued Obligations.
7. Confidential Information. Executive acknowledges that the
------------------------
information and data obtained by him during the course of his performance under
this Agreement concerning the business and affairs of the Company and its
affiliates are the property of the Company, including information concerning
acquisition opportunities in or reasonably related to the Company's business or
industry of which Executive becomes aware during the Employment Period.
Therefore, Executive agrees that he will not disclose to any unauthorized person
or use for his own account any of such information or data without the Company's
written consent, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
Executive's acts or omissions to act. Executive agrees to deliver to the Company
at a Separation, or at any other time the Company may request in writing, all
memoranda, notes, plans, records, reports and other documents (and copies
thereof) relating to the business of the Company and its affiliates (including,
without limitation, all acquisition prospects, lists and contact information)
which he may then possess or have under his control.
8. Noncompetition and Nonsolicitation. Executive acknowledges
----------------------------------
that in the course of his employment with the Company he will become familiar
with the Company's and its Subsidiaries' trade secrets and with other
confidential information concerning the Company and such Subsidiaries and that
his services will be of special, unique and extraordinary value to the Company.
Therefore, Executive agrees that:
(a) Noncompetition. During the Employment Period and for a period of
--------------
six months thereafter (the "Noncompete Period"), Executive shall not, within the
United States, directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the businesses of the Company or its Subsidiaries or any business
in which the Company or any of its Subsidiaries has requested and received
information relating to the acquisition of such business by the Company and the
Subsidiaries prior to the Separation; provided that passive ownership of less
--------
than 5% of the outstanding stock of any publicly-traded corporation shall not,
in and of itself, be deemed to violate this Section 8(a).
-9-
<PAGE>
(b) Nonsolicitation. During the Noncompete Period, Executive shall
---------------
not directly or indirectly through another entity (i) induce or attempt to
induce any employee of the Company or its Subsidiaries to leave the employ of
the Company or such Subsidiary, or in any way interfere with the relationship
between the Company and any Subsidiary and any employee thereof, (ii) hire any
person who was an employee of the Company or any Subsidiary within 180 days
prior to the time such employee was hired by the Executive, (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company or any Subsidiary to cease doing business with the Company or such
Subsidiary or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company or any
Subsidiary or (iv) directly or indirectly acquire or attempt to acquire an
interest in any business relating to the business of the Company or any
Subsidiary and with which, to the Executive's knowledge, the Company or any
Subsidiary has entertained discussions or has requested and received information
relating to the acquisition of such business by the Company or any Subsidiary in
the two-year period immediately preceding a Separation.
(c) Enforcement. If, at the time of enforcement of Section 7 or this
-----------
Section 8, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
duration, scope or geographical area reasonable under such circumstances shall
be substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
duration, scope and area permitted by law. Because Executive's services are
unique and because Executive has access to confidential information, the parties
hereto agree that money damages would be an inadequate remedy for any breach of
this Agreement. Therefore, in the event a breach or threatened breach of this
Agreement, the Company or its successors or assigns may, in addition to other
rights and remedies existing in their favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce, or prevent any violations of, the provisions hereof (without posting
a bond or other security).
(d) Additional Acknowledgments. Executive acknowledges that the
--------------------------
provisions of this Section 8 are in consideration of employment with the
Company. In addition, Executive agrees and acknowledges that the restrictions
contained in Section 7 and this Section 8 do not preclude Executive from earning
a livelihood, nor do they unreasonably impose limitations on Executive's ability
to earn a living. In addition, Executive agrees and acknowledges that the
potential harm to the Company of the non-enforcement of Section 7 and this
Section 8 outweighs any potential harm to Executive of enforcement by injunction
or otherwise. Executive acknowledges that he has carefully read this Agreement
and has given careful consideration to the restraints imposed upon Executive by
this Agreement, and is in full accord as to their necessity for the reasonable
and proper protection of confidential and proprietary information of the Company
now existing or to be developed in the future. Executive expressly acknowledges
and agrees that each and every restraint imposed by this Agreement is reasonable
with respect to subject matter, time period and geographical area.
-10-
<PAGE>
GENERAL PROVISIONS
9. Definitions.
-----------
"Affiliate" of an Investor means any direct or indirect general or
---------
limited partner of such Investor, or any employee 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
Executive as reasonably directed by the President, (iv) gross negligence or
willful misconduct materially and adversely affecting the Company or any of its
Subsidiaries or (v) any material breach of Section 6(a), 7 or 8 of this
Agreement; provided, however, that the term "Cause" shall include the conduct
-------- -------
set forth in clauses (iii) and (iv) above only to the extent that the Company
has given Executive reasonable notice that the Executive has engaged in conduct
that falls within such clauses (iii) and (iv) and Executive has not cured such
failure to perform Executive's duties or such gross negligence or willful
misconduct to the reasonable satisfaction of the Company.
"Executive's Family Group" means Executive's spouse and descendants
------------------------
(whether natural or adopted), any trust solely for the benefit of Executive
and/or Executive's spouse and/or descendants and any retirement plan for the
Executive.
"Executive Stock" will continue to be Executive Stock in the hands of
---------------
any holder other than Executive (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 Executive Stock will succeed to all rights and
obligations attributable to Executive as a holder of Executive Stock hereunder.
Executive Stock will also include shares of the Company's capital stock issued
with respect to Executive 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.
"Fair Market Value" of each share of Executive Stock means the average
-----------------
of the closing prices of the sales of such Executive Stock on all securities
exchanges on which such Executive 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 Executive 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 Executive Stock is not quoted in the
NASDAQ System, the average of the highest bid and
-11-
<PAGE>
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 Executive 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
Executive Stock as determined in good faith by the Board. If the Executive
reasonably disagrees with such determination, the Executive 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
Executive's written notice of objection, the Board and the Executive 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 Executive, which appraiser shall
submit to the Board and the Executive 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, as such determination may have been modified
during the 30-day negotiation period following delivery of the Repurchase Notice
or Supplemental Repurchase Notice, as applicable, 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.
"Good Reason" means an action by the Company which results in (i)
-----------
without the consent of Executive, a change in Executive's title or a significant
diminution of the duties, responsibilities or authority of Executive from that
contemplated by Section 6(a) hereof (without regard to the power of the
President to limit the same), (ii) a reduction of the Executive's Annual Base
Salary or benefits, (iii) a requirement that Executive report to work at a
location that is more than 50 miles from the location of the Company's current
principal executive offices or (iv) a material breach by the Company of its
obligations under Section 6(b) of this Agreement.
"Investors" means GTCR Fund VI, L.P., a Delaware limited partnership,
---------
GTCR VI Executive Fund, L.P., a Delaware limited partnership, and GTCR
Associates VI, a Delaware general partnership.
-12-
<PAGE>
"Original Cost" means, with respect to each Unvested Share purchased
-------------
hereunder, $.38 (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 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.
"Separation" means any termination of the Executive's employment with
----------
the Company and its Subsidiaries for any reason.
"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).
10. 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
-13-
<PAGE>
requested) or sent by reputable overnight courier service (charges prepaid) to
the recipient at the address below indicated:
If to the Company:
-----------------
ZEFER Corp.
105 South Street
Boston, Massachusetts 02111
Attention: President
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, Illinois 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie
If to the Executive:
-------------------
Thomas Waite
133 Marlborough Street
Boston, Massachusetts 02116
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.
11. General Provisions.
------------------
(a) Expenses. The Company agrees to pay the reasonable legal expenses
--------
of the Executive incurred in connection with the negotiation and execution of
this Agreement. In addition, expenses (including reasonable attorneys' fees)
incurred by the Executive in defending any civil,
-14-
<PAGE>
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding, unless otherwise determined by the Outside Directors (as defined in
that certain Stockholders Agreement), upon receipt of an undertaking by or on
behalf of the Executive to repay such amount if it shall ultimately be
determined that the Executive is not entitled to indemnification by the Company.
(b) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive 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 Executive Stock as the owner of such
stock for any purpose.
(c) 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.
(d) 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, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(e) 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.
(f) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(g) 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.
-15-
<PAGE>
(h) 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.
(i) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, the
Executive and the Majority Holders (as defined in the Purchase Agreement).
(j) 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 Executive in any amount or amounts considered available. Executive 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. Executive hereby
represents that he has no reason to believe that his life is not insurable at
rates now prevailing for healthy persons of his age.
(k) 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 executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(l) Indemnification and Reimbursement of Payments on Behalf of
----------------------------------------------------------
Executive. The Company and its Subsidiaries shall be entitled to deduct or
- ---------
withhold from any amounts owing from the Company or any of its Subsidiaries to
the Executive any federal, state, local or foreign withholding taxes, excise
taxes, or employment taxes ("Taxes") which the Company or such Subsidiaries are
required by law to deduct or withhold and are imposed with respect to the
Executive's compensation or other payments from the Company or any of its
Subsidiaries or the Executive'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.
(m) Termination. This Agreement (except for the provisions of
-----------
Section 7) shall survive a Separation and shall remain in full force and effect
after such Separation.
(n) 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 generally accepted
accounting principles, consistently applied, except that if
-16-
<PAGE>
because of a change in generally accepted accounting principles the Company
would have to alter a previously utilized accounting method or policy in order
to remain in compliance with generally accepted accounting principles, 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.
(o) Deemed Transfer of Executive 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 Executive 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.
(p) No Pledge or Security Interest. The purpose of the Company's
------------------------------
retention of the Executive'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 Executive of, or the granting of a security
interest in, the underlying stock.
(q) Rights Granted to GTCR Fund VI, L.P. and its Affiliates. Any
-------------------------------------------------------
rights granted to GTCR Fund VI, L.P. and its Affiliates hereunder may also be
exercised (in whole or in part) by its designees (which may be Affiliates).
* * * * *
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Senior
Management Agreement on the date first written above.
ZEFER Corp.
By: /s/ Sean W. Mullaney
----------------------------------
Its: Vice President
---------------------------------
/s/ Thomas Waite
---------------------------------------
Thomas Waite
<PAGE>
EXHIBIT B
September 13, 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 September 13,1999 (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 September 13, 1999
--
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.
<PAGE>
The Executive Stock will become vested during the first five years after the
Closing Date pursuant to the following schedule:
Date Cumulative Percentage of
---- Executive Stock to be Vested
----------------------------
March 31, 2000 30%
March 31, 2001 60%
March 31, 2002 73%
March 31, 2003 86%
March 31, 2004 100%
5. The fair market value on _______, 1999 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $.38 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: September 13, 1999
--
:-------------------------------------
Name: Thomas Waite
<PAGE>
EXHIBIT B
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, __________ 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 _______________ as attorney to transfer the said stock on the books of
the Corporation with full power of substitution in the premises.
Dated:_________ __, _____ ______________________________
Name
<PAGE>
EXHIBIT C
---------
SPOUSAL CONSENT
---------------
The undersigned spouse of the Executive hereby acknowledges that I
have read the foregoing Senior Management Agreement and Stockholders Agreement
and Registration Agreement referred to therein, each executed by the Executive
and dated as of the date hereof, and that I understand their contents. I am
aware that the foregoing Senior Management 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
Spouse's
Name:
_________________________ Date: ______, 1999
Witness'
Name:____________________
<PAGE>
EXHIBIT 10.18
______________________________________________________________________________
LOAN AGREEMENT
Dated as of November 24, 1999
Between
ZEFER CORP.,
as the Borrower
and
GTCR CAPITAL PARTNERS, L.P.,
as the Lender
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. DEFINITIONS.............................................. 2
1.1. Certain Defined Terms.................................... 2
---------------------
1.2. Accounting Terms......................................... 2
----------------
SECTION 2. MAKING AND BORROWING OF LOANS............................ 2
2.1. Making and Borrowing of Loans............................ 2
-----------------------------
2.2. Making of Loans; Notice.................................. 2
-----------------------
2.3. The Closing.............................................. 3
-----------
SECTION 3. TERMS OF THE LOANS....................................... 3
3.1. The Note................................................. 3
--------
3.2. Payment of the Loans..................................... 3
--------------------
3.3. Interest on the Loans.................................... 3
---------------------
3.4. Voluntary Prepayments.................................... 4
---------------------
3.5. Mandatory Prepayments.................................... 5
---------------------
3.6. Application of Prepayments............................... 5
--------------------------
3.7. Manner and Time of Payment............................... 5
--------------------------
3.8. Term of this Agreement................................... 6
----------------------
SECTION 4. REPRESENTATIONS AND WARRANTIES........................... 6
4.1. Full Disclosure.......................................... 6
---------------
4.2. No Material Adverse Effect............................... 6
--------------------------
4.3. No Default............................................... 7
----------
4.4. Organization, Powers, Capitalization and Good Standing... 7
------------------------------------------------------
4.5. Financial Statements..................................... 8
--------------------
4.6. Litigation............................................... 8
----------
4.7. Intellectual Property.................................... 8
---------------------
4.8. Investigations, Audits, Etc.............................. 8
---------------------------
4.9. Employee Matters......................................... 8
----------------
4.10. Solvency................................................. 9
--------
4.11. Year 2000................................................ 9
---------
4.12. No Legal Obstacle to Agreements.......................... 9
-------------------------------
4.13. Brokerage Fees, Etc...................................... 10
-------------------
SECTION 5. CONDITIONS TO LOANS...................................... 10
5.1. Conditions to Initial Loan............................... 10
--------------------------
5.2. Conditions to Loans Made After the Closing............... 12
------------------------------------------
SECTION 6. AFFIRMATIVE COVENANTS.................................... 13
6.1. Payment of Loan Obligations.............................. 13
---------------------------
6.2. Performance of Other Documents; Etc...................... 13
-----------------------------------
6.3. Compliance With Laws..................................... 13
--------------------
6.4. Maintenance of Properties; Insurance..................... 13
------------------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
6.5. Inspection................................................................. 14
----------
6.6. Existence, Etc............................................................. 14
--------------
6.7. Further Assurances; Guaranty of Loan Obligations; Grant of Security
-------------------------------------------------------------------
Interest
--------................................................................... 14
SECTION 7. NEGATIVE COVENANTS......................................................... 15
7.1. Indebtedness............................................................... 15
------------
7.2. Liens and Related Matters.................................................. 15
-------------------------
7.3. Investments................................................................ 17
-----------
7.4. Contingent Obligations..................................................... 17
----------------------
7.5. Restricted Junior Payments................................................. 18
--------------------------
7.6. Restriction on Fundamental Changes......................................... 18
----------------------------------
7.7. Disposal of Assets or Subsidiary Stock..................................... 19
--------------------------------------
7.8. Transactions with Affiliates............................................... 19
----------------------------
7.9. Conduct of Business........................................................ 20
-------------------
7.10. Changes Relating to Certain Indebtedness................................... 20
----------------------------------------
7.11. Fiscal Year................................................................ 20
-----------
7.12. Press Release; Public Offering Materials................................... 20
----------------------------------------
7.13. Subsidiaries............................................................... 20
------------
SECTION 8. FINANCIAL AND REPORTING COVENANTS.......................................... 20
8.1. Capital Expenditure Limits................................................. 20
--------------------------
8.2. Lease Limits............................................................... 21
------------
8.3. Minimum Pre-Corporate EBITDA............................................... 21
----------------------------
8.4. Pre-Corporate Fixed Charge Coverage........................................ 21
-----------------------------------
8.5. Financial Statements and Other Reports..................................... 21
--------------------------------------
8.6. Utilization of GAAP for Purposes of Calculations Under this Agreement...... 24
---------------------------------------------------------------------
SECTION 9. DEFAULT, RIGHTS AND REMEDIES............................................... 24
9.1. Event of Default........................................................... 24
----------------
9.2. Suspension................................................................. 27
----------
9.3. Acceleration............................................................... 27
------------
9.4. Performance by Lender...................................................... 27
---------------------
SECTION 10. ASSIGNMENTS AND PARTICIPATIONS OF LOANS.................................... 28
10.1. Rights..................................................................... 28
------
10.2. Registration............................................................... 28
------------
10.3. Notice..................................................................... 28
------
SECTION 11. MISCELLANEOUS.............................................................. 28
11.1. Expenses................................................................... 28
--------
11.2. Indemnities................................................................ 29
-----------
11.3. Amendments and Waivers..................................................... 29
----------------------
11.4. Independence of Covenants.................................................. 29
-------------------------
11.5. Notices.................................................................... 29
-------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
11.6. Survival of Warranties and Certain Agreements................................. 30
---------------------------------------------
11.7. Failure or Indulgence Not Waiver; Remedies Cumulative......................... 31
-----------------------------------------------------
11.8. Marshalling; Payments Set Aside............................................... 31
-------------------------------
11.9. Severability.................................................................. 31
------------
11.10. Headings...................................................................... 31
--------
11.11. APPLICABLE LAW................................................................ 31
--------------
11.12. Successors and Assigns; Subsequent Holders of the Note........................ 31
------------------------------------------------------
11.13. No Fiduciary Relationship..................................................... 31
-------------------------
11.14. Construction.................................................................. 32
------------
11.15. Confidentiality............................................................... 32
---------------
11.17. WAIVER OF JURY TRIAL.......................................................... 32
--------------------
11.18. No Personal Obligations....................................................... 33
-----------------------
11.19. Note Legend Relating to Original Issue Discount............................... 33
-----------------------------------------------
11.20. Counterparts; Effectiveness................................................... 33
---------------------------
11.21. Entire Agreement.............................................................. 34
----------------
SECTION 12. DEFINITIONS................................................................... 35
12.1. Certain Defined Terms......................................................... 35
---------------------
12.2. Other Definitional Provisions................................................. 41
-----------------------------
</TABLE>
-iii-
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 4.4.1 Organization and Powers
Schedule 4.4.2 Capitalization
Schedule 4.4.5 Qualification
Schedule 4.7 Intellectual Property
Schedule 4.9 Employee Matters
Schedule 5.1.4.6 Additional Deliveries
Schedule 7.1.1(i) Indebtedness
Schedule 7.2.1.11 Liens
Schedule 7.3.5 Investments
Schedule 7.4.2 Contingent Obligations
Exhibit A Note
Exhibit 8.5.3 Compliance Certificate
-iv-
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT (this "Agreement") is made as of November 24, 1999, by
---------
and between ZEFER Corp., a Delaware corporation (the "Borrower"), and GTCR
--------
Capital Partners, L.P., a Delaware limited partnership (the "Lender").
------
RECITALS
WHEREAS, the Lender has agreed to make available to the Borrower Loans (as
hereinafter defined in Section 2.1) in the aggregate amount of $32,196,296
(including the amount of the Loan made on the Closing Date), and such Loans will
be available to the Borrower from time to time on and after the Closing Date on
the terms and subject to the conditions set forth in this Agreement.
WHEREAS, on the Closing Date, the Lender shall make a Loan to the Borrower
in the amount of $12,789,175.
WHEREAS, the Borrower has agreed to (i) issue to the Lender a warrant (the
"Common Warrant") representing the right to purchase shares of the Borrower's
--------------
Common Stock, par value $0.01 per share, and (ii) issue to the Lender a warrant
(the "Initial Preferred Warrant", and together with the Common Warrant, the
-------------------------
"Warrants") representing the right to purchase shares of the Borrower's Class A
- ---------
Preferred Stock, par value $0.01 per share (collectively, the "Warrant Shares"),
--------------
in each case pursuant to a Warrant Agreement dated as of the date hereof, by and
between the Borrower and the Lender (the "Warrant Agreement").
-----------------
WHEREAS, the Lender, as holder of the Warrants, shall execute a Joinder and
Amendment to the Registration and Stockholders Agreements dated as of the date
hereof (the "Joinder") pursuant to which (i) the Lender will become a party to
-------
that certain Stockholders Agreement (the "Stockholders Agreement"), dated as of
----------------------
March 23, 1999 (as amended or modified from time to time), by and among the
Borrower and the existing holders of the Borrower's outstanding equity
securities and that certain Registration Agreement (the "Registration
------------
Agreement"), dated as of March 23, 1999 (as amended or modified from time to
time), by and among the Borrower and the existing holders of the Borrower's
outstanding equity securities, and (ii) the Lender will become entitled to
designate a director under the Stockholders Agreement.
WHEREAS, the Borrower desires to secure all of its Loan Obligations (as
hereinafter defined in Section 12) under the Loan Documents (as hereinafter
defined in Section 12) by pledging to the Lender the capital stock of its
Subsidiaries, if any, and by granting to the Lender a security interest and a
lien upon all of its personal and real property.
WHEREAS, each domestic Subsidiary of the Borrower (as hereinafter defined
in Section 12) has agreed to guaranty all of the Loan Obligations of the
Borrower to the Lender under the Loan Documents pursuant to that certain
Guaranty of even date herewith (as amended, modified or supplemented from time
to time, the "Guaranty") and to grant to the Lender a security interest in and a
--------
lien upon all of its personal and real property.
<PAGE>
AGREEMENT
In consideration of the foregoing, and the agreements, representations,
warranties, covenants and conditions herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
SECTION 1. DEFINITIONS
1.1. Certain Defined Terms. Unless otherwise set forth herein, capitalized
---------------------
terms used in this Agreement shall have the meanings set forth in Section 12.
1.2. Accounting Terms. For purposes of this Agreement, all accounting
----------------
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP.
SECTION 2. MAKING AND BORROWING OF LOANS
2.1. Making and Borrowing of Loans. Subject to the terms and conditions
-----------------------------
of this Agreement and on the basis of the representations and warranties set
forth herein, the Lender may make loans (each a "Loan," and collectively, the
----
"Loans") to the Borrower as set forth in Section 2.2, and the Borrower may
-----
borrow, prepay and repay such Loans hereunder in accordance with the terms of
this Agreement, at any time and from time to time on any Business Day prior to
the termination of this Agreement. The obligation of the Borrower to repay any
Loan made by the Lender and borrowed by the Borrower shall be evidenced by the
Borrower's execution and delivery to the Lender of the Note described in Section
3.1 below.
2.2. Making of Loans; Notice.
-----------------------
2.2.1. Minimum Amount. Each Loan borrowed by the Borrower pursuant
--------------
to this Agreement shall be (i) in a minimum aggregate principal amount of
$100,000 or (ii) in an integral multiple of $100,000.
2.2.2. Initial Loan. The initial Loan shall be made on the date
------------
hereof in the amount of $12,789,175 (the "Initial Loan").
------------
2.2.3. Future Loans; Approved Uses. The Lender intends to make up to
---------------------------
$32,196,296 in Loans (including the Initial Loan) to the Borrower to finance in
whole or in part one or more Permitted Acquisitions, to provide working capital
to, and for other general corporate purposes of, the Borrower and its
Subsidiaries not otherwise prohibited under the terms of this Agreement, in each
case as approved by the Board and the Lender (in each case, an "Approved Use").
------------
In order to implement the foregoing, the Lender may make additional Loans to the
Borrower from time to time after the Closing, upon the written request of the
Board (with at least ten (10) Business Days' prior notice) and solely for
purposes of an Approved Use. Upon fulfillment of all applicable conditions set
forth in this Agreement, the Lender shall pay or deliver the proceeds of any
Loan in immediately
2
<PAGE>
available funds to or upon the order of the Borrower at a commercial bank
designated by the Borrower in writing to the Lender.
2.2.4. Use of Proceeds. No portion of the proceeds of any Loans made
---------------
hereunder or the Warrants pursuant to the Warrant Agreement shall be used,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of buying or carrying any "margin stock" within the meaning of any
regulation, interpretation or ruling of the Board of Governors of the Federal
Reserve System, all as from time to time in effect, refunding of any
indebtedness incurred for such purpose, or making any investment prohibited by
foreign trade regulations. Without limiting the foregoing, the Borrower agrees
that in no event shall any proceeds of any Loans made hereunder or from the sale
of the Warrants pursuant to the Warrant Agreement be used in any manner which
might cause the Note, the Warrants or the application of such proceeds to
violate any of Regulations U or X of the Board of Governors of the Federal
Reserve System or any other regulation of the Board of Governors of the Federal
Reserve System, or to violate the Exchange Act, in each case as in effect as of
the Closing, the date of any additional Loans and the date of any use of such
proceeds.
2.3. The Closing. Subject to the satisfaction of the conditions thereto
-----------
set forth in this Agreement, the closing of the Initial Loan made by the Lender
and borrowed by the Borrower hereunder (the "Closing") shall take place at 10:00
-------
a.m. Chicago time as of the date of this Agreement, at the offices of Kirkland &
Ellis, 200 East Randolph Drive, Chicago, Illinois 60601, or at such other date,
time and/or location(s) as may be agreed upon by the parties hereto (the
"Closing Date").
- -------------
SECTION 3. TERMS OF THE LOANS
3.1. The Note.
--------
3.1.1. The obligation of the Borrower to repay the aggregate unpaid
principal amount of the Initial Loan and subsequent Loans made under this
Agreement shall be evidenced by a promissory note in the form attached hereto as
Exhibit A (the "Note"), dated the date hereof, payable as specified in this
- --------- ----
Section 3, made to the order of the Lender in an aggregate principal amount
equal to $32,196,296, and bearing interest and maturing as provided in this
Agreement.
3.1.2. The Lender shall, and is hereby authorized by the Borrower
to, endorse on the schedules annexed to the Note an appropriate notation
evidencing the date and amount of each Loan made by the Lender as well as the
date and amount of each payment of principal and interest by the Borrower with
respect thereto and which notations shall be presumed correct until the contrary
is established; provided that the failure to make or any error in making any
--------
such notation shall not limit or expand or otherwise affect the obligations of
the Borrower hereunder or under the Note.
3.2. Payment of the Loans. The unpaid principal amount of the Loans plus
--------------------
all accrued and unpaid interest thereon and all other amounts owed thereunder
with respect thereto shall be paid in full in cash on or before the Maturity
Date.
3
<PAGE>
3.3. Interest on the Loans.
---------------------
3.3.1. The Loans shall bear interest at a rate equal to 12% per
annum on the unpaid principal amount thereof (including Capitalized Interest, as
hereinafter defined) from and including the Closing Date until the principal
amount shall be paid in full, such interest to be payable in cash in the manner
specified in Section 3.7; provided that the Lender and the Board may agree that,
--------
for any Interest Period, interest on all or any portion of the Loans may be paid
by capitalizing such interest as additional Loans on the applicable Interest
Payment Date ("Capitalized Interest"), and any interest that is to be
--------------------
capitalized shall be calculated at a rate that is equal to 14%. Notwithstanding
the foregoing, the interest rate on any overdue payment of principal, and to the
extent permitted by law, on any overdue installments of interest that are not
capitalized as described above, shall be 14%.
3.3.2. Interest shall be payable with respect to the Loans, in
arrears, on the last day of each Interest Period, upon any prepayment of the
Loans (to the extent of accrued interest on the principal amount, including
Capitalized Interest, of the Loans so prepaid) and at maturity of the Loans.
"Interest Period" means (i) initially, the period commencing on the Closing Date
---------------
(with respect to the Initial Loan) or on the date any subsequent Loan is made
(with respect to subsequent Loans) and ending on the next succeeding Interest
Payment Date (as hereinafter defined) and (ii) thereafter, each quarterly period
ending on March 31, June 30, September 30 or December 31, as applicable (each
such date, an "Interest Payment Date"); provided that no Interest Period shall
--------------------- --------
extend beyond the Maturity Date. Notwithstanding the foregoing, if the aggregate
amount of accrued and unpaid interest (including all Capitalized Interest) and
all unpaid original issue discount on any Interest Payment Date occurring after
the fifth anniversary of the Closing shall exceed an amount equal to the product
of (x) the issue price (as defined in Code Sections 1273(b) and 1274(a)) of the
Note and (y) the yield to maturity (as defined in Code Section 163(i)) of the
Loans (such product being the "Maximum Accrual"), all accrued and unpaid
---------------
interest on the Loans in excess of an amount equal to the Maximum Accrual shall
be paid by the Borrower to the holders of the Note on such Interest Payment
Date. Any accrued interest which for any reason has not theretofore been paid
shall be paid in full on the date on which the final principal payment on the
Loans is made.
3.3.3. Interest on the Loans shall be computed on the basis of a
360-day year of twelve 30-day months for the actual number of days elapsed
during which it accrues. In computing such interest, the date or dates of the
making of the Loans shall be included and the date of payment shall be excluded.
If a Loan is repaid on the same day that it is made, one (1) day's interest
shall be charged.
3.3.4. Under no circumstances will the rate of interest chargeable
be in excess of the maximum amount permitted by law. If excess interest is
charged and paid in error, then the excess amount will be promptly refunded.
3.4. Voluntary Prepayments. Subject to the terms and conditions of the
---------------------
Loan Documents, the Loans may be prepaid without penalty, at the Borrower's
option, at any time and from time to time, in whole or in part, upon not less
than one (1) Business Day prior written notice to the Lender; provided that such
--------
prepayment shall be (i) in a minimum aggregate amount of $250,000 (or such
lesser amount then outstanding under the Loans) or (ii) in an integral multiple
of $250,000.
4
<PAGE>
3.5. Mandatory Prepayments.
---------------------
3.5.1. Asset Dispositions; Sale of Subsidiary Stock. Within thirty
--------------------------------------------
(30) days following receipt by the Borrower or any of its Subsidiaries of the
Net Proceeds of any Asset Disposition, which Net Proceeds exceed $100,000 for
any transaction or series of transactions, the Borrower shall prepay the Loans
in an amount equal to all such Net Proceeds. Notwithstanding the foregoing, the
Borrower may retain the Net Proceeds of Asset Dispositions to the extent that
such Net Proceeds are used either to replace the assets so disposed of or to
purchase other capital assets used in the Borrower's business; provided that, if
--------
the Borrower shall not have replaced such assets or purchased other capital
assets with such Net Proceeds within 365 days following such disposition, such
Net Proceeds will be applied to the payment of the Loans as provided in the
immediately preceding sentence. Payments pursuant to this subsection 3.5.1 shall
be applied in accordance with Section 3.6.
3.5.2. Change of Control. Upon the occurrence of a Change of Control,
-----------------
the Borrower shall prepay in full all unpaid principal and interest (including
Capitalized Interest) outstanding on the Loans.
3.5.3. Initial Public Offering. Upon consummation of an initial
-----------------------
public offering of the Borrower's equity securities, the Borrower shall prepay
in full all unpaid principal and interest (including Capitalized Interest)
outstanding on the Loans.
3.5.4. Notice. The Borrower shall notify the Lender of any event
------
which could reasonably be expected to give rise to any prepayment to be made
pursuant to subsections 3.5.1 through 3.5.3.
3.5.5. Calculation of Net Proceeds Amounts. Concurrently with any
-----------------------------------
prepayment of the Loans pursuant to subsections 3.5.1 through 3.5.3, the
Borrower shall deliver to the Lender a Borrower's Certificate demonstrating the
calculation of the amount of the proceeds that gave rise to such prepayment.
3.6. Application of Prepayments. All prepayments (whether voluntary or
--------------------------
mandatory) shall include, notwithstanding subsection 3.3.2 above, the payment in
cash of accrued and unpaid interest on the principal amount (including
Capitalized Interest) of the Loans so prepaid and shall be applied first to
payment of principal before application to accrued interest thereon.
3.7. Manner and Time of Payment.
--------------------------
3.7.1. All payments by the Borrower under the Note of principal,
interest (except for Capitalized Interest) and fees hereunder shall be made
without defense, set off or counterclaim, in same day funds and delivered to the
Lender not later than 12:00 noon (Chicago time) on the date such payment is due,
by wire transfer of immediately available funds to the following account or such
other place the Lender may from time to time designate.
ABA No. 07100505
Account Number: 5800151556
Account Name: GTCR Capital Partners, L.P.
5
<PAGE>
LaSalle National Bank
135 S. LaSalle
Chicago, IL 60603
Reference: ZEFER Corp.
In the absence of timely notice and receipt, such funds shall be deemed to have
been paid by the Borrower on the next Business Day.
3.7.2. Whenever any payment to be made hereunder or under the Note
shall be stated to be due on a day which is not a Business Day, the payment
shall be made on the next succeeding Business Day and such additional period
shall be included in the computation of the payment of interest hereunder or
under the Note.
3.8. Term of this Agreement. All of the Loan Obligations shall become due
----------------------
and payable as otherwise set forth herein, but in any event, all of the
remaining Loan Obligations shall become due and payable on the Maturity Date.
Upon the Maturity Date and following repayment in full of the Loan Obligations,
this Agreement will terminate except as provided in Section 11.6.
Notwithstanding any such termination, until all Loan Obligations have been fully
paid and satisfied (other than continuing indemnity obligations), the Lender
shall be entitled to retain the security interests in the Collateral granted
under the Security Documents and the ability to exercise all rights and remedies
available to the Lender under the Loan Documents and applicable laws.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make
Loans to the Borrower hereunder, the Borrower represents and warrants to the
Lender that the following statements are and, after giving effect to the
transactions contemplated by this Agreement or any of the Loan Documents, will
be true, correct and complete:
4.1. Full Disclosure. No statement or information contained in this
---------------
Agreement, any financial statements delivered hereunder, the other Loan
Documents or any other document, certificate or written statement furnished to
the Lender or any other holder of the Note, by or on behalf of the Borrower for
use in connection with the transactions contemplated by the Loan Documents
contains any untrue statement of a material fact or omitted, omits or will omit
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances in which the same
were made. Any projections and pro forma financial information contained in the
---------
materials referenced above are based on good faith estimates and assumptions
believed by management of the Borrower to be reasonable at the time made, it
being recognized by the Lender that such financial information as it relates to
future events is not to be viewed as fact and that actual results during the
period or periods covered by such financial information may differ from the
projected results set forth therein by a material amount.
4.2. No Material Adverse Effect. Since September 30, 1999, there have been
--------------------------
no events or changes in facts or circumstances affecting the Borrower or any of
its Subsidiaries which individually or in the aggregate have had or could
reasonably be expected to have a Material Adverse
6
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Effect and that have not been disclosed herein or in the attached Schedules or
in any other documents, certificates and statements furnished to the Lender for
use in connection with the transactions contemplated hereby.
4.3. No Default. No event has occurred and is continuing which constitutes
----------
a Default or an Event of Default hereunder. The consummation of the Transactions
does not and will not violate, conflict with, result in a breach of, or
constitute a default (with due notice or lapse of time or both) under any
contract of the Borrower or any other Borrower Entity except if such violations,
conflicts, breaches or defaults could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
4.4. Organization, Powers, Capitalization and Good Standing .
------------------------------------------------------
4.4.1. Organization and Powers. Each of the Borrower Entities is a
-----------------------
corporation, limited liability company or limited partnership (as applicable)
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization (which jurisdiction is set forth
on Schedule 4.4.1 hereto). Each of the Borrower Entities has all requisite
corporate, partnership or limited liability company (as applicable) power and
authority to own and operate its properties, to carry on its business as now
conducted and proposed to be conducted, and to execute, deliver and perform its
obligations under the Loan Documents.
4.4.2. Capitalization. The authorized capital stock or other indicia
--------------
of equity ownership (the "Equity Interests") of each of the Borrower Entities,
as of the Closing Date, is as set forth on Schedule 4.4.2 hereto. All issued and
outstanding Equity Interests of each of the Borrower Entities are duly
authorized, validly issued, fully paid and non-assessable, free and clear of all
Liens other than those in favor of the Lender, and all such Equity Interests
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities. None of such Equity Interests constitutes "margin
stock" within the meaning of any regulation, interpretation or ruling of the
Board of Governors of the Federal Reserve System, all as from time to time in
effect. As of the Closing Date, the Equity Interests of each of the Borrower
Entities are owned by the stockholders or partners (as applicable) and in the
amounts set forth on Schedule 4.4.2. No Equity Interests of any Borrower
Entity, other than those described above, are issued and outstanding and there
are no preemptive or other outstanding rights, options, warrants, conversion
rights or similar agreements or understandings for the purchase or acquisition
from any Borrower Entity of an Equity Interest, other than those issued in
connection with the Loan Documents or described on Schedule 4.4.2.
4.4.3. Corporate Authority. The execution, delivery and performance
-------------------
of the Loan Documents by the Borrower and any Subsidiary of the Borrower have
been duly authorized by all necessary corporate action on the part of the Board
and stockholders of the Borrower and the board of directors and stockholders of
any such Subsidiary of the Borrower.
4.4.4. Binding Effect. Each of the Loan Documents is, or will be when
--------------
executed and delivered, the legal, valid and binding obligation of the
applicable Borrower Entities thereto, enforceable against each, as applicable,
in accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
7
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other laws relative to or affecting the enforcement of creditors' rights
generally in effect from time to time and by general principles of equity.
4.4.5. Qualification. Each of the Borrower Entities is duly qualified
-------------
and in good standing wherever necessary to carry on its business and operations,
except in jurisdictions in which the failure to be qualified and in good
standing could not reasonably be expected to have a Material Adverse Effect. All
jurisdictions in which each Borrower Entity is qualified to do business are set
forth on Schedule 4.4.5 hereto.
4.5. Financial Statements. All financial statements concerning the
--------------------
Borrower and its respective Subsidiaries which have been or will hereafter be
furnished to the Lender pursuant to this Agreement, including those listed
below, have been or will be prepared in accordance with GAAP consistently
applied (except as disclosed therein) and do or will present fairly in all
material respects the financial condition of the entities covered thereby as at
the dates thereof and the results of their operations for the periods then
ended, including, without limitation, the balance sheet at September 30, 1999
and the related statement of income of the Borrower for the four (4) months then
ended.
4.6. Litigation. There are no actions, suits or proceedings pending or, to
----------
the knowledge of the Borrower, threatened against or affecting the Borrower or
any Subsidiary of the Borrower or against any officer or director of the
Borrower or any Subsidiary of the Borrower (in their capacity as such) which are
likely to have, individually or in the aggregate, a Material Adverse Effect, or
which seek to enjoin, or otherwise prevent the consummation of, the Transactions
or to recover any damages or obtain any relief as a result of any of the
Transactions in any court or before any arbitrator of any kind or by any
governmental body.
4.7. Intellectual Property. The Borrower and each of its Subsidiaries
---------------------
owns, is licensed to use or otherwise has the right to use, all patents,
trademarks, trade names, copyrights, technology, know-how and processes used in
or necessary for the conduct of its business as heretofore conducted that are
material to the condition (financial or other), business or operations of the
Borrower or its Subsidiaries (collectively, the "Intellectual Property"). All of
the Intellectual Property comprised of registered patents, trademarks,
tradenames and copyrights and any and all applications pertaining thereto is
identified on Schedule 4.7 hereto and fully protected and/or duly and properly
registered, filed or issued in the appropriate office and jurisdictions for such
registrations, filings or issuances. Except as set forth on Schedule 4.7, the
use of the Intellectual Property by the Borrower and its Subsidiaries does not
and has not been alleged by any Person to infringe on the rights of any Person.
4.8. Investigations, Audits, Etc. Neither the Borrower nor any of its
---------------------------
Subsidiaries is the subject of any review or audit by the Internal Revenue
Service or any governmental investigation concerning the violation or possible
violation of any law.
4.9. Employee Matters. (i) No Borrower Entity nor any of their respective
----------------
employees is subject to any collective bargaining agreement, (ii) no petition
for certification or union election is pending with respect to the employees of
any Borrower Entity and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of any Borrower
Entity and (iii) there are no strikes, slowdowns, work stoppages or
controversies pending or, to the best knowledge of the Borrower after due
inquiry, threatened between any Borrower Entity and its
8
<PAGE>
respective employees, other than employee grievances arising in the ordinary
course of business which would not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. Except as set forth
on Schedule 4.9, neither the Borrower nor any of its Subsidiaries is party to an
employment contract.
