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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EXULT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 8742 33-0831076
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
4 PARK PLAZA, SUITE 350
IRVINE, CALIFORNIA 92614
(949) 250-8002
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BRIAN W. COPPLE
VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
EXULT, INC.
4 PARK PLAZA, SUITE 350
IRVINE, CALIFORNIA 92614
(949) 250-8002
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
COPIES TO:
BRUCE R. HALLETT, ESQ.
ELLEN S. BANCROFT, ESQ.
ELIZABETH T. HALL, ESQ.
CHRISTINE P. LE, ESQ.
BROBECK, PHLEGER & HARRISON LLP
38 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
(949) 790-6300
EDWARD SONNENSCHEIN, JR., ESQ.
MARK E. BRUBAKER, ESQ.
LATHAM & WATKINS
633 W. FIFTH STREET, SUITE 4000
LOS ANGELES, CA 90071
(213) 891-8100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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, please 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,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
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Common Stock, $.0001 par value................... $200,000,000 $52,800
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(1) Includes shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o).
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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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,
PRELIMINARY PROSPECTUS DATED MARCH 6, 2000
PROSPECTUS
SHARES
EXULT, INC.
[LOGO]
COMMON STOCK
------------------------
This is Exult, Inc.'s initial public offering of common stock. We are
offering shares. The U.S. underwriters are offering shares
in the U.S. and Canada and the international managers are offering
shares outside the U.S. and Canada.
Currently, no public market exists for our stock. We expect the initial
public offering price to be between $ and $ per share. After the
pricing of the offering, we expect that the shares will be quoted on the Nasdaq
National Market under the symbol "EXLT."
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
------------------------
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PER SHARE TOTAL
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Public offering price.................................. $ $
Underwriting discount.................................. $ $
Proceeds, before expenses, to Exult.................... $ $
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The U.S. underwriters may also purchase up to an additional
shares at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an additional
shares at the public offering price, less the underwriting discount.
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.
The shares will be ready for delivery on or about , 2000.
------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
ROBERTSON STEPHENS
SALOMON SMITH BARNEY
------------------------
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Information Regarding Forward-Looking Statements and
Industry Data............................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Selected Unaudited Pro Forma Condensed Combined Financial
Information............................................... 22
Selected Unaudited Pro Forma Condensed Combined Statement of
Operations Information.................................... 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 32
Management.................................................. 43
Certain Transactions........................................ 54
Principal Stockholders...................................... 56
Description of Capital Stock................................ 58
Shares Eligible for Future Sale............................. 61
Underwriting................................................ 63
Legal Matters............................................... 66
Experts..................................................... 66
Where You Can Find More Information......................... 67
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you different or inconsistent
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information appearing
in this prospectus is accurate as of the date on the front cover of this
prospectus only. Our business, financial condition, results of operations and
prospects may have changed since that date.
2
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PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the consolidated financial
statements and related notes before making an investment decision.
EXULT, INC.
OUR COMPANY
Exult is the first company to offer eHR, a comprehensive, web-enabled
integrated service designed to manage the entire human resources department for
Global 500 corporations. Our objective is to transform these HR departments into
proactive, global, knowledge based organizations through long-term management
contracts. A key component of our eHR solution is myHR, a browser-based,
personalized web portal. We believe myHR will provide a comprehensive source of
data, information and decision support twenty four hours a day, seven days a
week for our clients' employees, managers and annuitants, irrespective of
business unit and location. myHR will interface with various software
applications and business processes over the client's intranets, extranets and
virtual private networks. With myHR we intend to eliminate the numerous
organizational, transactional and communication barriers that exist today
between the employer and employee, and create a dynamic communication exchange
among employees, employer, managers and their peers. We design, implement,
manage and support the web-based systems, processes and personnel for our
clients' entire HR function. In our client service centers, we manage all of our
clients' HR systems and processes, including transaction, production and call
center technologies. By providing one comprehensive solution that integrates all
of the people, processes, technologies and third party vendors, our strategy is
to implement and maintain HR best practices and realize economies of scale in
order to achieve both increased human capital productivity and lower costs for
our clients.
In December 1999, we entered into a multi-year arrangement with BP Amoco
p.l.c. to create a comprehensive eHR services organization and provide a broad
range of human resources management services to BP Amoco and its affiliates. As
the nineteenth largest company in the Global 500, as compiled by Fortune
Magazine's Global 500 List for the Year 2000, BP Amoco currently operates in
more than 40 countries. We are responsible for managing BP Amoco's human
resources operations in the United Kingdom and the United States, which
represents more than 70% of BP Amoco's more than 81,000 employees and an equal
or greater number of annuitants. Our relationship with BP Amoco contemplates
extending the arrangement beyond the U.K. and the U.S. to unite all of BP
Amoco's worldwide operations under one global integrated eHR solution. We
believe our arrangement with BP Amoco represents the largest human resources
process management contract ever signed.
OUR MARKET OPPORTUNITY
Many large corporations have begun to outsource discrete, non-core
functions of their operations, such as payroll and benefits administration, in
order to address many of the problems found in traditional human resources
departments. According to Dataquest, a division of the GartnerGroup, the
worldwide HR outsourcing market is projected to grow from approximately $26.2
billion in 1999 to approximately $76.4 billion in 2004. We believe the market
for comprehensive HR outsourcing, which we are targeting, is newly emerging and
the fastest growing segment of the worldwide HR outsourcing market. Dataquest
estimates the market for integrated, multi-process HR outsourcing will grow from
over $900 million in 1999 to more than $12 billion by 2003 in the U.S. alone.
The introduction and widespread use of the Internet has made our
comprehensive service delivery model possible. The Hunter Group estimates that
by using the functionality of the Internet to move HR delivery to a largely
self-service mode, organizations can achieve cost reductions of approximately
25% to 30%. To date, however, HR organizations have not been able to realize the
power of the Internet because no mechanism currently exists to centralize or
organize the large amount of information and electronic transmissions within the
HR organization. Accordingly, the Internet's use in HR departments has been
largely limited to one-on-one e-mail communications or process-specific
intranets.
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THE EXULT SOLUTION
We intend to leverage the power of the Internet with myHR in order to
facilitate communications throughout our clients' organizations, standardize our
clients' HR processes and promote access to the wealth of information embodied
in the human resources processes. Our client service centers will also provide
personalized support, enabling employees to access assistance and information
using a variety of methods. We believe that myHR, together with our
comprehensive consulting services and shared resources, will enable us to
develop, refine and implement HR best practices and realize economies of scale
in order to achieve both increased human capital productivity and lower costs
for our clients.
EXULT'S STRATEGY
Our objective is to become the leading provider of comprehensive HR
solutions for large, multinational corporations. The following are the key
elements of our strategy:
- Leverage technology and the Internet for enhanced HR performance;
- Establish myHR as an integral tool in the workplace;
- Establish long-term client relationships;
- Utilize and leverage shared resources;
- Attract and retain leading HR talent;
- Facilitate strategic decision making; and
- Focus on Global 500 corporations.
We were incorporated in Delaware as BPO-US, Inc. in October 1998. In August
1999, we changed our name to Exult, Inc. Our executive offices are located at 4
Park Plaza, Suite 350, Irvine, California 92614, and our telephone number is
(949) 250-8002.
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THE OFFERING
Common stock offered by Exult....... shares
Shares to be outstanding after this
offering............................ shares
Use of proceeds..................... For working capital and other general
corporate purposes, including the
expansion of our client service
centers, our technology infrastructure
and our sales and marketing
capabilities, for acquisitions of
complementary businesses, technologies
and strategic relationships, and for
the repayment of outstanding
indebtedness. See "Use of Proceeds."
Risk factors........................ See "Risk Factors" and other
information included in this prospectus
for a discussion of factors you should
carefully consider before deciding to
invest in shares of the common stock.
Proposed Nasdaq National Market
symbol.............................. EXLT
The number of shares of common stock outstanding after this offering is
based on 78,526,140 shares outstanding as of March 1, 2000, and does not include
10,740,027 shares of common stock issuable upon the exercise of options
outstanding as of March 1, 2000 at a weighted average exercise price of $1.50
per share, or warrants outstanding as of March 1, 2000 to purchase a total of
968,195 shares of common stock at a weighted average exercise price of $1.27 per
share.
---------------------
Unless otherwise indicated, all information in this prospectus gives effect
to the five-for-one stock split of our common stock effected in February 2000
and assumes that:
- the initial public offering price will be $ per share;
- the holders of warrants to purchase an aggregate of 667,844 shares of
Series C preferred stock and 3,339,220 shares of common stock exercised
all of their warrants on March 1, 2000;
- all outstanding shares of convertible preferred stock will be converted
into an aggregate of 65,484,785 shares of our common stock upon the
closing of this offering; and
- the underwriters will not exercise their over-allotment option and no
other person will exercise any other outstanding options or warrants.
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The summary consolidated financial information below should be read
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and the related notes
included elsewhere in this prospectus. The pro forma combined consolidated
statement of operations data for the year ended December 31, 1999, shows our pro
forma results of operations as of January 1, 1999, to reflect our acquisition of
certain assets of Gunn Partners, Inc., the issuance of 385,805 shares of Series
C preferred stock and 6,885,480 shares of Series D preferred stock, the exercise
of warrants to purchase an aggregate of 3,339,220 shares of common stock and
667,884 shares of Series C preferred stock, the conversion of all outstanding
preferred stock into 65,484,785 shares of common stock and the exercise of
options to purchase 267,835 shares of common stock.
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<CAPTION>
OCTOBER 29, 1998 PRO FORMA COMBINED
(INCEPTION) TO YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1999
----------------- ----------------- ------------------
(UNAUDITED)
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CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue.................................. $ -- $ 4,857 $ 15,891
Gross profit............................. -- 359 1,424
Loss from operations..................... (187) (15,276) (18,879)
Net loss................................. (184) (15,013) (18,608)
Net loss per share:
Basic and diluted...................... $(140.48) $ (2.17) $ (0.24)
Weighted average number of common shares
outstanding:
Basic and diluted...................... 1,307 6,906,334 75,998,174
</TABLE>
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DECEMBER 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ----------- -----------
(UNAUDITED) (UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $39,199 $115,467
Working capital.......................................... 31,957 108,225
Total assets............................................. 58,767 135,035
Long-term obligations, net of current portion............ 4,304 4,304
Convertible preferred stock.............................. 58,768 --
Total stockholders' equity............................... 46,110 122,378
</TABLE>
Please refer to note 2 and note 10 of notes to our consolidated financial
statements for information regarding the method used to compute our basic and
diluted net loss per share and our basic and diluted weighted average shares
outstanding. Our pro forma calculations give effect to the issuance of our
convertible preferred stock, the exercise of options to purchase 267,835 shares
of common stock and the conversion of our convertible preferred stock into
common stock upon consummation of this offering. Our pro forma as adjusted
calculations give effect to the conversion of our convertible preferred stock
and the receipt and application of the estimated net proceeds from the sale of
the shares offered by this prospectus. For more information regarding our
use of the proceeds from this offering, see "Use of Proceeds."
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RISK FACTORS
You should consider carefully the following risks before you decide to buy
our common stock. Additional risks and uncertainties not presently known to us
or that we currently believe are not important may also impair our business
operations. If any of the following risks actually occurs, our business,
financial condition or results of operations could be materially adversely
affected, the value of our common stock could decline, and you may lose all or
part of your investment.
OUR COMPANY AND ITS PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE WE HAVE AN
EXTREMELY LIMITED OPERATING HISTORY AND OUR BUSINESS MODEL IS UNPROVEN.
We entered into our first process management contract in December 1999, and
we are still at an early stage of implementing all three of our process
management contracts. As such, our business model is unproven. Our success
depends on our ability to develop and implement a high quality, cost-effective
services offering and produce satisfactory results for our clients. We have not
been in operation long enough to judge whether we can accomplish these
objectives, or whether our clients will perceive our services as beneficial.
Accordingly, our revenue and income potential and future operating results are
uncertain.
WE OPERATE IN A NEW AND EVOLVING MARKET WITH UNCERTAIN PROSPECTS FOR GROWTH.
Our growth depends on the willingness of businesses to outsource management
of their human resources functions, and our ability to market our services
effectively. Our business model is based on managing most or all of our clients'
HR processes. The market for this service is new and subject to substantial
uncertainty. Some potential clients might not recognize the benefits of our eHR
process management solution, or may decide that the human resources function is
too important to entrust to a third party. Potential clients and their employees
may also resist transitioning HR functions to an Internet-based service. We
cannot assure you that the market for our services will develop, that our
services will be adopted, or that our clients will use these Internet-based
services in the degree or manner that we expect. If we are unable to react
quickly to changes in the market, if the market fails to develop, or develops
more slowly than expected, or if our services do not achieve market acceptance,
then we are unlikely to become or remain profitable.
OUR SUCCESS DEPENDS UPON THE SUCCESSFUL COMPLETION OF OUR CONTRACT WITH BP AMOCO
AND OTHER EARLY CONTRACTS.
BP Amoco is the first client for which we are offering a comprehensive eHR
solution. This contract is still at a very early stage and our service offering
is not yet fully developed. As such, we believe our ability to secure future
clients and revenues will be largely dependent upon our ability to manage and
administer BP Amoco's HR processes effectively and efficiently, and achieve the
contracted service levels and cost savings. BP Amoco can terminate the
arrangement for material breach or significant and repeated performance
failures. In addition, from December 2002, BP Amoco may terminate the
arrangement with 12 months advance notice together with, for any termination
occurring between December 2002 and December 2004, termination payments designed
to defray our costs and give us a specified return on our investment in the
contract. If BP Amoco were to substantially reduce or stop using our services,
our reputation and future revenues would be seriously impaired. We expect to
face similar risks with other significant clients until our business model and
service offering are firmly established.
Although our arrangement with BP Amoco contemplates that we manage their HR
processes worldwide, and we have a first right to provide human resources
management services to BP Amoco in each country in which they have operations,
our current contract covers only the United Kingdom and the United States. BP
Amoco is not obligated to add additional countries and we must demonstrate our
ability to meet their service needs and provide specified cost savings in other
countries to expand the arrangement. We have no experience operating in foreign
countries and we might not be able to manage BP Amoco's HR needs on a global
basis.
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OUR EHR SOLUTION DEPENDS ON MYHR, WHICH IS AT AN EARLY STAGE OF DEVELOPMENT.
We expect our clients' employees to access our web-enabled eHR solution
through myHR, our human resources portal. myHR is still at an early stage of
development and has not yet been implemented. The system is complex and we do
not expect to deploy the first release of myHR with limited features until the
second quarter of 2000, with greater functionality to be added in subsequent
releases. Application of myHR to BP Amoco and other clients will require
integration of many independent programs and complex functions, and we will need
to continue to revise and adapt the program. If we fail to develop myHR in
accordance with the specifications and delivery milestones agreed upon by us and
BP Amoco or other clients, or if we are unable to achieve the functionality we
expect, our ability to deliver our services and achieve our business objectives
in general could be seriously impeded.
CAPACITY CONSTRAINTS AND THE LENGTH OF OUR NEW CLIENT SALES AND INTEGRATION
CYCLES WILL LIMIT OUR REVENUE GROWTH.
We expect most of our revenue growth to come from new client engagements.
However, because we are a new company and are still creating the components of
our service offering, we plan to limit the number of additional client
engagements we accept over the near term. This strategy may negatively affect
our revenue growth until we have developed our solution to the point that it can
be extended more rapidly across a greater number of clients.
Our client contracts involve significant commitments and cannot be made
without a lengthy, mutual due diligence process during which we identify the
potential client's service needs and costs, and our ability to meet those needs
and provide specified cost savings. We must devote significant management time
and other resources to each due diligence process over a period of four to six
months or more, and we can conduct at most only a few of these due diligence
undertakings at one time. This lengthy diligence process limits our revenue
growth, and it is possible that any potential client due diligence process could
result in a decision by us or the potential client not to enter into a contract
after we have made significant investments in time and resources. Although in
the past our clients have committed to reimburse us for our due diligence costs
if we do not reach a contract, we may not recover these costs in the future.
After a new client contract is signed, we convert the client's HR processes
to our systems and infrastructure in stages. This transition period can take up
to a year or more and may involve unanticipated difficulties and delays. Our
pricing model involves guaranteed reductions in the client's HR costs, and we
cannot realize the full efficiencies of providing services to the client through
our infrastructure until this transition is complete. Therefore, any increase in
our earnings that could be expected from our BP Amoco agreements or any new
contract will be delayed for at least several months after the contract is
signed, and it could take a significant amount of time for our BP Amoco
agreements or any new contract to contribute significantly to profits or cash
flow. We attempt to negotiate long-term contracts in order that we may have time
to complete the transition and earn a profit, but if implementation of our
service model is delayed, or if we do not meet our service commitments under any
particular contract and the client terminates our engagement early as a result,
we might experience no return on our substantial investment of time and
resources in that client.
WE EXPECT TO CONTINUE TO INCUR SIGNIFICANT NET OPERATING LOSSES AND WE MAY NEED
TO RAISE ADDITIONAL CAPITAL. EITHER COULD ADVERSELY AFFECT THE VALUE OF YOUR
INVESTMENT.
Starting up our company and building our infrastructure is expensive. Since
our formation, we have not had a profitable quarter. We incurred a net loss of
$15.0 million for the year ended December 31, 1999 and used cash of $7.6 million
in operating activities and $9.6 million in investing activities for the same
period. We expect to continue to make significant and increasing investments in
the development of our eHR solution, client service centers, and web
technologies, and the expansion of our sales and marketing capabilities and the
procurement of additional contracts. We may also need cash to make acquisitions
and develop new service offerings and technologies. As a result, we will need to
generate significant revenues to achieve profitability. We cannot assure you
that we will ever operate profitably, or that we can sustain or increase
profitability on a quarterly or annual basis in the future.
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As we do not expect our operating income to cover our cash needs for some
time, we may need to raise additional funds through public or private debt or
equity financings. Any additional capital raised through the sale of equity may
dilute your ownership interest in us. We cannot assure you that we will be able
to raise additional funds on favorable terms, or at all. If we are unable to
obtain additional funds, we may be unable to fund our operations.
WE MAY NOT BE ABLE TO ACHIEVE THE COST SAVINGS WE HAVE PROMISED OUR CLIENTS,
WHICH COULD AFFECT OUR ABILITY TO BECOME OR REMAIN PROFITABLE.
We provide our services for fixed fees that are generally equal to or less
than our clients' historical costs to provide the services we are assuming. As a
result, our profitability will depend on our ability to provide services
cost-effectively. Achieving the efficiency we need depends upon our ability to
develop our eHR solution into a standardized management system that can be
operated from our client services centers and extended to multiple clients with
only minimal client specific adaptation and modification. The actual cost
reductions we are able to achieve will vary by client for a variety of reasons,
including the scope of services we agree to provide, the existing state of our
clients' HR department and processes, and our ability to standardize,
centralize, and simplify their processes, notwithstanding the complexity of
their existing systems and potential resistance by some parts of the client
organization to change. If we miscalculate the resources or time we need to
perform under any of our contracts, the costs of providing our services could
exceed the fees we receive from our clients, and we would lose money. Our
contracts also generally contain certain minimum service level or cost savings
requirements that we must meet. If we are not able to meet these requirements,
we may be obligated to issue credits to our clients against future payments to
us. If we breach a contract in a material way or repeatedly fail to perform, our
client can terminate the contract.
OUR GROWTH STRATEGY WILL FAIL IF WE ARE UNABLE TO HIRE, ASSIMILATE AND RETAIN
LARGE NUMBERS OF NEW EMPLOYEES, OPEN NEW CLIENT SERVICE CENTERS, ASSIMILATE OUR
CLIENTS' PERSONNEL AND SYSTEMS, AND EXPAND OUR OWN SYSTEMS AND CONTROLS.
To become profitable, we must extend our service model across many client
organizations. Our ability to gain critical mass in the size and breadth of our
operations and to manage rapid growth will be key to achieving economies of
scale. Our ability to achieve rapid growth depends upon the following essential
elements:
- We must be able to hire, train and retain large numbers of human
resources specialists, web and Internet technologists and programmers,
business development and process management specialists and technical and
customer support personnel. The market for these personnel is competitive
and we may not be able to retain all of our senior executives and other
key personnel. Even if we can attract and retain such employees the cost
of doing so may adversely affect our operating margins.
- We must open client service centers in new geographic locations to
accommodate new and existing clients. We currently have only one
operational client service center near Houston in The Woodlands, Texas
and we plan to open a second center in Glasgow, Scotland by mid to late
2000. We must devote substantial financial and management resources to
launch and operate these centers successfully, and we may not select
appropriate locations for these centers, open them in time to meet our
client service commitments, or manage them profitably.
- As we assume the responsibility for the existing HR departments of our
clients, we must be able to assimilate HR personnel from these clients
and integrate disparate systems, procedures, controls and
infrastructures.
- We will need to improve our financial and management controls, reporting
systems and operating systems to accommodate growth. If we do not manage
growth effectively, our ability to perform our
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existing contracts successfully may be jeopardized, our ability to handle
new clients and contracts will be limited, and our reputation may be
harmed.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE.
Our quarterly operating results have varied in the past and are likely to
vary significantly in the future. It is possible that in some future quarter or
quarters our operating results will be below the expectations of public market
analysts or investors. If so, the market price of our common stock may decline
significantly. Factors that may cause our results to fluctuate include:
- the growth of the market for our HR services and our ability to obtain
new client contracts;
- our ability to execute on client contracts;
- the length of the sales and integration cycle for our new clients;
- cancellations or reductions in the scope of our contracts;
- our ability to develop and implement additional service offerings and
technologies;
- delays in building client service centers;
- the introduction of comprehensive HR services by our competitors;
- changes in our pricing policies or those of our competitors;
- our ability to manage costs, including personnel costs and support
services costs; and
- the timing and cost of anticipated openings or expansions of new client
service centers.
IF OUR SINGLE CLIENT SERVICE CENTER IS DAMAGED OR EXPERIENCES A SYSTEMS OR
EQUIPMENT FAILURE OUR OPERATIONS AND OUR REPUTATION COULD BE ADVERSELY AFFECTED.
Our business could be interrupted by damage to our client service center,
computer and telecommunications equipment and software systems from fire, power
loss, hardware or software malfunctions, penetration by computer hackers,
computer viruses, natural disasters and other causes. Our clients' businesses
may be harmed by any system or equipment failure we experience. In either event,
our relationship with our clients may be adversely affected, we may lose
clients, our ability to attract new clients may be adversely affected and we
could be exposed to liability. At present, we have only one operational client
service center, and we cannot be certain when future client service centers will
be completed, or whether we will be able to route calls and other operations
from one center to another in the event service is disrupted at any one
facility. In addition, in the event of widespread damage or failures at our
facilities, we cannot guarantee that the disaster recovery plans we have in
place will protect our business.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.
Our business strategy requires us to expand internationally as we broaden
the geographic scope of services we deliver to BP Amoco from its U.S. operations
to its foreign operations and as we take on additional large, multinational
clients. For example, we expect to open a new client service center in Glasgow,
Scotland in mid to late 2000. We will face risks in doing business abroad that
include the following:
- changing regulatory requirements;
- legal uncertainty regarding foreign laws, tariffs and other trade
barriers;
- political instability;
- international currency issues, including fluctuations in currency
exchange rates and the proposed conversion to the euro by countries in
the European Union;
10
<PAGE> 12
- cultural differences;
- designing and operating web sites in numerous foreign languages; and
- differing technology standards and Internet regulations that may affect
access to and operation of our web sites and our clients' web sites.
WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL WHO HAVE RECENTLY JOINED OUR
COMPANY AND WHO WE MAY NOT BE ABLE TO RETAIN.
All of our senior management, including our President and Chief Executive
Officer, Chief Financial Officer and Chief Operating Officer, joined Exult in
late 1998 and 1999. In addition, due to the competitive nature of our industry,
we may not be able to retain all of our senior managers. If one or more members
of our senior management team were unable or unwilling to continue in their
present positions, such persons would be difficult to replace and our business
could be harmed.
A BREACH OF OUR SECURITY MEASURES FOR TRANSMISSIONS OVER THE INTERNET COULD
REDUCE DEMAND FOR OUR SERVICES.
Our business involves the use of public networks to transmit and store
extremely confidential information about our clients and their employees, such
as compensation, medical information and social security numbers. We may be
required to expend significant capital and other resources to us address
security breaches. Security breaches could disrupt our operations, damage our
reputation and expose us to litigation and possible liability. We cannot assure
you that our security measures will adequately protect us against security
breaches.
THE MARKET FOR OUR SERVICES AND OUR REVENUE GROWTH DEPENDS ON OUR ABILITY TO USE
THE INTERNET AS A MEANS OF DELIVERING HUMAN RESOURCES SERVICES.
We rely on the Internet as a key mechanism for delivering our services to
our clients and achieving efficiencies in our service model. Our target clients
may not be receptive to human resources services delivered over the Internet
because of concerns over transaction security, user privacy, the reliability and
quality of Internet service and other reasons. In addition, the Internet has
experienced, and is expected to continue to experience, significant growth in
the number of users and volume of traffic. As a result, its performance and
reliability may decline. In addition, web sites and proprietary online services
have experienced interruptions in their service as a result of outages and other
delays occurring throughout their infrastructure. If these outages or delays
frequently occur in the future, Internet usage as a medium for the exchange of
information could grow more slowly or decline and the Internet might not
adequately support our eHR service model. If we cannot use the Internet
effectively to deliver our services, our revenue growth and results of
operations will be impaired.
OUR OPERATING RESULTS COULD BE IMPAIRED IF WE BECOME SUBJECT TO BURDENSOME
GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES CONCERNING THE INTERNET.
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted with respect to the
Internet, relating to:
- user privacy;
- pricing, usage fees and taxes;
- content;
11
<PAGE> 13
- distribution; and
- characteristics and quality of products and services.
The adoption of any additional laws or regulations may decrease the
popularity or impede the expansion of the Internet and could seriously harm our
business. A decline in the popularity and growth of the Internet could decrease
demand for our services. Moreover, the applicability of existing laws to the
Internet is uncertain with regard to many important issues, including property
ownership, intellectual property, export of encryption technology, libel and
personal privacy. The application of laws and regulations from jurisdictions
whose laws do not currently apply to our business, or the application of
existing laws and regulations to the Internet and other online services, could
also harm our business.
WE RELY HEAVILY ON OUR COMPUTING AND COMMUNICATIONS INFRASTRUCTURE, AND THE
FAILURE TO KEEP PACE WITH CHANGING TECHNOLOGIES COULD DISRUPT THE OPERATION AND
GROWTH OF OUR BUSINESS AND RESULT IN THE LOSS OF CLIENTS.
Our success depends on our sophisticated computer, Internet and
telecommunications systems. We have invested significantly in our technological
infrastructure and anticipate that it will be necessary to continue to do so in
the future to remain competitive. These technologies are evolving rapidly and
are characterized by short product life cycles, which require us to anticipate
technological changes or developments. Our success in delivering services
cost-effectively and creating processes that are consistent with HR best
practices for our clients depends, in part, on our ability to adapt our
processes to incorporate new and improved software applications. We currently
use software programs in most of our HR processes. Our inability to anticipate
and respond quickly and cost-effectively to changing software and communications
technologies and devices could make our existing service offerings
non-competitive and may cause us to lose market share. For example, if the
Internet is rendered obsolete or less important by faster, more efficient
technologies, we must be prepared to offer better alternatives or risk losing
current and potential clients. Keeping our technology current will require
substantial time and expense, and even then we may fail to adapt our business to
technological developments. If we fail to adapt to technological developments,
our clients may experience service implementation delays or our services may not
be comprehensive or in conformance with HR best practices.
WE RELY ON THIRD PARTY VENDORS FOR SOFTWARE AND SPECIALIZED HUMAN RESOURCES
FUNCTIONS. IF THEIR PRODUCTS AND SERVICES ARE NOT AVAILABLE OR ARE INADEQUATE,
OUR BUSINESS COULD BE SERIOUSLY HARMED.
Our HR processes incorporate and rely on software owned by third parties
that we license directly or use through existing license arrangements between
our clients and the vendor. If these vendors change or cancel a product we are
using or if these agreements are terminated or not renewed, we might have to
delay or discontinue services until equivalent technology could be found,
licensed and installed.
We depend on third parties to provide a number of specialized human
resources services for our clients, such as benefits administration and
relocation services. Under the terms of our outsourcing service contracts, we
agree to manage these third party vendors and remain fully accountable for their
costs and services. If these third party vendors are not willing to provide
these services to us at competitive rates and we are unable to provide these
services ourselves or find suitable substitute providers when necessary, our
operating results could be seriously harmed because we may not be able to adjust
our fixed-fee contracts with our clients to offset an increase in the cost of
these specialized services to us. If our clients are not satisfied with the
services provided by these third parties, and these services relate to a key
performance indicator in a client contract, we may be required to pay penalties
to our clients for failure to meet minimum service level requirements and our
failure to achieve the key performance indicator could result in the termination
of our contract and our business would be seriously harmed.
12
<PAGE> 14
THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE AND OUR COMPETITORS MAY HAVE MUCH
GREATER RESOURCES TO COMMIT TO GROWTH, NEW TECHNOLOGY OR MARKETING.
Our current and potential competitors include in-house HR departments of
large, multinational corporations, as well as other third parties that provide
discrete HR and IT functions, including consulting firms, information technology
outsourcers, and transaction processors such as payroll or benefits
administrators. It is possible that these third party vendors could persuade
potential clients not to entrust one company to undertake such a comprehensive
process. In addition, we expect that the predicted growth of the HR outsourcing
market will attract other consulting firms or transaction providers to try to
assume responsibility for broad integration of HR processes.
Several of our competitors have substantially greater financial, technical
and marketing resources, larger customer bases, greater name recognition and
more established relationships with their customers and key product and service
suppliers than we do. Our competitors may be able to:
- develop and expand their delivery infrastructure and service offerings
more quickly;
- adapt better to new or emerging technologies and changing client needs;
- take advantage of acquisitions and other opportunities more readily;
- devote greater resources to the marketing and sale of their services; and
- adopt more aggressive pricing policies.
Some of our competitors may also be able to provide clients with additional
benefits at lower overall costs. In addition, we believe it is likely that there
will be future consolidation in our market, which could increase competition in
ways that may adversely affect our business, results of operations and financial
condition.
WE MAY UNDERTAKE ADDITIONAL ACQUISITIONS WHICH MAY LIMIT OUR ABILITY TO MANAGE
AND MAINTAIN OUR BUSINESS, MAY RESULT IN ADVERSE ACCOUNTING TREATMENT AND MAY BE
DIFFICULT TO INTEGRATE INTO OUR BUSINESS.
During the fourth quarter of 1999, we acquired certain assets of Gunn
Partners and Pactiv Corporation. We plan to pursue additional acquisitions in
the future, which could subject us to a number of risks, including:
- diversions of management attention;
- amortization of substantial goodwill, adversely affecting our reported
results of operations;
- inability to retain the management, key personnel and other employees of
the acquired business;
- inability to establish uniform standards, controls, procedures and
policies;
- inability to retain the acquired company's customers;
- exposure to legal claims for activities of the acquired business prior to
acquisition; and
- inability to integrate the acquired company and its employees into our
organization effectively.
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 BUSINESS AND SERVICES ARE SUBJECT TO RISKS RELATED TO THE YEAR 2000 PROBLEM.
Many existing computer systems and software products are coded to accept
only two digit entries in the date code filed and cannot distinguish 21st
century dates from 20th century dates. If these systems have not been properly
corrected, there could be system failures or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in normal business activities. As a
result, many companies' software and computer systems may need to be upgraded or
replaced to become Year 2000 compliant. In addition, despite the fact that many
13
<PAGE> 15
computer systems are currently processing 21st century dates correctly, these
companies, including us, could experience latent Year 2000 problems.
We use and depend on third party equipment and software that may not be
Year 2000 compliant. If Year 2000 issues prevent our clients or their employees
from accessing myHR through the Internet, or if such issues disrupt
communication at our client service centers, our business and operations will
suffer. Any failure of our third party equipment, software or services to
operate properly could require us to incur unanticipated expenses which could
seriously harm our business and operating results. Our failure to make our web
sites, network infrastructure and transaction processing systems Year 2000
compliant could result in:
- a disruption in our ability to deliver reliable, comprehensive HR
services;
- an increase in our allocation of resources to address Year 2000 problems
without additional revenue equal to this dedication of resources; and
- an increase in litigation costs relating to losses suffered by our
customers due to Year 2000 problems.
For more information on our Year 2000 issues, you should read the
discussion in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 Compliance" section of this prospectus.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR FACE A CLAIM OF
INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE MAY LOSE OUR
INTELLECTUAL PROPERTY RIGHTS AND BE LIABLE FOR SIGNIFICANT DAMAGES.
We may not be able to detect or deter unauthorized use of our intellectual
property. If third parties infringe or misappropriate our trade secrets,
copyrights, trademarks, service marks, trade names or other proprietary
information, our business model could be seriously harmed. In addition, although
we believe that our proprietary rights do not infringe the intellectual property
rights of others, other parties may assert infringement claims against us that
we violated their intellectual property rights. These claims, even if not true,
could result in significant legal and other costs and may be a distraction to
management. In addition, protection of intellectual property in many foreign
countries is weaker and less reliable than in the United States, so if our
business expands into foreign countries, risks associated with protecting our
intellectual property will increase.
OUR EXECUTIVE OFFICERS, DIRECTORS AND THEIR AFFILIATES WILL OWN % OF OUR STOCK
AFTER THIS OFFERING AND CAN SIGNIFICANTLY INFLUENCE ALL MATTERS REQUIRING
STOCKHOLDER APPROVAL; THEIR INTERESTS MAY BE DIFFERENT FROM AND CONFLICT WITH
YOURS.
After this offering, our executive officers, directors and their respective
affiliates will beneficially own approximately % of our outstanding common
stock. As a result, these stockholders, acting together, will have the ability
to control matters requiring stockholder approval, including the election of
directors and mergers, consolidations and sales of all or substantially all of
our assets. These stockholders may have interests that differ from yours and
they may approve actions that you vote against or reject actions that you have
voted to approve. In addition, this concentration of ownership may also have the
effect of preventing or discouraging or deferring a change in control of Exult,
which, in turn, could depress the market price of our common stock.
OUR MANAGEMENT HAS BROAD DISCRETION OVER USE OF PROCEEDS FROM THIS OFFERING AND
MAY USE THE PROCEEDS IN WAYS WITH WHICH YOU DO NOT AGREE.
We estimate the net proceeds of this offering to be approximately
$ after deducting the underwriting discount and estimated offering
expenses. Our management will retain broad discretion to allocate the proceeds
of this offering and the failure of management to apply these funds effectively
could materially harm our results of operations.
14
<PAGE> 16
AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP OR BE SUSTAINED,
AND THE MARKET PRICE OF OUR COMMON STOCK MAY FALL BELOW THE INITIAL PUBLIC
OFFERING PRICE.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering, and the market price might fall below the initial
public offering price. The initial public offering price may bear no
relationship to, and may be higher than, the price at which our common stock
will trade upon completion of this offering. The initial public offering price
will be determined by negotiations between us and the representatives of the
underwriters based on factors that may not be indicative of future performance.
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE, WHICH MAY MAKE US A TARGET OF
SECURITIES CLASS ACTION LITIGATION.
Following this offering, the price at which our common stock will trade is
likely to be highly volatile and may fluctuate substantially. The market prices
for stocks of Internet-related and technology companies, particularly following
an initial public offering, may increase to levels that bear no relationship to
the operating performance of those companies. Such market prices may not be
sustainable. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have affected the market prices
for the securities of technology and Internet-related companies. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation was often brought against the
company. Many technology-related companies have been subject to this type of
litigation. Securities litigation could result in substantial costs and divert
our management's attentions and resources.
SUBSTANTIAL SALES OF OUR COMMON STOCK BY OUR EXISTING INVESTORS FOLLOWING THIS
OFFERING COULD CAUSE OUR STOCK PRICE TO DECLINE.
The market price of our common stock could decline after this offering as a
result of sales by our existing stockholders of their shares of common stock in
the market or the perception that these sales could occur. These sales also
might make it more difficult for us to sell securities in the future at a time
and at a price that we deem appropriate. For a description of the shares of our
common stock of our common stock that are available for future sale, see "Shares
Eligible for Future Sale."
OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD DETER A TAKEOVER EFFORT, WHICH
COULD INHIBIT YOUR ABILITY TO RECEIVE AN ACQUISITION PREMIUM FOR YOUR SHARES.
Provisions of our certificate of incorporation and bylaws, including those
that provide for a classified board of directors, authorized but unissued shares
of common and preferred stock and notice requirements for stockholder meetings,
and Delaware law regarding the ability to conduct specific types of mergers
within specified time periods, could make it more difficult for a third party to
acquire us, even if doing so would provide our stockholders with a premium to
the market price of their common stock. A classified board of directors may
inhibit acquisitions in general, and a tender offer not endorsed by our board in
particular, since only one-third of our directors are reelected annually,
thereby requiring two annual meetings before a majority of our directors could
be replaced. The authorization of undesignated preferred stock gives our board
the ability to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of the company.
If a change in control or change in management is delayed or prevented, the
market price of our common stock could decline.
15
<PAGE> 17
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "may," "will," "should,"
"predict," "continue," "expects," "anticipates," "estimates," "intends" and
similar expressions are intended to identify forward looking statements. These
statements include, but are not limited to, statements under the captions "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
prospectus concerning, among other things:
- our ability to successfully implement a comprehensive eHR solution for BP
Amoco;
- our ability to complete development of myHR;
- our ability to obtain other comprehensive process management contracts;
- our ability to expand our centers of expertise; and
- our ability to establish new client service centers in Glasgow, Scotland
and in future locations.
These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those projected. The
cautionary statements made in this prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
prospectus. These statements are only predictions. We cannot guarantee future
results, levels of activity, performance or achievements. We assume no
obligation to publicly update or revise these forward-looking statements for any
reason, or to update the reasons actual results could differ materially from
those anticipated in these forward-looking statements, even if new information
becomes available in the future.
This prospectus contains estimates of market size and growth related to the
human resources business process outsourcing market, the use of the Internet,
the Global 500 and other industry data. These estimates have been included in
studies published by Dataquest, a division of GartnerGroup, International Data
Corporation, The Hunter Group and Fortune Magazine. These estimates contain
certain assumptions regarding current and future events, trends and activities.
Although we believe that these estimates are generally indicative of the matters
reflected in those studies, these estimates are inherently imprecise, and we
caution you to read these estimates in conjunction with the rest of the
disclosure in this prospectus, particularly the "Risk Factors" section.
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds from the sale of the shares of common stock sold
by us in this offering will be approximately $ million, or approximately
$ million if the underwriters' over-allotment option is exercised, based on
an assumed initial public offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.
At this time, the principal purposes of this offering are to obtain
additional capital, to increase our financial flexibility and to create a public
market for our common stock. We presently intend to use a portion of the net
proceeds of this offering for general corporate purposes, including the creation
of new and expansion of existing client service centers and the expansion of our
technology infrastructure and our sales and marketing capabilities. We may also
use an unspecified portion of the net proceeds of this offering to acquire or
invest in complementary businesses, services or technologies and to repay
outstanding indebtedness. Our acquisitions may include certain facilities or
other assets from our clients as we assume their HR processes. From time to
time, in the ordinary course of business, we expect to evaluate potential
acquisitions of these businesses, assets, services or technologies. At this
time, however, we do not have any present understandings, commitments or
agreements with respect to any material acquisition.
We have no specific plans at this time for use of the remaining proceeds
and expect to use these proceeds for working capital and general corporate
purposes. Our management will have broad discretion concerning the allocation
and use of a significant portion of the net proceeds of this offering. Pending
the use of the net proceeds of this offering, we intend to invest these proceeds
in short-term, investment grade, interest bearing securities.
The foregoing represents our best estimate of the allocation of the net
proceeds from the sale of the common stock offered by this prospectus, based
upon the current state of our business operations, our current plans for
expansion and the current economic and industry conditions. The net proceeds are
subject to reallocation among the categories stated above. The amount or timing
of our actual expenditures will depend on numerous factors, including our
profitability, the availability of alternative financing, our business
development activities and competition.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings to finance the growth and
development of our business. Therefore, we do not anticipate that we will
declare or pay any cash dividends on our common stock in the foreseeable future.
Any future determination to pay cash dividends will be at the discretion of our
Board of Directors and will be dependent upon our financial condition, results
of operations, capital requirements, restrictions under any existing
indebtedness and other factors the Board of Directors deems relevant.
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<PAGE> 19
CAPITALIZATION
The following table indicates our cash and cash equivalents and
capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect; the issuance of 385,805 shares of Series
C preferred stock and 6,885,480 shares of Series D preferred stock; the
exercise of warrants to purchase an aggregate of 3,339,220 shares of
common stock and 667,884 shares of Series C preferred stock; the
conversion of all outstanding preferred stock into 65,484,785 shares of
common stock; and the exercise of options to purchase 267,835 shares of
common stock in February 2000;
- on a pro forma as adjusted basis to reflect the foregoing issuances and
conversions, as well as the issuance of shares of common stock
in this offering at an assumed public offering price of $ per share,
after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 39,199 $115,467 $
======== ======== ========
Long-term obligations, net of current portion............. $ 4,304 $ 4,304 $
Stockholders' equity:
Convertible preferred stock, $.0001 par value;
15,000,000 shares authorized; 6,191,212 shares issued
and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted..... 58,768 --
Common stock, $.0001 par value; 500,000,000 shares
authorized; 9,434,300 shares issued and outstanding,
actual; 78,526,140 shares issued and outstanding,
proforma; shares issued and outstanding,
proforma as adjusted................................. -- 8
Additional paid-in capital.............................. 3,616 138,644
Subscriptions receivable................................ (100) (100)
Deferred compensation................................... (978) (978)
Accumulated deficit..................................... (15,196) (15,196)
-------- -------- --------
Total stockholders' equity........................... 46,110 122,378
-------- -------- --------
Total capitalization............................ $ 50,414 $126,682 $
======== ======== ========
</TABLE>
These share amounts exclude 10,740,027 shares of common stock issuable upon
the exercise of stock options outstanding as of March 1, 2000 at a weighted
average exercise price of $1.50 per share and warrants outstanding as of March
1, 2000 to purchase a total of 968,195 shares of common stock at a weighted
average exercise price of $1.27 per share. For additional information regarding
our capital structure, see "Management -- Stock Options," "Description of
Capital Stock" and note 7 and note 8 of notes to consolidated financial
statements.
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<PAGE> 20
DILUTION
The pro forma net tangible book value of as of December 31, 1999
was approximately $ million, or $ per share of common stock. Pro forma
net tangible book value per share represents the amount of our pro forma total
tangible assets less pro forma total liabilities divided by the pro forma number
of shares of common stock outstanding as of December 31, 1999, after giving
effect to the sale of 6,885,480 shares of our Series D preferred stock and
385,805 shares of Series C preferred stock in February 2000, and the conversion
of all outstanding shares of convertible preferred stock into an aggregate of
65,484,785 shares of common stock upon completion of an initial public offering
with an initial public offering price of $ per share. Without taking into
account any other changes in pro forma net tangible book value other than to
give effect to our sale of the shares of common stock offered by this
prospectus and the receipt and application of those net proceeds, our pro forma
net tangible book value as of December 31, 1999 would have been $ million,
or $ per share of common stock. 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
investors purchasing common stock in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............
Pro forma net tangible book value per share as of December
31, 1999...............................................
Increase 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 summarizes, on a pro forma basis as of December 31,
1999, the difference between the number of shares of common stock purchased from
us, the total consideration paid and the average price per share paid by
existing stockholders and by new investors, assuming an initial public offering
price of $ per share and before deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ % %
New investors................ $
---------- --- ------------- ---
Total................... 100% 100%
========== === ============= ===
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options or warrants. As of March 1,
2000, options to purchase 10,740,027 shares of common stock were outstanding at
a weighted average exercise price of $1.50 per share and warrants to purchase
968,195 shares of common stock at a weighted average exercise price of $1.27 per
share were outstanding. To the extent that these options are exercised, new
investors will experience further dilution. For additional information regarding
our stock options, see note 9 of notes to consolidated financial statements.
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the year
ended December 31, 1998 and 1999, has been derived from our consolidated
financial statements and related notes audited by Arthur Andersen LLP,
independent auditors, included elsewhere in this prospectus. The following
selected financial data for Gunn Partners as of December 31, 1996, 1997, and
1998, and for the years ended December 31, 1995, 1996, 1997, and 1998, has been
derived from Gunn Partners, Inc.'s unaudited financial statements included
elsewhere in the prospectus. These unaudited financial statements have been
prepared on substantially the same basis as the audited consolidated financial
statements and, in the opinion of our management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the financial condition as of and the results of operations for these periods.
The historical results are not necessarily indicative of future results. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
OCTOBER 29, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------------ --------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ -- $ 4,857
Cost of revenue............................................. -- 4,498
-------- ----------
Gross profit................................................ -- 359
Expenses:
Product development....................................... -- 368
Selling, general and administrative....................... 187 15,267
-------- ----------
Total expenses......................................... 187 15,635
-------- ----------
Loss from operations........................................ (187) (15,276)
Interest income, net........................................ 3 263
-------- ----------
Net loss.................................................... $ (184) $ (15,013)
======== ==========
Net loss per share:
Basic and diluted......................................... $(140.48) $ (2.17)
======== ==========
Weighted average number of common shares outstanding:
Basic and diluted......................................... 1,307 6,906,334
======== ==========
Pro forma net loss per share:
Basic and diluted......................................... $ (0.20)
==========
Pro forma weighted average number of common shares
outstanding:
Basic and diluted......................................... 75,998,174
==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1999
---------------- ------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 851 $ 39,199
Working capital............................................. 813 31,957
Total assets................................................ 854 58,767
Long term obligations, net of current portion............... -- 4,304
Convertible preferred stock................................. 1,000 58,768
Total stockholders' equity.................................. 816 46,110
</TABLE>
Please refer to note 2 and note 10 of notes to consolidated financial
statements for information regarding the method used to compute our basic and
diluted net loss per share.
20
<PAGE> 22
GUNN PARTNERS, INC.
<TABLE>
<CAPTION>
JANUARY 1,
1999 TO
YEARS ENDED DECEMBER 31, NOVEMBER 22,
----------------------------------------------------- 1999
(IN THOUSANDS) (DATE OF
1995 1996 1997 1998 ACQUISITION)
----------- ----------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue........................ $7,961 $7,867 $8,783 $13,168 $11,034
Cost of revenue.................... 7,286 7,621 7,995 12,532 9,969
------ ------ ------ ------- -------
Gross profit....................... 675 246 788 636 1,065
Expenses:
Selling, general and
administrative................ 749 229 789 617 765
------ ------ ------ ------- -------
Total expenses................ 749 229 789 617 765
------ ------ ------ ------- -------
Loss from operations............... (74) 17 (1) 19 300
Interest (expense) income, net..... (12) (3) 1 22 8
------ ------ ------ ------- -------
Net (loss) income.................. $ (86) $ 14 $ -- $ 41 $ 308
====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash............................................ $ 201 $ 187 $ 444
Working capital................................. 732 1,095 1,082
Total assets.................................... 1,674 2,222 2,251
Long term obligations, net of current portion... 874 1,253 1,190
Total shareholders' equity...................... 26 26 26
</TABLE>
21
<PAGE> 23
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The selected unaudited pro forma condensed combined financial information
is based upon, and should be read in conjunction with, the historical financial
statements of Exult and Gunn Partners and the respective notes to such financial
statements. The pro forma information is based upon the tentative allocations of
purchase price for the acquisition of certain assets of Gunn Partners and may
not be indicative of the results that would have been reported had such events
actually occurred on the dates specified, nor is it indicative of the Company's
future results. The final allocation of purchase price is not expected to differ
materially from the tentative allocation or to have a material impact on results
of operations or financial position. Purchase accounting is based upon
preliminary asset valuations, which are subject to change. Furthermore,
post-closing adjustments, if any, are not expected to have a material impact on
results of operations or financial position.
The selected unaudited pro forma condensed combined statements of
operations data for the year ended December 31, 1999, is presented as if Exult
had completed as of January 1, 1999, the acquisition of certain assets of Gunn
Partners, the issuance of 385,805 shares of Series C preferred stock and
6,885,480 shares of Series D preferred stock, the exercise of warrants to
purchase an aggregate of 3,339,220 shares of common stock and 667,884 shares of
Series C preferred stock, the conversion of all outstanding convertible
preferred stock into 65,484,785 shares of common stock, and the exercise of
options to purchase 267,835 shares of common stock.
22
<PAGE> 24
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
GUNN PARTNERS PRO FORMA PRO FORMA
EXULT, INC. INC.(A) ADJUSTMENTS COMBINED
----------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue................................... $ 4,857 $11,034 $ -- $ 15,891
Cost of revenue........................... 4,498 9,969 -- 14,467
-------- ------- ------- ----------
Gross profit.............................. 359 1,065 -- 1,424
-------- ------- ------- ----------
Total operating expense................... 15,635 765 3,903(b) 20,303
-------- ------- ------- ----------
(Loss) income from operations........ (15,276) 300 (3,903) (18,879)
-------- ------- ------- ----------
Interest income, net...................... 263 8 -- 271
-------- ------- ------- ----------
Net (loss) income.................... $(15,013) $ 308 $(3,903) $ (18,608)
======== ======= ======= ==========
Net loss per common share:
Basic and diluted....................... $ (0.24)
Weighted average common shares
outstanding:
Basic and diluted(c).................... 75,998,174
</TABLE>
- -------------------------
(a) We acquired certain assets of Gunn Partners on November 22, 1999 in a
purchase-type transaction for approximately $14.0 million. The results of
operations of Gunn Partners will be included in our consolidated results
commencing upon the date of acquisition. This presentation shows the pro
forma effects of the operations of Gunn Partners as if the acquisition
occurred on January 1, 1999. The results of operations for Exult from
October 29, 1998, (Inception) through December 31, 1998, are immaterial to
the operating results of Gunn Partners for the year ended December 31, 1998.
(b) Represents the amortization of $3.9 million that would have been recorded on
intangible assets for the period from January 1, 1999 through November 22,
1999, the date of acquisition. Intangibles are amortized on a straight-line
basis over a period of one to five years. No other significant fair value
purchase price adjustments were recorded in conjunction with the acquisition
of certain assets of Gunn Partners.
(c) Reflects the acquisition of certain assets of Gunn Partners, the issuance of
385,805 shares of Series C preferred stock and 6,885,480 shares of Series D
preferred stock, the exercise of warrants to purchase an aggregate of
3,339,220 shares of common stock and 667,884 shares of Series C preferred
stock, the conversion of all outstanding convertible preferred stock into
65,484,785 shares of common stock, and the exercise of options to purchase
267,835 shares of common stock.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our selected consolidated
financial data and the consolidated financial statements and related notes
included elsewhere in this prospectus.
OVERVIEW
We design, implement and manage comprehensive web-enabled human resources
processes for Global 500 corporations, generally through long-term contracts. We
believe no other company currently assumes responsibility for all aspects of the
entire HR function. By providing a comprehensive eHR solution, we believe we can
increase human capital productivity and lower our clients' overall HR costs.
We commenced operations in October 1998 as BPO-US, Inc. and changed our
name to Exult, Inc. in August 1999. From our inception through May 1999, we had
no sales and our activities primarily related to the pursuit of our initial
contracts and the development of the infrastructure to support comprehensive eHR
process management. We began development of our web-based interface, myHR, in
August 1999 and expect to deploy the first release of myHR with limited features
in the second quarter of 2000, with greater functionality to be added in
subsequent releases.
In June 1999, we entered into a letter of intent with BP Amoco which led to
the signing of multi-year contracts for web-enabled HR processing services in
December 1999. In addition, commencing in June 1999 we recognized revenue for
certain work performed by us prior to our contract with BP Amoco. The contracts
consist of a framework agreement and operational contracts for the United States
and United Kingdom. The framework agreement provides the overall governance and
methodology for our services on a worldwide basis. The contracts for the United
States and United Kingdom specifically cover the roll out and operations in
these specific countries. In general, we will assume the basic HR processes in
the United States and United Kingdom as now performed by BP Amoco. Through a
mutually agreed upon schedule and procedure we will migrate to client service
centers and HR best practices. During the first 14 months of the contract, the
billing to BP Amoco and our revenue will equal BP Amoco's cost of providing this
processes. After 14 months our revenue related to certain HR processes will be
reduced by a predetermined percentage. During the 14 month period, we expect
that our cost of providing the service, managing the migration and implementing
change will exceed the revenue. If we are unable to successfully manage the
process and reduce the costs, we could be subjected to further losses, the
contracts provide for gain sharing in that if we and BP Amoco work together to
reduce our cost of operations, we would lower our billings for a portion of the
cost savings. Although this mechanism may reduce our revenue, it would increase
our margin measured as a percentage of revenue and in absolute dollars. Further,
it provides a real incentives for BP Amoco and us to work together to identify
and implement improvements.
In November 1999, we purchased some of the assets of Gunn Partners, Inc., a
provider of research, benchmarking and consulting services for the measurement
and improvement of HR, and accounting and finance processing for Global 500
corporations for $5.0 million in cash and $10.0 million in debt. Gunn Partners
was formed in 1991 and currently operates as our wholly-owned consulting
subsidiary. In connection with this transaction we hired approximately 35 of
their employees.
Effective January 1, 2000, we entered into two service agreements with
Pactiv Corporation and Tenneco Automotive Inc. to provide information technology
and other finance support services for three years which are subject to certain
renewal provisions. In addition to these agreements we purchased certain assets
on December 20, 1999, including equipment and licenses for an aggregate purchase
price of approximately $3,500,000. This transaction provided us with a leased
client service center in The Woodlands, Texas and the ability to hire
approximately 70 employees. We plan to use this client service center to service
these two clients as well as BP Amoco. We are also in the process of leasing
space in Glasgow, Scotland to support the BP Amoco contracts.
24
<PAGE> 26
We anticipate our primary source of revenue for the near future will be
derived from our eHR process management services, which are earned under
long-term contracts as the services are rendered. A secondary source of revenue
is the benchmarking studies and other consulting services performed by Gunn
Partners. We believe that these consulting services provide us with an in-depth
understanding of best practices in HR, accounting and finance processing. As
part of our eHR solution, we will manage our clients' relationships with third
party vendors. To the extent we take responsibility for managing a third party
vendor, we include in revenue all charges that we bill our clients for managing
that third party vendor. Revenue from consulting and related services is net of
reimbursable expenses.
To date, we have typically generated leads for potential eHR process
management clients through our management, existing consulting relationships,
board of directors, third party consultants, contact with key executives at
companies within the Global 500 or direct communication from such companies
after reading articles, press releases or visiting our web site. After initial
discussions with and qualification of the potential client, we typically enter
into a letter of intent with the client which establishes a detailed time line
for due diligence and contract negotiations. Our letter of intent may include
some or all reimbursement of our direct and indirect costs incurred during this
process if a contract is not signed. Such amounts are expensed as incurred
because of the uncertainty of collection and any reimbursements are included in
revenue once invoiced and collection is reasonably assured.
We incurred a net loss in 1999 and expect to incur net losses in 2000, 2001
and potentially in future years. In the next two years, we anticipate making
large expenditures to build additional client service centers, to expand our
sales and marketing capabilities, to fund the development and expansion of our
web-based infrastructure, as well as our general operating infrastructure. To
the extent that revenue does not increase at a rate commensurate with our
increasing costs and expenditures, our future operating results and liquidity
could be materially and adversely affected.
RESULTS OF OPERATIONS
In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period to period comparisons of our operating
results, including our revenue, gross profit and expenses as a percentage of
revenue, should not be relied upon as an indication of our future performance.
The following table sets forth statement of operations data expressed as a
percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
(UNAUDITED)
<S> <C>
Revenue..................................................... 100.0%
Cost of revenue............................................. 92.6
------
Gross profit................................................ 7.4
Expenses:
Product development....................................... 7.6
Selling, general and administrative....................... 314.3
------
Total expenses......................................... 321.9
------
Loss from operations........................................ (314.5)
Interest income, net........................................ 5.4
------
Net loss.................................................... (309.1)%
======
</TABLE>
YEAR ENDED DECEMBER 31, 1998
We were formed in October 1998, and did not enter into our first process
management contract until December 1999. During 1998, we hired our Chief
Executive Officer and one other employee. Selling, general and administrative
expense for 1998 consisted primarily of the salary and benefits for these two
employees. Due to the early stage of our company during the year ended December
31, 1998, our operating results for this period do not bear any significant
relationship to our operating results for the year ended December 31, 1999.
25
<PAGE> 27
YEAR ENDED DECEMBER 31, 1999
Revenue
Revenue for the year ended December 31, 1999 was $4.9 million, which
primarily consisted of approximately $4.1 million billed to our first eHR
process management client for work performed before we entered into a long-term
contract with this client in December 1999. The balance of our revenue primarily
consisted of consulting revenue generated from various clients through our Gunn
Partners subsidiary, which was formed on November 22, 1999.
Cost of Revenue
Cost of revenue consists primarily of the cost of third party vendors
managed by us, and salaries, bonuses and benefits of employees directly involved
in providing our services, computer and communications equipment costs and
services, as well as facility related expenses. Our cost of revenue for the year
ended December 31, 1999 was $4.5 million and our gross margin for the same
period was 7.4%. We expect gross profit for at least the next twelve months to
be negative as we expand capacity and build our infrastructure.
Product Development Expense
Product development expense consists primarily of third party costs,
salaries, bonuses and benefits of employees directly associated with the
development of myHR and our Internet software and capabilities, and the
performance of research and benchmarking of HR best practices that are not part
of a specific engagement. Product development expense for the year ended
December 31, 1999 was approximately $368,000 or 7.6% as a percentage of revenue.
We expect to substantially increase our spending for product development in 2000
and plan to continue to spend at least the same dollar amount in future years.
We cannot assure you that our product development efforts will provide us with
the desired results or be economically feasible.
Selling, General and Administrative Expense
Selling, general and administrative expense generally consists of salary,
bonuses and benefits for employees engaged in marketing, promoting and selling
our services, and for management and administrative personnel. Selling, general
and administrative expense also includes third party consulting and marketing
expenditures, as well as facilities and office expenditures, legal, accounting
and recruiting fees and depreciation and amortization expense. For the year
ended December 31, 1999, selling, general and administrative expense was $15.3
million or 314.3% as a percentage of revenue. This amount included a one time
charge of approximately $3.3 million related to the issuance of preferred and
common stock warrants to BP Amoco. Selling, general and administrative expense
in 1999 also included a charge of approximately $1.2 million in connection with
the cost of common stock warrants issued in exchange for consulting and
recruiting services.
Depreciation and amortization included in selling, general and
administrative expense was approximately $743,000. We anticipate that selling,
general and administrative expense in 2000 will increase in absolute dollars, as
we hire additional sales and marketing personnel, engage additional consultants
and add administrative personnel and facilities to support our expanding
infrastructure. Amortization of intangibles associated with the acquisition of
certain assets of Gunn Partners was approximately $357,00. Also included was the
amortization of deferred compensation of approximately $279,000. Depreciation
and amortization will increase in 2000 as a result of a full year of
amortization of intangible assets and deferred compensation and a full year of
depreciation of fixed assets.