4.10. Solvency. As of, from and after the date of this Agreement, the
--------
Borrower: (i) owns and will own assets the fair saleable value of which are (a)
greater than the total amount of liabilities (including contingent liabilities)
of the Borrower and (b) greater than the amount that will be required to pay the
probable liabilities of the Borrower's then existing debts as they become
absolute and matured considering all financing alternatives and potential asset
sales reasonably available to the Borrower; (ii) has capital that is not
unreasonably small in relation to its business as presently or contemplated to
be conducted; and (iii) does not intend to incur and does not believe that it
will incur debts beyond its ability to pay such debts as they become due.
4.11. Year 2000. The Borrower has made an assessment of the microchip and
---------
computer-based systems and the software used in its business and based upon such
assessment believes that it will be "Year 2000 Compliant" by the close of
business on December 30, 1999. For purposes of this paragraph, "Year 2000
Compliant" means that all software, embedded microchips and other processing
capabilities utilized by, and material to the business operations or financial
condition of, the Borrower are able to interpret, store, transmit, receive and
manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenarios in relation to dates in and after the Year
2000. From time to time, at the request of the Lender, the Borrower shall
provide to the Lender such update information as is reasonably requested
regarding the status of its efforts to become Year 2000 Compliant.
4.12. No Legal Obstacle to Agreements.
-------------------------------
4.12.1. Neither the execution and delivery of the Loan Documents,
nor the making of any borrowings hereunder, nor the consummation of any
transaction referred to in or contemplated by the Loan Documents, nor the
fulfillment of the terms hereof or thereof or of any other agreement,
instrument, deed or lease referred to in the Loan Documents, has constituted or
resulted in or will constitute or result in:
4.12.1.1. any breach or termination of the provisions of
any agreement, instrument, deed or lease to which any Borrower Entity is a party
or by which it is bound, or of the charter or by-laws of the Borrower Entity;
4.12.1.2. the violation of any law, statute, judgment,
decree or governmental order, rule or regulation applicable to any Borrower
Entity; and
4.12.1.3. any redemption, retirement or other repurchase
obligation of any Borrower Entity under any charter, by-law, agreement,
instrument, deed or lease.
4.12.2. No approval, authorization or other action by or declaration
to or filing with, any governmental or administrative authority or any other
Person is required to be obtained or made by the Borrower or any Subsidiary of
the Borrower in connection with the execution, delivery and
9
<PAGE>
performance of the Loan Documents, the transactions contemplated hereby or
thereby or the making of any borrowing hereunder other than Uniform Commercial
Code financing statement filings.
4.13. Brokerage Fees, Etc. Except as contemplated by the Loan Documents
-------------------
and the Professional Services Agreement, no broker's, finder's or placement fee
or commission will be payable to any Person alleged to have been retained by or
on behalf of the Borrower with respect to any of the transactions contemplated
by this Agreement or any of the other Loan Documents. The Borrower hereby
indemnifies the Lender against and agrees that it will hold each such party
harmless from any claim, demand or liability, including reasonable attorneys'
fees, for any broker's, finder's or placement fee or commission alleged to have
been incurred by the Borrower.
SECTION 5. CONDITIONS TO LOANS
5.1. Conditions to Initial Loan. The obligation of the Lender to make the
--------------------------
Initial Loan on the Closing Date is subject to the satisfaction of the following
conditions, each as of the Closing Date:
5.1.1. Representations and Warranties; No Default.
------------------------------------------
5.1.1.1. All representations and warranties contained in
this Agreement and in the Loan Documents shall be true, correct and complete in
all material respects on and as of the Closing Date, except for any
representation or warranty limited by its terms to a specific date and taking
into account any amendments to the Schedules or Exhibits as a result of any
disclosures made in writing by the Borrower to the Lender after the Closing Date
and approved by the Lender in writing.
5.1.1.2. No Default or Event of Default shall exist as of
the Closing Date or would result from the consummation of the borrowings made by
the Borrower on the Closing Date.
5.1.2. Loan Documents Satisfactory; Transactions Consummated. Each
-----------------------------------------------------
of the Loan Documents shall have been duly executed and delivered by the
respective parties thereto and shall be in full force and effect. All of the
terms, conditions and provisions of such documents shall be satisfactory to the
Lender in all respects, and no term, condition or provision thereof shall have
been supplemented, amended, modified or waived without the Lender's consent.
5.1.3. Opinion of the Borrower's Counsel. The Lender shall have
---------------------------------
received an opinion from Hale and Dorr LLP, special counsel for the Borrower,
which shall be addressed to the Lender, dated as of the Closing Date and in form
and substance satisfactory to the Lender.
5.1.4. Delivery of Additional Loan Documents. The Lender shall also
-------------------------------------
have received the following items, each of which shall be in form and substance
reasonably satisfactory to the Lender:
5.1.4.1. Resolutions of the Board and the Guarantors
approving the Transactions and approving and authorizing the execution, delivery
and performance of each Loan Document to which it is a party and approving and
authorizing the borrowing of the Loans, the
10
<PAGE>
execution, delivery and payment of the Note and of the obligations thereunder,
in each case certified as of the Closing Date by the secretary or an assistant
secretary of such Person as being in full force and effect without modification
or amendment.
5.1.4.2. A copy of the certificate of incorporation of the
Borrower and each Guarantor certified by the Secretary of State of the
jurisdiction of organization of such Person, together with a good standing
certificate from the Secretary of State of the jurisdiction of organization of
such Person, each to be dated a recent date prior to the Closing Date.
5.1.4.3. A certificate of the Borrower and each Guarantor,
signed on its behalf by an officer duly authorized, dated as of the Closing Date
(the statements made in which certificate shall be true on and as of such date)
certifying as to (i) the absence of any amendment to the charter of such Person
since the date of the Secretary of State's certificate referred to in Section
5.1.4.2 above, (ii) a true and correct copy of the by-laws of such Person as in
effect on the Closing Date, (iii) the due incorporation and good standing of
such Person as a corporation organized under the laws of the State of its
organization and the absence of any proceeding for the dissolution or
liquidation of such Person and (iv) the completeness and accuracy of the
representations and warranties contained in the Loan Documents as of the Closing
Date, including the absence of any event occurring and continuing, or resulting
from the Transactions, that constitutes a Default or an Event of Default.
5.1.4.4. A certificate of the secretary of the Borrower and
each Guarantor certifying the names and true signatures of the officers of the
Borrower or Guarantor, as applicable, executing the Loan Documents.
5.1.4.5. Copies of all third party and governmental
consents, approvals and filings required in connection with the consummation of
the transactions hereunder (including, without limitation, all blue sky law
filings and waivers of all preemptive rights and rights of first refusal).
5.1.4.6. Such other documents as may be reasonably
requested by the Lender in order to effectuate the provisions of this Agreement
and the other Loan Documents, including, without limitation, those documents set
forth on Schedule 5.1.4.6 hereto.
5.1.5. Corporate/Capital Structure. The Lender shall be satisfied
---------------------------
with the ownership, corporate and legal structure and capitalization of the
Borrower and its Subsidiaries, including, without limitation, the terms and
conditions of its charter and by-laws, the terms of the Borrower's and such
Subsidiaries' capital stock, options, warrants or other securities and any
agreements related thereto and the management of the Borrower and its
Subsidiaries.
5.1.6. Lender's Equity. The Lender shall have received the Warrants
---------------
to be issued to it pursuant to the Warrant Agreement.
5.1.7. No Material Adverse Change. Nothing shall have occurred (and
--------------------------
the Lender shall not be aware of any facts or conditions not previously known)
which the Lender shall determine has, or reasonably could be expected to have, a
material adverse effect on the rights or remedies of the Lender hereunder, or on
the ability of the Borrower or any Guarantor to perform its obligations
11
<PAGE>
with respect to the Loan Documents or has, or reasonably could be expected to
have, a Material Adverse Effect.
5.1.8. Litigation. There shall exist no action, suit,
----------
investigation, litigation or proceeding affecting the Borrower or any of its
Subsidiaries or any of its properties pending or, to the knowledge of the
Borrower, threatened before any court, governmental agency or arbitrator that
(i) could reasonably be expected to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of the Loan
Documents or the consummation of the transactions contemplated hereby and
thereby. No order, judgment or decree of any court, arbitrator or governmental
authority shall enjoin or restrain the Lender from making the Loans.
5.1.9. Certain Fees. On the Closing Date, the Borrower shall pay
------------
all expenses of the Lender (including, without limitation, reasonable legal fees
and expenses) incurred in connection with the negotiation and execution of this
Agreement and the other Loan Documents to the extent due.
5.1.10. No Violation of Regulations U or X. The making of the Loans
----------------------------------
shall not violate Regulations U or X of the Board of Governors of the Federal
Reserve Board.
5.2. Conditions to Loans Made After the Closing Date. Any subsequent
------------------------------------------------
Loans made by the Lender to the Borrower hereunder after the Closing Date are
subject to the satisfaction of the following conditions, each as of the date of
each such subsequent Loan:
5.2.1. Notice. The Lender shall have received, in accordance with
------
the provisions of Section 2.2, a notice requesting such subsequent Loan.
5.2.2. Representations and Warranties. All representations and
------------------------------
warranties of the Borrower contained in this Agreement shall be true, correct
and complete in all material respects as of the making of such subsequent Loan
and before and after giving effect to such Loan and to the application of the
proceeds therefrom, with the same effect as though such representations and
warranties had been made on and as of such date (except for any such
representation and warranty that, by its terms, refers to a specific date other
than the date of such Loan, in which case as of such specific date, and taking
into account any amendments to the Schedules or Exhibits as result of any
disclosures made in writing by the Borrower to the Lender after the Closing Date
and approved by the Lender in writing).
5.2.3. No Event of Default. No Default or Event of Default shall
-------------------
exist as of the date of such subsequent Loan or would result from the
consummation of the borrowings made by the Borrower on the date of such
subsequent Loan.
5.2.4. No Legal Obstacles. No order, judgment or decree of any
------------------
court, arbitrator or governmental authority shall purport to enjoin or restrain
the Lender from making any subsequent Loans.
5.2.5. Satisfaction of Conditions. At the time of making an
--------------------------
additional borrowing under a subsequent Loan hereunder, the Borrower shall be
deemed to have certified, represented and warranted to the Lender that the
conditions specified in subsections 5.2.1 through 5.2.4 have been fully
satisfied as of such time.
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SECTION 6. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as the Note or Loan
Obligations remain outstanding, unless the Lender shall otherwise give its prior
written consent, it shall perform and comply with, and shall cause each of the
other Borrower Entities to perform and comply with, all covenants in this
Section 6 applicable to such Person.
6.1. Payment of Loan Obligations. The Borrower will duly and punctually
---------------------------
pay the principal (including Capitalized Interest), interest and any other
amounts owing under this Agreement and/or the Note, in each case when due under
the terms of this Agreement and/or the Note.
6.2. Performance of Other Documents; Etc. The Borrower will comply with
-----------------------------------
and cause each of its Subsidiaries to comply with, all of the covenants,
agreements and conditions contained in this Agreement and the other Loan
Documents to which it is party. The Borrower will cause each Guarantor to comply
with all of the covenants, agreements and conditions contained in the Guaranty.
6.3. Compliance With Laws. The Borrower will (i) comply with and will
--------------------
cause each of its Subsidiaries to comply with, the requirements of all
applicable laws, rules, regulations and orders of any governmental authority
(including, without limitation, laws, rules, regulations and orders relating to
taxes, employer and employee contributions, securities, employee retirement and
welfare benefits, environmental protection matters and employee health and
safety) as then in effect and which may be imposed in the future in all
jurisdictions in which the Borrower or any of its Subsidiaries is now doing
business or may hereafter do business, other than those laws, rules, regulations
and orders the noncompliance with which could not be reasonably expected to
have, either individually or in the aggregate, a Material Adverse Effect, and
(ii) maintain or obtain and will cause each of its Subsidiaries to maintain or
obtain, all licenses, qualifications and permits now held or hereafter required
to be held by the Borrower or any of its Subsidiaries, for which the loss,
suspension, revocation or failure to obtain or renew, could have a Material
Adverse Effect. This Section 6.3 shall not preclude the Borrower or any
Subsidiary from contesting any taxes or other payments if they are being
diligently contested in good faith and if appropriate expense provisions have
been recorded in conformity with GAAP. Borrower represents and warrants that, as
of the date hereof, it (i) is in compliance and each of its Subsidiaries is in
compliance with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority as now in effect, other than those laws,
rules, regulations and orders the noncompliance with which could not reasonably
be expected to have a Material Adverse Effect, and (ii) maintains and each of
its Subsidiaries maintains, all licenses, qualifications and permits referred to
above, for which the loss, suspension, revocation or failure to obtain could
reasonably be expected to have a Material Adverse Effect.
6.4. Maintenance of Properties; Insurance . The Borrower will maintain or
------------------------------------
cause to be maintained in good repair, working order and condition, ordinary
wear and tear excepted, all material properties used in the business of the
Borrower and its Subsidiaries and will make or cause to be made all appropriate
repairs, renewals and replacements thereof. The Borrower will maintain or cause
to be maintained, with financially sound and reputable insurers, public
liability and property damage and business interruption insurance with respect
to its business and properties and the business and properties of its
Subsidiaries against loss or damage of the kinds customarily carried or
13
<PAGE>
maintained by businesses of established reputation engaged in similar businesses
and in amounts acceptable to the Lender and will deliver evidence thereof to the
Lender. Each such insurance policy shall be in form and substance satisfactory
to the Lender and shall (i) provide that at least thirty (30) days' prior
written notice of any material change to or any cancellation or lapse of such
policy must be given to the Lender by the insurer, (ii) provide that no act or
default by the Borrower or any of its Subsidiaries under such policy shall
impair the Lender's right of recovery thereunder and (iii) provide that the
insurer shall, as against the Lender, waive any rights of subrogation to the
extent that the named insured has waived such rights (and each Borrower Entity
hereby irrevocably and unconditionally waives any right of subrogation against
the Lender). The Borrower shall cause, pursuant to endorsements and assignments
in form and substance satisfactory to the Lender, the Lender to be named as
lender's loss payee in the case of casualty insurance, additional insured in the
case of liability and assignee and/or lender's loss payee in the case of
business interruption insurance. The Borrower represents and warrants that it
and each of its Subsidiaries currently maintains all material properties as set
forth above and maintains all insurance described above.
6.5. Inspection. The Borrower shall permit any authorized representatives
----------
of the Lender to visit and inspect any of the properties of the Borrower or any
of its Subsidiaries, including its and their financial accounting records, and
to make copies and take extracts therefrom, and to discuss its and their
affairs, finances and business with its and their key management personnel and
certified public accountants, at such reasonable times during normal business
hours and as often as may be requested.
6.6. Existence, Etc. Except as otherwise permitted by Section 7.6, the
--------------
Borrower will, and will cause each of its Subsidiaries to, at all times preserve
and keep in full force and effect its present legal entity existence and all
rights and franchises material to its business.
6.7. Further Assurances; Guaranty of Loan Obligations; Grant of Security
-------------------------------------------------------------------
Interests.
- ---------
6.7.1. The Borrower shall, and shall cause each Borrower Entity to,
from time to time, execute such guarantees, financing statements, documents,
security agreements and reports as the Lender at any time may reasonably request
to evidence, perfect or otherwise implement the guaranties and security for
repayment of the Loan Obligations provided for in the Loan Documents. Without
limiting the foregoing, the Borrower agrees that, upon the request of the
Lender, it shall create a new, wholly-owned Subsidiary ("Newco") to which it
will contribute its assets, and upon the happening of such event, Newco will
become the borrower hereunder, and the Borrower will become a Guarantor of the
Loan Obligations and pledge the stock of Newco to the Lender.
6.7.2. The Borrower will cause each of its domestic Subsidiaries
existing on the Closing Date, and after the Closing Date will promptly upon the
creation or acquisition of a new Subsidiary cause such new Subsidiary, to become
a Guarantor of the Loan Obligations under the Guaranty, and to grant to the
Lender a security interest in the real, personal and mixed property of such
Subsidiary to secure the Loan Obligations.
14
<PAGE>
SECTION 7. NEGATIVE COVENANTS.
The Borrower covenants and agrees that so long as any Loan Obligation
remains outstanding, the Borrower shall perform and comply with, and shall cause
each of the other Borrower Entities to perform and comply with, all covenants of
this Section 7 applicable to such Person, unless the Lender shall otherwise give
its prior written consent.
7.1. Indebtedness. Borrower will not and will not permit any of its
------------
Subsidiaries directly or indirectly to create, incur, assume, guaranty, or
otherwise become or remain directly or indirectly liable with respect to any
Indebtedness except:
7.1.1. (i) Indebtedness existing on the date hereof, which
Indebtedness is set forth on Schedule 7.1.1(i) hereto and (ii) Indebtedness not
to exceed $10,000,000 under a line of credit previously approved in writing by
the Board; provided that such Indebtedness referred to in subsection 7.1.1(ii)
--------
shall be in form and substance satisfactory to the Lender and shall be subject
to an intercreditor agreement in form and substance satisfactory to the Lender;
7.1.2. the Loan Obligations;
7.1.3. intercompany Indebtedness among the Borrower and its
Subsidiaries;
7.1.4. Indebtedness issued to sellers in connection with Permitted
Acquisitions; provided that such Indebtedness shall be in form, substance and
--------
amount satisfactory to the Lender and shall include a standstill agreement in
form and substance satisfactory to the Lender;
7.1.5. Indebtedness not to exceed $500,000 in the aggregate at any
time outstanding secured by purchase money Liens or incurred with respect to
capital leases; and
7.1.6. other Indebtedness not referred to above and not in excess of
$250,000 in the aggregate.
7.2. Liens and Related Matters.
-------------------------
7.2.1. No Liens. The Borrower will not and will not permit any of its
--------
Subsidiaries directly or indirectly to create, incur, assume or permit to exist
any Lien on or with respect to any property or asset (including any document or
instrument with respect to goods or accounts receivable) of the Borrower or any
of its Subsidiaries, whether now owned or hereafter acquired, or any income or
profits therefrom, except Permitted Encumbrances. "Permitted Encumbrances" means
the following:
7.2.1.1. Liens for taxes, assessments or other governmental
charges not yet due and payable;
7.2.1.2. statutory Liens of landlords, carriers and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent or which are being
contested in good faith; provided that a reserve or other appropriate
--------
15
<PAGE>
provision shall have been made therefor and the aggregate amount of the
liabilities secured by such Liens is less than $250,000;
7.2.1.3. Liens (other than any Lien imposed by the Employee
Retirement Income Security Act of 1974 or any rule or regulation promulgated
thereunder) incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory obligations,
surety, stay, customs and appeal bonds, bids, leases, government contracts,
trade contracts, performance and return of money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
7.2.1.4. deposits, in an aggregate amount not to exceed
$250,000, made in the ordinary course of business to secure liability to
insurance carriers;
7.2.1.5. Liens for (i) purchase money obligations (provided
--------
that (a) the purchase of the asset subject to any such Lien is permitted under
Section 8.1 and (b) any such Lien encumbers only the asset so purchased) and
(ii) capital lease obligations, in either case to the extent that the
Indebtedness secured by any such Lien is permitted under subsection 7.1.5; any
attachment or judgment Lien not constituting an Event of Default under
subsection 9.1.9;
7.2.1.6. leases or subleases granted to others not interfering
in any material respect with the business of the Borrower or any of its
Subsidiaries;
7.2.1.7. easements, rights of way, restrictions, and other
similar charges or encumbrances not interfering in any material respect with the
ordinary conduct of the business of the Borrower or any of its Subsidiaries;
7.2.1.8. any interest or title of a lessor or sublessor under
any lease permitted by Section 8.2;
7.2.1.9. Liens in favor of the Lender;
7.2.1.10. Liens upon the accounts receivable of the Borrower
and its Subsidiaries incurred in connection with the line of credit referred to
in subsection 7.1.1(ii), to the extent thereby; and
7.2.1.11. Liens existing on the date hereof and renewals and
extensions thereof, which Liens are set forth on Schedule 7.2.1.11 hereto.
7.2.2. No Negative Pledges. The Borrower will not and will not permit
-------------------
any of its Subsidiaries directly or indirectly to enter into or assume any
agreement (other than the Loan Documents) prohibiting the creation or assumption
of any Lien upon its properties or assets, whether now owned or hereafter
acquired.
7.2.3. No Restrictions on Subsidiary Distributions to the Borrower.
-----------------------------------------------------------
Except as provided herein, the Borrower will not and will not permit any of its
Subsidiaries directly or indirectly
16
<PAGE>
to create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any such
Subsidiary to: (i) pay dividends or make any other distribution on any of such
Subsidiary's capital stock owned by the Borrower or any Subsidiary of the
Borrower; (ii) subject to subordination provisions, pay any Indebtedness owed to
the Borrower or any other Subsidiary; (iii) make loans or advances to the
Borrower or any other Subsidiary; or (iv) transfer any of its property or assets
to the Borrower or any other Subsidiary.
7.3. Investments. The Borrower will not and will not permit any of its
-----------
Subsidiaries directly or indirectly to make or own any Investment in any Person
except:
7.3.1. the Borrower and its Subsidiaries may make and own Investments
in Cash Equivalents; provided that such Cash Equivalents are not subject to
--------
setoff rights;
7.3.2. the Borrower and its Subsidiaries may make intercompany loans
to the extent permitted under Section 7.1;
7.3.3. the Borrower and its Subsidiaries may make loans and advances
to employees for moving, entertainment, travel and other similar expenses in the
ordinary course of business;
7.3.4. the Borrower and its Subsidiaries may make Investments, other
than those described in subsections 7.3.1 through 7.3.3, not to exceed $250,000
in the aggregate;
7.3.5. Investments existing on the date hereof, which Investments are
set forth on Schedule 7.3.5 hereto; and
7.3.6. non-controlling Investments in Internet-related companies of a
type previously approved in writing by the Board; provided that (i) the total
--------
purchase price of all such Investments shall not exceed $4,000,000 in the
aggregate and for any single Investment shall not exceed $1,000,000, (ii) at the
time of any such Investment and immediately after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing and (iii)
prior to consummating any such Investment, the Borrower shall have taken all
actions necessary to grant to the Lender a first priority security interest in
the stock and assets comprising the acquired business.
7.4. Contingent Obligations. The Borrower will not and will not permit any
----------------------
of its Subsidiaries directly or indirectly to create or become or be liable with
respect to any Contingent Obligation except those:
7.4.1. resulting from endorsement of negotiable instruments for
collection in the ordinary course of business;
7.4.2. Contingent Obligations existing on the Closing Date, which
Contingent Obligations are set forth on Schedule 7.4.2 hereto;
7.4.3. arising under indemnity agreements to title insurers to cause
such title insurers to issue to the Lender mortgagee title insurance policies;
17
<PAGE>
7.4.4. arising with respect to customary indemnification obligations
incurred in connection with Asset Dispositions;
7.4.5. incurred in the ordinary course of business with respect to
surety and appeal bonds, performance and return-of-money bonds and other similar
obligations not exceeding at any time outstanding $250,000 in aggregate
liability;
7.4.6. incurred with respect to Indebtedness permitted by Section 7.1;
and
7.4.7. not permitted by subsections 7.4.1 through 7.4.6 above, so long
as any such Contingent Obligations, in the aggregate at any time outstanding, do
not exceed $100,000.
7.5. Restricted Junior Payments. The Borrower will not and will not
--------------------------
permit any of its Subsidiaries directly or indirectly to declare, order, pay,
make or set apart any sum for any Restricted Junior Payment, except:
7.5.1. wholly-owned Subsidiaries of the Borrower may make Restricted
Junior Payments with respect to their common stock;
7.5.2. the Borrower may make non-accelerated payments of principal and
interest in respect of Seller Indebtedness; provided that no Default or Event of
--------
Default has occurred and is continuing or would arise as a result of such
Restricted Junior Payments;
7.5.3. the Borrower may redeem for cash from management stockholders
shares of common stock or preferred stock of the Borrower or warrants or options
to acquire any such shares, and make non-accelerated scheduled cash payments
with respect to the Management Redemption Notes; provided that all of the
--------
following conditions are satisfied:
7.5.3.1. no Default or Event of Default has occurred and is
continuing or would arise as a result of such Restricted Junior Payments; and
7.5.3.2. the aggregate Restricted Junior Payments pursuant to
this subsection 7.5.3 permitted (i) in any fiscal year of the Borrower shall not
exceed $250,000 and (ii) during the term of this Agreement shall not exceed
$1,000,000.
7.5.4. provided no Default or Event of Default exists or would arise
as a result thereof, the Borrower may make non-accelerated scheduled payments in
respect of Earn-Out Obligations permitted by this Agreement; and
7.5.5. the Borrower may redeem its capital stock with the proceeds
from the simultaneous issuance of new capital stock.
7.6. Restriction on Fundamental Changes.
----------------------------------
7.6.1. The Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to: (i) amend, modify or waive any term or
provision of its organization documents,
18
<PAGE>
including, without limitation, its certificate of limited partnership, articles
of incorporation, membership agreement, certificates of designation pertaining
to preferred stock, partnership agreement or by-laws in a manner adverse to the
Lender unless (a) such actions are required by law or (b) such actions are in
connection with the initial public offering of the Borrower's equity securities
(provided that all such actions are in form and substance satisfactory to the
--------
Lender); (ii) enter into any transaction of merger or consolidation except (a)
in connection with a Permitted Acquisition, the Person which is the subject of
such Permitted Acquisition may merge with and into a Subsidiary of the Borrower
or a Subsidiary of the Borrower may merge with or into such Person and (b) any
Subsidiary of the Borrower may be merged with or into the Borrower (provided
--------
that the Borrower is the surviving entity) or any other Subsidiary of the
Borrower; (iii) liquidate, wind-up or dissolve itself (or suffer any liquidation
or dissolution); or (iv) acquire by purchase or otherwise all or any substantial
part of the business or assets of any other Person, other than Permitted
Acquisitions, Capital Expenditures permitted hereunder and inventory purchased
in the ordinary course of business.
7.6.2. The Borrower will not consummate, and will not permit any
Subsidiary to consummate, any Acquisition other than a Permitted Acquisition.
The Borrower shall provide to the Lender within five (5) Business Days after
such Acquisition, (i) copies of all executed acquisition agreements and other
documents pertaining to such Permitted Acquisition and (ii) evidence, in form
and substance satisfactory to the Lender, that the Lender (a) is granted a first
priority perfected security interest (subject only to Permitted Encumbrances) in
all assets being acquired pursuant to such Permitted Acquisition (and, in the
case of a Permitted Acquisition involving the purchase of the acquired Person's
capital stock, the Borrower shall pledge, or shall cause to be pledged, all of
the shares of capital stock of such acquired Person owned by it or any other
Borrower Entity to the Lender for the benefit of the Lender, and shall cause
such acquired Person to guarantee the Loan Obligations and to grant to the
Lender a first priority perfected security interest (subject only to Permitted
Encumbrances) in such Person's assets) and (b) will be provided such other
documents and instruments as the Lender shall request from time to time to
perfect or maintain the perfection of its security interest in assets of the
acquired Person.
7.7. Disposal of Assets or Subsidiary Stock. The Borrower will not and
--------------------------------------
will not permit any of its Subsidiaries directly or indirectly to convey, sell,
lease, sublease, transfer or otherwise dispose of, or grant any Person an option
to acquire, in one transaction or a series of transactions, any of its property,
business or assets, or the capital stock of or other equity interests in any of
its Subsidiaries, whether now owned or hereafter acquired, except for (i)
dispositions of obsolete equipment not used or useful in the business and (ii)
Asset Dispositions if all of the following conditions are met: (a) the market
value of assets sold or otherwise disposed of in any single transaction or
series of related transactions does not exceed $100,000 and the aggregate market
value of assets sold or otherwise disposed of in any fiscal year of the Borrower
does not exceed $250,000; (b) the consideration received is at least equal to
the fair market value of such assets; (c) the sole consideration received is
cash; (d) the Net Proceeds of such Asset Disposition are applied as required by
subsection 3.5.1; and (e) no Default or Event of Default then exists or shall
result from such sale or other disposition.
7.8. Transactions with Affiliates. The Borrower will not and will not
----------------------------
permit any of its Subsidiaries directly or indirectly to enter into or permit to
exist any transaction (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate
19
<PAGE>
or with any director, officer or employee of any Borrower Entity, except
transactions in the ordinary course of and pursuant to the reasonable
requirements of the business of the Borrower or any of its Subsidiaries and upon
fair and reasonable terms which are fully disclosed to the Lender and are no
less favorable to the Borrower or such Subsidiary than would be obtained in a
comparable arm's length transaction with a Person that is not an Affiliate.
7.9. Conduct of Business. The Borrower will not and will not permit any
-------------------
of its Subsidiaries directly or indirectly to engage in any business other than
the business of providing Internet professional services.
7.10. Changes Relating to Certain Indebtedness. The Borrower will not and
----------------------------------------
will not permit any of its Subsidiaries directly or indirectly to change or
amend the terms of any of its Indebtedness (other than Indebtedness of a type
described in subsections 7.1.3 through 7.1.6) if the effect of such amendment is
to: (i) increase the interest rate on the subject Indebtedness; (ii) change the
dates upon which payments of principal or interest are due on the subject
Indebtedness; (iii) change any event of default or add any covenant with respect
to the subject Indebtedness; (iv) change the prepayment provisions of the
subject Indebtedness; (v) change the subordination provisions thereof (or the
subordination terms of any guaranty thereof); or (vi) change or amend any other
term if such change or amendment would materially increase the obligations of
the obligor or confer additional material rights on the holder of the subject
Indebtedness in a manner adverse to the Borrower, any of its Subsidiaries or the
Lender.
7.11. Fiscal Year. Neither the Borrower nor any Subsidiary of the
-----------
Borrower shall change its fiscal year.
7.12. Press Release; Public Offering Materials. The Borrower will not and
----------------------------------------
will not permit any of its Subsidiaries to disclose the name of the Lender in
any press release or in any prospectus, proxy statement or other materials filed
with any governmental entity relating to a public offering of the capital stock
of any Borrower Entity without the Lender's prior written consent which shall
not be unreasonably withheld.
7.13. Subsidiaries. The Borrower will not and will not permit any of its
------------
Subsidiaries directly or indirectly to establish, create or acquire any new
Subsidiary other than in connection with a Permitted Acquisition.
SECTION 8. FINANCIAL AND REPORTING COVENANTS
The Borrower covenants and agrees that so long as the Note or Loan
Obligations remain outstanding (other than continuing indemnity obligations),
unless the Lender shall otherwise give its prior written consent, the Borrower
shall perform and comply with, and shall cause each of the other Borrower
Entities to perform and comply with, all covenants in this Section 8 applicable
to such Person:
8.1. Capital Expenditure Limits. The Borrower shall not permit the
--------------------------
aggregate amount of all Capital Expenditures of the Borrower and its
Subsidiaries for the twelve (12) month period ending
20
<PAGE>
on the last day of each calender quarter during the periods set forth below to
exceed the amount set forth below for such period:
Period Amount
------ ------
Closing Date through 12/31/00 $10,000,000
1/1/01 through 12/31/01 and each $5,000,000
year thereafter
"Capital Expenditures" will be calculated as illustrated on Exhibit
8.5.3.
8.2. Lease Limits. The Borrower will not and will not permit any of its
------------
Subsidiaries directly or indirectly to become or remain liable in any way,
whether directly or by assignment or as a guarantor or other surety, for the
obligations of the lessee under any operating lease (other than intercompany
leases between the Borrower and its Subsidiaries), if the aggregate amount of
all rents paid by the Borrower and its Subsidiaries under all such leases would
exceed $10,000,000 in any fiscal year of the Borrower.
8.3. Minimum Pre-Corporate EBITDA. The Borrower shall not permit Pre-
----------------------------
Corporate EBITDA for the four quarter period ending on the last day of each
calendar quarter beginning June 30, 2000 and each quarter thereafter to be less
than $9,616,000. "Pre-Corporate EBITDA" will be calculated as illustrated on
Exhibit 8.5.3. Notwithstanding the foregoing, in calculating Pre-Corporate
EBITDA for the four quarter periods ending June 30, 2000, September 30, 2000 and
December 31, 2000, all components thereof shall be calculated by taking the
amounts thereof for the period beginning April 1, 2000 through such date and
multiplying it by 4, 2 and 4/3 respectively.
8.4. Pre-Corporate Fixed Charge Coverage. The Borrower shall not permit
-----------------------------------
Pre-Corporate Fixed Charge Coverage for the four quarter period ending on the
last day of each calendar quarter beginning June 30, 2000 and each quarter
thereafter to be less than 2.0. "Pre-Corporate Fixed Charge Coverage" will be
calculated as illustrated on Exhibit 8.5.3. Notwithstanding the foregoing, in
calculating Pre-Corporate Fixed Charge Coverage for the four quarter periods
ending June 30, 2000, September 30, 2000 and December 31, 2000, the Pre-
Corporate EBITDA component thereof shall be calculated in the manner required by
Section 8.3.
8.5. Financial Statements and Other Reports. The Borrower will maintain,
--------------------------------------
and cause each of its Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP (it being
understood that monthly financial statements are not required to have footnote
disclosures). The Borrower will deliver to the Lender each of the financial
statements and other reports described below.
8.5.1. Quarterly Financials. As soon as available and in any event
--------------------
within thirty (30) days after the end of each quarterly period ending on each
March 31, June 30, September 30 or
21
<PAGE>
December 31, the Borrower will deliver (i) the consolidated balance sheet of the
Borrower and its Subsidiaries, as at the end of such quarterly period, and the
related consolidated statements of income, stockholders' equity and cash flow
for such quarterly period and for the period from the beginning of the then
current fiscal year of the Borrower to the end of such quarterly period and (ii)
a schedule of the outstanding Indebtedness for borrowed money of the Borrower
and its Subsidiaries describing in reasonable detail each such debt issue or
loan outstanding and the principal amount and amount of accrued and unpaid
interest with respect to each such debt issue or loan.
8.5.2. Year-End Financials. As soon as available and in any event
-------------------
within ninety (90) days after the end of each fiscal year of the Borrower, the
Borrower will deliver (i) the consolidated balance sheet of the Borrower and its
Subsidiaries, as at the end of such year, and the related consolidated
statements of income, stockholders' equity and cash flow for such fiscal year,
(ii) a schedule of the outstanding Indebtedness for borrowed money of the
Borrower and its Subsidiaries describing in reasonable detail each such debt
issue or loan outstanding and the principal amount and amount of accrued and
unpaid interest with respect to each such debt issue or loan and (iii) a report
with respect to the financial statements from a firm of Certified Public
Accountants selected by the Borrower and reasonably acceptable to Lender, which
report shall be prepared in accordance with Statement of Auditing Standards No.
58 (the "Statement") entitled "Reports on Audited Financial Statements" and such
report shall be "Unqualified" (as such term is defined in such Statement).
8.5.3. Borrower Compliance Certificate. Together with each delivery of
-------------------------------
financial statements of the Borrower and its Subsidiaries pursuant to
subsections 8.5.1 and 8.5.2, the Borrower will deliver a fully and properly
completed Compliance Certificate (in substantially the same form as Exhibit
8.5.3 hereto) signed by the Borrower's chief executive officer or chief
financial officer.
8.5.4. Accountants' Reports. Promptly upon receipt thereof, the
--------------------
Borrower will deliver copies of all significant reports submitted by the
Borrower's firm of certified public accountants in connection with each annual,
interim or special audit or review of any type of the financial statements or
related internal control systems of the Borrower made by such accountants,
including any comment letter submitted by such accountants to management in
connection with their services.
8.5.5. Management Report. Together with each delivery of financial
-----------------
statements of the Borrower pursuant to subsections 8.5.1 and 8.5.2, the Borrower
will deliver a management report (i) describing the operations and financial
condition of the Borrower and its Subsidiaries for the quarter then ended and
the portion of the current fiscal year then elapsed (or for the fiscal year then
ended in the case of year-end financials), (ii) commencing with the financial
statements delivered for the quarter ending June 30, 2000, setting forth in
comparative form the corresponding figures for the corresponding periods of the
previous fiscal year and (iii) discussing the reasons for any significant
variations. The information above shall be presented in reasonable detail and
shall be certified by the chief financial officer of the Borrower to the effect
that such information fairly presents, in all material respects, the results of
operations and financial condition of the Borrower and its Subsidiaries as at
the dates and for the periods indicated.
22
<PAGE>
8.5.6. SEC Filings and Press Releases. Promptly upon their becoming
------------------------------
available, the Borrower will deliver copies of (i) all financial statements,
reports, notices and proxy statements sent or made available by the Borrower or
any of its Subsidiaries to its security holders, (ii) all regular and periodic
reports and all registration statements and prospectuses, if any, filed by the
Borrower or any of its Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any governmental or private regulatory
authority and (iii) all press releases and other statements made available by
the Borrower or any of its Subsidiaries to the public concerning developments in
the business of any such Person.
8.5.7. Events of Default, Etc. Promptly upon either the chief financial
----------------------
officer or the chief executive officer of the Borrower (or persons with
comparable titles) obtaining knowledge of any of the following events or
conditions, the Borrower shall deliver copies of all notices given or received
by the Borrower with respect to any such event or condition and a certificate of
the Borrower's chief executive officer specifying the nature and period of
existence of such event or condition and what action the Borrower has taken, is
taking and proposes to take with respect thereto: (i) any condition or event
that constitutes an Event of Default or Default; (ii) any notice that any Person
has given to the Borrower or any of its Subsidiaries or any other action taken
with respect to a claimed default or event or condition of the type referred to
in subsection 9.1.2; or (iii) any event or condition that could reasonably be
expected to result in any Material Adverse Effect.
8.5.8. Litigation. Promptly upon either the chief financial officer or
----------
the chief executive officer of the Borrower (or persons with comparable titles)
obtaining actual knowledge of (i) the institution of any action, suit,
proceeding, governmental investigation or arbitration against or affecting the
Borrower or any Subsidiary of the Borrower or any property of the Borrower or
any Subsidiary of the Borrower not previously disclosed by the Borrower to the
Lender or (ii) any material development in any action, suit, proceeding,
governmental investigation or arbitration at any time pending against or
affecting the Borrower or any Subsidiary of the Borrower or any property of the
Borrower or any Subsidiary of the Borrower which, in each case, is reasonably
possible to have a Material Adverse Effect, the Borrower will promptly give
notice thereof to the Lender and provide such other information as may be
reasonably available to it to enable the Lender and its counsel to evaluate such
matter.
8.5.9. Supplemented Schedules; Notice of Entity Changes. Annually, the
------------------------------------------------
Borrower shall supplement in writing and deliver to the Lender revisions of the
Schedules annexed to this Agreement and the other Loan Documents to the extent
necessary to disclose new or changed facts or circumstances after the Closing
Date; provided that subsequent disclosures shall not constitute a cure or waiver
--------
of any Default or Event of Default resulting from the matters disclosed. The
Borrower shall provide prompt written notice to the Lender of (i) all
jurisdictions in which a Borrower Entity becomes qualified after the Closing
Date to transact business, (ii) any material change after the Closing Date in
the authorized and issued capital stock or other equity interests of any
Borrower Entity or any of their respective Subsidiaries or any other material
amendment to their charter, by-laws, partnership or other organization documents
and (iii) any Subsidiary created or acquired by any Borrower Entity after the
Closing Date, such notice, in each case, to identify the applicable
jurisdictions, capital structures or Subsidiaries, as applicable.
23
<PAGE>
8.5.10. Other Information. With reasonable promptness, the Borrower
-----------------
will deliver such other information and data with respect to any Borrower Entity
or any Subsidiary of any Borrower Entity as from time to time may be reasonably
requested by the Lender.
8.6. Utilization of GAAP for Purposes of Calculations Under this
-----------------------------------------------------------
Agreement. Financial statements and other information furnished to the Lender
- ---------
pursuant to Section 8.5 shall be prepared in accordance with GAAP as in effect
at the time of such preparation. No "Accounting Changes" (as defined below)
shall affect financial covenants, standards or terms in this Agreement; provided
--------
that the Borrower shall prepare footnotes to each Compliance Certificate and the
financial statements required to be delivered hereunder that show the
differences between the financial statements delivered (which reflect such
Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). "Accounting Changes" means: (i)
changes in accounting principles required by GAAP and implemented by the
Borrower and (ii) changes in accounting principles recommended by the Borrower's
certified public accountants and implemented by the Borrower. All such
adjustments resulting from expenditures made subsequent to the Closing Date
(including, but not limited to, capitalization of costs and expenses or payment
of pre-Closing Date liabilities) shall be treated as expenses in the period the
expenditures are made.
SECTION 9. DEFAULT, RIGHTS AND REMEDIES
9.1. Event of Default. "Event of Default" shall mean the occurrence or
----------------
existence of any one or more of the following:
9.1.1. Payment Default. Failure of the Borrower to pay (i) any
---------------
principal (including any Capitalized Interest) of the Loans when the same
becomes due and payable, whether upon maturity, prepayment, acceleration or
otherwise (including any applicable premium thereon) or (ii) any interest on any
Loan, for a period of three (3) Business Days after the same shall become due
and payable or (iii) any other amount due under this Agreement or any of the
other Loan Documents within five (5) days after demand therefor; or
9.1.2. Default in Other Agreements. (i) Failure of the Borrower
---------------------------
of its Subsidiaries to pay when due or within any applicable grace period any
principal or interest on Indebtedness (other than the Loans) or any Contingent
Obligations or (ii) breach or default of the Borrower or any of its
Subsidiaries, or the occurrence of any condition, obligation or event with
respect to any Indebtedness (other than the Loans) or any Contingent
Obligations, if the effect of such failure to pay, breach or default is to cause
or to permit the holder or holders then to cause, Indebtedness and/or Contingent
Obligations having an individual principal amount in excess of $250,000 or
having an aggregate principal amount in excess of $500,000 to become due or
declared due prior to their stated maturity; or
9.1.3. Breach of Certain Provisions. Failure of the Borrower to
----------------------------
perform or comply with any term or condition contained in that portion of
Section 6.4 relating to the Borrower's obligation to maintain insurance, Section
6.5, Section 7 or Section 8 or any Guarantor shall fail to perform, keep or
observe any of its obligations under the Guaranty; or
24
<PAGE>
9.1.4. Breach of Representations or Warranties. Any
---------------------------------------
representation, warranty, certification or other statement made by any Borrower
Entity in any Loan Document or in any statement or certificate at any time given
by such Person in writing pursuant to or in connection with any Loan Document is
false in any material respect on the date made; or
9.1.5. Other Defaults under the Loan Documents. The Borrower or
---------------------------------------
any other Borrower Entity defaults in the performance of or compliance with any
other covenant, agreement or condition contained in this Agreement or the other
Loan Documents and such default is not remedied within thirty (30) days after
the earlier of (i) the date upon which a responsible officer of the Borrower
knew of such default or (ii) the date upon which written notice of such default
is given to the Borrower by any Lender (other than occurrences described in
other provisions of this Section 9.1 for which a different grace or cure period
is specified or which constitute immediate events of Default); or
9.1.6. Involuntary Bankruptcy, Appointment of Receiver, Etc. (i)
----------------------------------------------------
A court enters a decree or order for relief in respect of the Borrower or any of
its Subsidiaries in an involuntary case under the Bankruptcy Code or any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, which decree or order is not dismissed, stayed, discharged or other
similar relief is not granted under any applicable federal or state law; or (ii)
the continuance of any of the following events for sixty (60) days unless
dismissed, bonded or discharged: (a) an involuntary case is commenced against
the Borrower or any of its Subsidiaries under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect; or (b) a decree or
order of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer having
similar powers over the Borrower or any of its Subsidiaries, or over all or a
substantial part of any of their respective properties, is entered; or (c) an
interim receiver, trustee or other custodian of the Borrower or any of its
Subsidiaries for all or a substantial part of their respective properties is
involuntarily appointed; or (d) a warrant of attachment, execution or similar
process is issued against any substantial part of the property of the Borrower
or any of its Subsidiaries; or
9.1.7. Voluntary Bankruptcy, Appointment of Receiver, Etc. (i)
--------------------------------------------------
An order for relief is entered with respect to the Borrower or any of its
Subsidiaries; or (ii) the Borrower or any of its Subsidiaries commences a
voluntary case under the Bankruptcy Code or any other applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents to the
entry of an order for relief in an involuntary case, or to the conversion of an
involuntary case to a voluntary case, under any such law, or consents to the
appointment of or taking possession by a receiver, trustee or other custodian
for all or a substantial part of its property; or (iii) the Borrower or any of
its Subsidiaries makes any assignment for the benefit of creditors; or (iv) the
board of directors of the Borrower or any of its Subsidiaries (or any committee
thereof) adopts any resolution or otherwise authorizes any action to approve any
of the actions referred to in this subsection 9.1.7; or
9.1.8. Governmental Liens. Any lien, levy or assessment is filed
------------------
or recorded with respect to or otherwise imposed upon all or any part of the
Collateral or the assets of Borrower or any of its Subsidiaries by the United
States or any department or instrumentality thereof or by any state, county,
municipality or other governmental agency (other than Permitted Encumbrances);
or
25
<PAGE>
9.1.9. Judgments and Attachments. Any money judgment, writ or
-------------------------
warrant of attachment, or similar process (other than those described in
subsection 9.1.8) involving (i) an amount in any individual case in excess of
$100,000 or (ii) an amount in the aggregate at any time in excess of $250,000
(in either case to the extent not adequately covered by insurance as to which
the insurance company has acknowledged coverage) is entered or filed against the
Borrower or any of its Subsidiaries or any of their respective assets and
remains undischarged, unvacated, unbonded or unstayed for a period of thirty
(30) days or in any event later than five (5) Business Days prior to the date of
any proposed sale thereunder; or
9.1.10. Dissolution. Any order, judgment or decree is entered
-----------
the Borrower or any of its Subsidiaries decreeing the dissolution or split up of
the Borrower or such Subsidiary and such order remains undischarged or unstayed
for a period in excess of fifteen (15) days; or
9.1.11. Injunction. The Borrower or any of its Subsidiaries is
----------
enjoined, restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business and such order continues for more than fifteen (15) days; or
9.1.12. ERISA; Pension Plans. (i) The Borrower or any Affiliate or
--------------------
Subsidiary of the Borrower fails to make full payment when due of all amounts
which, under the provisions of any employee benefit plans or any applicable
provisions of the Code, any such Person is required to pay as contributions
thereto and such failure results in or could reasonably be expected to result in
a Material Adverse Effect; or (ii) an accumulated funding deficiency in excess
of $100,000 occurs or exists, whether or not waived, with respect to any such
employee benefit plans; or (iii) any such employee benefit plan loses its status
as a qualified plan under the Code which results in or could reasonably be
expected to result in a Material Adverse Effect; or
9.1.13. Environmental Matters. The Borrower or any of its
---------------------
Subsidiaries fails to: (i) obtain or maintain any operating licenses or permits
required by environmental authorities; (ii) begin, continue or complete any
remediation activities as required by any environmental authorities; (iii) store
or dispose of any hazardous materials in accordance with applicable
environmental laws and regulations; or (iv) comply with any other environmental
laws; if any such failure, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect; or
9.1.14. Invalidity of Loan Documents. Any of the Loan Documents
----------------------------
for any reason, other than a partial or full release in accordance with the
terms thereof, ceases to be in full force and effect or is declared to be null
and void, or any Borrowing Entity denies that it has any further liability under
any Loan Documents to which it is party, or gives notice to such effect; or
9.1.15. Damage; Strike; Casualty. Any material damage to, or loss,
------------------------
or destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public enemy, or
other casualty which causes, for more than fifteen (15) consecutive days, the
cessation or substantial curtailment of revenue producing activities at any
facility of the Borrower or any of its Subsidiaries if any such event or
circumstance could reasonably be expected to have a Material Adverse Effect; or
26
<PAGE>
9.1.16. Licenses and Permits. The loss, suspension or revocation
--------------------
failure to renew, any license or permit now held or hereafter acquired by the
Borrower or any of its Subsidiaries, if such loss, suspension, revocation or
failure to renew could reasonably be expected to have a Material Adverse Effect;
or
9.1.17. Failure of Security. The Lender does not have or ceases
-------------------
to have a valid and perfected first priority security interest in the Collateral
(subject to Permitted Encumbrances) or any substantial portion thereof, in each
case, for any reason other than the failure of the Lender to take any action
within its control; or
9.1.18. Change of Control. A Change of Control occurs and the Loan
-----------------
Obligations have not been paid in full on or before the occurrence of such
Change of Control; or
9.1.19. Guaranties. The Guaranty ceases to be in full force and
----------
effect or the Guaranty is declared to be null and void and unenforceable or the
Guaranty is found to be invalid or any of the Guarantors denies in writing its
liability under the Guaranty (other than by reason of release of a Guarantor in
accordance with the terms of this Agreement or the Guaranty).
9.2. Suspension. Upon the occurrence of any Default or Event of Default,
----------
the Lender, without notice or demand, may immediately cease making additional
Loans and the obligation of the Lender to make Loans shall thereupon terminate;
provided that, in the case of a Default, if the subject condition or event is
- --------
waived by the Lender or cured within any applicable grace or cure period, the
Lender may thereupon make Loans again in accordance with Section 2 of this
Agreement.
9.3. Acceleration. Upon the occurrence of any Event of Default described
------------
in the foregoing subsections 9.1.6 or 9.1.7, the unpaid principal amount of the
Loans, together with accrued interest and fees thereon, shall automatically
become immediately due and payable, without presentment, demand, protest, notice
of intent to accelerate, notice of acceleration or other requirements of any
kind, all of which are hereby expressly waived by the Borrower, and the
obligation of the Lender to make Loans shall thereupon terminate. Subject to
the provisions of Section 9 hereof, upon the occurrence and during the
continuance of any other Event of Default, the Lender may, by written notice to
the Borrower, declare all or any portion of the Loans to be due and payable,
whereupon the principal amount of all Loans, together with accrued interest
thereon, shall automatically become immediately due and payable, without any
other notice of any kind and without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the
Borrower, and the obligation of the Lender to make Loans shall thereupon
terminate.
9.4. Performance by Lender. If the Borrower shall fail to perform any
---------------------
covenant, duty or agreement contained in any of the Loan Documents, the Lender
may perform or attempt to perform such covenant, duty or agreement on behalf of
the Borrower after the expiration of any cure or grace periods set forth herein.
In such event, the Borrower shall, at the request of the Lender, promptly pay
any amount reasonably expended by the Lender in such performance or attempted
performance to the Lender, together with interest thereon at the highest rate of
interest provided for under this Agreement from the date of such expenditure
until paid. Notwithstanding the foregoing, it is expressly agreed that the
Lender shall not have any liability or responsibility for the performance of any
obligation of the Borrower under this Agreement or any other Loan Document.
27
<PAGE>
SECTION 10. ASSIGNMENTS AND PARTICIPATIONS OF LOANS
10.1. Rights. The Lender may at any time assign its rights and
------
delegate its obligations under this Agreement to one or more Persons and further
may sell participations in all or any part of the Loans to one or more Persons.
In the case of an assignment authorized under this Section 10.1, the assignee
shall have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were the initial Lender hereunder. The Borrower
hereby acknowledges and agrees that any assignment will give rise to a direct
obligation of the Borrower to the Lender and that the assignee shall be
considered to be a "Lender."
10.2. Registration. The Borrower shall keep at its principal office a
------------
register in which the Borrower shall provide for the registration of the Note
and for the transfer of the same. Upon surrender for registration of transfer
of the Note at the principal office of the Borrower, the Borrower shall, at its
expense, promptly execute and deliver one or more new Notes of like tenor and of
a like principal amount, registered in the name(s) of such transferee(s) and, in
the case of a transfer in part, a new Note in the appropriate amount registered
in the name(s) of such transferor(s).
10.3. Notice. In connection with any sales, assignments or transfers
------
of any Note, the transferor shall give notice to the Borrower of the identity of
such parties and obtain agreements from the transferees that all nonpublic
information given to such parties pursuant to this Agreement will be held in
strict confidence in accordance with the terms of Section 11.15.
SECTION 11. MISCELLANEOUS
11.1. Expenses. Whether or not the transactions contemplated hereby
--------
shall be consummated, the Borrower agrees to promptly pay, and hold the Lender
harmless against liability for the payment of, (i) all the actual and reasonable
costs and expenses of preparation of this Agreement and related documents and
all costs of furnishing all opinions by counsel for the Borrower (including,
without limitation, any opinions requested by the Lender as to any legal matters
arising hereunder), and of the Borrower's performance of and compliance with all
agreements and conditions contained herein on its part to be performed or
complied with, (ii) the reasonable fees, expenses and disbursements of counsel
to the Lender in connection with the negotiation, preparation, and execution of
the Loan Documents and with the review of other documents related to the
Transactions, and any amendments and waivers hereto or thereto and (iii) after
the occurrence of an Event of Default, all costs and expenses (including
reasonable attorneys' fees) incurred by the Lender in enforcing any obligations
of or in collecting any payments due hereunder or under the Note by reason of
such Event of Default or in connection with any refinancing or restructuring of
the credit arrangements provided under this Agreement in the nature of a
workout, or any insolvency or bankruptcy proceedings.
11.2. Indemnities. In addition to the payment of expenses pursuant to
-----------
Section 11.1, whether or not the transactions contemplated hereby shall be
consummated, the Borrower (as "Indemnitor") agrees to indemnify, pay and hold
----------
the Lender, and the officers, directors, employees, agents, attorneys and
Affiliates of the Lender (collectively, the "Indemnitees"), harmless from and
-----------
against any and all liabilities, costs, expenses liabilities, obligations,
losses, damages, penalties, actions, judgments, suits,
28
<PAGE>
claims and disbursements of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of one counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated a party thereto), that may be imposed on, incurred by, or asserted
against the Indemnitee, in any manner relating to or arising out of this
Agreement, the Note or the other Loan Documents related to the Transactions or
the use or intended use of the proceeds of any of the proceeds thereof to the
Borrower (the "Indemnified Liabilities"); provided that, the Indemnitor shall
----------------------- --------
not have any obligation to an Indemnitee hereunder with respect to an
- --------
Liability to the extent that such Indemnified Liability arises from the gross
negligence or willful misconduct of that Indemnitee as determined by a court of
competent jurisdiction.
11.3. Amendments and Waivers. Except as otherwise provided herein, no
----------------------
amendment, modification, termination, or waiver of any provision of this
Agreement or any of the other Loan Documents, or consent to any departure by any
Borrower Entity therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, or, if there is more than one Lender,
the Lenders holding a majority of the outstanding Loans. Each and any
amendment, modification, termination, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given.
No notice to or demand on the Borrower or any other Borrower Entity in any case
shall entitle the Borrower or any other Borrower Entity to any other or further
notice or demand in similar or other circumstances.
11.4. Independence of Covenants. All covenants hereunder shall be given
-------------------------
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitation of, another covenant shall not avoid
the occurrence of an Event of Default or Default if such action is taken or
condition exists.
11.5. 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 delivered personally, mailed by certified or registered mail,
return receipt requested and postage prepaid, sent via a nationally recognized
overnight courier, or via facsimile. Such notices, demands and other
communications shall be addressed as follows:
If to the Borrower:
------------------
ZEFER Corp.
711 Atlantic Ave.
6th Floor
Boston, MA 02111
Attention: Sean Mullaney
Telecopier No.: (617) 451-8001
29
<PAGE>
With a copy to:
--------------
GTCR Golder Rauner, L.L.C.
6100 Sears Tower
Chicago, IL 60606
Attention: Philip A. Canfield
Timothy P. McAdam
Telecopier No.: (312) 382-2201
If to the Lender:
----------------
GTCR Capital Partners, L.P.
6100 Sears Tower
Chicago, IL 60606
Attention: Philip A. Canfield
Timothy P. McAdam
Telecopier No.: (312) 382-2201
With a copy to:
--------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Stephen L. Ritchie, Esq.
Telecopier No.: (312) 861-2200
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;
provided that, the failure to deliver copies of notices as indicated above shall
- --------
not affect the validity of any notice. Any such communication shall be deemed
to have been received (i) when delivered, if personally delivered or sent by
nationally recognized overnight courier or sent via facsimile or (ii) on the
third Business Day following the date on which the piece of mail containing such
communication is posted if sent by certified or registered mail.
11.6. Survival of Warranties and Certain Agreements.
---------------------------------------------
11.6.1. All agreements, representations and warranties made
herein shall survive the execution and delivery of this Agreement, the execution
and delivery of the Note and the making of the Loans and shall continue until
the repayment of the Loans and the Loan Obligations in full; provided that, if
all or any part of such payment is set aside, the representations and warranties
contained herein shall continue as if no such payment had been made.
11.6.2. Notwithstanding anything in this Agreement or implied
by law to the contrary, the agreements of the Borrower set forth in Sections
11.1 and 11.2 and any other indemnification provisions contained within the Loan
Documents shall survive the payment of the Loans and the termination of this
Agreement.
30
<PAGE>
11.7. Failure or Indulgence Not Waiver; Remedies Cumulative. No
-----------------------------------------------------
failure or delay on the part of the Lender in the exercise of any power, right
or privilege hereunder or under the Loan Documents shall impair such power,
right or privilege or be construed to be a waiver of any Default or Event of
Default or acquiescence therein, nor shall any single or partial exercise of any
such power, right or privilege preclude any other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing under
this Agreement or any other Loan Document are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
11.8. Marshalling; Payments Set Aside. The Lender shall not be under
-------------------------------
obligation to marshal any assets in payment of any or all of the Loan
Obligations. To the extent that the Borrower makes a payment(s) or the Lender
enforces its Liens or exercises its right of set-off, and such payment(s) or the
proceeds of such enforcement or set-off is subsequently invalidated, declared to
be fraudulent or preferential, set aside, or required to be repaid by anyone,
then to the extent of such recovery, the Loan Obligations or part thereof
originally intended to be satisfied, and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement of set-off had not occurred.
11.9. Severability. If and to the extent that any provision in this
------------
Agreement or any other Loan Document shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions of this Agreement or the other Loan Documents or obligations of the
Borrower or any other Borrower Entity under such provisions, or of such
provision or obligation in any other jurisdiction, or of such provision to the
extent not invalid, illegal or unenforceable shall not in any way be affected or
impaired thereby.
11.10. Headings. Section and subsection headings in this Agreement are
--------
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
11.11. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL
--------------
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
11.12. Successors and Assigns; Subsequent Holders of the Note. This
------------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns except that the Borrower may not
assign its rights or obligations hereunder without the written consent of the
Lender. The terms and provisions of this Agreement and all certificates
delivered pursuant hereto shall inure to the benefit of any assignee or
transferee of the Note, to the extent the assignment is permitted hereunder, and
in the event of such transfer or assignment, the rights and privileges herein
conferred upon the Lender shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof.
11.13. No Fiduciary Relationship. No provision in the Loan Documents
-------------------------
and no course of dealing between the parties shall be deemed to create any
fiduciary duty by the Lender to the Borrower.
31
<PAGE>
11.14. Construction. The Lender and the Borrower acknowledge that
------------
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review the Loan Documents with its legal counsel and
that the Loan Documents shall be constructed as if jointly drafted by the Lender
and the Borrower.
11.15. Confidentiality. The Lender agrees to exercise reasonable
---------------
efforts to keep any non-public information delivered pursuant to the Loan
Documents confidential from Persons other than those employed by or engaged by
the Lender and those employed by or engaged by the Lender's assignees or
participants, or potential assignees or participants. This Section shall not
apply to disclosures required to be made by the Lender to any regulatory or
governmental agency or pursuant to legal process.
11.16. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST THE BORROWER WITH RESPECT TO THIS AGREEMENT OR ANY
NOTES MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN
THE STATE OF ILLINOIS LOCATED IN THE CITY OF CHICAGO, ILLINOIS AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS AGREEMENT SUBJECT, HOWEVER, TO RIGHTS OF APPEAL.
THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF COPIES OF ANY SUMMONS
AND COMPLIANT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR
PROCEEDING BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY DELIVERING A COPY
OF SUCH PROCESS TO SUCH PARTY, AT ITS ADDRESS SPECIFIED IN SECTION 11.5, OR BY
ANY OTHER METHOD PERMITTED BY APPLICABLE LAW. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF
ANY OTHER JURISDICTION.
11.17. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE,
--------------------
TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW, THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION IN ANY COURT BASED UPON OR ARISING
OUT OF THIS AGREEMENT OR THE LOAN DOCUMENTS. NOTWITHSTANDING ANYTHING CONTAINED
IN THIS AGREEMENT TO THE CONTRARY, NO CLAIM MAY BE MADE BY THE BORROWER AGAINST
THE LENDER FOR ANY LOST PROFITS OR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (OTHER THAN WILLFUL
MISCONDUCT CONSTITUTING ACTUAL FRAUD) IN CONNECTION WITH, ARISING OUT OF OR IN
ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED HEREUNDER OR UNDER THE LOAN
DOCUMENTS, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH. THE
BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR
ANY SUCH DAMAGES. THE BORROWER AGREES THAT THIS SECTION 11.17 IS A SPECIFIC AND
MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE LENDER WOULD NOT
EXTEND
32
<PAGE>
TO THE BORROWER ANY MONIES HEREUNDER IF THIS SECTION 11.17 WERE NOT PART OF THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. THE BORROWER AND THE LENDER FURTHER WARRANT AND REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THE LOAN DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. BORROWER
AND LENDER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT,
BUT FOR THIS WAIVER, BE REQUIRED OF LENDER.
11.18. No Personal Obligations. Notwithstanding anything to the contrary
-----------------------
contained herein or in any other Loan Document, it is expressly understood and
the Lender expressly agrees that nothing contained herein, in any other Loan
Document or in any other document contemplated hereby or thereby (whether from a
covenant, representation, warranty or other provision herein) shall create, or
be construed as creating, any personal liability of any shareholder, director,
officer, employee, agent, partner or Affiliate of the Borrower or its
Subsidiaries, in its capacity as such or otherwise, with respect to (i) any
payment obligation of the Borrower or its Subsidiaries, (ii) any obligation of
the Borrower or its Subsidiaries to perform any covenant, undertaking,
indemnification or agreement, either express or implied, contained herein or in
any other Loan Document, (iii) any other claim or liability to the Lender
arising under this Agreement or any other Loan Document, in any other document
contemplated hereby or thereby or (iv) any credit extended or loan made;
provided that, nothing herein shall be deemed to be a waiver of claims arising
- --------
from fraud.
11.19. Note Legend Relating to Original Issue Discount. The Note shall
-----------------------------------------------
bear a legend in substantially the following form:
"THIS SECURITY BEARS ORIGINAL ISSUE DISCOUNT. UPON WRITTEN REQUEST TO THE
CHIEF EXECUTIVE OFFICER OF ZEFER CORP. AT 711 ATLANTIC AVENUE, 6TH FLOOR,
BOSTON, MA 02111, INFORMATION REGARDING THE ISSUE PRICE, AMOUNT OF ORIGINAL
ISSUE DISCOUNT, ISSUE DATE AND YIELD TO MATURITY WILL BE MADE AVAILABLE."
11.20. Counterparts; Effectiveness. This Agreement and any amendments,
---------------------------
waivers, consents or supplements may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. This Agreement shall
become effective upon the execution of a counterpart hereof by each of the
parties hereto, and written or telephonic notification of such execution and
authorization of delivery thereof has been received by the Borrower and the
Lender.
33
<PAGE>
11.21. Entire Agreement. This Agreement and the other Loan Documents
----------------
embody the entire agreement among the parties and supersede all prior
commitments, agreements, representations and understandings, if any, whether
written or oral, relating to the subject matter hereof and thereof, and may not
be contradicted or varied by evidence of prior, contemporaneous or subsequent
oral agreements or discussions of the parties thereto.
SECTION 12. DEFINITIONS
12.1. Certain Defined Terms. The terms defined below are used in this
---------------------
Agreement as so defined. Terms defined in the preamble and recitals to this
Agreement are used in this Agreement as so defined.
"Accounting Changes" shall mean changes in GAAP or interpretations of GAAP
------------------
occurring after the Closing Date.
"Acquisition" means any transaction or series of related transactions for
-----------
the purpose of or resulting, directly or indirectly, in (i) the acquisition of
all or substantially all of the assets of a Person, or of any business or
division of a Person, (ii) the acquisition of in excess of 50% of the capital
stock, partnership interests or other equity interests of any Person or
otherwise causing any Person to become a Subsidiary of the Borrower or (iii) a
merger or consolidation or any other business combination with another Person
(other than a merger of a wholly-owned Subsidiary of the Borrower with another
wholly-owned Subsidiary of the Borrower).
"Affiliate," as applied to any Person, means any other Person directly or
---------
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly,
indirectly or beneficially, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities or by contract or otherwise. Neither the Lender nor any parent of
the Lender nor any Subsidiary of the Lender shall be treated as an Affiliate of
the Borrower or be deemed to be a holder of 5% or more of any class of equity
securities of the Borrower.
"Agreement" means this Loan Agreement (including all schedules and exhibits
---------
hereto), as the same may from time to time be amended, supplemented or otherwise
modified.
"Asset Disposition" means the disposition whether by sale, lease, transfer,
-----------------
loss, damage, destruction, condemnation or otherwise of any of the following:
(i) any of the capital stock or other equity or ownership interest of any of the
Borrower's Subsidiaries or (ii) any or all of the assets of the Borrower or any
of its Subsidiaries other than sales of inventory in the ordinary course of
business.
"Approved Use" has the meaning set forth in subsection 2.2.3 of this
------------
Agreement.
"Bankruptcy Code" means Title 11 of the United States Code, as now and
---------------
hereafter in effect, or any successor statute.
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<PAGE>
"Board" means the Board of Directors of the Borrower.
-----
"Borrower" shall have the meaning set forth in the preamble to this
--------
Agreement.
"Borrower's Certificate" means, as applied to any company, a certificate
----------------------
executed on behalf of such company by its chairman of the board (if an officer),
its chief executive officer, its president or one of its vice presidents and its
Chief Financial Officer or its treasurer; provided that, every Borrower's
--------
Certificate with respect to the compliance with a condition precedent to the
making of Loans hereunder shall include (i) a statement that the officer or
officers making or giving such Borrower's Certificate have read such condition
and any definitions or other provisions contained in this Agreement relating
thereto, (ii) a statement of the signers that they have made or have caused to
be made such examination or investigation as they deem necessary to enable them
to certify that such condition has been complied with and (iii) a statement that
such condition has been complied with.
"Borrower Entity" means, collectively, the Borrower, the Borrower's
---------------
Subsidiaries and any other Person (other than the Lender) which is or becomes
party to any Loan Document.
"Business Day" means any day excluding Saturday, Sunday and any day which
------------
is a legal holiday under the laws of the States of Illinois or Massachusetts or
is a day on which banking institutions located in Chicago, Illinois or in the
State of Massachusetts are authorized or required by law or other governmental
action to close.
"Capitalized Interest" has the meaning set forth in subsection 3.3.1 of
--------------------
this Agreement.
"Cash Equivalents" means: (i) marketable direct obligations issued or
----------------
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year from the date of acquisition thereof;
(ii) commercial paper maturing no more than one (1) year from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iii)
certificates of deposit or bankers' acceptances maturing within one (1) year
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less the $500,000,000; (iv) time deposits
maturing no more than thirty (30) days from the date of creation thereof with
commercial banks having membership in the Federal Deposit Insurance Corporation
in amounts not exceeding the lesser of $100,000 or the maximum amount of
insurance applicable to the aggregate amount of Borrower's deposits at such
institution; and (v) deposits or investments in mutual or similar funds offered
or sponsored by brokerage or other companies having membership in the Securities
Investor Protection Corporation in amounts not exceeding the lesser of $100,000
or the maximum amount of insurance applicable to the aggregate amount of
Borrower's deposits at such institution.
"Change of Control" means (i) GTCR and its Affiliates at any time cease to
-----------------
have the power, either contractually or otherwise, to elect a majority of the
members of the Board or (ii) subject to subsection 3.5.1, the Borrower ceases to
own 100% of the capital stock of any of its Subsidiaries free
35
<PAGE>
and clear of all Liens, rights, options, warrants or other similar agreements or
understandings, other than Liens in favor of the Lender, for the benefit of the
Lender.
"Chief Financial Officer" means the highest ranking officer of any company
-----------------------
then in charge of the financial matters of such company.
"Closing" has the meaning set forth in Section 2.3 of this Agreement.
-------
"Closing Date" has the meaning set forth in Section 2.3 of this Agreement.
------------
"Code" means the Internal Revenue Code of 1986, as amended, or any
----
successor statute.
"Collateral" means, collectively: (i) all capital stock and other property
----------
pledged pursuant to the Security Documents; (ii) all "Collateral" as defined in
the Security Documents; (iii) all real property mortgaged pursuant to the
Security Documents; and (iv) any property or interest provided in addition to or
in substitution for any of the foregoing.
"Contingent Obligation," as applied to any Person, means any direct or
---------------------
indirect liability of that Person: (i) with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto; (ii) with respect to any letter of
credit issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings; or (iii) under any foreign
exchange contract, currency swap agreement, interest rate swap agreement or
other similar agreement or arrangement designed to alter the risks of that
Person arising from fluctuations in currency values or interest rates.
Contingent Obligations shall also include (a) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another, (b) the obligation to make take-or-pay or
similar payments if required regardless of nonperformance by any other party or
parties to an agreement and (c) any liability of such Person for the obligations
of another through any agreement to purchase, repurchase or otherwise acquire
such obligation or any property constituting security therefor, to provide funds
for the payment or discharge of such obligation or to maintain the solvency,
financial condition or any balance sheet item or level of income of another. The
amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported or, if not a fixed and
determined amount, the maximum amount so guaranteed.
"Corporate Overhead" means the costs and expenses, including expenditures
------------------
required to be capitalized on a balance sheet prepared in accordance with GAAP,
incurred by the Borrower or any of its Subsidiaries which are not directly
attributable to, or incurred for, the provision of Internet professional
services, and includes, without duplication, costs and expenses of software and
hardware for management information systems and financial reporting and control
systems, home office rent and related expenses, general and administrative
expenses and management and other fees payable to GTCR or its Affiliates.
Corporate Overhead does not include (i) amounts paid as the purchase
36
<PAGE>
price of a target of any Permitted Acquisition, (ii) Capital Expenditures or
(iii) transaction expenses of Permitted Acquisitions.
"Default" means any event, act or condition which with notice or lapse of
-------
time, or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"Earn-Out Obligations" means earn-outs and other deferred consideration
--------------------
with respect to which the obligation to pay, and the calculation of the amount
required to be paid, is contingent or based upon the Borrower, or any division,
profit center or Subsidiary of the Borrower achieving certain targeted
performance levels, the amount of which shall be calculated in accordance with
GAAP.
"Equity Interests" has the meaning set forth in subsection 4.4.2 of this
----------------
Agreement
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, or any successor statute.
"Event of Default" has the meaning set forth in Section 9 of this
----------------
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time, and any successor statute.
"GAAP" means generally accepted accounting principles as set forth in
----
statements from Auditing Standards No. 69 entitled "The Meaning of 'Present
Fairly in Conformance with Generally Accepted Accounting Principles in the
Independent Auditors Reports'" issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"GTCR" means GTCR Fund VI, L.P., a Delaware limited partnership.
----
"Guarantor" means each of the Borrower's direct and indirect domestic
---------
Subsidiaries existing as of the Closing Date or thereafter, or any other Person
that agrees to guarantee the Loan Obligations under the Guaranty.
"Guaranty" has the meaning set forth in the recitals to this Agreement.
--------
"Indebtedness" as applied to any Person, means: (i) all indebtedness for
------------
borrowed money; (ii) that portion of obligations with respect to capital leases
that is properly classified as a liability on a balance sheet in conformity with
GAAP; (iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money; (iv) any obligation
owed for all or any part of the deferred purchase price of property or services
if the purchase price is due more than six (6) months from the date the
obligation is incurred or is evidenced by a note or similar written instrument;
and (v) all indebtedness secured by any Lien on any property or asset
37
<PAGE>
owned or held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is nonrecourse to the credit
of that Person.
"Indemnified Liabilities" has the meaning set forth in Section 11.2 of this
-----------------------
Agreement.
"Indemnitees" has the meaning set forth in Section 11.2 of this Agreement.
-----------
"Indemnitors" has the meaning set forth in Section 11.2 of this Agreement.
-----------
"Initial Loan" has the meaning set forth in subsection 2.2.2 of this
------------
Agreement.
"Intellectual Property" has the meaning set forth in Section 4.7 of this
---------------------
Agreement.
"Interest Payment Date" has the meaning set forth in Section 3.3.2 of this
---------------------
Agreement.
"Interest Period" has the meaning set forth in Section 3.3.2 of this
---------------
Agreement.
"Investment" means (i) any direct or indirect purchase or other acquisition
----------
by the Borrower or any of its Subsidiaries of any beneficial interest in,
including stock, partnership interest or other equity securities of, any other
Person; and (ii) any direct or indirect loan, advance or capital contribution by
the Borrower or any of its Subsidiaries to any other Person, including all
indebtedness and accounts receivable from that other Person that are not current
assets or did not arise from sales to that other Person in the ordinary course
of business. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for
----
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Joinder" has the meaning set forth in the recitals to this Agreement.
-------
"Lender" shall have the meaning set forth in the preamble to this
------
Agreement, and shall also mean any assignees of the Note pursuant to Section 10
of this Agreement.
"Lien" means any lien, mortgage, pledge, security interest, charge or
----
encumbrance of any kind, whether voluntary or involuntary (including any
conditional sale or other title retention agreement and any lease in the nature
thereof), and any agreement to give any lien, mortgage, pledge, security
interest, charge or encumbrance.
"Loan" or "Loans" has the meaning set forth in Section 2.1 of this
---- -----
Agreement.
"Loan Documents" means, collectively, this Agreement, the Note, the Warrant
--------------
Agreement, the Warrant, the Stockholders Agreement, the Registration Agreement,
the Guaranty, each other Security Document, and any other documents executed in
connection therewith, and each other document or instrument executed by the
Borrower, any Subsidiary of the Borrower or any other obligor under any such
documents, together with any schedules, exhibits, appendices or other
attachments thereto.
38
<PAGE>
"Loan Obligations" means all obligations, liabilities and indebtedness of
----------------
every nature of each Borrower Entity from time to time owed to the Lender under
the Loan Documents, including the principal amount of all debts, claims and
indebtedness, accrued and unpaid interest and all fees, costs and expenses,
whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
now and/or from time to time hereafter owing, due or payable whether before or
after the filing of a proceeding under the Bankruptcy Code by or against the
Borrower or any of its Subsidiaries.
"Management Redemption Notes" means all notes (i) issued by the Borrower to
---------------------------
a holder of stock originally issued to a management stockholder, (ii)
subordinated to the Loan Obligations and (iii) in form and substance reasonably
acceptable to the Lender.
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
business, assets, property, condition (financial or otherwise) or business
prospects of the Borrower and its Subsidiaries taken as a whole or (ii) the
validity or enforceability of any of the Loan Documents or the rights or
remedies of the Lender thereunder.
"Maturity Date" means November 24, 2004.
-------------
"Maximum Accrual" has the meaning set forth in subsection 3.3.2 of this
---------------
Agreement.
"Multiemployer Plan" means any Employee Benefit Plan which is a
------------------
"multiemployer plan" as defined in Section 3(37) of ERISA.
"Net Proceeds" means cash proceeds received by the Borrower or any of its
------------
Subsidiaries from any Asset Disposition (including insurance proceeds, awards of
condemnation, and payments under notes or other debt securities received in
connection with any Asset Disposition), net of (i) commissions and other
reasonable and customary transaction costs, fees and expenses properly
attributable to such transaction and payable by the Borrower or any of its
Subsidiaries in connection therewith (in each case, payable to non-Affiliates),
(ii) transfer or other taxes incurred in connection therewith, (iii) amounts
applied to repayment of Indebtedness (other than the Loan Obligations) secured
by a Lien on the asset or property disposed and (iv) an appropriate reserve for
income taxes and indemnification in accordance with GAAP in connection
therewith.
"Note" and "Notes" has the meaning set forth in Section 3.1 of this
---- -----
Agreement and shall mean and include any Notes issued pursuant to Section 11.1
of this Agreement.
"Pension Plan" means any employee benefit pension plan (as defined in
------------
Section 3(2) of ERISA), other than a Multiemployer Plan, which is subject to
Section 412 of the Internal Revenue code or Section 302 of ERISA.
"Permitted Acquisition" means an Acquisition that is consented to by the
---------------------
Lender in writing.
"Permitted Encumbrances" has the meaning given to such term in subsection
----------------------
7.2.1.
"Person" means and includes natural persons, corporations, limited
------
partnerships, limited liability companies, limited liability partnerships,
general partnerships, joint stock companies,
39
<PAGE>
joint ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts or other organizations, whether or not legal entities,
and governments and agencies and political subdivisions thereof and their
respective permitted successors and assigns (or in the case of a governmental
person, the successor functional equivalent of such Person).
"Professional Services Agreement" means that certain Professional Services
-------------------------------
Agreement, dated as of March 23, 1999 (as amended or modified from time to
time), between the Borrower and GTCR Golder Rauner, L.L.C.
"Registration Agreement" has the meaning set forth in the recitals to this
----------------------
Agreement.
"Regulations T, U and X" means Regulations T, U and X of the Board of
----------------------
Governors of the Federal Reserve System as in effect from time to time.
"Restricted Junior Payment" means: (i) any dividend or other distribution,
-------------------------
direct or indirect, on account of any partnership units or shares of any class
of stock of the Borrower or any of its Subsidiaries now or hereafter
outstanding, except (a) dividends payable solely in shares of that class of
stock to the holders of that class and (b) distributions payable solely in
partnership units to the holders of such partnership units; (ii) any redemption,
conversion, exchange, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares of any class of
stock or partnership units of the Borrower or any of its Subsidiaries now or
hereafter outstanding; (iii) any payment or prepayment of interest on, principal
of, premium, if any, redemption, conversion, exchange, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any Seller
Indebtedness or any Earn-Out Obligations; and (iv) any payment made to retire,
or to obtain the surrender of, any outstanding partnership units, warrants,
options or other rights to acquire equity interests of the Borrower or any of
its Subsidiaries now or hereafter outstanding.
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time.
"Security Documents" means all instruments, documents and agreements
------------------
executed by or on behalf of any Borrower Entity to guaranty or provide
collateral security with respect to the Loan Obligations including, without
limitation, any security agreement or pledge agreement, any guaranty of the Loan
Obligations, any mortgage, and all instruments, documents and agreements
executed pursuant to the terms of the foregoing.
"Seller Indebtedness" means any Indebtedness incurred pursuant to
-------------------
subsection 7.1.4 of this Agreement.
"Stockholders Agreement" has the meaning set forth in the recitals to this
----------------------
Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, association or other business entity of which more than 50% of the
total voting power of shares of stock (or equivalent ownership or controlling
interest) entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof.
40
<PAGE>
"Transactions" means those transactions contemplated by the Loan Documents.
------------
"Warrant Agreement" has the meaning set forth in the recitals to this
-----------------
Agreement.
"Warrant" has the meaning set forth in the recitals to this Agreement.
-------
"Warrant Shares" has the meaning set forth in the recitals to this
--------------
Agreement.
"Year 2000 Compliant" has the meaning set forth in Section 4.11 of this
-------------------
Agreement.