Interest Income, Net
Interest income, net for the year ended December 31, 1999 was approximately
$263,000, which consisted primarily of interest income of approximately $334,000
generated from short-term investments
26
<PAGE> 28
raised from private equity placements, offset in part by interest expense of
approximately $71,000 associated with debt incurred in 1999 in connection with
our purchase of certain assets of Gunn Partners and capitalized leases. Although
we currently have cash in excess of our immediate requirements, we expect that
our significant negative cash flow will reduce our cash balances and associated
interest income.
Income Taxes
We incurred losses in 1999 resulting in net operating loss carryforwards.
Net Loss
The foregoing resulted in a net loss for the year ended December 31, 1999
of $15.0 million. We expect to continue to incur losses for at least the next
twelve months.
27
<PAGE> 29
QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly results of operations, in
dollar amounts and as a percentage of revenue, for the last five quarters. This
information has been derived from our unaudited consolidated financial
statements and has been prepared by us on a basis consistent with our audited
consolidated financial statements and includes all adjustments, consisting only
of normal recurring adjustments, which management considers necessary for a fair
presentation of the information for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1999 1999 1999 1999
------------ ----------- ----------- ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................... $ -- $ -- $ 213 $ 2,031 $ 2,613
Cost of revenue................... -- -- 213 2,031 2,254
----- ----- --------- --------- -------
Gross profit...................... -- -- -- -- 359
Expenses:
Product development............. -- -- 54 106 208
Selling, general and
administrative............... 187 516 2,661 3,543 8,548
----- ----- --------- --------- -------
Total expenses............... 187 516 2,715 3,649 8,756
----- ----- --------- --------- -------
Loss from operations.............. (187) (516) (2,715) (3,649) (8,397)
Interest income, net.............. 3 6 62 67 129
----- ----- --------- --------- -------
Net loss.......................... $(184) $(510) $ (2,653) $ (3,582) $(8,268)
===== ===== ========= ========= =======
AS A PERCENTAGE OF REVENUE:
Revenue........................... 100.0% 100.0% 100.0%
Cost of revenue................... 100.0 100.0 86.2
--------- --------- -------
Gross profit...................... -- -- 13.8
Expenses:
Product development............. 25.4 5.2 8.0
Selling, general and
administrative............... 1,249.3 174.5 327.1
--------- --------- -------
Total expenses............... 1,274.7 179.7 335.1
--------- --------- -------
Loss from operations.............. (1,274.7) (179.7) (321.3)
Interest income, net.............. 29.1 3.3 4.9
--------- --------- -------
Net loss.......................... (1,245.6)% (176.4)% (316.4)%
========= ========= =======
</TABLE>
In the quarter ended December 31, 1999, we acquired some of the assets of
Gunn Partners, signed a multi-year contract with BP Amoco and entered into two
three-year service agreements with Pactiv Corporation and Tenneco Automotive. In
addition to these agreements, we purchased certain assets for an aggregate
purchase price of approximately $3.5 million. In the quarter ended December 31,
1999, we recorded approximately $2.6 million of revenue, primarily for
pre-contract work performed for BP Amoco and consulting services rendered to
various clients by Gunn Partners. Selling, general and administrative expense in
the fourth quarter of 1999 included a charge in the amount of approximately $3.3
million, related to the issuance of preferred and common stock warrants issued
to BP Amoco.
Our quarterly operating results have fluctuated in the past and may
continue to fluctuate in the future based on a number of factors, not all of
which are in our control. These factors include our ability to complete the
development of our web-based process management solution, to recruit personnel
to support our current business and related infrastructure and to expand our
sales and marketing capabilities. Accordingly, our results of operations for any
future quarter or quarters are not necessarily indicative of
28
<PAGE> 30
our historical results. See "Risk Factors -- Our future operating results may
fluctuate and cause the price of our common stock to decline."
LIQUIDITY AND CAPITAL RESOURCES
Since our inception in October 1998, we have financed our operations
primarily with equity contributions including private placements of
approximately $1.0 million in 1998, $55.1 million in 1999, and $64.0 million in
2000, and to a lesser extent, by cash generated from operations. Net cash used
in operating activities was $7.6 million in the year ended December 31,1999 and
$7.7 million since inception. Operating cash was used primarily for sales and
marketing activities, third party consulting fees in support of our pursuit of
business and the development of corporate infrastructure. Cash used in
investment activities was $9.6 million in 1999, of which approximately $4.4
million was spent to purchase computer and related equipment and office
furnishings and $5.2 million was spent in connection with our acquisition of
Gunn Partners. We expect to generate negative operating cash flow for the
foreseeable future as we continue to incur losses from operations. We expect to
increase our investments in property and equipment to support the expansion and
renovation of our existing client service center, the development of our client
service center in Glasgow, Scotland and the expansion and renovation of our
other facilities, and to purchase related computer and other equipment necessary
to support our client contracts and growth. We expect to spend at least $12.0
million in 2000 on capital expenditures and related projects. From time to time,
in the ordinary course of business, we expect to evaluate potential acquisitions
of related businesses, assets, services or technologies. At this time, however,
we do not have any present understandings, commitments, or agreements with
respect to any material acquisition.
We believe that the net proceeds from this offering and cash on hand will
be sufficient to satisfy our working capital requirements for at least the next
twelve months. Even if additional funds are not required, we may seek to raise
funds from equity or debt financing. We may not be able raise additional funds
on acceptable terms, if at all.
RECENT ACCOUNTING PRONOUNCEMENTS
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 all costs
related to the development of internal use software other than those incurred
during the application development stage to be expensed as incurred. Costs
incurred during the application development stage are required to be capitalized
and amortized over the estimated useful life of the software. We adopted SOP
98-1 on January 1, 1999. The adoption of SOP 98-1 did not have a material effect
on our consolidated financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. We adopted SOP 98-5 on January 1, 1999, which requires
costs of start-up activities and organization costs to be expensed as incurred.
The adoption of SOP 98-5 did not have a material effect on our consolidated
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income (loss) depending on whether a
derivative is designed as part of a hedge transaction and, if so, the type of
hedge transaction involved. We do not expect that adoption of SFAS No. 133 will
have a material impact on its consolidated financial position or results of
operations as we do not currently hold any derivative financial instruments.
29
<PAGE> 31
YEAR 2000 COMPLIANCE
We have assessed the impact that the year 2000 problem may have on our
operations. We have identified the following three areas of our business that
may be affected:
Internal Infrastructure. We began implementing our internal systems
infrastructure to support our corporate operations in early 1999. Our initial
internal infrastructure was designed to be year 2000 compliant, and we did not
use any legacy systems that required year 2000 testing or remediation. In
general, we purchased and installed only those servers, workstations, software
packages and peripheral devices that were certified to be year 2000 compliant by
their manufacturer. In addition to our design precautions, we also conducted
year 2000 compliance testing throughout the fall of 1999. We performed the final
tests in mid-December 1999, and as of the date of this prospectus, we have not
experienced any year 2000 related failures or internal systems downtime as a
result of the century date change.
Client Delivery Infrastructure. We are continuing to build the systems
infrastructure for our eHR solution and client service centers. Similar to our
corporate infrastructure, we are designing and implementing our client delivery
systems using new systems, without any legacy systems that required remediation
or year 2000 testing. We plan to purchase and install only those servers,
networks, workstations, software packages and peripheral devices that were
certified to be year 2000 compliant by their manufacturer. Prior to using any
part of our client delivery infrastructure for a client, we intend to conduct
acceptance testing, which includes testing for year 2000 compliance. To date, we
have not begun supporting client operations on this infrastructure, and
accordingly, have no history upon which to assess the success or failure of
these efforts.
Client Contract Obligations. Our clients currently retain responsibility to
make their existing client applications systems, interfaces, data files and data
transmissions year 2000 compliant. Under our current process management
contracts, we are not bound contractually to remediate our clients' systems, nor
are we required to correct errors or deficiencies in our operations that are
caused by our clients' non-compliant systems. Nonetheless, we do include in our
due diligence exercises, and in our analysis of our clients' current systems and
operations an inspection of our clients' year 2000 systems compliance. While we
alert our clients if we detect an issue with year 2000 compliance, our clients
remain responsible for any year 2000 issues.
To date, we have not experienced any operational problems with respect to
year 2000 compliance issues. We currently do not have any contingency plans to
address this issue, but we do not believe the cost of any remedial action will
have a material adverse effect on our business or results of operations.
GUNN PARTNERS
Since its founding in 1991, Gunn Partners has provided business process
improvement consulting services primarily to Global 500 corporations in North
America and Europe. In November 1999, we purchased some of Gunn Partners' assets
and hired most of its employees. The unaudited operating results of Gunn
Partners for the years ended December 31, 1997 and 1998 and the first 11 months
of 1999 are as follows:
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED 1999
DECEMBER 31, THROUGH
-------------------------- NOVEMBER 22,
1997 1998 1999
----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenue..................................... $8,783 $13,168 $11,034
Expenses........................................ 8,784 13,150 10,734
------ ------- -------
Loss from operations............................ (1) 18 300
Interest income, net............................ 1 23 8
------ ------- -------
Net income...................................... $ -- $ 41 $ 308
====== ======= =======
</TABLE>
30
<PAGE> 32
Revenue is derived primarily from providing consulting services generally
under short-term engagements and secondarily from selling research studies and
conducting workshops and seminars. Revenue is recognized when the services are
rendered. Reimbursed expenses are not included in revenue. In the year ended
December 31, 1998, net revenue was approximately $13.2 million, which
represented an increase of approximately $4.4 million or 49.9% over the prior
year. Net revenue decreased $2.1 million to $11.0 million for the period ended
November 22, 1999 as compared to the prior full year.
Expenses consist primarily of salary and benefits of consulting, research
and support personnel, unreimbursed travel expenses and third parties hired to
assist in consulting and research projects. Expenses of approximately $13.2
million in the year ended December 31, 1998, increased by approximately $4.4
million or 49.7% over the prior year primarily from the increase in staffing to
support the expansion of the business and higher compensation per individual
consultant. Expenses decreased $2.4 million to $10.7 million for the period
ended November 22, 1999, as compared to the prior year.
Gunn Partners is an S corporation and does not incur federal income taxes
because profits, if any, are either paid to employee owners as compensation or
distributed to the owners. State income tax expense has been immaterial.
Our current and future business operations are not comparable to the
operations of Gunn Partners.
We purchased some of the assets and hired most of the employees of Gunn
Partners primarily for the skills of their consultants and researchers, access
to client base and use of the research database. Although we will continue to
offer consulting and research services, it is not the primary focus of our
business and we expect that it will become a declining percentage of total
revenue.
31
<PAGE> 33
BUSINESS
OVERVIEW
Exult is the first company to offer eHR, a comprehensive, web-enabled
integrated service designed to manage the entire human resources department for
Global 500 corporations. Our objective is to transform these HR departments into
proactive, global, knowledge based organizations through long-term management
contracts. A key component of our eHR solution is myHR, a browser-based,
personalized web portal. We believe myHR will provide a comprehensive source of
data, information and decision support twenty four hours a day, seven days a
week for our clients' employees, managers and annuitants, irrespective of
business unit and location. myHR will interface with various software
applications and business processes over the client's intranets, extranets and
virtual private networks. With myHR we intend to eliminate the numerous
organizational, transactional and communication barriers that exist today
between the employer and employee, and create a dynamic communication exchange
among employees, employer, managers and their peers. We design, implement,
manage and support the web-based systems, processes and personnel for our
clients' entire HR function. In our client service centers, we manage all of our
clients' HR systems and processes, including transaction, production and call
center technologies. By providing one comprehensive solution that integrates all
of the people, processes, technologies and third party vendors, our strategy is
to implement and maintain HR best practices and realize economies of scale in
order to achieve both increased human capital productivity and lower costs for
our clients.
INDUSTRY BACKGROUND
The Current State of Human Resources Departments in the Global
500. Traditional human resources departments within large, multinational
corporations tend to be inundated with the logistics of managing HR processes
across many departments spanning multiple countries. According to the Global 500
List for the Year 2000 published by Fortune Magazine, Global 500 corporations
employed more than 37 million people in 1999, an increase of 19% compared to
1998. In addition to the logistical complexities presented by an employee base
of this magnitude, the human resources function in a typical Global 500
corporation is complicated by factors such as varying legal regulations from
country to country, a multitude of employee benefit plans, and mergers,
acquisitions and divestitures. In addition, Global 500 corporations may have
multiple human resources groups; one at the corporate level and additional human
resources departments for each separate business unit within the corporation.
These human resources groups typically do not have a central repository of
information, and often lack a coordinated communications infrastructure. As a
result, the HR processes of large, multinational corporations often are
redundant and inefficient. In addition, the large number of third party vendors
used by a human resources department to handle discrete functions makes
management of the process challenging. By necessity, HR departments
predominantly have focused on administrative functions and typically have
neither the time nor the resources to devote to strategic planning. At the same
time, many of these HR departments are facing a dramatic reduction in resources,
and cost cutting efforts primarily have focused on reducing staff, rather than
reengineering service delivery.
The Emergence of HR Process Outsourcing. Many large corporations have begun
to outsource discrete, non-core functions of their operations, such as payroll
and benefits administration, in order to address the problems found in
traditional human resources departments. According to Dataquest, the worldwide
HR outsourcing market is projected to grow from approximately $26.2 billion in
1999 to approximately $76.4 billion in 2004. However, the market for
comprehensive HR outsourcing is relatively new. Dataquest estimates the market
for integrated, multiprocess HR outsourcing will grow from over $900 million in
1999 to more than $12 billion by 2003 in the U.S. alone. Outsourcing a large
portion of the HR organization of a large multinational corporation can be
extremely difficult due to the size of the organization, the number of divisions
and the number of third party vendors. Also, in order to effectively manage an
entire HR organization, the provider must have significant expertise in
analyzing, providing and managing HR best practices. HR best practices refer to
those HR policies, procedures, operations and technologies that yield superior
performance as measured by productivity, cost, quality and service metrics.
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Expansion of the Internet. The widespread use of the Internet makes our
comprehensive service delivery model possible. International Data Corporation
estimates that the number of Internet users worldwide will grow from
approximately 196 million in 1999 to approximately 502 million in 2003. The
Internet provides a tremendous opportunity to facilitate two way communication
among a large group of individuals in multiple geographic locations. The Hunter
Group estimates that by using the functionality of the Internet to move HR
delivery to a largely self-service mode, organizations can achieve cost
reductions of approximately 25% to 30%. To date, however, HR organizations have
not been able to realize the power of the Internet because no mechanism exists
to centralize or organize the large amount of information and electronic
transmissions generated by HR processes within the HR organization. Accordingly,
the Internet's use in HR departments has been largely limited to one-on-one
e-mail communications or process-specific intranets.
THE EXULT SOLUTION
Exult is the first company to offer eHR, a comprehensive, web-enabled
integrated service that is designed to manage the entire human resources
department for Global 500 corporations. We intend to leverage the power of the
Internet with our HR interface, myHR, in order to facilitate communication
throughout our clients' organizations and compile, organize and provide access
to the wealth of information embodied in the human resources process. In
addition, myHR will encourage employees to become more self-sufficient in
handling many day-to-day HR functions, ranging from changing benefits coverage
online to staffing a project. Our client service centers will also provide
personalized support, enabling employees to access assistance and information
using a variety of methods. We believe that our eHR solution, together with our
comprehensive consulting services and shared resources, will enable us to
develop, refine and implement HR best practices and realize economies of scale.
By assuming broad responsibility for management of our clients' existing human
resources people, processes, technologies and third party vendors, we plan to
deliver our clients increased human capital productivity at a reduced cost.
EXULT'S STRATEGY
Our objective is to become the leading provider of comprehensive HR
solutions for large, multinational corporations. The following are the key
elements of our strategy:
- Leverage Technology and the Internet for Enhanced HR Performance. Using
the Internet and emerging technologies, we plan to design and build an
integrated eHR infrastructure connecting all of the various people,
processes, technologies and third party vendors involved in an HR
organization. Through myHR, we seek to transform the workplace into a
dynamic environment characterized by shared learning between our clients
and their employees. We also seek to create a comprehensive central
repository of company and employee data that our clients will be able to
easily access, evaluate and use in order to further their strategic
business objectives. Finally, we plan to use our eHR infrastructure to
implement, measure, monitor and consistently apply HR best practices
throughout the organization.
- Establish myHR as an Integral Tool in the Workplace. Our eHR solution
contemplates that myHR will become the employee's home page from which he
or she will be able to access personnel information, employee
productivity tools, intra-company communications and the Internet, and
perform both HR and non-HR tasks. We believe myHR will enable the
exchange of information and ideas between and among employees, employer,
managers and their peers. In addition, employers will be able to
customize myHR to disseminate company information to their employees to
foster a specific corporate culture, track company performance and
promote long-term goals within the company.
- Establish Long-Term Client Relationships. We pursue long-term contracts
with our clients to manage their HR processes. We create a partnership
with our clients that is designed to implement HR best practices by
successfully reengineering and redesigning our clients' HR departments
and incorporating them into our infrastructure. We believe contracts of
multi-year duration allow a more
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complete transformation of our clients' HR organizations which further
demonstrates our mutual commitment and shared goals. The long-term nature
of our contracts helps to provide greater visibility of future revenue
streams and better information for determining future investment
decisions.
- Utilize and Leverage Shared Resources. We plan to achieve economies of
scale and scope by sharing personnel, technological, physical and third
party resources across our client base. We have two primary shared
resources, our client service centers and our centers of expertise. Each
client service center will service multiple clients in order to achieve
economies through scale. We will leverage our knowledge through our
centers of expertise, which consist of a team of HR experts spanning a
broad spectrum of HR disciplines, by advising both our client service
center personnel and our clients. Working with multiple clients, both
internally and externally, will provide our experts, analysts,
consultants, service representatives, operators and other HR personnel a
breadth of knowledge and experience that will aid in the development and
dissemination of HR best practices. In addition, we believe our HR
expertise and experience with the multitude of third party vendors
providing discrete human resources services will allow us to identify and
include in our processes those third party vendors who offer the greatest
value as measured by performance and cost. We plan to leverage the demand
created by multiple clients to deliver improved service levels and cost
savings.
- Attract and Retain Leading HR Talent. We historically have been
successful in recruiting leading HR experts to our company because HR is
our core business and not merely a support function. In recognition of
our unique position in the industry, we have also attracted renowned
theorists and practitioners within the field of HR to serve on our Exult
Advisory Council. We offer employees and advisors access to
state-of-the-art HR technologies and resources, cutting edge projects and
processes, and enhanced career opportunities. We are committed to hiring
the highest quality HR and technical personnel in order to implement HR
best practices.
- Facilitate Strategic Decision Making. Our eHR solution seeks to automate
many aspects of the HR process in order to relieve our clients' HR
personnel from the tedious and often purely administrative aspects of the
HR function. In addition to managing the HR process, we provide our
clients with enhanced information and analytical tools and access on an
ongoing basis to leading consultants and strategists. This model enables
our clients' personnel to function as business strategists, working to
maximize workforce effectiveness.
- Focus on the Global 500 Corporations. Global 500 corporations generally
have operations spread across multiple business units and spanning a
multitude of countries. We believe the magnitude and complexity of these
corporations and their resulting HR needs make them ideal candidates for
our comprehensive, web-enabled eHR process management solution.
EHR DELIVERY MODEL
We believe that our eHR delivery model simplifies and standardizes our
clients' HR practices and procedures, and delivers improved management
information and employee communications at significant cost savings. Our
transition and transformation process involves several stages of strategic
consultation and analysis, web-enablement and management of shared resources.
Strategic Consultation and Analysis
To enhance efficiencies and implement HR best practices, we will perform a
thorough assessment of our clients' HR processes and identify those processes
that need to be redesigned or eliminated altogether, as well as those processes
that are currently working well. Through our consulting and research subsidiary,
Gunn Partners, we have conducted comparative studies to analyze the HR
administration and payroll practices of more than 150 companies, many of which
are Global 500 corporations. We also intend to use data from third parties such
as the Saratoga Institute, McKinsey & Company and the Corporate Leadership
Council in order to ensure the accuracy and objectivity of our information and
analysis. From
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our internal studies and the data provided by third party specialist firms, we
have created a large database from which we can benchmark the performance of our
clients' current operations and set specific targets for service quality
improvement and cost reduction. By comparing the various processes implemented
by many large, multinational corporations, we believe we have identified those
practices that yield the greatest value by providing superior performance at a
reasonable cost. We collaborate with our clients to design and redesign HR
processes that seek to increase their productivity, service and quality, while
reducing overall HR costs. We then rely on our transition and change management
specialists to manage the transformation of our clients' existing systems to our
operational infrastructure.
Web-Enablement and myHR
By applying the Internet to HR processes, we plan to enhance the
relationship and communications between an employer and its employees, and help
manage the vast amount of data generated and transferred in Global 500 HR
departments. We will integrate state-of-the-art technology with our Internet
browser interface, myHR, to enable our clients and their employees to
centralize, easily access and efficiently use a wealth of HR information. myHR
will interface with various software applications and business processes from
the client's intranets, extranets and virtual private networks. Our eHR solution
contemplates that myHR will become the employee's home page from which he or she
will be able to access personnel information, employee productivity tools,
intra-company communications and the Internet, and perform both HR and non-HR
tasks. The myHR home page will be customized for the specific employer and can
be further personalized by the employee in order to enhance its functionality.
For the employee, myHR will be the personal portal for the direct
management of work experiences and career opportunities. When an employee first
logs on to his or her computer, a myHR screen will appear. From this screen, the
employee will be able to access a variety of HR-related information twenty four
hours a day, seven days a week from the office or home. For example, the
employee will have secure access to his or her personnel information kept by the
company, such as pay, benefits and individual performance evaluations. In
addition, the employee will be able to accomplish many HR tasks online, such as
adding a dependent to a health plan or changing an insurance beneficiary without
filling out any paperwork or needlessly involving HR intermediaries. However,
should the employee need personalized assistance or have questions, the employee
can access an HR representative either while online by linking to an interactive
"chat box" from the myHR home page or by phone or fax. The employee also will be
able to use myHR to access more general HR information and resources, such as
internal job postings, training and relocation and repatriation policies and
procedures. Finally, myHR will be designed to link seamlessly to other non-HR
functions and databases within the company, such as e-mail, budgets and sales
surveys, and the employee's own personal information, such as "to do" lists,
contact information and his or her calendar, as well as external resources via
the Internet. We believe myHR has the potential to transform the employee's
perception of the HR function, create new bonds between employer and employee,
and promote employee self-service to manage many aspects of an employee's
professional and personal lives.
From the employer's perspective, we believe myHR will further the strategic
goals and tactical needs of the company, aid in the development, application and
dissemination of HR best practices and promote efficiencies within HR and
throughout the company, thereby reducing costs and improving employee
productivity. We believe myHR will make the process of HR administration
substantially more efficient by removing the need for intermediaries in many
daily HR functions. In addition, we believe employers will have a greater
assurance that the data collected through myHR will be reliable and consistent
because it is entered directly by the employee, automatically confirmed by a
rules-based editing system and reviewed by the employee during subsequent
sessions. We believe myHR also will help employers and their managers deploy
human resources more efficiently and effectively by giving them real-time
information about the company's human capital. For example, managers will be
able to use myHR to staff projects by researching an employee database with
skill levels, availability and other pertinent information. myHR will also help
standardize the employer's practices and policies throughout the company and
across business divisions and geographic locations. Finally, myHR will serve as
the vehicle by which employers will be
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able to disseminate company information, such as announcements targeting a
particular segment of employees, and employees will be able to access general
information about the company, such as stock performance and news bulletins. We
expect this feature will facilitate the employer's creation and dissemination of
a specific corporate culture.
Management of Shared Resources
Once we have identified the appropriate HR practices and processes for our
clients, we will supervise the implementation of our comprehensive eHR solution,
which includes capitalizing on our shared resources. These shared resources
include our client service centers, centers of expertise, third party vendors,
and systems and applications. By leveraging shared resources, we plan to
facilitate the delivery of HR best practices while achieving economies of scale,
which we believe will enable us to deliver improved HR services at a reduced
cost.
- Client Service Centers. We plan to manage our clients' transaction,
production and call centers from our client service centers. These
centers will serve multiple clients and are responsible for all
administrative and transactional HR activities. They will contain
customer service representatives, production operations staff for
functions such as payroll processing, benefits administration, training
administration, and IT support and maintenance. These client service
centers will also contain systems and technology, such as call/case
management systems, imaging and workflow, and HR application software and
databases. Employees will be able to communicate with the client service
centers online through myHR or by phone or fax. We currently operate one
client service center near Houston, Texas and are in the process of
establishing another client service center in Glasgow, Scotland. We
anticipate that these client service centers will allow us to realize
economies of scale and scope by leveraging the functionality, staff and
technology of centralized processes and services across many business
units for multiple clients. We also expect to be able to realize
additional efficiencies by locating these centers in areas that have
competitive labor and real estate costs and offer access to a large pool
of qualified employees.
- Centers of Expertise. Our HR centers of expertise consist of individuals
with in-depth expertise in specific HR processes. As a group, their role
is to support each of the five major categories of HR processes in order
to continuously understand and address the needs of our clients and their
employees, and to introduce improved HR processes and procedures. This
group is recently formed and currently consists of only a few
individuals; however, we expect to expand this group to a significant
number in the near term. These individuals will not necessarily be housed
together in a physical center, but rather will be located throughout the
world working from a variety of locations, including the client service
centers, client sites and home offices. These individuals will be linked
together and accessible to clients through the Internet and myHR and also
by more conventional modes of communication. These subject matter experts
will be responsible for analyzing trends, conducting benchmarking and
best practices assessments, developing appropriate metrics for HR service
delivery, designing and developing HR programs, policies and services,
and ensuring the web enablement of all of our products. Through our
centers of expertise, we plan to leverage our HR expertise and knowledge
of industry best practices in each specific HR function across multiple
lines of business and across multiple clients. In addition, our experts
within this group regularly will monitor each HR function using HR
industry metrics and employee cost benchmarks to ensure that best
practices are continually being applied and improved.
- Third Party Vendors. As part of our eHR solution, we consider whether
certain discrete HR services, such as pension management and relocation
administration, can be more effectively and efficiently handled by a
third party vendor. If the client is already outsourcing services, we
evaluate the providers they currently are using and recommend changes as
necessary. At the time we become responsible for a client's HR
organization, we will assume and administer the third party contracts and
manage the relationships with these third party vendors. We will
continuously evaluate the level of service being provided by the third
parties and change vendors or provide the service directly as
appropriate. We believe our familiarity and experience with HR best
practices
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and with the market for third party HR vendors puts us in a unique
position to be able to evaluate whether the services being provided by a
third party meet the needs of a given client and comply with HR best
practices. In addition, we believe we will be able to negotiate greater
cost savings on behalf of our clients for the delivery of these services
than an individual client would be able to attain on its own because of
the large volume of business we expect to manage.
- Systems and Applications. We will manage all of the existing human
resources information technology systems and applications on behalf of
our clients until they can be migrated to a combination of our client
service centers and our alliance partners' IT infrastructure hosting
centers. We plan to manage all of the essential back-end systems, such as
HR application management, in order to provide full service
accountability and control. Application server management and hosting
will be provided by our IT infrastructure partners and backed-up by their
sophisticated disaster backup and recovery systems.
SERVICES
Our eHR solution will provide a full spectrum of web-enabled process
management services that address and streamline the five major categories of HR
processes. We plan to accept full responsibility for all HR functions in these
processes and manage all third party vendors to provide a comprehensive
solution.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------
GLOBAL HR CATEGORIES PROCESS MANAGEMENT SERVICES
- -----------------------------------------------------------------------------------
Organization and - Organization Development
People Development - Training
- Employee Development
- Performance Management
- Policy and Legal Compliance
- -----------------------------------------------------------------------------------
Total Compensation - Compensation
- Benefits
- Payroll
- -----------------------------------------------------------------------------------
Workforce Services - HR Strategy
- Labor Relations and Employee Relations
- Third Party Vendor Sourcing and Management
- Employee Communications
- -----------------------------------------------------------------------------------
Employee Data Management - Employee Data and Records Management
- HR Information Technology and Information Services
- Employee and Manager Self Service -- myHR
- -----------------------------------------------------------------------------------
Workforce Planning - Recruiting, Resourcing and Staffing
- Expatriate Administration
- Domestic Relocation
- -----------------------------------------------------------------------------------
</TABLE>
Organization and People Development. We seek to develop and implement
organizational strategies and process improvement initiatives. We will develop
models to establish performance goals for the organization and provide the tools
needed to assess employee or group performance against those goals. We will
develop training strategies, assess training needs, develop courses and related
materials, coordinate logistics, and deliver training and post training
assessments and follow-up. We also intend to review and address compliance with
HR-related legal requirements such as equal employment opportunities, as well as
many aspects of governmental reporting requirements.
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Total Compensation. We seek to provide a broad range of services, including
the design, development, administration and communication of compensation and
benefits programs. We will provide the timely and accurate processing of a
client's payroll, and manage their deferred compensation, stock options,
long-term performance plans, defined benefit plans, health and welfare plans and
other benefit programs.
Workforce Services. We will assist our clients in developing and
implementing their long-term HR strategy with frequent input from our consulting
unit and individuals from our centers of expertise concerning HR best practices.
We help our clients in their efforts to promote and maintain effective
relationships with all of their employees. We work with our clients to retain a
productive and committed workforce.
Employee Data Management. Our integrated, web-enabled technology will allow
us to capture, track, modify and report large amounts of employee related data.
We plan to develop human resources information system strategies and policies,
as well as manage the technical infrastructure, including maintenance of
organization codes, administration of position management and employee
indicative data.
Workforce Planning. We plan to establish resources and workforce strategies
that help effectively deploy and measure human capital. We will develop
candidate pools, assess and select candidates, and manage recruiting and other
staffing functions. We will establish and administer expatriate and domestic
relocation policies and programs, address and manage the special needs of the
expatriate and domestic relocation populations, and handle the repatriation of
employees.
ACQUISITION OF CERTAIN ASSETS OF GUNN PARTNERS
In November 1999, we acquired certain assets of Gunn Partners, Inc., a
business process improvement consulting company with operations in the United
States and Europe. Gunn Partners has been consulting with corporations in the
Global 500 since 1991 on administrative staff functions, such as human resources
and finance and accounting, as well as procurement, information technology,
customer service, real estate and facilities, and environmental health and
safety. Gunn Partners is our wholly-owned subsidiary that currently serves as
our consulting unit, assisting our clients in the benchmarking, baselining,
design, transition and transformation of HR and affinity processes, while
continuing to provide its full range of services to its existing clients. During
the last two years, Gunn Partners provided consulting services to some of the
largest companies in the Global 500, including Bank of America, British Telecom,
General Motors, Hewlett-Packard, Lockheed Martin, Pfizer, Royal Dutch Shell, and
Xerox. We plan to have Gunn Partners continue to refine and implement HR best
practices and to develop prospects for our comprehensive eHR solution.
The research arm of Gunn Partners has completed more than 30 major research
studies in staff functions such as human resources, finance and procurement.
These studies span fifteen major administrative processes, such as payroll,
benefits, compensation, billing and accounts payable. Gunn Partners' research
organization currently has over 200 clients, which includes recognized industry
practice leaders and Global 500 corporations from a broad cross-section of
industries. These collaborative research studies typically last for five to
eight months and use a number of tools and techniques, including qualitative and
quantitative benchmark tools, surveys of current business practices, and
customer service surveys, as well as site visits and face-to-face working
sessions with practice leaders. Gunn Partners has also conducted over 50 best
practices events where Global 500 administrative leaders discuss and outline
best practice solutions to important challenges facing their own organizations
through conferences, workshops, forums and study missions. Over 800
organizations have attended these events over the past seven years.
MAJOR CLIENTS
BP Amoco. In December 1999, we entered into a seven year Framework
Agreement with BP Amoco p.l.c., a leading international energy and
petrochemicals company, to create a comprehensive eHR services organization and
provide a broad range of human resources management services to BP Amoco and its
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affiliates. BP Amoco currently operates in more than 40 countries and has more
than 80,000 employees and an equal or greater number of annuitants.
Our initial contracts under the Framework Agreement cover BP Amoco
employees in the United Kingdom and the United States, representing
approximately 70% of their total employees and annuitants. We have worked with
BP Amoco to identify 18 separate processes involved in BP Amoco's HR
organization: training, organization development, HR strategy, labor relations,
compliance, expatriate relocation and administration, information services,
benefits, compensation, employee relations, vendor administration, payroll,
employee development, recruiting, severance, performance management, domestic
relocation, and information technology. Each of these processes is divided into
component tasks or functions and responsibility for each is allocated either to
BP Amoco or to us. In general, we will be responsible for systems design and
implementation, routine employee communications, data gathering, processing and
retrieval, management reporting, vendor management, and overall administration
of related HR functions. BP Amoco will remain responsible for strategic
planning, policy decisions, employee relations, legal compliance, and
professional resources. Some BP Amoco employees involved in providing the HR
services will become our employees. BP Amoco will pay severance costs for BP
Amoco employees whose employment terminates as a result of the transition of BP
Amoco's HR management processes to our service model.
We are currently in a transition period during which we are converting BP
Amoco's HR management processes in the U.K. and U.S. to our systems and
infrastructure step by step according to a detailed transition plan. Among other
things, this requires us to integrate IT systems, compile and transfer data,
hire or retain additional personnel to handle the workload and make arrangements
to assign or administer BP Amoco's contracts with third parties providing
discrete services that constitute a part of our integrated service offering. We
expect this transition period to last approximately 14 months.
After the initial transition period, we are obligated to provide our
services to BP Amoco in the U.K. and the U.S. for fixed fees that are generally
equal to or less than BP Amoco's historical costs incurred in connection with
the services that we are assuming. After we have achieved a negotiated minimum
return from provision of our services, we are required to share further savings
with BP Amoco in a negotiated gain-sharing arrangement that is intended to
motivate us and BP Amoco to maximize efficiency in the provision of our
services.
The Framework Agreement contemplates extending the arrangement beyond the
U.K. and the U.S. to unite all of BP Amoco's worldwide operations under one
global integrated eHR solution. Under the Framework Agreement, we have a right
to provide human resources management services for each country in the world, in
addition to the U.S. and the U.K., in which BP Amoco desires to obtain (or
extend existing) human resources management services. BP Amoco is not obligated
to add additional countries and we must demonstrate our ability to meet their
service needs and provide specified cost savings in other countries to expand
the arrangement. Adding a country to the arrangement involves advance
notification from BP Amoco followed by a detailed due diligence process through
which we will work with BP Amoco to identify their HR service needs and costs in
that country, and our ability to meet those needs and provide specified cost
savings in that country. If our mutual due diligence procedures indicate that we
can provide adequate levels of service and achieve specified cost savings for BP
Amoco in a particular country, we will subject to consent from the relevant BP
Amoco affiliate enter into a supplemental agreement with the affiliate for that
country, for an expected term of five years. We expect additional country
agreements to involve the same kinds of transition and pricing arrangements as
the U.K. and U.S. Country Agreements, although we anticipate completing
additional country transitions more quickly based on our initial experiences in
the U.K. and the U.S.
The Framework Agreement will run for seven years and the U.K., U.S. and
other Country Agreements will run for a minimum of five years, subject to BP
Amoco's right to terminate in the event of our insolvency or material breach or
performance failure, or if we are taken over by an entity that is a competitor
of BP Amoco or that is financially weaker than we are, or that, through control
of Exult, could adversely affect BP Amoco's reputation. In addition, from
December 2002 until December 2006,
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BP Amoco may terminate the Framework Agreement or the U.S. or U.K. or any other
Country Agreement upon giving us 12 months' advance notice and by making
termination payments designed to defray our costs and give us a specified return
on our investment in the contract. After December 2004 BP Amoco may terminate a
Country Agreement at any time upon 12 months' advance notice without the
obligation to make such termination payments. Termination of the Framework
Agreement causes termination of the U.S. and U.K. agreements and any other
Country Agreements that are in effect at that time. Short of terminating an
entire Country Agreement, BP Amoco may also terminate our rights to provide
particular services in a country if we are unable to meet performance standards
for those services in that country. All BP Amoco agreements terminate in
December 2006 if not renewed by mutual agreement. Any termination involves a
winding-down period during which we continue to be paid for providing services
while transferring back to BP Amoco or to a new service provider the HR
processes for which we have been responsible. Additional country agreements will
contain similar termination provisions.
Pactiv Corporation. In January 2000, we entered into a three year agreement
with Pactiv Corporation, a leading provider of advanced packaging solutions
formerly known as Tenneco Packaging. Pactiv currently operates 86 facilities in
18 countries around the world. Under this agreement, we will assume complete
management and accountability for Pactiv's North American payroll and accounts
payable processes. As part of this agreement, we recently acquired substantially
all of the assets of Pactiv's 71,000-square-foot, state-of-the-art client
service center near Houston in The Woodlands, Texas. We plan to use this client
service center to provide HR and affinity process management services to Pactiv,
Tenneco, BP Amoco and other future clients.
Tenneco Automotive. In January 2000, we entered into a three year agreement
with Tenneco Automotive, a large international manufacturer of ride management
control and exhaust systems and products with approximately 24,000 employees
worldwide. Under this agreement, we will provide human resources/payroll, and
related finance and accounting process outsourcing services and will assume
complete management and accountability for Tenneco's North American payroll and
accounts payable processes.
SALES AND MARKETING
Our sales and marketing team targets senior executives of Global 500
corporations. As of March 1, 2000, our business development group consisted of
ten professionals, and our marketing group consisted of six professionals. We
employ a team selling approach, whereby our business development team
identifies, qualifies and prioritizes prospects, manages the due diligence
process and negotiates the commercial agreements necessary to deliver leading HR
solutions. Working with colleagues in our centers of expertise, IT delivery,
client services centers, strategy and other functional areas, our business
development team functions as the overall project manager in crafting our eHR
solution on behalf of our clients. Due to the strategic nature of our
engagements, we typically interface with the senior business and technical
management personnel of our current and potential clients. Our marketing efforts
are focused on creating awareness of the comprehensive nature of our eHR
solution, establishing Exult as the leader in this new market and building the
Exult brand. We use a broad mix of programs to accomplish these goals, including
market research, brochures, information pieces published for industry forums,
written articles published for industry trade press, public relations
activities, marketing programs, seminars, speaking engagements and web site
marketing. The goal of these activities is to promote Exult as the leading
provider of comprehensive eHR, and to promote the advantages of adopting our
integrated eHR solution.
COMPETITION
We believe our primary competitors are large human resource departments
within Global 500 corporations because these departments have strong, existing
relationships with the senior executives of our target clients. To a lesser
extent, we believe we are in competition with third party vendors who typically
only address discrete HR processes. These third party vendors include:
- the consulting divisions of the Big Five accounting firms;
- companies that provide a select transactional service, such as payroll
processing or benefits administration; and
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<PAGE> 42
- other consulting companies that provide consulting for individual
projects, such as HR strategy, executive recruiting and executive
compensation.
We currently use many of these leading third party vendors in our
comprehensive eHR solution, and expect to continue to use these vendors to
provide certain technologies and HR services for our clients. We do not believe
any competitor currently assumes responsibility for all of the human resources
processes within a Global 500 HR department.
INTELLECTUAL PROPERTY
We regard the protection of our trademarks, service marks, copyrights,
trade secrets and other intellectual property rights as critical to our future
success. We rely on various intellectual property laws and contractual
restrictions to protect our proprietary rights in products and services. We
currently have pending service mark applications in the United States for the
marks EXULT, E-F&A, MYHR, "PROCESS EXCELLENCE, PROVEN RESULTS," and our logo. We
have not yet filed trademark or service mark applications anywhere outside of
the United States. We cannot guarantee that we will be able to secure
registrations of our marks domestically or in any foreign country. Our inability
to register and protect marks could require us to stop using them or to share
them with others, which could cause confusion in the marketplace and harm our
business.
In addition, we currently hold various Internet domain names, including
"www.exult.net." The acquisition and maintenance of domain names generally is
regulated by Internet regulatory bodies. The regulation of domain names in the
United States and in foreign countries is subject to change. Governing bodies
may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
may be unable to acquire or maintain relevant domain names in all countries in
which we conduct business or into which we choose to expand. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights continues to evolve. Therefore, we may
be unable to prevent third parties from acquiring domain names that are similar
to, infringe upon or otherwise decrease the value of our intellectual property
and other proprietary rights.
We also rely on technologies that we license from third parties. These
licenses may not continue to be available to us on commercially reasonable terms
in the future, if at all. As a result, we may be required to obtain substitute
technology of lower quality or at greater cost, which could materially adversely
affect our business, results of operations and financial condition.
As is common with technology companies, from time to time, third parties
may assert patent, copyright, trademark and other intellectual property rights
to our intellectual property or proprietary information or technologies. Any
claims asserting that our products, services, intellectual property, or
proprietary information infringe or may infringe proprietary rights of third
parties could require significant defense expenditures and, if determined
adversely to us, could seriously harm our business, results of operation and
financial condition.
EMPLOYEES
As of March 1, 2000, we employed 175 people, including 20 in service
development, 97 in operations and delivery, 12 in sales and marketing, 31 in
consulting and research and 15 in general and administrative. All employees
other than one are employed on a full time basis. We believe that we maintain
good relations with our employees.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this prospectus, we are not a party to any material legal proceedings.
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<PAGE> 43
FACILITIES
Our corporate headquarters are located in approximately 7,000 square feet
of office space in Irvine, California under a three year lease that expires in
June 2002. Our lease agreement for this facility requires monthly base rental
payments of approximately $17,900, which payment will increase to $18,600 for
the last year of the lease. We are currently renegotiating our existing lease to
relocate during the second quarter of 2000 to 19,000 square feet in the same
building. We also currently lease approximately 71,000 square feet of office
space in The Woodlands, Texas under a lease that expires in April 2006, as well
as office space for our consultants in Georgia, Ohio, Massachusetts, New York,
England and Switzerland.
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<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information with respect to our executive
officers, key employees and directors as of March 1, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
James C. Madden, V........................ 38 Chief Executive Officer, President and
Chairman of the Board
Stephen M. Unterberger.................... 42 Chief Operating Officer and Executive Vice
President
Douglas L. Shurtleff...................... 53 Chief Financial Officer, Executive Vice
President and Treasurer
Peter Ackerson............................ 53 Vice President, Client Service Centers
Brian W. Copple........................... 39 Vice President, General Counsel and
Secretary
Scott J. Figge............................ 40 Vice President, Business Development
Robert Gunn............................... 52 Vice President, Executive Client Lead
Mark B. Hodges............................ 35 Vice President, Strategy and Marketing
Alan Little............................... 52 Executive Director, Global Client
Relationships
Barbara A. Coull-Williams................. 47 Vice President, HR Business Processes
Peter Work................................ 41 Chief Technology Officer
Rebecca L. Work........................... 45 Chief Information Officer
J. Michael Cline(2)....................... 40 Director
Steven A. Denning(1)...................... 51 Director
Mark F. Dzialga(2)........................ 35 Director
Michael A. Miles(1)....................... 60 Director
John R. Oltman(2)......................... 54 Director
A. Michael Spence(1)...................... 56 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
JAMES C. MADDEN, V has been our Chief Executive Officer and President since
November 1998 and our Chairman since February 2000. Mr. Madden served as the
Corporate Chief Financial Officer at MCI Systemhouse, the outsourcing unit of
MCI, from June 1997 to November 1998. From June 1995 to June 1997, Mr. Madden
served as the President of the U.S. and Latin American Divisions, and from
January 1994 to June 1995, he was the General Manager of MCI Systemhouse's
Pacific Region. He first joined MCI Systemhouse in 1993 as Vice President and
Managing Director of the Los Angeles office. Prior to joining MCI Systemhouse,
Mr. Madden was a Principal at Booz-Allen & Hamilton from 1991 to 1993. Mr.
Madden began his career with Andersen Consulting, where he created and led
Andersen's first outsourcing practice on the west coast. Mr. Madden received his
B.B.A. degree in Finance and B.A. degree in Geology from Southern Methodist
University.
STEPHEN M. UNTERBERGER has been our Executive Vice President, Chief
Operating Officer and Secretary since February 1999. Prior to joining Exult, Mr.
Unterberger served as the Vice President and Operating Executive of the U.S.
Division of MCI Systemhouse from December 1997 to February 1999, and as its Vice
President, Western Region from September 1996 to December 1997. From January
1994 to September 1996, Mr. Unterberger managed large consulting and outsourcing
engagements for MCI Systemhouse. From September 1988 to January 1994, Mr.
Unterberger served with Price Waterhouse in its information technology
management consulting practice. Mr. Unterberger has a B.A. degree in Economics
from the University of Pennsylvania.
DOUGLAS L. SHURTLEFF has been our Chief Financial Officer and Executive
Vice President since joining Exult in September 1999. From March 1999 to
September 1999, Mr. Shurtleff was Chief Financial Officer
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<PAGE> 45
for National Water & Power, Inc., a business process outsourcing provider of
utility billing services to the multi-family apartment industry. From June 1995
to February 1999, Mr. Shurtleff was Senior Vice President and Chief Financial
Officer of USCS International, a publicly traded, business outsourcing provider
of software and billing services to communications and other large
transaction-based businesses. From January 1990 to June 1995, he served as the
Vice President of Finance and Administration for Infonet Services Corporation, a
provider of public international data communications. Mr. Shurtleff was
instrumental in and oversaw the spin-off of Infonet from Computer Sciences
Corporation, where he served as the Group Vice President for Finance and
Administration from October 1984 to January 1990. Mr. Shurtleff is a certified
public accountant and has an M.B.A. degree and a B.S. degree in Accounting from
the University of Southern California.
PETER ACKERSON has been our Vice President, Client Service Centers since
joining Exult in September 1999. Prior to joining Exult, Mr. Ackerson served as
the Director of Human Resources Services for Sears, Roebuck and Co. from 1967 to
1999. During his 30 year career in human resources, strategic planning and
administration, Mr. Ackerson has acquired significant knowledge of both
strategic and transactional sides of human resources. He is certified as a
Senior Professional in Human Resources by the Human Resources Certification
Institute. Mr. Ackerson attended the University of Virginia from 1964 to 1966.
BRIAN W. COPPLE has served as our Vice President, General Counsel and
Secretary since February 2000. Prior to joining Exult, Mr. Copple served as a
Senior Vice President and the General Counsel for EPS Solutions Corporation, a
provider of outsourced executive search, performance learning and financial
services from February 1999 to February 2000. From January 1988 to February
1999, Mr. Copple practiced corporate and securities law with Gibson, Dunn &
Crutcher LLP, most recently as a partner. Mr. Copple has a J.D. degree and an
M.B.A. degree from the University of California, Los Angeles and an A.B. degree
in Political Science from Stanford University.
SCOTT J. FIGGE has been our Vice President, Business Development since
April 1999. Prior to joining Exult, Scott was the Vice President responsible for
U.S. IT outsourcing business development for MCI's outsourcing unit from 1998 to
1999. From 1993 to 1998, he served in various management positions with MCI,
including its Vice President of U.S. Strategic National Accounts, Vice President
of Western Region Client Delivery and Sales and Managing Director responsible
for client delivery and business development. Prior to 1993, Mr. Figge held key
leadership roles at EDS, IBM Corporation and Russell Reynolds Associates. Mr.
Figge has a B.A. degree in Economics from the University of California at Los
Angeles and has an M.B.A. degree in Finance from Northwestern University's
Kellogg School of Management.
ROBERT GUNN founded Gunn Partners in 1991 and has served as our Vice
President, Executive Client Lead since we acquired Gunn Partners in 1999. Prior
to founding Gunn Partners, Mr. Gunn served as a partner at A. T. Kearney from
1981 to 1991 and launched Kearney's Administrative Practice in 1987. From 1978
to 1981, Mr. Gunn served as a consultant with William E. Hill. Mr. Gunn received
an M.B.A. degree from the Wharton School of Management at the University of
Pennsylvania and his A.B. degree in Political Science from Williams College.
MARK B. HODGES has been our Vice President, Strategy and Marketing since
July 1999. Prior to joining Exult, Mr. Hodges served as the Vice President and
Worldwide Director of Dataquest's IT Services Vendor Group, where he authored
the first market research report on the business process outsourcing market in
1989. From 1988 to 1989, Mr. Hodges was the Chief Operating Officer for G2R,
Inc, a market research and consulting firm which he co-founded. Mr. Hodges has a
B.A. degree in Political Science and Economics from the University of
California, Berkeley.
ALAN LITTLE has served as our Executive Director, Global Client
Relationships since January 2000. Prior to joining Exult, Mr. Little was a
partner with PricewaterhouseCoopers from 1988 to December 1999, where he was
responsible for the human resources consulting business, the organization and
change management practice and, starting in 1996, HR outsourcing. From 1973 to
1988, Mr. Little was a worldwide partner at Hay Management Consultants, where he
served as Chief Executive for Organization and Management Development Business
for the New Zealand Board, the Asia-Pacific Board and the
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<PAGE> 46
European Board. Mr. Little received a first class honors degree in Psychology
from the University of Sheffield, England.
BARBARA A. COULL-WILLIAMS has been our Vice President, HR Business
Processes since joining Exult in May 1999. Prior to joining Exult, Ms. Williams
served as the Vice President, Human Resources of Pacific Gas and Electric
Company from 1993 to 1995 and from 1997 to 1999, and as its Vice President of
Division Operations from 1995 to 1997. Barbara has served on many boards for
community business development, community services and the arts. Her latest
board membership was with the National Red Cross of the San Francisco Bay area.
Ms. Williams has a B.A. degree in Psychology from Skidmore College and a M.S.
degree from Cornell University's School of Industrial and Labor Relations.
PETER WORK has been our Chief Technology Officer since April 1999. Prior to
joining Exult, Mr. Work served as the Director of Strategic Technology for the
Consumer Products Division of The Walt Disney Company. From 1986 to 1994, Mr.
Work served in various positions with Price Waterhouse, most recently as a
Senior Manager. Prior to that, Mr. Work was employed by Ramboll & Hanemann, a
leading consulting company in Denmark. Mr. Work is the spouse of Rebecca Work,
our Chief Information Officer. Mr. Work has a B.S. degree in Electrical
Engineering from the Technical University of Denmark, a Master's degree in
Operations Science from Princeton University and the Technical University of
Denmark, and a Bachelor of Commerce degree in Human Resources and Strategic
Planning from Copenhagen Business School.
REBECCA L. WORK has served as our Chief Information Officer since joining
Exult in 1999. Prior to joining Exult, Ms. Work served as the head of Delivery
Management for the U.S. Division of MCI Systemhouse from 1994 to 1999. Ms. Work
is the spouse of Peter Work, our Chief Technology Officer and has a B.S. degree
in Management Information Systems from Colorado State University.
J. MICHAEL CLINE has been a Director of Exult since 1998 and our Chairman
of the Board until February 2000. Since December 1, 1999, Mr. Cline has been the
Managing Partner of Accretive Technology Partners, a private investment company
focused in business process outsourcing and business to business e-commerce.
From 1989 to 1999, Mr. Cline served as a Managing Member of General Atlantic
Partners, LLC, a private equity investment firm focused exclusively on Internet
and information technology investments on a global basis. From 1986 to 1989, Mr.
Cline helped found AMC, a software company which was later sold to Legent
Corporation. Prior to AMC, Mr. Cline was an associate at McKinsey & Company. Mr.
Cline received an M.B.A. degree from Harvard Business School and a B.S. degree
from Cornell University. Mr. Cline currently serves as a director of Manugistics
Group, Inc., Brio Technology, Inc. and FirePond, Inc., as well as a number of
private technology companies. Mr. Cline is also a Trustee of the Wildlife
Conservation Society.
STEVEN A. DENNING has been a Director of Exult since November 1998 and is
currently the Executive Managing Member of General Atlantic Partners, LLC, a
private equity investment firm focused exclusively on Internet and information
technology investments on a global basis, and has been with General Atlantic
since 1980. He received an M.B.A. degree from Stanford Graduate School of
Business, an M.S. degree from the Naval Graduate School in Monterey, California
and a B.S. from the Georgia Institute of Technology. Mr. Denning is a director
of Eclipsys Corporation, GT Interactive Software Corp. and several private
information technology companies.
MARK F. DZIALGA has been a Director of Exult since February, 2000 and is
currently a member of General Atlantic Partners, LLC. Mr. Dzialga has been with
General Atlantic Partners, LLC since July 1998 and was the co-head of the Merger
Technology Group at Goldman, Sachs & Co. from 1990 to 1998. Mr. Dzialga received
an M.B.A. degree from the Columbia University School of Business and a B.S. in
Accounting from Canisius College. Mr. Dzialga is a director of several private
information technology companies.
MICHAEL A. MILES has been a Director of Exult since December, 1999. He is
the former Chairman of the Board and Chief Executive Officer of Philip Morris
Companies Inc., having served in that position from September 1991 to July 1994.
Prior to assuming that position, Mr. Miles was Vice Chairman and a member of the
Board of Directors of Philip Morris Companies Inc. and Chairman and Chief
Executive
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<PAGE> 47
Officer of Kraft General Foods, Inc., positions he held from December 1989. Mr.
Miles is also a Special Limited Partner in the investment firm of Forstmann
Little & Co. and is the non-executive chairman of Community Health Systems, a
hospital management company owned by Forstmann Little & Co. He is also a member
of the boards of directors of Dell Computer Corporation, Morgan Stanley Dean
Witter, Sears, Roebuck and Co., Time Warner Inc., The Allstate Corporation and
Interpublic Group of Companies.
JOHN R. OLTMAN has been a Director of Exult since July 1999 and has served
as the President of JRO Consulting Inc. since 1995, in which role he serves as
director, advisor and investor in leading technology companies and investment
firms. Mr. Oltman also currently serves as the Vice-Chairman of Lante
Corporation and Chairman of XOR, Inc. and Evolve Software, Inc. Mr. Oltman also
serves as a director for Alysis Technologies, Inc., InaCom Corp. and Premier
Systems Integrators, Inc. From February 1996 through August 1997, Mr. Oltman
served as Chairman and senior member of the Executive Committee of TSW
International, a global leader in asset care software and services. From July
1991 to November 1995, Mr. Oltman served as the Chairman and Chief Executive
Officer of SHL Systemhouse, a large provider of client/server systems
integration and technology outsourcing. Before joining SHL Systemhouse, Mr.
Oltman was managing partner for Andersen Consulting's Chicago Consulting Group.
From 1967 to 1970, Mr. Oltman was a member of the technical staff at Bell
Laboratories. Mr. Oltman received a B.S. degree from the University of Illinois
in 1967 and an M.B.A. degree from Northwestern University's Kellogg School of
Management in 1970.
A. MICHAEL SPENCE has been a Director of Exult since July 1999 and served
as the Dean of the Graduate School of Business at Stanford University from July
1990 to August 1999. From 1975 to 1990, Mr. Spence served as a Professor of
Economics and Business Administration at Harvard University. In 1983, he was
named Chairman of the Economics Department and George Gund Professor of
Economics and Business Administration. Mr. Spence was awarded the John Kenneth
Galbraith Prize for excellence in teaching and the John Bates Clark Medal for a
"significant contribution to economic thought and knowledge." From 1984 to 1990,
Mr. Spence served as the Dean of the Faculty of Arts and Sciences at Harvard
University. From 1973 to 1975, Mr. Spence served as an Associate Professor of
Economics at Stanford University. Mr. Spence has a B.A. degree from Princeton
University, a B.S. degree and an M.A. degree from Oxford University and a Ph.D.
in Economics from Harvard University. Mr. Spence currently serves on the Board
of Directors of Siebel Systems, Inc., General Mills, Inc., Nike, Inc., Torstar
and eGain Communications Corporation.
EXULT ADVISORY COMMITTEE
We formed the Exult Advisory Council in order to gain exposure to new ideas
and market developments, including new standards for HR best practices,
recommendations on the efficacy of new service offerings and service delivery
approaches, outside review and oversight of client quality assurance programs, a
better understanding of market requirements, and increased exposure in the
marketplace. The committee is currently comprised of the following individuals:
- Naomi Bloom, Managing Partner of Bloom & Wallace
- Row Henson, Vice President, Human Resources Management Systems for
PeopleSoft USA, Inc.
- Dave Ulrich, Professor of Business at the University of Michigan
- Jac Fitz-enz, Ph.D., Chairman and founder of the Saratoga Institute
- John T. Phippen, former Chief Information Officer for Mattel, Inc.
- Sharron D. Garrett, Senior Vice President and Chief Information Officer
for The Walt Disney Company, Inc.
- William J. Pade, Director of the high technology group of McKinsey &
Company and
- Robert W. Gunn, Vice President, Executive Client Lead for Exult and
founder of Gunn Partners
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We also intend to have one representative from each of our clients sit on
this committee. We believe that the Exult Advisory Council will help ensure our
alignment with the leaders in the HR field and our development of HR best
practices.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors will be divided into three classes of directors
serving staggered three-year terms upon the closing of this offering. As a
result, approximately one-third of the board of directors will be elected each
year. These provisions, together with the provisions of our certificate of
incorporation, allow the Board of Directors to fill vacancies of or increase the
size of the Board of Directors, and may deter our stockholders from removing
incumbent directors and filling these vacancies with its own nominees to gain
control of the board of directors.
COMMITTEES OF THE BOARD
The board of directors has an audit committee and a compensation committee.
The audit committee consists of Messrs. Cline, Dzialga and Oltman. The audit
committee recommends the appointment of our independent public accountants,
reviews the scope of the annual audit and other services provided by our
auditors, and reviews our auditors' report on our financial statements. The
audit committee also reviews our internal accounting controls and our accounting
and financial policies in general.
The compensation committee consists of Messrs. Denning, Miles and Spence.
The compensation committee reviews and makes recommendations to the board of
directors on matters relating to employee compensation and benefit plans and
reviews and approves salaries, benefits, bonuses and equity incentives for all
executive officers. The compensation committee also administers our equity
incentive and stock option plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before January 2000, we did not have a compensation committee and all
decisions regarding executive compensation were made by our board of directors.
No interlocking relationship exists between any of our executive officers or any
member of our compensation committee and any member of any other company's board
of directors or compensation committee.
DIRECTOR COMPENSATION
Our directors receive no cash remuneration for serving on the board of
directors or any board committee. However, directors may be reimbursed for
reasonable expenses incurred by them in attending board and committee meetings.
Our directors are eligible to receive options under our 1999 Stock Option/ Stock
Issuance Plan. See "-- 1999 Stock Option/ Stock Issuance Plan."
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
James C. Madden entered into an employment agreement with us in October
1999 to serve as our Chief Executive Officer. Under this agreement, Mr. Madden's
base salary is $450,000 per year, and he is eligible to receive annual bonuses
of up to 50% of his base salary, as determined by our board of directors. If we
terminate Mr. Madden's employment for any reason, other than for cause as
defined in the agreement, Mr. Madden will be entitled to receive one year's
annual salary and bonus. In addition, if within 18 months following a change of
control of Exult, Mr. Madden's level of responsibility is reduced below his
current level and duties, his salary or bonus target is reduced, or his primary
location of work is greater than 50 miles from Newport Beach, California, then
he will be entitled to terminate his employment and receive one year's salary
and bonus.
Stephen M. Unterberger entered into an employment agreement with us in
October 1999 to serve as our Vice President and Chief Operating Officer. Under
this agreement, Mr. Unterberger's base salary is $400,000 per year and he is
eligible to receive annual bonuses of up to 50% of his base salary, as
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<PAGE> 49
determined by our board of directors and Chief Executive Officer. If we
terminate Mr. Unterberger's employment for any reason, other than for cause as
defined in the agreement, Mr. Unterberger will be entitled to receive one year's
annual salary and bonus. In addition, if within 18 months following a change of
control of Exult, Mr. Unterberger's level of responsibility is reduced below his
current level and duties, or his salary or bonus target is reduced, or his
primary location of work is greater than 50 miles from Irvine, California, then
he will be entitled to terminate his employment and receive one year's salary
and bonus.