12.2. Other Definitional Provisions. References to "Sections,"
-----------------------------
"subsections," "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in Section 12.1 may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference. In this Agreement, "hereof," "herein," "hereto," "hereunder" and
the like mean and refer to this Agreement as a whole and not merely to the
specific section, paragraph or clause in which the respective word appears;
words importing any gender include the other gender; references to "writing"
include printing, typing, lithography and other means of reproducing words in a
tangible visible form; the words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation;" references to
agreements and other contractual instruments shall be deemed to include
subsequent amendments, assignments, and other modifications thereto, but only to
the extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement or any other Loan Document; references
to Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons; and all references to statutes and related regulations shall
include any amendments thereto and any successor statutes and regulations.
* * * * *
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be executed by the respective duly authorized officers of the undersigned and by
the undersigned as of the date first written above.
ZEFER CORP.
By:/s/ Sean W. Mullaney
--------------------------------------------
Name: Sean W. Mullaney
Title: EVP, General Counsel and Secretary
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/ illegible
-----------------------------------
Its: Principal
<PAGE>
EXHIBIT 10.19
EXHIBIT A TO LOAN AGREEMENT
PROMISSORY NOTE
---------------
$32,196,296 November __, 1999
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned, ZEFER Corp., a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay to the
--------
order of GTCR Capital Partners, L.P., a Delaware limited partnership (the
"Lender"), in lawful money of the United States of America and in immediately
------
available funds, the principal amount of THIRTY-TWO MILLION ONE HUNDRED NINETY-
SIX THOUSAND TWO HUNDRED NINETY-SIX AND NO/100 DOLLARS ($32,196,296), or, if
less, the aggregate unpaid principal amount of all Loans made by the Lender to
the Borrower pursuant to Section 2.2 of the "Loan Agreement" (as hereinafter
defined), at such times and at such place as are specified in, and in accordance
with the provisions of, the Loan Agreement. This Note is referred to in and was
executed and delivered pursuant to that certain Loan Agreement of even date
herewith (as amended, modified or supplemented from time to time, the "Loan
----
Agreement") between the Borrower and the Lender, to which reference is hereby
- ---------
made for a statement of the terms and conditions under which each Loan evidenced
hereby is to be made and repaid. All capitalized terms used herein shall,
unless otherwise defined, have the meanings for purposes hereof assigned to such
terms in the Loan Agreement.
The Borrower further promises to pay interest on the outstanding
unpaid principal amount hereof, as provided in the Loan Agreement, from the date
hereof until payment in full hereof at the rate or rates per annum specified in
subsection 3.3.1 of the Loan Agreement. Interest shall be payable with respect
to the Loans, in arrears, on the dates, and upon the occurrence of the events,
specified in subsection 3.3.2 of the Loan Agreement or as otherwise provided
therein.
The date and amount of all Loans made by the Lender to the Borrower
under the Loan Agreement, the date and amount of each payment of principal and
the date and amount of each payment of interest shall be noted by the holder
hereof on Schedule I annexed hereto and made a part hereof, or on a continuation
----------
of such schedule attached hereto and made a part hereof; provided, however, that
-------- -------
the failure of the holder to make, or any error in making, any such notation
shall not limit, expand or otherwise affect the obligations of the Borrower
hereunder or under the Loan Agreement.
The Borrower's obligations under this Note and under the Loan
Agreement are guaranteed by the Guarantors under the Guaranty and are secured by
security interests and liens granted under the Security Documents.
<PAGE>
If any suit or action is instituted or attorneys are employed to
collect this Note or any part thereof, the Borrower hereby promises and agrees
to pay all costs of collection, including, without limitation, attorneys' fees
and court costs.
The Borrower and each endorser, guarantor and surety of this Note
hereby waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note. In any action on this Note, the Lender or its
assignee need not produce or file the original of this Note, but need only file
a photocopy of this Note certified by the Lender or such assignee to be a true
and correct copy of this Note.
THIS NOTE HAS BEEN DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE
AT CHICAGO, ILLINOIS, AND SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF
THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS AND
DECISIONS OF THE STATE OF ILLINOIS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAWS. Whenever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under any applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note. Whenever in this Note reference is made to
the Lender or the Borrower, such reference shall be deemed to include, as
applicable, a reference to their respective successors and assigns. The
provisions of this Note shall be binding upon and shall inure to the benefit of
such successors and assigns. The Borrower's successors and assigns shall
include, without limitation, a receiver, trustee or debtor in possession of or
for the Borrower.
IN WITNESS WHEREOF, the undersigned has duly executed this Note as of
the date first written above.
Attest: ZEFER CORP.
__________________________ By: /s/ Sean W. Mullaney
-------------------------------------
Title: ___________________ Title: EVP, General Counsel and Secretary
-------------------------------------
-2-
<PAGE>
Schedule I to the Note
<TABLE>
<CAPTION>
=====================================================================================
Principal Ending Name of
Aggregate Current Amount Outstanding Amount of Person
Principal Amount Outstanding Borrowed Principal Interest Making
Date Borrowed to Date Balance (or Repaid) Balance Paid Entry
=====================================================================================
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
Principal Ending Name of
Aggregate Current Amount Outstanding Amount of Person
Principal Amount Outstanding Borrowed Principal Interest Making
Date Borrowed to Date Balance (or Repaid) Balance Paid Entry
=====================================================================================
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
Principal Ending Name of
Aggregate Current Amount Outstanding Amount of Person
Principal Amount Outstanding Borrowed Principal Interest Making
Date Borrowed to Date Balance (or Repaid) Balance Paid Entry
=====================================================================================
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
=====================================================================================
</TABLE>
<PAGE>
EXHIBIT 10.20
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT, (this "Agreement") is made as of November 24,
---------
1999, by each of the undersigned grantors and such other persons who hereinafter
become parties to this Agreement pursuant to Section 6.13 hereof (each, a
"Grantor," and, collectively, the "Grantors") in favor of GTCR Capital Partners,
------- --------
L.P., a Delaware limited partnership (the "Lender").
------
WHEREAS, ZEFER Corp., a Delaware corporation (the "Borrower"), and the
--------
Lender have entered into that certain Loan Agreement of even date herewith (as
amended, modified or supplemented from time to time, the "Loan Agreement"),
--------------
which is incorporated herein by reference and pursuant to which the Borrower and
the Lender have agreed that the Lender shall make loans to the Borrower on the
terms and conditions set forth therein;
WHEREAS, each Grantor (other than the Borrower) acknowledges that, as
a Subsidiary (as that term is defined in the Loan Agreement) of the Borrower, it
will receive substantial direct and indirect benefits and advantage by reason of
the making of the Loans to the Borrower as provided in the Loan Agreement and
that it will be to each such Grantor's direct interest and economic benefit to
assist the Borrower in procuring said Loans from the Lender;
WHEREAS, each Grantor (other than the Borrower) has agreed to
guarantee the punctual payment and performance when due of the Loan Obligations
(as defined in the Loan Agreement) pursuant to that certain Guaranty of even
date herewith (as amended, modified or supplemented from time to time, the
"Guaranty");
- ---------
WHEREAS, to induce the Lender to enter into the Loan Agreement and
make the Loans to the Borrower thereunder, each Grantor has agreed to secure the
Secured Obligations (as hereinafter defined) by pledging and granting to the
Lender a security interest in and a lien upon all of its personal and real
property in the manner set forth herein.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Grantors, the parties hereto agree as follows:
Section 1. Definitions.
-----------
1.1. Certain Defined Terms. Capitalized terms not otherwise defined
---------------------
herein which are defined in the Loan Agreement shall have the meanings set forth
therein or which are defined in the UCC shall have the meanings set forth
therein. In addition to any other terms defined elsewhere in this Agreement, the
following terms shall have the following meanings:
"Accounts" shall mean all accounts as that term is defined in the
--------
UCC and all rights of each Grantor now existing and hereafter acquired to
payment for goods sold or leased or for services rendered
<PAGE>
which are not evidenced by an Instrument or Chattel Paper, whether or not earned
by performance, together with (i) all security interests or other security held
by or granted to each Grantor to secure such rights to payment, (ii) all other
rights related thereto (including rights of stoppage in transit) and (iii) all
rights in any of such sold or leased goods which are returned or repossessed.
"Chattel Paper" shall mean all chattel paper as that term is defined
-------------
in the UCC and any document or documents which evidence both a monetary
obligation and a security interest in, or a lease or consignment of, specific
goods; provided that when a transaction is evidenced both by a security
--------
agreement or a lease and by an Instrument or series of Instruments, the group of
documents taken together constitute Chattel Paper.
"Collateral" shall have the meaning set forth in Section 2.1 of this
----------
Agreement
"Contract Rights" shall mean any right to payment under a contract not
---------------
yet earned by performance and not evidenced by an Instrument or Chattel Paper.
"Copyrights" shall mean any copyrights, rights and interests in
----------
copyrights, works protectable by copyrights, copyright registrations and
copyright applications, including, without limitation, the copyright
registrations and applications listed on Schedule II hereto, and all renewals of
-----------
any of the foregoing, all income, royalties, damages and payments now and
hereafter due and/or payable under or with respect to any of the foregoing,
including, without limitation, damages and payments for past, present and future
infringements of any of the foregoing and the right to sue for past, present and
future infringements of any of the foregoing.
"Documents" shall mean all documents as that term is defined in the
---------
UCC and all documents of title and goods evidenced thereby (including, without
limitation, all bills of lading, dock warrants, dock receipts, warehouse
receipts and orders for the delivery of goods), together with any other document
which in the regular course of business or financing is treated as adequately
evidencing that the Person in possession of it is entitled to receive, hold and
dispose of such document and the goods it covers.
"Equipment" shall mean all equipment as that term is defined in the
---------
UCC and all equipment (including, without limitation, all machinery, vehicles,
tractors, trailers, office equipment, communications systems, computers,
furniture, tools, molds and goods) owned, used or bought for use in each
Grantor's business whether now owned, used or bought for use or hereafter
acquired, used or bought for use and wherever located, together with all
accessories, accessions, attachments, parts and appurtenances thereto.
"Event of Default" shall mean any Event of Default as defined in the
----------------
Loan Agreement or any breach by any Grantor of any warranty, covenant, agreement
or term under this Agreement.
"Fixtures" shall mean all fixtures as that term is defined in the UCC
--------
and all goods which are or are to be attached to real property in such a manner
that their removal would cause damage to the real property and which have
therefore taken on the character of real property.
-2-
<PAGE>
"General Intangibles" shall mean all general intangibles as that term
-------------------
is defined in the UCC and all intangible personal property of every kind and
nature other than Accounts (including, without limitation, all Contract Rights,
other rights to receive payments of money, choses in action, security interests,
indemnification claims, judgments, tax refunds and tax refund claims, royalty
and product rights, inventions, work in progress, patents, patent applications,
trademarks, trademark applications, trade names, copyrights, copyright
applications, permits, licenses, franchises, leasehold interests in real or
personal property, rights to receive rentals of real or personal property or
payments under letters of credit, insurance proceeds, know-how, trade secrets,
other items of intellectual property and Proprietary Rights, goodwill (whether
or not associated with any of the foregoing), computer software and guarantee
claims).
"Instruments" shall mean all negotiable instruments (as that term is
-----------
defined in the UCC), certificated securities (as that term is defined in the
UCC) and any replacements therefor and Stock Rights related thereto, and other
writings which evidence rights to the payment of money (whether absolute or
contingent) and which are not themselves security agreements or leases and are
of a type which in the ordinary course of business are transferred by delivery
with any necessary endorsement or assignment (including, without limitation, all
checks, drafts, notes, bonds, debentures, government securities, certificates of
deposit, letters of credit, preferred and common stocks, options and warrants).
"Intellectual Property" means all (i) Patents, (ii) Trademarks,
---------------------
together with the goodwill of the business connected with the use of, and
symbolized by, such Trademarks, (iii) Copyrights, (iv) mask works and
registrations and applications for registration thereof, (v) computer software,
data, data bases and documentation, (vi) trade secrets and other confidential
information (including, without limitation, ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial and marketing plans
and customer and supplier lists and information), (vii) other intellectual
property rights and (viii) copies and tangible embodiments thereof (in whatever
form or medium).
"Inventory" shall mean all inventory as that term is defined in the
---------
UCC and all goods (as that term is defined in the UCC) other than Equipment and
Fixtures (including, without limitation, goods in transit, goods held for sale
or lease or furnished or to be furnished under contracts for service, raw
materials, work in process and materials used or consumed in each Grantor's
business, finished goods, returned or repossessed goods and goods released to
each Grantor or to third parties under trust receipts or similar Documents).
"Investment Property" shall mean all investment property as that term
-------------------
is defined in the UCC.
"Patents" shall mean any patents, and patent applications, including,
-------
without limitation, the inventions and improvements described and claimed
therein, all patentable inventions and those patents and patent applications
listed on Schedule II hereto, and the reissues, divisions, continuations,
-----------
renewals, extensions and continuations-in-part of any of the foregoing, and all
income, royalties, damages and payments now and hereafter due and/or payable
under or with respect to any of the foregoing, including,
-3-
<PAGE>
without limitation, damages and payments for past, present and future
infringements of any of the foregoing and the right to sue for past, present and
future infringements of any of the foregoing.
"Proceeds" shall mean all proceeds (as that term is defined in the
--------
UCC) and, in addition, any and all amounts or items of property received when
any Collateral or proceeds thereof are sold, exchanged, collected or otherwise
disposed of, both cash and non-cash, including proceeds of insurance, indemnity,
warranty or guarantee paid or payable on or in connection with any Collateral,
and any and all other amounts paid or payable under or in connection with any of
the Collateral.
"Receivables" shall mean all Accounts, Chattel Paper and Contract
-----------
Rights and all Instruments representing rights to receive payments.
"Secured Obligations" shall mean, collectively, (i) the Loan
-------------------
Obligations, (ii) all other liabilities, obligations and indebtedness (whether
actual or contingent, whether owed jointly or severally and whether for the
payment of money and, if for the payment of money, whether for principal,
interest, fees, expenses or otherwise) of any Grantor to the Lender now existing
or hereafter incurred, whether under lines of credit, other financing
arrangements or otherwise, whether related to the Loan Agreement or the Note,
whether contemplated by the Lender or the Borrower at the date hereof and
whether direct, indirect, matured or contingent, joint or several, or otherwise,
together with any and all extensions, renewals, refinancings or refundings
thereof in whole or in part, (iii) all costs and expenses (including, without
limitation, to the extent permitted by law, reasonable attorneys' fees and other
legal expenses) incurred by the Lender in the enforcement and collection of any
of the liabilities, obligations and indebtedness referred to in clause (i) or
(ii) above, and (iv) all payments and advances made by the Lender for the
maintenance, preservation, protection or enforcement of, or realization upon,
any property or assets now or hereafter made subject to any Lien granted
pursuant to the Loan Agreement, this Agreement, the other Loan Documents or
pursuant to any other agreement, instrument or note relating to any of the
Secured Obligations (including, without limitation, advances for taxes,
insurance, storage, transportation, repairs and the like).
"Stock Rights" shall mean any stock or security, any dividend or other
------------
distribution and any other right or property which any Grantor shall receive or
shall become entitled to receive for any reason whatsoever with respect to, in
substitution for or in exchange for any and all shares of stock and other
Instruments and uncertificated securities, any right to receive or acquire any
Instrument or uncertificated security and any right to receive earnings, in
which any Grantor now has or hereafter acquires any right.
"Trademarks" shall mean any trademarks, trade names, corporate names,
----------
company names, business names, fictitious business names, trade styles, service
marks, logos, internet domain names, other business identifiers, prints and
label on which any of the foregoing have appeared or appear, all registrations
and recordings thereof, and all applications in connection therewith, including,
without limitation, the trademarks and applications listed on Schedule II
-----------
hereto, and renewals thereof, and all income, royalties, damages and payments
now and hereafter due and/or payable under or with respect to any of the
foregoing, including, without limitation, damages and payments for past, present
and future infringements
-4-
<PAGE>
of any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing.
"UCC" shall mean the Uniform Commercial Code as in effect in any
---
applicable jurisdiction.
1.2. Other Definitional Provisions. References to "Sections,"
-----------------------------
"subsections," "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in Section 1.1 may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference. In this Agreement, "hereof," "herein," "hereto," "hereunder" and
the like mean and refer to this Agreement as a whole and not merely to the
specific section, paragraph or clause in which the respective word appears;
words importing any gender include the other gender; references to "writing"
include printing, typing, lithography and other means of reproducing words in a
tangible visible form; the words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation;" references to
agreements and other contractual instruments shall be deemed to include
subsequent amendments, assignments, and other modifications thereto, but only to
the extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement or any other Loan Document; references
to Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons; and all references to statutes and related regulations shall
include any amendments thereto and any successor statutes and regulations.
Section 2. Grant of the Security Interest.
------------------------------
2.1. As collateral security for the full and timely payment, observance
and performance of the Secured Obligations, each Grantor hereby assigns and
transfers unto the Lender, and hereby pledges and grants to the Lender, a
continuing security interest in and to and a Lien upon all of such Grantor's
right, title and interest in the following property and interests in property,
whether now owned by such Grantor or hereafter acquired, whether now existing or
hereafter coming into existence and wherever located (all being collectively
referred to herein as the "Collateral"):
----------
2.1.1. all Accounts;
2.1.2. all Chattel Paper;
2.1.3. all Contract Rights;
2.1.4. all Documents;
2.1.5. all Equipment;
2.1.6. all Fixtures;
2.1.7. all General Intangibles;
-5-
<PAGE>
2.1.8. all Intellectual Property;
2.1.9. all Instruments;
2.1.10. all Inventory;
2.1.11. all Investment Property;
2.1.12. all Stock Rights;
2.1.13. the balance from time to time in all bank and depository
accounts maintained by such Grantor; and
2.1.14. all other tangible and intangible property of such Grantor,
including, without limitation, all Proceeds, products, accessions, rents,
profits, income, benefits, substitutions, additions and replacements of and to
any of the property of such Grantor described in the preceding clauses of this
Section 2.1 (including, without limitation, any proceeds of insurance thereon
and all rights, claims and benefits against any Person relating thereto) and all
books and records (in whatever form or medium), correspondence, customer lists,
credit files, computer files, programs, printouts, source codes, software and
other computer materials and records related to any of the foregoing in the
possession or under the control of such Grantor or any computer bureau or
service company from time to time acting for such Grantor.
2.2. If an Event of Default shall occur and be continuing or shall exist,
in addition to all other rights and remedies available to it hereunder or
otherwise, the Lender shall have the right, without notice to the Borrower or
any other Grantor, to set-off against and to appropriate and apply to the unpaid
balance of the Note and all other Secured Obligations, any obligations owing to
the Borrower or any other Grantor by the Lender and any funds held in any manner
for the account of the Borrower or any other Grantor by the Lender, and the
Lender is hereby granted a security interest in and lien on all such obligations
and funds for such purpose. Such set-off rights shall exist whether the Lender
shall have made any demand under the Loan Agreement, the Note or other Secured
Obligations and whether or not the Note or such other obligations are matured or
unmatured.
Section 3. Continuing Obligations.
----------------------
Notwithstanding any provision hereof to the contrary, (i) each Grantor
shall remain liable under all contracts and agreements included in the
Collateral to the extent set forth therein and shall pay, perform and observe
all of its liabilities and obligations thereunder, (ii) the Lender shall have no
obligation to pay, perform or observe any liabilities or obligations of any
Grantor under such contracts and agreements as a result of exercising its rights
under this Agreement or otherwise and (iii) the Lender's exercise of its rights
under this Agreement or otherwise shall not release any Grantor from any of its
liabilities or obligations under such contracts and agreements.
-6-
<PAGE>
Section 4. Representations and Warranties of the Grantors.
----------------------------------------------
Each Grantor represents and warrants to the Lender as follows:
4.1. Binding Obligation. This Agreement is the legally valid and binding
------------------
obligation of such Grantor, enforceable against such Grantor in accordance with
its terms except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws or equitable principles relating to
or limiting creditor's rights generally.
4.2. Ownership of Collateral. Such Grantor is the owner of the Collateral
-----------------------
in which such Grantor purports to grant a security interest pursuant to Section
2 hereof (subject, with respect to after acquired Collateral, to such Grantor
acquiring the same) and no Lien other than Permitted Encumbrances exists or will
exist upon such Collateral at any time.
4.3. Names, Addresses and Office Locations. Except as specified on
-------------------------------------
Schedule I hereto, (i) during the five-year period prior to the execution and
- ----------
delivery of this Agreement, such Grantor (or any predecessor company) has not
used any name or names under which it (or such predecessor company) has invoiced
account debtors, maintained records concerning Collateral or otherwise conducted
business other than the exact name under which it has executed this Agreement,
(ii) during such five-year period, such Grantor has not entered into any merger,
consolidation, corporate reorganization or purchase of substantial assets in any
bulk transfer or other transactions in which the transferor was not acting in
the ordinary course of business and (iii) the address of such Grantor set forth
on Schedule I is the address of such Grantor's chief place of business, chief
----------
executive office and is the address at which such Grantor keeps all books and
records (in whatever form or medium, including all computer data, software and
source codes) concerning the Collateral and the Proceeds thereof.
4.4. Location of Inventory. All of the Inventory is located at the
---------------------
locations specified on Schedule I hereto, except for Inventory in transit which
----------
is being sold in the ordinary course of business. Except as disclosed on
Schedule I, none of such locations are leased by such Grantor as lessee and no
- ----------
Inventory of such Grantor is in the possession of any bailee, warehouseman,
processor, consignee or other third party, except for Inventory in transit which
is being sold in the ordinary course of business. None of its Inventory has
been or shall be produced in violation of any provision of the Fair Labor
Standards Act of 1938 (29 U.S.C. (S) 201 et. seq.) or in violation of any other
-- ---
applicable law.
4.5. Location of Equipment and Fixtures. All of the Equipment and
----------------------------------
Fixtures are located at the locations specified on Schedule I hereto. Except as
----------
disclosed on Schedule I, none of such locations are leased by such Grantor as
----------
lessee and no Equipment or Fixtures of such Grantor are in the possession of any
bailee, warehouseman, processor, consignee or other third party.
4.6. Instruments. Except as specified on Schedule I hereto, such Grantor
----------- ----------
does not own or possess any Instruments other than checks and other drafts
received in the ordinary course of business.
-7-
<PAGE>
4.7. Receivables. The names of the account debtors and contract obligors,
-----------
the amounts owing, the due dates and other information with respect to all
Receivables are and shall be correctly stated in all material respects in all
records of such Grantor relating thereto and in all invoices and reports with
respect thereto furnished to the Lender by such Grantor from time to time. Each
Grantor further represents and warrants that all Receivables are valid, binding
and enforceable in accordance with their respective terms and that no party to
any Receivable is in default with respect thereto, except to the extent of
allowances for uncollectible accounts reflected on the financial statements of
such Grantor in accordance with generally accepted accounting principles
consistently applied.
4.8. Perfection. This Agreement is effective to create in favor of the
----------
Lender a valid security interest in and to and a Lien upon all of such Grantor's
right, title and interest in and to the Collateral which, upon the filing of the
proper UCC financing statements and the taking of all other steps regarding
perfection in the jurisdictions specified on Schedule III hereto, shall
------------
constitute a valid first priority perfected lien upon and security interest in
the Collateral, subject only to Permitted Encumbrances which are accorded
priority by statute.
4.9. Filing Requirements; Other Financing Statements. (i) none of the
-----------------------------------------------
Equipment of such Grantor is covered by any certificate of title, except for the
vehicles specified on Schedule II hereto, (ii) none of the Collateral consists
-----------
of property subject to any statute or treaty referred to in Section 9-302(3) of
the UCC (other than certain Intellectual Property), (iii) none of the Collateral
is of a type for which security interests or liens may be filed under any
federal statute, except for the Intellectual Property specified on Schedule II,
-----------
and (iv) no financing statements describing any portion of the Collateral have
been filed in any jurisdiction except for (a) financing statements which have
lapsed or have been terminated or financing statements naming the Lender as
secured party or (b) financing statements evidencing Permitted Encumbrances.
4.10. Copyrights, Patents and Trademarks. The Copyrights, Patents and
----------------------------------
Trademarks listed on Schedule II hereto constitute all of the registered
-----------
Copyrights and all of the Patents and Trademarks now owned by such Grantor. No
Copyrights, Patents or Trademarks listed on Schedule II have been adjudged
-----------
invalid or unenforceable or have been canceled, in whole or in part, or are not
presently subsisting. Each of such Copyrights, Patents and Trademarks material
to such Grantor's business is valid and enforceable. Such Grantor is the sole
and exclusive owner of the entire and unencumbered right, title and interest in
and to each of such Copyrights, Patents and Trademarks, free and clear of any
liens (other than Permitted Encumbrances), charges and encumbrances, including,
without limitation, licenses, shop rights and covenants by such Grantor not to
sue third persons. Such Grantor has adopted, used and is currently using all of
such Trademarks and Copyrights. Such Grantor has no notice of any suits or
actions commenced or threatened with referenced to any of the Copyrights,
Patents or Trademarks.
4.11. Loan Agreement Warranties. Each representation and warranty set forth
-------------------------
in the Loan Agreement is true and correct in all material respects and such
representations and warranties are hereby incorporated herein by this reference
with the same effect as though set forth in their entirety herein.
-8-
<PAGE>
Section 5. Covenants; Remedies.
-------------------
In furtherance of the grant of the pledge and security interest
pursuant to Section 2 hereof, each Grantor hereby agrees with the Lender as
follows:
5.1. Maintenance and Operation of Tangible Property. Each Grantor shall
----------------------------------------------
maintain all Equipment and Fixtures in good condition, repair and working order
in all material respects, ordinary wear and tear excepted, and maintain and
operate all Equipment and Fixtures in material compliance with all applicable
laws, ordinances, regulations, decrees and orders and all reasonable requests of
insurers of such property.
5.2. Preservation of the Lender's Rights in Collateral.
-------------------------------------------------
5.2.1. Except for sales of Inventory and expenditures of cash in
the ordinary course of business and except as otherwise expressly permitted
pursuant to the Loan Agreement or this Agreement, no Grantor shall sell,
transfer, assign, convey or otherwise dispose of, or extend, amend, terminate or
otherwise modify any term or provision of, any Collateral (other than Inventory
sold in the ordinary course of business), any interest therein or any Proceeds
thereof, nor waive or release any right with respect thereto, without the prior
written consent of the Lender.
5.2.2. Each Grantor assumes full responsibility for taking any and
all steps to preserve its rights with respect to the Collateral against all
prior parties. The Lender shall be deemed to have exercised reasonable care in
the preservation and custody of the portion of the Collateral as may be in the
Lender's possession if the Lender takes such action as such Grantor shall
reasonably request in writing; provided that such requested action shall not, in
--------
the judgment of the Lender, impair the Lender's prior security interest in such
Collateral or its rights in or the value of such Collateral; provided further
-------- -------
that such written request is received by the Lender in sufficient time to permit
the Lender to take the requested action. In the absence of such written request,
the Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equivalent to that which the Lender, in its individual
capacity, accords it own property consisting of the type of Collateral involved.
5.2.3. Whether or not any Event of Default has occurred or is
continuing, the Lender may, but shall not be required to, take any steps the
Lender deems necessary or appropriate to preserve any Collateral or any rights
against third parties to any of the Collateral, including obtaining insurance of
Collateral at any time when any Grantor has failed to do so in accordance with
the Loan Agreement or this Agreement, and such Grantor shall promptly pay, or
reimburse the Lender for, all expenses incurred in connection therewith.
5.3. Preservation and Protection of Security Interest. Each Grantor shall
------------------------------------------------
diligently preserve and protect the Lender's security interest in the Collateral
and shall, at its expense, cause such security interest in the Collateral to be
perfected and continue perfected so long as the Secured Obligations or any
portion thereof are outstanding and unpaid or the Lender may be obligated to
advance funds to the Borrower under
-9-
<PAGE>
the Loan Agreement (including, without limitation, by means of the delivery of
all instruments, documents of title and securities to the Lender with
endorsements and documents of transfer satisfactory to the Lender), and for such
purposes, each Grantor shall from time to time at the Lender's request and at
such Grantor's expense file or record, or cause to be filed or recorded, such
instruments, documents and notices (including, without limitation, financing
statements and continuation statements) as the Lender may deem necessary or
advisable from time to time to perfect and continue perfected such security
interests. Each Grantor shall do all such other acts and things and shall
execute and deliver all such other instruments and documents (including, without
limitation, further security agreements, pledge agreements, pledges,
endorsements, assignments and notices) as the Lender may deem necessary or
advisable from time to time to perfect and preserve the priority of the Lender's
security interest in the Collateral, as a perfected security interest in the
Collateral, prior to the rights of any other secured party or lien creditor,
except with respect to Permitted Encumbrances which are accorded priority by
statute. No Grantor will create, permit or suffer to exist, and each Grantor
will defend the Collateral against and take such other actions as is necessary
to remove, any Lien on the Collateral except the Permitted Encumbrances, and
will defend the right, title and interest of the Lender in and to the Collateral
and in and to all Proceeds thereof against the claims and the demands of all
Persons whatsoever.
5.4. Right of Collection Regarding Receivables.
-----------------------------------------
5.4.1. Except as otherwise provided in this Agreement, each Grantor
shall collect and enforce, at its expense, all amounts due or hereafter due with
respect to all Receivables in accordance with applicable law and commercially
reasonable practices and procedures. Promptly upon request from the Lender, each
Grantor shall deliver to the Lender duplicate copies of all invoices rendered to
account debtors in respect of all Accounts.
5.4.2. If an Event of Default shall occur and be continuing or
shall exist, the Lender shall have the right to collect and dispose of all
Proceeds arising from all Receivables owned by or in the possession of any
Grantor, upon written notice to such Grantor, and to apply such Proceeds to the
payment of the Secured Obligations as determined in the Lender's sole
discretion. At any such time and upon such written notice, the Lender may (i)
notify account debtors and contract obligors of the grant to and creation in
favor of the Lender of the security interest in the Receivables and the Proceeds
thereof under this Agreement, (ii) direct such account debtors and contract
obligors to make any payments from time to time due in respect of any such
Receivables directly to the Lender at such places as it directs and (iii) assume
entire control over all of the Proceeds of such Receivables. Each Grantor, upon
receipt of written notice from the Lender of the revocation of such Grantor's
right of collection, shall promptly remit directly to the Lender all Proceeds of
Receivables then or subsequently in its possession, and any collections and
receipts with respect to such Proceeds and Receivables shall not be commingled
with any other assets or funds of such Grantor, but shall be segregated from the
assets and funds of such Grantor and held separate and apart in a collateral
account pursuant to a collateral agreement in form and substance satisfactory to
the Lender, and shall be held in trust by such Grantor as a fiduciary for the
benefit of the Lender.
5.4.3. No Grantor shall make or agree to make any discount, credit,
rebate or other reduction in the original amount owing on any Receivable or
accept in satisfaction of any Receivable less
-10-
<PAGE>
than the original amount thereof, except that prior to the occurrence of an
Event of Default, any Grantor may in the ordinary course of business allow
adjustments to the original amount owing on a Receivable in accordance with such
Grantor's customary and commercially reasonable credit policies and collection
practices in effect from time to time. Without the prior written consent of the
Lender in each case, no Grantor shall make any sale to any customer on a bill
and hold, guaranteed sale, sale or return, sale on approval, consignment or any
other repurchase or return basis, or re-date any invoice or make sales on
extended dating beyond that customary in its industry, or otherwise change the
terms of sale customarily offered to its customers. If any Grantor becomes aware
of any event or circumstance materially detrimental to any account debtor's
credit, it shall promptly advise the Lender thereof, and each Grantor shall
promptly notify the Lender of any change in its credit policies and collection
practices and shall not make any such change which the Lender determines in its
reasonable discretion to be materially adverse to the interests of the Lender in
the Receivables.
5.5. Vehicles; Bailments; Legal Compliance.
-------------------------------------
5.5.1 Each Grantor shall give the Lender written notice of its
acquisition of any vehicle, tractor or trailer covered by a certificate of title
or similar evidence of ownership, and upon request of the Lender, such Grantor
shall promptly execute and deliver any instruments and documents that may be
necessary, or that the Lender may request, to perfect its security interest in
all property subject to a certificate of title.
5.5.2. If any Inventory or Equipment of any Grantor is in the
possession or control of any warehouseman, consignee or any processors or other
bailees of such Grantor, such Grantor shall notify such warehousemen,
consignees, processors and other bailees in writing (with a copy to the Lender)
of the Lender's security interest in such property and, upon the Lender's
request, instruct them to hold all such Inventory and Equipment for the Lender's
account and subject to the Lender's instructions. If more than $25,000 in fair
market value of Inventory and Equipment is held by any such bailee, the Grantor
shall file a financing statement in the appropriate jurisdiction against such
bailee in a form appropriate for the underlying transaction.
5.6 Insurance; Risk of Loss.
-----------------------
5.6.1. Each Grantor shall maintain, at its expense, such public
liability and property damage and business interruption insurance as required
by, and in accordance with the terms of, Section 6.4 of the Loan Agreement.
5.6.2. The risk of loss of, damage to or destruction of the
Inventory, Equipment, Fixtures and other Collateral shall remain on each
Grantor. Each Grantor shall maintain, at its expense, insurance with respect to
the Collateral against such risks and casualties, in such amounts and with such
insurers as is acceptable to the Lender or as otherwise required by the Loan
Agreement; provided that the Grantors shall maintain insurance with respect to
--------
the Collateral in an aggregate amount at least equal to the lesser of (i) the
outstanding amount of the Secured Obligations and (ii) the full insurable value
of the Collateral. Each such insurance policy shall be in form and substance
satisfactory to the Lender and shall
-11-
<PAGE>
(i) contain a loss payable clause and a lenders' loss payable endorsement in
favor of the Lender as its interest may appear, (ii) provide that at least
thirty (30) days prior written notice of any material change to or any
cancellation or lapse of such policy must be given to the Lender by the insurer,
(iii) provide that no act or default by any Grantor under such policy shall
impair the Lender's right of recovery thereunder and (iv) provide that the
insurer shall, as against the Lender, waive any rights of subrogation to the
extent that the named insured has waived such rights (and each Grantor hereby
irrevocably and unconditionally waives any right of subrogation against the
Lender). Each Grantor shall deliver to the Lender all original insurance
policies, or certificated copies thereof, and evidence of payment of all
premiums with respect thereto.
5.6.3. If any Grantor fails to obtain and keep in full force and
effect the insurance coverage required hereunder or fails to pay the premiums
therefor when due, the Lender may (but shall not be obligated to) do so for the
account of such Grantor (without waiving or releasing any obligation or default
of such Grantor hereunder), and the cost thereof shall be added to the Secured
Obligations and shall be payable upon demand with interest accruing thereon at
the highest rate of interest accruing on the Loans under the Loan Agreement.
5.6.4. Each Grantor hereby assigns and sets over unto the Lender
all moneys which may become payable on account of such insurance (including,
without limitation, any returned or unearned premiums which may be due upon
cancellation of any such insurance which is not promptly replaced by comparable
insurance) and directs the insurers to pay the Lender any amount so due;
provided that so long as no Event of Default shall have occurred and be
continuing or shall exist, any such moneys not exceeding $500,000 in the
aggregate may be used by such Grantor to substantially repair or to replace with
substantially comparable Collateral the particular lost, damaged or destroyed
Collateral within one-hundred eighty (180) days of receipt of such insurance
proceeds.
5.7. Records. Each Grantor shall at all times maintain accurate and
-------
complete records with respect to each item and category of the Collateral
(including, without limitation, a record of all Proceeds) and shall furnish
copies of such records to the Lender with reasonable promptness from time to
time upon the Lender's request.
5.8. Taxes and Charges. Each Grantor shall, jointly or severally, pay and
-----------------
discharge all taxes, levies and other impositions levied on any Collateral owned
by it or in its possession (except to the extent that such taxes, levies and
other impositions shall not then be due or shall be contested in good faith by
appropriate proceedings diligently conducted; provided that such reserves and
--------
other provisions as may be required by generally accepted accounting principles
have been duly made and recorded on the appropriate Grantor's financial
records). If any Grantor shall fail to do so, the Lender may (but shall not be
obligated to) pay such taxes, levies or impositions for the account of such
Grantor (without waiving or releasing any obligation or default by such Grantor
hereunder), and the amount thereof shall be added to the Secured Obligations and
shall be payable upon demand with interest accruing thereon at the highest rate
of interest accruing on the Loans under the Loan Agreement.
5.9. Inspection. The Lender and its officers, employees and agents shall
----------
have the right at all reasonable times to inspect the Collateral and to examine
and make extracts from any books and records
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<PAGE>
of each Grantor pertaining to the Collateral owned by it or in its possession.
The Lender may at any time, without notice to a Grantor, verify with any account
debtor of such Grantor the status of any account payable by such account debtor.
Each Grantor from time to time shall execute and deliver such instruments and
take all such action as the Lender may reasonably request in order to effectuate
the provisions of this Section 5.9.
5.10. Federal Claims. Each Grantor shall notify the Lender of any
--------------
Collateral which constitutes a claim against the United States government or any
instrumentality or agency thereof, the assignment of which claim is governed by
federal law. Upon the request of the Lender, any such Grantor shall at its
expense take all actions required to comply, to the Lender's satisfaction, with
the Assignment of Claims Act of 1940, as amended, or any similar applicable law,
with respect to any such Collateral.
5.11. Name Change; Location.
---------------------
5.11.1. If any Grantor desires to establish a new location for its
chief executive office or a new location for any offices, plants or facilities
where any Collateral or any books or records relating to the Collateral may be
kept or to establish a new name in which it may do business, it shall first,
with respect to each such new location or name, (i) give the Lender at least
thirty (30) days prior written notice of its intention to do so and provide the
Lender with such information in connection therewith as the Lender may
reasonably request and (ii) if financing statements are on file with respect to
any Collateral, take such action, upon request of the Lender, as may be
necessary to maintain at all times the perfection and priority of the security
interests in the Collateral granted to the Lender hereunder.
5.11.2. All of the Inventory of each Grantor shall be kept at all
times at the locations specified on Schedule I hereto and at no other locations,
----------
except upon compliance with the requirements of subsection 5.11.1 of this
Agreement and except for Inventory in transit which is being sold in the
ordinary course of business.
5.11.3. All of the Equipment and Fixtures of each Grantor shall be
kept and maintained at all times at the locations specified in Schedule I and at
----------
no other locations, except (i) upon compliance with the requirements of
subsection 5.11.1 of this Agreement or (ii) as sold, transferred or otherwise
disposed of as permitted by the terms of the Loan Agreement or this Agreement.
5.12. Intellectual Property. If any Grantor shall (i) obtain rights to any
---------------------
new registered Copyrights, Patents or Trademarks, or (ii) become entitled to the
benefit of any registered Copyrights or any Patents or Trademarks or any
improvement on any Patent, the provisions of this Agreement shall automatically
apply thereto and such Grantor shall give to the Lender prompt written notice
thereof. Each Grantor authorizes the Lender to modify this Agreement by
amending Schedule II hereto to include any such registered Copyrights or any
----------- ----------
such Patents and Trademarks. Each Grantor shall have the duty (i) to prosecute
diligently any patent, trademark, or service mark applications pending as of the
date hereof or hereafter, if such Grantor deems it in its reasonable business
judgment to be necessary or appropriate, (ii) to make application on unpatented
but patentable inventions and on trademarks, copyrights and service marks, as
appropriate, if such Grantor deems it in its reasonable business judgment to be
necessary or
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<PAGE>
appropriate, to preserve and maintain all rights in the Copyrights, Patents and
Trademarks, to the extent material to the operations of the business of such
Grantor and (iii) to ensure that the Copyrights, Patents and Trademarks are and
remain enforceable, to the extent material to the operations of the business of
such Grantor. Any expenses incurred in connection with any Grantor's obligations
under this Section 5.12 shall be borne by the Grantors jointly and severally. No
Grantor shall abandon any right to file a material patent, trademark, or service
mark application, or abandon any material pending patent application, or any
other Copyright, Patent or Trademark without the written consent of the Lender,
which consent shall not be unreasonably withheld. On and after the date of this
Agreement, at the request of the Lender, each Grantor shall execute and deliver
to the Lender a Copyright security agreement, Patent security agreement and a
Trademark security agreement, and all other documents, instruments, and other
items as may be necessary for the Lender to perfect a first priority security
interest (subject only to Permitted Encumbrances which are accorded priority by
statute) in Copyrights, Patents, Trademarks, or any other type or kind of
Intellectual Property owned by such Grantor.
5.13. Investment Property. Each Debtor will take any and all actions
-------------------
required or requested by the Lender, from time to time, to (i) cause the Lender
to obtain exclusive control of any Investment Property owned by such Grantor in
a manner acceptable to the Lender and (ii) obtain from any issuers of Investment
Property and such other Persons, for the benefit of the Lender, written
confirmation of the Lender's control over such Investment Property. For purposes
of this Section 5.13, the Lender shall have exclusive control of Investment
Property if: (i) such Investment Property consists of certificated securities
and a Grantor delivers such certificated securities to the Lender (with
appropriate endorsements if such certificated securities are in registered
form); (ii) such Investment Property consists of uncertificated securities and
either (a) a Grantor delivers such uncertificated securities to the Lender or
(b) the issuer thereof agrees, pursuant to documentation in form and substance
satisfactory to the Lender, that it will comply with instructions originated by
the Lender without further consent by such Grantor; and (iii) such Investment
Property consists of security entitlements and either (a) the Lender becomes the
entitlement holder thereof or (b) the appropriate securities intermediary
agrees, pursuant to documentation in form and substance satisfactory to the
Lender, that it will comply with entitlement orders originated by the Lender
without further consent by such Grantor.
5.14. License of General Intangibles. For purposes of enabling the Lender
------------------------------
to exercise its rights and remedies hereunder, at the Lender's request following
the occurrence of an Event of Default, each Grantor hereby grants to the Lender
an irrevocable, nonexclusive license (exercisable without payment of any royalty
or other compensation to such Grantor) to use, assign, license or sublicense any
of such Grantor's General Intangibles, wherever the same may be located,
including in such license reasonable access to all media in which any of the
General Intangibles may be recorded or stored and to all computer programs used
for the compilation or printout thereof; provided that the Lender shall comply
--------
with all reasonable quality control standards and trademark use requirements of
such Grantor. No agreements hereafter acquired or agreed to or entered into by
any Grantor shall prohibit, restrict or impair the rights granted to the Lender
hereunder. Notwithstanding the foregoing, the Lender shall have no obligations
or liabilities regarding any or all of the General Intangibles of any Grantor by
reason of, or arising out of, this Agreement.
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<PAGE>
5.15. Remedies on Default. If any one or more of the Events of Default
-------------------
shall occur and be continuing or shall exist, the Lender may (i) to the full
extent permitted by law, take possession and control of all or any part of the
Collateral and Proceeds thereof and the books and records pertaining thereto,
with or without judicial process, and (ii) without demand or notice (and if
notice is required by law, after ten days prior written notice), proceed to
exercise one or more of the rights and remedies accorded to a secured party by
the UCC and otherwise by law or by the terms of the Loan Agreement or this
Agreement. The Lender's rights and remedies shall include without limitation the
power to (i) sell all or any portion of the Collateral at public or private sale
at such place and time and on such terms as the Lender may see fit (subject to
the requirements of applicable law), (ii) endorse any Instrument representing
Collateral in the name of the applicable Grantor thereto, (iii) prosecute claims
and legal actions regarding Accounts, other Receivables and General Intangibles,
(iv) perform any agreement or contract which constitutes Collateral and (v)
sell, assign, license, sublicense or otherwise dispose of, all right, title and
interest in and to any General Intangibles included in the Collateral
(including, without limitation, assignments, recordings, registrations and
applications therefor in the United States Patent and Trademark Office, the
United States Copyright Office or any similar domestic or foreign office or
agency) and for the purpose of recording, registering and/or filing, or
accomplishing any other formality with respect to, the foregoing, execute and
deliver any and all agreements, documents, instruments of assignment or other
papers necessary or advisable to effect such purpose. Without precluding any
other methods of sale, the sale of Collateral shall be deemed to have been made
in a commercially reasonable manner if conducted in conformity with reasonable
commercial practices of secured lenders disposing of similar property, but in
any event, the Lender may sell the Collateral on such terms as the Lender may
choose without assuming any credit risk and without any obligation to advertise
or give notice of any kind not expressly required under this Agreement, by the
UCC or otherwise. All of the rights and remedies of the Lender under this
Agreement shall be cumulative and not exclusive of other rights and remedies
which it otherwise would have, whether under the Loan Agreement, this Agreement,
the UCC or otherwise. After the occurrence of an Event of Default, each Grantor
shall, upon the request of the Lender, promptly assemble so much of the
Collateral (including, without limitation, all books and records relating
thereto) in its possession as is capable of physical delivery and make the same
available to the Lender at such locations as may be reasonably designated by the
Lender and shall permit the Lender, or the Lender's representatives and agents,
to enter any premises where all or any part of the Collateral, or the books and
records relating thereto, or both, are located, to take possession of all or any
part of the Collateral and to remove all or any part of the Collateral. The
right of the Lender to have the Collateral assembled and made available to it is
of the essence of this Agreement, and the Lender may, at its election, enforce
such right by a bill in equity for injunctive relief for specific performance.
The Lender shall not be under any obligation to marshal any assets in favor of
any Grantor or any other Person or against or in payment of all or any of the
Secured Obligations.
5.16. Application of Proceeds. Any Collateral or Proceeds of the
-----------------------
Collateral held, received or realized upon at any time by the Lender (except,
when no Default or Event of Default has occurred and continues or exists, such
moneys payable to any Grantor under insurance policies which such Grantor may
use to repair or replace Collateral pursuant to subsection 5.6.4 hereof) shall
be applied as follows:
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<PAGE>
5.16.1. first, to reimburse the Lender for all expenses and fees
incurred for which the Borrower or any other Borrower Entity is obligated to pay
the Lender under and in accordance with the Loan Agreement, the Note, this
Agreement and/or any other Loan Document (including, without limitation,
reasonable attorneys' fees and other legal expenses);
5.16.2. second, the satisfaction of all accrued and unpaid
interest on the Secured Obligations (including any interest which, but for the
provisions of the Bankruptcy Code, would have accrued on such amounts);
5.16.3. third, the satisfaction of the principal amounts of the
Secured Obligations outstanding; and
5.16.4. fourth, the balance, if any, to the Grantors or as
otherwise required by law.
If the proceeds of sale, collection or other realization of or upon the
Collateral granted to the Lender by the Grantors under this Agreement are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Secured Obligations, the Grantors shall remain liable, jointly
and severally, for any deficiency. If a surplus results after lawful
application of such proceeds, the Grantors shall be entitled to a pro rata share
of any such surplus.
5.17. Attorney-in-Fact. Each Grantor hereby irrevocably constitutes and
----------------
appoints the Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, from time to time in the Lender's discretion,
for the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement and, without limiting the generality of the foregoing, hereby
gives the Lender the power and right, on behalf of such Grantor, without notice
to or assent by such Grantor, to do the following:
5.17.1. to do all acts and things which the Lender may deem
necessary or advisable to preserve, perfect and continue perfected the Lender's
security interest in the Collateral (including, without limitation, the signing
of financing, continuation or other similar statements and notices on behalf of
the Grantors);
5.17.2. to effect any insurance called for by the terms of this
Agreement and to pay all or part of the premiums therefor, and to make, settle
and adjust all claims under such Grantor's insurance policies and to endorse any
draft or check which may be payable to such Grantor in order to collect the
proceeds of such insurance or any returned or unearned premiums with respect
thereto;
5.17.3. to ask, demand, collect, receive and give acquittance and
receipts for any and all moneys due and to become due under any Collateral and,
in the name of such Grantor or its own name or otherwise, to take possession of
and endorse and collect any checks, drafts, notes, acceptances or other
Instruments for the payment of moneys due under any Collateral and to file any
claim or to take any other
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<PAGE>
action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Lender for the purpose of collecting any and all such moneys
due under any Collateral whenever payable;
5.17.4. to pay or discharge charges or liens levied or placed on,
or threatened against, the Collateral (other than the Permitted Encumbrances);
5.17.5. to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due, and to become due
thereunder, directly to the Lender or as the Lender shall direct, and to receive
payment of and receipt for any and all moneys, claims and other amounts due, and
to become due at any time, in respect of or arising out of any Collateral;
5.17.6. to sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts and other
Documents constituting or relating to the Collateral;
5.17.7. to commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in respect of any
Collateral;
5.17.8. to defend any suit, action or proceeding brought against
such Grantor with respect to any Collateral;
5.17.9. to settle, compromise or adjust any suit, action or
proceeding described above and, in connection therewith, to give such discharges
or releases as the Lender may deem appropriate; and
5.17.10. to sell transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though the Lender were the absolute owner thereof for all purposes, and to do,
at the Lender's option and at the expense of such Grantor, at any time, or from
time to time, all acts and things which the Lender reasonably deems necessary to
protect, preserve or realize upon the Collateral and the Lender's lien therein,
in order to effect the intent of this Agreement, and as fully and effectively as
such Grantor might do;
provided that the Lender shall be permitted to take the actions described in
- --------
subsections 5.17.3 through 5.17.10 only upon the occurrence and during the
continuation of an Event of Default. Each Grantor hereby ratifies, to the extent
permitted, all that such attorneys lawfully do or cause to be done by virtue
hereof. The power of attorney granted hereunder is a power coupled with an
interest and shall be irrevocable until the Secured Obligations are indefeasibly
paid in full and the Loan Agreement is terminated.
5.18. Continuing Validity of Obligations.
----------------------------------
5.18.1. The agreements and obligations of the Grantors hereunder
are continuing agreements and obligations and are absolute and unconditional
irrespective of (i) the genuineness, validity or enforceability of the Note or
any other instrument or instruments now or hereafter evidencing the
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<PAGE>
Secured Obligations or any part thereof or of the Loan Agreement, this
Agreement, the Guaranty, any other Loan Document or any other agreement or
agreements now or hereafter entered into by the Lender and the Borrower and/or
any other Borrower Entity pursuant to which the Secured Obligations or any part
thereof is issued, guaranteed or secured or (ii) any other circumstance which
might otherwise constitute a legal or equitable discharge of such agreements and
obligations other than payment in full of the Secured Obligations and the
termination of the Lender's obligation to lend to the Borrower.
5.18.2. Without limitation upon the foregoing, such agreements and
obligations shall continue in full force and effect as long as the Secured
Obligations or any part thereof remains outstanding and unpaid or any obligation
of the Lender to lend to the Borrower has not been terminated (whether any Loans
are outstanding) and shall remain in full force and effect without regard to and
shall not be released, discharged or in any way affected by (i) any renewal,
refinancing or refunding of the Secured Obligations in whole or in part, (ii)
any extension of the time of payment of the Note or other instrument or
instruments now or hereafter evidencing the Secured Obligations or any part
thereof, (iii) any compromise or settlement with respect to the Secured
Obligations or any part thereof, or any forbearance or indulgence extended to
the Borrower or any other Borrower Entity, (iv) any amendment to or modification
of the terms of the Note or other instrument or instruments now or hereafter
evidencing the Secured Obligations or any part thereof or of the Loan Agreement,
the Guaranty, any other Security Document or any other agreement or agreements
now or hereafter entered into by the Lender, the Borrower or any other Borrower
Entity pursuant to which the Secured Obligations or any part thereof is issued
or secured, (v) any substitution, exchange or release of, or failure to
preserve, perfect or protect, or other dealing in respect of, the Collateral or
any other property or any security for the payment of the Secured Obligations or
any part thereof, (vi) any bankruptcy, insolvency, arrangement, composition,
assignment for the benefit of creditors or similar proceeding commenced by or
against the Borrower or any other Grantor or (vii) any other matter or thing
whatsoever whereby the agreements and obligations of the Borrower under the
Note, the Loan Agreement or any other Security Document or any Grantor
hereunder, under the Guaranty, or any other Security Document would or might
otherwise be released or discharged other than payment in full of the Secured
Obligations and termination of the Lender's obligation to lend to the Borrower.
Each Grantor hereby waives notice of the acceptance of this Agreement by the
Lender.
5.18.3. To the extent that the Borrower, any other Borrower Entity
or any other guarantor or grantor makes a payment or payments to the Lender or
the Lender receives any payment or proceeds of the Collateral, which payment or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to such Person or
a trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause of action, then, to the extent of
such payment or proceeds, the Secured Obligations or portion thereof intended to
be satisfied and this Agreement shall be revived and continue in full force and
effect, as if such payment or proceeds had not been received by the Lender.
5.19. Defeasance. At such time as the Borrower may no longer borrow funds
----------
under the Loan Agreement and upon payment in full of the Secured Obligations and
the termination of all obligations of the Lender to lend funds to the Borrower
under the Loan Agreement, this Agreement shall terminate and be of no further
force and effect (except for the provisions of subsection 5.18.3 and Section 6.1
hereof which
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<PAGE>
shall survive), and in such event the Lender shall, at the expense of the
Grantors and without recourse, representation or warranty, redeliver and
reassign to each Grantor its remaining Collateral and take all action necessary
to terminate the Lender's security interest in the Collateral. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
5.20. Limitation of Duty of the Lender. The powers conferred on the Lender
--------------------------------
under this Agreement are solely to protect the Lender's interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
The Lender shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers and neither the Lender nor any of its
officers, directors, employees or agents shall be responsible to any Grantor for
any act or failure to act, except for willful misconduct. Without limiting the
foregoing, the Lender shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if such Collateral
is accorded treatment substantially equivalent to that which the Lender, in its
individual capacity, accords it own property consisting of the type of
Collateral involved; it being understood and agreed that the Lender shall not
have any responsibility for taking any necessary steps (other than steps taken
in accordance with the standard of care above) to preserve the rights against
any person with respect to the Collateral.
Section 6. Miscellaneous.
-------------
6.1. Indemnification and Expenses. The Grantors shall, jointly and
----------------------------
severally, indemnify and hold harmless the Lender from and against any and all
claims and losses arising out of or attributable to this Agreement and the
granting to the Lender of a security interest and lien in the Collateral
hereunder, except claims and losses arising from the Lender's breach hereof or
the Lender's gross negligence or willful misconduct. The Grantors shall pay the
Lender on demand the amount of any out-of-pocket expenses (including, without
limitation, reasonable attorneys' fees and other legal expenses) incurred by the
Lender in connection with the enforcement of this Agreement, the Loan Agreement
and/or the Note and as otherwise provided in this Agreement, with interest
accruing thereon at the highest rate of interest accruing on the Loans under the
Loan Agreement.
6.2. Specific Performance. In addition to all other rights and remedies
--------------------
granted to the Lender in this Agreement, the Loan Agreement and the other Loan
Documents, the Lender shall be entitled to specific performance and injunctive
and other equitable relief, and each Grantor hereby waives any requirement for
the securing or posting of any bond or other security in connection with the
obtaining of any such specific performance and injunctive or other equitable
relief.
6.3. No Waiver. No failure or delay on the part of the Lender in the
---------
exercise of any power, right or privilege hereunder shall impair such power,
right or privilege or be construed to be a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege hereunder preclude
other or further exercise thereof or the exercise of any other right, power or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
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<PAGE>
6.4. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
--------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
6.5. Notices. All notices, demands or other communications to be given or
-------
delivered hereunder shall be given in accordance with the notice provision of
the Loan Agreement, if to the Lender or the Borrower, and in accordance with the
notice provision of the Guaranty if to any or all of the remaining Grantors.
6.6. Amendments, Etc. The terms of this Agreement may be waived, altered
---------------
or amended only by an instrument in writing duly executed by each Grantor and
the Lender. Any such amendment or waiver shall be binding upon the Lender and
each Grantor and their respective successors and assigns.
6.7. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the respective successors and assigns of each of the
parties hereto, provided, that no Grantor shall assign or transfer its rights
hereunder without the prior written consent of the Lender.
6.8. Counterparts; Headings. This Agreement and any amendments, waivers,
----------------------
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. Section and
subsection headings in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose or be given any substantive effect.
6.9. Severability. If and to the extent that any provision in this
------------
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions of this
Agreement or the obligations of any Grantor under such provisions, or of such
provision or obligation in any other jurisdiction, or of such provision to the
extent not invalid, illegal or unenforceable shall not in any way be affected or
impaired thereby.
6.10. Other Loan Documents. This Agreement supplements the other Loan
--------------------
Documents and nothing in this Agreement shall be deemed to limit or supersede
the rights granted to the Lender in any other Loan Document. In the event of
any conflict between this Agreement and the Loan Agreement, the provisions of
the Loan Agreement shall govern.
6.11. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST ANY GRANTOR WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
ILLINOIS LOCATED IN THE CITY OF CHICAGO, ILLINOIS, AND BY EXECUTION AND DELIVERY
OF THIS AGREEMENT EACH GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
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<PAGE>
CONNECTION WITH THIS AGREEMENT SUBJECT, HOWEVER, TO RIGHTS OF APPEAL. EACH
GRANTOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF COPIES OF ANY SUMMONS AND
COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR
PROCEEDING BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY DELIVERING A COPY
OF SUCH PROCESS TO SUCH GRANTOR, AT ITS ADDRESS SPECIFIED IN THE NOTICE
PROVISION OF THE LOAN AGREEMENT, IF TO THE BORROWER, OR AT ITS ADDRESS SPECIFIED
IN THE NOTICE PROVISION OF THE GUARANTY, IF TO ANY OTHER GRANTOR, OR BY ANY
OTHER METHOD PERMITTED BY APPLICABLE LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
OF THE LENDER TO BRING PROCEEDINGS AGAINST ANY GRANTOR IN THE COURTS OF ANY
OTHER JURISDICTION.
6.12. WAIVER OF JURY TRIAL. EACH GRANTOR AND THE LENDER HEREBY WAIVE, TO
--------------------
THE FULL EXTENT PERMITTED BY APPLICABLE LAW, THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION IN ANY COURT BASED UPON OR ARISING OUT OF
THIS AGREEMENT. NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE
CONTRARY, NO CLAIM MAY BE MADE BY ANY GRANTOR AGAINST THE LENDER FOR ANY LOST
PROFITS OR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY
BREACH OR WRONGFUL CONDUCT (OTHER THAN WILLFUL MISCONDUCT CONSTITUTING ACTUAL
FRAUD) IN CONNECTION WITH, ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREUNDER, OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH. EACH GRANTOR HEREBY WAIVES, RELEASES
AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES. EACH GRANTOR
AND THE LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE LOANS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED
AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. EACH GRANTOR AND THE LENDER ALSO
WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS
WAIVER, BE REQUIRED OF THE LENDER.
6.13. Additional Grantors. It is understood and agreed that any Subsidiary
-------------------
of the Borrower or any other Borrower Entity that is required to execute a
counterpart of this Agreement after the date hereof pursuant to subsection 6.7.2
of the Loan Agreement shall automatically become a Grantor hereunder by
executing a counterpart hereof and delivering the same to the Lender. The
execution and delivery of such counterpart or any other instrument adding an
additional Grantor as a party to this Agreement shall not
-21-
<PAGE>
require the consent of any other Grantor hereunder. The rights and obligations
of each Grantor hereunder shall remain in full force and effect notwithstanding
the addition of any new Grantor as a party to this Agreement.
6.14. Joint and Several. The obligations, covenants and agreements of the
-----------------
Grantors hereunder shall be the joint and several obligations, covenants and
agreements of each Grantor.
* * * * *
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement as of the day and year first above written.
ZEFER CORP., as a Grantor
By: /s/ Sean W. Mullaney
------------------------------------------
Its: EVP, General Counsel and Secretary
------------------------------------------
ZEFER CORP. NORTHEAST, as a Grantor
By: /s/ Sean W. Mullaney
------------------------------------------
Its: EVP, General Counsel and Secretary
------------------------------------------
ZEFER CORP. WEST LLC, as a Grantor
By: /s/ Sean W. Mullaney
------------------------------------------
Its: EVP, General Counsel and Secretary
------------------------------------------
ZEFER CORP. MIDWEST LLC, as a Grantor
By: /s/ Sean W. Mullaney
------------------------------------------
Its: EVP, General Counsel and Secretary
------------------------------------------
ZEFER CORP. CRM LLC, as a Grantor
By: /s/ Sean W. Mullaney
------------------------------------------
Its: EVP, General Counsel and Secretary
------------------------------------------
<PAGE>
GTCR CAPITAL PARTNERS, L.P.,
as Grantee
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/ illegible
-----------------------------------------
Its: Principal
<PAGE>
SCHEDULE I
----------
A. Other Names Used:
----------------
B. Corporate Reorganizations, etc.:
-------------------------------
C. Chief Place of Business, Chief Executive Office, Record Locations:
-----------------------------------------------------------------
D. Inventory Locations:
-------------------
E. Equipment and Fixtures Locations:
--------------------------------
F. Leased Locations:
----------------
G. Bailees, Warehousemen, etc.:
---------------------------
H. Instruments:
-----------
<PAGE>
SCHEDULE II
-----------
A. Vehicles:
--------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Year/Make/Model State of Registration License No. Serial No.
--------------- --------------------- ----------- ----------
- ----------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------
</TABLE>
B. Patents and Patent Applications:
-------------------------------
C. Registered Trademarks and Trademark Applications:
------------------------------------------------
D. Registered Copyrights and Copyright Applications:
------------------------------------------------
<PAGE>
SCHEDULE III
------------
A. Filing Jurisdictions:
--------------------
1. States:
2. Counties/Towns:
B. Other Steps Needed to Perfect:
-----------------------------
C. Permitted Lien Filings:
----------------------
<PAGE>
EXHIBIT 10.21
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT (this "Agreement") is made as of November 24,
---------
1999, by each of the undersigned pledgors and such other persons who hereinafter
become parties to this Agreement pursuant to Section 19 hereof (each, a
"Pledgor" and, collectively, the "Pledgors") in favor of GTCR Capital Partners,
------- --------
L.P., a Delaware limited partnership (the "Lender").
------
WHEREAS, ZEFER Corp., a Delaware corporation (the "Borrower"), and the
--------
Lender have entered into that certain Loan Agreement of even date herewith (as
amended, modified or supplemented from time to time, the "Loan Agreement"),
--------------
which is incorporated herein by reference and pursuant to which the Borrower and
the Lender have agreed that the Lender shall make Loans to the Borrower on the
terms and conditions set forth therein;
WHEREAS, each Pledgor (other than the Borrower) acknowledges that, as
a Subsidiary (as that term is defined in the Loan Agreement) of the Borrower, it
will receive substantial direct and indirect benefits and advantage by reason of
the making of the Loans to the Borrower as provided in the Loan Agreement and
that it will be to each such Pledgor's direct interest and economic benefit to
assist the Borrower in procuring said Loans from the Lender; and
WHEREAS, to induce the Lender to enter into the Loan Agreement and
make the Loans to the Borrower thereunder, in order to secure the payment and
performance by the Borrower of the Secured Obligations (as hereinafter defined
in Section 1), the Pledgors have agreed to pledge to the Lender, for the benefit
of the Lender, all of the Collateral (as hereinafter defined in Section 2) as
security for the Secured Obligations.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Pledgors, the parties hereto agree as follows:
1. Definitions.
-----------
1.1 Certain Defined Terms. Capitalized terms not otherwise defined herein
---------------------
which are defined in the Loan Agreement shall have the meanings set forth
therein or which are defined in the UCC shall have the meanings set forth
therein. In addition to any other terms defined elsewhere in this Agreement,
the following terms shall have the following meanings:
"Collateral" shall have the meaning assigned to that term in Section 2
----------
hereof.
"Equity Rights" shall have the meaning assigned to that term in
-------------
Section 2 hereof.
"Event of Default" shall mean an Event of Default as defined in the
----------------
Loan Agreement or any breach by any Pledgor of any representation, warranty,
covenant, agreement or term of this Agreement.
<PAGE>
"Other Securities" shall have the meaning assigned to that term in
----------------
Section 2 hereof.
"Pledged Securities" shall have the meaning assigned to that term in
------------------
Section 2 hereof.
"Proceeds" shall mean all proceeds (as that term is defined in the
--------
UCC) and, in addition, any and all amounts or items of property, both cash and
noncash, received when any Collateral or proceeds thereof are sold, exchanged,
collected or otherwise disposed of, including proceeds of insurance, indemnity,
warranty or guarantee paid or payable on or in connection with any Collateral,
and any and all other amounts paid or payable under or in connection with any of
the Collateral.
"Secured Obligations" shall mean, collectively, (i) the Loan
-------------------
Obligations, (ii) all other liabilities, obligations and indebtedness (whether
actual or contingent, whether owed jointly or severally and whether for the
payment of money and, if for the payment of money, whether for principal,
interest, fees, expenses or otherwise) of any Borrower Entity to the Lender now
existing or hereafter incurred, whether under lines of credit, other financing
arrangements or otherwise, whether related to the Loan Agreement or the Note,
whether contemplated by the Lender or the Borrower at the date hereof and
whether direct, indirect, matured or contingent, joint or several, or otherwise,
together with any and all extensions, renewals, refinancings or refundings
thereof in whole or in part, (iii) all costs and expenses (including, without
limitation, to the extent permitted by law, reasonable attorneys' fees and other
legal expenses) incurred by the Lender in the enforcement and collection of any
of the liabilities, obligations and indebtedness referred to in clause (i) or
(ii) above, and (iv) all payments and advances made by the Lender for the
maintenance, preservation, protection or enforcement of, or realization upon,
any property or assets now or hereafter made subject to any Lien granted
pursuant to the Loan Agreement, this Agreement, the other Loan Documents or
pursuant to any other agreement, instrument or note relating to any of the
Secured Obligations (including, without limitation, advances for taxes,
insurance, storage, transportation, repairs and the like).
"UCC" shall mean the Uniform Commercial Code as in effect in any
---
applicable jurisdiction.
1.2 Other Definitional Provisions. References to "Sections,""subsections,"
-----------------------------
"Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1.1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. In this Agreement, "hereof," "herein," "hereto," "hereunder" and the
like mean and refer to this Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears; words
importing any gender include the other gender; references to "writing" include
printing, typing, lithography and other means of reproducing words in a tangible
visible form; the words "including," "includes" and "include" shall be deemed to
be followed by the words "without limitation;" references to agreements and
other contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the
-2-
<PAGE>
relevant functions of such Persons; and all references to statutes and related
regulations shall include any amendments thereto and any successor statutes and
regulations.
2. Grant of Security Interest.
--------------------------
2.1 Grant. As collateral security for full and timely payment, observance
-----
and performance of the Secured Obligations in accordance with the terms thereof,
and to induce the Lender to extend credit to the Borrower under the Loan
Agreement, each Pledgor hereby pledges, assigns, hypothecates and transfers, and
grants to and creates in favor of the Lender a continuing security interest and
lien under the UCC in, all of such Pledgor's right, title and interest in, to
and under the following (all of which is collectively referred to herein as the
"Collateral"):
----------
2.1.1 all of the issued and outstanding shares of capital stock,
partnership units, limited liability company interests and other securities and
ownership interests (whether in certificated or uncertificated form) of such
Pledgor's domestic Subsidiaries and 65% of the capital stock of such Pledgor's
foreign Subsidiaries (collectively, the "Pledged Securities"), which Pledged
------------------
Securities are listed on Schedule I hereto;
----------
2.1.2 all of the shares of capital stock, partnership units, limited
liability company interests and other securities and ownership interests
(whether in certificated or uncertificated form) of such Pledgor's domestic
Subsidiaries hereafter owned, directly or indirectly, by such Pledgor and 65% of
the capital stock of such Pledgor's foreign Subsidiaries hereafter owned,
directly or indirectly, by such Pledgor (collectively, the "Other Securities");
----------------
2.1.3 all other property hereafter delivered to, or in the possession
or in the custody of, the Lender in substitution for or in addition to the
Pledged Securities;
2.1.4 all stock rights, rights with respect to partnership units or
limited liability company interests, rights to subscribe, liquidating and other
dividends and distributions, stock dividends, dividends paid in stock, new
securities, interests, options, warrants, other property and cash to which such
Pledgor is or may hereafter become entitled to receive with respect to its
interest in the Pledged Securities or the Other Securities, whether in
certificated or uncertificated form and whether in substitution or exchange or
by reason of merger, consolidation, reclassification, reorganization,
liquidation or otherwise (collectively, the "Equity Rights"), which Equity
-------------
Rights are listed on Schedule II hereto;
-----------
2.1.5 the certificates and other instruments described on Schedule I
----------
currently evidencing the Pledged Securities and any and all other certificates
and instruments now or hereafter evidencing the Pledged Securities, the Other
Securities or the Equity Rights, in each case duly endorsed in blank (or with
appropriate irrevocable stock powers duly executed in blank and undated); and
-3-
<PAGE>
2.1.6 all Proceeds of the foregoing.
2.2 Relative Priority of Security Interests. In furtherance of the intent
---------------------------------------
of the parties hereto, the security interests and liens granted hereunder shall
be treated as a severable first priority security interest and lien granted to
the Lender as the lender under the Loan Agreement.
3. Delivery of Collateral. Upon the execution and delivery of this Agreement,
----------------------
each Pledgor shall deliver to the Lender or its agent all items of Collateral
then owned by or held by it in tangible form, and with respect to all items of
Collateral acquired by each Pledgor hereafter, such Pledgor shall accept such
items of Collateral as the Lender's agent, hold such items in trust for the
Lender hereunder and promptly deliver such items of Collateral to the Lender or
its agent upon such Pledgor's receipt thereof. Each certificate or instrument
representing Collateral shall be delivered to the Lender or its agent duly
endorsed in blank or together with appropriate irrevocable stock powers undated
and duly executed in blank sufficient to transfer title thereto.
4. Dividends and Other Distributions.
---------------------------------
4.1 Stock Dividends and Other Distributions. So long as this Agreement is
---------------------------------------
in effect, if any Pledgor by reason of ownership of the Collateral shall become
entitled to receive, or shall receive, any Equity Rights, such Pledgor shall
accept the same as the Lender's agent and hold the same in trust for the Lender
hereunder and deliver the same promptly to the Lender in the exact form
received, with the endorsement of such Pledgor when requested by the Lender
and/or appropriate irrevocable stock powers undated and duly executed in blank,
to be held by the Lender as part of the Collateral. Any sums or property paid
upon or in respect of the Collateral or any other securities received under this
Section 4 upon the reorganization, liquidation, or dissolution of the issuer of
any of the Collateral or any such other securities shall immediately be paid
over to the Lender to be held by the Lender as additional security for the
payment of the Secured Obligations. All sums of money and property so paid or
distributed in respect of the Collateral and such other securities that are
received by any Pledgor shall, until paid or delivered to the Lender, be
segregated from the other property or funds of such Pledgor and held by such
Pledgor in trust as additional security for the payment of the Secured
Obligations. Such Pledgor shall give the Lender immediate notice of any such
distribution.
4.2 Cash Dividends and Distributions. Notwithstanding the provisions of
--------------------------------
Section 4.1 above, unless an Event of Default shall have occurred and be
continuing or shall exist, each Pledgor shall be entitled to receive and retain
all cash dividends and distributions declared and paid out of earnings or earned
surplus with respect to any Collateral to the extent such dividends and
distributions are permitted under the Loan Agreement. Upon the occurrence and
continuance or existence of any Event of Default or to the extent not permitted
under the Loan Agreement, the Lender shall be entitled to receive any and all
such cash dividends and distributions, and upon receipt, each Pledgor shall
accept any such cash dividends and distributions as the Lender's agent and hold
the same in trust for the Lender hereunder and shall immediately deliver any
such cash dividends or distributions to the Lender. The Lender shall hold any
such cash dividends and distributions as Collateral pursuant to this Agreement
or, at the Lender's election, shall apply
-4-
<PAGE>
any such cash dividends or distributions to the reduction of any Secured
Obligations then outstanding, in such order as the Lender may elect.
5. Voting and Other Rights.
-----------------------
5.1 Stock Register. At any time and from time to time (i) whether before
--------------
or after the occurrence of any Event of Default, the Lender shall be entitled to
register this Agreement on the stock ledger and/or books of record of each of
the issuers of the Collateral, and each Pledgor agrees to cause this Agreement
to be so registered, and (ii) after the occurrence of any Event of Default and
the continuance thereof, the Lender shall be entitled to register any or all of
the Collateral in its name or the name of its nominee, and each Pledgor shall
execute such assignments and other documents, and take such other acts, all at
such Pledgor's expense, as the Lender may from time to time reasonably request
to accomplish the foregoing.
5.2 Voting Rights. Unless an Event of Default shall have occurred and be
-------------
continuing or shall exist, each Pledgor shall be entitled to vote the Collateral
and to give consents, waivers and ratifications with respect to the Collateral;
provided that no vote shall be cast, or consent, waiver or ratification given,
- --------
or any action taken, that would impair the Collateral or be inconsistent with or
violate any provision of this Agreement or the Loan Agreement. Upon the
occurrence and continuance or during the existence of any Event of Default, the
Lender shall have the right to vote the Collateral, in all matters, and grant
consents, waivers and ratifications with respect thereto in its absolute
discretion whether the Lender has transferred the Collateral to the registered
ownership of the Lender or the Lender's nominee.
6. Representations and Warranties. Each Pledgor hereby represents, warrants,
------------------------------
covenants and agrees that:
6.1 Such Pledgor is and shall be at all times the record and
beneficial owner of each item of its Collateral, and has and shall have at all
times good and marketable title thereto, free and clear of any and all liens,
charges, claims and encumbrances, except the security interest granted under
this Agreement, and such Pledgor shall defend such title against the claims and
demands of all Persons whomsoever. All of the Pledged Securities are duly
authorized, have been validly issued, and in the case of Pledged Securities
constituting capital stock, are fully paid and nonassessable.
6.2 This Agreement has been duly authorized, executed and delivered by
such Pledgor and constitutes the legal, valid and binding obligation of such
Pledgor, enforceable against such Pledgor in accordance with its terms except to
the extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws generally
affecting creditors' rights and by equitable principles (regardless of whether
enforcement is sought in equity or at law). This Agreement creates a valid
security interest in the Collateral and, upon delivery of the Collateral to the
Lender, shall constitute a valid first priority perfected lien on or security
interest in the Collateral.
-5-
<PAGE>
6.3 No security agreement, financing statement, equivalent security or
lien instrument, or continuation statement covering all or any part of the
Collateral is on file or of record in any public office other than those
documents reflecting liens on the Collateral in favor of the Lender.
6.4 The certificates described on Schedule I hereto evidence all of
----------
the issued and outstanding partnership units, limited liability company
interests and shares of capital stock (as applicable) of each Pledgor (other
than the Borrower) and its Subsidiaries which are owned by each Pledgor as of
the date of execution of this Agreement, and each Pledgor has delivered to the
Lender all stock certificates or other instruments evidencing any of the Pledged
Securities, in each case duly endorsed in blank to the Lender (or with
appropriate irrevocable stock powers duly executed in blank and undated).
6.5 Except for the Pledged Securities and the Equity Rights, such
Pledgor does not own nor does it have the right to acquire any capital stock or
securities of or other ownership interest in any Subsidiary.
6.6 Such Pledgor's place where its records concerning the Collateral
are kept is as set forth on Schedule III hereto, and such Pledgor shall not
------------
change such principal place of business or remove such records unless it has
taken such action as is necessary to cause the security interest of the Lender
in the Collateral to continue to be perfected. Such Pledgor shall not change its
principal place of business or the place where its records concerning the
Collateral are kept without giving at least thirty (30) days prior written
notice thereof to the Lender.
6.7 No consent approval or authorization of or designation or filing
with any governmental authority on the part of such Pledgor is required in
connection with the pledge and security interest granted under this Agreement,
or the exercise of the Lender of the voting and other rights provided for in
this Agreement, except for the filing of UCC-1 financing statements.
6.8 The execution, delivery and performance of this Agreement by such
Pledgor will not violate any provision of any applicable law or regulation or of
any order, judgment, writ, award or decree of any court, arbitrator or
governmental authority, domestic or foreign, or of the charter or by-laws of
such Pledgor or of any securities issued by such Pledgor or of any mortgage,
indenture, lease, contract, or other agreement, instrument or undertaking to
which such Pledgor is a party or which purports to be binding upon such Pledgor
or upon any of its respective assets, and will not result in the creation or
imposition of any lien, charge or encumbrance on or security interest in any of
the assets of such Pledgor except as contemplated by this Agreement.
6.9 Such Pledgor assumes full responsibility for taking any and all
steps to preserve its and the Lender's rights with respect to the Collateral
against all prior parties. The Lender shall be deemed to have exercised
reasonable care in the preservation and custody of such of the Collateral as may
be in the Lender's possession if the Lender takes such action for that purpose
as such Pledgor shal l reasonably request in writing; provided that such
--------
requested action shall not, in the judgment of the Lender, impair the Lender's
prior security interest in such Collateral or its rights in or the value of such
Collateral; and provided further that such written request is received by the
-------- -------
Lender in sufficient time to permit the Lender to take the
-6-
<PAGE>
requested action. In the absence of such written request, the Lender shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Lender accords its own property.
7. Ownership Interests. Except as set forth on Schedule IV, (i) the Pledged
------------------- -----------
Securities represent 100% of the capital stock or securities or other ownership
interests of each Subsidiary of the Borrower and (ii) there are no options,
warrants, convertible securities or other rights to acquire the capital stock or
securities or other ownership interests of any Subsidiary of the Borrower.
8. Records. Each Pledgor shall keep accurate and complete records with
-------
respect to each item and category of the Collateral and shall furnish copies of
such records to the Lender with reasonable promptness from time to time upon
request of the Lender.
9. Preservation and Protection of Security Interest. Each Pledgor shall
------------------------------------------------
preserve and protect the Lender's security interest in the Collateral and shall,
at its own cost and expense, cause such security interest in the Collateral to
be perfected and continue perfected so long as the Secured Obligations or any
portion thereof are outstanding and unpaid and so long as the Borrower may
borrow funds and the Lender has any obligation to advance funds to the Borrower
under the Loan Agreement (by means including, without limitation, the execution
and delivery of all instruments, documents and securities to the Lender with
endorsements and documents of transfer satisfactory to the Lender), and for such
purposes each Pledgor shall from time to time at the request of the Lender file
or record, or cause to be filed or recorded, such instruments, documents and
notices (including, without limitation, financing statements and continuation
statements) or deliver to the Lender such stock certificates or other
instruments as the Lender may deem necessary or advisable from time to time to
perfect and continue perfected such security interests. Each Pledgor shall do
all such other acts and things and shall execute and deliver all such other
instruments and documents (including, without limitation, further security
agreements, pledges, endorsements, assignments and notices) as the Lender may
deem necessary or advisable from time to time to perfect and preserve the
priority of such security interests in the Collateral, as a perfected security
interest in the Collateral, prior to the rights of any other secured party or
lien creditor. The Lender, and its officers, employees and authorized agents,
or any of them, are hereby irrevocably appointed the attorneys-in-fact of each
Pledgor to do, at such Pledgor's expense, all acts and things which the Lender
may deem necessary or advisable to preserve, perfect and continue perfected the
Lender's security interests in the Collateral (including, without limitation,
the signing of financing, continuation or other similar statements and notices
on behalf of each Pledgor), which appointment is irrevocable and coupled with an
interest.