Barbara A. Coull-Williams entered into an employment agreement with us in
August 1999 to serve as our Vice President, Human Resource Processes. Ms.
Coull-Williams' base salary is $215,000 per year and she is eligible to receive
annual bonuses of up to $107,500, as determined by our board of directors and
Chief Executive Officer. If we terminate Ms. Coull-Williams' employment for any
reason other than for cause as defined in the agreement, Ms. Coull-Williams will
have the right to receive severance benefits in accordance with our Executive
Severance Plan, as described below.
Scott J. Figge entered into an employment agreement with us in October 1999
to serve as our Vice President, Business Development. Mr. Figge's base salary is
$230,000 per year and he is eligible to receive annual bonuses of up to
$140,000. If we terminate Mr. Figge's employment for any reason, other than for
cause as defined in the agreement, Mr. Figge will be entitled to receive the
greater of his annual salary or severance benefits payable under our Executive
Severance Plan, as described below.
Rebecca L. Work entered into an employment agreement with us in August 1999
to serve as our Vice President and Chief Information Officer. Ms. Work's base
salary is $190,000 per year and she is eligible to receive annual bonuses of up
to $95,000. If we terminate Ms. Work's employment for any reason other than for
cause as defined in the agreement, Ms. Work will have the right to receive
severance benefits in accordance with our Executive Severance Plan, as described
below.
Our Executive Severance Plan provides benefits to covered persons whose
employment is involuntarily terminated by us for reasons other than cause, as
defined in such plan. The benefits payable range from four weeks to 12 months of
salary, depending on a number of factors including the individual's years of
service with Exult.
Pursuant and subject to the terms and conditions of our stock option plans,
we have granted and will grant to our named executive officers stock options
that will vest over time. We also provide our named executive officers with
health and related benefits that are generally made available to our other
executives. All named executive officers are at will employees and each of their
employment agreements can be terminated at any time by either party.
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EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by, and paid to, our
Chief Executive Officer, our three other most highly compensated executive
officers for the year ended December 31, 1999. We provide our officers with
non-cash group life and health benefits generally available to all salaried
employees. These benefits are not included in the table below due to applicable
Securities and Exchange Commission rules. No named executive officer received
personal benefits or perquisites that exceeded the lesser of $50,000 or 10% of
his total annual salary and bonus for 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------
AWARDS
ANNUAL COMPENSATION ----------------
------------------------------------ SHARES OF COMMON
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION(1) OPTIONS(#) COMPENSATION
-------- ------- --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
James C. Madden.................... $504,808 $22,893 $17,206 885,600 $11,161(2)
Chief Executive Officer,
President and Chairman of the
Board
Stephen M. Unterberger............. 323,918 22,989 19,916 2,578,325 16,221(3)
Chief Operating Officer and
Executive Vice President
Barbara A. Coull-Williams.......... 135,739 39,540 88,956 124,000 97,052(4)
Vice President, HR Business
Processes
Scott J. Figge..................... 156,385 63,502 5,771 794,585 --
Vice President, Business
Development
Rebecca L. Work.................... 132,985 30,133 6,253 147,510 3,262
Chief Information Officer
</TABLE>
- -------------------------
(1) Represents amounts reimbursed for the payment of taxes.
(2) Includes life insurance premiums paid by Exult for the named executive
officer.
(3) Includes $9,167 for life insurance premiums paid by Exult and $7,054 for
relocation expenses.
(4) Represents relocation costs paid to the named executive officer. Includes
life insurance premiums paid by Exult on behalf of the named executive
officer.
OPTION GRANTS IN LAST FISCAL YEAR
Each option listed in the table below was granted under, or has been
assumed under, the 1999 Stock Option/Stock Issuance Plan. All of such options
are granted under the 1999 plan. The following table indicates information
regarding options granted to the named executive officers during 1999. We have
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS MARKET ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE ON PRICE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES PRICE PER GRANT EXPIRATION -----------------------------------
NAME GRANTED IN 1999 SHARE DATE DATE 0% 5% 10%
---- ---------- ---------- --------- -------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James C. Madden......... 318,450 3.1% $1.73 $1.73 12/07/04 $ -- $346,470 $ 878,022
567,150 5.6 1.57 1.57 12/07/09 -- 559,984 1,419,109
Stephen M.
Unterberger........... 2,343,930 23.1 0.11 0.11 05/25/09 -- 162,149 410,918
234,395 2.3 1.57 1.57 12/07/09 -- 231,433 586,497
Barbara A.
Coull-Williams........ 117,195 1.2 0.33 0.65 06/09/09 37,502 85,410 158,909
6,805 0.1 0.65 0.65 09/22/09 -- 2,782 7,050
Scott J. Figge.......... 585,985 5.8 0.33 0.65 06/09/09 187,515 427,055 794,556
208,600 2.1 1.57 1.57 12/07/09 -- 205,964 521,954
Rebecca L. Work......... 140,635 1.4 0.33 0.65 06/09/09 45,003 102,492 190,692
6,875 0.1 0.65 0.65 09/22/09 -- 2,810 7,122
</TABLE>
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Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise and represent hypothetical gains that
could be achieved for the respective options if exercised at the end of the
option term. The 0%, 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange Commission and
do not represent our estimate or projection of our future common stock prices.
These amounts represent assumed rates of appreciation in the value of the common
stock from the fair market value on the date of grant. Actual gains, if any, on
stock option exercises are dependent on the future performance of our common
stock and overall stock market conditions. The amounts reflected in the table
may not necessarily be achieved.
YEAR-END OPTION HOLDINGS
The following table indicates aggregated option information for the named
executive officers for the year ended December 31, 1999. There was no public
trading market for our common stock as of December 31, 1999. Accordingly, we
have calculated these values on the basis of the assumed initial public offering
price of $ per share, less the applicable exercise price per share,
multiplied by the number of shares underlying the options. No officers exercised
any options during 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION HOLDINGS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS(#) IN-THE-MONEY OPTIONS
-------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
James C. Madden...................... 630,840 254,760 $ $
Stephen M. Unterberger............... 1,013,280 1,565,040
Barbara A. Coull-Williams............ 124,000 --
Scott J. Figge....................... 353,185 95,350
Rebecca L. Work...................... 157,905 --
</TABLE>
Each option represents the right to purchase one share of common stock. All
of the options in the foregoing table are immediately exercisable, but are
subject to our right to repurchase the shares at their exercise price if the
named executive officer ceases to be employed by us. This repurchase right
lapses over a period of five years following the grant date of the option.
EMPLOYEE BENEFIT PLANS
1999 STOCK OPTION/STOCK ISSUANCE PLAN
In May 1999, we adopted the 1999 Stock Option/Stock Issuance Plan. The
Board of Directors and our stockholders approved the 1999 plan in May 1999. A
total of 10,934,005 shares of common stock have been authorized and reserved for
issuance under the 1999 plan. As of March 1, 2000, options to purchase an
aggregate of 8,390,407 shares were outstanding and 2,013,213 shares were
available for option grants. To the extent we cancel, terminate or repurchase
any unvested shares of common stock issued under the 1999 plan, these shares
will become available for future issuance under this plan.
The 1999 plan is divided into two separate components: (i) the
Discretionary Option Grant Program under which employees, non-employee members
of the Board and consultants may be granted options to purchase shares of common
stock; and (ii) the Stock Issuance Program under which eligible individuals may
purchase shares of common stock at a price not less than 85% of the fair market
value at the time of issuance, or be issued shares of common stock as a bonus
tied to the performance of services rendered. Both of these programs are
administered by the Board of Directors or one or more committees appointed by
the Board of Directors. The Board of Directors has complete discretion to
determine which eligible individuals will receive option grants or stock
issuances under those programs, determine the type, number, vesting requirements
and other features and conditions of awards under the 1999 plan, interpret this
plan and make all other decisions relating to the operation of the 1999 plan.
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<PAGE> 52
Options may be either incentive stock options within the meaning of Section
422 of the Internal Revenue Code, which permits the deferral of taxable income
related to the exercise of these options, or nonqualified options which are not
entitled to this deferral. Incentive stock options may only be granted to
employees and the term of an incentive stock option cannot exceed ten years,
except that the term of an incentive stock option granted to a holder of more
than 10% of our stock cannot exceed five years. The exercise price of incentive
stock options granted under the 1999 plan will in no event be less than 100% of
the fair market value of the common stock on the date of grant, except that an
incentive stock option granted to a holder of more than 10% of our stock will
have an exercise price of no less than 110% of the fair market value on the
grant date, and the exercise price for non-statutory stock options will be no
less than 85% of the fair market value of the common stock on the grant date.
The exercise price for the shares of common stock subject to the option grants
made under the 1999 plan may be paid in cash, check or in shares of common stock
valued at the fair market value on the exercise date. The option may also be
exercised through a cashless exercise method or delivery of a full recourse,
interest bearing promissory note.
Under the 1999 plan, any or all options outstanding under the Discretionary
Option Grant Program may be cancelled in return for the grant of new options
covering the same or a different number of shares of common stock with an
exercise price per share based on the fair market value of the common stock on
the new grant date.
In the event we are acquired by merger or sale of substantially all of our
assets, each outstanding option under the Discretionary Option Grant Program not
assumed by the successor corporation or otherwise continued in effect will
automatically accelerate, and all unvested shares will immediately become vested
and exercisable. Also, any outstanding repurchase rights will automatically
terminate and these shares will become fully vested, except to the extent our
repurchase rights with respect to those shares are assigned to the successor
corporation or otherwise prohibited at the time the option was granted or the
repurchase right was created. Vesting under outstanding options will
automatically accelerate in the event of the termination of the optionee's
services within a designated period, not to exceed 18 months, following an
acquisition in which those options are assumed or continued in effect. Also,
outstanding repurchase rights will automatically lapse and cease to be
exercisable in the event the optionee or participant's service is terminated
within a designated period, not to exceed 18 months, following the effective
date of an acquisition in which those repurchase rights are assigned or
otherwise continued.
In some cases, a change in control of Exult by acquisition of beneficial
ownership of securities possessing more than 50% of the total combined voting
power of our outstanding securities will result in each outstanding option
accelerating and becoming vested. Also, any outstanding repurchase rights shall
automatically terminate and these unvested shares shall become fully vested.
The Board of Directors may amend or modify the 1999 plan at any time
subject to any required stockholder approval. The 1999 plan will terminate on
the earliest of (a) May 24, 2009, (b) the date on which all shares available for
issuance under the 1999 plan shall have been issued as fully vested shares, or
(c) the termination of all outstanding options in connection with a change in
control or ownership of Exult.
1999 SPECIAL EXECUTIVE STOCK OPTION PLAN
Our 1999 Special Executive Stock Option Plan was adopted by our board and
our stockholders on November 19, 1999. 3,065,995 shares of common stock have
been authorized for issuance under the special plan. As of March 1, 2000,
options for 2,349,620 shares of our common stock were outstanding under the
special plan, no options had been exercised, and 716,375 shares remained
available for future option grant. The individuals eligible to participate in
the special plan is limited to our officers and other highly compensated
employees.
The special plan is administered by our board of directors. The board in
its capacity as plan administrator has the discretionary authority to determine
which eligible individuals are to receive option grants under the special plan,
the time or times when such option grants are to be made, the number of
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<PAGE> 53
shares subject to each such grant, the status of any granted option as either an
incentive stock option or a non-statutory stock option under the federal tax
laws, the vesting schedule to be in effect for the option grant and the maximum
term for which any granted option is to remain outstanding.
The special plan includes the following features:
- The exercise price for each option must be at least 85% of the fair
market value of the option shares at the time of the option grant. No
option may have a term in excess of ten years, and each option will be
subject to earlier termination following the optionee's cessation of
service with us.
- The options may be structured as installment options which become
exercisable for vested shares over the optionee's period of service with
us. Alternatively, the options may be immediately exercisable for all the
option shares, but any shares purchased under such an option may be
repurchased by us, at the option exercise price paid per share, in the
event the optionee leaves our service before vesting in those shares.
- The exercise price for the shares of common stock subject to option
grants made under our special plan may be paid in cash or in shares of
common stock valued at fair market value on the exercise date. The option
may also be exercised through a same-day sale program without any cash
outlay by the optionee. In addition, the plan administrator may provide
financial assistance to one or more optionees in the exercise of their
outstanding options or the purchase of their unvested shares by allowing
such individuals to deliver a full-recourse, interest-bearing promissory
note in payment of the exercise price and any associated withholding
taxes incurred in connection with such exercise or purchase.
- The board has the authority to cancel outstanding options under the
discretionary option grant program in return for the grant of new options
for the same or a different number of option shares with an exercise
price per share based upon the fair market value of our common stock on
the new grant date.
- The board also has the authority to accelerate the vesting schedule in
effect for any shares purchased or purchasable under the granted option
and to extend the exercise period during which an option may be exercised
following the optionee's cessation of service with us.
- The special plan includes the following change in control provisions
which may result in the accelerated vesting of outstanding option grants:
- In the event that we are acquired by merger or asset sale, each
outstanding option which is not to be assumed by the successor
corporation will automatically accelerate in full, and all unvested
shares under the special plan will immediately vest, except to the
extent our repurchase rights with respect to those shares are to be
assigned to the successor corporation.
- The board will have complete discretion to structure one or more
options under the plan so those options will vest as to all the option
shares in the event those options are assumed in the acquisition but
the optionee's service with us or the acquiring entity is subsequently
terminated. The vesting of outstanding shares under the plan may be
accelerated upon similar terms and conditions.
- The board will also have the authority to grant options which will
immediately vest in the event we are acquired, whether or not those
options are assumed by the successor corporation.
- The board may amend or modify the special plan at any time, subject to
any required stockholder approval.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that, except to the extent
prohibited by the Delaware General Corporation Law, our directors will not be
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as directors. Under the Delaware General Corporation Law, the
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<PAGE> 54
directors have a fiduciary duty to Exult which is not eliminated by this
provision of the certificate of incorporation and, in appropriate circumstances,
equitable remedies including injunctive or other forms of nonmonetary relief
will remain available. In addition, each director will continue to be subject to
liability under the Delaware law for:
- breach of the director's duty of loyalty;
- acts or omissions which are found by a court of competent jurisdiction to
be not in good faith or which involve intentional misconduct, or knowing
violations of law;
- actions leading to improper personal benefit to the director; and
- payment of dividends or approval of stock repurchases or redemptions that
are prohibited by Delaware law.
This provision also does not affect a director's responsibilities under any
other laws, including the federal securities laws or state or federal
environmental laws. We have obtained directors' and officers' liability
insurance.
Section 145 of the Delaware law empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers, provided that
this provision shall not eliminate or limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- arising under Section 174 of the Delaware law; or
- for any transaction from which the director derived an improper personal
benefit.
The Delaware law provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors and officers may be entitled under the corporation's bylaws, any
agreement, a vote of stockholders or otherwise. The certificate of incorporation
provides that we 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 by reason of the fact that the person is or was a director or
officer, or is or was serving at our request as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses, judgements, fines and amounts paid in settlement
actually and reasonably incurred by the person in the action, suit or
proceeding.
We plan to enter into indemnification agreements with our directors and our
executive officers containing provisions that may require us, among other
things, to indemnify our directors and officers against liabilities that may
arise by reason of their status or service as directors or officers other than
liabilities arising from willful misconduct of a culpable nature, to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors and officers' liability
insurance if maintained for other directors or officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for indemnification.
The Securities and Exchange Commission is of the opinion that
indemnification of directors, officers and persons controlling Exult for
violations of the Securities Act is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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<PAGE> 55
CERTAIN TRANSACTIONS
Since our formation in October 1998, there has not been, nor is there any
proposed transaction where we were or will be a party in which the amount
involved exceeded or will exceed $60,000 and in which any director, nominee for
election as a director, executive officer, holder of more than 5% of any class
of our voting securities, or any member of the immediate family or any of the
foregoing persons had or will have a direct or indirect material interest, other
than the compensation agreements and other agreements and transactions which are
described in "Management" and the transactions described below.
GENERAL ATLANTIC PARTNERS
In November 1998, we sold an aggregate of 25,000 shares of our Series A
preferred stock at a purchase price of $40.00 per share to investors affiliated
with General Atlantic Partners. In April 1999, we sold an aggregate of 1,660,517
shares of our Series B preferred stock at a purchase price of $5.42 per share to
investors affiliated with General Atlantic Partners. Between October 1999 and
December 1999, we sold an aggregate of 4,377,432 shares of our Series C
preferred stock at a purchase price of $10.28 per share to investors affiliated
with General Atlantic Partners. In November 1998, we sold 9,000 shares of our
common stock for an aggregate price of $1.00 to GAP Coinvestment Partners, LP.
Steven A. Denning, a director of Exult, is the Executive Managing Partner of
General Atlantic Partners, LLC. Mark Dzialga, a director of Exult, is a partner
in General Atlantic Partners, LLC. The entities affiliated with General Atlantic
Partners consist of GAP Coinvestment Partners, L.P., General Atlantic Partners
54, L.P., GAP Coinvestment Partners II, L.P. and General Atlantic Partners 60,
L.P. Upon conversion of the convertible preferred stock at the closing of this
offering, General Atlantic Partners and its affiliates will hold an aggregate of
52,698,745 shares of our common stock.
FOUNDER'S STOCK
In April 1999, we sold 8,856,000 shares of our common stock for an
aggregate purchase price of $39,360 to James Madden, our Chief Executive
Officer, President and Chairman of the Board. As of March 1, 2000, we have the
right to repurchase up to 5,904,000 of these shares in the event Mr. Madden's
employment with us terminates. This right lapses as to 184,500 shares on the
first day of each month and will terminate on December 1, 2002. If we do not
elect to exercise our repurchase right following the termination of Mr. Madden's
employment with us, General Atlantic Partners, LLC will have a similar
repurchase right.
BP INTERNATIONAL LIMITED
In December 1999, we granted BP International Limited warrants to purchase
up to 3,339,220 shares of our common stock at an exercise price of $1.57 per
share. In December 1999, we also granted BP International warrants to purchase
up to 667,844 shares of our Series C preferred stock at an exercise price of
$10.28 per share, which shares are convertible into an aggregate of 3,339,220
shares of our common stock upon consummation of this offering. The exercise
price of this warrant increases at the rate of 12 percent per annum, compounded
daily, following the date of issuance of the warrant. These warrants may be
exercised for cash or on a net exercise basis. Both warrants expire on the
earlier of December 7, 2000 or 45 days after the filing of this registration
statement of which this prospectus is a part. In February 2000, we sold 385,805
shares of our Series C preferred stock at a price of $10.28 per share to BP
International Limited pursuant to pre-emptive rights granted to BP
International.
ACQUISITION OF GUNN PARTNERS, INC.
In November 1999, we acquired certain assets from Gunn Partners, Inc. for
an aggregate purchase price of $15.0 million in cash, payable in three
installments of $5.0 million. The first installment was paid at the closing
date. The final two installments, which remained outstanding at March 1, 2000,
are payable in November 2000 and 2001. Robert Gunn, our current Vice President,
Executive Client Lead, is a
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<PAGE> 56
shareholder of Gunn Partners, and will receive approximately $4.0 million of the
total proceeds from this acquisition.
OTHER RELATED PARTY TRANSACTIONS
We will enter into an indemnification agreement with each of our executive
officers and our directors containing provisions that may require us, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service as officers or directors, other than
liabilities arising from willful misconduct of a culpable nature, and to advance
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. See "Management -- Limitation of Liability and
Indemnification."
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between us and our officers, directors and principle stockholders and their
affiliates and any transactions between us and any entity with which our
officers, directors or principal stockholders are affiliated will be approved by
a majority of the board of directors, including a majority of the independent
and disinterested outside directors of the board of directors and will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table indicates information as of March 1, 2000 regarding the
ownership of our common stock by:
- each person who is known by us to beneficially own more than 850,000
shares of our common stock;
- each named executive officer;
- each of our directors; and
- all of our directors and executive officers as a group.
The number of shares beneficially owned and the percentage of shares
beneficially owned are based on 78,526,140 shares of common stock deemed
outstanding as of March 1, 2000, assuming conversion of all of our preferred
stock into common stock which will occur upon consummation of this offering, and
shares of common stock outstanding upon consummation of this
offering. Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. Shares subject to options
that are exercisable currently or within 60 days following March 1, 2000 are
deemed to be outstanding and beneficially owned by the optionee for the purpose
of computing share and percentage ownership of that optionee, but are not deemed
to be outstanding for the purpose of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table, and as
affected by applicable community property laws, all persons listed have sole and
voting investment power for all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES --------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) OWNED OFFERING OFFERING
---------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Steven A. Denning(2)........................................ 52,708,745 67.1%
Mark Dzialga(2)............................................. 52,708,745 67.1
General Atlantic Partners and its affiliates(2)............. 52,698,745 67.1
James C. Madden(3).......................................... 9,562,988 12.1
BP International Limited.................................... 8,607,465 10.1
DB Capital Investors, L.P. ................................. 2,295,160 2.9
Goldman, Sachs & Co. and its affiliates(4).................. 2,180,403 2.8
Stephen M. Unterberger(5)................................... 1,950,001 2.5
Mellon Ventures............................................. 1,147,580 1.5
McKinsey & Company, Inc..................................... 874,240 1.1
Scott J. Figge(5)........................................... 647,343 *
John R. Oltman(6)........................................... 200,150 *
Rebecca L. Work(5).......................................... 157,905 *
Barbara A. Coull-Williams(5)................................ 124,000 *
A. Michael Spence(5)........................................ 10,000 *
Michael A. Miles(5)......................................... 10,000 *
J. Michael Cline(5)......................................... 10,000 *
All officers and directors as a group (17 persons).......... 66,867,833 80.3%
</TABLE>
- -------------------------
* Less than one percent
(1) The address for each of the officers and directors is 4 Park Plaza, Suite
350, Irvine, California. The address for General Atlantic Partners and its
affiliates is 3 Pickwick Plaza, Greenwich, Connecticut 06830. The address
for BP International Limited is Britannic House, One Finsbury Circus, London
England EC2M 7BA.
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(2) Includes the following securities held by various General Atlantic
partnerships: (a) 25,000 shares of Series A preferred stock, which will be
converted into 22,500,000 shares of common stock upon consummation of the
offering; (b) 1,660,517 shares of Series B preferred stock, which will be
converted into 8,302,585 shares of common stock upon consummation of the
offering; (c) 4,377,432 shares of Series C preferred stock, which will
convert into 21,887,160 shares of common stock upon consummation of the
offering, and (d) 9,000 shares of common stock. In addition, for Messrs.
Dzialga and Denning, includes options to purchase 10,000 shares of common
stock, and exercisable within 60 days of March 1, 2000. Each of Messrs.
Denning and Dzialga are directors of Exult. Mr. Denning is the Executive
Managing Director of General Atlantic Partners, LLC, the general partner of
certain of the foregoing General Atlantic partnerships and the managing
general partner of certain of the other foregoing General Atlantic
partnerships. Mr. Dzialga is a member of General Atlantic Partners, LLC and
currently serves as a general partner of a number of General Atlantic
partnerships. Each of Messrs. Dzialga and Denning disclaim beneficial
ownership to the shares referred to in clauses (a), (b) and (c) above,
except to the extend of their primary interest therein.
(3) Includes 885,600 shares issuable upon exercise of options that are
exercisable within 60 days of March 1, 2000.
(4) Includes securities held by various Goldman, Sachs & Co. partnerships: (a)
1,650,474 shares of Series D preferred stock held by GS Capital Partners
III, L.P.; (b) 453,735 shares of Series D preferred stock held by GS Capital
Partners III Offshore, L.P.; and (c) Goldman, Sachs & Co. Verwaltungs GmbH.
Upon consummation of this offering, each share of Series D preferred stock
will convert into one share of common stock.
(5) Consists solely of shares issuable upon exercise of options that are
exercisable within 60 days of March 1, 2000.
(6) Includes (a) 117,195 shares held by JRO Consulting, Inc., which is
affiliated with Mr. Oltman and (b) 10,000 shares issuable upon exercise of
options that are exercisable within 60 days of March 1, 2000.
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and provisions of our
certificate of incorporation and bylaws is only a summary. You should also refer
to the copies of our certificate and bylaws which have been filed with the
Securities and Exchange Commission as exhibits to our registration statement, of
which this prospectus forms a part.
Upon the closing of this offering, our authorized capital stock will
consist of 500,000,000 shares of common stock, par value $0.0001, and 15,000,000
shares of preferred stock, par value $0.0001.
COMMON STOCK
At March 1, 2000, 78,526,140 shares of common stock were deemed outstanding
and held of record by approximately 25 holders. Under the certificate of
incorporation and bylaws, holders of common stock do not have cumulative voting
rights. Holders of shares representing a majority of the voting power of common
stock can elect all of the directors eligible for election at any meeting of
stockholders. The holders of the remaining shares will not be able to elect any
directors. The shares of common stock offered by this prospectus, when issued,
will be fully paid and non-assessable and will not be subject to any redemption
or sinking fund provisions. Holders of common stock do not have any preemptive,
subscription or conversion rights.
Holders of common stock are entitled to receive dividends declared by the
board of directors out of legally available funds, subject to the rights of
preferred stockholders and the terms of any existing or future agreements
between us and our lenders. Since our inception, we have not declared or paid
any cash dividends on our common stock. We presently intend to retain future
earnings, if any, for use in the operation and expansion of our business. We do
not anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy." In the event of our liquidation, dissolution or winding up, common
stockholders are entitled to share ratably in all assets legally available for
distribution after payment of all debts and other liabilities, and subject to
the prior rights of any holders of outstanding shares of preferred stock.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of our
convertible preferred stock will convert into an aggregate of 65,484,785 shares
of common stock. Thereafter, the board of directors is authorized to issue from
time to time up to an aggregate of 15,000,000 shares of preferred stock in one
or more series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each of these
series, including the dividend rights, dividend rates, conversion rights, voting
rights, term of redemption, including sinking fund provisions, redemption price
or prices, liquidation preferences and the number of shares constituting any
series or designations of a series without further vote or action by the
stockholders. We currently have no present plans to issue any shares of
preferred stock, but we believe that the ability to issue preferred stock
without the expense and delay of a special stockholders' meeting will provide us
with increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might arise. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others, and may have the effect of delaying, deferring or
preventing a change in control of Exult without further action by the
stockholders. This could discourage an acquisition attempt or other transaction
which stockholders might believe to be in their best interests or in which they
might receive a premium for their stock over the then market price of the stock.
ANTI-TAKEOVER PROVISIONS
The provisions of our certificate of incorporation and bylaws described
below are intended to:
- enhance the likelihood of continuity and stability in the composition of
the Board and in the policies formulated by the Board;
- discourage transactions that may involve an actual or threatened change
in control of Exult;
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- discourage tactics that may be used in proxy fights;
- encourage persons seeking to acquire control of Exult to consult first
with the Board of Directors to negotiate the terms of any proposed
business combination or offer; and
- reduce our vulnerability to an unsolicited proposal for a takeover that
does not contemplate the acquisition of all of our outstanding shares or
that is otherwise unfair to our stockholders.
However, these provisions may make it more difficult to acquire control of
Exult, deprive stockholders of the opportunity to realize a premium on the
shares of common stock owned by them, and adversely affect the prevailing market
price of the stock.
Delaware Anti-Takeover Law. We are subject to the provisions of Section 203
of the Delaware General Corporation Law. Subject to exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years from
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained this status with the
approval of the Board of Directors or 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 exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock. This statute could
prohibit or delay the accomplishment of mergers or other takeover or change in
control in attempts with respect to us and, accordingly, may discourage attempts
to acquire us.
Filling Board Vacancies and Removal of Directors. Subject to the rights of
the holders of any outstanding series of preferred stock, the certificate of
incorporation permits directors but not stockholders to fill board vacancies,
including newly created directorships. This could prevent a stockholder from
obtaining majority representation on the board by enlarging the board of
directors and filling the new directorships with its own nominees. The
certificate of incorporation also provides that directors may be removed by
stockholders only for cause and only by the affirmative vote of holders of
two-thirds of the outstanding shares of voting stock.
Special Stockholder Meetings. The certificate of incorporation will provide
that special meetings of the stockholders for any purpose or purposes, unless
required by law, may be called only by:
- a majority of the Board;
- the Chief Executive Officer or Secretary following a request in writing
of the CEO; or
- stockholders owning more than 50% of the voting power represented by all
of our issued and outstanding stock.
This limitation on the right of stockholders to call a special meeting could
make it more difficult for stockholders to change the existing board and
management or to initiate other actions that are opposed by the board of
directors, such as elimination of defensive strategies that have been adopted by
the board of directors to address unsolicited takeover bids.
Written Consent; Special Meetings of Stockholders. The certificate of
incorporation prohibits stockholder action by written consent without a meeting.
These provisions will make it more difficult for stockholders to take action
opposed by the board of directors.
Amendment of Provisions in the Certificate of Incorporation. The
certificate of incorporation generally requires the affirmative vote of the
holders of at least two-thirds of the voting power represented by all of our
outstanding stock to amend any provisions of the certificate of incorporation
concerning:
- the removal or appointment of directors;
- the authority of stockholders to act by written consent;
- the vote required to amend the certificate of incorporation;
- calling a special meeting of stockholders;
59
<PAGE> 61
- procedure and content of stockholder proposals concerning business to be
conducted at a meeting of stockholders; and
- director nominations by stockholders.
These voting requirements make it more difficult for stockholders to control
Exult by amending the certificate of incorporation and may enable minority
stockholders to prevent such amendments. Following the completion of this
offering, our present directors and executive officers and their respective
affiliates will beneficially own approximately % of our common stock. This
gives them veto power with respect to any stockholder action or approval
requiring either a two-thirds or simple majority vote.
WARRANTS
In June 1999, we issued two warrants to a consultant to purchase 691,880
shares of our common stock at an exercise price of $1.084 per share and 182,390
shares of our common stock at an exercise price of $2.056 per share. This
warrant may be exercised at any time and expires on the earlier of December 31,
2009 and 365 days after the close of our initial public offering.
In September 1999, we issued warrants to two executive search firms to
purchase 46,155 shares of our common stock at an exercise price of $0.65 per
share and 47,770 shares of our common stock at an exercise price of $1.57 per
share. Twenty-five percent (25%) of the warrant shares vest quarterly from the
respective date of each warrant over a one (1) year period. The holder of each
warrant may exercise the warrant shares that have vested at any time up to
September 22, 2009.
In December 1999, we issued two warrants to BP International Limited. The
first warrant entitles BP International to purchase 3,339,220 shares of our
common stock at an exercise price of $1.57 per share. The second warrant
entitles BP International to purchase 667,844 shares of our Series C preferred
stock, which shares are convertible in 3,339,220 shares of our common stock. The
exercise price for the second warrant is $10.28 per share. This warrant will
lapse and terminate to the extent BP International does not exercise the warrant
within 45 days after the filing of this registration statement. Both warrants
are immediately exercisable and expire in December 2004.
REGISTRATION RIGHTS
After this offering, holders of 70,369,250 shares of common stock will have
registration rights with respect to their shares. Subject to conditions, these
holders can require us to register all or part of their shares. In addition,
these holders may require us to include their shares in future registration
statements that we file and may require us to register their shares on Form S-3.
Upon registration, these shares will be freely tradable in the public market
without restriction.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock
Transfer Corporation.
60
<PAGE> 62
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have shares of common
stock outstanding assuming no exercise of options after March 1, 1999. Of this
amount, the shares offered by this prospectus will be available for
immediate sale in the public market as of the date of this prospectus. Following
the expiration of 180-day lockup agreements with the representatives of the
underwriters or Exult, 36,071,480 shares will be available for sale in the
public market, subject in some cases to compliance with the volume and other
limitations of Rule 144.
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
DAYS AFTER THE OF SHARES ELIGIBLE
DATE OF THIS PROSPECTUS FOR FUTURE SALE COMMENT
----------------------- ------------------ ------------------------------------
<S> <C> <C>
Upon effectiveness.................. Freely tradable shares sold in this
offering
180 days............................ 36,071,480 Lock-up released; shares saleable
under Rule 144, 144(k) or 701
Over 180 days....................... 37,842,160 Restricted securities held for less
than one year
</TABLE>
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares 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 common stock; or
- the average weekly trading volume during the four calendar weeks
preceding the sale.
A person who is not deemed to have been an affiliate of ours at any time during
the 90 days immediately preceding the sale and who has beneficially owned his or
her shares for at least two years is entitled to sell his or her shares under
Rule 144(k) without regard to the limitations described above. Persons deemed to
be affiliates must always sell under Rule 144, even after the applicable holding
periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to the offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus.
Exult, its directors, executive officers, stockholders with registration
rights and other stockholders and optionholders have agreed, under the purchase
agreement and other agreements that they will not sell any common stock without
the prior written consent of Merrill Lynch for a period of 180 days from the
date of this prospectus, except that we may, without consent, grant options and
sell shares under our stock plans.
Any employee or consultant who purchased his or her shares under a written
compensatory plan or contract is entitled to rely on the resale provisions of
Rule 701, which permits nonaffiliates to sell their Rule 701 shares without
having to comply with the public information, holding period, volume limitation
or notice provisions of Rule 144 and permits affiliates to sell their Rule 701
shares without having to comply with the Rule 144 holding period restrictions,
in each case commencing 90 days after the date of this prospectus. As of March
2000, the holders of options to purchase approximately 530,385 shares of common
stock will be eligible to sell their shares upon the expiration of the 180-day
lockup period, subject to the vesting of those options.
We intend to file a registration statement on Form S-8 under the Securities
Act as soon as practicable after the completion of the offering to register
13,469,615 shares of common stock subject to outstanding stock options or
reserved for issuance under our 1999 Stock Option/Stock Issuance Plan. This
registration will permit the resale of these shares by nonaffiliates in the
public market without restriction under the
61
<PAGE> 63
Securities Act, upon completion of the lock-up period described above. Shares
registered under the Form S-8 registration statement held by affiliates will be
subject to Rule 144 volume limitations. See "Management -- Executive
Compensation" and "-- 1999 Stock Option/Stock Issuance Plan."
In addition, holders of 70,369,250 shares of common stock have registration
rights with respect to their shares. Registration of these securities would
enable these shares to be freely tradable without restriction under the
Securities Act. We also have given, or intend to give, registration rights to
our warrant holders with respect to 6,678,440 shares of common stock. See "Risk
Factors -- A large number of additional shares may be sold into the public
market in the near future. These sales could cause the market price of our
common stock to decline significantly, even if our business is doing well."
62
<PAGE> 64
UNDERWRITING
We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc., FleetBoston
Robertson Stephens Inc. and Salomon Smith Barney Inc. are acting as U.S.
representatives of the U.S. underwriters named below. Subject to the terms and
conditions described in a U.S. purchase agreement among us and the U.S.
underwriters, and concurrently with the sale of shares to the
international managers, we have agreed to sell to the U.S. underwriters, and the
U.S. underwriters severally have agreed to purchase from us, the number of
shares listed opposite their names below.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
U.S. UNDERWRITERS ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Bear, Stearns & Co. Inc.....................................
FleetBoston Robertson Stephens Inc..........................
Salomon Smith Barney Inc....................................
-------
Total..........................................
=======
</TABLE>
We have also entered into an international purchase agreement with the
international managers for sale of the shares outside the U.S. and Canada for
whom Merrill Lynch International, Bear, Stearns International Limited,
FleetBoston Robertson Stephens International Limited, and Salomon Brothers
International Limited are acting as lead managers. Subject to the terms and
conditions in the international purchase agreement, and concurrently with the
sale of shares to the U.S. underwriters pursuant to the U.S.
purchase agreement, we have agreed to sell to the international managers, and
the international managers severally have agreed to purchase
shares from us. The initial public offering price per share and the total
underwriting discount per share are identical under the U.S. purchase agreement
and the international purchase agreement.
The U.S. underwriters and the international managers have agreed to
purchase all of the shares sold under the U.S. and international purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
U.S. and international purchase agreements provide that the purchase commitments
of the nondefaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
U.S. underwriters and the international managers are conditioned on one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the U.S. underwriters and international
managers may be required to make in respect to those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
COMMISSIONS AND DISCOUNTS
The U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares to the public at the initial public price on the
cover page of this prospectus and to dealers at that price less a concession not
in excess of $ per share. The U.S. underwriters may allow, and the dealers
may reallow, a discount not in excess of $ per share to other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed.
63
<PAGE> 65
The following table shows the public offering price, underwriting discount
and proceeds before expenses to. The information assumes either no exercise or
full exercise by the U.S. underwriters and the international managers of their
over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.......................... $ $ $
Underwriting discount.......................... $ $ $
Proceeds, before expenses, to Exult ........... $ $ $
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $ and are payable by us.
OVER-ALLOTMENT OPTION
We have granted options to the U.S. underwriters to purchase up to
additional shares at the public offering price less the underwriting
discount. The U.S. underwriters may exercise these options for 30 days from the
date of this prospectus solely to cover any over-allotments. If the U.S.
underwriters exercise these options, each will be obligated, subject to
conditions contained in the purchase agreements, to purchase a number of
additional shares proportionate to that U.S. underwriter's initial amount
reflected in the above table.
We have also granted options to the international managers, exercisable for
30 days from the date of this prospectus, to purchase up to additional
shares to cover any over-allotments on terms similar to those granted to the
U.S. underwriters.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the intersyndicate agreement, the U.S. underwriters and any dealer to whom
they sell shares will not offer to sell or sell shares to persons who are
non-U.S. or non-Canadian persons or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, except in the case of
transactions under the intersyndicate agreement. Similarly, the international
managers and any dealer to whom they sell shares will not offer to sell or sell
shares to U.S. persons or Canadian persons or to persons they believe intend to
resell to U.S. or Canadian persons, except in the case of transactions under the
intersyndicate agreement.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered by this prospectus for
sale to some of our directors, officers, employees, distributors, dealers,
business associates and related persons. If these persons purchase reserved
shares, this will reduce the number of shares available for sale to the general
public. Any reserved shares that are not orally confirmed for purchase within
one day of the pricing of this offering will be offered by the underwriters to
the general public on the same terms as the other shares offered by this
prospectus.
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<PAGE> 66
NO SALES OF SIMILAR SECURITIES
We, our executive officers, directors and all existing stockholders have
agreed with exceptions, not to sell or transfer any common stock for 180 days
after the date of this prospectus without first obtaining the written consent of
Merrill Lynch. Specifically, we and these other individuals have agreed not to
directly or indirectly:
- offer, pledge, sell or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock,
- lend or otherwise dispose of or transfer any common stock,
- request or demand that we file a registration statement related to the
common stock, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
QUOTATION ON THE NASDAQ NATIONAL MARKET
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us, the U.S. representatives and lead managers. In addition to prevailing market
conditions, the factors to be considered in determining the initial public
offering price are:
- the valuation multiples of public traded companies that the U.S.
representatives and the lead managers believe to be comparable to us,
- our financial information,
- the history of, and the prospects for, our company and the industry in
which we compete,
- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues,
- the present state of our development, and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
We expect the shares to be approved for quotation on the Nasdaq National
Market under the symbol "EXLT."
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the U.S. representatives may
65
<PAGE> 67
engage in transactions that stabilize the price of the common stock, such as
bids or purchases to peg, fix or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the U.S. representatives may reduce that short
position by exercising all or part of the over-allotment option described above.
Purchases of the common stock to stabilize its price or to reduce a short
position may cause the price of the common stock to be higher than it might be
in the absence of such purchases.
The U.S. representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriter's short position or to
stabilize the price of such shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares. The imposition of a penalty bid may also affect the price of the shares
in that it discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction of magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
ELECTRONIC DISTRIBUTION
A prospectus in electronic format is being made available on a web site
maintained by Merrill Lynch. Other than the prospectus in electronic format, the
information on Merrill Lynch's web site is not a part of this prospectus or the
Registration Statement of which this prospectus is a part, has not been approved
and/or endorsed by Exult or any underwriter in its capacity as underwriter and
should not be relied upon by investors.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for us by Brobeck, Phleger & Harrison LLP,
Irvine, California. As of March 3, 2000, Brobeck, Phleger & Harrison LLP and
certain entities are individuals affiliated with Brobeck, Phleger & Harrison LLP
beneficially owned 35,852 shares of Series B Preferred Stock and 19,456 shares
of Series C Preferred Stock, which shares will convert upon consummation of this
offering into an aggregate of 276,540 shares of common stock. Legal matters
relating to the sale of common stock in this offering will be passed upon for
the underwriters by Latham & Watkins, Los Angeles, California.
EXPERTS
The consolidated balance sheets of Exult, Inc. as of December 31, 1998 and
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for the period from October 29, 1998 (Inception) to
December 31, 1998, and for the year ended December 31, 1999 included in this
prospectus and elsewhere in the registration statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving such reports.
66
<PAGE> 68
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission under the Securities Act with respect to the common stock
offered by this prospectus. This prospectus does not contain all of the
information in the registration statement and its exhibits and schedules. For
further information with respect to us and our common stock, please see the
registration statement and the exhibits and schedules filed with the
registration statement. Statements contained in this prospectus concerning the
contents of any contract or other document referred to are not necessarily
complete. Please refer to the copies of these contracts or other documents filed
as an exhibit to the registration statement. Each of these statements is
qualified in all respects by this reference. The registration statement,
including its exhibits and schedules, may be inspected without charge at the
principal office of the Commission in Washington, D.C. Copies of all or any part
of the registration statement may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. These copies may also be inspected and copied
at the Commission's Regional Offices located at:
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and
- 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of this material may be obtained at prescribed rates by mail from
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Securities and Exchange Commission
maintains an Internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants,
including us, that file electronically.
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<PAGE> 69
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
UNAUDITED FINANCIAL STATEMENTS OF GUNN PARTNERS, INC.
Unaudited Balance Sheets.................................... F-19
Unaudited Statements of Operations.......................... F-20
Unaudited Statements of Cash Flows.......................... F-21
Notes to Unaudited Financial Statements..................... F-22
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Basis of Presentation....................................... PF-1
Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1999........... PF-2
</TABLE>
F-1
<PAGE> 70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EXULT, INC.:
We have audited the accompanying consolidated balance sheets of EXULT, INC.
and subsidiaries (a Delaware corporation) as of December 31, 1998 and 1999, and
the related statements of operations, stockholders' equity and cash flows for
the period from October 29, 1998 (Inception) to December 31, 1998, and for the
year ended December 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EXULT, INC. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for the period from October 29, 1998 (Inception)
to December 31, 1998, and for the year ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Orange County, California
March 3, 2000
F-2
<PAGE> 71
EXULT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------------- DECEMBER 31,
1998 1999 1999
--------- ------------ -------------
(UNAUDITED)
(NOTE 7)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents........................ $ 850,965 $ 39,199,053
Accounts receivable.............................. -- 824,399
Prepaid expenses and other current assets........ -- 287,132
--------- ------------
Total current assets..................... 850,965 40,310,584
--------- ------------
Property and equipment, net........................ -- 4,439,882
Intangibles, net................................... -- 13,603,134
Other assets....................................... 3,425 413,631
--------- ------------
Total Assets............................. $ 854,390 $ 58,767,231
========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................. $ 3,892 $ 1,453,593
Accrued liabilities.............................. 34,102 2,269,815
Current portion of long-term obligations......... -- 4,629,987
--------- ------------
37,994 8,353,395
--------- ------------
Long-Term Obligations, net of current portion...... -- 4,304,219
Commitments and Contingencies
Stockholders' Equity:
Convertible preferred stock, $0.0001 par value;
Authorized -- 15,000,000 shares; Issued and
outstanding -- 25,000 at December 31, 1998,
6,191,212 at December 31, 1999 and 0 pro
forma (unaudited), including additional
paid-in capital............................. 999,999 58,768,079 $ --
Common stock, $0.0001 par value;
Authorized -- 500,000,000 shares; Issued and
outstanding -- 9,000 at December 31, 1998,
9,434,300 at December 31, 1999 and
78,526,140 pro forma (unaudited)............ 1 189 7,853
Additional paid-in capital.................... -- 3,615,560 138,644,585
Subscriptions receivable......................... -- (100,001) (100,001)
Deferred compensation......................... (977,756) (977,756)
Accumulated deficit.............................. (183,604) (15,196,454) (15,196,454)
--------- ------------ ------------
Total Stockholders' Equity............... 816,396 46,109,617 $122,378,227
--------- ------------ ------------
Total Liabilities and Stockholders'
equity................................. $ 854,390 $ 58,767,231
========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 72
EXULT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
OCTOBER 29,
1998
(INCEPTION)
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Revenue..................................................... $ -- $ 4,857,190
Cost of revenue............................................. -- 4,498,384
--------- ------------
Gross profit................................................ -- 358,806
--------- ------------
Expenses:
Product development....................................... -- 368,012
Selling, general and administrative....................... 187,249 15,267,139
--------- ------------
Total expenses......................................... 187,249 15,635,151
--------- ------------
Loss from operations........................................ (187,249) (15,276,345)
Interest income, net...................................... 3,645 263,495
--------- ------------
Net loss.................................................... $(183,604) $(15,012,850)
========= ============
Net loss per common share:
Basic and diluted......................................... $ (140.48) $ (2.17)
Weighted average number of common shares outstanding:
Basic and diluted......................................... 1,307 6,906,334
Pro forma (note 7):
Net loss per common share:
Basic and diluted (unaudited).......................... $ (0.20)
Weighted average number of common shares outstanding:
Basic and diluted (unaudited).......................... 75,998,174
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 73
EXULT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE COMMON STOCK
PREFERRED STOCK --------------------------------------------
----------------------- ADDITIONAL
PREFERRED PAID-IN DEFERRED ACCUMULATED
SHARES STOCK SHARES PAR CAPITAL COMPENSATION DEFICIT
--------- ----------- --------- ---- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION, October 29, 1998
Issuance of common stock for
cash........................... -- $ -- 9,000 $ 1 $ -- $ -- $ --
Issuance of Series A convertible
preferred stock for cash....... 25,000 999,999 -- -- -- -- --
Net loss......................... -- -- -- -- -- -- (183,604)
--------- ----------- --------- ---- ---------- --------- ------------
BALANCE, December 31, 1998......... 25,000 999,999 9,000 1 -- -- (183,604)
Issuance of preferred stock:
Series B....................... 1,696,369 9,194,320 -- -- -- -- --
Series C....................... 4,469,843 45,950,001 -- -- -- -- --
Issuance of common stock for
cash........................... -- -- 8,856,000 177 39,184 -- --
Issuance of common stock warrants
for cash and subscription...... -- -- 306,750 6 199,995 -- --
Common stock issued upon exercise
of stock options............... -- -- 262,550 5 196,560 -- --
Issuance of Series C preferred
stock and common stock warrants
for service contract........... -- 2,623,759 -- -- 692,821 -- --
Issuance of common stock warrants
for services................... -- -- -- -- 1,230,000 -- --
Deferred compensation related to
the issuance of common stock... -- -- -- -- 921,000 (921,000) --
Deferred compensation related to
stock options granted.......... -- -- -- -- 336,000 (336,000) --
Amortization of deferred
compensation................... -- -- -- -- -- 279,244 --
Net loss......................... -- -- -- -- -- -- (15,012,850)
--------- ----------- --------- ---- ---------- --------- ------------
BALANCE, December 31, 1999......... 6,191,212 $58,768,079 9,434,300 $189 $3,615,560 $(977,756) $(15,196,454)
========= =========== ========= ==== ========== ========= ============
<CAPTION>
TOTAL
SUBSCRIPTIONS STOCKHOLDER'S
RECEIVABLE EQUITY
------------- -------------
<S> <C> <C>
INCEPTION, October 29, 1998
Issuance of common stock for
cash........................... $ -- $ 1
Issuance of Series A convertible
preferred stock for cash....... -- 999,999
Net loss......................... -- (183,604)
--------- -----------
BALANCE, December 31, 1998......... -- 816,396
Issuance of preferred stock:
Series B....................... -- 9,194,320
Series C....................... -- 45,950,001
Issuance of common stock for
cash........................... -- 39,361
Issuance of common stock warrants
for cash and subscription...... (100,001) 100,000
Common stock issued upon exercise
of stock options............... -- 196,565
Issuance of Series C preferred
stock and common stock warrants
for service contract........... -- 3,316,580
Issuance of common stock warrants
for services................... -- 1,230,000
Deferred compensation related to
the issuance of common stock... -- --
Deferred compensation related to
stock options granted.......... -- --
Amortization of deferred
compensation................... -- 279,244
Net loss......................... -- (15,012,850)
--------- -----------
BALANCE, December 31, 1999......... $(100,001) $46,109,617
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 74
EXULT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
OCTOBER 29,
1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
--------------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss.................................................. $ (183,604) $(15,012,850)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization.......................... -- 743,358
Charge for warrants.................................... -- 4,546,580
Changes in operating assets and liabilities --
Accounts receivable.................................... -- (824,399)
Prepaid expenses and other current assets.............. -- (287,132)
Other assets........................................... (3,425) (410,206)
Accounts payable....................................... 3,892 1,449,701
Accrued liabilities.................................... 34,102 2,235,713
---------- ------------
Net cash used in operating activities.................. (149,035) (7,559,235)
---------- ------------
Cash Flows From Investing Activities:
Purchase of property and equipment........................ -- (4,363,267)
Cash paid in acquisition.................................. -- (5,209,657)
---------- ------------
Net cash used in investing activities............. -- (9,572,924)
---------- ------------
Cash Flows From Financing Activities:
Proceeds from issuance of preferred stock................. 999,999 55,144,321
Proceeds from issuance of common stock.................... 1 335,926
---------- ------------
Net cash provided by financing activities......... 1,000,000 55,480,247
---------- ------------
Net increase in cash and cash equivalents................... 850,965 38,348,088
Cash and cash equivalents, beginning of period.............. -- 850,965
---------- ------------
Cash and cash equivalents, end of period.................... $ 850,965 $ 39,199,053
========== ============
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest............................................... $ -- $ 4,615
========== ============
Income taxes........................................... $ -- $ 800
========== ============
Summary of non-cash investing and financing activities:
Common stock issued on subscriptions...................... $ -- $ 100,001
========== ============
Preferred and common stock warrants issued in connection
with a service contract................................ $ -- $ 3,316,580
========== ============
Common stock warrants issued for services................. $ -- $ 1,230,000
========== ============
Acquisition of equipment through capital lease............ $ -- $ 138,650
========== ============
Details of Acquisition:
November 1999 -- Acquired intangibles and fixed assets of
Gunn Partners, Inc.
The following table outlines those assets and intangibles
acquired and cash paid:
Fair value of assets and intangibles acquired.......... $ -- $ 14,005,213
Less: Present value of note issued..................... -- (8,795,556)
---------- ------------
Cash paid in acquisition of intangible assets.......... $ -- $ 5,209,657
========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 75
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Organization
Exult, Inc. and subsidiaries ("Exult" or the "Company") designs,
implements, and manages comprehensive web-enabled human resources processes,
generally under long-term contracts. In addition, the Company provides research
and consulting services for measuring and improving the efficiency of human
capital productivity and human resource, finance and accounting processes.
Exult (formerly BPO-US, Inc.) was incorporated in the State of Delaware on
October 29, 1998. The Company began marketing its services in 1999. In August
1999, the Company changed its name to Exult, Inc.
In November 1999, the Company formed two subsidiaries. Exult, Ltd. was
formed in the United Kingdom to establish operations in that country. Exult
Equity Partners, Inc. was formed for the purpose of acquiring most of the assets
of Gunn Partners, Inc., a consulting and research firm specializing in human
resources and accounting process measurement and improvement.
In December 1999, the Company entered into multi-year agreements with three
companies to provide services commencing in January 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISK FACTORS
Accounting 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
disclosures of contingencies at the date of the financial statements as well as
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from estimated amounts.
Cash Equivalents
The Company considers all highly liquid temporary cash investments with an
initial maturity of three months or less to be cash equivalents. In the year
presented the carrying amount of cash equivalents approximates fair value
because of the short maturity period of these investments.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of
property and equipment are recorded using the double declining balance method
over the estimated useful life of the assets. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
and any gain or loss is reflected in the results of operations.
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Significant additions and improvements to property and equipment are
capitalized.
Revenue Recognition
The Company recognizes revenue at the time services are performed, either
on a fee-for-service or per diem basis. Fee-for-service contracts are generally
structured so that the Company receives a fee that is no greater than the
client's historical cost of operating the functions assumed by the Company.
Should the Company's cost of operating such functions be less than the client's
historical cost, fee for service contracts typically provide for the Company to
share the cost savings with clients at a predetermined ratio. The amount of
savings to be shared with clients is determined on a periodic basis in
accordance with the terms
F-7
<PAGE> 76
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the applicable contracts. In cases where the Company anticipates that, based
upon the amount of costs incurred and estimated future costs to be incurred,
amounts will be due to customers, revenue is recorded net of such amounts. For
per diem contracts, revenue is recognized based on contracted billing rates
times actual hours worked.
In the course of acquiring new clients, the Company performs significant
due diligence work. In certain cases, the Company may receive a guarantee that
its clients will pay or reimburse the Company for work performed in the due
diligence phase whether or not a contract is consummated. The Company records
these amounts as revenue and the corresponding direct costs as costs of revenue
or due diligence costs are incurred.
Concentration and Other Outsourcing Risks Factors
As of December 31, 1999, approximately 84 percent of the Company's revenue
was generated from its largest client. The Company currently has only three
process management clients. If the largest client were to substantially reduce
or stop using the Company's services, future revenues would be seriously
impaired. The Company's largest client is their first client for whom they are
assuming complete responsibility for all of the HR processes. This contract is
still at a very early stage. As such, management believes that their ability to
secure future clients and revenues will be largely dependent upon managing and
administering this clients HR processes effectively and efficiently, and
achieving service levels and cost savings specified in the contract. Although
this contract will not expire until December 2004, the customer may terminate
the contract prior to that date for significant nonperformance by the Company;
for any reason after December 2002, with twelve months prior written notice; or
in the event there is a change in control of the Company, as defined.
The Company has and plans to continue to enter into fixed-price or
relatively fixed priced process management contracts. These contracts will
generally contain a pricing commitment that includes firm cost reductions. To
the extent they are not able to achieve the fixed cost reductions, the Company
will have to pay the clients the difference between the contractual cost savings
and their actual cost savings. If the Company miscalculates the resources or
time needed to perform under these contracts, the costs of providing services
could exceed the fixed fee the Company would receive. If that occurs, the
Company would lose money on the contract. The contracts also contain certain
minimum service level requirements that must be met. If they are not able to
meet these requirements, the clients can assess penalties against the Company in
accordance with the terms of our contracts. The assessment of any penalties
could adversely affect future operating results.
The Company currently depends on third parties to provide a number of
specialized human resource services to the clients, such as recruiting and
relocation services. If the clients are not satisfied with the services provided
by these third parties, the Company may be required to pay penalties to the
clients for failure to meet minimum service level requirements in the contracts.
Income Taxes
The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rules and laws that are expected to be in effect
when the differences are expected to be recovered. Under the Tax Reform Act of
1986, the benefits from net operating losses carried forward may be impaired or
limited in certain circumstances. In addition, a valuation allowance has been
provided for deferred tax assets when it is more likely than not that all or
some portion of the deferred tax asset will not be realized.
F-8
<PAGE> 77
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Loss Per Share
Basic earnings per share is computed using the weighted-average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common stock and common stock
equivalent shares outstanding during the period. Common stock equivalent shares
are excluded from the computation as their effect is antidilutive.
Comprehensive Income (Loss)
As of October 29, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, which
establishes standards for the reporting and display of comprehensive income
(loss) and its components in the financial statements. Components of
comprehensive income (loss) include amounts that, under SFAS No. 130, are
included in comprehensive income (loss) but are excluded from net income (loss).
There were no significant differences between the Company's net loss and
comprehensive loss.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations, in accounting for employee stock options rather than the
alternative fair value accounting allowed by Statement for Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock Based Compensation. APB No. 25
provides that compensation expense relative to the Company's employee stock
options is measured based on the intrinsic value of stock options granted.
Companies that continue to follow APB No. 25 are required to provide pro forma
disclosure of the impact of applying the fair value method of SFAS No. 123. This
method recognizes the fair value of stock options granted at the date of grant
in earnings over the vesting period of the options.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary is the local
currency. Assets and liabilities of subsidiaries with international operations
are translated into U.S. dollars at year-end exchange rates, and revenues and
expenses are translated at average exchange rates prevailing as they occur.
Translation adjustments, if material, are included in accumulated other
comprehensive income (loss), a separate component of stockholders' equity.
Transaction gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved, which are immaterial,
are included in the consolidated statements of operations. The Company has not
entered into any foreign currency exchange contracts or other derivative
financial instruments.
Segment Information
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. Management has determined that the Company
operates in only one business segment.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires all
costs related to the development of internal use software other than those
incurred during the application development stage to be expensed as incurred.
Costs incurred during the application development stage are required to be
capitalized and amortized over the estimated useful life of the software. SOP
98-1 was adopted by the Company on January 1, 1999. Adoption did not have a
material effect on the Company's consolidated financial position or results of
operations.
F-9
<PAGE> 78
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. SOP 98-5 was adopted by the Company on January 1, 1999, and
requires costs of start-up activities and organization costs to be expensed as
incurred. Adoption did not have a material effect on the Company's consolidated
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income (loss) depending on whether a
derivative is designed as part of a hedge transaction and, if so, the type of
hedge transaction involved. The Company does not expect that adoption of SFAS
No. 133 will have a material impact on its consolidated financial position or
results of operations as the Company does not currently hold any derivative
financial instruments.
On December 3, 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition, to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. While SAB No. 101 provides a framework by which to recognize revenue
in the financial statements, the Company believes that adherence to this
Bulletin will not have a material impact on the Company's financial statements.
3. BUSINESS ACQUISITION
On November 22, 1999, the Company entered into an agreement to purchase all
the assets, except for cash, accounts receivable, unbilled work-in-progress,
properties and business of Gunn Partners Inc. ("Gunn"), for an aggregate
purchase price of approximately $14,000,000. The purchase price was allocated to
various intangible intellectual properties and fixed assets.
The unaudited pro forma combined consolidated financial information, as
though the acquisition had occurred on January 1, 1999, would have resulted in
operating results as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Revenue..................................................... $ 15,891
Net loss.................................................... $(18,608)
Basic and diluted weighted average net loss per common
share..................................................... $ (0.24)
</TABLE>
The pro forma net loss includes $3,903,000 in amortization of purchased
intangibles for the year ended December 31, 1999. This unaudited pro forma
combined consolidated financial information is presented for illustrative
purposes only and is not necessarily indicative of the consolidated results of
operations in future periods or the results that would have actually been
realized.