10. Covenants of the Borrower. Each Pledgor covenants and agrees with the
-------------------------
Lender that from and after the date of this Agreement and until the Secured
Obligations are fully satisfied and the Borrower may no longer borrow funds and
the Lender no longer has any obligation to advance funds to the Borrower under
the Loan Agreement:
10.1 Limitation on Liens on Collateral. Such Pledgor shall not create,
---------------------------------
permit or suffer to exist, and shall defend the Collateral against, and take
such other action as is necessary to remove, any lien on or security interest in
the Collateral (other than liens in favor of the Lender), and shall defend the
right, title and interest of the Lender in and to any of such Pledgor's right,
title
-7-
<PAGE>
and interest of the Lender in and to any of such Pledgor's right, title and
interest in and to the Collateral and to any proceeds thereof against the claims
and demands of all other Persons whomsoever.
10.2 Limitation on Disposition. Such Pledgor shall not sell, assign,
-------------------------
exchange or otherwise transfer, or grant any options with respect to, any of the
Collateral or any interest therein, or attempt or contract to do so (other than
the pledge and security interest granted hereunder) without the prior written
consent of the Lender.
10.3 Notices. Such Pledgor shall advise the Lender promptly, in reasonable
-------
detail, of (i) any lien, security interest, encumbrance or claim made or
asserted against any of the Collateral, (ii) any material change in the
composition of the Collateral (including, without limitation, information
regarding the issuance or creation of Equity Rights) and (iii) the occurrence of
any other event which might have a material adverse effect on the value of the
Collateral or on the security interests created hereunder.
10.4 Additional Securities. Such Pledgor shall (i) not issue any Pledged
---------------------
Securities, Other Securities, Equity Rights or other securities in addition to
or in substitution for the Pledged Securities, except to any Borrower Entity or
as permitted under the Loan Agreement, (ii) immediately upon its acquisition
(directly or indirectly) thereof, pledge to the Lender hereunder any and all
additional shares of stock, other securities or ownership interests issued by
its Subsidiaries and (iii) shall pledge to the Lender hereunder, immediately
upon its acquisition (directly or indirectly) hereof, any and all shares of
stock, other securities or ownership interests of any entity which, after the
date of this Agreement, becomes a direct or indirect Subsidiary of such Pledgor.
10.5 Further Assurances. From time to time upon the request of the Lender,
------------------
such Pledgor shall, and shall cause its Subsidiaries to, execute and deliver
such further documents and do such further acts and things as the Lender may
reasonably request to effectuate the provisions of this Agreement (including,
without limitation, the making of any filings pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended).
11. The Lender's Appointment as Attorney-in-Fact.
--------------------------------------------
11.1 Each Pledgor hereby irrevocably constitutes and appoints the Lender
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of such Pledgor and in the name of such Pledgor or in its own
name, from time to time in the Lender's discretion, for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may be necessary
or desirable to accomplish the purposes of this Agreement. Without limiting the
generality of the foregoing and subject to each Pledgor's rights under Section 5
hereof, each Pledgor hereby gives the Lender and any officer or agent thereof,
as such attorney-in-fact, the power and right, on behalf of such Pledgor,
without notice to or assent by such Pledgor, to do the following:
11.1.1 to defend any suit, action or proceeding brought against such
Pledgor with respect to any Collateral;
-8-
<PAGE>
11.1.2 to pay or discharge taxes, liens, security interests or other
encumbrances levied or placed on or threatened against the Collateral;
11.1.3 to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due and to become due
thereunder directly to the Lender or as the Lender shall direct;
11.1.4 to receive payment of and receipt for any and all moneys,
claims and other amounts due and to become due at any time in respect of or
arising out of any Collateral;
11.1.5 to endorse and collect any checks, drafts, notes, acceptances
or other instruments for the payment of moneys due under any Collateral;
11.1.6 to commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in respect of
the Collateral;
11.1.7 to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges or
releases as the Lender may deem appropriate;
11.1.8 to participate in any recapitalization, reclassification,
reorganization, consolidation, redemption, stock split, merger or liquidation of
any issuer of the Collateral and, in connection therewith, may deposit or
surrender control of the Collateral in exchange therefor and take such other
action as deemed proper by the Lender in connection therewith; and
11.1.9 generally, to sell, transfer, pledge, vote, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though the Lender were the absolute owner thereof for all
purposes, and to do, at the Lender's option and at such Pledgor's expense, at
any time, or from time to time, all acts and things which the Lender reasonably
deems necessary to protect, preserve or realize upon the Collateral and the
Lender's security interest therein, to effect the intent of this Agreement, all
as fully and effectively as such Pledgor might do;
provided that the Lender shall be permitted to take the actions described in
- --------
subsections 11.1.3 through 11.1.9 only upon the occurrence and during the
continuation of an Event of Default.
11.2 Any and all such amounts received by the Lender as attorney-in-fact
for each Pledgor may, in the sole discretion of the Lender, be held by the
Lender as collateral security. Each Pledgor hereby ratifies, to the extent
permitted by law, all that such attorneys shall lawfully do or cause to be done
by virtue hereof. This power of attorney is a power coupled with an interest and
shall be irrevocable until the Secured Obligations are indefeasibly paid in full
and the Loan Agreement is terminated.
-9-
<PAGE>
11.3 The powers conferred on the Lender hereunder are solely to protect
the Lender's interests in the Collateral and shall not impose any duty upon it
to exercise any such powers. The Lender shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers, and
neither it nor any of its officers, directors, employees or agents shall be
responsible to any Pledgor for any act or failure to act, except for its own
gross negligence or willful misconduct.
11.4 Each Pledgor also authorizes the Lender, at any time and from time to
time upon the occurrence and during the continuance or existence of any Event of
Default, to execute, in connection with the sale provided for in Section 12 of
this Agreement, any endorsements, assignments or other instruments of conveyance
or transfer with respect to the Collateral.
12. Remedies on Default.
-------------------
12.1 If any Event of Default shall occur and be continuing or shall exist,
the Lender may take possession and control of all or any part of the Collateral
(including Proceeds thereof) and books and records pertaining thereto, with or
without judicial process, and, without demand or notice (and if notice is
required by law, after ten days prior written notice), may proceed to exercise
one or more of the rights and remedies accorded a secured party by the UCC and
otherwise by law or by the terms of the Loan Agreement or this Agreement. The
Lender's rights and remedies shall include, without limitation, the power to
sell, lease, assign, give options to purchase or otherwise dispose of and
deliver all or any portion of the Collateral at public or private sale or sales
at such place and time and on such terms as the Lender may see fit, and to
endorse in the name of the appropriate Pledgor any instrument representing
Collateral. All of the rights and remedies of the Lender under this Agreement
shall be cumulative and not exclusive of other rights and remedies which it
otherwise would have, whether under the Loan Agreement, this Agreement, the UCC,
the other Security Documents or otherwise. The Lender shall not be under any
obligation to marshal any assets in favor of any Pledgor or any other Person or
against or in payment of all or any part of the Secured Obligations.
12.2 Each Pledgor agrees that in any sale of any of the Collateral, the
Lender is authorized to comply with any limitation or restriction in connection
with such sale which it is advised by its counsel is appropriate (i) to avoid
violation of applicable law (including, without limitation, procedures
restricting the number of prospective bidders and purchasers, requiring that
prospective bidders and purchasers have certain qualifications and restricting
prospective bidders and purchasers to persons who shall represent and agree that
they are purchasing for their own account for investment and not with a view to
the distribution or resale of any Pledged Securities, Other Securities or Equity
Rights they purchase), or (ii) to obtain any required approval of such sale or
of a purchase of such sale by any governmental regulatory authority or official.
Each Pledgor further agrees that such compliance shall not result in any such
sale being deemed not to have been made in a commercially reasonable manner, nor
shall the Lender be liable or accountable to any Pledgor for any discount
allowed by reason of the fact that any Pledged Securities, Other Securities or
Equity Rights are sold in compliance with any such limitation or restriction.
The Lender shall be under no obligation to delay the sale of any of the
Collateral for the period of time necessary to permit any Pledgor or any
Subsidiary of any Pledgor to register securities for public sale under the
Securities Act of
-10-
<PAGE>
1933, as amended from time to time, or under applicable state securities laws,
even if such Person would agree to do so.
12.3 If any Event of Default shall occur and be continuing or shall exist,
the Lender shall have the right, in addition to all other rights and remedies
available to it, without notice to the Borrower, to set-off against and to
appropriate and apply to the unpaid balance of the Note and all other Secured
Obligations, any obligations owing to the Borrower by the Lender and any funds
held in any manner for the account of the Borrower by the Lender, and the Lender
is hereby granted a security interest in and lien on all such debts for such
purpose. Such rights shall exist whether or not the Lender shall have made any
demand under the Loan Agreement or the Note and whether the Note and such other
obligations are matured or unmatured.
13. Application of Proceeds. Any Collateral (including Proceeds thereof) held
-----------------------
or realized upon at any time by the Lender shall be applied as follows:
13.1 first, to reimburse the Lender for expenses and fees incurred for
which the Borrower or any other Borrower Entity is obligated to pay the Lender
under and in accordance with the Loan Agreement, the Note, this Agreement and/or
any other Loan Document (including, without limitation, reasonable attorneys'
fees and other legal expenses);
13.2 second, the satisfaction of all accrued and unpaid interest on the
Secured Obligations (including any interest which, but for the provisions of the
Bankruptcy Code, would have accrued on such amounts);
13.3 third, the satisfaction of the principal amounts of the Secured
Obligations outstanding; and
13.4 fourth, the balance, if any, to the Pledgors or as otherwise required
by law.
If the proceeds of sale, collection or other realization of or upon
the Collateral granted to the Lender by the Pledgors under this Agreement are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Secured Obligations, the Pledgors shall remain liable, jointly
and severally, for any deficiency. If a surplus results after lawful application
of such proceeds, the Pledgors shall be entitled to a pro rata share of any such
surplus.
14. Limitation on the Lender's Duty in Respect of Collateral. The powers
--------------------------------------------------------
conferred on the Lender under this Agreement are solely to protect the Lender's
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. The Lender shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither the Lender nor
any of its officers, directors, employees or agents shall be responsible to any
Pledgor for any act or failure to act, except for willful misconduct. Without
limiting the foregoing, the Lender shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if such
Collateral is accorded treatment substantially equivalent to that which the
Lender, in its individual capacity, accords it own property consisting of the
type of Collateral involved; it being understood and agreed that the Lender
shall not have
-11-
<PAGE>
any responsibility for taking any necessary steps (other than steps taken in
accordance with the standard of care above) to preserve the rights against any
person with respect to the Collateral. Upon the request of any Pledgor, the
Lender shall account for any money received by it in respect of any foreclosure
on or disposition of the Collateral.
15. Taxes and Charges. Each Pledgor shall jointly and severally pay and
-----------------
discharge all taxes, levies and other impositions levied on any Collateral owned
by it or in its possession (except to the extent that such taxes, levies and
other impositions shall not then be due or shall be contested in good faith by
appropriate proceedings diligently conducted; provided that such reserves and
--------
other provisions as may be required by generally accepted accounting principles
have been duly made and recorded on the appropriate Pledgor's financial
records). If any Pledgor shall fail to do so, the Lender may (but shall not be
obligated to) pay such taxes, levies or impositions for the account of such
Pledgor (without waiving or releasing any obligation or default by such Pledgor
hereunder), and the amount thereof shall be added to the Secured Obligations and
shall be payable upon demand with interest accruing thereon at the highest rate
of interest accruing on the Loans under the Loan Agreement.
16. Continuing Validity of Obligations.
----------------------------------
16.1 Continuing Validity of Obligations.
----------------------------------
16.1.1 The agreements and obligations of each Pledgor hereunder are
continuing agreements and obligations and are absolute and unconditional
irrespective of (i) the genuineness, validity or enforceability of the Note or
any other instrument or instruments now or hereafter evidencing the Secured
Obligations or any part thereof or of the Loan Agreement, this Agreement, the
Guaranty, any other Loan Document or any other agreement or agreements now or
hereafter entered into by the Lender and the Borrower and/or any other Borrower
Entity pursuant to which the Secured Obligations or any part thereof is issued,
guaranteed or secured or (ii) any other circumstance which might otherwise
constitute a legal or equitable discharge of such agreements and obligations
other than payment in full of the Secured Obligations and the termination of the
Lender's obligation to lend to the Borrower.
16.1.2 Without limitation upon the foregoing, such agreements and
obligations shall continue in full force and effect as long as the Secured
Obligations or any part thereof remains outstanding and unpaid or any obligation
of the Lender to lend to the Borrower has not been terminated (whether any Loans
are outstanding) and shall remain in full force and effect without regard to and
shall not be released, discharged or in any way affected by (i) any renewal,
refinancing or refunding of the Secured Obligations in whole or in part, (ii)
any extension of the time of payment of the Note or other instrument or
instruments now or hereafter evidencing the Secured Obligations or any part
thereof, (iii) any compromise or settlement with respect to the Secured
Obligations or any part thereof, or any forbearance or indulgence extended to
the Borrower or any other Borrower Entity, (iv) any amendment to or modification
of the terms of the Note or other instrument or instruments now or hereafter
evidencing the Secured Obligations or any part thereof or of the Loan Agreement,
the Guaranty, any other Security Document or any other agreement or agreements
now or hereafter entered into by the Lender, the Borrower or any other Borrower
Entity pursuant to which the Secured Obligations or any part thereof is issued
or secured, (v) any substitution,
-12-
<PAGE>
exchange or release of, or failure to preserve, perfect or protect, or other
dealing in respect of, the Collateral or any other property or any security for
the payment of the Secured Obligations or any part thereof, (vi) any bankruptcy,
insolvency, arrangement, composition, assignment for the benefit of creditors or
similar proceeding commenced by or against the Borrower or any Pledgor or (vii)
any other matter or thing whatsoever whereby the agreements and obligations of
the Borrower under the Note, the Loan Agreement or any other Security Document
or of any Pledgor hereunder, under the Guaranty or any other Security Document
would or might otherwise be released or discharged other than payment in full of
the Secured Obligations and the termination of the Lender's obligation to lend
to the Borrower. Each Pledgor hereby waives notice of the acceptance of this
Agreement by the Lender.
16.1.3 To the extent that the Borrower, any other Borrower Entity or
any other guarantor or pledgor makes a payment or payments to the Lender or the
Lender receives any payment or proceeds of the Collateral, which payment or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to such Person or
a trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause of action, then, to the extent of
such payment or proceeds, the Secured Obligations or portion thereof intended to
be satisfied and this Agreement shall be revived and continue in full force and
effect, as if such payment or proceeds had not been received by the Lender.
17. Defeasance. At such time as the Borrower may no longer borrow funds under
----------
the Loan Agreement and upon payment in full of the Secured Obligations and the
termination of all obligations of the Lender to advance funds to the Borrower
under the Loan Agreement, this Agreement shall terminate and be of no further
force and effect (except for the provisions of Sections 16 and 18 hereof which
shall survive), and in such event Lender shall, at the expense of the Pledgors
and without recourse, representation or warranty, redeliver and reassign to each
Pledgor its remaining Collateral and take all action necessary to terminate the
Lender's security interest in the Collateral. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
18. Miscellaneous.
-------------
18.1 Indemnification and Expenses. The Pledgors shall, jointly and
----------------------------
severally, indemnify and hold harmless the Lender from and against any and all
claims and losses arising out of or attributable to this Agreement, except
claims and losses arising from the Lender's breach hereof or the Lender's gross
negligence or willful misconduct. The Pledgors shall pay the Lender on demand
the amount of any out-of-pocket expenses (including, without limitation,
reasonable attorneys' fees and other legal expenses) incurred by the Lender in
connection with the enforcement of this Agreement, the Loan Agreement and/or the
Note and as otherwise provided in this Agreement, with interest accruing thereon
at the highest rate of interest accruing on the Loans under the Loan Agreement.
18.2 Specific Performance. In addition to all other rights and remedies
--------------------
granted to the Lender in this Agreement, the Loan Agreement and the Loan
Documents, the Lender shall be entitled to specific performance and injunctive
and other equitable relief, and each Pledgor hereby waives any requirement for
-13-
<PAGE>
the securing or posting of any bond or other security in connection with the
obtaining of any such specific performance and injunctive or other equitable
relief.
18.3 No Waiver. No failure or delay on the part of the Lender in the
---------
exercise of any power, right or privilege hereunder shall impair such power,
right or privilege or be construed to be a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege hereunder preclude
other or further exercise thereof or the exercise of any other right, power or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
18.4 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
--------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
18.5 Notices. All notices, demands or other communications to be given or
-------
delivered hereunder shall be given in accordance with the notice provision of
the Loan Agreement, if to the Borrower, and in accordance with the notice
provision of the Guaranty if to any or all of the Pledgors (other than the
Borrower).
18.6 Amendments, Etc. Subject to Section 19, the terms of this Agreement
---------------
may be waived, altered or amended only by an instrument in writing duly executed
by each Pledgor and the Lender. Any such amendment or waiver shall be binding
upon each Pledgor and the Lender and their respective successors and assigns.
18.7 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the respective successors and assigns of each of the
parties hereto; provided that the no Pledgor may assign or transfer its rights
--------
hereunder without the prior written consent of the Lender.
18.8 Counterparts; Headings. This Agreement and any amendments, waivers,
----------------------
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. Section and
subsection headings in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose or be given any substantive effect.
18.9 Severability. If and to the extent that any provision in this
------------
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions of this
Agreement or the obligations of any Pledgor under such provisions, or of such
provision or obligation in any other jurisdiction, or of such provision to the
extent not invalid, illegal or unenforceable shall not in any way be affected or
impaired thereby.
18.10 Other Loan Documents. This Agreement supplements the other Loan
--------------------
Documents and nothing in this Agreement shall be deemed to limit or supersede
the rights granted to the Lender in any other
-14-
<PAGE>
Loan Document. In the event of any conflict between this Agreement and the Loan
Agreement, the provisions of the Loan Agreement shall govern.
18.11 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST ANY PLEDGOR WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
ILLINOIS LOCATED IN THE CITY OF CHICAGO, ILLINOIS, AND BY EXECUTION AND DELIVERY
OF THIS AGREEMENT EACH PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT SUBJECT, HOWEVER, TO RIGHTS OF APPEAL. EACH
PLEDGOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF COPIES OF ANY SUMMONS AND
COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR
PROCEEDING BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY DELIVERING A COPY
OF SUCH PROCESS TO SUCH PLEDGOR, AT ITS ADDRESS SPECIFIED IN THE NOTICE
PROVISION OF THE LOAN AGREEMENT, IF TO THE BORROWER, OR AT ITS ADDRESS SPECIFIED
IN THE NOTICE PROVISION OF THE GUARANTY, IF TO ANY OTHER PLEDGOR, OR BY ANY
OTHER METHOD PERMITTED BY APPLICABLE LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
OF THE LENDER TO BRING PROCEEDINGS AGAINST ANY PLEDGOR IN THE COURTS OF ANY
OTHER JURISDICTION.
18.12 WAIVER OF JURY TRIAL. EACH PLEDGOR AND THE LENDER HEREBY WAIVE, TO
--------------------
THE FULL EXTENT PERMITTED BY APPLICABLE LAW, THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION IN ANY COURT BASED UPON OR ARISING OUT OF
THIS AGREEMENT. NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE
CONTRARY, NO CLAIM MAY BE MADE BY ANY PLEDGOR AGAINST THE LENDER FOR ANY LOST
PROFITS OR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY
BREACH OR WRONGFUL CONDUCT (OTHER THAN WILLFUL MISCONDUCT CONSTITUTING ACTUAL
FRAUD) IN CONNECTION WITH, ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREUNDER, OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH. EACH PLEDGOR HEREBY WAIVES, RELEASES
AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES. EACH PLEDGOR AND
THE LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THE LOAN DOCUMENTS, OR TO ANY OTHER
-15-
<PAGE>
DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. EACH
PLEDGOR AND THE LENDER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND
WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE LENDER.
-16-
<PAGE>
19. Additional Pledgors. It is understood and agreed that any Subsidiary of
-------------------
the Borrower or any other Borrower Entity that is required to execute a
counterpart of this Agreement after the date hereof pursuant to subsection 6.7.2
of the Loan Agreement shall automatically become a Pledgor hereunder by
executing a counterpart hereof and delivering the same to the Lender. The
execution and delivery of such counterpart or any other instrument adding an
additional Pledgor as a party to this Agreement shall not require the consent of
any other Pledgor hereunder. The rights and obligations of each Pledgor
hereunder shall remain in full force and effect notwithstanding the addition of
any new Pledgor as a party to this Agreement.
* * * * *
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Pledge
Agreement as of the day and year first above written.
ZEFER CORP., as a Pledgor
By: /s/ Sean W. Mullaney
-------------------------------------------
Its: EVP, General Counsel and Secretary
-------------------------------------------
ZEFER CORP. NORTHEAST, as a Pledgor
By: /s/ Sean W. Mullaney
-------------------------------------------
Its: EVP, General Counsel and Secretary
-------------------------------------------
ZEFER CORP. WEST LLC, as a Pledgor
By: /s/ Sean W. Mullaney
-------------------------------------------
Its: EVP, General Counsel and Secretary
-------------------------------------------
ZEFER CORP. MIDWEST LLC, as a Pledgor
By: /s/ Sean W. Mullaney
-------------------------------------------
Its: EVP, General Counsel and Secretary
-------------------------------------------
ZEFER CORP. CRM LLC, as a Pledgor
By: /s/ Sean W. Mullaney
-------------------------------------------
Its: EVP, General Counsel and Secretary
-------------------------------------------
GTCR CAPITAL PARTNERS, L.P., as Lender
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/ illegible
------------------------------------------
Its: Principal
-18-
<PAGE>
SCHEDULE I
List of Pledged Securities
--------------------------
ZEFER CORP.
-----------
Type and Number of
Issuer Certificate Date and Number Shares/Interests/Units
------ --------------------------- ----------------------
___________ ____________ ___________
ZEFER CORP. NORTHEAST
Type and Number of
Issuer Certificate Date and Number Shares/Interests/Units
------ --------------------------- ----------------------
___________ ____________ ___________
ZEFER CORP. WEST LLC
Type and Number of
Issuer Certificate Date and Number Shares/Interests/Units
------ --------------------------- ----------------------
___________ ____________ ___________
ZEFER CORP. MIDWEST LLC
Type and Number of
Issuer Certificate Date and Number Shares/Interests/Units
------ --------------------------- ----------------------
___________ ____________ ___________
ZEFER CORP. CRM LLC
Type and Number of
Issuer Certificate Date and Number Shares/Interests/Units
------ --------------------------- ----------------------
___________ ____________ ___________
<PAGE>
SCHEDULE II
Options, Warrants or other Agreements with respect to the Pledged Securities
----------------------------------------------------------------------------
<PAGE>
SCHEDULE III
Record Locations
----------------
ZEFER CORP.
- -----------
[Address]
ZEFER CORP. NORTHEAST
- ---------------------
[Address]
ZEFER CORP. WEST LLC
- --------------------
[Address]
ZEFER CORP. MIDWEST LLC
- -----------------------
[Address]
ZEFER CORP. CRM LLC
- -------------------
[Address]
<PAGE>
SCHEDULE IV
Ownership Interests Held by Persons other than the Pledgors
-----------------------------------------------------------
Type and Number of
Issuer Certificate Date and Number Shares/Interests/Units Held By
------ --------------------------- ---------------------- -------
_________ _______________ ____________ __________
_________ _______________ ____________ __________
_________ _______________ ____________ __________
Rights, Options, Warrants or other Agreements
---------------------------------------------
<PAGE>
EXHIBIT 10.23
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMPANY.
THIS INSTRUMENT MAY BE SUBJECT TO CERTAIN SUBORDINATION PROVISIONS, AS FROM TIME
TO TIME IN EFFECT, BY AND AMONG THE OBLIGOR HEREUNDER AND CERTAIN OTHER PARTIES
THERETO, WHICH, AMONG OTHER THINGS, SUBORDINATE THE OBLIGATIONS OF THE OBLIGOR
HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE OBLIGOR TO THE
HOLDERS OF SENIOR INDEBTEDNESS AS DEFINED THEREIN. IN ADDITION, THE RIGHTS OF
THE HOLDER HEREUNDER, INCLUDING THE RIGHT TO RECEIVE PAYMENT OF THE PRINCIPAL OF
AND INTEREST, IF ANY, ON THIS NOTE, ARE SUBJECT TO SET OFF IN ACCORDANCE WITH
SECTION 8.1(f) OF THE MEMBERSHIP SHARE PURCHASE AGREEMENT DATED AS OF MAY 14,
1999 BY AND AMONG THE COMPANY, ZEFER CORP. NORTHEAST, SPYPLANE LLC AND THE
EQUITYHOLDERS OF SPYPLANE LLC (THE "PURCHASE AGREEMENT").
NONNEGOTIABLE
-------------
SUBORDINATED PROMISSORY NOTE
----------------------------
FOR VALUE RECEIVED, the undersigned, ZEFER Corp., a Delaware corporation
(the "Company"), hereby promises to pay to Jason Zada, the principal amount of
Four Hundred Ninety Thousand Dollars ($490,000) on May 14, 2001, together with
interest from the date hereof on the principal amount from time to time unpaid
at a rate which shall at all times equal eight percent (8%) per annum; provided,
--------
however, that said interest shall not accrue or be due or payable by the
- -------
Company with respect to any amounts which the Company has properly set off
pursuant to Section 8.1(f) of the Purchase Agreement. The Company shall make
annual payments in the amount of 50% of the unpaid interest hereunder, such
payments being made in arrears commencing on May 14, 2000.
All payments to the holder hereof shall be made payable to Jason Zada, 18
Lansing Street, Apartment 309, San Francisco, CA 94105.
This Subordinated Promissory Note is nonnegotiable. This Subordinated
-------------
Promissory Note may not be sold, hypothecated, pledged, assigned or otherwise
transferred without the prior written consent of the Company. On May 14, 2000,
the Company shall prepay $90,000 (of the outstanding principal amount of this
Subordinated Promissory Note. Notwithstanding the foregoing sentence, the
Company may at any time or from time to time prepay all or any part of the
outstanding principal amount of this Subordinated Promissory Note, without
penalty or premium, together with all accrued and unpaid interest in respect
thereof accrued to the date of prepayment.
<PAGE>
If any one or more of the following events (herein termed "Events of
Default") shall happen, that is to say:
(i) The Company shall fail to make any payment in respect of principal of
or interest on this Subordinated Promissory Note as the same shall become due,
whether by acceleration or otherwise, which failure shall continue for a period
of 15 days; or
(ii) The Company shall:
(A) commence a voluntary case under Title 11 of the United States
Code as from time to time in effect, or authorize the commencement of such a
voluntary case;
(B) have filed against it a petition commencing an involuntary case
under said Title 11 which shall not have been dismissed within 30 days after
the date on which such petition is filed;
(C) seek relief as a debtor under any applicable law, other than
said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights
of creditors, or consent to or acquiesce in such relief;
(D) have entered against it an order by a court of competent
jurisdiction (1) finding it to be bankrupt or insolvent, (2) ordering or
approving its liquidation, reorganization or any modification or alteration
of the rights of its creditors, or (3) assuming custody of, or appointing a
receiver or other custodian for all or a substantial part of its property;
(E) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint or consent to the appointment of
a receiver or other custodian for all or a substantial part of its property;
or
(F) sell all or substantially all of its assets or there shall be a
transfer of more than 51% of the Company's equity interests to an entity not
currently a holder of equity interests of the Company;
then and in each and every such case, subject to the terms of any subordination
agreement or provisions by and among the Company and the holder hereof, the
holder of this note may by notice in writing to the Company declare all or any
part of the unpaid balance of the principal of and interest on this Subordinated
Promissory Note then outstanding to be forthwith due and payable, and thereupon
such unpaid balance or part thereof shall become so due and payable without
presentation, protest or further demand or notice of any kind, all of which are
hereby expressly waived, and the holder of this note may proceed to enforce
payment of such balance or part thereof in such manner as the holder of this
note may elect.
No failure by the holder to take action with respect to any Event of Default
shall affect its
2
<PAGE>
subsequent rights to take action with respect to the same or any other Event of
Default.
This Subordinated Promissory Note shall be governed by and construed in
accordance with the laws (other than the conflict of law rules) of The
Commonwealth of Massachusetts.
The Company and all endorsers and guarantors hereby waive presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Subordinated
Promissory Note, except as specifically otherwise provided in this Subordinated
Promissory Note, and assent to extensions of time of payment, or forbearance or
other indulgence without notice.
The holder of this Subordinated Promissory Note is hereby on notice that the
right to receive payment of the principal of or interest on this Subordinated
Promissory Note is subject to the Company's rights of set off in accordance with
Section 8.1(f) of the Purchase Agreement. Exercise of such rights of set off by
the Company under the Purchase Agreement shall not constitute an event of
default hereunder. In addition, the holder of this Subordinated Promissory Note
agrees that, upon the request of the Company, such holder shall execute a
subordination agreement requested by any senior lender of the Company, which
subordination agreement may provide, among other things, that the indebtedness
evidenced by this Subordinated Promissory Note and the payment by the Company of
the principal hereof and interest hereon shall be subordinate to and junior in
right of payment to the prior payment in full of all "Senior Indebtedness" (or
other equivalent term) as defined therein.
* * * * * *
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Subordinated Promissory
Note to be executed by its duly authorized officer as of May 14, 1999.
ZEFER CORP.
By: /s/ Sean W. Mullaney
-------------------------------------
Name: Sean W. Mullaney
Title: Secretary
<PAGE>
EXHIBIT 10.24
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMPANY.
THIS INSTRUMENT MAY BE SUBJECT TO CERTAIN SUBORDINATION PROVISIONS, AS FROM TIME
TO TIME IN EFFECT, BY AND AMONG THE OBLIGOR HEREUNDER AND CERTAIN OTHER PARTIES
THERETO, WHICH, AMONG OTHER THINGS, SUBORDINATE THE OBLIGATIONS OF THE OBLIGOR
HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE OBLIGOR TO THE
HOLDERS OF SENIOR INDEBTEDNESS AS DEFINED THEREIN. IN ADDITION, THE RIGHTS OF
THE HOLDER HEREUNDER, INCLUDING THE RIGHT TO RECEIVE PAYMENT OF THE PRINCIPAL OF
AND INTEREST, IF ANY, ON THIS NOTE, ARE SUBJECT TO SET OFF IN ACCORDANCE WITH
SECTION 8.1(f) OF THE MEMBERSHIP SHARE PURCHASE AGREEMENT DATED AS OF MAY 14,
1999 BY AND AMONG THE COMPANY, ZEFER CORP. NORTHEAST, SPYPLANE LLC AND THE
EQUITYHOLDERS OF SPYPLANE LLC (THE "PURCHASE AGREEMENT").
NONNEGOTIABLE
-------------
SUBORDINATED PROMISSORY NOTE
----------------------------
FOR VALUE RECEIVED, the undersigned, ZEFER Corp., a Delaware corporation
(the "Company"), hereby promises to pay to Greg Hipwell, the principal amount of
Four Hundred Ninety Thousand Dollars ($490,000) on May 14, 2001, together with
interest from the date hereof on the principal amount from time to time unpaid
at a rate which shall at all times equal eight percent (8%) per annum; provided,
--------
however, that said interest shall not accrue or be due or payable by the Company
- -------
with respect to any amounts which the Company has properly set off pursuant to
Section 8.1(f) of the Purchase Agreement. The Company shall make annual
payments in the amount of 50% of the unpaid interest hereunder, such payments
being made in arrears commencing on May 14, 2000.
All payments to the holder hereof shall be made payable to Greg Hipwell,
123 Guerrero Street, Apartment 2, San Francisco, CA 94103.
This Subordinated Promissory Note is nonnegotiable. This Subordinated
-------------
Promissary Note may not be sold, hypothecated, pledged, assigned or otherwise
transferred without the prior written consent of the Company. On May 14, 2000,
the Company shall prepay $90,000 of the outstanding principal amount of this
Subordinated Promissory Note. Notwithstanding the foregoing sentence, the
Company may at any time or from time to time prepay all or any part of the
outstanding principal amount of this Subordinated Promissory Note, without
penalty or premium, together with all accrued and unpaid interest in respect
thereof accrued to the date of prepayment.
<PAGE>
If any one or more of the following events (herein termed "Events of
Default") shall happen, that is to say:
(i) The Company shall fail to make any payment in respect of principal of
or interest on this Subordinated Promissory Note as the same shall become due,
whether by acceleration or otherwise, which failure shall continue for a period
of 15 days; or
(ii) The Company shall:
(A) commence a voluntary case under Title 11 of the United States Code
as from time to time in effect, or authorize the commencement of such
a voluntary case;
(B) have filed against it a petition commencing an involuntary case
under said Title 11 which shall not have been dismissed within 30 days
after the date on which such petition is filed;
(C) seek relief as a debtor under any applicable law, other than said
Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or consent to or acquiesce in such relief;
(D) have entered against it an order by a court of competent
jurisdiction (1) finding it to be bankrupt or insolvent, (2) ordering
or approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors, or (3) assuming custody of,
or appointing a receiver or other custodian for all or a substantial
part of its property;
(E) make an assignment for the benefit of, or enter into a composition
with, its creditors, or appoint or consent to the appointment of a
receiver or other custodian for all or a substantial part of its
property; or
(F) sell all or substantially all of its assets or there shall be a
transfer of more than 51% of the Company's equity interests to an
entity not currently a holder of equity interests of the Company;
then and in each and every such case, subject to the terms of any subordination
agreement or provisions by and among the Company and the holder hereof, the
holder of this note may by notice in writing to the Company declare all or any
part of the unpaid balance of the principal of and interest on this Subordinated
Promissory Note then outstanding to be forthwith due and payable, and thereupon
such unpaid balance or part thereof shall become so due and payable without
presentation, protest or further demand or notice of any kind, all of which are
hereby expressly waived, and the holder of this note may proceed to enforce
payment of such balance or part thereof in such manner as the holder of this
note may elect.
2
<PAGE>
No failure by the holder to take action with respect to any Event of
Default shall affect its subsequent rights to take action with respect to the
same or any other Event of Default.
This Subordinated Promissory Note shall be governed by and construed in
accordance with the laws (other than the conflict of law rules) of The
Commonwealth of Massachusetts.
The Company and all endorsers and guarantors hereby waive presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Subordinated
Promissory Note, except as specifically otherwise provided in this Subordinated
Promissory Note, and assent to extensions of time of payment, or forbearance or
other indulgence without notice.
The holder of this Subordinated Promissory Note is hereby on notice that
the right to receive payment of the principal of or interest on this
Subordinated Promissory Note is subject to the Company's rights of set off in
accordance with Section 8.1(f) of the Purchase Agreement. Exercise of such
rights of set off by the Company under the Purchase Agreement shall not
constitute an event of default hereunder. In addition, the holder of this
Subordinated Promissory Note agrees that, upon the request of the Company, such
holder shall execute a subordination agreement requested by any senior lender of
the Company, which subordination agreement may provide, among other things, that
the indebtedness evidenced by this Subordinated Promissory Note and the payment
by the Company of the principal hereof and interest hereon shall be subordinate
to and junior in right of payment to the prior payment in full of all "Senior
Indebtedness" (or other equivalent term) as defined therein.
* * * * * *
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Subordinated Promissory Note
to be executed by its duly authorized officer as of May 14, 1999.
ZEFER CORP.
By: /s/ Sean W. Mullaney
----------------------------------
Name: Sean W. Mullaney
Title: Secretary
4
<PAGE>
EXHIBIT 10.25
FLOATING RATE LOAN-PROCEDURES LETTER
------------------------------------
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60690
Gentlemen:
ZEFER CORP., a Delaware corporation (the "Company") hereby requests that
borrowings under its $20,000,000 revolving line of credit granted by Harris
Trust and Savings Bank be made and documented upon the following terms and
conditions. You agree until further notice that upon oral advice by telephone
received by you from time to time from authorized persons listed in this letter
that we wish to borrow money, you will lend and deposit to such accounts from
time to time as specified by our written direction (the "Amount") such sums of
money as may be mutually agreed upon. We agree to confirm such borrowings in
writing by mailing on the same day a letter in the form attached hereto as
Exhibit A signed by any one of the following officers:
Deirdre Aubuchon
Sean Mullaney
Phillip Canfield
Timothy McAdam
It is understood, however, that pending receipt of such letter by you in
the ordinary course of the mails, that any sums of money borrowed by telephone
on advice of an authorized person or a person purporting to be an authorized
person in accordance with the foregoing arrangement shall immediately be
credited to the Account, and we shall be obligated to repay to you the sums so
borrowed at the time and with the interest set forth in this letter
notwithstanding that any such borrowing is not confirmed as contemplated above.
All such borrowings shall be repaid by us upon your demand, but they may,
at our election in any instance, be repaid at any time upon telephonic advice to
you.
All borrowings made by us under our line of credit from you shall bear
interest prior to maturity at the rate per annum which is equal to the rate per
annum which is equal at all times to the rate from time to time announced by you
as your prime commercial rate, with any change in the interest rate on such
borrowings by virtue of a change in such prime commercial rate to be and become
effective as of and on the date of this relevant change in such prime commercial
rate. Interest shall be computed on the basis of a year of 360 days and actual
days elapsed and shall be payable on the last day of each month and upon demand.
All borrowings hereunder shall be made against and evidenced by a
promissory note of the Company payable to your order in the aggregate principal
amount of $20,000,000, such note to mature as set forth in, and to be
otherwise in the form of Exhibit B attached hereto (the "Note"). You agree that
notwithstanding the fact that the Note is in the principal amount of
$20,000,000, it shall evidence only the actual principal amount of borrowings
made by us from time to time under our line of credit from you and you agree
that if you transfer or assign the Note you will stamp thereon a statement of
the actual principal amount evidenced thereby at the time of transfer. We agree
that in any action or proceeding instituted to collect or enforce collection of
the Note, the amount shown as owing you on your records shall be prima facie
evidence of the unpaid balance of principal and interest on the Note.
1
<PAGE>
The officers authorized to give you telephonic instructions to lend money
and repay borrowings in accordance with the foregoing are:
Phillip Canfield
Timothy McAdam
Deirdre Aubuchon
Sean Mullaney
In accepting telephonic advice from any of such officers and/or employees in
accordance with the terms of this Agreement, you shall be entitled to rely on
advice given by any person purporting to be any one of such officers and shall
have no liability to us on account of any action taken by you pursuant to such
telephonic advice provided you have acted in good faith in connection therewith.
You are, of course, authorized to lend money to us upon the written instructions
of any officers and/or employees authorized to borrow funds by telephonic
advice.
This Procedures Letter and the arrangements and authorizations herein
contemplated shall remain in full force and effect, and shall be applicable to
any renewals of, or replacements or substitutions for, our present revolving
line of credit from you, unless and until you have received written notice from
the Company of the termination or modification of this Procedures Letter at your
office in Chicago, Illinois or unless and until the Company has received such a
notice at its address as shown on your records from you; provided that no such
termination or modification by the Company shall affect any transaction which
occurred prior to the receipt of such notice by you nor shall any such
termination or modification become effective without your written consent unless
and until all amounts which shall have been borrowed hereunder shall have been
repaid in full. This Procedures Letter and your acceptance of this Procedures
Letter as hereinafter contemplated do not constitute any commitment on your part
to make any credit available to the Company, it being understood that the making
of credit available to the Company by you from time to time shall be under and
pursuant to the revolving line of credit arrangement that this Company has with
you and shall be subject to the terms and conditions incidental to such
revolving line of credit. This Procedures Letter and the rights and remedies of
the parties hereto shall be governed by the laws of Illinois.