F-10
<PAGE> 79
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
Property and Equipment
Property and equipment consists of the following at December 31, 1999:
<TABLE>
<CAPTION>
USEFUL LIFE AMOUNT
------------ ----------
<S> <C> <C>
Furniture and fixtures...................................... 5 years $1,598,854
Computers and equipment..................................... 3 to 5 years 1,541,957
Leasehold improvements...................................... Lease term 988,291
Construction-in-progress.................................... 417,602
----------
4,546,704
Less: Accumulated depreciation and amortization............. (106,822)
----------
Property and equipment, net................................. $4,439,882
==========
</TABLE>
Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
------- ----------
<S> <C> <C>
Accrued employee compensation benefits and related costs.... $ -- $1,173,912
Accrued professional services............................... -- 500,673
Other accrued liabilities................................... 34,102 595,230
------- ----------
Accrued liabilities......................................... $34,102 $2,269,815
======= ==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Lease Obligations
The Company leases the building it uses as its main office under a
noncancellable operating lease agreement, which expires on July 1, 2002. As part
of an asset purchase, several single person office leases with varying
expiration dates were assumed by the Company. The Company assumed a building
lease in Houston, housing processing and shared service center staff in
association with the Pactiv asset purchase. A furniture and equipment leasing
facility was contracted in November 1999 and is accounted for as a capitalized
lease.
As of December 31, 1999, future minimum rental commitments under leases are
as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
-------- ----------
<S> <C> <C>
2000........................................................ $ 59,562 $1,433,541
2001........................................................ 59,562 1,411,673
2002........................................................ 49,635 1,231,080
2003........................................................ -- 961,320
2004........................................................ -- 959,920
Thereafter.................................................. -- 1,199,900
-------- ----------
Future minimum lease payments............................... 168,759 $7,197,434
==========
Less: Interest portion...................................... 30,109
--------
Present value of minimum lease payments..................... 138,650
Less: Current portion....................................... 42,831
--------
$ 95,819
========
</TABLE>
F-11
<PAGE> 80
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Capital lease amounts are shown in current and long-term obligations in the
accompanying consolidated balance sheets. Rental expense for the periods ended
December 31, 1998 and 1999, were $6,165 and $272,099, respectively.
Service Agreement
On December 7, 1999, the Company entered into a five-year service agreement
and two annual renewal options with BP Amoco p.l.c. ("BP Amoco") in which the
Company is entitled to the exclusive right to provide services and underlying
technology to the client on a worldwide base. Under the framework agreement,
five-year contracts and two annual renewal options were executed covering the
United States and the United Kingdom. The agreements provide for the Company to
implement and manage an intranet-based human resource process, which replaces
much of the clients' current processes.
The terms of the contract require the Company to maintain a letter of
credit against certain contingencies for the first four years of the contract.
The Company has provided an irrevocable two-year letter of credit from a
financial institution in the amount of $5,000,000. The Company will be obligated
to provide letters of credit in future years unless it achieves net equity of
$75 million.
Effective January 1, 2000, the Company entered into two service agreements
with Pactiv Corporation and Tenneco Automotive Inc. to provide information
technology and other finance support services for three years which are subject
to certain renewal provisions. In addition to these agreements the Company
purchased certain assets on December 20, 1999, including equipment and licenses
for an aggregate purchase price of approximately $3,500,000.
Employment Agreements
The Company entered into employment agreements with key management
personnel. These agreements provide for a defined level of compensation and
additional compensation in the form of bonuses based on performance. The
agreements also provide for severance benefits in the event of termination
without cause or a change in control, as defined by the consolidation or merger
of the Company in which fifty percent of the outstanding shares of the Company's
stock are exchanged for cash, securities or other property.
Bonus Plan
The Company has an annual incentive plan program (the "Incentive Plan") for
key management personnel. The Incentive Plan provides bonuses based upon the
achievement of various targets, both financial and non-financial as well as the
participants' contributions to the Company. The Company expensed approximately
$1,041,000 under the Incentive Plan in 1999, approximately $597,000 of which was
included in accrued liabilities as of December 31, 1999.
6. NOTE PAYABLE
In connection with the Company's purchase of Gunn's assets, the Company
issued a note payable in the amount of $10,000,000. This note is due in two
equal installments of $5,000,000 to be paid in November 2000 and November 2001.
As the note is non-interest bearing, the Company has imputed interest at 9%
annually.
F-12
<PAGE> 81
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY
Preferred Stock
The Company was originally authorized to issue 50,000 shares of preferred
stock at $0.01 par value per share. On November 25, 1998, the Company filed a
Certificate of the Powers, Designations, Preferences and Rights of the series A
convertible preferred stock, par value $0.01 per share, designating 25,000
shares of the Company's preferred stock as series A convertible preferred stock.
On April 27, 1999, December 20, 1999, and February 9, 2000, the Company amended
and restated its certificate of incorporation to authorize the issuance of
5,000,000, 15,000,000, and 15,000,000 shares of preferred stock, respectively,
at $0.0001 par value per share, of which 25,000 shares were designated as series
A convertible preferred stock, 1,696,369 shares as series B convertible
preferred stock, and 5,500,000 shares as series C convertible preferred stock.
As of December 31, 1999, the Company had 7,778,631 shares of preferred stock,
which remain undesignated.
In the event of liquidation, the series A, series B, series C, and series D
preferred stock rank equally and senior to all classes of common stock and each
other class or series of capital stock created hereafter. The series A, series
B, series C, and series D preferred stock have certain liquidation preferences
as defined in the February 9, 2000 Certificate of Incorporation as amended and
restated.
Common Stock
The Company was originally authorized to issue 300,000 shares of common
stock at $0.01 par value per share. On April 27, 1999, December 20, 1999, and
February 9, 2000, the Company amended and restated its certificate of
incorporation to authorize the issuance of 25,000,000, 40,000,000, and
500,000,000 shares of common stock, respectively, at $0.0001 par value per
share.
Certain preferred stockholders and common stockholders have registration
rights associated with their stock.
Capital Transactions
On November 9, 1998, the Company issued 9,000 shares of common stock, par
value $0.0001 for total consideration of $1.
On November 25, 1998, the Company issued 25,000, upon conversion the
equivalent of 22,500,000 common, shares of series A convertible preferred stock
in a private placement with institutional investors for total consideration of
approximately $1,000,000.
On April 1, 1999, the Company issued 8,856,000 shares of common stock, par
value of $0.0001 per share, to a key employee for total consideration of
approximately $39,000 based upon an estimated fair value of approximately
$0.0044 per share. The Company estimated the fair value based on the recent cash
sales with third parties, adjusting the valuation for differences in rights
associated with each class of stock. In the event that the holder's employment
with the Company, terminates, for any reason, the Company and the series A
institutional investors shall have the right exercisable at any time within 30
days of termination, to purchase all or any portion of the unvested shares.
Subsequent to the lapse of the Company's repurchase right, the series A
institutional investors have a 30-day purchase right to the remaining unvested
shares. Of the 8,856,000 shares, 922,500 shares were immediately vested with the
balance vesting in 43 equal monthly installments. If the holder's employment
terminates for cause or voluntarily, any unvested shares are forfeited. If the
holder's employment terminates for any reason other than cause, including death
or disability, 50 percent of all unvested shares will vest.
On April 27, 1999, the Company issued 1,696,369, upon conversion the
equivalent of 8,481,845 common, shares of series B convertible preferred stock
in a private placement with institutional investors
F-13
<PAGE> 82
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for total consideration of approximately $9,194,000. Each share of series B
convertible preferred stock is convertible into five shares of common stock. The
Company has reserved 8,481,845 shares of common stock for the conversion. If at
any time within 24 months the Company enters into a customer contract or
consummates an acquisition, then the Company shall have the right to require the
institutional investor to provide additional capital to the Company on one or
more occasions in denominations of $10 million up to an additional equity
capital not to exceed $40 million. This call right shall be exercisable by the
Company by delivering written notice of the exercise to the investor.
During 1998, the Company issued 306,750 common stock warrants to a
consultant for services rendered of approximately $100,000. On June 6, 1999, the
Company issued 306,750 shares of common stock for the exercise of these warrants
for a subscription receivable of $100,001.
On July 29, 1999 and on October 12, 1999, the Company issued 70,320 and
46,875 shares of common stock, respectively, to a director for the exercise of
non-statutory stock options for total consideration of $45,708 and $30,469,
respectively. The shares are subject to repurchase under the terms of the stock
option plan.
On October 22, 1999, the Company issued 1,478,600, upon conversion the
equivalent of 7,393,000 common, shares of series C convertible preferred stock
in a private placement with institutional investors for total consideration of
approximately $15,200,000. Each share of series C convertible preferred stock is
convertible into five shares of common stock. The Company has reserved 7,393,000
shares of common stock for the conversion.
On November 17, 1999 the Company issued 58,364, upon conversion the
equivalent of 291,820, shares of series C convertible preferred stock in a
private placement with institutional investors for total consideration of
approximately $600,000. Each share of series C convertible preferred stock is
convertible into five shares of common stock. The Company has reserved 291,820
shares of common stock for the conversion.
On December 15, 1999, the Company issued 117,195 shares of common stock to
a director for the exercise of non-statutory stock options for total
consideration of $76,177. The shares are subject to repurchase under the terms
of the stock option plan.
On December 21, 1999, the Company issued 28,160 shares of common stock to
an officer for the exercise of non-statutory stock options for total
consideration of $44,211. The shares are subject to repurchase under the terms
of the stock option plan.
On December 22, 1999 the Company issued 2,932,879, upon conversion the
equivalent of 14,664,395 common, shares of series C convertible preferred stock
in a private placement with institutional investors for total consideration of
approximately $30,150,000. Each share of series C convertible preferred stock is
convertible into five shares of common stock. The Company has reserved
14,664,395 shares of common stock for the conversion. Pursuant to this
agreement, the call facility included in the April 27, 1999 stock purchase
agreement was terminated in its entirety.
Stock Split
On April 26, 1999, the Board of Directors declared a 180-for-1 stock split
on all common stock and preferred stock then outstanding. Further, on January
31, 2000 the Board of Directors declared a 5-for-1 split on all common stock
then outstanding. All common share and per share data have been retroactively
restated to give effect to these splits.
F-14
<PAGE> 83
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Stock and Stock Option Deferred Compensation
The Company recorded aggregate deferred compensation for common stock and
stock options issued of approximately $978,000 for the year ended December 31,
1999. The amounts recorded represent the difference between the grant price and
the deemed fair value of the Company's common stock at the date of grant.
Deferred common stock and stock option compensation is amortized to expense
using the straight-line method over the forty-eight month vesting period.
Unaudited Pro Forma Stockholders' Equity and Loss Per Share
Concurrent with the consummation of an initial public offering of the
Company's common stock as defined by the preferred stock purchase and warrant
agreements, the Company will cause the conversion of all existing series A,
series B, series C, and series D preferred stock, stock options exercised
subsequent to year end and certain warrants into common stock. The unaudited pro
forma stockholders' equity at December 31, 1999, and the unaudited pro forma net
loss per share and weighted average number of common shares outstanding for the
year ended December 31, 1999, reflects the acquisition of Gunn, the issuance of
385,805 shares of Series C preferred stock and 6,885,480 shares of Series D
preferred stock, the exercise of warrants to purchase an aggregate of 3,339,220
shares of common stock and 667,884 shares of Series C preferred stock, the
conversion of all outstanding preferred stock into 65,484,785 shares of common
stock, and the exercise of options to purchase 267,835 shares of common stock.
8. STOCK OPTIONS AND WARRANTS
1999 Stock Option/Stock Issuance Plan
In May 1999, the Company adopted the 1999 Stock Option/Stock Issuance Plan
(the "Plan"). The Plan is comprised of two separate equity programs: (i) the
Discretionary Option Grant Program, under which eligible persons may, at the
discretion of the Plan administrator, be granted options to purchase shares of
common stock, and (ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan administrator, be issued shares of common
stock directly, either through the immediate purchase of such shares or as a
bonus for services rendered to the Company. The Stock Option Grant Program
provides for the grant of non-qualified stock options and incentive stock
options. Under the terms of the Plan, the maximum number and type of shares as
to which options may be granted is 10,934,005 shares of common stock. Upon the
expiration, termination, for any reason, or cancellation of unexercised
non-qualified or incentive stock options, the shares of common stock subject
thereto will again be available for issuance under the terms of the Plan. Upon
any change in the outstanding common stock without the Company's receipt of
consideration, appropriate adjustments shall be made to the maximum number
and/or class of securities issuable and the number and/or class of securities
and the exercise price per share in effect under each outstanding option.
Eligible participants in the Plan are employees, non-employee members of
the board of directors of the Company, non-employee members of the board of
directors of any parent or subsidiary, and consultants and other advisors who
provide services to the Company, or any parent or subsidiary. The Plan will be
administered by the compensation committee of the Company's board of directors.
The options may be issued as "Incentive Stock Options" (as defined by the
Internal Revenue Code of 1986) or as nonqualified options. Options under the
Plan are granted at prices not less than 85 percent of the fair market value at
the date of option grant and can become exercisable in installments ranging up
to 10 years from the date of grant. If the optionee is a 10 percent stockholder,
the exercise price shall not be less than 110 percent of the fair market value
at the date of option grant. As of December 31, 1999 the non-qualified stock
options and incentive stock options are immediately exercisable by the optionee.
Upon exercise, the option shares are initially unvested and subject to
repurchase by the Company at the option
F-15
<PAGE> 84
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
exercise price per share. The optionee shall acquire a vested interest in, and
the Company's repurchase right shall lapse, 25 percent of the optionee's shares
upon completion of one year of service from the date of grant, and the remainder
vest either on an annual basis or on a monthly basis over the 36-month period
measured from the first anniversary of the grant date.
Subject to Internal Revenue Services limitations, options granted under the
1999 ISO Plan generally become exercisable immediately. Shares issued upon
exercise of options that are unvested are restricted and subject to repurchase
by the Company upon termination of employment or services, and such restrictions
lapse over the original vesting schedule. At December 31, 1999, there were
262,550 shares subject to repurchase.
1999 Special Executive Stock Option Plan
On November 19, 1999, the company adopted and approved the Special
Executive Stock Option Plan (the "Executive Plan"). Participation in the
Executive Plan is limited to officers and other highly compensated employees. A
reserve of 3,065,995 shares of the Company's common stock has been made for
issuances under the Executive Plan.
The Executive Plan provides that the exercise price for all options must be
at least 85% of the fair market of the option shares at the time of the option
grant. Furthermore, no option may have a term in excess of ten years, and each
option will be subject to early termination following the optionee's cessation
of services with the Company.
The Plan also provides that the exercise price for the shares of common
stock subject to option grants made under our special plan may be paid in cash
or in shares of common stock valued at fair market value on the exercise date.
Options vest over a period determined by the Company's board of directors.
The following is a summary of transactions relating to the above plans for
the period ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Options outstanding at beginning of period.................. -- $ --
Granted................................................... 10,407,910 0.927
Exercised................................................. 262,550 0.748
Canceled.................................................. -- --
---------- ------
Options outstanding at end of the period.................... 10,145,360 $0.932
========== ======
Options exercisable at end of period........................ 5,809,270 $0.932
</TABLE>
The following table shows pro forma net loss as if the fair value method
had been used to account for stock-based compensation expense for the period
ended December 31, 1999:
<TABLE>
<S> <C>
Net loss, as reported....................................... $(15,012,850)
Pro forma adjustment........................................ (242,939)
------------
Pro forma net loss.......................................... $(15,255,789)
============
</TABLE>
F-16
<PAGE> 85
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following outlines the significant assumptions used to calculate the
fair value information presented utilizing the Black-Scholes approach with
ratable amortization as of December 31, 1999:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.63% to 6.18%
Expected life............................................... 4.00
Expected volatility......................................... 77.70%
Expected dividends.......................................... --
Weighted average fair value of options granted.............. $0.928
</TABLE>
At December 31, 1999, the Company has reserved for 14,000,000 shares of
common stock for issuance under the Plan.
Warrants
In June 1999 the Company became obligated to issue warrants exercisable for
691,880 and 182,390 shares of common stock at an exercise price of approximately
$1.08 and $2.06 per share as consideration for consulting related services
performed. In connection therewith, the Company recorded expenses of $750,000
and $375,000, respectively, which was deemed to be the fair market value of the
services performed.
In September 1999 the Company became obligated to issue warrants
exercisable for 47,770 and 46,155 shares of common stock at an exercise price of
approximately $1.57 and $0.65 per share as consideration for consulting related
services performed. In connection therewith, the Company recorded expenses of
$75,000 and $30,000, respectively, which was deemed to be the fair market value
of the services performed.
On December 7, 1999, the Company issued a common stock warrant and a series
C preferred warrant to BP Amoco. The common stock warrant has a five-year term
and is exercisable for 3,339,220 shares of common stock at an exercise price of
$1.57 per share. The series C preferred warrant has a one year term and is
exercisable for 667,844, the equivalent of 3,339,220 common, shares at an
exercise price of $10.28 which increases at an annual rate of 12 percent
compounded daily over the term of the warrant. The value of these warrants is
approximately $3,317,000 and was expensed. These warrants are convertible into
the Company's common stock upon the consummation of an initial public offering.
The value of these warrants was determined using the Black-Scholes options
pricing model with the following assumptions: risk free interest rate of 5.82%;
expected life of 5 years; weighted average volatility of 77.70% and weighted
average dividend yield of 0.00%.
9. INCOME TAXES
The Company did not record a tax provision at December 31, 1998 and 1999,
as it had incurred only operating losses as of these dates.
The components of the Company's net deferred income tax assets as of
December 31, 1999, are as follows:
<TABLE>
<S> <C>
Net operating loss carryforwards............................ $ 4,826,143
Gross deferred tax assets................................... 1,107,062
-----------
Less: Valuation allowance................................... (5,933,205)
-----------
Net deferred tax assets................................... $ --
===========
</TABLE>
A full valuation allowance is provided because of the uncertainty of
realizing the deferred tax assets.
F-17
<PAGE> 86
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $4,826,143, expiring in years 2018 and 2006,
respectively. The realization of future tax benefits from utilization of the net
operating loss carryforwards may be subject to certain limitations as a result
of ownership changes that have occurred and may occur in the future.
10. LOSS PER SHARE
The following is the calculation for net loss per share:
<TABLE>
<CAPTION>
OCTOBER 29,
1998
(INCEPTION)
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Basic:
Net loss.................................................. $(183,604) $(15,012,850)
--------- ------------
Weighted average common shares............................ 1,307 6,906,334
--------- ------------
Net loss per common share................................. $ (140.48) $ (2.17)
========= ============
Diluted:
Net loss.................................................. $(183,604) $(15,012,850)
Weighted average common shares............................ 1,307 6,906,334
Stock options adjustment.................................. -- --
Convertible preferred stock............................... -- --
--------- ------------
Average common shares outstanding......................... 1,307 6,906,334
--------- ------------
Net loss per common share................................. $ (140.48) $ (2.17)
========= ============
</TABLE>
At December 31, 1998 and 1999, respectively, options to purchase 0 and
10,145,360 shares of common stock, warrants to purchase common stock or to
purchase preferred stock convertible into common stock of 0 and 7,646,635 shares
of common stock, as well as preferred shares convertible into 22,500,000 and
53,331,060 shares of common stock were not included in the computation of
diluted earnings per share as the effect would be antidilutive.
11. SUBSEQUENT EVENTS (UNAUDITED)
On February 7, 2000, BP Amoco, subject to the terms of a stockholders
agreement which contains certain preemptive and anti-dilution provisions,
exercised its right to purchase 385,805 shares of series C preferred stock for
total consideration of approximately $3,966,000.
On February 9, 2000 the third amended and restated certificate of
incorporation designated the issuance of 7,650,533 shares as series D
convertible preferred stock. On February 10, 2000 the Company issued 6,885,480
shares of series D convertible preferred stock in a private placement with
institutional investors for total consideration of approximately $60,000,000.
With this additional capital the Company's net equity exceeded $75 million
resulting in the elimination of its obligation to provide letters of credit as
previously required under the BP Amoco agreement.
Subsequent to year end two employees exercised their stock options to
purchase a total of 267,835 shares of the Company's common stock.
F-18
<PAGE> 87
GUNN PARTNERS, INC.
UNAUDITED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Current Assets:
Cash..................................................... $ 200,931 $ 187,202 $ 444,021
Accounts receivable, net of allowance for doubtful
accounts of $75,000 in 1996, 1997, and 1998........... 1,260,672 1,810,213 1,670,185
Due from employees....................................... 44,156 40,644 2,900
---------- ---------- ----------
Total current assets............................. 1,505,759 2,038,059 2,117,106
---------- ---------- ----------
Property & Equipment, at cost:
Furniture and fixtures................................... 22,631 22,631 22,418
Computer equipment....................................... 214,524 225,983 218,480
Computer software........................................ 46,850 66,592 78,016
---------- ---------- ----------
284,005 315,206 318,914
Less -- accumulated depreciation......................... 127,884 144,085 194,705
---------- ---------- ----------
Net property and equipment....................... 156,121 171,121 124,209
---------- ---------- ----------
Other Assets:
Organization costs, net of accumulated amortization of
$1,425 in 1996........................................ 75 -- --
Deposits................................................. 12,238 12,709 9,743
---------- ---------- ----------
Total other assets............................... 12,313 12,709 9,743
---------- ---------- ----------
$1,674,193 $2,221,889 $2,251,058
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $ 217,759 $ 222,213 $ 291,802
Accrued and withheld liabilities......................... 83,548 256,630 166,262
Accrued retirement plan contribution (Note 3)............ 472,515 294,312 577,401
Advances from shareholder (Note 4)....................... -- 170,000 --
---------- ---------- ----------
Total current liabilities........................ 773,822 943,155 1,035,465
---------- ---------- ----------
Noncurrent Liabilities:
Deferred compensation payable, less current portion (Note
5).................................................... 874,471 1,252,834 1,189,693
---------- ---------- ----------
Total noncurrent liabilities..................... 874,471 1,252,834 1,189,693
---------- ---------- ----------
Shareholders' Equity:
Common stock, $.01 par value, 3,000 shares authorized,
900 shares issued, 600 shares outstanding............. 9 9 9
Additional paid-in capital............................... 39,991 39,991 39,991
Retained earnings........................................ -- -- --
---------- ---------- ----------
40,000 40,000 40,000
Less -- treasury stock, at cost, 300 shares.............. 14,100 14,100 14,100
---------- ---------- ----------
Total Shareholders' Equity....................... 25,900 25,900 25,900
---------- ---------- ----------
$1,674,193 $2,221,889 $2,251,058
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-19
<PAGE> 88
GUNN PARTNERS, INC.
UNAUDITED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997 1998
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues............................... $7,961,303 $7,867,161 $8,783,365 $13,167,608
Cost of revenue........................ 7,285,798 7,621,165 7,995,188 12,532,063
---------- ---------- ---------- -----------
Gross profit........................... 675,505 245,996 788,177 635,545
---------- ---------- ---------- -----------
Expenses:
Selling, general and 748,913 229,636 788,774 616,954
administrative....................
---------- ---------- ---------- -----------
Total expenses.................... 748,913 229,636 788,774 616,954
---------- ---------- ---------- -----------
(Loss) income from operations.......... (73,408) 16,360 (597) 18,591
Interest (expense) income, net....... (12,176) (2,860) 597 22,695
---------- ---------- ---------- -----------
Net (loss) income...................... $ (85,584) $ 13,500 $ -- $ 41,286
Retained earnings, beginning of year... 85,584 -- -- --
S distributions.............. -- (13,500) -- (41,286)
---------- ---------- ---------- -----------
Retained earnings, end of year......... $ -- $ -- $ -- $ --
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-20
<PAGE> 89
GUNN PARTNERS, INC.
UNAUDITED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)......................................... $ (85,584) $ 13,500 $ -- $ 41,286
Adjustment of reconcile net income (loss) to cash provided
by (used in) operating activities --
Increase (decrease) in allowance for doubtful
accounts.............................................. (50,000) 25,000 -- --
Loss on disposal of property and equipment.............. -- 25,100 27,692 9,169
Depreciation and amortization........................... 65,780 65,229 82,465 79,856
--------- --------- --------- ---------
Cash provided by (used in)operating activities before
changes in assets and liabilities....................... (69,804) 128,829 110,157 130,311
Changes in assets and liabilities:
Accounts receivable................................... 365,978 247,211 (549,541) 140,028
Work in process....................................... 27,438 89,000 -- --
Deposits.............................................. (5,093) (4,995) (471) 2,966
Accounts payable...................................... (214,051) 118,626 4,454 69,589
Accrued and withheld liabilities...................... 25,293 (184,012) 173,082 (90,368)
Accrued retirement plan contribution.................. (45,950) 30,308 (178,203) 283,089
Deferred compensation payable......................... 111,723 (476,234) 378,363 (63,141)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities....................................... 195,534 (51,267) (62,159) 472,474
--------- --------- --------- ---------
Cash Flows From Investing Activities:
Proceeds from sale of equipment........................... -- -- -- 2,000
Acquisition of property and equipment..................... (54,900) (106,332) (125,082) (44,113)
Advances to employees..................................... (7,045) (37,111) 3,512 37,744
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities....................................... (61,945) (143,443) (121,570) (4,369)
--------- --------- --------- ---------
Cash Flows From Financing Activities:
Purchase of treasury stock................................ (6,000) -- -- --
Additional paid-in capital contributed.................... 20,000 -- -- --
Payment of shareholder loan............................... -- -- -- (170,000)
Advances from shareholder................................. -- -- 170,000 --
Payment of S distributions................................ -- (13,500) -- (41,286)
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities....................................... 14,000 (13,500) 170,000 (211,286)
--------- --------- --------- ---------
Net increase (decrease) in cash............................. 147,589 (208,210) (13,729) 256,819
Cash, beginning of year..................................... 261,552 409,141 200,931 187,202
--------- --------- --------- ---------
Cash, end of year........................................... $ 409,141 $ 200,931 $ 187,202 $ 444,021
========= ========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ 18,509 $ 6,862 $ 2,680 $ 8,657
========= ========= ========= =========
Income taxes............................................ $ -- $ 24,225 $ 5,941 $ 6,019
========= ========= ========= =========
Supplemental disclosure of noncash investing and financing
activities:
In connection with the purchase of property and equipment,
the following cash was paid and liabilities assumed:
Cost of property and equipment.......................... $ -- $ 113,532 $ -- $ --
Less -- liabilities assumed............................. -- 7,200 -- --
--------- --------- --------- ---------
Cash paid............................................... $ -- $ 106,332 $ -- $ --
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-21
<PAGE> 90
GUNN PARTNERS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain significant accounting policies
followed in the preparation of the financial statements.
Business
The Company provides management consulting services primarily to Fortune
500 companies and has a client base located primarily in North America and
Europe. The Company grants credit to its customers and consequently, the
Company's ability to collect is affected by fluctuations in the economy of each
country in which the Company conducts business.
Revenue Recognition
Revenue is recognized in the period in which the services are provided.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Accounts Receivable
An allowance for doubtful accounts is provided equal to management's
estimated amount of uncollectible accounts receivable. The allowance for
doubtful accounts was $75,000 for each of the years ending December 31, 1996,
1997, and 1998.
Property and Equipment
The Company records property and equipment at cost and depreciates the
assets using accelerated and straight-line methods over the estimated useful
lives as follows:
<TABLE>
<S> <C>
Furniture and fixtures 5 - 10 years
Computer equipment 5 years
Computer software 3 years
</TABLE>
Expenditures for maintenance, repairs and minor renewals are charged to
operations as incurred, and expenditures for betterments and major renewals are
charged to the property and equipment accounts.
Organization Costs
Organization costs are amortized using the straight-line method over five
years. For each of the years ended December 31, 1995 and 1996, amortization
expense was $300. For the year ended December 31, 1997 amortization expense was
$75.
Income Taxes
The Company, with the consent of its shareholders, elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under these
provisions, the Company does not pay federal income taxes. Instead, the
shareholders are liable for individual federal income taxes on the Company's
taxable income. For state income tax purposes, the Company is liable for state
corporate income taxes. The Company did not incur state income tax expense for
the years ended December 31, 1995. For the year ended December 31, 1996, 1997,
and 1998 state income tax expense was $24,225, $5,941, and $6,019, respectively.
F-22
<PAGE> 91
GUNN PARTNERS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
2. CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts. The Company believes it is not exposed to any significant
credit risk on cash and cash equivalents.
3. PROFIT SHARING 401(k) PLAN/MONEY PURCHASE PENSION PLAN
The Company has a defined contribution profit sharing 401(k) plan and a
defined contribution money purchase pension plan covering substantially all of
its employees. Profit sharing contributions to the plan are determined annually
by the Board of Directors subject to certain limitations. The money purchase
pension plan provides for contributions equal to 5% of qualifying compensation.
For the year ended December 31, 1995, 1996, 1997, and 1998, total employer
contributions under these plans was $445,410, $477,315, $294,312, and $585,051,
respectively.
4. ADVANCES FROM SHAREHOLDER
Advances from shareholder bear interest at prime plus 2% and are payable on
demand. The balance at December 31, 1996, 1997, and 1998 was $0, $170,000, and
$0, respectively.
5. DEFERRED COMPENSATION
During the year ended December 31, 1992, the Company entered into an
unfunded, nonqualified deferred compensation agreement with several key
employees. Under the agreement the Company is required to maintain a deferred
compensation account for each participant. Such amounts are payable upon the
death, permanent disability, or the termination of employment of a participant,
as well as the dissolution or liquidation of the corporation. Under the plan,
increases and decreases in deferred compensation are based on changes in the net
book value of the Company determined annually exclusive of any deferred
compensation. The deferred compensation reductions for the years ended December
31, 1995, 1996, 1997, and 1998 were $(237,723), $362,233, $(378,364), and
$63,141, respectively.
6. LEASE COMMITMENT
Currently the Company has several operating leases outstanding. The Company
leases office facilities in Massachusetts, New York, Ohio, Georgia, and
California. In addition, the Company also leases equipment in Massachusetts.
These leases have various expiration dates ranging from August 31, 1997 to April
30, 2001. The future minimum lease payments for the years ending December 31,
are as follows:
<TABLE>
<S> <C>
1999........................................................ $277,227
2000........................................................ 154,335
2001........................................................ 41,658
2002........................................................ 37,227
2003........................................................ 11,703
--------
$522,150
========
</TABLE>
F-23
<PAGE> 92
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
In the opinion of our management, all adjustments necessary to fairly
present this pro forma information have been made. The Unaudited Pro Forma
Condensed Combined Financial Statements are based upon, and should be read in
conjunction with, the historical financial statements of Exult and Gunn
(collectively, the "Company"), and the respective notes to such financial
statements presented elsewhere in this Prospectus. The pro forma information is
based upon the tentative allocations of purchase price for the acquisition of
Gunn and may not be indicative of the results that would have been reported had
such events actually occurred on the dates specified, nor is it indicative of
the Company's future results. The final allocation of purchase price is not
expected to differ materially from the tentative allocation or to have a
material impact on results of operations or financial position. Purchase
accounting is based upon preliminary asset valuations, which are subject to
change. Furthermore, post-closing adjustments, if any, are not expected to have
a material impact on results of operations or financial position.
The Unaudited Pro Forma Condensed Combined Financial Statements of
Operations for the year ended December 31, 1999, is presented as if Exult had
completed as of January 1, 1999, the acquisition of Gunn, the issuance of
385,805 shares of Series C preferred stock and 6,885,480 shares of Series D
preferred stock, the exercise of warrants to purchase an aggregate of 3,339,220
shares of common stock and 667,884 shares of Series C preferred stock, the
conversion of all outstanding preferred stock into 65,484,785 shares of common
stock, and the exercise of options to purchase 267,835 shares of common stock.
PF-1
<PAGE> 93
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
GUNN PARTNERS PRO FORMA PRO FORMA
EXULT, INC. INC.(A) ADJUSTMENTS COMBINED
----------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue................................... $ 4,857 $11,034 $ -- $ 15,891
Cost of revenue........................... 4,498 9,969 -- 14,467
-------- ------- ------- ----------
Gross profit.............................. 359 1,065 -- 1,424
-------- ------- ------- ----------
Expenses:
Product development..................... 368 -- -- 368
Selling, general and administrative..... 15,267 765 3,903(b) 19,935
-------- ------- ------- ----------
Total expenses....................... 15,635 765 3,903 20,303
-------- ------- ------- ----------
Loss from operations................. (15,276) 300 (3,903) (18,879)
-------- ------- ------- ----------
Interest income, net...................... 263 8 -- 271
-------- ------- ------- ----------
Net loss............................. $(15,013) $ 308 $(3,903) $ (18,608)
======== ======= ======= ==========
Net loss per common share:
Basic and diluted....................... $ (0.24)
Weighted average common shares
outstanding:
Basic and diluted(c).................... 75,998,174
</TABLE>
- -------------------------
(a) Gunn was acquired by Exult on November 22, 1999, in a purchase-type
transaction for approximately $14.0 million. The results of operations of
Gunn will be included in our consolidated results commencing upon the date
of acquisition. This presentation shows the pro forma effects of the
operations of Gunn as if the acquisition occurred on January 1, 1999. The
results of operations for Exult from October 29, 1998, (Inception) through
December 31, 1998, are immaterial to the operating results of Gunn for the
year ended December 31, 1998.
(b) Represents the amortization of $3.9 million that would have been recorded on
intangible assets for the period from January 1, 1999 through November 22,
1999, the date of acquisition. Intangibles are amortized on a straight-line
basis over a period of one to five years. No other significant fair value
purchase price adjustments were recorded in conjunction with the acquisition
of Gunn.
(c) Reflects the acquisition of Gunn, the issuance of 385,805 shares of Series C
preferred stock and 6,885,480 shares of Series D preferred stock, the
exercise of warrants to purchase an aggregate of 3,339,220 shares of common
stock and 667,884 shares of Series C preferred stock, the conversion of all
outstanding preferred stock into 65,484,785 shares of common stock, and the
exercise of options to purchase 267,835 shares of common stock.
PF-2
<PAGE> 94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
EXULT, INC.
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
ROBERTSON STEPHENS
SALOMON SMITH BARNEY
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 95
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,
PRELIMINARY PROSPECTUS DATED , 2000
PROSPECTUS
SHARES
EXULT, INC.
[LOGO]
COMMON STOCK
------------------------
This is Exult, Inc.'s initial public offering of common stock. Exult is
offering shares. The international managers are offering
shares outside the U.S. and Canada and the U.S. underwriters are offering
shares in the U.S. and Canada.
We expect the initial public offering price to be between $ and
$ per share. Currently, no public market exists for our stock. After pricing
of the offering, we expect that the shares will be quoted on the Nasdaq National
Market under the symbol "EXLT."
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price.................................. $ $
Underwriting discount.................................. $ $
Proceeds, before expenses, to Exult.................... $ $
</TABLE>
The international managers may also purchase up to an additional
shares at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments. The
U.S. underwriters may similarly purchase up to an additional shares at
the public offering price, less the underwriting discount.
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.
The shares will be ready for delivery on or about , 2000.
------------------------
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
ROBERTSON STEPHENS INTERNATIONAL
SALOMON SMITH BARNEY INTERNATIONAL
------------------------
The date of this prospectus is , 2000.
<PAGE> 96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
EXULT, INC.
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
ROBERTSON STEPHENS INTERNATIONAL
SALOMON SMITH BARNEY INTERNATIONAL
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 97
UNDERWRITING
We intend to offer the shares outside the U.S. and Canada through the
international managers and in the U.S. and Canada through the U.S. underwriters.
Merrill Lynch International, Bear, Stearns International Limited, FleetBoston
Robertson International Limited and Salomon Brothers International Limited are
acting as lead managers for the international managers named below. Subject to
the terms and conditions described in an international purchase agreement among
us and the international managers, and concurrently with the sale of
shares to the U.S. underwriters, we have agreed to sell to the
international managers, and the international managers severally have agreed to
purchase from us, the number of shares listed opposite their names below.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
INTERNATIONAL MANAGERS ---------
<S> <C>
Merrill Lynch International.................................
Bear, Stearns International Limited.........................
FleetBoston Robertson Stephens International Limited........
Salomon Brothers International Limited......................
------
Total..........................................
======
</TABLE>
We have also entered into a U.S. purchase agreement with the U.S.
underwriters for sale of the shares in the U.S. and Canada for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc.,
FleetBoston Robertson Stephens Inc. and Salomon Smith Barney Inc. are acting as
U.S. representatives. Subject to the terms and conditions in the U.S. purchase
agreement, and concurrently with the sale of shares to the
international managers pursuant to the international purchase agreement, we have
agreed to sell to the U.S. underwriters, and the U.S. underwriters severally
have agreed to purchase shares from us. The initial public offering
price per share and the total underwriting discount per share are identical
under the international purchase agreement and the U.S. purchase agreement.
The international managers and the U.S. underwriters have agreed to
purchase all of the shares sold under the international and U.S. purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
U.S. and international purchase agreements provide that the purchase commitments
of the nondefaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
international managers and the U.S. underwriters are conditioned on one another.
We have agreed to indemnify the international managers and the U.S.
underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the international managers and
U.S. underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
COMMISSIONS AND DISCOUNTS
The lead managers have advised us that the international managers propose
initially to offer the shares to the public at the initial public offering price
listed on the cover page of this prospectus, and to dealers at that price less a
concession not in excess of $ per share. The international managers may
allow, and the dealers may reallow, a discount not in excess of $ per
share to other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
63
<PAGE> 98
The following table shows the public offering price, underwriting discount
and proceeds before expenses to Exult. The information assumes either no
exercise or full exercise by the international managers and the U.S.
underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.......................... $ $ $
Underwriting discount.......................... $ $ $
Proceeds, before expenses, to Exult............ $ $ $
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $ and are payable by us.
OVER-ALLOTMENT OPTION
We have granted options to the international managers to purchase up to
additional shares at the public offering price less the underwriting
discount. The international managers may exercise these options for 30 days from
the date of this prospectus solely to cover any over-allotments. If the
international managers exercise these options, each international manager will
be obligated, subject to conditions contained in the purchase agreements, to
purchase a number of additional shares proportionate to that international
manager's initial amount reflected in the above table.
We have also granted options to the U.S. underwriters, exercisable for 30
days from the date of this prospectus, to purchase up to additional
shares to cover any over-allotments on terms similar to those granted to the
international managers.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the international managers and the U.S.
underwriters may sell shares to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the intersyndicate agreement, the international managers and any dealer to
whom they sell shares will not offer to sell or sell shares to U.S. or Canadian
persons or to persons they believe intend to resell to U.S. or Canadian persons,
except in the case of transactions under the intersyndicate agreement.
Similarly, the U.S. underwriters and any dealer to whom they sell shares will
not offer to sell or sell shares to persons who are non-U.S. or non-Canadian
persons or to persons they believe intend to resell to persons who are non-U.S.
or non-Canadian persons, except in the case of transactions under the
intersyndicate agreement.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered by this prospectus for
sale to some of our directors, officers, employees, distributors, dealers,
business associates and related persons. If these persons purchase reserved
shares, this will reduce the number of shares available for sale to the general
public. Any reserved shares that are not orally confirmed for purchase within
one day of the pricing of the offering will be offered by the underwriters to
the general public on the same terms as the other shares offered by this
prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and all existing stockholders
have agreed, with exceptions, not to sell or transfer any common stock for 180
days after the date of this prospectus without first obtaining the written
consent of Merrill Lynch. Specifically, we and these other individuals have
agreed not to directly or indirectly
- offer, pledge, sell, or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
64
<PAGE> 99
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock,
- lend or otherwise dispose of or transfer any common stock,
- request or demand that we file a registration statement related to the
common stock, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect the shares to be approved for quotation on the Nasdaq National
Market under the symbol "EXLT."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the U.S. representatives and lead managers. In addition to prevailing
market conditions, the factors to be considered in determining the initial
public offering price are
- the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us,
- our financial information,
- the history of, and the prospects for, our company and the industry in
which we compete,
- an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues,
- the present state of our development, and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the U.S. representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the U.S. representatives may reduce that short
position by purchasing shares in the open market. The U.S. representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described above. Purchases of the common stock to
stabilize its price or to reduce a short position may cause the price of the
common stock to be higher than it might be in the absence of such purchases.
65
<PAGE> 100
The U.S. representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriter's short position or to
stabilize the price of such shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares. The imposition of a penalty bid may also affect the price of the shares
in that it discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
UK SELLING RESTRICTIONS
Each international manager has agreed that
- it has not offered or sold and will not offer or sell any shares of
common stock to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which do not constitute an
offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997 or
is a person to whom such document may otherwise lawfully be issued or
passed on.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to our company or shares of our common stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of our common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering material or advertisements in
connection with the shares of common stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.
66
<PAGE> 101
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the SEC and NASD registration fees. All of the expenses below will be
paid by us.
<TABLE>
<CAPTION>
ITEM
----
<S> <C>
SEC Registration fee........................................ $ 52,800
NASD filing fee............................................. *
Nasdaq National Market listing fee.......................... *
Blue sky fees and expenses.................................. *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer Agent and Registrar fees........................... *
Miscellaneous............................................... *
--------
Total..................................................... $
========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, we can indemnify
our directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Our bylaws (Exhibit 3.4 to this registration statement)
require us to indemnify our directors and officers to the fullest extent
permitted by law and require us to advance litigation expenses upon our receipt
of an undertaking by the director or officer to repay such advances if it is
ultimately determined that the director or officer is not entitled to
indemnification. Our bylaws further provide that rights conferred under such
bylaws do not exclude any other right such persons may have or acquire under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Our certificate of incorporation (Exhibit 3.2 to this registration
statement) provides that, pursuant to Delaware law, our directors shall not be
liable for monetary damages for breach of the directors' fiduciary duty of care
to us and our stockholders. This provision in the certificate of incorporation
does not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to us or our
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemption's that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
In addition, our certificate of incorporation provides that we shall
indemnify our directors and officers if such persons acted (1) in good faith,
(2) in a manner reasonably believed to be in or not opposed to our best
interests, and (3) with respect to any criminal action or proceeding, with
reasonable cause to believe such conduct was lawful. The certificate of
incorporation also provides that, pursuant to Delaware law, our directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to us and our stockholders. This provision in the certificate of
incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of non-
II-1
<PAGE> 102
monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to us or our stockholders for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The certificate of incorporation further
provides that we are authorized to indemnify our directors and officers to the
fullest extent permitted by law through the bylaws, agreement, vote of
stockholders or disinterested directors, or otherwise. We intend to obtain
directors' and officers' liability insurance in connection with this offering.
In addition, we have entered or, concurrently with this offering, will
enter, into agreements to indemnify our directors and certain of our officers in
addition to the indemnification provided for in the certificate of incorporation
and bylaws. These agreements will, among other things, indemnify our directors
and some of our officers for certain expenses (including attorneys fees),
judgments, fines and settlement amounts incurred by such person in any action or
proceeding, including any action by or in our right, on account of services by
that person as a director or officer of Exult or as a director or officer of any
of our subsidiaries, or as a director or officer of any other company or
enterprise that the person provides services to at our request.
The purchase agreement (Exhibit 1.1 to this registration statement)
provides for indemnification by the underwriters of us and our officers and
directors, and by us of the underwriters, for certain liabilities arising under
the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of all sales of our securities since our
formation in October 1998. None of these sales was registered under the
Securities Act of 1933, as amended.
(1) On November 11, 1998, we issued 9,000 shares of common stock to
GAP Coinvestment Partners, L.P. for $1.
(2) On November 25, 1998, we sold an aggregate of 25,000 shares of
Series A Preferred Stock to General Atlantic Partners 54, L.P. and GAP
Coinvestment Partners, L.P. for an aggregate purchase price of $1,000,000.
Each share of Series A Preferred Stock will be converted into 900 shares of
common stock upon the closing of this offering, giving effect to our stock
splits effective April 26, 1999 and February 9, 2000.
(3) On April 1, 1999, we sold 8,856,000 shares of common stock to
James C. Madden for $39,360.
(4) On April 27, 1999, we sold an aggregate of 1,696,369 shares of
Series B Preferred Stock to General Atlantic Partners 54, L.P., GAP
Coinvestment Partners II, L.P. and Brobeck, Phleger & Harrison LLP for an
aggregate purchase price of $9,194,319. Each share of Series B Preferred
Stock will convert into five shares of common stock upon the closing of
this offering, giving effect to our stock split effective February 9, 2000.
(5) On June 6, 1999, we sold 306,750 shares of common stock to Ramsey
Beirne Investment Pool II, Inc. for $100,000.
(6) On June 6, 1999, we issued a warrant to McKinsey & Company, Inc.
to purchase 691,880 shares of common stock at an exercise price of $1.084
per share and a warrant to purchase 182,390 shares of common stock at an
exercise price of $2.056 per share.
(7) On September 22, 1999, we issued a warrant to SpencerStuart to
purchase 47,770 shares of common stock at an exercise price of $1.57 per
share. We also issued another warrant to BridgeGate, LLC to purchase 46,155
shares of common stock at an exercise price of $0.65 per share.
II-2
<PAGE> 103
(8) On October 22, 1999, we sold an aggregate of 1,478,600 shares of
Series C Preferred Stock to GAP Coinvestment Partners II, L.P., General
Atlantic Partners 54, L.P., Brobeck, Phleger & Harrison LLP and Bruce R.
Hallet for an aggregate purchase price of $15,200,000. Each share of Series
C Preferred Stock will be converted into five shares of common stock upon
the closing of this offering, giving effect to our stock split effective
February 9, 2000.
(9) On November 12, 1999, we sold an aggregate of 58,364 shares of
Series C Preferred Stock to William Pade and New Millennium Capital
Partners, LLC for an aggregate purchase price of $599,982. Each share of
Series C Preferred Stock will be converted into five shares of common stock
upon the closing of this offering.
(10) On December 7, 1999, we issued a warrant to BP International
Limited to purchase 3,339,220 shares of common stock at an exercise price
of $1.57 per share.
(11) On December 7, 1999, we issued a warrant to BP International
Limited to purchase 667,844 shares of Series C Preferred Stock at an
exercise price of $10.28 per share. Each share of Series C Preferred Stock
will be converted into five shares of common stock upon the closing of this
offering.
(12) On December 23, 1999, we sold an aggregate of 2,932,879 shares of
Series C Preferred Stock to General Atlantic Partners 60, L.P., GAP
Coinvestment Partners II, L.P. and JRO Consulting, Inc. for an aggregate
purchase price of $30,149,995. Each share of Series C Preferred Stock will
be converted into five shares of common stock upon the closing of this
offering.
(13) On February 7, 2000, we sold 385,805 shares of Series C Preferred
Stock to BP International Limited for $3,966,075. Each share of Series C
Preferred Stock will be converted into five shares of common stock upon the
closing of this offering.
(14) On February 10, 2000, we sold an aggregate of 6,885,480 shares of
Series D Preferred Stock to 12 accredited investors for an aggregate
purchase price of approximately $60,000,000. Each share of Series D
Preferred Stock will be converted into one share of common stock upon the
closing of this offering.
(15) Since August 1999, we issued an aggregate of 262,500 shares of
common stock to J. Michael Spence, JRO Consulting, Inc. and Douglas
Shurtleff for an aggregate purchase price of $196,564.70 upon the exercise
of stock options.
(16) Since May 1999, we have granted stock options to purchase an
aggregate of 8,390,407 shares of common stock under individual stock option
agreements and the 1999 Stock Option/Stock Issuance Plan to eligible
officers, directors, consultants and employees as described in the
prospectus.
(17) Since November 1999, we have granted stock options to purchase an
aggregate of 2,349,620 shares of common stock under individual stock option
agreements and the 1999 Special Executive Option Plan to eligible officers
and other highly compensated employees as described in the prospectus.
The offer and sale of securities in the above transactions did not involve
any public offering and were exempt from registration under the Securities Act
by virtue of Section 4(2) or Rule 701 thereof, or Regulation D. Appropriate
legends are affixed to the stock certificates issued in such transactions.
Similar legends were imposed in connection with any subsequent sales of any such
securities.
II-3
<PAGE> 104
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1 Asset Purchase Agreement by and among Exult, Inc., Gunn
Partners Inc., the shareholders of Gunn Partners, Inc. and
Michael Gibson dated as of November 22, 1999.
3.1* Fourth Amended and Restated Certificate of Incorporation of
Exult, Inc.
3.2* Amended and Restated Bylaws of Exult, Inc.
4.1* See Exhibits 3.1 and 3.2 for provisions of the Exult, Inc.'s
Certificate of Incorporation and Bylaws defining the rights
of holders of Exult, Inc.'s common stock.
4.2* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger and Harrison LLP.
10.1.1 Registrant's 1999 Stock Option/Stock Issuance Plan.
10.1.2 Form of Notice of Grant of Stock Option.
10.1.3 Form of Stock Option Agreement.
10.1.4 Form of Addendum to Stock Option Agreement.
10.1.5 Form of Stock Purchase Agreement.
10.1.6 Form of Addendum to Stock Purchase Agreement.
10.1.7 Form of Stock Issuance Agreement.
10.1.8 Form of Addendum to Stock Issuance Agreement.
10.2.1 Registrant's 1999 Special Executive Stock Option/Stock
Issuance Plan.
10.2.2 Form of Notice of Grant of Stock Option.
10.2.3 Form of Stock Option Agreement.
10.2.4 Form of Addendum to Stock Option Agreement.
10.2.5 Form of Stock Purchase Agreement.
10.2.6 Form of Addendum to Stock Purchase Agreement.
10.2.7 Form of Stock Issuance Agreement.
10.2.8 Form of Addendum to Stock Issuance Agreement.
10.3* Form of Directors' and Officers' Indemnification Agreement.
10.4 Founder Stock Purchase Agreement by and among BPO-US, Inc.,
James Madden and General Atlantic Partners, LLC dated April
1, 1999.
10.5.1 Amended and Restated Registration Rights Agreement among
Exult, Inc. and the Stockholders identified therein dated
December 23, 1999.
10.5.2 Amendment No. 1 to Amended and Restated Registration Rights
Agreement among Exult and the Stockholders identified
therein dated February 10, 2000.
10.6* Office Space Lease between The Irvine Company and BPO-US,
Inc. dated as of June 28, 1999.
10.7.1* Lease Agreement Venture Technology Center VI Building, The
Woodlands, Montgomery County, Texas between The Woodlands
Corporation and Tenneco Business Services Inc. dated August
15, 1995.
</TABLE>
II-4
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.7.2* Assignment and Assumption of Lease between Pactiv Business
Services Inc. (formerly known as Tenneco Business Services
Inc.) and Exult, Inc. dated as of January 1, 2000.
21.1 Subsidiaries of Exult, Inc.
23.1* Consent of Brobeck, Phleger & Harrison LLP (Included in
Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (Included on signature pages hereto).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Purchase Agreement certificates in such denominations
and registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of Exult
pursuant to the foregoing provisions, or otherwise, Exult has 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 Exult of expenses incurred or paid by a
director, officer or controlling person of Exult 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, Exult
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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by Exult 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-5
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Exult, Inc. has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on the 3rd day of March, 2000.
EXULT, INC.
By:
/s/ JAMES C. MADDEN, V
--------------------------------------
James C. Madden, V
Chief Executive Officer, President
and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint James C. Madden, V and Douglas L. Shurtleff, and each of them, his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, or any related registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JAMES C. MADDEN, V Chief Executive Officer, March 3, 2000
- ----------------------------------------------------- President and Chairman of the
James C. Madden, V Board (principal executive
officer)
/s/ DOUGLAS L. SHURTLEFF Executive Vice President, March 3, 2000
- ----------------------------------------------------- Treasurer and Chief Financial
Douglas L. Shurtleff Officer (principal financial
officer)
/s/ J. MICHAEL CLINE Director March 3, 2000
- -----------------------------------------------------
J. Michael Cline
/s/ STEVEN A. DENNING Director March 3, 2000
- -----------------------------------------------------
Steven A. Denning
/s/ A. MICHAEL SPENCE Director March 3, 2000
- -----------------------------------------------------
A. Michael Spence
/s/ JOHN R. OLTMAN Director March 3, 2000
- -----------------------------------------------------
John R. Oltman
/s/ MICHAEL A. MILES Director March 3, 2000
- -----------------------------------------------------
Michael A. Miles
/s/ MARK DZIALGA Director March 3, 2000
- -----------------------------------------------------
Mark Dzialga
</TABLE>
II-6
<PAGE> 107
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1 Asset Purchase Agreement by and among Exult, Inc., Gunn
Partners Inc., the shareholders of Gunn Partners, Inc. and
Michael Gibson dated as of November 22, 1999.
3.1* Fourth Amended and Restated Certificate of Incorporation of
Exult, Inc.
3.2* Amended and Restated Bylaws of Exult, Inc.
4.1* See Exhibits 3.1 and 3.2 for provisions of the Exult, Inc.'s
Certificate of Incorporation and Bylaws defining the rights
of holders of Exult, Inc.'s common stock.
4.2* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger and Harrison LLP.
10.1.1 Registrant's 1999 Stock Option/Stock Issuance Plan.
10.1.2 Form of Notice of Grant of Stock Option.
10.1.3 Form of Stock Option Agreement.
10.1.4 Form of Addendum to Stock Option Agreement.
10.1.5 Form of Stock Purchase Agreement.
10.1.6 Form of Addendum to Stock Purchase Agreement.
10.1.7 Form of Stock Issuance Agreement.
10.1.8 Form of Addendum to Stock Issuance Agreement.
10.2.1 Registrant's 1999 Special Executive Stock Option/Stock
Issuance Plan.
10.2.2 Form of Notice of Grant of Stock Option.
10.2.3 Form of Stock Option Agreement.
10.2.4 Form of Addendum to Stock Option Agreement.
10.2.5 Form of Stock Purchase Agreement.
10.2.6 Form of Addendum to Stock Purchase Agreement.
10.2.7 Form of Stock Issuance Agreement.
10.2.8 Form of Addendum to Stock Issuance Agreement.
10.3* Form of Directors' and Officers' Indemnification Agreement.
10.4 Founder Stock Purchase Agreement by and among BPO-US, Inc.,
James Madden and General Atlantic Partners, LLC dated April
1, 1999.
10.5.1 Amended and Restated Registration Rights Agreement among
Exult, Inc. and the Stockholders identified therein dated
December 23, 1999.
10.5.2 Amendment No. 1 to Amended and Restated Registration Rights
Agreement among Exult and the Stockholders identified
therein dated February 10, 2000.
10.6* Office Space Lease between The Irvine Company and BPO-US,
Inc. dated as of June 28, 1999.
10.7.1* Lease Agreement Venture Technology Center VI Building, The
Woodlands, Montgomery County, Texas between The Woodlands
Corporation and Tenneco Business Services Inc. dated August
15, 1995.
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.7.2* Assignment and Assumption of Lease between Pactiv Business
Services Inc. (formerly known as Tenneco Business Services
Inc.) and Exult, Inc. dated as of January 1, 2000.
21.1 Subsidiaries of Exult, Inc.
23.1* Consent of Brobeck, Phleger & Harrison LLP (Included in
Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (Included on signature pages hereto).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
================================================================================
ASSET PURCHASE AGREEMENT
BY AND AMONG
EXULT, INC.,
GUNN PARTNERS INC.,
THE SHAREHOLDERS OF GUNN PARTNERS, INC.
AND
MICHAEL GIBSON
DATED AS OF NOVEMBER 22, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS..................................................1
1.1 Purchased Assets.............................................................1
1.2 Excluded Assets..............................................................2
ARTICLE II PURCHASE PRICE; ASSUMED LIABILITIES..........................................2
2.1 Purchase Price...............................................................2
2.2 Assumed Liabilities..........................................................3
2.3 Excluded Liabilities.........................................................3
2.4 No Expansion of Third Party Rights...........................................4
2.5 Allocation...................................................................4
ARTICLE III CLOSING......................................................................4
3.1 Time and Place...............................................................4
3.2 Procedure at the Closing.....................................................5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EXULT......................................5
4.1 Corporate Status.............................................................5
4.2 Corporate Power and Authority................................................5
4.3 Enforceability...............................................................6
4.4 Capitalization of Exult......................................................6
4.5 No Violation.................................................................6
4.6 No Commissions...............................................................6
4.7 Financial Statements.........................................................7
4.8 Changes Since the Exult Balance Sheet........................................7
4.9 Litigation...................................................................7
4.10 Compliance with Laws.........................................................7
4.11 Employee Benefit Plans.......................................................7
4.12 Tax Matters..................................................................7
4.13 Clients; Client Contracts....................................................7
4.14 Third-Party Transactions.....................................................7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS...........8
5.1 Corporate Status.............................................................8
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C> <C>
5.2 Power and Authority..........................................................8
5.3 Enforceability...............................................................8
5.4 Shareholders; Capitalization of the Company..................................8
5.5 No Violation.................................................................9
5.6 No Commissions...............................................................9
5.7 Financial Statements.........................................................9
5.8 Changes Since the Current Balance Sheet.....................................10
5.9 Litigation..................................................................10
5.10 Environmental Matters.......................................................10
5.11 Good Title, Adequacy and Condition..........................................13
5.12 Compliance with Laws........................................................13
5.13 Labor and Employment Matters................................................13
5.14 Employee Benefit Plans......................................................14
5.15 Tax Matters.................................................................15
5.16 Insurance...................................................................15
5.17 [Intentionally Omitted].....................................................15
5.18 Licenses and Permits........................................................15
5.19 Client Lists; Assigned Contracts............................................16
5.20 Real Estate.................................................................16
5.21 Intellectual Property.......................................................16
5.22 Material Contracts..........................................................16
5.23 [Intentionally Omitted].....................................................17
5.24 Indebtedness and Liabilities of the Company.................................17
5.25 Employees...................................................................17
5.26 Business Relations..........................................................17
5.27 The Data Protection Act.....................................................17
ARTICLE VI CONDUCT OF BUSINESS PENDING THE CLOSING.....................................18
6.1 Conduct of Business by the Company Pending the Closing......................18
ARTICLE VII CERTAIN AGREEMENTS AND COVENANTS OF THE PARTIES.............................18
7.1 Further Assurances..........................................................18
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
7.2 Confidentiality; Publicity..................................................19
7.3 No Other Discussions........................................................19
7.4 Access to Information.......................................................19
7.5 Covenant not to Compete.....................................................19
7.6 UK Covenant not to Compete..................................................22
7.7 Assigned Contracts and Consents.............................................23
7.8 Use of Name.................................................................23
7.9 GPI Payables Reserve........................................................23
7.10 Payment Default; Non-Exclusive License......................................24
7.11 Agreement to Cooperate; Sales Tax Exemption.................................24
7.12 Employment; Stock Options; Employee Benefit Matters.........................25
7.13 Closing Conditions..........................................................26
7.14 Business Failure of Exult...................................................26
7.15 Gunn Database...............................................................26
7.16 Right of First Offer........................................................26
7.17 Financial Statements........................................................27
ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF EXULT......................................27
8.1 [Intentionally Omitted].....................................................28
8.2 [Intentionally Omitted].....................................................28
8.3 Corporate Certificate.......................................................28
8.4 Delivery of Purchased Assets................................................28
8.5 Legal Opinion...............................................................28
8.6 No Adverse Litigation.......................................................28
8.7 Third Party Consents........................................................28
8.8 Employment Matters..........................................................28
8.9 Board Approval..............................................................28
ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS...........29
9.1 [Intentionally Omitted].....................................................29
9.2 [Intentionally Omitted].....................................................29
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C> <C>
9.3 Corporate Certificate.......................................................29
9.4 Legal Opinion...............................................................29
9.5 Employment Matters..........................................................29
9.6 Delivery of Closing Date Payment............................................29
9.7 No Order or Injunction......................................................29
9.8 Board Approval..............................................................29
ARTICLE X INDEMNIFICATION.............................................................29
10.1 Agreement by the Company and the Shareholders to Indemnify..................29
10.2 Agreement by Exult to Indemnify.............................................31
10.3 Survival of the Representations and Warranties..............................31
10.4 Set off Against the Held Back Amount........................................31
10.5 Delivery of the Held Back Amount............................................32
10.6 No Bar......................................................................32
ARTICLE XI DEFINITIONS.................................................................32
11.1 Defined.....................................................................32
ARTICLE XII TERMINATION.................................................................35
12.1 Termination.................................................................35
12.2 Effect of Termination.......................................................35
ARTICLE XIII GENERAL PROVISIONS..........................................................35
13.1 Notices.....................................................................35
13.2 Entire Agreement; No Third Party Beneficiaries..............................36
13.3 Expenses....................................................................36
13.4 Amendment; Waiver; Binding Effect; Assignment...............................36
13.5 Counterparts................................................................37
13.6 Governing Law; Venue; Waiver of Jury........................................37
13.7 Severability................................................................37
13.8 Arm's Length Negotiations...................................................37
13.9 Construction................................................................38
</TABLE>
-iv-
<PAGE> 6
LIST OF EXHIBITS AND SCHEDULES
------------------------------
EXHIBIT A BILL OF SALE AND ASSIGNMENT
EXHIBIT B ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 7.12(a) EMPLOYEE AGREEMENTS
EXHIBIT 7.12(b) EMPLOYEE AGREEMENTS
EXHBIIT 8.5 LEGAL OPINIONS OF ECKERT SEAMANS CHERIN & MELLOTT
EXHIBIT 9.4 LEGAL OPINIONS OF MCDERMOTT, WILL & EMERY
SCHEDULE 1.1(a) TANGIBLE PERSONAL PROPERTY
SCHEDULE 1.1(b) ASSIGNED CONTRACTS
SCHEDULE 1.1(f) INTELLECTUAL PROPERTY
SCHEDULE 1.1(g) LICENSES AND PERMITS
SCHEDULE 1.2 EXCLUDED ASSETS
SCHEDULE 4.4 CAPITALIZATION OF EXULT
SCHEDULE 4.7 FINANCIAL STATEMENTS
SCHEDULE 4.8 CHANGES SINCE THE EXULT BALANCE SHEET
SCHEDULE 4.11 EMPLOYEE BENEFIT PLANS
SCHEDULE 4.14 THIRD-PARTY TRANSACTIONS
SCHEDULE 5.1 CORPORATE STATUS
SCHEDULE 5.7 FINANCIAL STATEMENTS
SCHEDULE 5.10 ENVIRONMENTAL MATTERS
SCHEDULE 5.14 EMPLOYEE BENEFIT PLANS
SCHEDULE 5.15 TAX MATTERS
SCHEDULE 5.16 INSURANCE POLICIES
SCHEDULE 5.19 CLIENT LISTS; ASSIGNED CONTRACTS
SCHEDULE 5.20 REAL ESTATE
SCHEDULE 5.21 INTELLECTUAL PROPERTY
SCHEDULE 5.22 MATERIAL CONTRACTS
SCHEDULE 5.24 INDEBTEDNESS AND LIABILITIES OF THE COMPANY
SCHEDULE 5.25 EMPLOYEES
SCHEDULE 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE CLOSING
SCHEDULE 7.12(a) EMPLOYMENT MATTERS
SCHEDULE 7.12(b) EMPLOYMENT MATTERS
SCHEDULE 7.15 GUNN DATABASE
SCHEDULE 8.7 THIRD PARTY CONSENTS
SCHEDULE 10.1 AGREEMENT BY THE COMPANY AND THE SHAREHOLDERS TO INDEMNIFY
<PAGE> 7
[EXECUTION COPY]
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "AGREEMENT"), dated as of November
22, 1999, is entered into by and among EXULT, INC., a Delaware corporation
("EXULT"), GUNN PARTNERS INC., a Delaware corporation (the "COMPANY"), Michael
Gibson, a member of the Company's senior management who is not a shareholder of
the Company but who has agreed to be bound by the terms hereof as if he were a
shareholder of the Company ("GIBSON"), and the shareholders of the Company whose
names are set forth on the signature pages attached hereto (such shareholders,
together with Gibson, being referred to herein collectively, the
"SHAREHOLDERS"). Certain other capitalized terms used herein are defined in
Article XI hereof and throughout this Agreement.