If you are in agreement with the foregoing, please sign in the appropriate
place on the enclosed counterpart and return such counterpart to us, whereupon
this letter shall become a binding agreement between you and us.
Dated as of this 16th day of July, 1999.
Very truly yours,
ZEFER CORP.
By: /s/ Sean W. Mullaney
---------------------
Its: Vice President
---------------
Accepted as of the date last above written.
HARRIS TRUST AND SAVINGS BANK
By: /s/ John M. Dillon
---------------------
John M. Dillon
Its: Vice President
2
<PAGE>
EXHIBIT 10.26
UNSECURED
---------
NOTE
$20,000,000.00 July 16, 1999
ON DEMAND, for value received, the undersigned, ZEFER CORP, a Delaware
corporation (the "Company"), promises to pay to the order of HARRIS TRUST AND
SAVINGS BANK (the "Bank") at its offices at 111 West Monroe Street, Chicago,
Illinois, the principal sum of TWENTY MILLION and 00/100 Dollars
($20,000,000.00) or, if less, the amount outstanding under the letter agreement
referred to below together with interest (compound on the basis of a year of 360
days and actual days elapsed) on the principal amount from time to time
remaining unpaid hereto from the date hereof to the maturity thereof (whether by
demand or otherwise) at the rate per annum equal to the rate announced from time
to time by Harris Trust and Savings Bank as its prime commercial rate (with any
change in the Interest rate hereon by reason of a change in said prime
commercial rate to be and become effective as of and on the date of the relevant
change in said prime commercial rate) and after the maturity thereof until paid
at the rate per annum of two percent (2%) above the interest rate applicable to
this Note (determined as aforesaid) at such maturity. Interest shall be payable
on the last day of each month and upon demand.
This Note evidences borrowings by the Company under that certain Procedures
Letter dated as of the even date herewith between the Company and the Bank and
this Note and the holder hereof are entitled to all the benefits provided for
under the Procedures Letter, to which reference is hereby made for a statement
thereof. The Company hereby waives presentment and notice of dishonor. The
Company agrees to pay to the holder hereof all expenses incurred or paid by such
holder, including attorney's fees and court costs, in connection with the
collection of this Note. It is agreed that this Note and the rights and remedies
of the holder hereof shall be construed in accordance with and governed by the
laws of Illinois.
ZEFER CORP.
By: /s/ Deidre Aubuchon
--------------------
Its: Vice President,Finance
-----------------------
1
<PAGE>
EXHIBIT 10.38
LEASE
By and Between
EAST STREET ASSOCIATES,
Landlord
and
ZEFER CORP.
Tenant
Dated: June 17, 1999
711 Atlantic Avenue
Boston, Massachusetts
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Premises............................................................. 1
2. Use.................................................................. 1
3. Term................................................................. 2
4. Basic Rent........................................................... 3
5. Operating Cost Escalation............................................ 4
6. Tax Escalation....................................................... 7
7. Condition of the Premises............................................ 9
8. Improvements and Alterations......................................... 9
9. Property of Tenant................................................... 12
10. Maintenance and Repair............................................... 13
11. Services............................................................. 14
12. Inspection........................................................... 16
13. Casualty and Taking.................................................. 16
14. Injury and Damage.................................................... 20
15. Indemnification...................................................... 20
16. Insurance............................................................ 22
17. Waiver of Subrogation................................................ 23
18. Assignment, Mortgaging, Subletting................................... 23
19. Default.............................................................. 25
20. Landlord's Right to Cure............................................. 28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
21. Subordination; Nondisturbance........................................................................ 28
22. Surrender of Possession; Holdover.................................................................... 29
23. Notices.............................................................................................. 29
24. Rules and Regulations................................................................................ 29
25. Quiet Enjoyment...................................................................................... 30
26. Limitation of Landlord's Liability................................................................... 30
27. Binding Agreement.................................................................................... 31
28. Notice of Lease...................................................................................... 31
29. Brokerage............................................................................................ 31
30. Guaranty............................................................................................. 32
31. Security Deposit..................................................................................... 32
32. Environmental Provisions............................................................................. 33
33. General Provisions................................................................................... 33
</TABLE>
Exhibits
-ii-
<PAGE>
L E A S E
---------
This LEASE (this "Lease") is made and entered into as of this 17th day of
June, 1999 by and between EAST STREET ASSOCIATES, a Massachusetts limited
partnership with an office at 711 Atlantic Avenue, Boston, Massachusetts
(hereinafter called "Landlord"), and ZEFER CORP., a Delaware corporation
currently having an office at 105-107 South Street, Boston, Massachusetts
(hereinafter called "Tenant").
1. Premises. In consideration of the rents and covenants herein stipulated
--------
to be paid and performed by Tenant and upon the terms and conditions herein
specified, Landlord hereby leases to Tenant, and Tenant hereby hires and takes
from Landlord, the following-described premises (the "Premises"):
A portion of the building located at 711 Atlantic Avenue in Boston,
Massachusetts (the "Building") as shown cross-hatched or outlined on
the lease plan (the "Lease Plan") shown on Exhibit A attached hereto
and made a part hereof, consisting of the entire sixth (6th) floor of
the Building agreed to contain 13,500 square feet of rentable area,
including an allocable portion of the common areas of the Building.
The total rentable area of the Building is agreed to be 79,654 square
feet.
The Premises are leased together with the right of Tenant to use for its
customers, employees and visitors, in common with others entitled thereto, such
common areas and facilities in or appurtenant to the Building as required for
access to the Premises and to lavatories, in locations as Landlord may from time
to time reasonably designate and provide. Subject to Landlord's reasonable
security requirements, Tenant shall have access to the Premises at all times.
2. Use. Tenant may use the Premises only for general office purposes.
---
Subject to Landlord's obligations set forth in Section 10, such use and
occupation shall at all times be in compliance with the ordinances of the City
of Boston, the laws of The Commonwealth of Massachusetts and the United States
of America and any regulations under any thereof. Tenant
<PAGE>
shall not use, permit or suffer anything to be done in the Premises or anything
to be brought into or kept in the Premises, in either case, which occasions
discomfort to any other tenants or occupants of the Building, or which in
Landlord's reasonable judgment may tend to impair the reputation or appearance
of the Building or tend to interfere with the proper and economic operation of
the Building by Landlord. Tenant shall not bring or permit to be brought into or
keep in or on the Premises or elsewhere in the Building, unlawful amounts of any
inflammable, combustible or explosive fluid, material, chemical or substance, or
cause or permit any odors to emanate from or permeate the Premises.
3. Term. Subject to the terms, covenants, agreements and conditions
----
contained herein, Tenant shall have and hold the Premises for a term (the
"Term") commencing on the Commencement Date and expiring at the close of the
last day of the calendar month in which the day immediately preceding the fifth
(5th) anniversary of the Commencement Date shall occur (the "Expiration Date").
For purposes hereof, (a) the "Commencement Date" shall be the 30th day following
the Delivery Date or such sooner date on which Tenant first makes use of any
portion of the Premises for the conduct of business and (b) the "Delivery Date"
shall be the date on which Landlord delivers possession of the Premises to
Tenant broom clean, free and clear of other tenants and occupants and otherwise
in a condition conforming to Landlord's obligations hereunder, any furniture or
other personal property having been removed. Tenant may terminate this lease,
without further recourse to either party, by notice given to Landlord at any
time after November 15, 1999, if the Delivery Date shall not have occurred
within fifteen (15) days following receipt of such notice. In the event this
Lease is full force and effect without default by Tenant, Tenant may extend the
Term for a period of three (3) years from the Expiration Date by given at least
nine (9) months' prior written notice thereof to Landlord. The Rent for said
extension period shall be based upon and consistent with the then fair market
rental value of the
-2-
<PAGE>
Premises as the same may be mutually agreed by Landlord and Tenant and, if they
have not so agreed in writing in any case within three (3) months following the
exercise of said option, the same shall be determined by appraisers, one to be
chosen by Landlord, one to be chosen by Tenant, and a third to be selected by
the two first chosen. The unanimous written decision of the two first chosen,
without selection and participation of a third appraiser, or otherwise the
written decision of a majority of three appraisers chosen and selected as
aforesaid, shall be conclusive and binding upon Landlord and Tenant. Landlord
and Tenant shall each notify the other of its chosen appraiser within thirty
(30) days following expiration of the aforesaid three (3) month period and,
unless such two appraisers shall have reached a unanimous decision within forty-
five (45) days from said expiration, they shall within a further fifteen (15)
days elect a third appraiser and notify Landlord and Tenant thereof. Landlord
and Tenant shall each bear the expense of the appraiser chosen by it and shall
equally bear the expense of the third appraiser (if any). If, as contemplated by
this Lease, Landlord and Tenant shall not have agreed upon the Rent for said
extension period on or before the Expiration Date, then said extension period
may commence; from and after such Date until the amounts of such Rent is
determined either by agreement of the parties or by appraisal, Tenant shall make
payments of such Rent at the then current rates subject to retroactive
adjustment in conformity with and within thirty (30) days of the determination
of such Rent as hereinabove set forth.
4. Basic Rent. (a) Tenant covenants to pay to Landlord, beginning as of the
----------
Commencement Date and continuing thereafter during the Term of this Lease, fixed
annual rent ("Basic Rent") at the rate of $432,000 per annum. Basic Rent shall
be payable in equal monthly installments of $36,000 each, in advance, on the
first day of every calendar month during the Term hereof, subject to proration
in the case of any partial calendar month.
-3-
<PAGE>
(b) Except as otherwise expressly set forth herein, Tenant shall pay the
Basic Rent without set-off, deduction or demand to Landlord at its address set
forth above, or at such other place as is designated in writing from time to
time by Landlord.
5. Operating Cost Escalation. (a) As used in this Section, these words
-------------------------
and terms shall have the following meanings:
(i) "Operating Costs" shall mean all costs incurred and expenditures
made by Landlord for the operation and management of the Building and
the land on which the Building is situated (hereinafter collectively
called the "Property"). Operating Costs include, without limitation,
costs of cleaning, security, janitorial service (including costs of
materials and equipment); utilities and other costs related to the
provision of heat, electricity and air conditioning (excluding heat and
air conditioning furnished to tenants other than during normal business
hours); maintenance and repairs to the Property (including snow removal,
landscaping, repair of heating and air conditioning equipment, elevators
and other non-structural Building components); payments under all
service contracts relating to the operation and maintenance of the
Property; reasonable management fees (not in excess of 5% of collected
rent and other income); reasonable wages, salaries, benefits, payroll
taxes and unemployment compensation insurance for employees of Landlord
servicing the Property or any contractor of Landlord engaged in the
cleaning, operation, maintenance or security of the Property; insurance
relating to the Property; auditing expenses; payments other than Taxes
(as hereinafter defined) to the City of Boston (including, but not
limited to, water and sewer charges, fire service fees and other user
fees); and supplies and all other expenses customarily incurred in
connection with the operation of similar
-4-
<PAGE>
office buildings in the downtown Boston area. If, during the Term of
this Lease, the Landlord shall make capital expenditures necessary or
desirable, in the opinion of the Landlord, to meet the requirements of
applicable laws imposed after the Delivery Date or designed to increase
the operating efficiency of the Building or to save on labor expenses or
to replace obsolete operating equipment, there shall be included in
Operating Costs for the year in which the capital expenditure was made
and in each succeeding year, an annual charge of such capital
expenditure as determined in accordance with generally accepted
accounting principles so long as such capital expenditure can be
expected to achieve a reasonably-corresponding reduction of other
Operating Costs. Operating Costs, however, shall not include (i) the
cost of capital improvements or depreciation thereof not hereinabove
specified (including without limitation the cost of restoration
necessitated by fire or other casualty or by the exercise of eminent
domain), (ii) amounts paid with respect to interest on, or amortization
of, any mortgage, (iii) attorneys' fees incurred in connection with the
negotiation of leases with tenants of the Building or disputes with such
tenants unrelated to the operation or maintenance of the Property, (iv)
any expenditures for which Landlord is reimbursed by tenants or other
third parties (other than by tenants pursuant to expense sharing
provisions comparable hereto), (v) rent payable under any underlying
ground lease, (vi) the cost of renovating or otherwise improving or
decorating, painting or redecorating space for tenants or other
occupants of the Building, (vii) off-site overhead costs associated with
the operation of the business entity constituting Landlord, (viii)
salaries and benefits of executive employees above the grade of Building
Manager, (ix) brokerage commissions, (x)
-5-
<PAGE>
advertising and other marketing costs, (xi) the cost of services or work
provided to particular tenants of the Building which are not provided to
Tenant or which are provided to Tenant subject to payment of an
additional charge (currently including electricity required to provide
heat and air conditioning to tenants during normal business hours),
(xii) amounts paid to subsidiaries or affiliates of Landlord for
services rendered to the Property to the extent that such amounts exceed
the competitive costs of such services, (xiii) penalties assessed on
account of violations by Landlord of any governmental requirement or
(xiv) the cost of remediating any hazardous materials present on the
Property pursuant to the provisions hereof, if necessitated by the acts
of Landlord or its agents, employees or contractors. In addition, any
costs relating to the Property in conjunction with other properties
under common ownership or management shall be equitably apportioned. If
the Building is less than fully occupied during a particular calendar
year or if all Building tenants are not receiving the same services to
be provided to Tenant hereunder, then Operating Costs for such year
shall be extrapolated to an amount which reasonably approximates the
amount which would have been incurred if the Building were fully
occupied and such services were being provided to all Building tenants.
(ii) "Operating Escalation Statement" shall mean a statement in
writing signed by Landlord, setting forth the amounts payable by Tenant
for a specified computation year pursuant to this Section and providing
reasonable written back-up for the calculation of such amount, including
copies of any significant invoices received by Landlord.
-6-
<PAGE>
(b) If in any calendar year occurring during the term of this Lease, the
Operating Costs for such year exceed the Operating Costs for the Operating Cost
Base Year (as defined below), Tenant shall pay to Landlord an amount equal to
16.95% of such excess (the "Operating Cost Excess"). Such amount shall be due
and payable within thirty (30) days following receipt by Tenant of the Operating
Escalation Statement for such year. If this Lease shall commence or terminate in
the middle of a calendar year, Tenant shall be liable for only that portion of
the Operating Cost Excess in respect of such calendar year represented by a
fraction the numerator of which is the number of days of the Term which falls
within the calendar year and the denominator of which is three hundred sixty-
five (365). The Operating Cost Base Year shall mean the calendar year ending on
December 31, 1999.
6. Tax Escalation. (a) As used in this Section, these words and terms
--------------
shall have the following meanings:
(i) "Taxes" shall mean all payments, all taxes, assessments and
betterments levied, assessed or imposed by any governmental authority upon or
against the Property or Building or payments in lieu thereof, but excluding
water and sewer charges. Any such assessment or betterment shall be amortized
over the longest period permitted by applicable law such that only those
installments payable on account thereof during the Term of this Lease, together
with any interest charged to Landlord, shall be deemed included as part of Taxes
hereunder. If, at any time during the Term of this Lease, any tax or excise on
rents or other taxes, however described, are levied or assessed against Landlord
with respect to the rent reserved hereunder, either wholly or partially in
substitution for, or in addition to, real estate taxes assessed or levied on the
Property or Building, or payments in lieu thereof, such tax or excise on rents
shall be included in Taxes. Notwithstanding the foregoing, Taxes shall not
include franchise, estate, inheritance, succession, capital, levy, transfer,
income or excess profits
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taxes assessed on Landlord nor penalties or interest on payments not made by
Landlord in a timely manner.
(ii) "Tax Escalation Statement" shall mean a statement in writing
signed by Landlord, setting forth the amounts payable by Tenant for a specified
computation period pursuant to this Section with a copy of Landlord's tax bill
attached thereto.
(iii) "Fiscal Year" shall mean the fiscal year of the City of Boston.
(b) If in any Fiscal Year occurring during the Term of this Lease, the
Taxes for such year exceed the Taxes for the Tax Base Year (as defined below),
Tenant shall pay to Landlord an amount equal to 16.95% of such excess (the "Tax
Excess"). Such amount shall be due and payable thirty (30) days following
receipt by the Tenant of the Tax Escalation Statement. If this Lease shall
commence or terminate in the middle of a Fiscal Year, Tenant shall be liable for
only that portion of the Tax Excess in respect of such year represented by a
fraction the numerator of which is the number of days of the Term which falls
within the Fiscal Year and the denominator of which is three hundred sixty-five
(365). The Tax Base Year shall mean the Fiscal Year ending June 30, 2000.
(c) If, after Tenant shall have made any payment of Tax Excess, Landlord
receives a refund of any portion of Taxes paid by Landlord, Tenant's pro rata
share of such refund, less the reasonable cost of securing the same, shall be
credited by Landlord against outstanding Rent (as defined below) or other
charges due from Tenant, if any, and any balance shall be refunded to Tenant
within thirty (30) days of receipt of same by Landlord.
(d) Tenant shall, if, as and when required by Landlord, with each monthly
payment of Basic Rent, make such estimated payments of Operating Cost Excess and
Tax Excess in advance as Landlord shall reasonably determine to be sufficient to
provide in the aggregate a fund adequate to pay, when due, all additional rent
required pursuant to Sections 5(b) and 6(b). Any
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deficiency shall be payable within the time set forth in said Sections, and any
surplus shall be credited against outstanding Rent or other charges due from
Tenant, if any, and any balance shall be refunded to Tenant.
(e) The payments required to be made by Tenant pursuant to this Section
and Section 5, together with the Basic Rent, are hereinafter collectively called
the "Rent."
(f) Landlord shall retain its books and records relating to the
calculation of any "Operating Escalation Statement" or a "Tax Escalation
Statement" for at least three (3) years following the rendition thereof, and
Tenant may review said books and records within one (1) year following receipt
of the applicable Statement from Landlord.
7. Condition of the Premises. Landlord shall, prior to the Delivery Date,
-------------------------
(a) render operational the freight elevator in the Building, (b) install a
locking device to restrict access to the Premises from the interior Building
stairway and (c) balance the heating, ventilating and air conditioning equipment
servicing the Premises by adjusting the output of the diffusers to accommodate
the way in which space is currently configured. In all other respects, subject
to Landlord's repair obligations hereunder, Tenant shall accept the Premises
(including existing Building window blinds, which shall be retained for Tenant's
use) "as is" on the Delivery Date, and all work necessary to prepare the
Premises for occupancy by Tenant shall be performed by Tenant in accordance with
Section 8 and the other applicable provisions of this Lease. Tenant may, at its
own risk (except with respect to the negligence or willful misconduct of
Landlord or its agents, employees or contractors), enter the Premises after the
Delivery Date in order to undertake such work.
8. Improvements and Alterations. (a) Tenant, at its own expense, may make
----------------------------
alterations, additions and improvements with Landlord's prior written consent
to the interior of the Premises which are necessary or appropriate for the
conduct of Tenant's business in
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accordance with detailed working drawings and specifications describing such
work which have been submitted in advance to and approved in writing by Landlord
along with the identity of the contractor. Such consent or approval shall not be
unreasonably withheld or delayed in the case of any proposed work of a non-
structural nature which does not affect the common areas or facilities of the
Property and is not visible from the exterior of the Premises. In addition,
Tenant shall not be required to obtain Landlord's consent to interior painting
and similar work of a purely decorative nature so long as the quality thereof
conforms to any standard Building criteria established by Landlord. Tenant shall
pay all costs of preparing plans, drawings and specifications. Such alterations,
additions and improvements (specifically excluding movable personal property
installed by Tenant) made after the date hereof are hereinafter collectively
called the "Improvements." All the Improvements, whether placed in or attached
or made to or a part of the Premises prior to or during the Term of this Lease,
shall, unless Landlord otherwise elects and except in the case of customary
trade fixtures, become and be Landlord's property and shall be and remain part
of the Premises as of the termination of the Term. Landlord shall notify Tenant
in writing at the time Landlord approves Tenant's plans for Improvements of its
election to require Tenant to remove any or all of its Improvements upon the
expiration or earlier termination of the Term. Construction of the Improvements
shall be performed diligently and in a good and workmanlike manner and shall be
expeditiously completed in compliance with all laws, ordinances, orders, rules,
regulations and requirements. All work done in connection with the Improvements
shall comply with all requirements of insurance policies maintained by Landlord
and Tenant. Tenant, at its own expense, shall procure all permits and licenses
for the Improvements required by any governing authority having jurisdiction
over the Premises and the business to be conducted in the Premises. Tenant shall
promptly pay all costs and expenses of the Improvements, and Tenant shall
indemnify the Landlord against performance liens, costs,
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damages and expenses in connection with all Improvements. In case of damage or
destruction of any Improvements which Landlord elected not to be a portion of
the Premises during the Term of this Lease, Tenant shall have the right to
recover its loss from any insurance company with which it has insured the same.
At the end of the Term of this Lease, if not then in default hereunder, Tenant
shall remove all of its personal property other than the Improvements (except
those Improvements which Landlord elected to require Tenant to remove). If
Landlord elects to have Tenant remove the Improvements, Landlord shall not
require removal of pipes, wires and the like from walls, ceilings or floors,
provided that Tenant properly cuts, caps and disconnects such pipes and wires
and seals them off in a safe and lawful manner flush with the applicable wall,
floor and ceiling and redecorates the area in a manner substantially consistent
with the remainder of the Premises. Tenant shall maintain the Improvements in
accordance with Section 10 during the Term of the Lease and shall be responsible
for any and all damage to the Premises, the fixtures, appurtenances and
equipment of Landlord or the Building caused by the installation, malfunction or
removal of the Improvements or Tenant's Property, as defined in Section 9.
(b) To protect the historical and architectural integrity and appearance
of the Building, Tenant shall not install any signs on the exterior of the
Building or Premises or in the interior of the Premises if visible from the
exterior of the Premises except as permitted by this paragraph. All signs or
lettering, if any, visible from the exterior of the Building or from the lobby,
public corridors or in any other common area or public place must be submitted
to Landlord for written approval of the size, color, design and location of such
signs or lettering before installation, which approval shall not be unreasonably
withheld or delayed. Tenant may hang its own window blinds or curtains in the
Premises, subject to Landlord's prior written approval, which approval shall not
be unreasonably withheld or delayed. Landlord shall include
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Tenant's name and the floor location of the Premises in any directory maintained
by Landlord in the lobby of the Building.
(c) Subject to the provisions hereof otherwise applicable to the making of
alterations, additions and improvements in the Premises together with such
additional requirements as Landlord may reasonably prescribe, Tenant may install
cabling and wiring through vertical shafts of the Building in order to service
equipment located in the Premises. Notwithstanding the foregoing, Landlord shall
neither unreasonably withhold or delay any consent required in the case of, nor
obligate Tenant to furnish detailed working drawings and specifications
describing, such installations.
9. Property of Tenant. Subject to the provisions of this Section 9,
------------------
Tenant may place office fixtures, office equipment and the like ("Tenant's
Property") in the Premises. Tenant shall not place a load upon any floor of the
Premises exceeding the floor load per square foot area which such floor was
designed to carry and which is allowed by law. Business machines and mechanical
equipment and Tenant's other personal property shall be placed and maintained by
Tenant at its expense in settings sufficient to absorb and prevent vibration,
noise and annoyance. Except in case of the negligence or willful misconduct of
Landlord or its agents, employees or contractors, Tenant covenants and agrees
that all Tenant's Property of every kind, nature and description which may be in
or upon the Premises or Building, in the public corridors, or on the sidewalks,
area ways and approaches adjacent thereto, during the Term hereof, and any
movement of Tenant's Property, shall be at the sole risk and hazard of Tenant,
and Tenant hereby indemnifies and agrees to save Landlord harmless from and
against any liability, loss, injury, claim or suit resulting directly or
indirectly therefrom except to the extent caused by the negligence or willful
misconduct of Landlord or its agents, employees or contractors as aforesaid.
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10. Maintenance and Repair. (a) Subject to Landlord's repair obligations
----------------------
hereunder, Tenant shall, at its sole cost and expense, maintain the Premises in
as good order, condition and repair as the same were in on the Delivery Date or
may have been put in thereafter, reasonable wear and tear and damage by fire and
other casualty excepted. Tenant, at its own expense, shall supply all light
bulbs, tubes or similar devices for lighting the Premises. Landlord agrees to
change all such bulbs, tubes or similar devices.
(b) Landlord shall: (i) keep the Building structure (including without
limitation the roof) and the plumbing, electrical, heating, ventilating and air
conditioning systems and utility service lines of the Building servicing the
Premises in good and operating condition and repair (except that Tenant shall be
responsible for the cost of any repair or replacement occasioned by any act or
neglect of Tenant, its servants, agents, customers, contractors, employees or
licensees); (ii) keep the sidewalks, common corridors, stairways, elevators and
all other public portions of the Building in good and operating condition and
repair and in a reasonably clean and safe condition; and (iii) comply with
applicable governmental rules, regulations, laws and ordinances affecting the
Building or Tenant's ability to use the Premises for general office purposes,
unless a violation is caused by Tenant or any party claiming by through or under
Tenant. Landlord reserves the right to interrupt, curtail, stop or suspend the
furnishing of any services and the operation of the plumbing, electrical,
heating, ventilating and air conditioning systems when necessary by reason of
accident or emergency or for repairs, alterations, replacements or improvements
which may become necessary or when it cannot secure supplies or labor, or by
reason of any other cause beyond its reasonable control, without liability or
any abatement of Rent being due thereby. In exercising its rights set forth in
the preceding sentence, Landlord hereby agrees to use reasonable efforts to not
materially interfere with Tenant's use of the Premises. Notwithstanding the
foregoing, if, as a result of any such interruption, curtailment,
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stoppage or suspension, the Premises are substantially untenantable for thirty
(30) consecutive days, Tenant may, by notice to Landlord at any time thereafter
(unless, within five (5) days following receipt of such notice, the Premises are
no longer substantially untenantable as aforesaid), elect to terminate this
Lease with the same force and effect as if the Term had expired.
11. Services. (a) Landlord shall provide:
--------
(i) Access to the Premises from the Building lobby during regular
Building hours (7:00 a.m. to 6:00 p.m.) on business days (Saturdays, Sundays and
legal Massachusetts holidays excepted) and, at all other times, controlled
access under conditions which will insure the security of the Building.
(ii) Necessary elevator facilities.
(iii) Heat and air conditioning to the common areas of the Building
and heat and air conditioning reasonably required for the comfortable occupancy
of the Premises during normal seasonal heating periods on business days from
7:00 a.m. to 6:00 p.m. and on Saturdays from 7:00 a.m. to 1:00 p.m. (except
legal Massachusetts holidays). The Landlord shall furnish heat and air
conditioning beyond the above stated hours, provided that notice requesting such
service is delivered to Landlord before noon on the business day when such
service is required for that evening, and by noon of the preceding business day
when such service is required on a Saturday, Sunday or holiday. Landlord's
reasonable charge for supplying such additional service (currently $35.00 per
hour) shall be paid by Tenant or, alternatively, shall be shared proportionately
between Tenant and other tenants, if any, located in the relevant zone who have
requested and are receiving the benefit of such service at the same time as
Tenant (it being understood and agreed, however, that the air conditioning
equipment currently servicing the Premises does not also service any other
rentable area in the Building). Air conditioning and
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heating of the Premises will be separately metered by Landlord at Landlord's
sole cost and expense, and Tenant shall be responsible for paying all
electricity required to provide such air conditioning and heating.
(iv) Cleaning and janitor service in scope, quality and frequency is
described in Exhibit C attached hereto and made a part hereof (the "Cleaning
Specifications"), provided the Premises are kept in good condition by Tenant.
(v) Hot and cold running water, liquid soap, toilet tissue and paper
towels for washrooms and lavatories.
(vi) Electricity for normal lighting of the main lobby, elevators,
washrooms and stairs, but not for the Premises, on a 24 hour/day, 365 day/year
basis.
(vii) Removal of snow and ice from the entry and sidewalks to the
Building.
(b) Tenant shall purchase the electrical energy required by Tenant for
operation of the lighting fixtures, equipment, appliances and heating and air
conditioning systems servicing the Premises directly from the public utility
company servicing the Building as determined by separate meters. Landlord shall
not be liable in any way to Tenant for any failure or defect in the supply or
character of electrical energy furnished to the Premises by reason of any
requirement, act or omission of said public utility company. Tenant's use of
electrical energy in the Premises shall not at any time exceed the capacity of
any of the electrical conductors and equipment in or otherwise serving the
Premises.
(c) In the event Tenant wishes to provide outside services for the
Premises over and above those services to be provided by Landlord as set forth
herein ("Outside Services"), Tenant shall first obtain the prior written
approval of Landlord, which approval shall not be unreasonably withheld or
delayed, for the installation and/or utilization of such services. Outside
Services shall include, but not be limited to, cleaning services, television,
so-called "canned
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music" services, security services and the like, excluding the use of caterers,
couriers and other vendors whose services are routinely engaged in connection
with specified functions or transactions. If Landlord approves the installation
and/or utilization of Outside Services, such installation and utilization shall
be at Tenant's sole cost, risk and expense except in the case of the negligence
or willful misconduct of Landlord or its agents, employees or contractors.
12. Inspection. Landlord and its authorized representatives shall have the
----------
right at all reasonable times and with prior notice to Tenant (except in case of
emergency) to enter the Premises to inspect the same, to make repairs or
replacements therein as required by this Lease or requested by Tenant, to
exhibit the Premises to prospective tenants (but only during the final twelve
(12) months of the Term) or others, and to introduce conduits and pipes or ducts
as may be necessary with all repair and clean up to be performed by Landlord
immediately upon completion of work; provided, however, that Landlord shall use
all reasonable effort to not unreasonably disturb Tenant's use and occupancy and
to afford an opportunity for an employee of Tenant to be present while Landlord
or its authorized representatives remain in the Premises. The exercise of any
such right shall not be deemed an eviction or disturbance of Tenant's use or
possession unless such disruptions are actually continuous and actually cause
Tenant's business to cease operations.
13. Casualty and Taking. (a) If the Premises or any part thereof shall be
-------------------
damaged by fire or other casualty, Landlord shall proceed with reasonable
diligence, and at the expense of Landlord, to repair or cause such damage to be
repaired, provided however that Landlord shall in no event be responsible for
any repairs or replacements of (i) the Improvements which Landlord elected not
to be a portion of the Premises or of (ii) Tenant's Property. If the Premises
or any part thereof shall have been rendered unfit for use and occupation
hereunder by reason of such damage, the Basic Rent or a just and proportionate
part thereof, according to the nature and
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extent to which the Premises shall have been so rendered unfit, shall be
suspended or abated from the time of such damage until the Premises (except as
to the property which is to be repaired by or at the expense of Tenant) shall
have been restored as nearly as practicably may be to the condition in which
they were immediately prior to such fire or other casualty and a certificate of
occupancy issued permitting Tenant's use of the Premises. Landlord shall not be
liable for delays in the making of any such repairs which are due to
governmental regulations, casualties and strikes, and other causes beyond the
control of Landlord, nor shall Landlord be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting from
reasonable delays in repairing such damage. In case the Building or at least 25%
thereof is so damaged by such fire or other casualty that substantial alteration
or reconstruction (which may reasonably be expected to take nine months or
longer of actual construction time to complete) of the Building shall be
required, then, whether or not the Premises shall have been damaged by such fire
or other casualty, this Lease and the Term hereof may be terminated at the
election of Landlord or Tenant by a notice in writing of its election so to
terminate, which termination shall be effective not less than thirty (30) days
after the day on which such termination notice is received. In the event of any
such termination, this Lease and the Term hereof shall expire as of such
effective termination date and the Rent shall be apportioned as of such date;
and if the Premises or any part thereof shall have been rendered unfit for use
and occupation by reason of such damage, the Basic Rent for the period from the
date of the fire or other casualty to the effective termination date, or a just
and proportionate part thereof, according to the nature and extent to which the
Premises shall have been so rendered unfit, shall be abated and any security
deposits and other expense deposits shall be returned to the extent that such
deposits represent a period after the expiration of the Term.
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(b) In the event that the Premises or any part thereof, or the whole or
any substantial part of the Building, or the access thereto, shall be taken or
appropriated by eminent domain or shall be condemned for any public or quasi-
public use, or (by virtue of any such taking, appropriation or condemnation)
shall suffer any damage (direct, indirect or consequential) for which Landlord
or Tenant shall be entitled to compensation, then (and in any such event) this
Lease and the Term hereafter may be terminated at the election of Landlord by a
notice in writing of its election so to terminate which shall be given by
Landlord to Tenant within sixty (60) days following the date on which Landlord
shall have received notice of such taking, appropriation or condemnation. In
that event, the termination date is to be sixty (60) days from Tenant's receipt
of notice from Landlord. If the entire Premises or such portion thereof or the
access thereto shall be so taken, appropriated or condemned, such that Tenant
shall be precluded from effectively utilizing the Premises, then (and in any
such event) this Lease and the Term hereof may be terminated at the election of
Tenant by a notice in writing of its election so to terminate which shall be
given by Tenant to Landlord within sixty (60) days following the date on which
Tenant shall have received notice of such taking, appropriation or condemnation.
Upon the giving of any such notice of termination (either by Landlord or Tenant)
this Lease and the Term hereof shall terminate on or retroactively as of the
date on which Landlord or Tenant, as the case may be, shall be required to
vacate any portion of the area so taken, appropriated or condemned or shall be
deprived of the means of access thereto; provided, however, that Landlord may in
Landlord's notice of termination elect to terminate this Lease and the Term
hereof retroactively as of the date on which such taking, appropriation or
condemnation became legally effective. In the event of such termination, this
Lease and the Term hereof shall expire as of such effective termination date and
the Basic Rent shall be apportioned as of such date and any
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security deposits and other expense deposits shall be returned to the extent
that such deposits represent a period after the expiration of the Term.
(c) If neither party (having the right so to do) elects to terminate this
Lease and the Term hereof as provided in paragraph (b) above, Landlord shall,
with reasonable diligence and at Landlord's expense, restore the remainder of
the Premises (but not the Improvements which Landlord elected not to be a
portion of the Premises or any of Tenant's Property), or the remainder of the
means of access, as nearly as practicably to the condition as obtained prior to
such taking, appropriation or condemnation, in which event the Rent shall be
adjusted in a manner such that (i) a just proportion of the Basic Rent,
according to the nature and extent of the taking, appropriation or condemnation
and the resulting permanent injury to the Premises and the means of access
thereto, shall be permanently abated, and (ii) a just proportion of the
remainder of the Basic Rent, according to the nature and extent of the taking,
appropriation or condemnation and the resultant injury sustained by the Premises
and the means of access thereto, shall be abated until what remains of the
Premises (other than said Improvements or Tenant Property) and the means of
access thereto shall have been restored as fully as may be for permanent use and
occupation by Tenant hereunder. Landlord shall not be liable for any delays in
such restoration which are due to governmental regulations, casualties, strikes,
unavailability of labor or materials, or other causes beyond Landlord's control,
nor shall Landlord be liable for any inconvenience or annoyance to Tenant or
injury to the business of Tenant resulting from reasonable delays in such
restoration. Landlord expressly reserves and Tenant hereby assigns to Landlord
all rights to compensation and damages created, accrued or accruing by reason of
any such taking, appropriation or condemnation, but not including relocation
assistance payments by a governmental agency or entity nor any compensation for
damages to Tenant's property.
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(d) If the Premises or any part thereof or the access thereto shall be
taken, appropriated or condemned for any temporary use (i) this Lease shall be
and remain unaffected thereby and Tenant shall continue to pay the full amount
of the Rent hereunder, (ii) Tenant shall be entitled to receive for itself any
award made for such use allocable to the Term of this Lease, and (iii) Tenant,
to the extent of any award made under (ii) above, shall be responsible for any
repairs necessary to restore the Premises to their condition prior to such
taking, appropriation or condemnation, provided that if any such taking,
appropriation or condemnation extends beyond the Term of this Lease, the costs
of such repairs shall be allocated between Landlord and Tenant in proportion to
the amount of any award each receives. Any taking, appropriation or
condemnation continuing in excess of one year shall be deemed to be a permanent
taking, appropriation or condemnation and shall be governed by paragraphs (b)
and (c) of this Section 13.
14. Injury and Damage. Landlord shall not be liable for any injury or
-----------------
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, electrical disturbance, water, rain or snow or leaks
from any part of the Building or from the pipes, appliances or plumbing works or
from the roof, street or subsurface or from any other place or by dampness or by
any other cause of whatever nature, unless caused by or due to the act,
omission, fault, negligence or misconduct of Landlord, or its agents, employees
or contractors; nor shall Landlord or its agents be liable for any such damage
caused by other tenants or persons in the Building or caused by construction
operations of any private, public or quasi-public person.
15. Indemnification. (a) Tenant hereby indemnifies and covenants to save
---------------
Landlord harmless from and against any and all claims, liabilities or penalties
asserted by or on behalf of any person, firm, corporation or public authority:
(i) on account of or based upon any injury to
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person, or loss of or damage to property, sustained or occurring on the Premises
on account of or based upon the act, omission, fault, negligence or misconduct
of Tenant or its agents, employees and invitees; (ii) on account of or based
upon any injury to person, or loss of or damage to property, sustained or
occurring in or about the Property and other than on the Premises (and, in
particular, without limiting the generality of the foregoing, on or about the
elevators, stairways, public corridors, sidewalks, concourses, arcades,
approaches, area ways, roof or other appurtenances and facilities used in
connection with the Building or the Premises) arising out of the use or
occupancy of the Building or the Premises by Tenant or by any person claiming
by, through or under Tenant, and caused by the act, omission, fault, negligence
or misconduct of Tenant or its agents, employees and invitees, and in addition
to and not in limitation of the foregoing subdivision (i); and (iii) on account
of or based upon (including monies due on account of) any work or thing
whatsoever done by or on behalf of Tenant or any party claiming by, through or
under Tenant on the Premises; and, in respect of any of the foregoing, from and
against all costs, expenses (including, without limitation, reasonable
attorneys' fees) and liabilities incurred in or in connection with any such
claim, or any action or proceeding brought thereon. If any action or proceeding
be brought against Landlord by reason of any such claim, Tenant, upon notice
from Landlord, shall, at Tenant's expense, resist or defend such action or
proceeding and employ counsel therefor reasonably satisfactory to Landlord, it
being agreed that such counsel as may act for insurance underwriters of Tenant
engaged in such defense shall be deemed satisfactory.
(b) Landlord hereby indemnifies and covenants to save Tenant harmless from
and against any and all claims, liabilities, penalties, damages, losses, costs
and expenses (including reasonable attorneys' fees) asserted against or incurred
by Tenant on account of or based upon the act, omission, fault, negligence or
misconduct of Landlord or its agents, contractors or
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employees; and, in case any action or proceeding be brought against Tenant by
reason of any of the foregoing, Landlord upon notice from Tenant shall at
Landlord's expense resist or defend such action or proceeding and employ counsel
therefor reasonably satisfactory to Tenant, it being agreed that such counsel as
may act for insurance underwriters of Landlord engaged in such defense shall be
deemed satisfactory.
(c) Each party, upon receiving notice of any claim against which the other
party has agreed to provide indemnification pursuant to this Section or
elsewhere in this Lease, shall promptly so notify the other party.
16. Insurance. (a) Tenant agrees to maintain public liability insurance in
---------
an amount not less than $2,000,000.00 per occurrence for personal injuries or
deaths occurring in or about the Premises and the Building and property damage
liability insurance in an amount not less than $2,000,000.00 and to submit and
maintain copies of such policies with Landlord. The insurers under such policies
and the coverage afforded thereunder shall be reasonably satisfactory to
Landlord and such policies shall name as insured parties Landlord and Tenant and
any party holding an interest to which this Lease may be subordinated pursuant
to Section 21, as their interests may appear, and shall provide twenty (20)
days' prior written notice to Landlord of lapse or cancellation.
(b) Tenant shall not do or omit to do or keep anything in, upon or about
the Premises, the Building or any adjacent areas which may prevent the obtaining
of any fire, liability or other insurance upon or written in connection with the
Premises or the Building or which may make any such insurance void or voidable
or otherwise invalidate the obligations of the insurer contained therein, or
which may increase the rate of any such insurance over that normally applicable
to office buildings. Tenant agrees to pay to Landlord, upon demand and
provision by Landlord of reasonable written documentation thereof, the amount of
any extra premiums which
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results from Tenant's failure to comply with the foregoing provisions or from
the business carried on in the Premises by Tenant, whether or not Landlord has
consented to such business.
17. Waiver of Subrogation. Landlord and Tenant shall each use its best
---------------------
efforts to cause all policies of fire, extended coverage, and other physical
damage insurance covering the Premises, the Building, and any property therein
to contain the insurer's waiver of subrogation and consent to preloss waiver of
rights over the insured. Effective only when permitted by the policy or when
such a clause is commercially available at no additional cost or premium (unless
the other party agrees to pay the same), Landlord and Tenant respectively waive
all claims and rights to recover against the other in event of loss or damage
caused by a peril (including without limitation vandalism or malicious mischief)
coverage against which is afforded by a so-called "All Risk" policy, whether or
not actually procured and without regard to any deductible.
18. Assignment, Mortgaging, Subletting. (a) Tenant covenants and agrees
----------------------------------
that neither this Lease nor the Term hereof, nor the estate hereby granted, nor
any interest herein or therein, will be assigned, mortgaged, pledged, encumbered
or otherwise transferred, and that neither the Premises, nor any part thereof,
will be encumbered in any manner by reason of any act or omission of Tenant, or
used or occupied, or permitted to be used or occupied, by anyone other than
Tenant and its employees, or for any use or purpose other than as above stated,
or be sublet, or offered or advertised for subletting, without in each case,
obtaining Landlord's prior written consent. Notwithstanding the foregoing,
Tenant shall have the privilege of assigning this Lease to, or making a sublease
or other occupancy arrangement with, any entity which is a corporate parent,
subsidiary, affiliate or successor of Tenant by way of merger or consolidation
or the acquisition of all or substantially all of Tenant's assets as a going
concern, subject, however, in all respects to all the covenants, agreements,
terms, provisions and conditions contained in this Lease; no such assignment
shall be valid unless, simultaneously therewith, Tenant shall deliver
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to Landlord an executed counterpart of said assignment and the assignee shall
deliver to Landlord an agreement in form and substance reasonably satisfactory
to Landlord which contains an appropriate covenant of assumption by such
assignee, and no such assignment to a successor shall be valid unless prior to
said assignment Tenant shall have submitted to Landlord financial statements or
other material satisfactory to Landlord indicating that such assignee has
financial resources and a general business reputation comparable to those of
Tenant immediately prior to such assumption.
(b) If this Lease is assigned, or if the Premises or any part thereof be
sublet or occupied by anybody other than Tenant and its employees, Landlord may
collect the rents from such assignee or, if Tenant is in default hereunder
beyond the applicable grace period, from such subtenant or occupant, as the case
may be, and apply the net amount collected to the Rent herein reserved, but no
such assignment, subletting, occupancy or collection shall be deemed a waiver of
the requirements set forth in subparagraph (a) of this Section, the acceptance
by Landlord of such assignee, subtenant or occupant, as the case may be, as a
tenant, or a release of Tenant from the future performance by Tenant of its
covenants, agreements and obligations contained in this Lease. The consent by
Landlord to an assignment or subletting shall not in any way be construed to
relieve Tenant from primary liability under this Lease or from obtaining the
express consent in writing of Landlord to any further assignment or subletting.
No assignment, subletting or use of the Premises shall affect the purpose for
which the Premises may be used as stated in Section 2.
(c) Tenant further covenants and agrees that it will not sublease space
from or take an assignment of a lease covering space in the Building from any
other Building tenant or sublease to or assign this Lease to any other Building
tenant without prior written consent from Landlord, which consent shall not be
unreasonably withheld or delayed (unless Landlord is able to make
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<PAGE>
available when needed and for at least the same duration space of comparable
size elsewhere in the Building).
(d) Except as otherwise hereinabove set forth, Landlord shall not
unreasonably withhold or delay its consent to a proposed subletting of the
Premises, provided however that Landlord may, in lieu of such consent, elect to
terminate this Lease immediately prior to the effective date of any proposed
subletting with the same force and effect as if the term hereof had expired, and
provided further that, if Landlord consents to the subletting of the Premises in
whole or in part, Tenant shall pay to Landlord 50% of any rent or other
consideration received from the subtenant in excess of the rent and other
charges payable hereunder (allocated to the sublet area on a prorata basis), net
of any brokerage commissions and other expenses reasonably incurred by Tenant
with respect to the subject transaction.
(e) Any consent required from Landlord pursuant to this Section shall be
deemed to have been granted unless Landlord informs Tenant to the contrary
within fifteen (15) days following Landlord's receipt of Tenant's written
request therefor, so long as such request expressly and conspicuously recites
the effect of Landlord's failure to respond thereto as aforesaid.
19. Default. (a) If (i) Tenant shall default in the payment of the Basic
-------
Rent or any other charges or sums due hereunder and such default shall continue
for ten (10) days after written notice thereof by Landlord to Tenant, or (ii)
Tenant shall default in the performance of any other of its obligations and such
default shall continue for thirty (30) days after written notice thereof by
Landlord to Tenant (except that if Tenant cannot reasonably cure any such
default within said thirty (30) day period, this period may be extended for a
reasonable time, provided that Tenant commences to cure such default within the
thirty (30) day period and proceeds diligently thereafter to effect such cure),
or (iii) Tenant shall abandon the Premises (as
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<PAGE>
distinguished from ceasing operations therein while seeking an acceptable
assignee or subtenant), or (iv) Tenant shall file a petition under any
bankruptcy, insolvency law or code, or (v) such a petition filed against Tenant
is not dismissed within sixty (60) days, or (vi) Tenant shall be adjudicated
bankrupt or insolvent according to the law, or (vii) Tenant shall make any
assignment for the benefit of creditors, or (viii) Tenant shall file any
petition seeking a reorganization, arrangement or similar relief, or (ix) a
receiver, custodian, trustee or similar agent of the Premises or of all or a
substantial part of Tenant's assets shall be authorized or appointed, or (x)
Tenant's interest in this Lease is taken upon execution or other process of law
in any action against Tenant, then Landlord may lawfully enter the Premises and
repossess the same as the former estate of Landlord, or terminate this Lease and
the Term hereof upon five (5) day written notice to Tenant and, in either event,
expel Tenant and these claiming through or under Tenant, and remove their
effects (forcibly, if necessary), without being deemed guilty of any manner of
trespass and without prejudice to any other remedy which Landlord may have for
arrears of Basic Rent and other charges and sums due hereunder or proceeding on
account of breach of covenant, and upon entry or notice as aforesaid, this Lease
shall terminate. In case of any default by Tenant hereunder, Tenant shall pay
all costs of enforcing the Landlord's rights under this Lease (including,
without limitation, reasonable attorneys' fees and expenses). In addition,
following the termination of this Lease on account of such default as aforesaid,
Tenant shall pay damages, as Landlord may elect, equivalent to either (i) the
amount by which, at the termination of the Term of the Lease, the aggregate of
the Rent and other sums payable hereunder projected over a period from such
termination until the normal expiration date of the Term (specifically excluding
the extension period referenced in Section 2 unless Tenant shall have exercised
its option with respect thereto), exceeds the aggregate projected fair market
rental value of the Premises for such period, reasonably discounted in each case
to present value, or (ii)
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<PAGE>
an amount equal to the Rent and other sums which would have been payable had the
Lease not so terminated (subject to offset for net rents actually received from
reletting after subtraction of the reasonable expenses of reletting, Landlord
hereby agreeing to exercise good faith efforts to mitigate damages hereunder)
payable upon the due dates as specified herein, whichever the Landlord shall
elect.
(b) Landlord may bring legal proceedings for the recovery of such damages,
or any installments thereof, from time to time at its election, and nothing
contained herein shall be deemed to require Landlord to postpone suit until the
date when the Term of this Lease would have expired if it had not been
terminated hereunder.
(c) Nothing herein contained shall be construed as limiting or precluding
the recovery by Landlord from Tenant of any sums or damages (including, without
limitation, reasonable attorneys' fees and expenses) to which, in addition to
the damages particularly provided above, Landlord may lawfully be entitled by
reason of any default hereunder on the part of Tenant. Landlord and Tenant
agree that, for the purpose of computing damages, the Tax Excess payments and
Operating Cost Excess payments for the period between the termination of the
Term of this Lease pursuant to this Section and the normal expiration date shall
be computed by multiplying the sum of the Tax Excess payment for the Fiscal Year
immediately preceding the Fiscal Year in which termination occurs and the
Operating Cost Excess payments for the year immediately preceding the year in
which termination occurs times the number of years and any fraction thereof
remaining of the full Term hereby granted on the assumption that the amount of
such Tax Excess payment and Operating Cost Excess payment for the immediately
preceding year would have remained constant for each subsequent year during the
full Term of this Lease. If this Lease and the Term hereof shall terminate
pursuant to this Section prior to the determination of the initial Tax Excess
payment and Operating Costs the Tax Excess payment
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<PAGE>
and Operating Cost Excess payment shall be reasonably estimated by Landlord, in
its sole discretion, based on historical costs and experience.
(d) After more than two occasions during any consecutive twelve (12) month
period where payments of Rent, including additional rent, Tax Excess and
Operating Cost Excess and any other obligations of Tenant are not paid on the
date due, then such late payments shall, at the option of Landlord after notice
to Tenant, bear interest at the rate equal to the "prime rate" from time to time
established by BankBoston plus two percent (2%) per annum from the due date and
shall be compounded monthly.
20. Landlord's Right to Cure. If Tenant shall default in the observance or
------------------------
performance of any term, covenant or condition on its part to be observed or
performed under this Lease, Landlord, without being under any obligation to do
so and without thereby waiving such default, may remedy such default for the
account and at the expense of Tenant, immediately and without notice in case of
emergency, or in any other case, if Tenant shall fail to remedy such default
within the applicable grace period. If Landlord makes any expenditures or incurs
any obligations for the payment of money in connection therewith, including, but
not limited to, reasonable attorneys fees, such sums paid or obligations
incurred, with interest at the rate of interest set forth in Section 19, shall
be paid to Landlord by Tenant as Rent hereunder.
21. Subordination; Nondisturbance. (a) This Lease is subject and
-----------------------------
subordinate in all respects to all mortgages and other existing matters of
record affecting the Building or the Property as of the date hereof. Tenant
agrees at the request of Landlord to subordinate this Lease to any mortgage,
ground lease, or other matter of record placed upon or affecting this Lease, the
Building, the Property or Landlord's interest or estate therein and to recognize
the holder thereof or any other person acquiring title to the Property as
Landlord, provided such holder or person
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<PAGE>
recognizes this Lease subject to a default by Tenant hereunder. Tenant agrees to
execute and deliver any appropriate instruments necessary to carry out the
foregoing provisions.
(b) Landlord agrees to use its diligent efforts to obtain from the current
holder of the first mortgage with respect to the Property (the "First Mortgage")
a nondisturbance agreement in such holder's usual form within ninety (90) days
from the date hereof, provided however that Tenant shall be required to pay any
charge customarily imposed by such holder therefor.
22. Surrender of Possession; Holdover. (a) At the expiration or earlier
---------------------------------
termination of the Term of this Lease, Tenant shall remove Tenant's Property and
shall peaceably yield up to Landlord the Premises in the condition required by
Section 10 (a), together with any Improvements (unless otherwise requested by
Landlord pursuant to the provisions of this Lease).
(b) If Tenant remains in the Premises beyond the expiration or earlier
termination of the Term of this Lease, such holding over shall not be deemed to
create any tenancy, but the Tenant shall be a Tenant-at-Sufferance only and
shall pay rent to Landlord at a daily rate in an amount equal to one and one
half times the daily rate of the Rent and other sums payable under this Lease as
of the last day of the Term of this Lease.
23. Notices. Any notice or demand by Tenant to Landlord shall be served by
-------
registered or certified mail addressed to Landlord at the address first above
indicated, unless otherwise directed in writing by Landlord, and any notice or
demand by Landlord to Tenant shall be served by registered or certified mail, in
person, or by recognized overnight or other delivery service addressed to Tenant
at the address first above indicated until the Commencement Date and thereafter
the Premises, unless otherwise directed in writing by Tenant. Any such notice
or demand shall be in writing and shall be deemed effective upon receipt or
refusal thereof.
24. Rules and Regulations. Tenant shall faithfully observe and comply with
---------------------
the Rules and Regulations set forth on Exhibit B attached hereto and made a part
hereof and such other and
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<PAGE>
further reasonable Rules and Regulations as Landlord hereafter at any time or
from time to time may make and may communicate in writing to Tenant at least
five (5) days before the effective date thereof and which apply to all other
tenants in the Building and which are commercially reasonable, which in the
judgment of Landlord shall be necessary for the reputation, safety, care or
appearance of the Building, or the preservation of good order therein, or the
operation or maintenance of the Building, or any equipment relating thereto, or
the comfort of tenants or others in the Building. Nothing contained in any such
Rules and Regulations shall be deemed to prohibit the hanging of customary
artwork, professional certificates and the like. If this Lease shall conflict
with any such Rules and Regulations, the provisions of this Lease shall control.
Landlord shall not have any duty or obligation to enforce the Rules and
Regulations or the terms, covenants or conditions in any other lease as against
any other tenant (so long as Landlord does not unreasonably discriminate among
tenants), and Landlord shall not be liable to Tenant for violation of such Rules
and Regulations, terms, covenants or conditions by other tenants, their
servants, employees, agents, visitors, invitees or licensees.
25. Quiet Enjoyment. The Tenant, on paying the Rent and other sums payable
---------------
hereunder and performing the covenants of this Lease on its part to be
performed, shall and may peaceably and quietly have, hold and enjoy the Premises
for the Term of this Lease.
26. Limitation of Landlord's Liability. The term "Landlord," as used in
----------------------------------
this Lease, so far as covenants or obligations to be performed by Landlord are
concerned, shall be limited to mean and include only the owner or owners at the
time in question of the Building, and in the event of any transfer or transfers
of title to said Building, the Landlord herein named (and in case of any
subsequent transfers or conveyances, the then grantor) shall be automatically
freed and relieved from and after the date of such transfer or conveyance of all
liability as respects the performance of any covenants or obligations on the
part of the Landlord contained in this Lease
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<PAGE>
thereafter to be performed, it being intended hereby that the covenants and
obligations contained in this Lease on the part of Landlord shall, subject as
aforesaid, be binding on the Landlord, its successors and assigns, only during
and in respect of their respective successive periods of ownership of the
Property. Tenant, its successors and assigns, agrees it shall not assert nor
seek to enforce any claim for breach of this Lease against any of Landlord's
assets other than Landlord's equity interest in the Building and in the rents,
issues and profits thereof (including the proceeds of any sale of such
interest), and Tenant agrees to look solely to such interest for the
satisfaction of any liability of or claim against Landlord under this Lease, it
being specifically agreed that in no event whatsoever shall Landlord (which term
shall include, without limitation, any beneficiary of any trust of which
Landlord is a trustee) ever be personally liable for any such liability.
27. Binding Agreement. This Lease shall bind and inure to the benefit
-----------------
of the parties hereto and such respective heirs, representatives, successors or
assigns as are permitted by this Lease. This Lease contains the entire agreement
of the parties and may not be modified except by an instrument in writing
executed by both Tenant and Landlord.
28. Notice of Lease. Tenant agrees that it will not record this Lease.
---------------
Landlord and Tenant shall, upon request of either, execute and deliver a notice
of this Lease in such applicable form as may be permitted by applicable statute.
29. Brokerage. Landlord and Tenant each represents and warrants to the
---------
other that it has dealt with no broker except CB Richard Ellis - NE Partners, LP
and Avalon Partners, d/b/a CRESA Partners (the "Brokers"), in connection with
this transaction. Landlord hereby agrees to pay any compensation which may be
due by it to the Brokers. Tenant agrees to hold harmless and indemnify Landlord
from and against any and all cost, expense, or liability for any
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<PAGE>
compensation, commissions and charges claimed by any other broker or agent
claiming to have dealt with Tenant in connection with this Lease or the
negotiation thereof.
30. Guaranty. As used in clauses (iv), (v), (vi), (vii), (viii) and (ix)
--------
of Section 19(a), the term "Tenant" shall also be deemed to refer to
any guarantor of Tenant's obligations hereunder.
31. Security Deposit. A deposit in the amount of $432,000 (the "Security
----------------
Deposit") shall be held by Landlord during the Term of this Lease as security
for the full, faithful and punctual performance of Tenant's covenants hereunder,
it being understood that the Security Deposit is not to be considered prepaid
rent, nor shall damages be limited to the amount of the Security Deposit, nor
shall Landlord be required, because of the Security Deposit, to waive its right
to terminate this Lease upon a default. The Security Deposit (if held in cash)
shall not earn interest and need not be kept in a segregated account or
otherwise escrowed. The Security Deposit, or any balance thereof, shall be
refunded to Tenant, subject to Tenant's satisfactory compliance herewith, within
thirty (30) days following the end of the Term of this Lease. Tenant shall be
entitled to pay the Security Deposit in the form of an irrevocable letter of
credit subject to the following terms and conditions. Said letter of credit
shall be issued by Silicon Valley Bank or any other commercial bank reasonably
acceptable to Landlord and shall be in a form reasonably satisfactory in all
respects to Landlord. In the event of any default by Tenant beyond the
applicable grace period, Landlord shall be entitled to receive from the issuer
of such letter of credit upon demand so much of the amount which may be drawn
therefrom as shall be necessary to cure such default and compensate Landlord for
all losses, liabilities, damages and other expenses, including without
limitation reasonable attorneys' fees, which may be imposed upon, incurred by or
asserted against Landlord by reason of such default, and Tenant shall thereafter
promptly restore such letter of credit to its original amount. If Tenant fails
to restore such letter
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<PAGE>
of credit to its original amount as hereinabove required, or if such letter of
credit is about to expire and shall not have been renewed as herein required
within thirty (30) days preceding such expiration, then in any such event
Landlord may upon demand withdraw all remaining available funds under such
letter of credit and hold the same as a cash security deposit pursuant to the
preceding provisions of this Section. So long as Tenant is not then in default
hereunder and has not prior thereto been given written notice of any such
default on more than two (2) occasions during any twelve (12) month period, the
Security Deposit may be reduced to $216,000 effective as of the first day of the
31st full calendar month included in the Term of this Lease.
32. Environmental Provisions. Tenant shall not bring or permit to be
------------------------
brought or kept in or on the Premises or elsewhere on the Property any hazardous
materials, as such terms may be defined by any applicable federal, state or
local statute, ordinance, by-law, rule or regulation, including without
limitation the Massachusetts Oil and Hazardous Material Release Prevention and
Response Act (M.G.L. c. 21E), the Comprehensive Environmental Response,
Compensation and Liability Act, as amended (42 U.S.C. (S)(S)9601 et seq.), and
the Resource Conservation and Recovery Act, as amended (42 U.S.C. (S)(S)6901 et
seq.), but excluding cleaning supplies and other products typically used by
tenants of office space, so long as such products are commercially packaged and
properly stored and handled. Landlord shall be responsible for the remediation,
if and as required by applicable law, of any such hazardous materials present on
the Property other than on account of Tenant's failure to comply with the
provisions of this Section.
33. General Provisions. (a) The various rights and remedies contained in
------------------
this Lease and reserved to each of the parties shall not be exclusive of any
other right or remedy of such party, but shall be construed as cumulative and
shall be in addition to every other remedy now or hereafter existing at law, in
equity, or by statute. No delay or omission of the right to exercise any power
by either party shall impair any such right or power, or shall be construed as a
waiver
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<PAGE>
of any default or as acquiescence in any default. One or more waivers of
any covenant, term or condition of this Lease by either party shall not be
construed by the other party as a waiver of a subsequent breach of the same
covenants, terms or conditions. The consent or approval of either party to or of
any act by the other party of a nature requiring consent or approval shall not
be deemed to waive or render unnecessary consent to or approval of any
subsequent similar act.
(b) Where the words "Landlord" and "Tenant" are used in this Lease, they
shall include Landlord and Tenant and shall apply to persons, both men and
women, associations, partnerships and corporations, and in reading this Lease
the necessary grammatical changes required to make the provisions hereof mean
and apply to them shall be made in the same manner as if written into the Lease.
(c) Tenant hereby declares that in entering into this Lease, Tenant relied
solely upon the statements contained in this Lease and fully understands that no
agents or representatives of Landlord have authority to in any manner change,
add to or detract from the terms of this Lease.
(c) Tenant hereby declares that in entering into this Lease, Tenant
relied solely upon the statements contained in this Lease and fully understands
that no agents or representatives of Landlord have authority to in any manner
change, add to or detract from the terms of this Lease.
(d) The invalidity of one or more of the provisions of this Lease shall
not affect the remaining portions of this Lease; and, if any one or more of the
provisions of this Lease should be declared invalid by final order, decree or
judgment of a court of competent jurisdiction, this Lease shall be construed as
if such invalid provisions had not been included in this Lease.
(e) If Tenant shall be two or more persons or entities, each such person
or entity shall be jointly and severally liable for the payment of all sums due
to Landlord from Tenant under this Lease and the performance of all of Tenant's
covenants, agreements, or obligations under this Lease.
(f) The submission of this Lease for examination or its negotiation or
the negotiation of the transaction described herein does not constitute a final
agreement to lease, and the execution of this Lease by Tenant does not
constitute a binding contract until such time as this
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<PAGE>
Lease has been approved by the First Mortgagee. Landlord shall use good faith
efforts to promptly obtain such consent.
(g) In the event this Lease is in full force and effect without default
by Tenant, Landlord shall use reasonable efforts to notify Tenant of any space
in the Building which Landlord wishes to lease other than to the current tenant
or occupant thereof (if any). In no event shall the foregoing provisions be
construed as an option, right of first refusal or other entitlement to lease
such space, nor shall Landlord be obligated to make any concession to Tenant in
order to facilitate such leasing.
(h) In no event shall either party be liable to the other for indirect or
consequential damages.
Executed as a sealed instrument as of the date first above written by the
duly authorized representatives of Landlord and Tenant.
EAST STREET ASSOCIATES ZEFER CORP.
By /s/ [ILLEGIBLE] By /s/ William A. Seibel
---------------------------- -------------------------------
Its General Partner Its President
--------------------------- -----------------------------
title (duly-authorized) title (duly-authorized)
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<PAGE>
EXHIBIT A
Plan of Premises
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls of the Building shall not be obstructed or
encumbered or used for any purpose other than ingress and egress to and from the
premises demised to any tenant or occupant.
2. No awnings or other projections shall be attached to the outside walls
or windows of the Building without the prior written consent of Landlord. No
curtains, blinds, shades, or screens shall be attached or hung in, or used in
connection with, any window or door of the Premises demised to any tenant or
occupant, without the prior written consent of Landlord, such consent not to be
unreasonably withheld or delayed. Any such awnings, projections, curtains,
blinds, shades, screens, or other fixtures permitted by Landlord must be of a
quality type, design and color, and attached in a manner, approved by Landlord.
3. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed, nor shall any bottles, parcels, or
other articles be placed an any window sills.
4. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors,
vestibules or other parts of the Building.
5. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein.
6. No tenant or occupant shall mark, paint, drill into, or in any way
deface any part of the Building or the premises demised to such tenant or
occupant. No boring, cutting or stringing of wires shall be permitted, except
with the prior written consent of the Landlord, and as Landlord may direct. No
tenant or occupant shall install any resilient tile or similar floor
<PAGE>
covering in the premises demised to such tenant or occupant except in manner
approved by Landlord.
7. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises. Bicycles may be stored in racks, if any,
furnished for such purpose by Landlord in a common area of the Building.
8. Without the prior written consent of Landlord, no space in the
Building shall be used for manufacturing, or for the sale of merchandise, goods,
or property of any kind at auction.
9. No tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with other tenants or occupants of the Building
or neighboring buildings or premises whether by the use of any musical
instrument, radio, television set or other audio device, unmusical noise,
whistling, singing, or in any other way. Nothing shall be thrown out of any
doors or windows.
10. Each tenant must, upon the termination of its tenancy, restore to
Landlord all keys of stores, offices and toilet rooms, either furnished to, or
otherwise procured by such tenant.
11. No tenant shall use or occupy, or permit any portion of the premises
demised to such tenant to be used or occupied, as an office for a public
stenographer or typist, or to a barber or manicure shop, or as an employment
bureau. No tenant or occupant shall engage or pay any employees in the Building,
except these actually working for such tenant or occupant in the Building, nor
advertise for laborers giving an address at the Building.
12. No tenant or occupant shall purchase spring water, ice, food,
beverage, lighting maintenance, cleaning towels, or other like service, from any
company or person not approved by Landlord, such approval not to be unreasonably
withheld.
13. Landlord shall have the right to prohibit any advertising by any
tenant or occupant which, in Landlord's opinion, tends to impair the reputation
of the Buildings or its desirability as
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<PAGE>
a building for offices, and upon notice from Landlord, such tenant occupant
shall refrain from or discontinue such advertising.
14. Landlord reserves the right to exclude from the Building, between the
hours after 6:00 p.m. and before 7:00 a.m. on Business Days (and from 1:00 p.m.
on Saturdays) and all hours on all other days, all persons who do not present a
pass to the Building signed by the Landlord. Landlord will furnish passes to
persons for whom any tenant requests such passes. Each tenant shall be
responsible for all persons for whom it requests such passes and shall be liable
to Landlord for all wrongful acts of such persons.
15. Each tenant, before closing and leaving the premises demised to such
tenant at any time, shall see that all entrance doors are locked and windows
closed.
16. Each tenant shall, at its expenses, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors, and
employees while performing janitorial or other cleaning services and making
repairs or alterations in said premises.
17. No premises shall be used, or permitted to be used, for lodging or
sleeping, or for any immoral or illegal purposes.
18. There shall not be used in the Building, either by any tenant or
occupant or by their agents or contractors, in the delivery or receipt of
merchandise, freight or other matter, any hand trucks or other means of
conveyance except those equipped with rubber tires, rubber side guards and such
other safeguards as Landlord may require.
19. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant and occupant shall cooperate in seeking their prevention.
20. No tenant shall move, or permit to be moved, into or out of the
Building or the premises demised to such tenant, any heavy or bulky matter,
without the specific approval of Landlord. If any such matter requires special
handling, only a person holding a Master Rigger's
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<PAGE>
license shall be employed to perform such special handling. No tenant shall
place, or permit to be placed, on any part of the floor or floors of the
premises demised to such tenant, a load exceeding the floor load per square foot
which such floor was designed to carry and which is allowed by law. Landlord
reserves the right to prescribe the weight and position of safes and other heavy
matter, which must be placed so as to distribute the weight.
21. The requirements of tenants will be attended to only upon application
at the office of the managing agent of the Building. Building employees shall
not be required to perform, and shall not be requested by any tenant or occupant
to perform any work outside of their regular duties, unless under specific
instructions from the office of the managing agent of the Building.
22. Locks to premises shall not be changed or added without permission of
Landlord.
23. Landlord shall have the right to make such further rules and
regulations as it deems reasonably necessary.
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<PAGE>
EXHIBIT C
711 ATLANTIC AVENUE
CLEANING SPECIFICATIONS
Please note: All trash to be transported by trash cart.
Trash bags are not to be left on floor landings.
Lobby and Public Areas
- ----------------------
Daily
-----
1. Pull all trash and replace liners as necessary.
2. Empty and wash all ashtrays.
3. Remove dust from all furniture, window ledges, radiators, coat racks,
artificial plants, paintings and other wall decorations using chemically
treated clothes.
4. Spot wash all woodwork, doors and wall around door frames and light
switches.
5. Vacuum or wipe clean all fabric upholstered furniture.
6. Wash all glass top tables.
7. Wipe down all telephone equipment.
8. Spot clean all glass.
9. Completely clean and polish all hardware.
10. Thoroughly vacuum all carpet including edges.
11. Completely sweep and wash all brick.
12. Clean all elevator tracks, doors, walls, etc,
13. Completely clean and polish all hardware.
14. Spot clean all carpeting.
Weekly
------
1. Completely wash and polish all wood furniture.
2. Dust and clean all baseboards.
3. Completely wash all glass.
<PAGE>
General Office Areas
- --------------------
Daily
-----
1. Empty all trash receptacles and remove collected waste to dumpster. Replace
plastic liners as needed.
2. Dust and spot clean all horizontal surfaces of counter tops, fixtures,
desks, chairs, tables, offices equipment, window sills and blinds,
radiators, partitions, and filing equipment.
3. Damp wipe all telephones.
4. Vacuum clean all traffic lanes and obviously soiled carpeted surfaces.
5. Vacuum clean all exposed carpeted floor surfaces, including edges, corners,
and under easily moved furniture. Inspect carpet for spots and stains, and
remove where possible.
6. Spot clean all interior partition (sidelight) glass, including all office
visual glass panels, all modular furniture Plexiglas panels and entry door
window glass.
Weekly
------
1. Spot clean walls, doors, doorframes, kick and push plates, handles, light
switches, fire hoses and extinguisher cabinets, and any other obviously
soiled surfaces.
2. Dust all pictures, charts and similar wall hangings.
3. Dust mop hard floor surfaces and damp mop any spills or stains.
4. Damp mop and spray buff all hard floor surfaced flooring.
Semi - Annually
---------------
1. Dust and damp wash all ceiling diffusers, grills and surrounding walls and
ceiling.
-2-
<PAGE>
EXHIBIT 10.39
AMENDMENT OF LEASE
------------------
THIS AGREEMENT, made as of the 16 day of July, 1999, by and between EAST
STREET ASSOCIATES, a Massachusetts limited partnership (hereinafter referred to
as "Landlord") and ZEFER CORP., a Delaware corporation (hereinafter referred to
as "Tenant")
W I T N E S S E T H T H A T:
WHEREAS, pursuant to an existing lease agreement between the parties dated
June 17, 1999 (hereinafter referred to as the "Lease"), Landlord has leased to
Tenant certain Premises contained in the Building known and numbered as 711
Atlantic Avenue, Boston, Massachusetts, all as more particularly described and
set forth in the Lease; and
WHEREAS, Landlord and Tenant wish to provide for the expansion of the
Premises, subject to the provisions hereof;
NOW THEREFORE, in consideration of the foregoing recitals and for further
good and valuable consideration, the receipt and adequacy whereof are hereby
acknowledged, Landlord and Tenant do hereby agree as follows:
1. That portion of the fourth (4th) floor of the Building shown on the
plan attached hereto as Exhibit A and made a part hereof and agreed to contain
4,500 square feet of rentable area (hereinafter referred to as the "Expansion
Area") shall be added to the Premises subject to all terms, covenants,
conditions and provisions of the Lease except as otherwise set forth herein.
2. The Commencement Date applicable to the Expansion Area shall be the
date (hereinafter referred to as the "Delivery Date") on which Landlord delivers
possession of said Area to Tenant broom clean and free and clear of other
tenants and occupants, any furniture or other personal property having been
removed. The Term of the Lease with respect to the Expansion Area shall end at
the same time as the Term of the Lease applicable to the remainder of the
Premises.
<PAGE>
3. Subject to Landlord's repair obligations under the Lease, Tenant shall
accept the Expansion Area "as is", in its existing condition as of the Delivery
Date, and all work necessary to prepare the Expansion Area for occupancy shall
be performed by Tenant in accordance with Section 8 and the other applicable
provisions of the Lease.
4. Tenant shall pay to Landlord Basic Rent with respect to the Expansion
Area at the rate of $144,000 per annum, payable in equal monthly installments of
$12,000 each as generally set forth in the Lease. Notwithstanding the foregoing,
no such installments shall be due with respect to the ninety (90) day period
beginning on the Commencement Date applicable to the Expansion Area.
5. The percentage applicable to the calculation of the Operating Cost
Excess and the Tax Excess shall be 5.65% in the case of the Expansion Area.
6. At Landlord's option, electrical energy may be supplied to the
Expansion Area in common with other rentable area in the Building, in which
case, in lieu of purchasing such electrical energy directly from the public
utility company servicing the Building, Tenant shall pay to Landlord, from time
to time upon billing, a proportionate share of all charges for such electrical
energy computed on the basis of the ratio between the rentable area of the
Expansion Area and the rentable area (consistently measured) of the portion of
the Building serviced by the same electrical meter which services the Expansion
Area (hereinafter referred to as the "Service Area"). Such payment shall be
prorated to exclude any period not included within the Term of the Lease
applicable to the Expansion Area and shall be equitably adjusted if any portion
of the Service Area other than the Expansion Area is not occupied at any time
during the relevant billing period. Any electrical energy charges of which
Tenant is obligated to pay a share pursuant to the foregoing provisions shall
not be included as part of Operating Costs.
-2-
<PAGE>
7. Unless the context requires otherwise, the terms used herein shall be
construed in conformity with the definitions set forth in the Lease.
8. Except as herein modified, the Lease is hereby ratified and confirmed.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be
executed under seal as of the day and year first above written.
EAST STREET ASSOCIATES
By [ILLEGIBLE]^^
------------------------------
Its General Partner
-----------------------------
title (duly-authorized)
ZEFER CORP.
By [ILLEGIBLE]^^
------------------------------
Its Vice President, Finance
-----------------------------
title (duly-authorized)
-3-
<PAGE>
EXHIBIT A
---------
[FLOOR PLAN APPEARS HERE]
-4-
<PAGE>
EXHIBIT 10.40
AMENDMENT OF LEASE
------------------
THIS AGREEMENT, made as of the ____ day of September, 1999, by and between
EAST STREET ASSOCIATES, a Massachusetts limited partnership (hereinafter
referred to as "Landlord") and ZEFER CORP., a Delaware corporation (hereinafter
referred to as "Tenant")
W I T N E S S E T H T H A T:
WHEREAS, pursuant to an existing lease agreement between the parties dated
June 17, 1999, as from time to time amended (hereinafter referred to as the
"Lease"), Landlord has leased to Tenant certain Premises contained in the
Building known and numbered as 711 Atlantic Avenue, Boston, Massachusetts, all
as more particularly described and set forth in the Lease; and
WHEREAS, Landlord and Tenant wish to provide for the expansion of the
Premises, subject to the provisions hereof;
NOW THEREFORE, in consideration of the foregoing recitals and for further
good and valuable consideration, the receipt and adequacy whereof are hereby
acknowledged, Landlord and Tenant do hereby agree as follows:
1. That portion of the fourth (4th) floor of the Building shown on the plan
attached hereto as Exhibit A and made a part hereof and agreed to contain 575
square feet of rentable area (hereinafter referred to as the "Expansion Area")
shall be added to the Premises subject to all terms, covenants, conditions and
provisions of the Lease except as otherwise set forth herein.
2. The Commencement Date applicable to the Expansion Area shall be the date
(hereinafter referred to as the "Delivery Date") on which Landlord delivers
possession of said Area to Tenant broom clean and free and clear of other
tenants and occupants, any furniture or other personal property having been
removed. The Term of the Lease with respect to the Expansion Area shall end at
the same time as the Term of the Lease applicable to the remainder of the
Premises.
<PAGE>
3. Subject to Landlord's repair obligations under the Lease, Tenant shall
accept the Expansion Area "as is", in its existing condition as of the Delivery
Date, and all work necessary to prepare the Expansion Area for occupancy
(including without limitation the reconfiguration of demising walls wherever
necessary to separate the Premises from adjoining areas of the Building) shall
be performed by Tenant in accordance with Section 8 and the other applicable
provisions of the Lease.
4. Tenant shall pay to Landlord Basic Rent with respect to the Expansion
Area at the rate of $18,400.08 per annum, payable in equal monthly installments
of $1,533.34 each as generally set forth in the Lease. Notwithstanding the
foregoing, no such installments shall be due with respect to the period prior to
the date on which Basic Rent first becomes payable with respect to the adjoining
portion of the Premises on the fourth (4th) floor of the Building.
5. The percentage applicable to the calculation of the Operating Cost
Excess and the Tax Excess shall be 0.722% in the case of the Expansion Area.
6. At Landlord's option, electrical energy may be supplied to the Expansion
Area in common with other rentable area in the Building, in which case, in lieu
of purchasing such electrical energy directly from the public utility company
servicing the Building, Tenant shall pay to Landlord, from time to time upon
billing, a proportionate share of all charges for such electrical energy
computed on the basis of the ratio between the rentable area of the Expansion
Area and the rentable area (consistently measured) of the portion of the
Building serviced by the same electrical meter which services the Expansion Area
(hereinafter referred to as the "Service Area"). Such payment shall be prorated
to exclude any period not included within the Term of the Lease applicable to
the Expansion Area and shall be equitably adjusted if any portion of the Service
Area other than the Expansion Area is not occupied at any time during the
relevant
-2-
<PAGE>
billing period. Any electrical energy charges of which Tenant is obligated to
pay a share pursuant to the foregoing provisions shall not be included as part
of Operating Costs.
7. Unless the context requires otherwise, the terms used herein shall be
construed in conformity with the definitions set forth in the Lease.
8. Except as herein modified, the Lease is hereby ratified and confirmed.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be
executed under seal as of the day and year first above written.
EAST STREET ASSOCIATES
By _________________________
Its _________________________
title (duly-authorized)
ZEFER CORP.
By _________________________
Its _________________________
title (duly-authorized)
-3-
<PAGE>
EXHIBIT A
---------
[PLAN OF EXPANSION AREA]
<PAGE>
EXHIBIT A
[FLOOR PLAN OF EXPANSION AREA]
<PAGE>
[LETTERHEAD OF ROPES & GRAY APPEARS HERE]
July 30, 1999
MEMORANDUM
TO: Sean Mullaney COPY TO: Rick Lowe (w/enc.)
FROM: Jason Dunn
SUBJECT: Lease for Space in 711 Atlantic Avenue
________________________________________________________________________________
Enclosed is one (1) fully-executed, original copy of the Lease between East
Street Associates and Zefer for the 6th floor of 711 Atlantic Avenue, together
with the Amendment of Lease for certain additional space on the 4th floor of
the building. Also enclosed is a photocopy of the landlord counterpart to the
side letter agreement regarding the security deposit.
Please let me know if you have any questions regarding the enclosed.
<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
January 4, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of Zefer Corp on Forms S-1 filed with the SEC on January 7, 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
January 5, 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> SEP-30-1999
<CASH> 520,946
<SECURITIES> 0
<RECEIVABLES> 10,104,140
<ALLOWANCES> 278,208
<INVENTORY> 0
<CURRENT-ASSETS> 11,510,972
<PP&E> 5,041,041
<DEPRECIATION> 1,131,187
<TOTAL-ASSETS> 45,495,600
<CURRENT-LIABILITIES> 28,233,898
<BONDS> 0
0
18,671,859
<COMMON> 39,745
<OTHER-SE> 4,240,207
<TOTAL-LIABILITY-AND-EQUITY> 45,495,600
<SALES> 0
<TOTAL-REVENUES> 11,973,439
<CGS> 0
<TOTAL-COSTS> 24,969,190
<OTHER-EXPENSES> 5,845
<LOSS-PROVISION> 278,208
<INTEREST-EXPENSE> 1,169,799
<INCOME-PRETAX> (14,150,907)
<INCOME-TAX> 5,760,400
<INCOME-CONTINUING> (12,995,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,390,507)
<EPS-BASIC> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