RECITALS
The Company owns and operates a business which specializes in providing
management consulting services in such areas as finance, human resources,
procurement, real estate and facilities management, and environmental health and
safety (the "BUSINESS"). Exult desires to purchase and the Company and the
Shareholders desire to sell, substantially all of the assets, properties and
business of the Company on the terms and subject to the conditions set forth in
this Agreement.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 PURCHASED ASSETS. On the terms and subject to the conditions set
forth in this Agreement, at the Closing (as defined in Section 3.1 hereof) the
Company shall sell, convey, transfer, assign and deliver to Exult all of its
right, title and interest in and to all of the assets and properties owned by
the Company and employed or used in connection with the Business of every kind
and description, whether tangible or intangible, wherever located, except for
those assets of the Company which are specifically excluded as provided in
Section 1.2 hereof (collectively, the "PURCHASED ASSETS"), free and clear of all
mortgages, liens, pledges, charges or encumbrances of any nature whatsoever.
Without limiting the generality of the foregoing, the Purchased Assets shall
include (without limitation) the following assets:
(a) Tangible Personal Property. All machinery, equipment,
tools, supplies, leasehold improvements, construction in progress,
furniture and fixtures, trucks, automobiles, vehicles, computer
equipment, computer software and all other tangible
<PAGE> 8
fixed assets owned by the Company, including (without limitation) those
set forth on SCHEDULE 1.1(A) attached hereto;
(b) Assigned Contracts. All of the contract and non-contract
customer accounts, customer account contracts, franchise contracts,
other rights to provide services to the customers of the Company and
other Contracts relating to the Business, as set forth on SCHEDULE
1.1(B) attached hereto (collectively, the "ASSIGNED CONTRACTS");
(c) [Intentionally Omitted];
(d) Prepayments. All prepaid and deferred items of the
Company, including (without limitation) prepaid rentals, insurance,
taxes and deposits relating to the operations of the Company;
(e) Leasehold Interests. All of the interest of and the rights
and benefits accruing to the Company as lessee under the Leased
Premises (as defined in Section 5.20 hereof) and any leases of
machinery, vehicles, equipment, tools, furniture, fixtures or other
fixed assets;
(f) Intellectual Property. All of the proprietary rights of
the Company, including (without limitation) all trade names, slogans,
processes, operating rights, other licenses (including, without
limitation, all worldwide licenses with respect to all existing patents
and patent applications used in connection with the Business) and
permits and other similar intangible property and rights relating to
the Company, including all right in and to the use of the name "Gunn
Partners Inc." and any substantially similar name or derivative thereof
(collectively, the "INTELLECTUAL PROPERTY"), including (without
limitation) those set forth on SCHEDULE 1.1(F) attached hereto;
(g) Licenses and Permits. To the extent assignable, all
permits, licenses, certificates of authority, franchises,
accreditations, registrations and other authorizations issued or used
in connection with the Business, including (without limitation) those
set forth on SCHEDULE 1.1(G) attached hereto; and
(h) Books, Records and other Assets. All operating data and
records of the Company, including (without limitation) customer lists
and records; credit records; budgets and other similar documents and
records; and all of the Company's telephone and telecopier numbers and
post office boxes.
1.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary set forth
in Section 1.1, the Purchased Assets shall not include those assets specifically
set forth on SCHEDULE 1.2 attached hereto.
ARTICLE II
PURCHASE PRICE; ASSUMED LIABILITIES
2.1 PURCHASE PRICE. As consideration for the Purchased Assets, Exult
agrees, on the terms and subject to the conditions and limitations set forth
herein, to pay to the Company an
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<PAGE> 9
aggregate of Fifteen Million Dollars ($15,000,000) (the "PURCHASE PRICE"), which
amount shall be payable by Exult as follows: (a) on the Closing Date, Exult
shall pay to the Company Five Million Dollars ($5,000,000) of the Purchase Price
in cash by wire transfer of immediately available funds (the "CLOSING DATE
PAYMENT") and (b) subject to set-off and recoupment by Exult in accordance with
the provisions of Article X hereof, (i) within five days following the first
anniversary of the Closing Date, Exult shall pay to the Company Five Million
Dollars ($5,000,000) (the "SECOND INSTALLMENT") and (ii) within five days
following the second anniversary of the Closing Date, Exult shall pay to the
Company $5,000,000 (the "THIRD INSTALLMENT;" the Second Installment and the
Third Installment being referred to herein, collectively, as the "HELD BACK
AMOUNT"). In the event any employee listed on SCHEDULE 5.25 attached hereto
shall cease to be employed by Exult (due to the termination of such employee by
Exult for Cause or the resignation of such employee) prior to the scheduled
payment date of the Second Installment or the Third Installment, as the case may
be, then the Second Installment and the Third Installment, as the case may be,
shall be reduced by the amount of the agreed-upon devaluation of the Business
relating thereto as set forth on SCHEDULE 5.25 attached hereto. It is expressly
understood and agreed that neither a termination by Exult for Cause or a
resignation by a Shareholder or any other employee listed on SCHEDULE 5.25 shall
result in any forfeiture or adjustment of any payment previously received
hereunder.
2.2 ASSUMED LIABILITIES. As of the Closing, Exult shall assume the
future payment and performance of the obligations and other duties of the
Company with respect to the Business under the Assigned Contracts and the Real
Estate Leases to the extent that such obligations and duties accrue after the
Closing Date (the "ASSUMED LIABILITIES").
2.3 EXCLUDED LIABILITIES. Except for the Assumed Liabilities, the
parties hereto expressly agree that Exult shall not assume or otherwise become
liable for, and none of the Purchased Assets shall become subject to any Lien or
claim for, any obligations or liabilities of the Company (the "EXCLUDED
LIABILITIES"), including (without limitation) (a) any liability or obligation
relating to income, franchise, sales, profits, use, license, gross receipts,
excise, single business, occupation, payroll, employment, unemployment, personal
property, gains, stamp, transfer or withholding taxes relating to the ownership
of the Purchased Assets or the operation of the Company prior to the Closing or
to the sale, acquisition, conveyance, transfer and delivery of the Purchased
Assets hereunder, or any part thereof or interest therein, or which arise by
reason of any other transaction contemplated hereby, including (without
limitation) any interest or penalties related thereto; (b) any liability or
obligation relating to any material default under any of the Assumed Liabilities
to the extent such default existed or was caused prior to the Closing; (c) any
liability or obligation, whether arising in tort, contract or from violation of
any law, statute, rule or regulation (including, without limitation, the Council
of the European Communities' Directives No. 77/187 EEC and 98/50/EC (the
"ACQUIRED RIGHTS DIRECTIVES"), the United Kingdom's Transfer of Undertaking
(Protection of Employment) Regulations 1981, as amended ("TUPE"), and any other
enabling or implementing legislation in force from time to time in any European
jurisdiction to which the transfer of the assets, properties and business of the
Company may be subject ("OTHER EUROPEAN TRANSFER OF UNDERTAKINGS LAW") and the
Council of the European Communities' Directive No. 95/46/EEC (the "DATA
PROTECTION DIRECTIVE"), the United Kingdom's Data Protection Act 1998 (the "UK
PROTECTION ACT") and any other enabling or implementing legislation in force
from time to time in any European jurisdiction relating to the collection,
holding, processing or use of Personal Data ("OTHER
-3-
<PAGE> 10
EUROPEAN DATA PROTECTION LAW"); provided that, for the purposes of this
Agreement, "PERSONAL DATA" shall mean data which relate to a living individual
who can be identified from those data or from those data and other information
which is or has been in the Company's possession (including such information and
data relating to the employees listed in SCHEDULES 7.12(A) AND 7.12(B) attached
hereto) and the collection, holding, processing or use of which is subject to
the requirements of the Data Protection Directive, the UK Protection Act and
Other European data protection law) by the Company, or an employee or agent
thereof, that arises out of or results from any act, omission, occurrence or
state of facts prior to the Closing; (d) any liability or obligation of the
Company, or any entity that would be aggregated with the Company under Code
Section 414(b), (c), (m) or (o), with respect to or arising out of any Employee
Benefit Plan and (e) any other liability or obligation of the Company or any
other person or entity, absolute or contingent, known or unknown that is not
expressly agreed to be assumed pursuant to the provisions of Section 2.2 hereof.
2.4 NO EXPANSION OF THIRD PARTY RIGHTS. The assumption by Exult of the
Assumed Liabilities, and the transfer thereof by the Company, shall in no way
expand the rights or remedies of any third parties against Exult or the Company,
as compared to the rights and remedies which such third party would have had
against the Company had Exult not assumed such liabilities. Without limiting the
generality of the preceding sentence, the assumption by Exult of the Assumed
Liabilities shall not create any third party beneficiary rights.
2.5 ALLOCATION. The parties agree that the sum of One Hundred Thousand
Dollars ($100,000) shall be allocated to the non-competition obligations set
forth in Section 7.5 and Section 7.6 hereof and that the remaining Purchase
Price shall be allocated among the Purchased Assets to be transferred pursuant
to this Agreement. The parities agree to allocate such remaining portion of the
Purchase Price among the Purchased Assets in a manner consistent with the
requirements set forth in Section 1060 of the Code and the Treasury regulations
promulgated thereunder. Within 90 days after the Closing, Exult shall provide
the Company with a preliminary allocation of the Purchase Price for the
Company's review and approval, which approval shall not be unreasonably withheld
or delayed. In addition, it is agreed that such allocation will be binding on
both parties for federal income tax purposes in connection with this purchase
and sale of the Purchased Assets, and will be consistently reflected by each
party on their respective federal income tax returns. The parties agree to
prepare and timely file all applicable Internal Revenue Service forms, including
Form 8594 (Asset Acquisition Statement), and other governmental forms, to
cooperate with each other in the preparation of such forms and to furnish each
other with a copy of such forms prepared in draft, within a reasonable period
prior to the filing due date thereof.
ARTICLE III
CLOSING
3.1 TIME AND PLACE. The consummation of the transactions contemplated
hereby (the "CLOSING") shall take place as of the date hereof by an exchange of
facsimile pages, with originals to be delivered by overnight courier. The date
on which the Closing occurs shall be referred to herein as the "CLOSING DATE."
-4-
<PAGE> 11
3.2 PROCEDURE AT THE CLOSING. At the Closing, the parties agree that
the following shall occur:
(a) The Company shall have satisfied, or Exult shall have
waived in writing in its sole discretion, each of the conditions set
forth in Article VIII hereof and shall deliver to Exult the documents,
certificates, opinions, consents and letters required by such Article.
(b) Exult shall have satisfied, or the Company shall have
waived in writing in its sole discretion, each of the conditions set
forth in Article IX and shall deliver to the Company the documents,
certificates, opinions, consents and letters required by such Article.
(c) The Company shall deliver to Exult, or its assignee, the
(a) Bill of Sale and Assignment in the form attached hereto as EXHIBIT
A and (b) Assignment and Assumption Agreement in the form attached
hereto as EXHIBIT B, and such other deeds, bills of sale, endorsements,
assignments, releases and other instruments as shall be sufficient to
vest in Exult (or its assignee) good and marketable title to the
Purchased Assets. The Company agrees to execute and deliver to Exult
(or its assignee) from time to time such further and particular
assignments, consents, or other instruments in writing as Exult (or its
assignee) may request as appropriate or desirable to confirm its title
in and to the Purchased Assets. At or prior to the Closing, Exult may,
in its sole and absolute discretion, instruct the Company to transfer
the Purchased Assets to a direct or indirect wholly-owned subsidiary of
Exult.
(d) Exult shall pay to the Company the Closing Date Payment,
except for an amount equal to the Payables Reserve amount (as defined
in Section 7.9 hereof).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EXULT
Exult represents and warrants to the Company and the Shareholders that,
as of the date hereof:
4.1 CORPORATE STATUS. Exult is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite power and authority to own or lease its properties and to carry on
its business as now being conducted. Exult Equity Partners, Inc. is a
wholly-owned subsidiary of Exult.
4.2 CORPORATE POWER AND AUTHORITY. Exult has the corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. Exult has
taken all action necessary to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby.
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<PAGE> 12
4.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by Exult and constitutes a legal, valid and binding obligation of Exult,
enforceable against Exult in accordance with its terms, except as the same may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity.
4.4 CAPITALIZATION OF EXULT. As of the date hereof, the authorized
capital of Exult consists of 25,000,000 shares of common stock, par value
$0.0001 per share ("EXULT COMMON STOCK"), and 5,000,000 shares of preferred
stock, par value $0.0001 per share. As of the date hereof, (a) 1,834,350 shares
of Exult Common Stock are issued and outstanding, (b) (i) 25,000 shares of
Series A Preferred Stock of Exult are issued and outstanding (each share of
Series A Preferred Stock is convertible to 180 shares of Exult Common Stock),
(ii) 1,696,369 shares of Series B Preferred Stock of Exult are issued and
outstanding and (iii) 1,536,964 shares of Series C Preferred Stock of Exult are
issued and outstanding (collectively, "EXULT PREFERRED STOCK"), (c) no shares of
Exult Common Stock or Exult Preferred Stock are held in the treasury of Exult,
(d) 1,042,251 options to purchase Exult Common Stock are issued and outstanding,
(e) 197,159 shares of Exult Common Stock are reserved for issuance upon the
exercise of outstanding warrants to purchase Exult Common Stock and (f)
7,733,333 shares of Exult Common Stock were reserved for issuance upon
conversion of outstanding Exult Preferred Stock. SCHEDULE 4.4 attached hereto
sets forth a list all Persons that hold more than 5% of the issued and
outstanding Exult Common Stock. Assuming the conversion, as of the date hereof,
of all issued and outstanding Exult Preferred Stock and the exercise of all
outstanding warrants and options to purchase Exult Common Stock, 10,807,093
shares of Exult Common Stock would be issued and outstanding.
4.5 NO VIOLATION. The execution and delivery by Exult of this
Agreement, the performance by Exult of its obligations hereunder and the
consummation by Exult of the transactions contemplated hereby, each in
accordance with the terms hereof, will not (a) violate or conflict with the
Certificate of Incorporation or Bylaws of Exult, (b) violate or conflict with
any law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment or order of any Governmental Authority or any arbitration award which
is either applicable to, binding upon or enforceable against Exult, (c) conflict
with, result in any breach of, or constitute a default (or an event which would,
with the passage of time or the giving of notice or both, constitute a default)
under, or give rise to a right to refuse to perform under, terminate, amend,
modify, abandon or accelerate, any customer account contract that is applicable
to, binding upon or enforceable against Exult or (d) require the consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority, any court or tribunal or any other Person, except, in
the case of clauses (b), (c) and (d) of this Section 4.5, for such matters as
would not have a material adverse effect on Exult or its financial condition,
properties, operations or business (an "EXULT MATERIAL AVERSE EFFECT").
4.6 NO COMMISSIONS. Except with respect to any finder's or broker's or
agent's fees or commissions owed to any consultant or employee of Exult pursuant
to the terms of any contract or agreement, Exult has not incurred any obligation
for any finder's or broker's or agent's fees or commissions or similar
compensation in connection with the transactions contemplated hereby.
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<PAGE> 13
4.7 FINANCIAL STATEMENTS. Exult has delivered to the Company its
un-audited financial statements for the fiscal year ended September 30, 1999,
copies of which are attached to SCHEDULE 4.7 hereto (collectively, the "EXULT
FINANCIAL STATEMENTS"). The balance sheet, dated as of September 30, 1999, of
Exult included in the Exult Financial Statements is referred to herein as the
"EXULT BALANCE SHEET." To Exult's knowledge, the Exult Financial Statements
fairly present the financial position of Exult as of the date of such balance
sheet and the results of operations of Exult for the period covered thereby.
4.8 CHANGES SINCE THE EXULT BALANCE SHEET. Except as set forth on
SCHEDULE 4.8 hereto, since the date of the Exult Balance Sheet, Exult has not
incurred any obligations or liabilities (including any indebtedness) or entered
into any transaction or series of transactions involving in excess of $250,000
in the aggregate, other than in the ordinary course of business consistent with
past practice and except for this Agreement and the transactions contemplated
hereby.
4.9 LITIGATION. There is no action, suit or other legal or
administrative proceeding or governmental investigation pending against Exult,
except for any such action, suit, or proceeding which would not cause an Exult
Material Averse Effect.
4.10 COMPLIANCE WITH LAWS. Exult is and has been in compliance in all
material respects with all laws, regulations and orders applicable to it, its
business and operations (as conducted by it now and in the past) and any other
properties and assets (in each case owned or used by it now or in the past),
except for such noncompliance which would not cause an Exult Material Averse
Effect.
4.11 EMPLOYEE BENEFIT PLANS. SCHEDULE 4.11 attached hereto sets forth a
summary of each Employee Benefit Plan (as defined in Section 5.14 hereof) of
Exult, true and complete copies of which have been furnished by Exult to the
Company.
4.12 TAX MATTERS. With respect to each taxable period of Exult, there
is no material action, suit, taxing authority proceeding, or audit or claim for
refund now in progress, pending or, to the knowledge of Exult, threatened
against or with respect to Exult regarding Taxes. To Exult's knowledge, Exult
has filed all tax returns required by applicable law and has paid all taxes, if
any, reflected thereon to be due and owing to any Governmental Authority, except
where any failure to do so would not result in an Exult Material Adverse Effect.
4.13 CLIENTS; CLIENT CONTRACTS. As of the date hereof, Exult has no
material revenue-producing clients or client contracts.
4.14 THIRD-PARTY TRANSACTIONS. Except as set forth in SCHEDULE 4.14
attached hereto, Exult is not negotiating nor is its board of directors or
senior management team actively discussing (a) any transaction which would
result in an Exult Change of Control (as defined in Section 7.5 hereof), (b) any
sale or transfer of all or substantially all of the Purchased Assets to any
Person not directly or indirectly controlled by Exult or (c) a Material Dilution
Event (as hereinafter defined). It is expressly understood and agreed that this
Section 4.14 (i) is intended to be limited to transactions which could
reasonably be expected to close within five months after the Closing Date and
(ii) is not intended to include the acquisition of the assets, equity
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<PAGE> 14
securities or the business of any Person (a "BUSINESS ACQUISITION") so long as
such Business Acquisition does not result in an Exult Change of Control. For
purposes hereof, the term "MATERIAL DILUTION EVENT" means the issuance of equity
securities of Exult comprising more than 25% of the then issued and outstanding
equity securities of Exult, determined on a fully-diluted basis, in one or a
series of related transactions, other than in connection with (w) a Business
Acquisition, (x) an underwritten public offering, (y) the issuance of equity
securities currently required pursuant to the terms of any agreement between
Exult and a third party, a true and complete copy of which was previously
delivered to the Company or (z) the exercise of previously issued and
outstanding stock options or warrants, or the subsequent issuance or exercise of
equity securities, warrants or options issued after the date hereof, pursuant to
the terms of a stock option plan or agreement, a true and complete copy of which
was previously delivered to the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
Each of the Company and the Shareholders, jointly and severally
(subject to the limitations on the individual liability of the Shareholders set
forth in Section 10.1 hereof), represents and warrants to Exult, as of the date
hereof, as to the following:
5.1 CORPORATE STATUS. 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 power and authority to own or lease its properties and to
carry on its business as now being conducted. Except as set forth in SCHEDULE
5.1 attached hereto, the Company is not legally qualified to do business as a
foreign corporation in any state and the nature of its properties and the
conduct of its business does not require such qualification.
5.2 POWER AND AUTHORITY. The Company has the corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The Company
has taken all action necessary to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby. Each of the Shareholders has the requisite
competence, power and authority to execute and deliver this Agreement, to
perform such Shareholder's obligations hereunder and to consummate the
transactions contemplated hereby.
5.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by each of the Company and the Shareholders and constitutes the legal, valid and
binding obligation of each of them, enforceable against each of them in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
5.4 SHAREHOLDERS; CAPITALIZATION OF THE COMPANY. As of the date hereof,
the Shareholders constitute the holders of all issued and outstanding shares of
capital stock of the
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<PAGE> 15
Company, and (except as provided in the 1995 Amended and Restated Shareholder
Agreement of Gunn Partners Inc. and as provided under applicable securities
laws) the Shareholders own such shares free and clear of all Liens, restrictions
and claims of any kind. There are no outstanding or authorized rights, options,
warrants, convertible securities, subscription rights, conversion rights,
exchange rights or other agreements or commitments of any kind that could
require the Company to issue or sell any amount of its capital stock (or
securities convertible into or exchangeable for any amount of its capital
stock).
5.5 NO VIOLATION. The execution and delivery by the Company of this
Agreement, the performance by the Company of its obligations hereunder and the
consummation by the Company of the transactions contemplated hereby, each in
accordance with the terms hereof, will not (a) violate or conflict with the
Certificate of Incorporation or Bylaws of the Company, (b) violate or conflict
with any law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment or order of any Governmental Authority or any arbitration award which
is either applicable to, binding upon or enforceable against the Company, the
Shareholders or the Purchased Assets, (c) conflict with, result in any breach
of, or constitute a default (or an event which would, with the passage of time
or the giving of notice or both, constitute a default) under, or give rise to a
right to refuse to perform under, terminate, amend, modify, abandon or
accelerate, any material Contract (including the Assigned Contracts) which is
applicable to, binding upon or enforceable against the Company, the Shareholders
or the Purchased Assets, (d) result in or require the creation or imposition of
any Lien upon or with respect to any of the Purchased Assets or (e) require the
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, any court or tribunal or any other Person.
5.6 NO COMMISSIONS. The Company and the Shareholders have not incurred
any obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby.
5.7 FINANCIAL STATEMENTS. The Company has delivered to Exult the
financial statements of the Company, including the notes thereto, for (a) the
12-month period ended December 31, 1998, which have been reviewed by Vitale
Caturano & Co., P.C. of Boston, Massachusetts and (b) the nine-month period
ended September 30, 1999 (collectively, the "FINANCIAL STATEMENTS"), copies of
which are attached to SCHEDULE 5.7 hereto. The balance sheet dated as of
September 30, 1999, of the Company included in the Financial Statements is
referred to herein as the "CURRENT BALANCE SHEET". The Financial Statements
fairly present the financial position of the Company and the Business as of the
balance sheet date and the results of operations for the periods covered
thereby, and have been prepared in accordance with GAAP consistently applied
throughout the periods indicated. The books and records of the Company relating
to the Business fully and fairly reflect all transactions, properties, assets
and liabilities of the Business. There are no material special or non-recurring
items of income or expense during the periods covered by the Financial
Statements and the balance sheets included in the Financial Statements do not
reflect any write-up or revaluation increasing the book value of any assets,
except as specifically disclosed in the notes thereto. The Financial Statements
reflect all adjustments necessary for a fair presentation of the financial
information contained therein; provided, however, that the Financial Statements
for the period ended September 30, 1999 are subject to normal year-end
adjustments consistent with past practices.
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5.8 CHANGES SINCE THE CURRENT BALANCE SHEET. Since the date of the
Current Balance Sheet, the Company has not (a) paid any bonus to or increased
the rate of compensation of any of its officers, directors or salaried
employees, or amended any other terms of employment of such persons; (b) sold,
leased or transferred any of its properties or assets other than in the ordinary
course of business consistent with past practice; (c) made or obligated itself
to make capital expenditures other than in the ordinary course of business
consistent with past practice; (d) made any payment in respect of its
liabilities other than in the ordinary course of business consistent with past
practice; (e) incurred any obligations or liabilities (including any
indebtedness) or entered into any transaction or series of transactions
involving in excess of $10,000 in the aggregate other than in the ordinary
course of business consistent with past practice, except for this Agreement and
the transactions contemplated hereby; (f) made or adopted any change in its
accounting practice or policies; (g) made any adjustment to its books and
records other than in respect of the conduct of its business activities in the
ordinary course consistent with past practice; (h) entered into any transaction
with any Affiliate other than intercompany transactions in the ordinary course
of business consistent with past practice; (i) entered into any employment
agreement; (j) terminated, amended or modified agreements in the aggregate
involving an amount in excess of $10,000 in the aggregate; (k) imposed any
security interest or other Lien on any of the Purchased Assets; (l) delayed
paying any account payable which is due and payable except to the extent being
contested in good faith; (m) made or pledged any charitable contribution; (n)
entered into any plan, agreement or arrangement granting any preferential rights
to purchase or acquire any property, rights or assets other than in the ordinary
course of business; (o) entered into any other transaction or was subject to any
event which had or may have a Material Adverse Effect on the Company, the
Business or the Purchased Assets; (p) engaged in any transaction other than in
the ordinary course of the Business; (q) suffered or incurred any work
interruptions, labor grievances, or claims filed, or any similar event which has
or would have a Material Adverse Effect on the Company, the Business or the
Purchased Assets or (r) agreed to do or authorized any of the foregoing.
5.9 LITIGATION. There is no action, suit, or other legal or
administrative proceeding or governmental investigation pending or, to the
Company's Knowledge, threatened, anticipated or contemplated against, by or
affecting the Company, the Shareholders (in their capacity as shareholders of
the Company) or the Purchased Assets, or which questions the validity or
enforceability of this Agreement or the transactions contemplated hereby and, to
the Company's Knowledge, there is no basis for any of the foregoing. There are
no outstanding orders, decrees, stipulations or agreements issued by any
Governmental Authority in any proceeding or agreed to by the Company or the
Shareholders to which the Company or the Shareholders are or were a party which
have not been complied with in full or which continue to impose any obligations
or which may have a Material Adverse Effect on the Company, the Shareholders or
the Purchased Assets.
5.10 ENVIRONMENTAL MATTERS.
(a) The Company (as defined in clause (g) below) is and has at
all times been in full compliance with all Environmental Laws (as
defined in clause (g) below) governing its business, operations,
properties and assets, including, without limitation: (i) all
requirements relating to the Discharge (as defined in clause (g) below)
and Handling (as defined in clause (g) below) of Hazardous Substances
(as defined in clause
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<PAGE> 17
(g) below); (ii) all requirements relating to notice, record keeping
and reporting; (iii) all requirements relating to obtaining and
maintaining Licenses (as defined in clause (g) below) for the ownership
of its properties and assets and the operation of its business as
presently conducted, including Licenses relating to the Handling and
Discharge of Hazardous Substances; and (iv) all applicable writs,
orders, judgements, injunctions, governmental communications, decrees,
informational requests or demands issued pursuant to, or arising under,
any Environmental Laws.
(b) There are no (and there is no basis for any)
non-compliance orders, warning letters, notices of violation
(collectively "NOTICES"), claims, suits, actions, judgments, penalties,
fines, or administrative or judicial investigations or proceedings
pending or threatened against or involving the Company, or its
business, operations, properties, or assets, issued by any Governmental
Authority or third party with respect to any Environmental Laws or
Licenses issued to the Company thereunder in connection with, related
to or arising out of the ownership by the Company of its properties or
assets or the operations of its business, which have not been resolved.
(c) The Company has not Handled or Discharged, nor has it
allowed or arranged for any third party to Handle or Discharge,
Hazardous Substances to, at or upon: (i) any location other than a site
lawfully permitted to receive such Hazardous Substances; (ii) any real
property currently or previously owned or operated by the Company; or
(iii) any site which, pursuant to any Environmental Laws, (x) has been
placed on the National Priorities List or its state equivalent, or (y)
the Environmental Protection Agency or the relevant state agency or
other Governmental Authority has notified the Company that such
Governmental Authority has proposed or is proposing to place on the
National Priorities List or its state equivalent.
(d) SCHEDULE 5.10 attached hereto identifies the operations
and activities, and locations thereof, which have been conducted or are
being conducted by the Company on any real property currently or
previously owned or operated by the Company which have involved the
Handling or Discharge of Hazardous Substances.
(e) The Company does not use, nor has it used, any Above
Ground Storage Tanks (as defined in clause (g) below) or Underground
Storage Tanks (as defined in clause (g) below), and there are not now
nor have there ever been any Underground Storage Tanks beneath any real
property currently or previously owned or operated by the Company that
are required to be registered under applicable Environmental Laws.
(f) SCHEDULE 5.10 identifies (i) all environmental audits,
assessments or occupational health studies undertaken by the Company or
its agents or, to the knowledge of the Company, undertaken by any
Governmental Authority, or any third party, relating to or affecting
the Company or any real property currently or previously owned or
operated by the Company; (ii) the results of any ground, water, soil,
air or asbestos monitoring undertaken by the Company or its agents or,
to the knowledge of the Company, undertaken by any Governmental
Authority or any third party, relating to or affecting the Company or
any real property currently or previously owned or operated by the
Company which indicate the presence of Hazardous Substances at levels
requiring a
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<PAGE> 18
notice or report to be made to a Governmental Authority or in violation
of any applicable Environmental Laws; (iii) all material written
communications between the Company and any Governmental Authority
arising under or related to Environmental Laws; and (iv) all
outstanding citations issued under OSHA, or similar state or local
statutes, laws, ordinances, codes, rules, regulations, orders, rulings,
or decrees, relating to or affecting either the Company or any real
property currently or previously owned or operated by the Company.
(g) For purposes of this Section 5.10, the following terms
shall have the meanings ascribed to them below:
"ABOVE GROUND STORAGE TANK" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order ruling, or decree governing above-ground storage
tanks.
"COMPANY" means, for purposes of this Section 5.10, the
Company and any Affiliates.
"DISCHARGE" means any manner of spilling, leaking, dumping,
discharging, releasing or emitting, as any of such terms may further be
defined in any Environmental Law, into any medium including, without
limitation, ground water, surface water, soil or air.
"ENVIRONMENTAL LAWS" means all federal, state, regional or
local statutes, laws, rules, regulations, codes, orders, plans,
injunctions, decrees, rulings, and changes or ordinances or judicial or
administrative interpretations thereof, or similar laws of foreign
jurisdictions where the Company conducts business, whether currently in
existence or hereafter enacted or promulgated, any of which govern (or
purport to govern) or relate to pollution, protection of the
environment, public health and safety, air emissions, water discharges,
hazardous or toxic substances, solid or hazardous waste or occupational
health and safety, as any of these terms are or may be defined in such
statutes, laws, rules, regulations, codes, orders, plans, injunctions,
decrees, rulings and changes or ordinances, or judicial or
administrative interpretations thereof, including, without limitation:
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendment and Reauthorization
Act of 1986, 42 U.S.C.ss.9601, et seq. (collectively "CERCLA"); the
Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and subsequent Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C.ss.6901 et seq. (collectively "RCRA"); the
Hazardous Materials Transportation Act, as amended, 49 U.S.C.ss.1801,
et seq.; the Clean Water Act, as amended, 33 U.S.C.ss.1311, et seq.;
the Clean Air Act, as amended (42 U.S.C.ss.7401-7642); the Toxic
Substances Control Act, as amended, 15 U.S.C.ss.2601 et seq.; the
Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7
U.S.C.ss.136-136y ("FIFRA"); the Emergency Planning and Community
Right-to-Know Act of 1986 as amended, 42 U.S.C.ss.11001, et seq. (Title
III of SARA) ("EPCRA"); and the Occupational Safety and Health Act of
1970, as amended, 29 U.S.C.ss.651, et seq. ("OSHA").
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<PAGE> 19
"HANDLE" means any manner of generating, accumulating,
storing, treating, disposing of, transporting, transferring, labeling,
handling, manufacturing or using, as any of such terms may further be
defined in any Environmental Law, of any Hazardous Substances or Waste.
"HAZARDOUS SUBSTANCES" shall be construed broadly to include
any toxic or hazardous substance, material, or waste, and any other
contaminant, pollutant or constituent thereof, including without
limitation, chemicals, compounds, by-products, petroleum or petroleum
products, and polychlorinated biphenyls, the presence of which requires
investigation or remediation under any Environmental Laws or which are
or become regulated, listed or controlled by, under or pursuant to any
Environmental Laws.
"LICENSES" means all licenses, certificates, permits,
approvals and registrations.
"UNDERGROUND STORAGE TANK" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order ruling, or decree governing Underground Storage
Tanks.
5.11 GOOD TITLE, ADEQUACY AND CONDITION. The Company has, and at the
Closing will have, good and marketable title to the Purchased Assets with full
power to sell, transfer and assign the same, free and clear of any Lien, and by
delivery of the Bill of Sale and Assignment, as contemplated by Section 3.2
hereof, the Company will deliver to Exult title to such Purchased Assets free
and clear of any Lien. The Purchased Assets constitute, in the aggregate, all of
the assets and properties necessary for the conduct of the Business in the
manner in which and to the extent to which such business is currently being
conducted. The Purchased Assets are in good operating condition, normal wear and
tear excepted, and have been maintained in accordance with all applicable
specifications and warranties.
5.12 COMPLIANCE WITH LAWS. The Company is and has been in compliance in
all material respects with all laws, regulations and orders applicable to it,
its business and operations (as conducted by it now and in the past), the
Purchased Assets, and any other properties and assets (in each case owned or
used by it now or in the past). The Company is not subject to any Contract
(including the Assigned Contracts), decree or injunction that restricts the
continued operation of the Company or the expansion thereof to other
geographical areas, customers or suppliers, or to other lines of business.
5.13 LABOR AND EMPLOYMENT MATTERS. The Company is not a party to or
bound by any collective bargaining agreement or any other agreement with a labor
union. The Company has complied in all material respects with all applicable
laws, rules and regulations relating to employment, employment taxes (including,
without limitation, all national, regional and local income taxes, national
insurance contributions and any other forms of charge, levy or deduction in
respect of employees' health and retirement), civil rights and equal employment
opportunities (including, without limitation, to the Civil Rights Act of 1964,
the Fair Labor Standards Act, the Americans with Disabilities Act (and
equivalent or comparable provisions in all other jurisdictions in the Restricted
Territories as defined in Section 7.5 hereof) and the Acquired Rights Directive,
TUPE and Other European transfer of undertakings law, each as amended).
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5.14 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 5.14 attached hereto sets forth each Employment
Benefit Plan of the Company. With respect to each Employee Benefit Plan
(as defined in clause (d) below) of the Company, (i) each has been
administered in compliance with its terms and with all applicable laws
including, without limitation, ERISA and the Code; (ii) no actions,
suits, claims or disputes (other than routine claims for benefits) are
pending or threatened; (iii) no audits, proceedings, claims or demands
are pending with any Governmental Authority; (iv) all reports, returns
and similar documents required to be filed with any Governmental
Authority or distributed to any plan participant have been duly or
timely filed or distributed; (v) no "prohibited transaction" has
occurred within the meaning of ERISA or the Code; (vi) no such plan
provides medical or dental benefits for any current or former employees
of the Company or its predecessors after termination of employment
other than rights that may be provided by law; (vii) no such plan
obligates the Company to pay separation, severance, termination or
similar benefits as a result of any transaction contemplated by this
Agreement or solely as a result of a "change of control" (as defined in
Section 280G of the Code); (viii) all required or discretionary (in
accordance with historical practices) payments, premiums,
contributions, reimbursements or accruals for all periods ending prior
to or as of the Closing shall have been made or properly accrued on the
Current Balance Sheet or will be properly accrued on the books and
records of the Company as of the Closing; (ix) no such plan has any
unfunded liabilities which are not reflected on the Current Balance
Sheet or the books and records of the Company; (x) the Company has
complied with the notice and continuation of coverage requirements of
Section 4980B of the Code and the regulations thereunder with respect
to any group health plan within the meaning of Code Section 5000(b)(1);
and (xi) the Company does not participate in, nor has ever participated
in, nor have any withdrawal liability under, ERISA with respect to, a
"multiemployer plan" (as defined in Section 3(37) of ERISA). True and
accurate copies of each Employee Benefit Plan of the Company, together
with the most recent annual reports on Form 5500, all IRS favorable
determination letters and summary plan descriptions for such plans have
been furnished to Exult.
(b) With respect to each Employee Benefit Plan of the Company
intended to qualify under Code Section 401(a) or 403(a), (i) the
Internal Revenue Service has issued a favorable determination letter,
which has not been revoked, that any such plan is tax-qualified and
exempt from federal income tax; (ii) no reportable event (within the
meaning of Section 4043 of ERISA) has occurred; and (iii) the present
value of all liabilities under any such plan will not exceed the
current fair market value of the assets of such plan (determined using
the actuarial assumption used for the most recent actuarial valuation
for such plan).
(c) Exult will not suffer any loss, cost or liability as a
result of any claim that the Company, or any entity that would be
aggregated with the Company under Code Section 414(b), (c), (m) or (o),
has not complied with the provisions of paragraphs (a) and (b) above
with respect to each Employee Benefit Plan maintained by any such
entity.
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<PAGE> 21
(d) For purposes hereof, "EMPLOYEE BENEFIT PLAN" means any:
(i) employee pension benefit plan as defined in Section 3(2) of ERISA;
(ii) multiemployer plan as defined in Section 3(37) of ERISA; (iii)
employee welfare benefit plan as defined in Section 3(1) of ERISA; and
(iv) any stock option, bonus, stock purchase, or insurance plan and any
severance or termination pay plan or policy in which employees, spouses
or dependents participate.
5.15 TAX MATTERS. All Tax Returns required to be filed prior to the
date hereof with respect to the Company or its respective income, properties,
franchises or operations have been timely filed, each such Tax Return has been
prepared in compliance with all applicable laws and regulations, and all such
Tax Returns are true and accurate in all respects. Except as set forth in
SCHEDULE 5.15 attached hereto, all Taxes due and payable by or with respect to
the Company and the Business have been paid or are accrued on the Current
Balance Sheet. The Company has withheld and paid all Taxes to the appropriate
Governmental Authority required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party. With respect to each taxable period of the
Company: (i) no deficiency or proposed adjustment which has not been settled or
otherwise resolved for any amount of Taxes has been asserted or assessed by any
taxing authority against the Company; (ii) the Company has not consented to
extend the time in which any Taxes may be assessed or collected by any taxing
authority; (iii) the Company has not requested or been granted an extension of
the time for filing any Tax Return to a date later than the Closing; (iv) there
is no action, suit, taxing authority proceeding, or audit or claim for refund
now in progress, pending or threatened against or with respect to the Company
regarding Taxes; and (v) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the Assets of the Company. No sales or use
tax, non-recurring intangible tax, documentary stamp tax or other excise tax (or
comparable tax imposed by any governmental entity) will be payable by the
Company or Exult by virtue of the transactions contemplated in this Agreement.
The Company has duly and validly filed an election for "S" corporation status
under the Code, and such "S" election has not been revoked or terminated and
neither the Company nor any of the Shareholders has taken any action which would
cause a termination of such "S" election.
5.16 INSURANCE. The Company is covered by valid, outstanding and
enforceable policies of insurance covering the Purchased Assets and Business
under the policies listed on SCHEDULE 5.16 attached hereto (the "INSURANCE
POLICIES"). SCHEDULE 5.16 contains a complete and correct list of all Insurance
Policies and all amendments and riders thereto and reflects the policy number,
terms, identity of insurer, amount and coverage with respect to each such
Insurance Policy. Such Insurance Policies are in full force and effect, and all
premiums due thereon have been paid. The Company has complied with the
provisions of such Insurance Policies. The Company has not failed to give, in a
timely manner, any notice required under any of the Insurance Policies to
preserve its rights thereunder.
5.17 [INTENTIONALLY OMITTED].
5.18 LICENSES AND PERMITS. The Company possesses all material licenses
and required governmental or official approvals, permits or authorizations
(collectively, the "PERMITS") for its business and operations. All such Permits
are valid and in full force and
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effect, the Company is in compliance in all respects with their requirements,
and no proceeding is pending or threatened to revoke or amend any of them.
5.19 CLIENT LISTS; ASSIGNED CONTRACTS. Set forth in SCHEDULE 1.1(B)
attached hereto is a complete list of (a) all of the clients of the Company and
(b) the Assigned Contracts. Except as set forth in SCHEDULE 5.19 attached
hereto, all of the clients listed on such SCHEDULE 1.1(B) are subject to valid
and enforceable Assigned Contracts. True, correct and complete copies of such
Assigned Contracts have been furnished by the Company to Exult. The Company has
not violated any of the terms or conditions of any of the Assigned Contracts
and, to the Company's Knowledge, all of the covenants to be performed by any
other party thereto have been fully performed and there are no claims for breach
or indemnification or notice of default or termination thereunder.
5.20 REAL ESTATE. As of the date hereof, the Company has no office or
place of business other than as identified on SCHEDULE 5.20 hereto, and the
Company's principal place of business and chief executive offices are indicated
on SCHEDULE 5.20. All locations where the equipment, inventory, chattel paper
and books and records of the Company are located as of the date hereof are fully
identified on SCHEDULE 5.20. SCHEDULE 5.20 sets forth a list of all real estate
leases and other similar agreements (collectively, the "REAL ESTATE LEASES") to
which the Company is a party (copies of which have previously been furnished to
Exult), in each case, setting forth (a) the lessor and lessee party thereto and
the date and term thereof, (b) the street address of the premises covered
thereby and (c) a brief description of such premises (the "LEASED PREMISES").
The Real Estate Leases are in full force and effect and have not been amended,
and the Company is not and, to the Company's Knowledge, no other party thereto
is in default or breach thereunder. No event has occurred which, with the
passage of time or the giving of notice or both, would cause a material breach
of or default under any of such Real Estate Leases. There is no breach or
anticipated breach by any other party to such Real Estate Leases. Each of the
Leased Premises is served by all utilities in such quantity and quality as are
sufficient to satisfy the current normal business activities as conducted
thereat.
5.21 INTELLECTUAL PROPERTY. The Company has full legal right, title and
interest to the Intellectual Property and has not granted any rights in or to
the same to any third party. The use of the Intellectual Property in the
Business as presently conducted does not infringe on any third party's
trademark, trade name, service mark, copyright, patent or license. Except as set
forth on SCHEDULE 5.21 attached hereto, no payments are required for the
continued use of the Intellectual Property. None of the Intellectual Property
has ever been declared invalid or unenforceable, or is the subject of any
pending or threatened action for opposition, cancellation, declaration,
infringement, or invalidity, unenforceability or misappropriation or like claim,
action or proceeding.
5.22 MATERIAL CONTRACTS. The Assigned Contracts listed in SCHEDULE 5.22
attached hereto constitute all of the written and oral Contracts relating to the
Business (including, without limitation, promissory notes, loan agreements and
other evidences of indebtedness) to which the Company is a party or by which any
of its properties relating to the Business are bound with respect to which the
obligations of, or the benefits to be received by, the Company could reasonably
be expected to (a) have a value in excess of $25,000 in any consecutive 12-month
period or (b) extend 90 days beyond the Closing Date (each a "MATERIAL
CONTRACT"). The
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<PAGE> 23
Company has not violated any of the terms or conditions of any Material Contract
or any term or condition which would permit termination or modification of any
Material Contract and, to the Company's Knowledge, all of the covenants to be
performed by any other party thereto have been fully performed, and there are no
claims for breach or indemnification or notice of default or termination under
any Material Contract. No event has occurred which constitutes, or after notice
or the passage of time, or both, would constitute, a default by the Company
under any Material Contract and, to the Company's Knowledge, no such event has
occurred which constitutes or would constitute a default by any other party
thereto. The Company is not subject to any liability or payment resulting from
renegotiation of any material amounts to be paid it under any Material Contract.
5.23 [INTENTIONALLY OMITTED].
5.24 INDEBTEDNESS AND LIABILITIES OF THE COMPANY. Except for payment
obligations relating to trade credit (which shall not be assumed by Exult
hereunder) and the Assumed Liabilities, SCHEDULE 5.24 attached hereto is a true
and complete list of all Indebtedness of the Company and reflects the name and
address of the creditor, lender or lessor to whom, and the agreement, instrument
or other document pursuant to which, such Indebtedness is payable. Except as set
forth on such SCHEDULE 5.24 and the Assumed Liabilities, the Company does not
have any other liabilities or obligations, whether accrued, absolute, contingent
or otherwise, except (a) to the extent reflected or taken into account in the
Current Balance Sheet and not heretofore paid or discharged, (b) liabilities
incurred in the ordinary course of business consistent with past practice since
the date of the Current Balance Sheet (none of which relates to breach of
contract, breach of warranty, tort, infringement or violation of law, or which
arose out of any action, suit, claim, governmental investigation or arbitration
proceeding) and (c) normal accruals, reclassifications, and audit adjustments
which would be reflected on an audited financial statement and which could not
be material in the aggregate.
5.25 EMPLOYEES. SCHEDULE 5.25 attached hereto sets forth (a) the names,
addresses, current titles, social security numbers and annual rates of
compensation of the employees of the Business and (b) the projected value to the
Business of having such employee working in the Business as of the scheduled due
date of the Closing Date Payment, the Second Installment and the Third
Installment, respectively.
5.26 BUSINESS RELATIONS. The Company has not received notice, and does
not otherwise have knowledge, that any customer or supplier of the Business will
cease or otherwise refuse to do business with the Business after the Closing in
the same manner as such business was previously conducted with the Business. The
Company has not received any notice of any disruption in the availability of the
services used in the conduct of the Business and is not aware of any facts which
could lead it to believe that the operations of the Business will be subject to
any such disruption.
5.27 THE DATA PROTECTION ACT. The Company is and has been in compliance
with all its obligations under all legislation, regulations and other
requirements having force of law (including, without limitation, codes, orders
and awards) in respect of the collection, holding, processing or use of Personal
Data (including, without limitation, the Data Protection Directive, the UK
Protection Act and Other European data protection law).
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ARTICLE VI
CONDUCT OF BUSINESS PENDING THE CLOSING
6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE CLOSING. The Company
covenants and agrees that, between the date of this Agreement and the Closing
Date, the Business shall be conducted only in, and shall not take any action
except in, the ordinary course of business consistent with past practice. The
Company shall use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its current officers, employees
and consultants, and to preserve its present relationships with customers,
suppliers and other persons with which it has significant business relations. By
way of amplification and not limitation, except as contemplated by this
Agreement, the Company shall not between the date of this Agreement and the
Closing Date, directly or indirectly, do or propose or agree to do any of the
following without the prior written consent of Exult: (a) amend or otherwise
change its certificate of incorporation or bylaws or equivalent organizational
documents; (b) issue or authorize the issuance of, any shares of its 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 other ownership
interest; (c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock; (d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock;
(e) acquire (including, without limitation, for cash, or shares of stock,
property or services, by merger, consolidation or acquisition of stock or
assets) any interest in any corporation, partnership or other business
organization or division thereof; (f) incur any additional indebtedness, create
any Liens on any of its assets or prepay any Indebtedness, other than in the
ordinary course of business consistent with past practices; (g) make any loans
or advances to any person or entity or guarantee the indebtedness of any person
or entity, except in the ordinary course of business consistent with past
practice; (h) sell, dispose of or encumber any of its assets, other than in the
ordinary course of business, consistent with past practice; (i) enter into,
modify or terminate, any Contract, other than in the ordinary course of business
consistent with past practice; (j) except as set forth in SCHEDULE 6.1 attached
hereto, pay any bonus to or increase the compensation or benefits payable or to
become payable to its employees, independent contractors or consultants; (k)
take any action, other than in the ordinary course of business consistent with
past practice, which might result in any the loss of customers, (l) enter into
any material transactions or do, or omit to do, any other things which may have
a material and adverse impact on the Business; or (m) agree, in writing or
otherwise, to take or authorize any of the foregoing actions or any other action
which would make any representation or warranty in Article V hereof untrue or
incorrect.
ARTICLE VII
CERTAIN AGREEMENTS AND COVENANTS OF THE PARTIES
7.1 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
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<PAGE> 25
7.2 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement or the subject matter or terms hereof without the
prior consent of the other parties hereto (other than to the legal and financial
advisors thereof who need to know such information to effectuate the intentions
of this Agreement). No press release or other public announcement related to
this Agreement or the transactions contemplated hereby shall be issued by (a)
the Company or the Shareholders without the prior approval of Mark Hodges on
behalf of Exult or (b) Exult without the prior approval of Jay Ackerman on
behalf of the Company and the Shareholders.
7.3 NO OTHER DISCUSSIONS. The Company, the Shareholders and their
respective Affiliates, employees, agents and representatives will not (a)
initiate, encourage the initiation by others of, or entertain, discussions or
negotiations with third parties or respond to solicitations by third persons
relating to any merger, sale or other disposition of any part of the Business or
the properties of the Company or any of the Purchased Assets (whether by merger,
consolidation, sale of stock, sale of assets, or otherwise) or (b) enter into
any agreement or commitment (whether or not binding) with respect to any of the
foregoing transactions. The Company and the Shareholders will immediately notify
Exult if any third party attempts to initiate any solicitation, discussion or
negotiation with respect to any of the foregoing transactions.
7.4 ACCESS TO INFORMATION. Subject to applicable law and any
contractual obligations to which the Company is subject, the Company shall (a)
afford to Exult and its accountants, counsel, financial advisors and other
representatives (the "EXULT REPRESENTATIVES") full access (during normal
business) to all of its (i) personnel records relating to employees of the
Business whose names are set forth on SCHEDULES 7.12(A) AND 7.12(B) hereto and
(ii) financial and accounting records and correspondence relating to the
Company's fiscal years ended December 31, 1997, 1998 and 1999 and (b) furnish
promptly to Exult photocopies of such items as Exult shall reasonably request.
7.5 COVENANT NOT TO COMPETE. The Company and the Shareholders (except
for Gibson) jointly and severally (subject to the limitations on the individual
liability of the Shareholders and Exult's obligation to exhaust all of the
remedies available to it with respect to any and all Shareholders that breach
this Section 7.5, in each case, as set forth in Section 10.1 hereof), agree not
to do any of the following:
(a) for an initial period commencing on the Closing Date and
terminating on the second anniversary thereof, unless such period shall
be extended in accordance with the terms hereof (such period, as so
extended, being referred to herein as the "CONSULTING NON-COMPETE
PERIOD"), compete with the management consulting services provided by
the GPI Business Unit (as hereinafter defined), any other services
provided by the GPI Business Unit during the 12-month period preceding
the termination of such Shareholder's employment with Exult or any
services the GPI Business Unit shall have contemplated rendering (as
evidenced by substantive internal memoranda) during the 12-month period
preceding the termination such Shareholder's employment with Exult
(collectively, the "CONSULTING BUSINESS") in the United States, the
United Kingdom, Switzerland, France, Australia, New Zealand or Germany
(the "RESTRICTED TERRITORY"), or otherwise solicit, accept or render
management consulting services or provide any
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advice or substantial assistance (whether individually or as a
principal, stockholder, partner, employee or agent of any Person)
relating to the Consulting Business (such competitive activities being
referred to herein as "COMPETITIVE CONSULTING PRACTICES") to any Person
in the Restricted Territory if such Person, directly or indirectly,
competes (or, to Exult's or such Shareholder's knowledge, after due
inquiry, intends to compete or is preparing to compete) with the
Consulting Business in any manner; provided, however, that each
Shareholder shall be subject to (x) a one-year extension of the initial
Consulting Non-Compete Period if such Shareholder shall remain employed
by Exult through the date the Second Installment is paid to the Company
and (y) a two-year extension of the initial Consulting Non-Compete
Period if such Shareholder shall remain employed by Exult through the
date the Third Installment is paid to the Company; provided, further,
that the engagement by Bob Gunn in any leadership development and
executive coaching activities shall not be deemed, in and of itself, to
violate the prohibitions of this clause (a);
(b) for an initial period commencing on the Closing Date and
terminating on the third anniversary thereof, unless such period is
extended in accordance with the terms hereof (such period, as so
extended, being referred to herein as the "BPO NON-COMPETE PERIOD"),
compete with the business process outsourcing services provided by
Exult, any other services provided by Exult during the 12-month period
preceding the termination of such Shareholder's employment with Exult
or any services Exult shall have contemplated rendering (as evidenced
by substantive internal memoranda) during the 12-month period preceding
the termination such Shareholder's employment with Exult (collectively,
the "EXULT BUSINESS") in the Restricted Territory, or otherwise
solicit, accept or render business process outsourcing services or
provide any advice or substantial assistance (whether individually or
as a principal, stockholder, partner, employee or agent of any Person)
relating to the Exult Business to any Person in the Restricted
Territory if such Person, directly or indirectly, competes (or, to
Exult's or such Shareholder's knowledge, after due inquiry, intends to
compete or is preparing to compete) with the Exult Business in any
manner; provided, however, that each Shareholder shall be subject to
(i) a one-year extension of the initial BPO Non-Compete Period if such
Shareholder shall remain employed by Exult through the date the Second
Installment is paid to the Company and (ii) a two-year extension of the
initial BPO Non-Compete Period if such Shareholder shall remain
employed by Exult through the date the Third Installment is paid to the
Company;
(c) during the applicable Consulting Non-Compete Period,
directly or indirectly, (i) induce any Client or Prospective Client (as
such terms are defined below) of the Consulting Business or the Exult
Business to patronize any business which is directly or indirectly in
competition with the Consulting Business or the Exult Business
conducted by Exult or its subsidiaries, successors or assigns
(collectively the "EXULT COMPANIES") in the Restricted Territory; (ii)
canvass, solicit or accept from any Client or Prospective Client of the
Consulting Business or the Exult Business conducted by any of Exult
Companies, any such competitive business in the Restricted Territory;
or (iii) request or advise any Client or Prospective Client of the
Consulting Business or the Exult Business conducted by any of the Exult
Companies in the Restricted Territory to
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withdraw, curtail or cancel any such Client's or Prospective Client's
business with any such Exult Companies;
(d) during the applicable Consulting Non-Compete Period,
directly or indirectly, employ any person who was employed by any Exult
Company during such Consulting Non-Compete Period, or in any manner
seek to induce any employee of any Exult Company to leave his or her
employment with such Exult Company;
(e) except as may be necessary in connection with such
Shareholder's employment with Exult after the Closing Date, directly or
indirectly, in any way utilize, disclose, copy, reproduce or retain in
such Shareholder's possession any of the Company's proprietary rights
or records acquired hereunder, including (without limitation) any
customer lists; and
(f) for the purposes hereof (i) "CLIENT" shall mean any Person
for which the Company or Exult shall have rendered Consulting Business
services or Exult Business services, as the case may be, during the
applicable Consulting Non-Compete Period or the one-year period
preceding the Closing Date and (ii) "PROSPECTIVE CLIENT" shall mean any
Person (other than a Client) to which the Company or Exult shall have
submitted a written proposal for the provision of Consulting Business
services or Exult Business services, as the case may be, or with which
the Company or Exult shall have entered into substantive discussions
contemplating the rendering of Consulting Business services or Exult
Business services, as the case may be, provided that the Company or
Exult, as the case may be, shall have had or shall have a reasonable
expectation of being retained by such Person to render such services
during the Consulting Non-Compete Period or the one-year period
preceding the Closing Date;
provided, however, that the restrictive covenants contained in clause (a) of
this Section 7.5 shall terminate immediately (1) if Exult shall default in the
payment to the Company when due of the Second Installment or the Third
Installment, and such default shall continue unremedied for 45 or more days, (2)
with respect to any Shareholder, if the employment of such Shareholder is
terminated by Exult other than for Cause, (3) with respect to any Shareholder,
if (a) there is a Business Failure of Exult (as defined in Section 7.14 hereof)
and (b) such Shareholder tenders his or her resignation to Exult within 120 days
of such Business Failure, (4) Exult breaches its obligations under Section 7.16
hereof or (5) with respect to any Shareholder, upon the occurrence of an Exult
Change of Control, if such Shareholder tenders his or her resignation to Exult
within 120 days of the occurrence of such Exult Change of Control (the
occurrence of such events of termination and the satisfaction of such related
conditions being referred to hereinafter, collectively, as "NON-COMPETE
TERMINATION EVENTS"). For the purposes hereof, an "EXULT CHANGE OF CONTROL"
shall mean a transaction, or series of related transactions, in which:
(x) (A) such transaction, or series of related transactions,
result in the stockholders of Exult immediately prior to such
transaction or related transactions owning, in the aggregate, less than
50% of the total combined voting power of the Exult (or, if Exult is
not the surviving corporation in a merger or other consolidation
transaction, less than 50% of the voting securities of the surviving
corporation (or the parent corporation of the surviving corporation
where the surviving corporation is
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<PAGE> 28
wholly-owned by the parent corporation)) or (B) all or substantially
all of Exult's operating assets are sold, transferred or otherwise
disposed of; provided, however, that an underwritten public offering of
Exult Common Stock shall not result in an Exult Change of Control under
this Section 7.5 and
(y) the Person or Persons acquiring such voting power or such
assets, as the case may be, own and operate a business substantially
similar to the Business having annual gross revenues of at least 200%
of the annual gross revenues of the business unit (the "GPI BUSINESS
UNIT") of Exult that will be operated by the current employees of the
Business (as new employees of Exult) after the Closing, measured (in
each case) as of the time of the consummation of such acquisition.
The Company and Shareholders agree and acknowledge that the restrictions
contained in this Section 7.5 are reasonable in scope and duration, and are
necessary to protect Exult Companies. The Company and the Shareholders agree and
acknowledge that any breach of this Section 7.5 will cause irreparable injury to
the Exult Companies and upon any breach or threatened breach of any provision of
this Section 7.5, the Exult Companies shall be entitled to injunctive relief,
specific performance or other equitable relief, without the necessity of posting
bond; provided, however, that this shall in no way limit any other remedies
which the Exult Companies may have as a result of such breach, including the
right to seek monetary damages. Exult, the Company and the Shareholders hereby
agree that Exult may assign, without limitation, the foregoing restrictive
covenants to any successor to Exult.
7.6 UK COVENANT NOT TO COMPETE. Gibson agrees not to do any of the
following:
(a) for an initial period commencing on the Closing Date and
terminating on the second anniversary thereof (the "UK NON-COMPETE
PERIOD"), compete with the management consulting services provided by
the GPI Business Unit as of the Closing (the "UK CONSULTING BUSINESS")
in the United States or the United Kingdom (the "UK RESTRICTED
TERRITORY"), or otherwise engage in any Competitive Consulting
Practices, with respect to any Person in the UK Restricted Territory if
such Person, directly or indirectly, competes with the UK Consulting
Business in any manner;
(b) during the UK Non-Compete Period, directly or indirectly,
(i) induce any Consulting Client (as such term is defined below) to
patronize any business which is directly or indirectly in competition
with the UK Consulting Business conducted by the GPI Business Unit in
the UK Restricted Territory; (ii) canvass, solicit or accept from any
Consulting Client , any such competitive business in the UK Restricted
Territory; or (iii) request or advise any Consulting Client in the UK
Restricted Territory to withdraw, curtail or cancel any such Consulting
Client's business with the GPI Business Unit;
(c) during the UK Non-Compete Period, directly or indirectly,
employ any person who was employed in the GPI Business Unit as an
executive or manager or employed by any Exult Company if such
Shareholder had a close working relationship with such person during
such UK Non-Compete Period, or in any manner seek to induce such
employees of the GPI Business Unit or any Exult Company to leave his or
her employment with the GPI Business Unit or any Exult Company, as the
case may be;
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<PAGE> 29
(d) except as may be necessary in connection with such
Shareholder's employment with Exult after the Closing Date, directly or
indirectly, in any way utilize, disclose, copy, reproduce or retain in
such Shareholder's possession any of the Company's proprietary rights
or records acquired hereunder, including (without limitation) any
customer lists; and
(e) for the purposes hereof "CONSULTING CLIENT" shall mean any
Person for which the Company shall have rendered Consulting Business
during the one-year period preceding the Closing Date;
provided, however, that the restrictive covenants contained in clause (a) of
this Section 7.6 shall terminate immediately upon the occurrence of any
Non-Compete Termination Event.
Gibson agrees and acknowledges that the restrictions contained in this
Section 7.6 are reasonable in scope and duration, and are necessary to protect
the Exult Companies. Gibson further agrees and acknowledges that any breach of
this Section 7.6 will cause irreparable injury to the Exult Companies and upon
any breach or threatened breach of any provision of this Section 7.6, the Exult
Companies shall be entitled to injunctive relief, specific performance or other
equitable relief, without the necessity of posting bond; provided, however, that
this shall in no way limit any other remedies which the Exult Companies may have
as a result of such breach, including the right to seek monetary damages. Gibson
hereby agrees that Exult may assign, without limitation, the foregoing
restrictive covenants to any successor to Exult.
7.7 ASSIGNED CONTRACTS AND CONSENTS. Prior to the Closing, (a) the
Company shall not terminate or otherwise modify or amend any of the Assigned
Contracts and (b) the Company shall further use its reasonable efforts to obtain
any and all consents and approvals (each a "CONSENT") necessary as a result of
the transactions contemplated hereby to legally transfer the Assigned Contracts
and to keep the Assigned Contracts in full force and effect. In the event that
Exult has not received any such Consent prior to the Closing, the Company shall
use its reasonable best efforts to deliver each such Consent to Exult as
promptly as practicable after the Closing.
7.8 USE OF NAME. The Company shall not use the name "Gunn Partners
Inc." or "Gunn" or the initials "GPI" or any variation thereof in the conduct of
the Company's business, if any, after the Closing Date, unless such use relates
to the operations of the Company's branch office located in Switzerland. The
Company agrees to change its name as soon as practicable (and in any event
within 15 days) after the employees of the Business working in such branch
become employees of Exult pursuant to mutually agreed-upon employment
agreements.
7.9 GPI PAYABLES RESERVE. Exult shall have the right to deduct from the
Closing Date Payment an amount equal to One Hundred Thousand Dollars ($100,000)
as a reserve (the "PAYABLES RESERVE") for payment of any amounts required to be
paid to creditors of the Company subsequent to the Closing Date, which amounts
(a) represent liabilities of the Company relating to or accrued with respect to
the period prior to the Closing Date and (b) which do not constitute Assumed
Liabilities hereunder. On or before May 31, 2000, Exult shall deliver to the
Company a statement showing in reasonable detail any amounts paid by Exult from
the Payables Reserve. If the aggregate of such amounts are less than the
Payables Reserve
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(the "PAYABLES RESERVE BALANCE"), Exult shall pay over to the Company on such
date the Payables Reserve Balance. If the aggregate of the amounts paid by Exult
pursuant to the terms of this Section 7.9 exceeds the Payables Reserve (the
"PAYABLES RESERVE SHORTFALL"), the amount of the Payables Reserve Shortfall
shall be deemed to be Exult Indemnifiable Damages (as defined in Section 10.1
hereof), and Exult may set off against the Held Back Amount the amount of the
Payables Reserve Shortfall in the manner described in Article X hereof or take
any other action or exercise any other remedy available to it by appropriate
legal proceedings to recover such amount.
7.10 PAYMENT DEFAULT; NON-EXCLUSIVE LICENSE. If Exult shall default in
the payment to the Company when due of the Second Installment or the Third
Installment, and such default shall continue unremedied for 45 or more days (a
"PAYMENT DEFAULT"), then, upon receipt of written notice by Exult from the
Company, Exult and its affiliates shall (a) cease any and all use of the names
"Gunn" and "Gunn Partners" and any derivative thereof for any purpose, other
than to collect obligations payable to Exult in such names which arose prior to
such Payment Default, and (b) be deemed, for all purposes, to have granted to
the Company, as of the Closing Date, subject only to the occurrence of a Payment
Default and notice as specified above, (i) an exclusive right and license for
the Company and its assignees to use the names "Gunn" and "Gunn Partners" and
(ii) a non-exclusive right and license for the Company and its assignees to use
and to sublicense all of the other Intellectual Property. Exult shall (and shall
cause its affiliates to) provide the Company with photographic and magnetic
copies of such Intellectual Property as reasonably requested by the Company.
Notwithstanding anything herein to the contrary, Sections 7.5(e) and 7.6 (d)
hereof shall be inapplicable to any Shareholder who terminates his or her
employment with Exult in connection with such Payment Default and such grant.
The Company shall deliver consideration to Exult for such rights and licenses in
an amount equal to the fair market value thereof, as determined by an
independent qualified appraiser selected by Exult and approved by the Company
(which approval shall not be unreasonably withheld or delayed). The amount of
such consideration (x) shall be delivered by the Company to Exult within 30 days
of the delivery by such appraiser to each of Exult and the Company of a written
report reflecting such appraised fair market value and (y) may be set off by
Exult, at the Company's request, against the outstanding amount of the Purchase
Price payable by Exult to the Company at the time of such Payment Default and
any interest accrued thereon at the rates specified herein.
7.11 AGREEMENT TO COOPERATE; SALES TAX EXEMPTION.
(a) Subject to the terms and conditions herein, each of the
parties hereto shall use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate
and make effective the transactions contemplated by this Agreement. The
Company agrees to execute and deliver to Exult (or its assignee) from
time to time such further and particular assignments, consents, or
other instruments in writing as Exult (or its assignee) may request as
appropriate or desirable to confirm its title in and to the Purchased
Assets.
(b) In the event any litigation is commenced by any person or
entity relating to the transactions contemplated by this Agreement,
Exult shall have the right, at its own
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expense, to participate therein, provided that in no event shall the
Company be obligated to provide to Exult any privileged information if
the Company reasonably believes that such action would jeopardize such
privilege.
(c) The Company shall timely complete all forms and timely
make all filings reasonably requested by Exult which are necessary to
secure appropriate sale or use tax exemptions with respect to the
Purchased Assets.
7.12 EMPLOYMENT; STOCK OPTIONS; EMPLOYEE BENEFIT MATTERS.
(a) Exult shall offer employment to each active (as of the
Closing Date) employee of the Business listed on SCHEDULE 7.12(a),
provided that each such employee shall have executed and delivered to
Exult an Employment Agreement, and the Employee Proprietary Information
and Inventions Agreement attached thereto, in the forms attached hereto
as EXHIBIT 7.12(a).
(b) Exult shall offer employment to each active (as of the
Closing Date) employee of the Business listed on SCHEDULE 7.12(b),
provided that each such employee shall have executed and delivered to
Exult an employment letter agreement, and the Employee Proprietary
Information and Inventions Agreement attached thereto, in the forms
attached hereto as EXHIBIT 7.12(b) (the agreements referred to in
clause (a) and clause (b) of this Section 7.12 being referred to
herein, collectively, as "EMPLOYEE AGREEMENTS").
(c) The Company and the Shareholders shall use all reasonable
efforts to cause all of the Employee Agreements to be executed and
delivered on or prior to the Closing.
(d) At the Closing, Exult shall grant to each employee of the
Company whose name is set forth on SCHEDULE 7.12(a) and SCHEDULE
7.12(b) attached hereto an option to purchase the number of shares of
Exult Common Stock set forth opposite such employee's name on such
Schedule, which options (collectively, the "Options") shall vest in
accordance with the terms of Exult's 1999 Stock Option/Stock Issuance
Plan or Exult's 1999 Special Executive Stock Option/Stock Issuance
Plan.
(e) On the Closing Date, the Company shall notify each
employee of the Business whose name is set forth on SCHEDULE 7.12(a)
and SCHEDULE 7.12(b) attached hereto that such employee's employment
with the Company has terminated as of the Closing Date. The Company
shall cause each employee of the Business to be fully vested in his
account balance or accrued benefit in each Employee Benefit Plan that
is a pension benefit plan, regardless of the employee's years of
service. The Company shall be liable for the administration and payment
of all health and welfare liabilities and benefits under the Employee
Benefit Plans with respect to treatment and services rendered to
employees of the Business through the Closing Date. The Company shall
be responsible for satisfying obligations under Section 601 et seq. of
ERISA and Section 4980B of the Code to provide continuation coverage
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, with respect to employees of the
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Business and their dependents with respect to any "qualifying event"
occurring on or before the Closing Date.
(f) Exult shall use the "Alternative Procedure" provided in
Section 5 of Revenue Procedure 96-60 with respect to filing and
furnishing Internal Revenue Service Forms W-2, W-3 and 941 with respect
to transferred employees for the 1999 calendar year. Under such
"Alternative Procedure" (i) the Company and Exult each shall report on
a predecessor-successor basis as set forth in such Revenue Procedure,
(ii) the Company shall be relieved from furnishing Forms W-2 to
employees of the Company that become employees of Exult and (iii) Exult
shall assume the obligations of the Company to furnish such Forms W-2
to such employees for the full 1999 calendar year. Exult shall also use
such similar procedures and make similar elections under state or local
tax laws. Exult shall be responsible for filing and furnishing Internal
Revenue Service Forms W-2, W-3 and 941 for the 1999 calendar year.
(g) If permissible under applicable law and not precluded
under the provisions of Exult's employee benefit plans or programs, the
employees listed on SCHEDULE 5.25 attached hereto shall be given prior
service credit for time spent as employees of the Company for purposes
of eligibility and vesting under such employee benefit plans and
programs.
7.13 CLOSING CONDITIONS. Between the date of this Agreement and the
Closing Date, the parties hereto shall use their reasonable efforts to cause the
conditions specified in Article VIII and Article IX hereof, over which such
parties have control, to be satisfied as soon as reasonably practicable
7.14 BUSINESS FAILURE OF EXULT. If, prior to the second anniversary of
the Closing Date, (a) Exult shall become unable to pay its obligations as they
become due over period of 180 days or more or (b) proceedings shall have begun
regarding the dissolution or bankruptcy of Exult, including (without limitation)
the filing of a petition under any provision of federal bankruptcy law which is
not dismissed within 60 days of such filing (in the case of an involuntary
petition), an assignment for the benefit of creditors or the appointment of a
receiver (each such event, a "BUSINESS FAILURE"), upon the payment by the
Company to Exult of an amount equal to the fair market value of the Intellectual
Property, as determined by a mutually agreed-upon independent qualified
appraiser, the Intellectual Property acquired by Exult hereunder shall be
immediately re-conveyed, transferred and assigned by Exult to the Company. Exult
shall execute and deliver to the Company all appropriate bills of sale and
assignment, consents and such other instruments of transfer and title as are
reasonably necessary to vest the Company with good and marketable title to such
Intellectual Property, free and clear of all Liens.
7.15 GUNN DATABASE. Exult shall adopt and use all reasonable efforts to
follow the policy set forth in SCHEDULE 7.15 attached hereto.
7.16 RIGHT OF FIRST OFFER. For a period commencing on the Closing Date
and terminating on the second anniversary of the Closing Date, the Company (or,
if the Company no longer exists at such time, the Shareholder Representative)
shall have a right of first offer with respect to the sale of all or
substantially all of the GPI Business Unit and the assets and
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properties owned by Exult in connection therewith (collectively, the "GPI
BUSINESS"). Accordingly, before Exult may enter into negotiations with any third
party to sell the GPI Business, Exult shall give written notice of its intent to
sell the GPI Business to the Company or the Shareholder Representative, as the
case may be, whereupon the Company or the Shareholder Representative, as the
case may be, shall have the option to enter into exclusive negotiations with
Exult for a 30-day period to purchase the GPI Business for cash. Such option
must be exercised, if at all, by the Company or the Shareholder Representative,
as the case may be, within ten business days after the delivery of such notice
by the delivery to Exult by the Company or the Shareholder Representative, as
the case may be, of written notice of its intent to exercise such option. Such
notice shall include a statement by the Company or the Shareholder
Representative, as the case may be, of its estimate of the fair market value of
the GPI Business. Upon the receipt by Exult of such notice, the parties shall
enter into good faith negotiations for a period of at least 30 days to determine
the purchase price and other principal terms relating to the proposed sale of
the GPI Business. If the parties do not agree upon a purchase price and the
other principal terms with respect to the proposed sale of the GPI Business
within such 30-day period, Exult shall be free to consummate the sale of the GPI
Business with any third party on financial terms no less favorable than those
offered by the Company or the Shareholder Representative as the case may be. In
the event Exult shall not have consummated the sale of the GPI Business within
one year after the termination of such 30-day period, Exult shall not enter into
negotiations with any third party to sell the GPI Business without first
offering to the Company or the Shareholder Representative, as the case may be,
the opportunity to negotiate to acquire the GPI Business in the manner set forth
above.
7.17 FINANCIAL STATEMENTS. For the period commencing on the Closing
Date and terminating on the earlier to occur of (a) an underwritten initial
public offering of Exult Common Stock or (b) the payment by Exult of the Third
Installment, Exult shall furnish the Shareholder Representative with one copy of
the following:
(i) ANNUAL FINANCIAL STATEMENTS. Exult's comparative
statements of income and cash flow and consolidated balance sheet as of
the end of each fiscal year of Exult as soon as they shall become
available, and in any event within 120 days after the end of each such
fiscal year; and
(ii) QUARTERLY FINANCIAL STATEMENTS. Exult's comparative
statements of income and cash flow and un-audited consolidated balance
sheet as of the end of each fiscal quarter of Exult as soon as they
become available, and in any event within 60 days after the end of each
such fiscal quarter.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF EXULT
The obligations of Exult to effect the transactions contemplated hereby
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions, any or all of which may be waived in whole or in part in
writing by Exult:
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8.1 [INTENTIONALLY OMITTED].
8.2 [INTENTIONALLY OMITTED].
8.3 CORPORATE CERTIFICATE. The Company shall have delivered to Exult
(a) copies of its certificate of incorporation and bylaws as in effect
immediately prior to the Closing Date, (b) copies of resolutions adopted by its
Board of Directors and the Shareholders authorizing the transactions
contemplated by this Agreement and (c) a certificate of good standing issued by
the Secretary of State of the State of Delaware as of a date not more than ten
days prior to the Closing Date, certified in the case of clause (a) and (b) of
this Section 8.3 as of the Closing Date by the Secretary of the Company as being
true, correct and complete.
8.4 DELIVERY OF PURCHASED ASSETS. At the Closing, the Company shall
duly execute and deliver to Exult, or its assignee, the (a) Bill of Sale and
Assignment in the form attached hereto as EXHIBIT A and (b) Assignment and
Assumption Agreement in the form attached hereto as EXHIBIT B, and such other
instruments of transfer of title as are necessary to transfer to Exult (or its
assignee) good and marketable title to the Purchased Assets and shall deliver to
Exult (or its assignee) immediate possession of the Purchased Assets.
8.5 LEGAL OPINION. Exult shall have received legal opinions of Eckert
Seamans Cherin & Mellott, LLC, outside counsel to the Company and the
Shareholders, dated the Closing Date, in substantially the form attached hereto
as EXHIBIT 8.5.
8.6 NO ADVERSE LITIGATION. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the transactions contemplated hereby, and which, in the judgment of Exult, makes
it inadvisable to proceed with the transactions contemplated hereby.
8.7 THIRD PARTY CONSENTS. All governmental waivers, consents, orders
and approvals legally required for the consummation of the transactions
contemplated hereby, and all consents from lenders and other third parties
required to consummate the transactions contemplated hereby, including (without
limitation) all required consents or approvals of each person that is a party to
a contract or agreement identified in SCHEDULE 8.7 attached hereto shall have
been obtained and be in effect on the Closing Date.
8.8 EMPLOYMENT MATTERS. The Employee Agreements contemplated by Section
7.12 hereof shall have been executed and delivered by (i) all of the employees
of the Business listed on SCHEDULE 7.12(a) attached hereto and (ii) at least 80%
of the employees of the Business listed on SCHEDULE 7.12(b) attached hereto.
8.9 BOARD APPROVAL. The Board of Directors of Exult shall have
authorized and approved this Agreement and the transactions contemplated hereby.
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ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS
The obligations of the Company and the Shareholders to effect the
transactions contemplated hereby shall be subject to the fulfillment at or prior
to the Closing Date of the following conditions, any or all of which may be
waived in whole or in part in writing by the Company and the Shareholders:
9.1 [INTENTIONALLY OMITTED].
9.2 [INTENTIONALLY OMITTED].
9.3 CORPORATE CERTIFICATE. Exult shall have delivered to the Company
(a) copies of its certificate of incorporation and bylaws as in effect
immediately prior to the Closing Date, (b) copies of resolutions adopted by its
Board of Directors authorizing the transactions contemplated by this Agreement
and (c) a certificate of good standing issued by the Secretary of State of the
State of Delaware as of a date not more than ten days prior to the Closing Date,
certified in the case of clause (a) and (b) of this Section 9.3 as of the
Closing Date by the Secretary of Exult as being true, correct and complete.
9.4 LEGAL OPINION. The Company shall have received legal opinions of
McDermott, Will & Emery, outside counsel to Exult, dated the Closing Date, in
substantially the form attached hereto as EXHIBIT 9.4.
9.5 EMPLOYMENT MATTERS. Exult shall have (a) executed and delivered the
Employee Agreements contemplated by Section 7.12 hereof and (b) granted the
Options to the employees of the Company as contemplated by such Section.
9.6 DELIVERY OF CLOSING DATE PAYMENT. At the Closing, Exult shall have
paid the Closing Date Payment to the Company, except for an amount equal to the
Payables Reserve amount.
9.7 NO ORDER OR INJUNCTION. There shall not be pending by or before any
court or other governmental body an order or injunction restraining or
prohibiting the transactions contemplated hereby.
9.8 BOARD APPROVAL. The Board of Directors of the Company shall have
authorized and approved this Agreement and the transactions contemplated hereby.
ARTICLE X
INDEMNIFICATION
10.1 AGREEMENT BY THE COMPANY AND THE SHAREHOLDERS TO INDEMNIFY. Each
of the Company and the Shareholders, jointly and severally (subject to the
limitations on the individual liability of the Shareholders set forth in this
Section 10.1), agrees to protect, defend, indemnify
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and hold Exult harmless from and against the aggregate of all expenses, losses,
costs, deficiencies, liabilities and damages (including, without limitation,
related counsel and paralegal fees and expenses) incurred or suffered by Exult
resulting from or arising out of (a) any breach of a representation or warranty
made by the Company or the Shareholders in or pursuant to this Agreement or any
agreement entered into in connection with this Agreement, (b) any breach of the
covenants or agreements of the Company or the Shareholders in this Agreement or
any agreement entered into in connection with this Agreement, (c) any inaccuracy
in any certificate delivered by the Company or the Shareholders pursuant to this
Agreement, (d) the Company's ownership or operation of the Purchased Assets
prior to the Closing, (e) any liability relating to noncompliance with bulk
sales, bulk transfer or similar laws applicable to the transactions contemplated
by this Agreement, (f) any alleged or actual breach of the Acquired Rights
Directive, TUPE and/or Other European transfer of undertakings law or the
application of any such provision, (g) any failure by the Company to obtain any
Consent to the assignment by the Company of any Assigned Contract (including,
without limitation, any loss or additional expense incurred by Exult in
connection with any substitute Contract required to be entered into by Exult on
terms less favorable than the related Assigned Contract as a result of (i) such
failure, (ii) an outright termination of an Assigned Contract by the third party
thereto or (iii) any other affirmative act by any third party to an Assigned
Contract which deprives Exult of the benefit of such Assigned Contract) or (h)
any Excluded Liability (collectively, "EXULT INDEMNIFIABLE DAMAGES"); provided,
however, that Exult shall not be entitled to recover any Exult Indemnifiable
Damages resulting from or arising out of any breach contemplated by clause (a)
above until the aggregate of all Exult Indemnifiable Damages resulting from or
arising out of any such breaches exceeds $75,000, in which case Exult shall be
entitled to recover the full amount of all Exult Indemnifiable Damages;
provided, however, that such $75,000 threshold shall not apply with respect to,
and Exult shall be entitled to the full amount of any Exult Indemnifiable
Damages resulting from, any breach of the terms of Section 5.24 hereof.
Notwithstanding anything to the contrary set forth herein, in no event shall (i)
the Company's aggregate liability under this Article X exceed the Purchase Price
or (ii) the aggregate individual liability of any Shareholder under this Article
X exceed the amount set forth opposite such Shareholder's name in SCHEDULE 10.1
attached hereto, to the extent that such amounts have been disbursed to the
Company by Exult (without regard, however, to whether the Company has
distributed such amounts to the applicable Shareholder, unless all or any
portion of such amounts disbursed to the Company by Exult shall have been
remitted or otherwise paid over to Exult to satisfy a claim for Exult
Indemnifiable Damages under this Article X, in which case the aggregate
individual liability of the Shareholders shall be reduced pro rata based upon
the aggregate amount of such remittance or payment to Exult); provided, however,
that nothing in this last sentence of this Section 10.1 shall be construed in
any way to limit Exult's right to set off against the Held Back Amount any Exult
Indemnifiable Damages for which the Company or the Shareholders may be
responsible under this Agreement.
Notwithstanding anything contained in this Agreement to the contrary,
with respect to any indemnification obligations of the Shareholders hereunder
regarding the breach by any individual Shareholder of Section 7.5 or Section 7.6
hereof, which breach results in Exult Indemnifiable Damages, Exult shall exhaust
all remedies available to it with respect to each individual Shareholder so
breaching such Sections prior to bringing any claim for Exult Indemnifiable
Damages against any non-breaching Shareholder.
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10.2 AGREEMENT BY EXULT TO INDEMNIFY. Exult agrees to protect, defend,
indemnify and hold the Company and the Shareholders harmless from and against
the aggregate of all expenses, losses, costs, deficiencies, liabilities and
damages (including, without limitation, related counsel and paralegal fees and
expenses) incurred or suffered by the Company and the Shareholders resulting
from or arising out of (a) any breach of a representation or warranty made by
Exult in or pursuant to this Agreement or any agreement entered into in
connection with this Agreement, (b) any breach of the covenants or agreements of
Exult in this Agreement or any agreement entered into in connection with this
Agreement or (c) any inaccuracy in any certificate delivered by Exult pursuant
to this Agreement (collectively, "COMPANY INDEMNIFIABLE DAMAGES"); provided,
however, that the Company and the Shareholders shall not be entitled to any
Company Indemnifiable Damages resulting from or arising out of any breach
contemplated by clause (a) above unless the aggregate of all Company
Indemnifiable Damages resulting from or arising out of any such breaches exceeds
$75,000, in which case the Company and the Shareholders shall be entitled to
recover the full amount of all Company Indemnifiable Damages. Notwithstanding
anything to the contrary set forth herein, in no event shall Exult's aggregate
liability under this Article X exceed the Purchase Price.
10.3 SURVIVAL OF THE REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the parties hereto in this Agreement or
pursuant hereto shall survive until the third anniversary of the Closing Date.
The Company and the Shareholders agree to maintain the existence of the Company
in order to satisfy the indemnification obligations of the Company as set forth
in this Article X through the third anniversary of the Closing Date.
Notwithstanding any knowledge of facts determined or determinable by any party
hereto by investigation, each party hereto shall have the right to fully rely on
the representations, warranties, covenants and agreements of the other parties
hereto in this Agreement or in any other documents or papers delivered in
connection herewith. Each representation, warranty, covenant and agreement of
the parties hereto in this Agreement is independent of each other
representation, warranty, covenant and agreement.
10.4 SET OFF AGAINST THE HELD BACK AMOUNT. Exult may set off against
and recoup from the Held Back Amount any Exult Indemnifiable Damages for which
the Company or any Shareholder may be responsible pursuant to this Agreement,
subject, however, to the following terms and conditions:
(a) Exult shall give written notice to the Company of any
claim for Exult Indemnifiable Damages or any other damages hereunder,
which notice shall set forth (i) the amount of Exult Indemnifiable
Damages or other loss, damage, cost or expense which Exult claims to
have sustained by reason thereof, and (ii) the basis of the claim
therefor;
(b) Such set off and recoupment shall be effected on the later
to occur of the expiration of ten days from the date of such notice
(the "NOTICE OF CONTEST PERIOD") or, if such claim is contested, the
date the dispute is resolved;
(c) If, prior to the expiration of the Notice of Contest
Period, the Company shall notify Exult in writing of an intention to
dispute the claim and if such dispute is not resolved within 30 days
after expiration of such period, then Exult may take any action or
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exercise any remedy available to it by appropriate legal proceedings to
enforce its rights and remedies hereunder; and
(d) All set-offs and recoupments of Exult Indemnifiable
Damages pursuant to this Section 10.4 shall be treated as adjustments
to the Purchase Price.
10.5 DELIVERY OF THE HELD BACK AMOUNT. Except for (a) amounts deducted
from the Second Installment and the Third Installment, if any, in connection
with terminating employees of the Business as contemplated by Section 2.1 hereof
and (b) any set-off and recouped amounts with respect to any Exult Indemnifiable
Damages pursuant to Section 10.4 hereof, Exult agrees to pay to the Company by
(i) no later than five days following the first anniversary of the Closing Date,
the Second Installment and (ii) no later than five days following the second
anniversary of the Closing Date, the Third Installment, together (in each case)
with interest accrued on the amount actually paid at the rate of 5.7% per annum,
unless (in either case) there then remains unresolved any claim for Exult
Indemnifiable Damages or other damages payable by the Company or the
Shareholders hereunder as to which notice has been given, in which event, any
remaining portion of the Second Installment or the Third Installment (as the
case may be) then due, after such claim shall have been satisfied, shall be
returned to the Company promptly after the time of satisfaction. In the event
that Exult does not pay to the Company the Second Installment or the Third
Installment prior to the expiration of the applicable five-day grace period in
accordance with Section 10.5, interest shall accrue at the rate specified above
plus 2% on such unpaid amounts starting on the termination of each such five-day
grace period and continue until such payments are made.
10.6 NO BAR. If the Held Back Amount is insufficient to set off any
claim for any Exult Indemnifiable Damages hereunder (or has been delivered in
whole or part to the Person(s) entitled to receive such Held Back Amount prior
to the making or resolution of such claim), then Exult may take any action or
exercise any remedy available to it by appropriate legal proceedings to collect
the Exult Indemnifiable Damages. Except for claims premised upon fraud arising
out of intentional, knowing or otherwise willful acts or omissions, in no event
shall Exult be entitled to recover damages against any Shareholder (whether or
not such damages constitute Exult Indemnifiable Damages) in excess of the
limitations on the individual liability of the Shareholders specified in clause
(ii) of Section 10.1 hereof, irrespective of the theory of liability asserted by
Exult or any successor in interest to Exult.
ARTICLE XI
DEFINITIONS
11.1 DEFINED. As used herein, the following terms shall have the
following meanings:
"AFFILIATE" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities and
Exchange Act of 1934, as amended and as in effect on the date hereof.
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"CAUSE" means, with respect to any employee of Exult,
termination because of: (a) a conviction of a crime (including
conviction on a nolo contendere plea) involving a felony under federal
or state law, (b) a reasonable determination by Exult that the employee
has committed any material act of dishonesty, fraud or moral turpitude
against Exult, (c) gross negligence by the employee in carrying out his
or her duties as an employee of Exult, (d) a material breach by the
employee of the Employee Agreement between the employee and Exult that
is continuing, or occurs again, after written notice that such breach
constitutes Cause hereunder, (e) any gross misconduct by the employee,
including (without limitation) intoxication on the job,
insubordination, or other misconduct, which could have an adverse
effect on the business, financial condition or operations of Exult that
is continuing, or occurs again, after written notice that such
misconduct constitutes Cause hereunder, (f) the deliberate and
continued refusal by the employee to perform employment duties
contemplated by the Employee Agreement between the employee and Exult
that are reasonably requested by Exult or an Affiliate of Exult after
30 days' written notice of such failure to perform, specifying that
such failure constitutes Cause hereunder (other than as a result of
vacation, illness or injury), provided that if such employee is a
Shareholder and such employment duties shall have been modified by
Exult, such duties are consistent with the status and employment duties
of such employee initially set forth in the Employment Agreement
between such employee and Exult or (g) if the employee is a
Shareholder, the employee's breach of any of the provisions of Section
7.5 hereof (or Section 7.6 hereof with respect to Gibson).
"CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder.
"COMPANY'S KNOWLEDGE" means all matters with respect to which
(a) the Company or any Shareholder has received written notice or (b)
any Shareholder has actual knowledge.
"CONTRACT" means any indenture, lease, sublease, license, loan
agreement, mortgage, note, indenture, restriction, will, trust,
commitment, obligation or other contract, agreement or instrument,
whether written or oral, express or implied.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations thereunder.
"GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state, regional, local or other political subdivision thereof, and any
entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"INDEBTEDNESS" of any entity means all obligations of such
entity (a) which in accordance with GAAP should be classified upon a
balance sheet of such entity as indebtedness, (b) for borrowed money or
purchase money financing which has been
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incurred in connection with the acquisition of property or services,
including (without limitation) prepayment or early termination
penalties associated with any of the foregoing, (c) secured by any lien
or other charge upon property or assets owned by such entity, even
though such entity has not assumed or become liable for the payment of
such obligations, (d) created or arising under any conditional sale or
other title retention agreement with respect to property acquired by
such entity, whether or not the rights and remedies of the lender or
lessor under such agreement in the event of default are limited to
repossession or sale of the property, and (e) for remaining payments
under any capitalized leases (as defined under GAAP), non-competition
agreements, severance agreements or any other agreements made outside
the ordinary course of business.
"LIEN" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation,
any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code or comparable law
or any jurisdiction in connection with such mortgage, pledge, security
interest, encumbrance, lien or charge).
"MATERIAL ADVERSE CHANGE (OR EFFECT)" means a change (or
effect), in the condition (financial or otherwise), properties, assets,
liabilities, rights, obligations, operations, business or prospects
which change (or effect) individually or in the aggregate, is
materially adverse to such condition, properties, assets, liabilities,
rights, obligations, operations, business or prospects.
"PERSON" means an individual, partnership, corporation,
business trust, joint stock company, estate, trust, unincorporated
association, joint venture, Governmental Authority or other entity, of
whatever nature.
"SHAREHOLDER REPRESENTATIVE" shall mean, after the dissolution
or winding up of the Company, if any, the person designated by the
Shareholders as the only person authorized to represent the
Shareholders, and the only person with whom Exult shall have any
obligation to deal with, in connection with the various post-Closing
transactions and other Shareholder rights and duties contemplated
hereby. The Shareholders hereby designate Mike Markos as the initial
Shareholder Representative and Jay Ackerman as the alternate
Shareholder Representative and may designate a successor thereto by
written notice to Exult signed by a majority of the Shareholders.
"TAX RETURN" means any tax return, filing or information
statement required to be filed in connection with or with respect to
any Taxes; and
"TAXES" means all taxes, fees or other assessments, including
(without limitation) income, excise, property, sales, franchise,
intangible, withholding, social security and unemployment taxes imposed
by any federal, state, local or foreign governmental agency, and any
interest or penalties related thereto.
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<PAGE> 41
ARTICLE XII
TERMINATION
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date: (a) by mutual written consent of all of the parties hereto at
any time prior to the Closing; or (b) by Exult in the event of a material breach
by the Company or any Shareholder of any provision of this Agreement; or (c) by
the Company in the event of a material breach by Exult of any provision of this
Agreement.
12.2 EFFECT OF TERMINATION. Except for the provisions of Section 7.2,
Section 13.3 and Article X hereof, which shall survive any termination of this
Agreement, in the event of termination of this Agreement pursuant to Section
12.1, this Agreement shall forthwith become void and of no further force and
effect and the parties hereto shall be released from any and all obligations
hereunder; provided, however, that nothing herein shall relieve any party from
liability for the willful breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
ARTICLE XIII
GENERAL PROVISIONS
13.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid) or guaranteed overnight
delivery to the following addresses (or to such other addresses which such party
shall designate in writing to the other party):
(a) if to Exult:
Exult, Inc.
4 Park Plaza, Suite 350
Irvine, California 92614
Attn: Chief Executive Officer
with a copy to:
McDermott, Will & Emery
2049 Century Park East, 34th Floor
Los Angeles, California 90067
Attn: Mark J. Mihanovic, Esq.
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<PAGE> 42
(b) if to the Company or the Shareholders:
Gunn Partners Inc.
Two South Market Building
Faneuil Hall Marketplace
Boston, Massachusetts 02109
Attn: Mike Markos
with a copy to:
Eckert Seamans Cherin & Mellott, LLC
One International Place, 18th Floor
Boston, Massachusetts 02110
Attn: William F. Miller, Esq.
Notice shall be deemed given on the date delivered (or the date of
refusal of delivery) if sent by overnight delivery or certified or registered
mail.
13.2 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(including the Disclosure Schedules and the other the exhibits and schedules
attached hereto) and other documents delivered at the Closing pursuant hereto,
contain the entire understanding of the parties hereto in respect of its subject
matter and supersede all prior agreements and understandings (oral or written)
between or among the parties hereto with respect to such subject matter. The
parties agree that prior drafts of this Agreement shall not be deemed to provide
any evidence as to the meaning of any provision hereof or the intent of the
parties hereto with respect thereto. The Disclosure Schedules and the other
exhibits and schedules attached hereto constitute a part hereof as though set
forth in full above. This Agreement is not intended to confer upon any Person,
other than the parties hereto, any rights or remedies hereunder.
13.3 EXPENSES. Except as otherwise provided herein, the parties shall
pay their own fees and expenses, including their own counsel fees, incurred in
connection with this Agreement or any transaction contemplated hereby. The
Company hereby agrees to pay any and all sales, transfer, use and similar taxes
or fees which may become due and owing as a result of the completion of the
transactions contemplated hereby.
13.4 AMENDMENT; WAIVER; BINDING EFFECT; ASSIGNMENT. This Agreement may
not be modified, amended, supplemented, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. The rights and obligations
of this Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Except as expressly provided herein, the
rights and obligations of this Agreement may not be assigned by any party hereto
without the prior written consent of the other parties hereto; provided,
however, that after the Closing Date, Exult may assign its rights and
obligations under this Agreement to a successor in interest, without the written
consent of the Company, provided that (a) such successor assumes the obligations
of Exult hereunder and, unless such assignment is effective automatically as a
matter of law, executes and delivers to the Company and the Shareholder
Representative an agreement to be
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<PAGE> 43
bound by the terms hereof and (b) no such assignment shall release or limit the
obligations of Exult and Exult Equity Partners, Inc. hereunder.
13.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument. A facsimile signature of any party shall
be considered to have the same binding legal effect as an original signature.
13.6 GOVERNING LAW; VENUE; WAIVER OF JURY. This Agreement shall be
construed in accordance with and governed for all purposes by the laws of the
State of California applicable to contracts executed and to be wholly performed
within such State. Any action or proceeding seeking to enforce any provision of,
or based on any right arising out of, this agreement may be brought against any
of the parties hereto in the courts of the State of California, or in any United
States District Court for the Central District of California if it has or can
acquire jurisdiction, and each of the parties hereto consents to the
jurisdiction of such courts and of the appropriate appellate courts in any such
action or proceeding and waives any objection to venue laid therein. Process in
any action or proceeding referred to in the preceding sentence may be served on
any party anywhere in the world. Each of the parties hereto waives any defense
of inconvenient forum to the maintenance of any action or proceeding so brought.
Nothing in this Section 13.6 shall affect the right of any party hereto to serve
legal process in any other manner permitted by law or at equity. A final
judgment in any action or proceeding so brought shall be conclusive and may be
enforced by suit on the judgment or in any other manner provided by law or at
equity. Each Shareholder hereby irrevocably waives any right to a trial by jury
in any legal proceedings or to have a jury participate in resolving any disputes
or claims, whether any such proceedings, disputes or claims relate to or arise
in contract, tort or otherwise, whether with respect to this Agreement or any
other documents or instruments delivered in connection with this Agreement or
the transactions contemplated hereby.
13.7 SEVERABILITY. If any word, phrase, sentence, clause, section,
subsection or provision of this Agreement as applied to any party or to any
circumstance is adjudged by a court to be invalid or unenforceable, the same
will in no way affect any other circumstance or the validity or enforceability
of any other word, phrase, sentence, clause, section, subsection or provision of
this Agreement. Except for the provisions of Section 7.6 hereof, if any
provision of this Agreement, or any part thereof, is deemed by a court of
competent jurisdiction to exceed the time, geographic or other limitations
imposed by applicable law, then such provision or such part shall be deemed
reformed to the maximum time or geographic or other limitation (as the case may
be) permitted by applicable law without affecting or rendering invalid or
unenforceable the remaining terms or provisions of this Agreement.
13.8 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents
and warrants to all other parties hereto that (a) before executing this
Agreement, said party has fully informed itself of the terms, contents,
conditions and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party has
had the opportunity to seek and has obtained the advice of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing
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<PAGE> 44
this Agreement; and (f) this Agreement is the result of arm's length
negotiations conducted by and among the parties and their respective counsel.
13.9 CONSTRUCTION. The parties hereto agree and acknowledge that they
have jointly participated in the negotiation and drafting of this Agreement. In
the event of an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumptions or burdens of proof shall arise favoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise. If any party has breached any representation, warranty, or covenant
contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty, or covenant. The mere listing (or
inclusion of copy) of a document or other item shall not be deemed adequate to
disclose an exception to a representation or warranty made herein (unless the
representation or warranty relates solely to the existence of the document or
other items itself).
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<PAGE> 45
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first written above.
EXULT, INC.
By:
-----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
GUNN PARTNERS INC.
By:
-----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
SHAREHOLDERS:
---------------------------------------------
individually
---------------------------------------------
individually
---------------------------------------------
individually
---------------------------------------------
individually
---------------------------------------------
individually
---------------------------------------------
individually
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<PAGE> 46
---------------------------------------------
individually
---------------------------------------------
individually
---------------------------------------------
individually
---------------------------------------------
individually
---------------------------------------------
individually
---------------------------------------------
individually
-40-
<PAGE> 1
EXHIBIT 10.1.1
BPO-US, INC.
1999 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Option/Stock Issuance Plan is intended to
promote the interests of BPO-US, Inc., a Delaware corporation, by providing
eligible persons in the Corporation's employ or service with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to continue in such employ
or service.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity
programs:
(i) the Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be
issued shares of Common Stock directly, either through the
immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary).
B. The provisions of Articles One and Four shall apply to both
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any
or all administrative functions otherwise exercisable by the Board may be
delegated to the Committee. Members of the Committee shall serve for such period
of time as the Board may determine and shall be subject to removal by the Board
at any time. The Board may also at any time terminate the functions of the
Committee and reassume all powers and authority previously delegated to the
Committee.
<PAGE> 2
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on all
parties who have an interest in the Plan or any option or stock issuance
thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as
follows:
(i) employees,
(ii) non-employee members of the Board or the
non-employee members of the board of directors of any Parent
or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or
Subsidiary).
B. The Plan Administrator shall have full authority to
determine, (i) with respect to the grants made under the Option Grant Program,
which eligible persons are to receive the option grants, the time or times when
those grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding, and (ii) with
respect to stock issuances made under the Stock Issuance Program, which eligible
persons are to receive such stock issuances, the time or times when those
issuances are to be made, the number of shares to be issued to each Participant,
the vesting schedule (if any) applicable to the issued shares and the
consideration to be paid by the Participant for such shares.
C. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Option Grant Program or to effect
stock issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
1,406,356 shares.(1)
B. Shares of Common Stock subject to outstanding options shall
be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently repurchased
by the Corporation, at the option exercise or direct issue price paid
- -----------------
(1) As of February 14, 1999, the Plan has 10,934,005 shares authorized,
which reflects the five-for-one stock split effective on February 9, 2000 and
includes a share increase of 1,184,005 approved on November 19, 1999 and a share
increase of 2,718,220 approved on December 14, 1999.
<PAGE> 3
per share, pursuant to the Corporation's repurchase rights under the Plan shall
be added back to the number of shares of Common Stock reserved for issuance
under the Plan and shall accordingly be available for reissuance through one or
more subsequent option grants or direct stock issuances under the Plan.
C. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan and (ii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive. In
no event shall any such adjustments be made in connection with the conversion of
one or more outstanding shares of the Corporation's preferred stock into shares
of Common Stock.
<PAGE> 4
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be less than
eighty-five percent (85%) of the Fair Market Value per share
of Common Stock on the option grant date.
(ii) If the person to whom the option is granted is a
10% Stockholder, then the exercise price per share shall not
be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Four and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12 of the 1934 Act at the time the option is exercised, then the
exercise price may also be paid as follows:
(i) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide
irrevocable instructions (A) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover
the aggregate exercise price payable for the purchased shares
plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by
reason of such exercise and (B) to the Corporation to deliver
the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
<PAGE> 5
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option grant. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service
for any reason other than death, Disability or Misconduct,
then the Optionee shall have a period of three (3) months
following the date of such cessation of Service during which
to exercise each outstanding option held by such Optionee.
(ii) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period of twelve
(12) months following the date of such cessation of Service
during which to exercise each outstanding option held by such
Optionee.
(iii) If the Optionee dies while holding an
outstanding option, then the personal representative of his or
her estate or the person or persons to whom the option is
transferred pursuant to the Optionee's will or the laws of
inheritance shall have a twelve (12)-month period following
the date of the Optionee's death to exercise such option.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the
option term.
(v) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of
Service. Upon the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding
with respect to any and all option shares for which the option
is not otherwise at the time exercisable or in which the
Optionee is not otherwise at that time vested.
(vi) Should Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee
shall terminate immediately and cease to remain outstanding.
<PAGE> 6
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is
to remain exercisable following Optionee's cessation of
Service or death from the limited period otherwise in effect
for that option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect
to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation
of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the
option had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become the
recordholder of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. The Plan Administrator may not impose a vesting schedule upon
any option grant or the shares of Common Stock subject to that option which is
more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur not later than one (1) year after the option grant date.
However, such limitation shall not be applicable to any option grants made to
individuals who are officers of the Corporation, non-employee Board members or
independent consultants.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock
is first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, the option shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
H. WITHHOLDING. The Corporation's obligation to deliver shares
of Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
<PAGE> 7
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICe. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the option term shall not exceed
five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the
Plan at the time of a Corporate Transaction shall automatically vest in full so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for all of the shares of Common
Stock at the time subject to that option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. However, the shares subject
to an outstanding option shall not vest on such an accelerated basis if and to
the extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and any repurchase rights of the
Corporation with respect to the unvested option shares are concurrently assigned
to such successor corporation (or parent thereof) or (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested option shares at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate
<PAGE> 8
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
E. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure one or more options so that those
options shall automatically accelerate and vest in full (and any repurchase
rights of the Corporation with respect to the unvested shares subject to those
options shall immediately terminate) upon the occurrence of a Corporate
Transaction, whether or not those options are to be assumed in the Corporate
Transaction.
F. The Plan Administrator shall also have full power and
authority, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to structure such option so that the
shares subject to that option will automatically vest on an accelerated basis
should the Optionee's Service terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which the option is assumed and
the repurchase rights applicable to those shares do not otherwise terminate. Any
option so accelerated shall remain exercisable for the fully-vested option
shares until the expiration or sooner termination of the option term. In
addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Involuntary Termination shall immediately terminate
on an accelerated basis, and the shares subject to those terminated rights shall
accordingly vest at that time.
<PAGE> 9
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction shall remain exercisable as an Incentive
Option only to the extent the applicable One Hundred Thousand Dollar limitation
is not exceeded. To the extent such dollar limitation is exceeded, the
accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The grant of options under the Plan shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Plan and to grant
in substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
<PAGE> 10
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issue date. However, the purchase
price per share of Common Stock issued to a 10% Stockholder shall not be less
than one hundred and ten percent (110%) of such Fair Market Value.
2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or
any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, with initial vesting to
occur not later than one (1) year after the issuance date. Such limitation shall
not apply to any Common Stock issuances made to the officers of the Corporation,
non-employee Board members or independent consultants.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to
<PAGE> 11
the Participant's unvested shares of Common Stock and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to those shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
C. FIRST REFUSAL RIGHTS. Until such time as the Common Stock
is first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
II. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, all
outstanding repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase
<PAGE> 12
rights with respect to those shares remain outstanding, to provide that those
rights shall automatically terminate on an accelerated basis, and the shares of
Common Stock subject to those terminated rights shall immediately vest, in the
event the Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
repurchase rights are assigned to the successor corporation (or parent thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
<PAGE> 13
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Option Grant Program or the purchase
price for shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments and secured by the purchased shares. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. In no event may
the maximum credit available to the Optionee or Participant exceed the sum of
(i) the aggregate option exercise price or purchase price payable for the
purchased shares (less the par value of those shares) plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board,
but no option granted under the Plan may be exercised, and no shares shall be
issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the date of the Board's adoption of the Plan, then all options
previously granted under the Plan shall terminate and cease to be outstanding,
and no further options shall be granted and no shares shall be issued under the
Plan. Subject to such limitation, the Plan Administrator may grant options and
issue shares under the Plan at any time after the effective date of the Plan and
before the date fixed herein for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as vested shares or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. All
options and unvested stock issuances outstanding at the time of a clause (i)
termination event shall continue to have full force and effect in accordance
with the provisions of the documents evidencing those options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws and regulations.
B. Options may be granted under the Option Grant Program and
shares may be issued under the Stock Issuance Program which are in each instance
in excess of the number
<PAGE> 14
of shares of Common Stock then available for issuance under the Plan, provided
any excess shares actually issued under those programs shall be held in escrow
until there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess grants or issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock
upon the exercise of any options or upon the issuance or vesting of any shares
issued under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any option or (ii) under the Stock Issuance Program shall be subject
to the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options granted
under it and the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
<PAGE> 15
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
<PAGE> 16
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean BPO-US, Inc., a Delaware corporation, and any
successor corporation to all or substantially all of the assets or voting stock
of BPO-US, Inc. which shall by appropriate action adopt the Plan.
G. DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
<PAGE> 17
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market. If there is no closing selling
price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
target bonuses under any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
without the individual's consent.
<PAGE> 18
M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
P. OPTION GRANT PROGRAM shall mean the option grant program in effect
under the Plan.
Q. OPTIONEE shall mean any person to whom an option is granted under
the Plan.
R. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
T. PLAN shall mean the Corporation's 1999 Stock Option/Stock Issuance
Plan, as set forth in this document.
U. PLAN ADMINISTRATOR shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
V. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
W. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
X. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
<PAGE> 19
Y. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AA. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
<PAGE> 1
EXHIBIT 10.1.2
BPO-US, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of BPO-US, Inc. (the "Corporation"):
Optionee: __________________________________________________________
Grant Date: ________________________________________________________
Vesting Commencement Date: _________________________________________
Exercise Price: $_________________________ per share
Number of Option Shares: _________________ shares of Common Stock
Expiration Date: ___________________________________________________
Type of Option: _______ Incentive Stock Option
_______ Non-Statutory Stock Option:
Date Exercisable: Immediately Exercisable
Vesting Schedule: The Option Shares shall initially be unvested and
subject to repurchase by the Corporation at the Exercise Price paid
per share. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall accordingly lapse with respect
to, (i) twenty-five percent (25%) of the Option Shares upon
Optionee's completion of one (1) year of Service measured from the
Vesting Commencement Date and (ii) the balance of the Option Shares
in a series of thirty-six (36) successive equal monthly installments
upon Optionee's completion of each additional month of Service over
the thirty-six (36)-month period measured from the first anniversary
of the Vesting Commencement Date. In no event shall any additional
Option Shares vest after Optionee's cessation of Service.
Optionee understands and agrees that the Option is granted subject
to and in accordance with the terms of the BPO-US, Inc. 1999 Stock Option/Stock
Issuance Plan (the "Plan"). Optionee further agrees to be bound by the terms of
the Plan and the terms of the Option as set forth in the Stock Option Agreement
attached hereto as Exhibit A.
Optionee understands that any Option Shares purchased under the
Option will be subject to the terms set forth in the Stock Purchase Agreement
attached hereto as Exhibit B. Optionee hereby acknowledges receipt of a copy of
the Plan in the form attached hereto as Exhibit C.
<PAGE> 2
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE
RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS
ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE
AGREEMENT.
No Employment or Service Contract. Nothing in this Notice or in the
attached Stock Option Agreement or Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
DATED: __________________, _______
BPO-US, INC.
By:
----------------------------------
Title:
----------------------------------
----------------------------------
OPTIONEE
Address:
----------------------------------
----------------------------------
ATTACHMENTS:
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - STOCK PURCHASE AGREEMENT
EXHIBIT C - 1999 STOCK OPTION/STOCK ISSUANCE PLAN
2.
<PAGE> 3
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 4
EXHIBIT B
STOCK PURCHASE AGREEMENT
<PAGE> 5
EXHIBIT C
1999 STOCK OPTION/STOCK ISSUANCE PLAN
<PAGE> 1
EXHIBIT 10.1.3
BPO-US, INC.
STOCK OPTION AGREEMENT
----------------------
RECITALS
--------
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants and other independent
advisors in the service of the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. During Optionee's lifetime, this option
shall be exercisable only by Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following Optionee's death.
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
<PAGE> 2
(a) Should Optionee cease to remain in Service for any reason
(other than death, Disability or Misconduct) while this option is outstanding,
then Optionee shall have a period of three (3) months (commencing with the date
of such cessation of Service) during which to exercise this option, but in no
event shall this option be exercisable at any time after the Expiration Date.
(b) Should Optionee die while this option is outstanding, then
the personal representative of Optionee's estate or the person or persons to
whom the option is transferred pursuant to Optionee's will or in accordance with
the laws of inheritance shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the earlier of
(i) the expiration of the twelve (12)-month period measured from the date of
Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability while
this option is outstanding, then Optionee shall have a period of twelve (12)
months (commencing with the date of such cessation of Service) during which to
exercise this option. In no event shall this option be exercisable at any time
after the Expiration Date.
Note: Exercise of this option on a date later than three (3)
months following cessation of Service due to Disability will
result in loss of favorable Incentive Option treatment, unless
such Disability constitutes Permanent Disability. In the event
that Incentive Option treatment is not available, this option
will be taxed as a Non-Statutory Option upon exercise.
(d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number of
Option Shares in which Optionee is, at the time of Optionee's cessation of
Service, vested pursuant to the Vesting Schedule specified in the Grant Notice
or the special vesting acceleration provisions of Paragraph 6. Upon the
expiration of such limited exercise period or (if earlier) upon the Expiration
Date, this option shall terminate and cease to be outstanding for any vested
Option Shares for which the option has not been exercised. To the extent
Optionee is not vested in the Option Shares at the time of Optionee's cessation
of Service, this option shall immediately terminate and cease to be outstanding
with respect to those shares.
(e) Should Optionee's Service be terminated for Misconduct, then
this option shall terminate immediately and cease to remain outstanding.
6. ACCELERATED VESTING.
(a) In the event of any Corporate Transaction, the Option Shares
at the time subject to this option but not otherwise vested shall automatically
vest in full so that this option shall, immediately prior to the effective date
of the Corporate Transaction, become exercisable for all of the Option Shares as
fully-vested shares and may be exercised for any or all of those Option Shares
as vested shares. However, the Option Shares shall NOT vest on such an
accelerated basis if and to the extent: (i) this option is assumed by the
successor corporation (or
2.
<PAGE> 3
parent thereof) in the Corporate Transaction and the Corporation's repurchase
rights with respect to the unvested Option Shares are assigned to such successor
corporation (or parent thereof) or (ii) this option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing on the unvested Option Shares at the time of the Corporate Transaction
(the excess of the Fair Market Value of those Option Shares over the Exercise
Price payable for such shares) and provides for subsequent payout in accordance
with the same Vesting Schedule applicable to those unvested Option Shares as set
forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) The Option Shares may also vest upon an accelerated basis in
accordance with the terms and conditions of any special addendum attached to
this Agreement.
(e) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the record holder
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
3.
<PAGE> 4
(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares
in one or more of the following forms:
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in
accordance with Paragraph 14.
Should the Common Stock be registered under Section 12
of the 1934 Act at the time the option is exercised, then
the Exercise Price may also be paid as follows:
(C) in shares of Common Stock held by Optionee (or
any other person or persons exercising the option) for the
requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or
(D) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
instructions (a) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all
applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of
such exercise and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of
the Exercise Price must accompany the Purchase Agreement
delivered to the Corporation in connection with the option
exercise.
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than
Optionee) have the right to exercise this option.
3.
<PAGE> 5
(iv) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it
to comply with the applicable requirements of Federal and state
securities laws.
(v) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF
THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE
PURCHASE AGREEMENT.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on
5.
<PAGE> 6
the Grant Notice. All notices shall be deemed effective upon personal delivery
or upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
14. FINANCING. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, permit Optionee to pay the Exercise Price
for the purchased Option Shares by delivering a full-recourse, interest-bearing
promissory note secured by those Option Shares. The payment schedule in effect
for any such promissory note shall be established by the Plan Administrator in
its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
16. GOVERNING LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
17. STOCKHOLDER APPROVAL. If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may be issued under the Plan as last approved by the stockholders, then
this option shall be void with respect to such excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) This option shall not become exercisable in the calendar year
in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years
6.
<PAGE> 7
thereafter in which the One Hundred Thousand Dollar ($100,000) limitation of
this Paragraph 18(b) would not be contravened, but such deferral shall in all
events end immediately prior to the effective date of a Corporate Transaction in
which this option is not to be assumed, whereupon the option shall become
immediately exercisable as a Non-Statutory Option for the deferred portion of
the Option Shares.
(c) Should Optionee hold, in addition to this option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this option, then the foregoing limitations on
the exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
7.
<PAGE> 8
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean BPO-US, Inc., a Delaware corporation.
G. DISABILITY shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the option shall have
been exercised in accordance with Paragraph 9 of the Agreement.
A-1.
<PAGE> 9
J. EXERCISE PRICE shall mean the exercise price payable per Option
Share as specified in the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as the
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
M. GRANT DATE shall mean the date of grant of the option as specified
in the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
A-2.
<PAGE> 10
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option.
T. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PLAN shall mean the Corporation's 1999 Stock Option/Stock Issuance
Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
X. PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
Y. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant.
Z. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
BB. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
A-3.
<PAGE> 1
EXHIBIT 10.1.4
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Option Agreement (the "Option Agreement") by
and between EXULT, INC. (the "Corporation") and ______________ ("Optionee")
evidencing the stock option (the "Option") granted on this date to Optionee
under the terms of the Corporation's 1999 Special Executive Stock Option/Stock
Issuance Plan, and such provisions shall be effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined herein,
shall have the meanings assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed in accordance with Paragraph 6 of the Option
Agreement, none of the Option Shares shall vest on an accelerated basis upon the
occurrence of that Corporate Transaction, and Optionee shall accordingly
continue, over his or her period of Service following the Corporate Transaction,
to vest in the Option Shares in one or more installments in accordance with the
provisions of the Option Agreement. However, upon an Involuntary Termination of
Optionee's Service within eighteen (18) months following such Corporate
Transaction, all the Option Shares at the time subject to the Option shall
automatically vest in full on an accelerated basis so that the Option shall
immediately become exercisable for all the Option Shares as fully-vested shares
and may be exercised for any or all of those Option Shares as vested shares. The
Option shall remain so exercisable until the earlier of (i) the Expiration Date
or (ii) the expiration of the one (1)-year period measured from the date of the
Involuntary Termination.
2. For purposes of this Addendum, an INVOLUNTARY TERMINATION shall mean
the termination of Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the Corporation
for reasons other than for Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary
employing Optionee) which materially reduces Optionee's duties and
responsibilities or the level of management to which he or she reports,
(B) a reduction in Optionee's level of compensation (including base
salary, fringe benefits and target bonuses under any
corporate-performance based incentive programs) by more than fifteen
percent (15%) or (C) a relocation of Optionee's place of employment by
more than fifty (50) miles, provided and only if such change, reduction
or relocation is effected by the Corporation without Optionee's
consent.
3. The provisions of Paragraph 1 of this Addendum shall govern the
period for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within eighteen (18) months after the
Corporate Transaction and shall supersede any provisions to the contrary in
Paragraph 5 of the Option Agreement. The provisions of this Addendum shall also
supersede any provisions to the contrary in Paragraph 18 of the Option Agreement
concerning the deferred exercisability of the Option.
IN WITNESS WHEREOF, EXULT, INC. has caused this Addendum to be executed
by its duly-authorized officer as of the Effective Date specified below.
EXULT, INC.
By:
------------------------------------
Title:
------------------------------------
EFFECTIVE DATE: ________________ , _______
<PAGE> 1
EXHIBIT 10.1.5
BPO-US, INC.
STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT made this _____ day of ________________ 199__, by and between
BPO-US, Inc., a Delaware corporation, and _______________, Optionee under the
Corporation's 1999 Stock Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning assigned
to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases _______ shares of Common
Stock (the "Purchased Shares") pursuant to that certain option (the "Option")
granted Optionee on ____________________, 199__ (the "Grant Date") to purchase
up to _______________ shares of Common Stock (the "Option Shares") under the
Plan at the exercise price of $___________ per share (the "Exercise Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares
in accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right or the First Refusal Right, Optionee (or any
successor in interest) shall have all the rights of a stockholder (including
voting, dividend and liquidation rights) with respect to the Purchased Shares,
subject, however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee is prepared to hold the Purchased
Shares for an indefinite period and that Optionee is aware that SEC Rule 144
issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
<PAGE> 2
2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee
shall make no disposition of the Purchased Shares (other than a Permitted
Transfer) unless and until there is compliance with all of the following
requirements:
(i) Optionee shall have provided the Corporation with a
written summary of the terms and conditions of the proposed
disposition.
(ii) Optionee shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(iii) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased Shares
shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold
or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a "no action" letter of
the Securities and Exchange Commission with respect to such sale or
offer or (c) satisfactory assurances to the Corporation that
registration under such Act is not required with respect to such sale
or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated ____________, 199___ between the
Corporation and the registered holder of the shares (or the predecessor
in interest to the shares). A copy of such agreement is maintained at
the Corporation's principal corporate offices."
2.
<PAGE> 3
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Optionee.
3. MARKET STAND-OFF.
(a) In connection with any underwritten public offering by
the Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.
(b) Ownershall be subject to the Market Stand-Off provided
and only if the officers and directors of the Corporation are also subject to
similar restrictions.
(c) Any new, substituted or additional securities which are
by reason of any Recapitalization or Reorganization distributed with respect to
the Purchased Shares shall be immediately subject to the Market Stand-Off, to
the same extent the Purchased Shares are at such time covered by such
provisions.
(d) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
3.
<PAGE> 4
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price any or all of the Purchased
Shares in which Optionee is not, at the time of his or her cessation of Service,
vested in accordance with the Vesting Schedule applicable to those shares or the
special vesting acceleration provisions of Paragraph D.6 of this Agreement (such
shares to be hereinafter referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
(i) the First Refusal Right and (ii) the Market Stand-Off.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
5. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the
4.
<PAGE> 5
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same.
6. CORPORATE TRANSACTION.
(a) The Repurchase Right shall automatically terminate in its
entirety, and all the Purchased Shares shall vest in full, immediately prior to
the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to any new securities
or other property (including any cash payments) received in exchange for the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same. The new securities or other property (including any
cash payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Optionee vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an accelerated
basis, and the Purchased Shares shall immediately vest in full, in accordance
with the terms and conditions of any special addendum attached to this
Agreement.
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the provisions of Article D. For purposes of this Article E, the term "transfer"
shall include any sale, assignment, pledge, encumbrance or other disposition of
the Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
5.
<PAGE> 6
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice upon the same terms as those specified therein or upon
such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the First Refusal Right, but the acquired shares shall remain subject to the
provisions of Article B and Paragraph C.3. In the event Owner does not effect
such sale or disposition of the Target Shares within the specified thirty
(30)-day period, the First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
6.
<PAGE> 7
(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target
Shares which the Corporation has elected to purchase, such sale to be
effected in substantial conformity with the provisions of Paragraph
E.3. The First Refusal Right shall continue to be applicable to any
subsequent disposition of the remaining Target Shares until such right
lapses.
Owner's failure to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal
Right shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Reorganization, but only to the extent the Purchased Shares
are at the time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest
to occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination made by the
Board that a public market exists for the outstanding shares of Common Stock or
(iii) a firm commitment underwritten public offering, pursuant to an effective
registration statement under the 1933 Act, covering the offer and sale of the
Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE
7.
<PAGE> 8
RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE
SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more stockholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Optionee. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares 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). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
8.
<PAGE> 9
H. MISCELLANEOUS PROVISIONS
1. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
2. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
3. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
9.
<PAGE> 10
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Optionee, Optionee's permitted assigns and the legal
representatives, heirs and legatees of Optionee's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
BPO-US, INC.
By:
-----------------------------------
Title:
-----------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
OPTIONEE
Address:
-----------------------------------
-----------------------------------
10.
<PAGE> 11
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested at time of his or her cessation of Service.
----------------------------------
OPTIONEE'S SPOUSE
Address:
----------------------------------
----------------------------------
<PAGE> 12
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________ hereby sell(s), assign(s) and
transfer(s) unto BPO-US, Inc. (the "Corporation"), _______________ (_________)
shares of the Common Stock of the Corporation standing in his or her name on the
books of the Corporation represented by Certificate No. ________________
herewith and do(es) hereby irrevocably constitute and appoint
_____________________ Attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises.
Dated: ____________________
Signature
----------------------------------
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE> 13
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(b) ELECTION FOR
EXERCISE OF NON-STATUTORY OPTION. If the Purchased Shares are acquired pursuant
to the exercise of a Non-Statutory Option, as specified in the Grant Notice,
then under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code Section
83(b) to be taxed at the time the Purchased Shares are acquired, rather than
when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the Fair Market
Value of the Purchased Shares on the date of the Agreement equals the Exercise
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
II. FEDERAL INCOME TAX CONSEQUENCES AND CONDITIONAL SECTION 83(b)
ELECTION FOR EXERCISE OF INCENTIVE Option. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the Purchased
Shares:
(i) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
(ii) The excess of (a) the Fair Market Value of the Purchased
Shares on the date the Option is exercised or (if later) on the date
any forfeiture restrictions applicable to the Purchased Shares lapse
over (b) the Exercise Price paid for the Purchased Shares will be
includible in Optionee's taxable income for alternative minimum tax
purposes.
(iii) If Optionee makes a disqualifying disposition of the
Purchased Shares, then Optionee will recognize ordinary income in the
year of such disposition equal in amount to the excess of (a) the Fair
Market Value of the Purchased Shares on the date the Option is
exercised or (if later) on the date any forfeiture restrictions
applicable to the Purchased Shares lapse over (b) the Exercise Price
paid for the Purchased Shares. Any additional gain recognized upon the
disqualifying disposition will be either short-term or long-term
capital gain depending upon the period for which the Purchased Shares
are held prior to the disposition.
II-1.
<PAGE> 14
(iv) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase
the Purchased Shares pursuant to the Repurchase Right. The term
"disqualifying disposition" means any sale or other disposition(1) of
the Purchased Shares within two (2) years after the Grant Date or
within one (1) year after the exercise date of the Option.
(v) In the absence of final Treasury Regulations relating to
Incentive Options, it is not certain whether Optionee may, in
connection with the exercise of the Option for any Purchased Shares at
the time subject to forfeiture restrictions, file a protective election
under Code Section 83(b) which would limit (a) Optionee's alternative
minimum taxable income upon exercise and (b) Optionee's ordinary income
upon a disqualifying disposition to the excess of the Fair Market Value
of the Purchased Shares on the date the Option is exercised over the
Exercise Price paid for the Purchased Shares. Accordingly, such
election if properly filed will only be allowed to the extent the final
Treasury Regulations permit such a protective election. Page 2 of the
attached form for making the election should be filed with any election
made in connection with the exercise of an Incentive Option.
- --------
(1) Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.
II-2.
<PAGE> 15
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
_____________ shares of the common stock of BPO-US, Inc.
(3) The property was issued on ______________, 199__
(4) The taxable year in which the election is being made is the calendar
year 199__.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's service with the issuer terminates.
The issuer's repurchase right lapses in a series of annual and monthly
installments over a four (4)-year period ending on ___________, 200__.
(6) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms
will never lapse) is $__________per share.
(7) The amount paid for such property is $___________ per share.
(8) A copy of this statement was furnished to BPO-US, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on _________________, 199__.
- ---------------------------------- ------------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 16
The property described in the above Section 83(b) election is comprised
of shares of common stock acquired pursuant to the exercise of an incentive
stock option under Section 422 of the Internal Revenue Code (the "Code").
Accordingly, it is the intent of the Taxpayer to utilize this election to
achieve the following tax results:
1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to the
Taxpayer exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares
2. Section 421(a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.. The foregoing election is to be effective to the full
extent permitted under the Code.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.
2.
<PAGE> 17
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean BPO-US, Inc., a Delaware corporation, and any
successor corporation to all or substantially all of the assets or voting stock
of BPO-US, Inc. which shall by appropriate action adopt the Plan.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
I. EXERCISE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
J. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
K. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation
in accordance with Article E.
L. GRANT DATE shall have the meaning assigned to such term in Paragraph
A.1.
A-1.
<PAGE> 18
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option pursuant
to which Optionee has been informed of the basic terms of the Option.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
P. 1933 ACT shall mean the Securities Act of 1933, as amended.
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTION shall have the meaning assigned to such term in Paragraph
A.1.
T. OPTION AGREEMENT shall mean all agreements and other documents
evidencing the Option.
U. OPTIONEE shall mean the person to whom the Option is granted under
the Plan.
V. OWNER shall mean Optionee and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Optionee.
W. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
X. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
Y. PLAN shall mean the Corporation's 1999 Stock Option/Stock Issuance
Plan.
Z. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
AA. PRIOR PURCHASE AGREEMENT shall have the meaning assigned to such
term in Paragraph D.4.
A-2.
<PAGE> 19
AB. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
AC. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
AD. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is not
the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or persons
different from the persons holding those securities immediately prior
to the merger, or
(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company
structure.
AE. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
AF. SEC shall mean the Securities and Exchange Commission.
AG. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
AH. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AI. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AJ. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
AK. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-3.
<PAGE> 1
EXHIBIT 10.1.6
ADDENDUM
TO
STOCK PURCHASE AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Purchase Agreement (the "Purchase Agreement")
by and between BPO-US, Inc. (the "Corporation") and
_____________________________ ("Optionee") evidencing the shares of Common Stock
purchased on this date by Optionee pursuant to the option granted to him or her
under the Corporation's 1999 Stock Option/Stock Issuance Plan, and such
provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to such terms in the Purchase Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with a Corporate Transaction, no
accelerated vesting of the Purchased Shares shall occur upon such Corporate
Transaction, and the Repurchase Right shall continue to remain in full force and
effect in accordance with the provisions of the Purchase Agreement. Optionee
shall, over his or her period of Service following the Corporate Transaction,
continue to vest in the Purchased Shares in one or more installments in
accordance with the provisions of the Purchase Agreement. However, upon an
Involuntary Termination of Optionee's Service within eighteen (18) months
following the Corporate Transaction, the Repurchase Right shall terminate
automatically, and all the Purchased Shares shall immediately vest in full at
that time.
2. For purposes of this Addendum, the following definitions shall be in
effect:
An INVOLUNTARY TERMINATION shall mean the termination of
Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than for Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change
in his or her position with the Corporation (or Parent or Subsidiary
employing Optionee) which materially reduces his or her duties and
responsibilities or the level of management to which he or she reports,
(B) a reduction in Optionee's level of compensation (including base
salary, fringe benefits and target bonuses under any
corporate-performance based incentive programs) by more than fifteen
percent (15%) or (C) a relocation of Optionee's place of employment by
more than fifty (50) miles, provided and only if such change, reduction
or relocation is effected by the Corporation without Optionee's
consent.
<PAGE> 2
MISCONDUCT shall mean the termination of Optionee's Service by reason
of Optionee's commission of any act of fraud, embezzlement or dishonesty, any
unauthorized use or disclosure by Optionee of confidential information or trade
secrets of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by Optionee adversely affecting the business or affairs
of the Corporation (or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of Optionee or any other individual in
the Service of the Corporation (or any Parent or Subsidiary).
IN WITNESS WHEREOF, BPO-US, Inc. has caused this Addendum to be
executed by its duly-authorized officer as of the Effective Date specified
below.
BPO-US, INC.
By:
---------------------------------------
Title:
---------------------------------------
EFFECTIVE DATE: _____________, 199___
2
<PAGE> 1
EXHIBIT 10.1.7
BPO-US, INC.
STOCK ISSUANCE AGREEMENT
AGREEMENT made as of this ____ day of ___________ 199__, by and between
BPO-US, Inc., a Delaware corporation, and _____________________, Participant in
the Corporation's 1999 Stock Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning assigned
to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
1. PURCHASE. Participant hereby purchases ___________________ shares
of Common Stock (the "Purchased Shares") pursuant to the provisions of the Stock
Issuance Program at the purchase price of $_______________ per share (the
"Purchase Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to the
Corporation, Participant shall pay the Purchase Price for the Purchased Shares
in cash or cash equivalent and shall deliver a duly-executed blank Assignment
Separate from Certificate (in the form attached hereto as Exhibit I) with
respect to the Purchased Shares.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation exercises
the Repurchase Right or the First Refusal Right, Participant (or any successor
in interest) shall have all stockholder rights (including voting, dividend and
liquidation rights) with respect to the Purchased Shares, subject, however, to
the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Participant in reliance
upon the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Participant hereby
confirms that Participant has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Participant hereby acknowledges that Participant is prepared to hold the
Purchased Shares for an indefinite period and that Participant is aware that SEC
Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
2. DISPOSITION OF PURCHASED SHARES. Participant shall make no
disposition of the Purchased Shares (other than a Permitted Transfer) unless and
until there is compliance with all of the following requirements:
<PAGE> 2
(i) Participant shall have provided the Corporation with a
written summary of the terms and conditions of the proposed
disposition.
(ii) Participant shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(iii) Participant shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books any
Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a "no action" letter of the Securities and
Exchange Commission with respect to such sale or offer or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the Corporation
and accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated __________, 199___, between the Corporation and the registered holder of
the shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Corporation's principal corporate offices."
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2.
<PAGE> 3
2. TRANSFEREE OBLIGATIONS. Each person (other than the Corporation)
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same
extent such shares would be so subject if retained by Participant.
3. MARKET STAND-OFF.
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and
only if the officers and directors of the Corporation are also subject to
similar restrictions.
(c) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation may
impose stop-transfer instructions with respect to the Purchased Shares until the
end of the applicable stand-off period.
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price any or all of the Purchased Shares in which
Participant is not, at the time of his or her cessation of Service, vested in
accordance with the provisions of the Vesting Schedule set forth in Paragraph
D.3 or the special vesting acceleration provisions of Paragraph D.5 (such shares
to be hereinafter referred to as the "Unvested Shares").
3.
<PAGE> 4
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Participant vests in accordance with the following Vesting Schedule:
Participant shall vest in twenty-five percent (25%) of the
Purchased Shares, and the Repurchase Right shall concurrently lapse
with respect to those Purchased Shares, upon Participant's completion
of one (1) year of Service measured from ___________________, 199_____.
Participant shall vest in the remaining seventy-five percent
(75%) of the Purchased Shares, and the Repurchase Right shall
concurrently lapse with respect to those Purchased Shares, in a series
of thirty-six (36) successive equal monthly installments upon
Participant's completion of each additional month of Service over the
thirty-six (36)-month period measured from the date on which the first
twenty-five percent (25%) of the Purchased Shares vests hereunder.
All Purchased Shares as to which the Repurchase Right lapses shall,
however, remain subject to (i) the First Refusal Right and (ii) the Market
Stand-Off.
4. RECAPITALIZATION. Any new, substituted or additional securities
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right and any
escrow requirements hereunder, but only to the extent the Purchased Shares are
at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
4.
<PAGE> 5
5. CORPORATE TRANSACTION.
(a) The Repurchase Right shall automatically terminate in its
entirety, and all the Purchased Shares shall vest in full, immediately prior to
the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to any new securities
or other property (including any cash payments) received in exchange for the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same. The new securities or other property (including any
cash payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Participant vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an accelerated
basis, and the Purchased Shares shall immediately vest in full, in accordance
with the terms and conditions of any special addendum attached to this
Agreement.
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Participant has vested in accordance
with the provisions of Article D. For purposes of this Article E, the term
"transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition of the Purchased Shares intended to be made by Owner, but shall not
include any Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Participant has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
5.
<PAGE> 6
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall, for a
period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares subject to the
Disposition Notice upon the same terms as those specified therein or upon such
other terms (not materially different from those specified in the Disposition
Notice) to which Owner consents. Such right shall be exercisable by delivery of
written notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect to
all the Target Shares, then the Corporation shall effect the repurchase of such
shares, including payment of the purchase price, not more than five (5) business
days after delivery of the Exercise Notice; and at such time the certificates
representing the Target Shares shall be delivered to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the First Refusal Right, but the acquired shares shall remain subject to the
provisions of Article B and Paragraph C.3. In the event Owner does not effect
such sale or disposition of the Target Shares within the specified thirty
(30)-day period, the First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
6.
<PAGE> 7
(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target Shares
which the Corporation has elected to purchase, such sale to be effected
in substantial conformity with the provisions of Paragraph E.3. The
First Refusal Right shall continue to be applicable to any subsequent
disposition of the remaining Target Shares until such right lapses.
Owner's failure to deliver timely notification to the Corporation shall
be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new capital stock
or other property received in exchange for the Purchased Shares in consummation
of the Reorganization, but only to the extent the Purchased Shares are at the
time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest to
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination made by the
Board that a public market exists for the outstanding shares of Common Stock or
(iii) a firm commitment underwritten public offering, pursuant to an effective
registration statement under the 1933 Act, covering the offer and sale of the
Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
1. SECTION 83(b) ELECTION . Under Code Section 83, the excess of the
Fair Market Value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the
7.
<PAGE> 8
date of this Agreement. Even if the Fair Market Value of the Purchased Shares on
the date of this Agreement equals the Purchase Price paid (and thus no tax is
payable), the election must be made to avoid adverse tax consequences in the
future. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO.
PARTICIPANT UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE
THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE
FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(B), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more stockholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon Participant any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Participant) or of Participant, which rights are hereby expressly
reserved by each, to terminate Participant's Service at any time for any reason,
with or without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Participant. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
8.
<PAGE> 9
5. CANCELLATION OF SHARES. If the Corporation shall make available,
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares 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). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
1. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without resort to that
State's conflict-of-laws rules.
2. PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.
3. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
9.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
BPO-US, INC.
By:
----------------------------------------
Title:
--------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
PARTICIPANT
Address:
------------------------------------
------------------------------------
10.
<PAGE> 11
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Participant has read and hereby approves the
foregoing Stock Issuance Agreement. In consideration of the Corporation's
granting Participant the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which Participant is not vested at the time of his or her
cessation of Service.
--------------------------------
PARTICIPANT'S SPOUSE
Address:
--------------------------------
--------------------------------
<PAGE> 12
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________ hereby sell(s), assign(s) and
transfer(s) unto BPO-US, Inc. (the "Corporation"), ______________ (_____) shares
of the Common Stock of the Corporation standing in his or her name on the books
of the Corporation represented by Certificate No. _______________ herewith and
do(es) hereby irrevocably constitute and appoint _________________ Attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated:
----------------------------
Signature
----------------------------
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE> 13
EXHIBIT II
SECTION 83(b) TAX ELECTION
<PAGE> 14
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
______________ shares of the common stock of BPO-US, Inc.
(3) The property was issued on __________________, 199___.
(4) The taxable year in which the election is being made is the calendar year
1999.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's service with the issuer terminates. The issuer's
repurchase right lapses in a series of annual and monthly installments over
a four (4)-year period ending on ________________, 200___.
(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $_____ per share.
(7) The amount paid for such property is $ _______ per share.
(8) A copy of this statement was furnished to BPO-US, Inc. for whom taxpayer
rendered the services underlying the transfer of property.
(9) This statement is executed on _______________, 199___.
- ----------------------------------- -----------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 15
EXHIBIT III
1999 STOCK OPTION/STOCK ISSUANCE PLAN
<PAGE> 16
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Issuance Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution
of the Corporation.
F. CORPORATION shall mean BPO-US, Inc., a Delaware corporation, and any
successor corporation to all or substantially all of the assets or voting stock
of BPO-US, Inc. which shall be appropriate action adopt the Plan.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
I. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
J. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation
in accordance with Article E.
K. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
A-1
<PAGE> 17
M. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
N. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
O. PARTICIPANT shall mean the person to whom shares are issued under
the Stock Issuance Program.
P. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
Q. PLAN shall mean the Corporation's 1999 Stock Option/Stock Issuance
Plan attached hereto as Exhibit III.
R. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
S. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
T. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
U. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
V. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) a sale, transfer or other disposition of all or substantially
all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from
the persons holding those securities immediately prior to the merger,
or
A-2
<PAGE> 18
(iv) any transaction effected primarily to change the state in which
the Corporation is incorporated or to create a holding company
structure.
W. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
X. SEC shall mean the Securities and Exchange Commission.
Y. SERVICE shall mean the Participant's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
Z. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program under
the Plan.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AB. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AC. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph D.3 pursuant to which Participant is to vest in the Purchased Shares
in a series of installments over the Participant's period of Service.
AD. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-3
<PAGE> 1
EXHIBIT 10.1.8
ADDENDUM
TO
STOCK ISSUANCE AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Issuance Agreement (the "Issuance Agreement")
by and between BPO-US, Inc. (the "Corporation") and _________________
("Participant") evidencing the shares of Common Stock purchased on this date by
Participant under the Corporation's 1999 Stock Option/Stock Issuance Plan, and
such provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to such terms in the Issuance Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with a Corporate Transaction, no
accelerated vesting of the Purchased Shares shall occur upon such Corporate
Transaction, and the Repurchase Right shall continue to remain in full force and
effect in accordance with the provisions of the Issuance Agreement. Participant
shall, over his or her period of Service following the Corporate Transaction,
continue to vest in the Purchased Shares in one or more installments in
accordance with the provisions of the Issuance Agreement. However, upon an
Involuntary Termination of Participant's Service within eighteen (18) months
following the Corporate Transaction, the Repurchase Right shall terminate
automatically, and all the Purchased Shares shall immediately vest in full at
that time.
2. For purposes of this Addendum, the following definitions shall be in
effect:
An INVOLUNTARY TERMINATION shall mean the termination of Participant's
Service by reason of:
(a) Participant's involuntary dismissal or discharge by the
Corporation for reasons other than for Misconduct, or
(b) Participant's voluntary resignation following (A) a change in
his or her position with the Corporation (or Parent or Subsidiary
employing Participant) which materially reduces his or her duties and
responsibilities or the level of management to which he or she reports,
(B) a reduction in Participant's level of compensation (including base
salary, fringe benefits and target bonuses under any
corporate-performance based incentive programs) by more than fifteen
percent (15%) or (C) a relocation of Participant's place of employment
by more
<PAGE> 2
than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without Participant's
consent.
MISCONDUCT shall include the termination of Participant's Service by
reason or Participant's commission of any act of fraud, embezzlement or
dishonesty, any unauthorized use or disclosure by Participant of confidential
information or trade secrets of the Corporation (or any Parent or Subsidiary),
or any other intentional misconduct by Participant adversely affecting the
business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of the Participant or any
other individual in the Service of the Corporation (or any Parent or
Subsidiary).
IN WITNESS WHEREOF, BPO-US, Inc. has caused this Addendum to be
executed by its duly-authorized officer as of the Effective Date specified
below.
BPO-US, INC.
By:
--------------------------------
Title:
----------------------------
EFFECTIVE DATE: , 199
------------------ --
2.
<PAGE> 1
EXHIBIT 10.2.1
EXULT, INC.
1999 SPECIAL EXECUTIVE STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Special Executive Stock Option/Stock Issuance Plan
is intended to promote the interests of Exult, Inc., a Delaware corporation, by
providing eligible persons in the Corporation's employ or service with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to continue in
such employ or service.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity
programs:
(i) the Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares or
as a bonus for services rendered the Corporation (or any Parent or Subsidiary).
B. The provisions of Articles One and Four shall apply to both
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any
or all administrative functions otherwise exercisable by the Board may be
delegated to the Committee. Members of the Committee shall serve for such period
of time as the Board may determine and shall be subject to removal by the Board
at any time. The Board may also at any time terminate the functions of the
Committee and reassume all powers and authority previously delegated to the
Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such
<PAGE> 2
interpretations of, the Plan and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or stock issuance thereunder.
C. All stock options and/or issuances under the Plan shall be
made in compliance with the applicable requirements of Section 251029f) of the
California Corporations Code so that the qualification of those securities shall
not be required in the State of California.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan shall be
limited solely to (i) Employees who are officers of the Corporation and (ii)
other highly compensated Employees in the Service of the Corporation or any
Parent or Subsidiary.
B. The Plan Administrator shall have full authority to
determine, (i) with respect to the grants made under the Option Grant Program,
which eligible persons are to receive the option grants, the time or times when
those grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding, and (ii) with
respect to stock issuances made under the Stock Issuance Program, which eligible
persons are to receive such stock issuances, the time or times when those
issuances are to be made, the number of shares to be issued to each Participant,
the vesting schedule (if any) applicable to the issued shares and the
consideration to be paid by the Participant for such shares.
C. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Option Grant Program or to effect
stock issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
613,199 shares.(1)
B. Shares of Common Stock subject to outstanding options shall
be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently repurchased
by the Corporation, at the option exercise or direct issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be
- -------------------
(1) As of 11/19/99, the Plan has 3,065,995 shares authorized, which
reflects the five-for-one stock split effective on 2/9/00.
2
<PAGE> 3
available for reissuance through one or more subsequent option grants or direct
stock issuances under the Plan.
C. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan and (ii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive. In
no event shall any such adjustments be made in connection with the conversion of
one or more outstanding shares of the Corporation's preferred stock into shares
of Common Stock.
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the
Plan Administrator, but in no event shall such exercise price per share be less
than eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Section I of
Article Four and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12 of the 1934 Act at the time the option is exercised, then the
exercise price may also be paid as follows:
(i) in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the Exercise
Date, or
(ii) to the extent the option is exercised for
vested shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable instructions (A) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and
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<PAGE> 4
employment taxes required to be withheld by the Corporation by reason of such
exercise and (B) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Exercise and Term of Options. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option grant. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise
of any options held by the Optionee at the time of cessation of Service or
death:
(i) Should the Optionee cease to remain in Service
for any reason other than death, Disability or Misconduct, then the Optionee
shall have a period of three (3) months following the date of such cessation of
Service during which to exercise each outstanding option held by such Optionee.
(ii) Should Optionee's Service terminate by reason
of Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise each
outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an
outstanding option, then the personal representative of his or her estate or the
person or persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance shall have a twelve (12)-month period following
the date of the Optionee's death to exercise such option.
(iv) Under no circumstances, however, shall any
such option be exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable exercise
period or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which the option
has not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding with
respect to any and all option shares for which the option is not otherwise at
the time exercisable or in which the Optionee is not otherwise at that time
vested.
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<PAGE> 5
(vi) Should Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall terminate
immediately and cease to remain outstanding.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option
is to remain exercisable following Optionee's cessation of Service or death from
the limited period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at the time
of the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under the option
had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become the
recordholder of the purchased shares.
E. Unvested Shares. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. First Refusal Rights. Until such time as the Common Stock
is first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. Limited Transferability of Options. During the lifetime of
the Optionee, the option shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
H. Withholding. The Corporation's obligation to deliver shares
of Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
5
<PAGE> 6
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to
Employees.
B. Exercise Price. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price paid shall not
be less than one hundred ten percent (110%) of the Fair Market Value per share
of Common Stock on the option grant date and the option term shall not exceed
five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the
Plan at the time of a Corporate Transaction shall automatically vest in full so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for all of the shares of Common
Stock at the time subject to that option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. However, the shares subject
to an outstanding option shall NOT vest on such an accelerated basis if and to
the extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and any repurchase rights of the
Corporation with respect to the unvested option shares are concurrently assigned
to such successor corporation (or parent thereof) or (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested option shares at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in
6
<PAGE> 7
the event of any Corporate Transaction, except to the extent: (i) those
repurchase rights are assigned to the successor corporation (or parent thereof)
in connection with such Corporate Transaction or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
E. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure one or more options so that those
options shall automatically accelerate and vest in full (and any repurchase
rights of the Corporation with respect to the unvested shares subject to those
options shall immediately terminate) upon the occurrence of a Corporate
Transaction, whether or not those options are to be assumed in the Corporate
Transaction.
F. The Plan Administrator shall also have full power and
authority, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to structure such option so that the
shares subject to that option will automatically vest on an accelerated basis
should the Optionee's Service terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which the option is assumed and
the repurchase rights applicable to those shares do not otherwise terminate. Any
option so accelerated shall remain exercisable for the fully-vested option
shares until the expiration or sooner termination of the option term. In
addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Involuntary Termination shall immediately terminate
on an accelerated basis, and the shares subject to those terminated rights shall
accordingly vest at that time.
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction shall remain exercisable as an Incentive
Option only to the extent the applicable One Hundred Thousand Dollar limitation
is not exceeded. To the extent such dollar limitation is exceeded, the
accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The grant of options under the Plan shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure
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<PAGE> 8
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Plan and to grant
in substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the
Plan Administrator but shall not be less than eighty-five percent (85%) of the
Fair Market Value per share of Common Stock on the issue date. However, the
purchase price per share of Common Stock issued to a 10% Stockholder shall not
be less than one hundred and ten percent (110%) of such Fair Market Value.
2. Subject to the provisions of Section I of Article
Four, shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or
any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program
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<PAGE> 9
which is more restrictive than twenty percent (20%) per year vesting, with
initial vesting to occur not later than one (1) year after the issuance date.
Such limitation shall not apply to any Common Stock issuances made to the
officers of the Corporation, non-employee Board members or independent
consultants.
2. Any new, substituted or additional securities or
other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest in those
shares is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to those shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
C. First Refusal Rights. Until such time as the Common Stock
is first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
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<PAGE> 10
II. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, all
outstanding repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase rights with respect to those shares
remain outstanding, to provide that those rights shall automatically terminate
on an accelerated basis, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Option Grant Program or the purchase
price for shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments and secured by the purchased shares. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. In no event may
the maximum credit available to the Optionee or Participant exceed the sum of
(i) the aggregate option exercise price or purchase price payable for the
purchased shares (less the par value of those shares) plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board,
but no option granted under the Plan may be exercised, and no shares shall be
issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained
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<PAGE> 11
within twelve (12) months after the date of the Board's adoption of the Plan,
then all options previously granted under the Plan shall terminate and cease to
be outstanding, and no further options shall be granted and no shares shall be
issued under the Plan. Subject to such limitation, the Plan Administrator may
grant options and issue shares under the Plan at any time after the effective
date of the Plan and before the date fixed herein for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as vested shares or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. All
options and unvested stock issuances outstanding at the time of a clause (i)
termination event shall continue to have full force and effect in accordance
with the provisions of the documents evidencing those options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws and regulations.
B. Options may be granted under the Option Grant Program and
shares may be issued under the Stock Issuance Program which are in each instance
in excess of the number of shares of Common Stock then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess grants or issuances are
made, then (i) any unexercised options granted on the basis of such excess
shares shall terminate and cease to be outstanding and (ii) the Corporation
shall promptly refund to the Optionees and the Participants the exercise or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock
upon the exercise of any options or upon the issuance or vesting of any shares
issued under the Plan shall
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be subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any option or (ii) under the Stock Issuance Program shall be subject
to the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options granted
under it and the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
12
<PAGE> 13
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Code shall mean the Internal Revenue Code of 1986, as amended.
C. Committee shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
F. Corporation shall mean EXULT, Inc., a Delaware corporation, and any
successor corporation to all or substantially all of the assets or voting stock
of Exult, Inc. which shall by appropriate action adopt the Plan.
G. Disability shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
H. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
I. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.
J. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per share
of Common Stock
13
<PAGE> 14
on the date in question, as such price is reported by the National Association
of Securities Dealers on the Nasdaq National Market. If there is no closing
selling price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for which
such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the Nasdaq National Market, then the Fair Market Value
shall be determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
K. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
L. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change
in his or her position with the Corporation which materially reduces his or her
duties and responsibilities or the level of management to which he or she
reports, (B) a reduction in his or her level of compensation (including base
salary, fringe benefits and target bonuses under any corporate-performance based
bonus or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is effected
without the individual's consent.
M. Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
N. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
14
<PAGE> 15
O. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
P. Option Grant Program shall mean the option grant program in effect
under the Plan.
Q. Optionee shall mean any person to whom an option is granted under
the Plan.
R. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. Participant shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
T. Plan shall mean the Corporation's 1999 Special Executive Stock
Option/Stock Issuance Plan, as set forth in this document.
U. Plan Administrator shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
V. Service shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
W. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
X. Stock Issuance Agreement shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
Y. Stock Issuance Program shall mean the stock issuance program in
effect under the Plan.
Z. Subsidiary shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
15
<PAGE> 16
AA. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
<PAGE> 1
EXHIBIT 10.2.2
EXULT, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of EXULT, INC. (the "Corporation"):
Optionee: __________________________________________________________
Grant Date: ________________________________________________________
Vesting Commencement Date: _________________________________________
Exercise Price: $_________________________ per share
Number of Option Shares: _________________ shares of Common Stock
Expiration Date: ___________________________________________________
Type of Option: _______ Incentive Stock Option
_______ Non-Statutory Stock Option:
Date Exercisable: Immediately Exercisable
Vesting Schedule: The Option Shares shall initially be unvested and
subject to repurchase by the Corporation at the Exercise Price paid
per share. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall accordingly lapse with respect
to, (i) twenty-five percent (25%) of the Option Shares upon
Optionee's completion of one (1) year of Service measured from the
Vesting Commencement Date and (ii) the balance of the Option Shares
in a series of thirty-six (36) successive equal monthly installments
upon Optionee's completion of each additional month of Service over
the thirty-six (36)-month period measured from the first anniversary
of the Vesting Commencement Date. In no event shall any additional
Option Shares vest after Optionee's cessation of Service.
Optionee understands and agrees that the Option is granted subject
to and in accordance with the terms of the EXULT, INC. 1999 Special Executive
Stock Option/Stock Issuance Plan (the "Plan"). Optionee further agrees to be
bound by the terms of the Plan and the terms of the Option as set forth in the
Stock Option Agreement attached hereto as Exhibit A.
Optionee understands that any Option Shares purchased under the
Option will be subject to the terms set forth in the Stock Purchase Agreement
attached hereto as Exhibit B. Optionee hereby acknowledges receipt of a copy of
the Plan in the form attached hereto as Exhibit C.
<PAGE> 2
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE
RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS
ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE
AGREEMENT.
No Employment or Service Contract. Nothing in this Notice or in the
attached Stock Option Agreement or Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
DATED: __________________, _______
EXULT, INC.
By:
----------------------------------
Title:
----------------------------------
----------------------------------
OPTIONEE
Address:
----------------------------------
----------------------------------
ATTACHMENTS:
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - STOCK PURCHASE AGREEMENT
EXHIBIT C - 1999 STOCK OPTION/STOCK ISSUANCE PLAN
2.
<PAGE> 3
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 4
EXHIBIT B
STOCK PURCHASE AGREEMENT
<PAGE> 5
EXHIBIT C
1999 SPECIAL EXECUTIVE STOCK OPTION/STOCK ISSUANCE PLAN
<PAGE> 1
EXHIBIT 10.2.3
EXULT, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants and other independent
advisors in the service of the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. During Optionee's lifetime, this option
shall be exercisable only by Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following Optionee's death.
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
<PAGE> 2
(a) Should Optionee cease to remain in Service for any reason
(other than death, Disability or Misconduct) while this option is outstanding,
then Optionee shall have a period of three (3) months (commencing with the date
of such cessation of Service) during which to exercise this option, but in no
event shall this option be exercisable at any time after the Expiration Date.
(b) Should Optionee die while this option is outstanding, then
the personal representative of Optionee's estate or the person or persons to
whom the option is transferred pursuant to Optionee's will or in accordance with
the laws of inheritance shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the earlier of
(i) the expiration of the twelve (12)-month period measured from the date of
Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability while
this option is outstanding, then Optionee shall have a period of twelve (12)
months (commencing with the date of such cessation of Service) during which to
exercise this option. In no event shall this option be exercisable at any time
after the Expiration Date.
Note: Exercise of this option on a date later than three (3)
months following cessation of Service due to Disability will
result in loss of favorable Incentive Option treatment, unless
such Disability constitutes Permanent Disability. In the event
that Incentive Option treatment is not available, this option
will be taxed as a Non-Statutory Option upon exercise.
(d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number of
Option Shares in which Optionee is, at the time of Optionee's cessation of
Service, vested pursuant to the Vesting Schedule specified in the Grant Notice
or the special vesting acceleration provisions of Paragraph 6. Upon the
expiration of such limited exercise period or (if earlier) upon the Expiration
Date, this option shall terminate and cease to be outstanding for any vested
Option Shares for which the option has not been exercised. To the extent
Optionee is not vested in the Option Shares at the time of Optionee's cessation
of Service, this option shall immediately terminate and cease to be outstanding
with respect to those shares.
(e) Should Optionee's Service be terminated for Misconduct, then
this option shall terminate immediately and cease to remain outstanding.
6. ACCELERATED VESTING.
(a) In the event of any Corporate Transaction, the Option Shares
at the time subject to this option but not otherwise vested shall automatically
vest in full so that this option shall, immediately prior to the effective date
of the Corporate Transaction, become exercisable for all of the Option Shares as
fully-vested shares and may be exercised for any or all of those Option Shares
as vested shares. However, the Option Shares shall NOT vest on such an
accelerated basis if and to the extent: (i) this option is assumed by the
successor corporation (or
2.
<PAGE> 3
parent thereof) in the Corporate Transaction and the Corporation's repurchase
rights with respect to the unvested Option Shares are assigned to such successor
corporation (or parent thereof) or (ii) this option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing on the unvested Option Shares at the time of the Corporate Transaction
(the excess of the Fair Market Value of those Option Shares over the Exercise
Price payable for such shares) and provides for subsequent payout in accordance
with the same Vesting Schedule applicable to those unvested Option Shares as set
forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) The Option Shares may also vest upon an accelerated basis in
accordance with the terms and conditions of any special addendum attached to
this Agreement.
(e) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the record holder
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
3.
<PAGE> 4
(i) Execute and deliver to the Corporation a Purchase Agreement
for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares in
one or more of the following forms:
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but only
to the extent authorized by the Plan Administrator in accordance
with Paragraph 14.
Should the Common Stock be registered under Section 12 of the
1934 Act at the time the option is exercised, then the Exercise
Price may also be paid as follows:
(C) in shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(D) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
instructions (a) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Purchase Agreement delivered to
the Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
4.
<PAGE> 5
(iv) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it
to comply with the applicable requirements of Federal and state
securities laws.
(v) Make appropriate arrangements with the Corporation
(or Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE
OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE
PURCHASE AGREEMENT.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on
5.
<PAGE> 6
the Grant Notice. All notices shall be deemed effective upon personal delivery
or upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
14. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse,
interest-bearing promissory note secured by those Option Shares. The payment
schedule in effect for any such promissory note shall be established by the Plan
Administrator in its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
16. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
17. STOCKHOLDER APPROVAL. If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may be issued under the Plan as last approved by the stockholders, then
this option shall be void with respect to such excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) This option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years
6.
<PAGE> 7
thereafter in which the One Hundred Thousand Dollar ($100,000) limitation of
this Paragraph 18(b) would not be contravened, but such deferral shall in all
events end immediately prior to the effective date of a Corporate Transaction in
which this option is not to be assumed, whereupon the option shall become
immediately exercisable as a Non-Statutory Option for the deferred portion of
the Option Shares.
(c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
7.
<PAGE> 8
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean EXULT, INC., a Delaware corporation.
G. DISABILITY shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
A-1.
<PAGE> 9
J. EXERCISE PRICE shall mean the exercise price payable per Option Share
as specified in the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
M. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
A-2.
<PAGE> 10
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option.
T. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PLAN shall mean the Corporation's 1999 Special Executive Stock
Option/Stock Issuance Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
X. PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
Y. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant.
Z. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
AA.SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
BB.VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
A-3.
<PAGE> 1
EXHIBIT 10.2.4
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement (the "Option
Agreement") by and between EXULT, INC. (the "Corporation") and ("Optionee")
evidencing the stock option (the "Option") granted on this date to Optionee
under the terms of the Corporation's 1999 Special Executive Stock Option/Stock
Issuance Plan, and such provisions shall be effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined herein,
shall have the meanings assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed in accordance with Paragraph 6 of the Option
Agreement, none of the Option Shares shall vest on an accelerated basis upon the
occurrence of that Corporate Transaction, and Optionee shall accordingly
continue, over his or her period of Service following the Corporate Transaction,
to vest in the Option Shares in one or more installments in accordance with the
provisions of the Option Agreement. However, upon an Involuntary Termination of
Optionee's Service within eighteen (18) months following such Corporate
Transaction, all the Option Shares at the time subject to the Option shall
automatically vest in full on an accelerated basis so that the Option shall
immediately become exercisable for all the Option Shares as fully-vested shares
and may be exercised for any or all of those Option Shares as vested shares. The
Option shall remain so exercisable until the earlier of (i) the Expiration Date
or (ii) the expiration of the one (1)-year period measured from the date of the
Involuntary Termination.
2. For purposes of this Addendum, an INVOLUNTARY TERMINATION shall
mean the termination of Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than for Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary
employing Optionee) which materially reduces Optionee's duties and
responsibilities or the level of management to which he or she reports,
(B) a reduction in Optionee's level of compensation (including base
salary, fringe benefits and target bonuses under any
corporate-performance based incentive programs) by more than fifteen
percent (15%) or (C) a relocation of Optionee's place of employment by
more than fifty (50) miles, provided and only if such change, reduction
or relocation is effected by the Corporation without Optionee's consent.
<PAGE> 2
3. The provisions of Paragraph 1 of this Addendum shall govern the
period for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within eighteen (18) months after the
Corporate Transaction and shall supersede any provisions to the contrary in
Paragraph 5 of the Option Agreement. The provisions of this Addendum shall also
supersede any provisions to the contrary in Paragraph 18 of the Option Agreement
concerning the deferred exercisability of the Option.
IN WITNESS WHEREOF, EXULT, INC. has caused this Addendum to be
executed by its duly-authorized officer as of the Effective Date specified
below.
EXULT, INC.
By:
-------------------------------
Title:
-------------------------------
EFFECTIVE DATE: ________________ , _______
<PAGE> 1
EXHIBIT 10.2.5
EXULT, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made this ___ day of ________________, _____, by and
between EXULT, INC., a Delaware corporation, and _______________, Optionee under
the Corporation's 1999 Special Executive Stock Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases _______ shares of Common
Stock (the "Purchased Shares") pursuant to that certain option (the "Option")
granted Optionee on ____________________, 199__ (the "Grant Date") to purchase
up to _______________ shares of Common Stock (the "Option Shares") under the
Plan at the exercise price of $___________ per share (the "Exercise Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to the
Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in
accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation exercises
the Repurchase Right or the First Refusal Right, Optionee (or any successor in
interest) shall have all the rights of a stockholder (including voting, dividend
and liquidation rights) with respect to the Purchased Shares, subject, however,
to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee is prepared to hold the Purchased
Shares for an indefinite period and that Optionee is aware that SEC Rule 144
issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
<PAGE> 2
2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee shall
make no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all of the following requirements:
(i) Optionee shall have provided the Corporation with a written
summary of the terms and conditions of the proposed disposition.
(ii) Optionee shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares.
(iii) Optionee shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that
(a) the proposed disposition does not require registration of the
Purchased Shares under the 1933 Act or (b) all appropriate action
necessary for compliance with the registration requirements of the 1933
Act or any exemption from registration available under the 1933 Act
(including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold
or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a "no action" letter of the
Securities and Exchange Commission with respect to such sale or offer or
(c) satisfactory assurances to the Corporation that registration under
such Act is not required with respect to such sale or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated ____________, 199___ between the
Corporation and the registered holder of the shares (or the predecessor
in interest to the shares). A copy of such agreement is maintained at
the Corporation's principal corporate offices."
2.
<PAGE> 3
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. TRANSFEREE OBLIGATIONS. Each person (other than the Corporation)
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same
extent such shares would be so subject if retained by Optionee.
3. MARKET STAND-OFF.
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and
only if the officers and directors of the Corporation are also subject to
similar restrictions.
(c) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation
may impose stop-transfer instructions with respect to the Purchased Shares until
the end of the applicable stand-off period.
3.
<PAGE> 4
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price any or all of the Purchased
Shares in which Optionee is not, at the time of his or her cessation of Service,
vested in accordance with the Vesting Schedule applicable to those shares or the
special vesting acceleration provisions of Paragraph D.6 of this Agreement (such
shares to be hereinafter referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
(i) the First Refusal Right and (ii) the Market Stand-Off.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised in more
than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
5. RECAPITALIZATION. Any new, substituted or additional securities
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right and any
escrow requirements hereunder, but only to the extent the Purchased Shares are
at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the
4.
<PAGE> 5
exercise of the Repurchase Right in order to reflect the effect of any such
Recapitalization upon the Corporation's capital structure; provided, however,
that the aggregate purchase price shall remain the same.
6. CORPORATE TRANSACTION.
(a) The Repurchase Right shall automatically terminate in its
entirety, and all the Purchased Shares shall vest in full, immediately prior to
the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect following a
Corporate Transaction, such right shall apply to any new securities or other
property (including any cash payments) received in exchange for the Purchased
Shares in consummation of the Corporate Transaction, but only to the extent the
Purchased Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Corporation's
capital structure; provided, however, that the aggregate purchase price shall
remain the same. The new securities or other property (including any cash
payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Optionee vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an accelerated basis,
and the Purchased Shares shall immediately vest in full, in accordance with the
terms and conditions of any special addendum attached to this Agreement.
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the provisions of Article D. For purposes of this Article E, the term "transfer"
shall include any sale, assignment, pledge, encumbrance or other disposition of
the Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
5.
<PAGE> 6
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall, for a
period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares subject to the
Disposition Notice upon the same terms as those specified therein or upon such
other terms (not materially different from those specified in the Disposition
Notice) to which Owner consents. Such right shall be exercisable by delivery of
written notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect to
all the Target Shares, then the Corporation shall effect the repurchase of such
shares, including payment of the purchase price, not more than five (5) business
days after delivery of the Exercise Notice; and at such time the certificates
representing the Target Shares shall be delivered to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the First Refusal Right, but the acquired shares shall remain subject to the
provisions of Article B and Paragraph C.3. In the event Owner does not effect
such sale or disposition of the Target Shares within the specified thirty
(30)-day period, the First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
6.
<PAGE> 7
(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the Corporation
did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target Shares
which the Corporation has elected to purchase, such sale to be effected
in substantial conformity with the provisions of Paragraph E.3. The
First Refusal Right shall continue to be applicable to any subsequent
disposition of the remaining Target Shares until such right lapses.
Owner's failure to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new capital stock
or other property received in exchange for the Purchased Shares in consummation
of the Reorganization, but only to the extent the Purchased Shares are at the
time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest to
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination made by the
Board that a public market exists for the outstanding shares of Common Stock or
(iii) a firm commitment underwritten public offering, pursuant to an effective
registration statement under the 1933 Act, covering the offer and sale of the
Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(B)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE
7.
<PAGE> 8
RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE
SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more stockholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Optionee. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make available,
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares 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). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
8.
<PAGE> 9
H. MISCELLANEOUS PROVISIONS
1. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
2. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
3. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without resort to that
State's conflict-of-laws rules.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
9.
<PAGE> 10
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Optionee, Optionee's permitted assigns and the legal
representatives, heirs and legatees of Optionee's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
EXULT, INC.
By:
-------------------------------
Title:
-------------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
OPTIONEE
Address:
-------------------------------
-------------------------------
10.
<PAGE> 11
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested at time of his or her cessation of Service.
----------------------------
OPTIONEE'S SPOUSE
Address:
----------------------------
----------------------------
<PAGE> 12
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________ hereby sell(s), assign(s) and
transfer(s) unto EXULT, INC. (the "Corporation"), _______________ (_________)
shares of the Common Stock of the Corporation standing in his or her name on the
books of the Corporation represented by Certificate No. ________________
herewith and do(es) hereby irrevocably constitute and appoint
_____________________ Attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises.
Dated: ____________________
Signature __________________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE> 13
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(B) ELECTION FOR
EXERCISE OF NON-STATUTORY OPTION. If the Purchased Shares are acquired pursuant
to the exercise of a Non-Statutory Option, as specified in the Grant Notice,
then under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code Section
83(b) to be taxed at the time the Purchased Shares are acquired, rather than
when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the Fair Market
Value of the Purchased Shares on the date of the Agreement equals the Exercise
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
II. FEDERAL INCOME TAX CONSEQUENCES AND CONDITIONAL SECTION 83(B)
ELECTION FOR EXERCISE OF INCENTIVE OPTION. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the Purchased
Shares:
(i) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
(ii) The excess of (a) the Fair Market Value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over
(b) the Exercise Price paid for the Purchased Shares will be includible
in Optionee's taxable income for alternative minimum tax purposes.
(iii) If Optionee makes a disqualifying disposition of the
Purchased Shares, then Optionee will recognize ordinary income in the
year of such disposition equal in amount to the excess of (a) the Fair
Market Value of the Purchased Shares on the date the Option is exercised
or (if later) on the date any forfeiture restrictions applicable to the
Purchased Shares lapse over (b) the Exercise Price paid for the
Purchased Shares. Any additional gain recognized upon the disqualifying
disposition will be either short-term or long-term capital gain
depending upon the period for which the Purchased Shares are held prior
to the disposition.
<PAGE> 14
(iv) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase
the Purchased Shares pursuant to the Repurchase Right. The term
"disqualifying disposition" means any sale or other disposition1 of the
Purchased Shares within two (2) years after the Grant Date or within one
(1) year after the exercise date of the Option.
(v) In the absence of final Treasury Regulations relating to
Incentive Options, it is not certain whether Optionee may, in connection
with the exercise of the Option for any Purchased Shares at the time
subject to forfeiture restrictions, file a protective election under
Code Section 83(b) which would limit (a) Optionee's alternative minimum
taxable income upon exercise and (b) Optionee's ordinary income upon a
disqualifying disposition to the excess of the Fair Market Value of the
Purchased Shares on the date the Option is exercised over the Exercise
Price paid for the Purchased Shares. Accordingly, such election if
properly filed will only be allowed to the extent the final Treasury
Regulations permit such a protective election. Page 2 of the attached
form for making the election should be filed with any election made in
connection with the exercise of an Incentive Option.
- --------
1 Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.
<PAGE> 15
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
_____________ shares of the common stock of EXULT, INC.
(3) The property was issued on ______________, _____
(4) The taxable year in which the election is being made is the calendar
year _____.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's service with the issuer terminates.
The issuer's repurchase right lapses in a series of annual and monthly
installments over a four (4)-year period ending on ___________, 20___.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $__________per share.
(7) The amount paid for such property is $___________ per share.
(8) A copy of this statement was furnished to EXULT, INC. for whom taxpayer
rendered the services underlying the transfer of property.
(9) This statement is executed on _________________, _____.
- -------------------------------- ----------------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 16
The property described in the above Section 83(b) election is
comprised of shares of common stock acquired pursuant to the exercise of an
incentive stock option under Section 422 of the Internal Revenue Code (the
"Code"). Accordingly, it is the intent of the Taxpayer to utilize this election
to achieve the following tax results:
1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to the
Taxpayer exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares
2. Section 421(a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.. The foregoing election is to be effective to the full
extent permitted under the Code.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(B) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.
<PAGE> 17
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean EXULT, INC., a Delaware corporation, and any
successor corporation to all or substantially all of the assets or voting stock
of EXULT, INC. which shall by appropriate action adopt the Plan.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
I. EXERCISE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
J. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
K. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation
in accordance with Article E.
L. GRANT DATE shall have the meaning assigned to such term in Paragraph
A.1.
<PAGE> 18
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option pursuant
to which Optionee has been informed of the basic terms of the Option.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
P. 1933 ACT shall mean the Securities Act of 1933, as amended.
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. OPTION shall have the meaning assigned to such term in Paragraph A.1.
T. OPTION AGREEMENT shall mean all agreements and other documents
evidencing the Option.
U. OPTIONEE shall mean the person to whom the Option is granted under
the Plan.
V. OWNER shall mean Optionee and all subsequent holders of the Purchased
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.
W. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
X. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
Y. PLAN shall mean the Corporation's 1999 Special Executive Stock
Option/Stock Issuance Plan.
Z. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
AA. PRIOR PURCHASE AGREEMENT shall have the meaning assigned to such
term in Paragraph D.4.
<PAGE> 19
AB. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
AC. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
AD. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from
the persons holding those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company
structure.
AE. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
AF. SEC shall mean the Securities and Exchange Commission.
AG. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
AH. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AI. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AJ. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
AK. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
<PAGE> 1
EXHIBIT 10.2.6
ADDENDUM
TO
STOCK PURCHASE AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Purchase Agreement (the "Purchase
Agreement") by and between BPO-US, Inc. (the "Corporation") and
_____________________________ ("Optionee") evidencing the shares of Common Stock
purchased on this date by Optionee pursuant to the option granted to him or her
under the Corporation's 1999 Stock Option/Stock Issuance Plan, and such
provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to such terms in the Purchase Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with a Corporate Transaction, no
accelerated vesting of the Purchased Shares shall occur upon such Corporate
Transaction, and the Repurchase Right shall continue to remain in full force and
effect in accordance with the provisions of the Purchase Agreement. Optionee
shall, over his or her period of Service following the Corporate Transaction,
continue to vest in the Purchased Shares in one or more installments in
accordance with the provisions of the Purchase Agreement. However, upon an
Involuntary Termination of Optionee's Service within eighteen (18) months
following the Corporate Transaction, the Repurchase Right shall terminate
automatically, and all the Purchased Shares shall immediately vest in full at
that time.
2. For purposes of this Addendum, the following definitions shall be
in effect:
An INVOLUNTARY TERMINATION shall mean the termination of Optionee's
Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than for Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
his or her position with the Corporation (or Parent or Subsidiary
employing Optionee) which materially reduces his or her duties and
responsibilities or the level of management to which he or she reports,
(B) a reduction in Optionee's level of compensation (including base
salary, fringe benefits and target bonuses under any
corporate-performance based incentive programs) by more than fifteen
percent (15%) or (C) a relocation of Optionee's place of employment by
more than fifty (50) miles, provided and only if such change, reduction
or relocation is effected by the Corporation without Optionee's consent.
<PAGE> 2
MISCONDUCT shall mean the termination of Optionee's Service by
reason of Optionee's commission of any act of fraud, embezzlement or dishonesty,
any unauthorized use or disclosure by Optionee of confidential information or
trade secrets of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by Optionee adversely affecting the business or affairs
of the Corporation (or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of Optionee or any other individual in
the Service of the Corporation (or any Parent or Subsidiary).
IN WITNESS WHEREOF, BPO-US, Inc. has caused this Addendum to be
executed by its duly-authorized officer as of the Effective Date specified
below.
BPO-US, INC.
By:
-----------------------------------
Title:
-----------------------------------
EFFECTIVE DATE: _____________, 199___
2.
<PAGE> 1
EXHIBIT 10.2.7
EXULT, INC.
STOCK ISSUANCE AGREEMENT
AGREEMENT made as of this ____ day of ___________, _____, by and
between EXULT, INC., a Delaware corporation, and _____________________,
Participant in the Corporation's 1999 Special Executive Stock Option/Stock
Issuance Plan.
All capitalized terms in this Agreement shall have the meaning assigned
to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
1. PURCHASE. Participant hereby purchases ___________________ shares
of Common Stock (the "Purchased Shares") pursuant to the provisions of the Stock
Issuance Program at the purchase price of $_______________ per share (the
"Purchase Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to the
Corporation, Participant shall pay the Purchase Price for the Purchased Shares
in cash or cash equivalent and shall deliver a duly-executed blank Assignment
Separate from Certificate (in the form attached hereto as Exhibit I) with
respect to the Purchased Shares.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation exercises
the Repurchase Right or the First Refusal Right, Participant (or any successor
in interest) shall have all stockholder rights (including voting, dividend and
liquidation rights) with respect to the Purchased Shares, subject, however, to
the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Participant in reliance
upon the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Participant hereby
confirms that Participant has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Participant hereby acknowledges that Participant is prepared to hold the
Purchased Shares for an indefinite period and that Participant is aware that SEC
Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
<PAGE> 2
2. DISPOSITION OF PURCHASED SHARES. Participant shall make no
disposition of the Purchased Shares (other than a Permitted Transfer) unless and
until there is compliance with all of the following requirements:
(i) Participant shall have provided the Corporation with a
written summary of the terms and conditions of the proposed
disposition.
(ii) Participant shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(iii) Participant shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a "no action" letter of the Securities and
Exchange Commission with respect to such sale or offer or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the Corporation
and accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated ______________, ____, between the Corporation and the registered holder of
the shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Corporation's principal corporate offices."
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2
<PAGE> 3
2. TRANSFEREE OBLIGATIONS. Each person (other than the Corporation)
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same
extent such shares would be so subject if retained by Participant.
3. MARKET STAND-OFF.
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and
only if the officers and directors of the Corporation are also subject to
similar restrictions.
(c) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation may
impose stop-transfer instructions with respect to the Purchased Shares until the
end of the applicable stand-off period.
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price any or all of the Purchased Shares in which
Participant is not, at the time of his or her cessation of Service, vested in
accordance with the provisions of the Vesting Schedule set forth in Paragraph
D.3 or the special vesting acceleration provisions of Paragraph D.5 (such shares
to be hereinafter referred to as the "Unvested Shares").
3
<PAGE> 4
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Participant vests in accordance with the following Vesting Schedule:
Participant shall vest in twenty-five percent (25%) of the
Purchased Shares, and the Repurchase Right shall concurrently lapse
with respect to those Purchased Shares, upon Participant's completion
of one (1) year of Service measured from ___________________, _______.
Participant shall vest in the remaining seventy-five percent
(75%) of the Purchased Shares, and the Repurchase Right shall
concurrently lapse with respect to those Purchased Shares, in a series
of thirty-six (36) successive equal monthly installments upon
Participant's completion of each additional month of Service over the
thirty-six (36)-month period measured from the date on which the first
twenty-five percent (25%) of the Purchased Shares vests hereunder.
All Purchased Shares as to which the Repurchase Right lapses shall,
however, remain subject to (i) the First Refusal Right and (ii) the Market
Stand-Off.
4. RECAPITALIZATION. Any new, substituted or additional securities
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right and any
escrow requirements hereunder, but only to the extent the Purchased Shares are
at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
4
<PAGE> 5
5. CORPORATE TRANSACTION.
(a) The Repurchase Right shall automatically terminate in its
entirety, and all the Purchased Shares shall vest in full, immediately prior to
the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to any new securities
or other property (including any cash payments) received in exchange for the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same. The new securities or other property (including any
cash payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Participant vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an accelerated
basis, and the Purchased Shares shall immediately vest in full, in accordance
with the terms and conditions of any special addendum attached to this
Agreement.
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Participant has vested in accordance
with the provisions of Article D. For purposes of this Article E, the term
"transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition of the Purchased Shares intended to be made by Owner, but shall not
include any Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Participant has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
5
<PAGE> 6
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall, for a
period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares subject to the
Disposition Notice upon the same terms as those specified therein or upon such
other terms (not materially different from those specified in the Disposition
Notice) to which Owner consents. Such right shall be exercisable by delivery of
written notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect to
all the Target Shares, then the Corporation shall effect the repurchase of such
shares, including payment of the purchase price, not more than five (5) business
days after delivery of the Exercise Notice; and at such time the certificates
representing the Target Shares shall be delivered to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the First Refusal Right, but the acquired shares shall remain subject to the
provisions of Article B and Paragraph C.3. In the event Owner does not effect
such sale or disposition of the Target Shares within the specified thirty
(30)-day period, the First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses.
6
<PAGE> 7
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target Shares
which the Corporation has elected to purchase, such sale to be effected
in substantial conformity with the provisions of Paragraph E.3. The
First Refusal Right shall continue to be applicable to any subsequent
disposition of the remaining Target Shares until such right lapses.
Owner's failure to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new capital stock
or other property received in exchange for the Purchased Shares in consummation
of the Reorganization, but only to the extent the Purchased Shares are at the
time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest to
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination made by the
Board that a public market exists for the outstanding shares of Common Stock or
(iii) a firm commitment underwritten public offering, pursuant to an effective
registration statement under the 1933 Act, covering the offer and sale of the
Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
1. SECTION 83(B) ELECTION . Under Code Section 83, the excess of the
Fair Market Value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the
7
<PAGE> 8
date of this Agreement. Even if the Fair Market Value of the Purchased Shares on
the date of this Agreement equals the Purchase Price paid (and thus no tax is
payable), the election must be made to avoid adverse tax consequences in the
future. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO.
PARTICIPANT UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE
THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE
FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(B), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more stockholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon Participant any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Participant) or of Participant, which rights are hereby expressly
reserved by each, to terminate Participant's Service at any time for any reason,
with or without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Participant. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
8
<PAGE> 9
5. CANCELLATION OF SHARES. If the Corporation shall make available,
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares 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). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
1. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without resort to that
State's conflict-of-laws rules.
2. PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.
3. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
EXULT, INC.
By:
-----------------------------
Title:
-----------------------------
Address:
-----------------------------
-----------------------------
-----------------------------
PARTICIPANT
Address:
-----------------------------
-----------------------------
10
<PAGE> 11
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Participant has read and hereby approves the
foregoing Stock Issuance Agreement. In consideration of the Corporation's
granting Participant the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which Participant is not vested at the time of his or her
cessation of Service.
-------------------------------
PARTICIPANT'S SPOUSE
Address:
-------------------------------
-------------------------------
<PAGE> 12
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________ hereby sell(s), assign(s) and
transfer(s) unto EXULT, INC. (the "Corporation"), ______________ (_____) shares
of the Common Stock of the Corporation standing in his or her name on the books
of the Corporation represented by Certificate No. _______________ herewith and
do(es) hereby irrevocably constitute and appoint _________________ Attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: _______________
Signature
------------------------
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE> 13
EXHIBIT II
SECTION 83(b) TAX ELECTION
<PAGE> 14
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
______________ shares of the common stock of EXULT, INC.
(3) The property was issued on __________________, _____.
(4) The taxable year in which the election is being made is the calendar year
1999.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's service with the issuer terminates. The issuer's
repurchase right lapses in a series of annual and monthly installments over
a four (4)-year period ending on ________________, 20____.
(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $_____ per share.
(7) The amount paid for such property is $ _______ per share.
(8) A copy of this statement was furnished to EXULT, INC. for whom taxpayer
rendered the services underlying the transfer of property.
(9) This statement is executed on _______________, ______.
- --------------------------------- -------------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 15
EXHIBIT III
1999 SPECIAL EXECUTIVE STOCK OPTION/STOCK ISSUANCE PLAN
<PAGE> 16
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Issuance Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution
of the Corporation.
F. CORPORATION shall mean EXULT, INC., a Delaware corporation, and any
successor corporation to all or substantially all of the assets or voting stock
of EXULT, INC. which shall be appropriate action adopt the Plan.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
I. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
J. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation
in accordance with Article E.
K. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
A-1
<PAGE> 17
M. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
N. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
O. PARTICIPANT shall mean the person to whom shares are issued under
the Stock Issuance Program.
P. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
Q. PLAN shall mean the Corporation's 1999 Special Executive Stock
Option/Stock Issuance Plan attached hereto as Exhibit III.
R. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
S. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
T. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
U. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
V. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) a sale, transfer or other disposition of all or substantially
all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from
the persons holding those securities immediately prior to the merger,
or
(iv) any transaction effected primarily to change the state in which
the Corporation is incorporated or to create a holding company
structure.
A-2
<PAGE> 18
W. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
X. SEC shall mean the Securities and Exchange Commission.
Y. SERVICE shall mean the Participant's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
Z. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program under
the Plan.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AB. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AC. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph D.3 pursuant to which Participant is to vest in the Purchased Shares
in a series of installments over the Participant's period of Service.
AD. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-3
<PAGE> 1
EXHIBIT 10.2.8
ADDENDUM
TO
STOCK ISSUANCE AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Issuance Agreement (the "Issuance Agreement")
by and between EXULT, INC. (the "Corporation") and _________________
("Participant") evidencing the shares of Common Stock purchased on this date by
Participant under the Corporation's 1999 Special Executive Stock Option/Stock
Issuance Plan, and such provisions shall be effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined herein,
shall have the meanings assigned to such terms in the Issuance Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with a Corporate Transaction, no
accelerated vesting of the Purchased Shares shall occur upon such Corporate
Transaction, and the Repurchase Right shall continue to remain in full force and
effect in accordance with the provisions of the Issuance Agreement. Participant
shall, over his or her period of Service following the Corporate Transaction,
continue to vest in the Purchased Shares in one or more installments in
accordance with the provisions of the Issuance Agreement. However, upon an
Involuntary Termination of Participant's Service within eighteen (18) months
following the Corporate Transaction, the Repurchase Right shall terminate
automatically, and all the Purchased Shares shall immediately vest in full at
that time.
2. For purposes of this Addendum, the following definitions shall be in
effect:
An INVOLUNTARY TERMINATION shall mean the termination of Participant's
Service by reason of:
(a) Participant's involuntary dismissal or discharge by the
Corporation for reasons other than for Misconduct, or
(b) Participant's voluntary resignation following (A) a change in
his or her position with the Corporation (or Parent or Subsidiary
employing Participant) which materially reduces his or her duties and
responsibilities or the level of management to which he or she reports,
(B) a reduction in Participant's level of compensation (including base
salary, fringe benefits and target bonuses under any
corporate-performance based incentive programs) by more than fifteen
percent (15%) or (C) a relocation of Participant's place of employment
by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without
Participant's consent.
MISCONDUCT shall include the termination of Participant's Service by
reason or Participant's commission of any act of fraud, embezzlement or
dishonesty, any unauthorized use or disclosure by Participant of confidential
information or trade secrets of the Corporation (or any Parent or Subsidiary),
or any other intentional misconduct by Participant adversely affecting the
business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of the Participant or any
other individual in the Service of the Corporation (or any Parent or
Subsidiary).
IN WITNESS WHEREOF, EXULT, INC. has caused this Addendum to be executed
by its duly-authorized officer as of the Effective Date specified below.
EXULT, INC.
By:
--------------------------------
Title:
-----------------------------
EFFECTIVE DATE: ,
--------------- -----
<PAGE> 1
EXHIBIT 10.4
FOUNDER STOCK PURCHASE AGREEMENT
THIS FOUNDER STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of the 10th day of April, 1999, by and among BPO-US, INC., a
Delaware corporation (the "Company"), JAMES MADDEN, an individual (the
"Purchaser"), and General Atlantic Partners, LLC, a Delaware limited liability
company ("GAP").
WHEREAS, upon the terms and conditions set forth in this Agreement, the
Company proposes to issue and sell to the Purchaser, and the Purchaser proposes
to purchase from the Company, 9,840 shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock") for a purchase price of $4.00 per
share.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Purchase and Sale of Common Stock.
(a) Purchase and Sale of Common Stock. Subject to the terms hereof,
the Company shall sell to the Purchaser and the Purchaser shall purchase from
the Company, subject to the provisions of Section 3 hereof, Nine Thousand Eight
Hundred Forty (9,840) shares of Common Stock (the "Shares") at a purchase price
of $4.00 per share (the "Purchase Price") for an aggregate purchase price of
$39,360.
(b) Payment of Purchase Price. Upon execution of this Agreement, the
Purchaser shall deliver to the Company the aggregate Purchase Price for the
Shares and a duly executed blank Assignment Separate from Certificate in the
form attached hereto as Exhibit A and, upon receipt thereof, the Company shall
issue a certificate evidencing the Shares in the name of the Purchaser, to be
held in escrow until expiration of the Company's Repurchase Right as described
in Section 3 hereof.
2. Transfer Restrictions.
(a) Restriction on Transfer. The Purchaser shall not transfer,
assign, encumber or otherwise dispose of any Shares unless and until there is
compliance with all of the following requirements:
(i) the Purchaser shall have provided the Company with a written
summary of the terms and conditions of the proposed disposition;
(ii) the Purchaser shall have complied with all requirements of
this Agreement or any other agreement to which the Purchaser is a party
that is applicable to the disposition of the Shares; and
(iii) the Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to the Company, that (a)
the proposed disposition does not require registration of the Shares
under the Securities Act
<PAGE> 1
EXHIBIT 10.5.1
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
among
EXULT, INC.
and
CERTAIN OF ITS STOCKHOLDERS IDENTIFIED HEREIN
Dated: December 23, 1999
<PAGE> 2
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, is
made and entered into on December 23, 1999 (this "Agreement"), among EXULT, Inc.
(f/k/a/BPO-US, Inc.), a Delaware corporation (the "Company"), General Atlantic
Partners 54, L.P., a Delaware limited partnership ("GAP LP"), General Atlantic
Partners 57, L.P., a Delaware limited partnership ("GAP 57"), GAP Coinvestment
Partners, L.P., a New York limited partnership ("GAP Coinvestment I"), GAP
Coinvestment Partners II, L.P., a Delaware limited partnership ("GAP
Coinvestment II"), General Atlantic Partners 60, L.P., a Delaware limited
partnership ("GAP 60"), James Madden ("Madden") and BP International Limited, a
company incorporated in England ("BPI").
WHEREAS, the Company and certain of its stockholders are
parties to a Registration Rights Agreement, dated April 27, 1999, as the same
has been amended by Amendment No. 1 thereto, dated October 22, 1999 and
Amendment No. 2 thereto, dated December 7, 1999 (as so amended, the "Original
Agreement"); and
WHEREAS, the Company is issuing certain shares, par value
$.0001 per share, of its Series C Convertible Preferred Stock (the "Series C
Preferred Stock") to GAP 60, GAP Coinvestment II and JRO Consulting, Inc, an
Illinois corporation ("JRO"), pursuant to the Stock Purchase Agreement, dated
the date hereof ("Stock Purchase Agreement 3"), by and among the Company, GAP
60, GAP Coinvestment II and JRO;
WHEREAS, the parties hereto desire to amend and restate the
Original Agreement to add GAP 60 as a party and to incorporate the substance of
the amendments made to the Original Agreement;
WHEREAS, certain of the parties hereto have the authority
pursuant to Section 10(d) of the Original Agreement to amend and restate the
Original Agreement and to bind the parties to the Original Agreement to such
amendment and restatement; and
WHEREAS, in order to induce GAP 60 and GAP Coinvestment II to
purchase their respective shares of Series C Preferred Stock pursuant to Stock
Purchase Agreement 3, the Company and the other parties to the Original
Agreement have agreed to amend and restate the Original Agreement on the terms
and conditions contained herein and to grant GAP 60 registration rights with
respect to the Registrable Securities (as hereinafter defined) as set forth in
this Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement the following terms
have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act. In addition, the following shall be deemed to be Affiliates of GAP LP, GAP
57 and GAP 60: (a) GAP LLC, the members of GAP
2
<PAGE> 3
LLC, the limited partners of GAP LP, the limited partners of GAP 57 and the
limited partners of GAP 60; (b) any Affiliate of GAP LLC, the members of GAP
LLC, the limited partners of GAP LP, the limited partners of GAP 57 or the
limited partners of GAP 60; and (c) any limited liability company or partnership
a majority of whose members or partners, as the case may be, are members of -GAP
LLC. In addition, GAP LP, GAP 57, GAP 60, GAP LLC, GAP Coinvestment I and GAP
Coinvestment II shall be deemed to be Affiliates of one another. Notwithstanding
the foregoing, for the purposes of this Agreement, none of the portfolio
companies of GAP LLC shall be considered an "Affiliate" of GAP LP, GAP 57, GAP
60, GAP LLC, GAP Coinvestment I or GAP Coinvestment II. Furthermore, the
following shall be deemed to be Affiliates of BPI: (i) any trust, corporation,
partnership, unincorporated joint venture or limited liability company, in which
BP Amoco holds directly or indirectly a beneficial interest in excess of 20
percent and (ii) any pension, benefit or incentive plan for the benefit of BPI
employees of the BP Amoco Group.
"Approved Underwriter" has the meaning set forth in Section
3(f) of this Agreement.
"BP Amoco" means BP Amoco plc, a company incorporated in
England whose registered office is at Britannic House, 1 Finsbury Circus, London
EC2M 7BA, and any successor to such entity.
"BP Amoco Group" means any entity in which BP Amoco holds
directly or indirectly a beneficial interest in excess of fifty percent (50%).
"BPI" means BP International Limited, a company incorporated
in England whose registered office is at Britannic House, 1 Finsbury Circus,
London EC2M 7BA, and any successor to such entity.
"BPI Common Stock Warrant" means that Common Stock Warrant
dated December 7, 1999 whereby the Company granted BPI the right to purchase
667,844 shares of Common Stock subject to adjustments to the amount of
securities obtainable thereunder, pursuant to the terms thereof.
"BPI Series C Stock Warrant" means that Series C Convertible
Preferred Stock Warrant dated December 7, 1999 whereby the Company granted BPI
the right to purchase 667,844 shares of Series C Convertible Preferred Stock
subject to adjustments to the amount of securities obtainable thereunder,
pursuant to the terms thereof.
"BPI Stockholders" means BPI and any Permitted Transferee (as
defined in the Stockholders Agreement) thereof to which Shares (as defined in
the Stockholders Agreement) are transferred in accordance with Section 2.2 of
the Stockholders Agreement, and the term "BPI Stockholder" shall mean any such
Person.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
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"Closing Price" means, with respect to the Registrable
Securities, as of the date of determination, (a) the closing price per share of
a Registrable Security on such date published in the Wall Street Journal or, if
no such closing price on such date is published in the Wall Street Journal, the
average of the closing bid and asked prices on such date, as officially reported
on the principal national securities exchange (including, without limitation,
The Nasdaq Stock Market, Inc.) on which the Registrable Securities are then
listed or admitted to trading; or (b) if the Registrable Securities are not then
listed or admitted to trading on any national securities exchange but are
designated as national market system securities by the NASD, the last trading
price per share of a Registrable Security on such date; or (c) if there shall
have been no trading on such date or if the Registrable Securities are not so
designated, the aver-age of the reported closing bid and asked prices of the
Registrable Securities on such date as shown by The Nasdaq Stock Market, Inc.
(or its successor) and reported by any member firm of the New York Stock
Exchange, Inc. selected by the Company; or (d) if none of (a), (b) or (c) is
applicable, a market price per share determined in good faith by the Company's
Board of Directors or, if such determination is not satisfactory to the
Designated Holder for whom such determination is being made, by a nationally
recognized investment banking firm selected by the Company and such Designated
Holder, the expenses for which shall be borne equally by the Company and such
Designated Holder.
"Common Stock" means the Common Stock, par value $.0001 per
share, of the Company or any other capital stock of the Company into which such
stock is reclassified or reconstituted and any other common stock of the
Company.
"Company" has the meaning set forth in the recitals to this
Agreement.
"Company Underwriter" has the meaning set forth in Section
4(c) of this Agreement.
"Demand Registration" has the meaning set forth in Section
3(a) of this Agreement.
"Designated Holder" means each of the Madden Stockholders, the
General Atlantic Stockholders and the BPI Stockholders and any transferee of any
of them to whom Registrable Securities have been transferred in accordance with
the provisions of the Stockholders Agreement and Section 10(f) of this
Agreement, other than a transferee to whom Registrable Securities have been
transferred pursuant to a Registration Statement under the Securities Act or
Rule 144 or Regulation S under the Securities Act (or any successor rule
thereto).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"GAP 57" has the meaning set forth in the recitals to this
Agreement.
"GAP 60" has the meaning set forth in the recitals to this
Agreement.
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"GAP Coinvestment I" has the meaning set forth in the recitals
to this Agreement.
"GAP Coinvestment II" has the meaning set forth in the
recitals to this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP, GAP 57 and GAP 60,
and any successor to such entity.
"GAP LP" has the meaning set forth in the recitals to this
Agreement.
"General Atlantic Stockholders" means GAP LP, GAP Coinvestment
I, GAP Coinvestment II, GAP 57, GAP 60 and any Permitted Transferee (as defined
in the Stockholders Agreement) of any of them to which Shares (as defined in the
Stockholders Agreement) are transferred in accordance with Section 2.2 of the
Stockholders Agreement, and the term "General Atlantic Stockholder" shall mean
any such Person.
"Holders' Counsel" has the meaning set forth in Section
7(a)(i) of this Agreement.
"Incidental Registration" has the meaning set forth in Section
4(c) of this Agreement.
"Indemnified Party" has the meaning set forth in Section 8(c)
of this Agreement.
"Indemnifying Party" has the meaning set forth in Section 8(c)
of this Agreement.
"Initial Public Offering" means an underwritten initial public
offering of the shares of Common Stock of the Company pursuant to an effective
Registration Statement filed under the Securities Act.
"Initiating Holders" has the meaning set forth in Section 3(a)
of this Agreement.
"Inspector" has the meaning set forth in Section 7(a)(vii) of
this Agreement.
"IPO Effectiveness Date" means the date upon which the Company
closes its Initial Public Offering.
"IPO Registration" has the meaning set forth in Section 4(a).
"Liability" has the meaning set forth in Section 8(a) of this
Agreement.
"Madden" has the meaning set forth in the recitals to this
Agreement.
"Madden Shares" has the meaning set forth in the recitals to
this Agreement.
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"Madden Stockholders" means Madden and any Permitted
Transferee (as defined in the Stockholders Agreement) of Madden to which
Registrable Securities are transferred in accordance with Section 2.2 of the
Stockholders Agreement and the term "Madden Stockholders" shall mean any such
Person.
"Market Price" means, on any date of determination, the
average of the daily Closing Price of the Registrable Securities for the
immediately preceding 30 days on which the national securities exchanges are
open for trading.
"NASD" has the meaning set forth in Section 7(a)(xiii) of this
Agreement.
"Permitted Transferee" has the meaning set forth in the
Stockholders Agreement.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"Post-IPO Registration" has the meaning set forth in Section
4(b).
"Preferred Stock" means the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock.
"Records" has the meaning set forth in Section 7(a)(vii) of
this Agreement.
"Registrable Securities" means each of the following: (a) any
and all shares of Common Stock owned by the Designated Holders or issued or
issuable upon conversion of shares of Preferred Stock, and any shares of Common
Stock issued or issuable upon conversion of any shares of preferred stock or
exercise of any warrants or conversion of any shares of Preferred Stock issued
upon the exercise of any warrants acquired by any of the Designated Holders
after the date hereof, (b) any other shares of Common Stock acquired or owned by
any of the Designated Holders prior to the IPO Effectiveness Date, or acquired
or owned by any of the Designated Holders after the IPO Effectiveness Date if
such Designated Holder is an Affiliate of the Company and (c) any shares of
Common Stock issued or issuable to any of the Designated Holders with respect to
the Registrable Securities by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise and any shares of Common Stock or voting
common stock issuable upon conversion, exercise or exchange thereof.
"Registration Expenses" has the meaning set forth in Section
7(d) of this Agreement.
"Registration Statement" means a Registration Statement filed
pursuant to the Securities Act.
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"S-3 Initiating Holders" has the meaning set forth in Section
5(a) of this Agreement.
"S-3 Registration" has the meaning set forth in Section 5(a)
of this Agreement.
"SEC" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible
Preferred Stock, par value $.0001 per share, of the Company. (The par value of
such shares of Series A Preferred Stock having been changed from $.01 per share
to $.0001 per share pursuant to the Amended and Restated Certificate of
Incorporation of the Company).
"Series B Preferred Stock" means the Series B Convertible
Preferred Stock, par value $.0001 per share, of the Company.
"Series C Preferred Stock" has the meaning set forth in the
recitals to this Agreement.
"Stockholders Agreement" means the Amended and Restated
Stockholders Agreement, dated the date hereof, among the Company and certain
stockholders of the Company identified therein.
"Stock Purchase Agreement 1" means the Stock Purchase
Agreement, dated April 27, 1999, by and among the Company, certain of the
General Atlantic Stockholders and certain other Persons named therein pursuant
to which the Company issued and sold shares of its Series B Preferred Stock to
such General Atlantic Stockholders and such other Persons, as amended.
"Stock Purchase Agreement 2" means the Stock Purchase
Agreement, dated October 22, 1999, by and among the Company, certain of the
General Atlantic Stockholders and certain other Persons named therein pursuant
to which the Company issued and sold shares of its Series C Preferred Stock to
such General Atlantic Stockholders and such other Persons.
"Stock Purchase Agreement 3" has the meaning set forth in the
recitals to this Agreement.
"Stock Purchase Agreements" means Stock Purchase Agreement 1,
Stock Purchase Agreement 2 and Stock Purchase Agreement 3.
2. General; Securities Subject to this Agreement.
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(a) Grant of Rights. The Company hereby grants registration
rights to the Madden Stockholders, the General Atlantic Stockholders and the BPI
Stockholders upon the terms and conditions set forth in this Agreement.
(b) Registrable Securities. For the purposes of this
Agreement, Registrable Securities will cease to be Registrable Securities when
(i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act by the SEC and such Registrable
Securities have been disposed of pursuant to such effective Registration
Statement, (ii) the entire amount of Registrable Securities held by a Designated
Holder are eligible, in the opinion of counsel to the Designated Holder, who
shall be reasonably satisfactory to the Company, to be distributed to the public
during any 90-day period without any limitation as to volume pursuant to Rule
144 (or any successor provision then in effect) under the Securities Act or
(iii) the Registrable Securities are proposed to be sold or distributed by a
Person not entitled to the registration rights granted by this Agreement.
(c) Holders of Registrable Securities. A Person is deemed to
be a holder of Registrable Securities whenever such Person owns of record
Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected. If the
Company receives conflicting instructions, notices or elections from two or more
Persons with respect to the same Registrable Securities, the Company may act
upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities issuable
upon exercise of an option or upon conversion of another security shall be
deemed outstanding for the purposes of this Agreement.
3. Demand Registration.
(a) Request for Demand Registration. At any time after the IPO
Effectiveness Date, if the Company is not eligible to use Form S-3 (or any
successor form thereto) in connection with a public offering of its securities,
then one or more of the General Atlantic Stockholders as a group, acting through
GAP LLC or its written designee (the "Initiating Holders"), may make a written
request to the Company to register, under the Securities Act (other than
pursuant to a Registration Statement on Form S-4 or S-8 or any successor
thereto) (a "Demand Registration"), the number of Registrable Securities stated
in such request; provided, however, that the Company shall not be obligated to
effect more than two such Demand Registrations for the General Atlantic
Stockholders. For purposes of the preceding sentence, two or more Registration
Statements filed in response to one demand shall be counted as one Registration
Statement. If at the time of any request to register Registrable Securities
pursuant to this Section 3(a), the Company is engaged in, or has fixed plans to
engage in within 60 days of the time of such request, a registered public
offering or is engaged in any other activity which, in the good faith
determination of the Board of Directors of the Company, would be materially
adversely affected by the requested registration to the material detriment of
the Company, then the Company may at its option direct that such request be
delayed for a reasonable period not in excess of three months from the effective
date of such offering or the date of completion of such other material activity,
as the case may be, such right to delay a request to be exercised by the Company
not more than once in any six month period. In addition, the Company shall not
be
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required to effect any registration within 90 days (or 180 days in the case of
the Company's Initial Public Offering) after the effective date of any other
Registration Statement of the Company. Each request for a Demand Registration by
the Initiating Holders shall state the amount of the Registrable Securities
proposed to be sold and the intended method of disposition thereof.
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand
Registration. Each of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) may request inclusion of
its or his Registrable Securities under any Demand Registration pursuant to this
Section 3(b). Within 10 days after the receipt of a request for a Demand
Registration from an Initiating Holder, the Company shall (i) give written
notice thereof to all of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) and (ii) subject to
Section 3(e), include in such registration all of the Registrable Securities
held by such Designated Holders from whom the Company has received a written
request for inclusion therein within 10 days of the receipt by such Designated
Holders of such written notice referred to in clause (i) above. Each such
request by such Designated Holders shall specify the number of Registrable
Securities proposed to be registered and the intended method of disposition
thereof. The failure of any Designated Holder to respond within such 10-day
period referred to in clause (ii) above shall be deemed to be a waiver of such
Designated Holder's rights under this Section 3 with respect to such Demand
Registration, provided that any Designated Holder may waive its rights under
this Section 3 prior to the expiration of such 10-day period by giving written
notice to the Company, with a copy to the Initiating Holders. If a Designated
Holder sends the Company a written request for inclusion of part or all of such
Designated Holder's Registrable Securities in a registration, such Designated
Holder shall not be entitled to withdraw or revoke such request without the
prior written consent of the Company in its sole discretion unless, as a result
of facts or circumstances arising after the date on which such request was made
relating to the Company or to market conditions, such Designated Holder
reasonably determines that participation in such registration would have a
material adverse effect on such Designated Holder.
(c) Effective Demand Registration. The Company shall use its
reasonable best efforts to cause any such Demand Registration to become and
remain effective not later than 90 days after it receives a request under
Section 3(a) hereof. A registration shall not constitute a Demand Registration
until it has become effective and remains continuously effective for the lesser
of (i) the period during which all Registrable Securities registered in the
Demand Registration are sold and (ii) 120 days; provided, however, that a
registration shall not constitute a Demand Registration if (x) after such Demand
Registration has become effective, such registration or the related offer, sale
or distribution of Registrable Securities thereunder is interfered with by any
stop order, injunction or other order or requirement of the SEC or other
governmental agency or court for any reason not attributable to the Initiating
Holders and such interference is not thereafter eliminated or (y) the conditions
specified in the underwriting agreement, if any, entered into in connection with
such Demand Registration are not satisfied or waived, other than by reason of a
failure by the Initiating Holder.
(d) Expenses. In any registration initiated as a Demand
Registration, the Company shall pay all reasonable Registration Expenses (other
than underwriters' discounts and
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commissions) in connection therewith, whether or not such Demand Registration
becomes effective, provided, however, that the Company shall not be required to
pay for any expenses of a Demand Registration begun pursuant to Section 3 if the
Demand Registration request is subsequently withdrawn at the request of the
Initiating Holders who requested such Demand Registration (in which case all of
such Initiating Holders shall bear such expenses), unless such Initiating
Holders agree to forfeit their right to one demand registration pursuant to
Section 3; and provided, further, that if at the time of such withdrawal, such
Initiating Holders reasonably determine in good faith that there is, or is
pending, either (i) a material adverse change in the condition, business or
prospects of the Company or (ii) a material activity by the Company which would
materially adversely affect the Demand Registration, in either case from that
known to such Initiating Holders at the time of their request and such
Initiating Holders have withdrawn the request with reasonable promptness
following their determination of such material adverse change or disclosure by
the Company of such material adverse change or such material activity, then such
Initiating Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 3.
(e) Underwriting Procedures. If the Company or the Initiating
Holders holding a majority of the Registrable Securities held by all of the
Initiating Holders to which the requested Demand Registration relates so elect,
the Company shall use its reasonable best efforts to cause such Demand
Registration to be in the form of a firm commitment underwritten offering and
the managing underwriter or underwriters selected for such offering shall be the
Approved Underwriter selected in accordance with Section 3(f). In connection
with any Demand Registration under this Section 3 involving an underwritten
offering, none of the Registrable Securities held by any Designated Holder
making a request for inclusion of such Registrable Securities pursuant to
Section 3(b) hereof shall be included in such underwritten offering unless such
Designated Holder accepts the terms of the offering as agreed upon by the
Company, the Initiating Holders and the Approved Underwriter, and then only in
such quantity as will not, in the opinion of the Approved Underwriter,
jeopardize the success of such offering by the Initiating Holders. If the
Approved Underwriter advises the Company that marketing factors require a
limitation on the aggregate amount of such Registrable Securities to be included
in such offering, then the Company shall include in such registration only the
aggregate amount of Registrable Securities that the Approved Underwriter
believes may be sold without jeopardizing the success of such offering and shall
reduce the amount of Registrable Securities to be included in such registration,
first as to the Company, second as to the Designated Holders (who are not
Initiating Holders and who requested to participate in such registration
pursuant to Section 3(b) hereof) as a group, if any, and third as to the
Initiating Holders as a group, pro rata within each group based on the number of
Registrable Securities owned by each such Designated Holder or Initiating
Holder, as the case may be.
(f) Selection of Underwriters. If any Demand Registration or
S-3 Registration, as the case may be, of Registrable Securities is in the form
of an underwritten offering, the Company shall select and obtain an investment
banking firm of national reputation to act as the managing underwriter of the
offering (the "Approved Underwriter"); provided, however, that the Approved
Underwriter shall, in any case, also be approved by the Initiating Holders or
S-3 Initiating Holders, as the case may be, such approval not to be unreasonably
withheld.
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4. Incidental or "Piggy-Back" Registration.
(a) If the Company proposes to file a Registration Statement
with respect to its Initial Public Offering, then the Company shall give written
notice of such proposed filing to each of the Madden Stockholders and the BPI
Stockholders at least 20 days before the anticipated filing date thereof, and
such notice shall offer to each of the Madden Stockholders and the BPI
Stockholders the opportunity to register a reasonable number (determined in
consultation with GAP LLC) of the Registrable Securities held by such Madden
Stockholders and BPI Stockholders (the "IPO Registration").
(b) At any time after the consummation of the Initial Public
Offering, in the event of any registered public offering of the Common Stock of
the Company, if the Company proposes to file a Registration Statement with
respect to an offering by the Company for its own account (other than a
Registration Statement on Form S-4 or S-8 or any successor thereto) or for the
account of another stockholder of the Company who was granted registration
rights by the Company other than pursuant to this Agreement, then the Company
shall give written notice of such proposed filing to each of the Designated
Holders at least 20 days before the anticipated filing date, and such notice
shall describe the proposed registration and distribution and offer such
Designated Holders the opportunity to register the number of Registrable
Securities as each such holder may request (a "Post-IPO Registration and,
together with the IPO Registration, an "Incidental Registration").
(c) The Company shall use its reasonable best efforts to cause
the managing underwriter or underwriters selected by the Company for a proposed
underwritten offering (the "Company Underwriter") to permit each of the Madden
Stockholders and the BPI Stockholders (in the case of an IPO Registration) and
the Designated Holders (in the case of a Post-IPO Registration) who have
requested in writing within 10 calendar days of receipt of the notice provided
for in subsection (a) or subsection (b) above, as the case may be, to
participate in the IPO Registration (in the case of the Madden Stockholders and
the BPI Stockholders) or the Post-IPO Registration (in the case of the
Designated Holders) to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company
included therein. In connection with any Incidental Registration under this
Section 4 involving an underwritten offering, the Company shall not be required
to include any Registrable Securities in such underwritten offering unless the
holders thereof accept the terms of the underwritten offering as agreed upon
between the Company and the Company Underwriter, and then only in such quantity
as the Company Underwriter believes will not jeopardize the success of the
offering by the Company. If the Company Underwriter determines that marketing
factors require a limitation on all or part of the Registrable Securities which
the Designated Holders have requested to be included in such offering, then the
Company shall be required to include such Incidental Registration to the extent
of the amount that the Company Underwriter believes may be sold without
jeopardizing the success of such offering, first, all of the securities to be
offered for the accounts of the Company; second, the Registrable Securities to
be offered for the account of the Madden Stockholders and the BPI Stockholders,
pro rata based on the number of Registrable Securities owned thereby (in the
case of the IPO Registration) or the Designated Holders (in the case of the
Post-IPO Registration) pursuant to this Section 4, pro rata based on
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the number of Registrable Securities owned thereby; and third, any other
securities requested to be included in such underwritten offering.
(d) Expenses. The Company shall pay all Registration Expenses
in connection with any Incidental Registration pursuant to this Section 4,
whether or not such Incidental Registration becomes effective.
(e) Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 4 prior to the effectiveness of such registration whether or not any
Designated Holder has elected to include Registrable Securities in such
registration.
5. Form S-3 Registration.
(a) Request for a Form S-3 Registration. Upon the Company
becoming eligible for use of Form S-3 in connection with a public offering of
its securities, in the event that the Company shall receive from one or more of
the General Atlantic Stockholders as a group, acting through GAP LLC or its
written designee (the "S-3 Initiating Holders"), a written request that the
Company register, under the Securities Act, on Form S-3 (or any successor form
then in effect) (an "S-3 Registration"), all or a portion of the Registrable
Securities owned by such S-3 Initiating Holders, the Company shall give written
notice of such request to all of the Designated Holders (other than S-3
Initiating Holders which have requested an S-3 Registration under this Section
5(a)) at least 20 days before the anticipated filing date of such Form S-3, and
such notice shall describe the proposed registration and offer such Designated
Holders the opportunity to register the number of Registrable Securities as each
such Designated Holder may request in writing to the Company, within 10 days
after their receipt from the Company of the written notice of such registration.
With respect to each S-3 Registration, the Company shall (i) subject to Sections
5(b) and 5(c), include in such offering the Registrable Securities of the S-3
Initiating Holders, and (ii) subject to Sections 5(b) and 5(c), use its
reasonable best efforts to (x) cause such registration pursuant to this Section
5(a) to become and remain effective as soon as practicable, but in any event not
later than ninety (90) days after it receives a request therefor and (y) include
in such offering the Registrable Securities of the Designated Holders (other
than S-3 Initiating Holders which have requested an S-3 Registration under this
Section 5(a)) who have requested in writing to participate in such registration
on the same terms and conditions as the Registrable Securities of the S-3
Initiating Holders included therein.
(b) Form S-3 Underwriting Procedures. If the Company or the
S-3 Initiating Holders holding a majority of the Registrable Securities held by
all of the S-3 Initiating Holders to which the requested S-3 Registration
relates so elect, the Company shall use its reasonable commercial efforts to
cause such S-3 Registration pursuant to this Section 5 to be in the form of a
firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be an Approved Underwriter
selected in accordance with Section 3(f). In connection with any S-3
Registration under Section 5(a) involving an underwritten offering, the Company
shall not be required to include any Registrable Securities in such underwritten
offering unless the Designated Holders thereof accept the terms of the
underwritten offering as agreed upon between the Company, the Approved
Underwriter and the S-3 Initiating Holders,
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and then only in such quantity as such underwriter believes will not jeopardize
the success of such offering by the S-3 Initiating Holders. If the Approved
Underwriter believes that marketing factors require a limitation on the number
of Registrable Securities which the S-3 Initiating Holders and the other
Designated Holders have requested to be included in such public offering, then
the Company shall be required to include in the underwritten offering, to the
extent of the amount that the Approved Underwriter believes may be sold without
jeopardizing the success of such offering, first, all of the Registrable
Securities to be offered for the account of the S-3 Initiating Holders, pro rata
based on the number of Registrable Securities owned by such S-3 Initiating
Holders; second, the Registrable Securities to be offered for the account of the
other Designated Holders who requested inclusion of their Registrable Securities
pursuant to Section 5(a), pro rata based on the number of Registrable Securities
owned by such Designated Holders; and third, any other securities requested to
be included in such underwritten offering.
(c) Limitations on Form S-3 Registrations. If at the time of
any request to register Registrable Securities pursuant to Section 5(a), the
Company is engaged in, or has fixed plans to engage in within 60 days of the
time of such request, a registered public offering or is engaged or has fixed
plans to engage in any other activity which, in the good faith determination of
the Board of Directors of the Company, would be materially adversely affected by
the requested S-3 Registration to the material detriment of the Company, then
the Company may at its option direct that such request be delayed for a
reasonable period not in excess of three months from the effective date of such
offering or the date of completion of such other material activity, as the case
may be, such right to delay a request to be exercised by the Company not more
than once in any six month period. In addition, the Company shall not be
required to effect any registration pursuant to Section 5(a), (i) within 90 days
after the effective date of any other Registration Statement of the Company,
(ii) if within the 12-month period preceding the date of such request, the
Company has effected two registrations on Form S-3 pursuant to Section 5(a),
(iii) if Form S-3 is not available for such offering by the S-3 Initiating
Holders or (iv) if the S-3 Initiating Holders, together with the Designated
Holders (other than S-3 Initiating Holders which have requested an S-3
Registration under Section 5(a)) registering Registrable Securities in such
registration, propose to sell their Registrable Securities at an aggregate price
(calculated based upon the Market Price of the Registrable Securities on the
date of filing of the Form S-3 with respect to such Registrable Securities) to
the public of less than $5,000,000.
(d) Expenses. The Company shall pay all reasonable
Registration Expenses (other than underwriters' discounts and commissions) in
connection with any S-3 Registration pursuant to this Section 5, whether or not
such S-3 Registration becomes effective.
(e) No Demand Registration. No registration requested by any
Designated Holder pursuant to this Section 5 shall be deemed a Demand
Registration pursuant to Section 3.
6. Holdback Agreements.
(a) Restrictions on Public Sale by Designated Holders. If and
to the extent requested by the Company, the Initiating Holders or the S-3
Initiating Holders, as the case may be, in the case of a non-under-written
public offering or if and to the extent requested by the Approved Underwriter or
the Company Underwriter, as the case may be, in the case of an
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underwritten public offering, each Designated Holder of Registrable Securities
agrees (i) not to effect any sale, short sale, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities or of any
securities convertible into or exchangeable or exercisable for such Registrable
Securities, including a sale pursuant to Rule 144 under the Securities Act, and
(ii) not to make any request for a Demand Registration or S-3 Registration under
this Agreement, during the 90 day period (or 180 day period in the case of the
Company's Initial Public Offering) or such shorter period, if any, mutually
agreed upon by such Designated Holder and the requesting party beginning on the
effective date of such Registration Statement (except as part of such
registration) or the IPO Effectiveness Date. The Company may impose
stop-transfer instructions with respect to such securities subject to the
foregoing restrictions until the end of such period.
(b) Restrictions on Public Sale by the Company. The Company
agrees not to effect any public sale or distribution of any of its securities,
or any securities convertible into or exchangeable or exercisable for such
securities (except pursuant to registrations on Form S-4 or S-8 or any successor
thereto), during the period beginning on the effective date of any Registration
Statement in which the Designated Holders of Registrable Securities are
participating and ending on the earlier of (i) the date on which all Registrable
Securities registered on such Registration Statement are sold and (ii) 90 days
after the effective date of such Registration Statement (except as part of such
registration).
7. Registration Procedures.
(a) Obligations of the Company. Whenever registration of
Registrable Securities has been requested pursuant to Section 3, Section 4 or
Section 5 of this Agreement, the Company shall use its reasonable commercial
efforts to effect the registration and sale of such Registrable Securities in
accordance with the intended method of distribution thereof as quickly as
practicable, and in connection with any such request, the Company shall, as
expeditiously as possible:
(i) prepare and file with the SEC a Registration Statement
on any form for which the Company then qualifies or which counsel for the
Company shall deem appropriate and which form shall be available for the sale of
such Registrable Securities in accordance with the intended method of
distribution thereof, and cause such Registration Statement to become effective;
provided, however, that (x) before filing a Registration Statement or
prospectus or any amendments or supplements thereto, if counsel for the Company
does not make itself available to serve as counsel for the Designated Holders or
if counsel for the Company makes itself available to serve as counsel for the
Designated Holders, but the representation of such Designated Holders by the
Company's counsel would be inappropriate under applicable standards of
professional conduct, then the Company shall provide one counsel selected by the
Designated Holders holding a majority of the Registrable Securities being
registered in such registration ("Holders' Counsel") and any other Inspector
with an adequate and appropriate opportunity to review and comment on such
Registration Statement and each prospectus included therein (and each amendment
or supplement thereto) to be filed with the SEC, subject to such documents being
under the Company's control, and (y) the Company shall notify the Holders'
Counsel and each seller of Registrable Securities of any stop order issued or
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threatened by the SEC and take all action required to prevent the entry of such
stop order or to remove it if entered;
(ii) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the lesser of (x) 90 days and (y) such shorter period which will terminate when
all Registrable Securities covered by such Registration Statement have been
sold, and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement;
(iii) furnish to each seller of Registrable Securities,
prior to filing a Registration Statement, at least one copy of such Registration
Statement as is proposed to be filed, and thereafter such number of copies of
such Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), and the prospectus included in such
Registration Statement (including each preliminary prospectus) as each such
seller may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(iv) register or qualify such Registrable Securities under
such other securities or "blue sky" laws of such jurisdictions as any seller of
Registrable Securities may request, and to continue such qualification in effect
in such jurisdiction for as long as permissible pursuant to the laws of such
jurisdiction, or for as long as any such seller requests or until all of such
Registrable Securities are sold, whichever is shortest, and do any and all other
acts and things which may be reasonably necessary or advisable to enable any
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided, however, that the Company
shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 7(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z)
consent to general service of process in any such jurisdiction;
(v) notify each seller of Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such Registration Statement contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and the
Company shall promptly prepare a supplement or amendment to such prospectus and
furnish to each seller a reasonable number of copies of such supplement to or an
amendment of such prospectus as may be necessary so that, after delivery to the
purchasers of such Registrable Securities, such prospectus shall not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
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<PAGE> 16
(vi) enter into and perform customary agreements
(including an underwriting agreement in customary form with the Approved
Underwriter or Company Underwriter, if any, selected as provided in Section 3,
Section 4 or Section 5, as the case may be) and take such other actions as are
prudent and reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities;
(vii) (x) if such sale is pursuant to an underwritten
offering, use its best efforts to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as the
managing underwriter reasonably requests and (y) furnish, at the request of any
seller of Registrable Securities on the date such securities are delivered to
the underwriters for sale pursuant to such registration or, if such securities
are not being sold through underwriters, on the date the Registration Statement
with respect to such securities becomes effective, an opinion, dated such date,
of counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the seller making such request,
covering such legal matters with respect to the registration in respect of which
such opinion is being given as such seller may reasonably request and are
customarily included in such opinions;
(viii) make available at reasonable times for inspection
by any seller of Registrable Securities, any managing under-writer participating
in any disposition of such Registrable Securities pursuant to a Registration
Statement, Holders' Counsel and any attorney, accountant or other agent retained
by any such seller or any managing underwriter (each, an "Inspector" and
collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and its
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspector in connection with such Registration Statement. Records that
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors (and
the Inspectors shall confirm their agreement in writing in advance to the
Company if the Company shall so request) unless (x) the disclosure of such
Records is necessary, in the Company's judgment, to avoid or correct a
misstatement or omission in the Registration Statement, (y) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction after exhaustion of all appeals therefrom or (z) the
information in such Records was known to the Inspectors on a non-confidential
basis prior to its disclosure by the Company or has been made generally
avail-able to the public. Each seller of Registrable Securities agrees that it
shall, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential;
(ix) comply with all applicable rules and regulations of
the SEC, and make available to its security holders, as soon as reason-ably
practicable but no later than fifteen (15) months after the effective date of
the Registration Statement, an earnings statement covering a period of twelve
(12) months beginning after the effective date of the Registration Statement,
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<PAGE> 17
in a manner which satisfies the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder;
(x) cause all such Registrable Securities to be listed on
each securities exchange on which similar securities issued by the Company are
then listed, provided that the applicable listing requirements are satisfied;
(xi) keep Holders' Counsel advised in writing as to the
initiation and progress of any registration under Section 3, Section 4 or
Section 5 hereunder;
(xii) cooperate with each seller of Registrable Securities
and each underwriter participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings required
to be made with the National Association of Securities Dealers, Inc. (the
"NASD"); and
(xiii) take all other steps reasonably necessary to effect
the registration of the Registrable Securities contemplated hereby.
(b) Seller Information. The Company may require each seller of
Registrable Securities as to which any registration is being effected to
furnish, and such seller shall furnish, to the Company such information
regarding the distribution of such securities as the Company may from time to
time reason-ably request in writing.
(c) Notice to Discontinue. Each Designated Holder of
Registrable Securities agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 7(a)(v), such
Designated Holder shall forthwith discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Designated Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 7(a)(v) and, if so
directed by the Company, such Designated Holder shall deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in such
Designated Holder's possession, of the prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the
Company shall give any such notice, the Company shall extend the period during
which such Registration Statement shall be maintained effective pursuant to this
Agreement (including, without limitation, the period referred to in Section
7(a)(ii)) by the number of days during the period from and including the date of
the giving of such notice pursuant to Section 7(a)(v) to and including the date
when sellers of such Registrable Securities under such Registration Statement
shall have received the copies of the supplemented or amended prospectus
contemplated by and meeting the requirements of Section 7(a)(v).
(d) Registration Expenses. The Company shall pay all expenses
arising from or incident to its performance of, or compliance with, this
Agreement, including, without limitation, (i) SEC, stock exchange and NASD
registration and filing fees, (ii) all fees and expenses incurred in complying
with securities or "blue sky" laws (including reasonable fees, charges and
disbursements of counsel to any underwriter incurred in connection with "blue
sky" qualifications of the Registrable Securities as may be set forth in any
underwriting agreement),
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<PAGE> 18
(iii) all printing, messenger and delivery expenses, (iv) the fees, charges and
disbursements of counsel to the Company and of its independent public
accountants and any other accounting fees, charges and expenses incurred by the
Company (including, without limitation, any expenses arising from any "cold
comfort" letters or any special audits incident to or required by any
registration or qualification) and any legal fees, charges and expenses incurred
by the Company and, in the case of a Demand Registration and S-3 Registration,
any reasonable fees of Holders' counsel, if any, one law firm representing the
Initiating Holders and (v) any liability insurance or other premiums for
insurance obtained in connection with any Demand Registration or piggy-back
registration thereon, Incidental Registration or S-3 Registration pursuant to
the terms of this Agreement, regardless of whether such Registration Statement
is declared effective. All of the expenses described in the preceding sentence
of this Section 7(d) are referred to herein as "Registration Expenses." The
Designated Holders of Registrable Securities sold pursuant to a Registration
Statement shall bear the expense of any broker's commission or underwriter's
discount or commission relating to registration and sale of such Holders'
Registrable Securities and, subject to clause (iv) above, shall bear the fees
and expenses of their counsel.
8 Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Designated Holder and each Person who controls
(within the meaning of Section 15 of the Securities Act) such Designated Holder
from and against any and all losses, claims, damages, liabilities and expenses
(including reason-able costs of investigation) (collectively, "liability"),
arising out of or based upon any untrue, or allegedly untrue, statement of a
material fact contained in any Registration Statement, prospectus or preliminary
prospectus or notification or offering circular (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading under the circumstances such statements were made, except
insofar as such liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission contained in such
Registration Statement, preliminary prospectus or final prospectus made in
reliance upon information concerning such Designated Holder furnished in writing
to the Company by such Designated Holder expressly for use therein, including,
without limitation, the information furnished to the Company pursuant to Section
8(b). The Company shall also provide customary indemnities to any underwriters
of the Registrable Securities, their officers, directors and employees and each
Person who controls such underwriters (within the meaning of Section 15 of the
Securities Act) to the same extent as provided above with respect to the
indemnification of the Designated Holders of Registrable Securities.
(b) Indemnification by Designated Holders. In connection with
any Registration Statement in which a Designated Holder is participating
pursuant to Section 3, Section 4 or Section 5 hereof, each such Designated
Holder shall promptly furnish to the Company in writing such information with
respect to such Designated Holder as the Company may reason-ably request or as
may be required by law for use in connection with any such Registration
Statement or prospectus and all information required to be disclosed in order to
make the information previously furnished to the Company by such Designated
Holder not
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<PAGE> 19
materially misleading or necessary to cause such Registration Statement not to
omit a material fact with respect to such Designated Holder necessary in order
to make the statements therein not misleading. Each Designated Holder agrees to
indemnify and hold harmless the Company, any underwriter retained by the Company
and each Person who controls the Company or such underwriter (within the meaning
of Section 15 of the Securities Act) to the same extent as the foregoing
indemnity from the Company to the Designated Holders, but only with respect to
any such information with respect to such Designated Holder furnished in writing
to the Company by such Designated Holder expressly for use therein, including,
without limitation, the information furnished to the Company pursuant to this
Section 8(b); provided, however, that (i) the total amount to be indemnified by
such Designated Holder pursuant to this Section 8(b) shall be limited to the net
proceeds received by such Designated Holder in the offering to which the
Registration Statement or prospectus relates unless the obligations of such
Designated Holder hereunder arise out of or are based upon willful misconduct of
such Designated Holder, and (ii) such Designated Holder shall only be liable for
its pro rata share of any amounts to be indemnified pursuant to this Section
8(b).
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder (the "Indemnified Party") agrees to give
prompt written notice to the indemnifying party (the "Indemnifying Party") after
the receipt by the Indemnified Party of any written notice of the commencement
of any action, suit, proceeding or investigation or threat thereof made in
writing for which the Indemnified Party intends to claim indemnification or
contribution pursuant to this Agreement; provided, however, that the failure so
to notify the Indemnifying Party shall not relieve the Indemnifying Party of any
liability that it may have to the Indemnified Party hereunder except to the
extent that the Indemnifying Party is materially prejudiced or otherwise
forfeits substantive rights or defenses by reason of such failure. If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to the
extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party
agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense
of such action with counsel reasonably satisfactory to the Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and such parties
have been advised by such counsel that either (x) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to the Indemnified Party which are
different from or additional to those available to the Indemnifying Party. In
any of such cases, the Indemnifying Party shall not have the right to assume the
defense of such action on behalf of such Indemnified Party, it being understood,
however, that the Indemnifying Party shall not be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all Indemnified Parties. No Indemnifying Party shall be liable for
any settlement entered into without its written consent, which consent shall not
be unreasonably withheld. No Indemnifying Party shall, without the consent of
such
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Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which such Indemnified Party is a party and indemnity has been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability for claims
that are the subject matter of such proceeding.
(d) Contribution. If the indemnification provided for in this
Section 8 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any liabilities referred to therein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such liabilities in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions which resulted in such liabilities as well as any other relevant
equitable considerations. The relative faults of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the liabilities referred to above shall be
deemed to include, subject to the limitations set forth in Sections 8(a), 8(b)
and 8(c), any legal or other fees, charges or expenses reasonably incurred by
such party in connection with any investigation or proceeding; provided that (i)
the total amount to be contributed by such Designated Holder shall be limited to
the net proceeds received by such Designated Holder in the offering unless the
obligations of such Designated Holder hereunder arise out of or are based upon
willful misconduct of such Designated Holder, and (ii) such Designated Holder
shall only be liable for its pro rata shares of any amounts to be contributed
pursuant to this Section 8(d).
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(e) Notwithstanding the foregoing provisions of this Section
8, to the extent that the provisions relating to indemnification and
contribution in an underwriting agreement entered into by the Company in
connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control; provided, however, that the Company shall use its best efforts to cause
any such underwriting agreement to provide for the limitations on each
Designated Holder's indemnification and contribution obligations set forth in
Sections 8(b) and 8(d) hereof.
9 Rule 144. The Company covenants that from and after the IPO
Effectiveness Date it shall (a) file any reports required to be filed by it
under the Exchange Act and (b) take such further action as each Designated
Holder of Registrable Securities may reasonably request (including providing any
information necessary to comply with Rule 144 under the Securities Act), all to
the extent required from time to time to enable such Designated Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the
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<PAGE> 21
exemptions provided by (i) Rule 144 under the Securities Act, as such rule may
be amended from time to time, or (ii) any similar rules or regulations
here-after adopted by the SEC. The Company shall, upon the request of any
Designated Holder of Registrable Securities, deliver to such Designated Holder a
written statement as to whether it has complied with such requirements.
10 Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of this
Agreement shall apply, to the full extent set forth herein with respect to (i)
the shares of Common Stock, (ii) any and all shares of voting common stock of
the Company into which the shares of Common Stock are converted, exchanged or
substituted in any recapitalization or other capital reorganization by the
Company and (iii) any and all equity securities of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in conversion of, in exchange for
or in substitution of, the shares of Common Stock and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof. The Company
shall cause any successor or assign (whether by sale, merger or otherwise) to
enter into a new registration rights agreement with the Designated Holders on
terms substantially the same as this Agreement as a condition of any such
transaction.
(b) No Inconsistent Agreements. The Company represents and
warrants that it has not granted to any Person the right to request or require
the Company to register any securities issued by the Company, other than the
rights granted to the Designated Holders herein. The Company shall not enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Designated Holders in this Agreement or grant any
additional registration rights to any Person or with respect to any securities
which are not Registrable Securities which are prior in right to or inconsistent
with the rights granted in this Agreement.
(c) Remedies. The Designated Holders, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
shall be entitled to specific performance of their rights under this Agreement.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agrees to waive in any action for specific performance the
defense that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless consented to in writing by (i) the Company, (ii) the
Madden Stockholders holding Registrable Securities representing (after giving
effect to any adjustments) at least a majority of the aggregate number of
Registrable Securities owned by all of the Madden Stockholders, (iii) the
General Atlantic Stockholders holding Registrable Securities representing (after
giving effect to any adjustments) at least a majority of the aggregate number of
Registrable Securities owned by all of the General Atlantic Stockholders, and
(iv) the BPI Stockholders, holding Registrable Securities representing (after
giving effect to any adjustments) at least a majority of the aggregate number of
Registrable
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Securities owned by all of the BPI Stockholders. Any such written consent shall
be binding upon the Company and all of the Designated Holders.
(e) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be made
by registered or certified first-class mail, return receipt requested,
telecopier, courier service, overnight mail or personal delivery:
(i) if to the Company or the Madden Stockholders:
EXULT, Inc.
4 Park Plaza
Suite 350
Irvine, California 92416
Telecopy: (949) 250-8002
Attention: Bill Peters
with a copy to:
Brobeck, Phleger & Harrison LLP
38 Technology Drive
Irvine, California 92618
Telecopy: (949) 790-6301
Attention: Bruce Hallett, Esq.
(ii) if to the General Atlantic Stockholders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Steven A. Denning
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(iii) if to the BPI Stockholders:
BP International Limited
Britannic House
1 Finsbury Circus
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London EC2M 7BA
Telecopy: 44 171 496 4517
Attention: David Watson, Treasurer
with a copy to:
Linklaters & Alliance
One Silk Street
London EC2Y 8HQ
Telecopy: 44 171 456 2222
Attention: Lee Taylor
(iv) if to any other Designated Holder, at its address as
it appears on the record books of the Company.
All such notices and communications shall be deemed to
have been duly given when delivered by hand, if personally delivered; when
delivered by courier or overnight mail, if delivered by commercial courier
service or overnight mail; five (5) Business Days after being deposited in the
mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged,
if properly telecopied.
(f) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the heirs, legatees,
legal representatives, successors and permitted assigns of each of the parties
hereto as hereinafter provided. The Demand Registration Rights and the S-3
Registration Rights of the General Atlantic Stockholders contained in Sections 3
and 5 hereof, respectively, and the other rights of each of the General Atlantic
Stockholders, the Madden Stockholders and the BPI Stockholders (other than the
incidental registration rights of the BPI Stockholders with respect to an
Initial Public Offering, which such registration rights may only be assigned to
an Affiliate in which BPI holds an ownership interest of 50% or greater) with
respect thereto shall be, with respect to any Registrable Security, (i)
automatically transferred, in the case of such rights of the General Atlantic
Stockholders, among the General Atlantic Stockholders, in the case of such
rights of the Madden Stockholders, among the Madden Stockholders, and in the
case of such rights of the BPI Stockholders, among the BPI Stockholders and (ii)
in all other cases, transferred only with the consent of the Company, except as
set forth below. The incidental or "piggy-back" registration rights of the
Madden Stockholders contained in Section 4(a) hereof may be transferred only
with the consent of the Company, which consent shall not be unreasonably
withheld. The incidental or "piggy-back" registration rights of the Designated
Holders contained in Sections 3(b) and 4(b) hereof and the other rights of each
of the Designated Holders with respect thereto shall be, with respect to any
Registrable Security, automatically transferred by such Designated Holder to any
Person who is the transferee of such Registrable Security provided that such
transferee holds at least $2.5 million of Registrable Securities (subject to
appropriate adjustments for stock splits, stock dividends, combinations and
other recapitalizations), and (A) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which registration
rights are being assigned; (B) such transferee or assignee agrees in writing to
be bound by and subject to the
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terms and conditions of this Agreement; and (C) such assignment shall be
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act. For the purposes of determining the number of Registrable Securities held
by a transferee or assignee, the holders of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking actions under this Agreement.
All of the obligations of the Company hereunder shall survive any such transfer.
No Person other than the parties hereto and their heirs, legatees, legal
representatives, successors and permitted assigns is intended to be a
beneficiary of the rights granted hereunder.
(g) Termination. This Agreement shall terminate and be of no
further force or effect at such time as there shall no longer be any Registrable
Securities outstanding. In addition, the right of any Designated Holder to
request registration or inclusion in any registration pursuant to Section 3,
Section 4 or Section 5 of this Agreement shall terminate on such date that such
Designated Holder no longer holds any Registrable Securities.
(h) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION
(k) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the Designated Holders shall
be enforceable to the fullest extent permitted by law.
(l) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and in the Stock Purchase Agreements, the Stockholders Agreement, the BPI
Common Stock Warrant and the BPI Series C Stock Warrant. This Agreement
supersedes
24
<PAGE> 25
all prior agreements and understandings between the parties with respect to such
subject matter, including, without limitation, the Original Agreement.
(m) Further Assurances. Each of the parties shall execute such
documents and perform such further acts as may be reasonably required or
necessary to carry out or to perform the provisions of this Agreement.
(n) Other Agreements. Nothing contained in this Agreement
shall be deemed to be a waiver of, or release from, any obligations any party
hereto may have under, or any restrictions on the transfer of Registrable
Securities or other securities of the Company imposed by, any other agreement
including, but not limited to, the Stock Purchase Agreements, the Stockholders
Agreement, the BPI Common Stock Warrant or the BPI Series C Stock Warrant.
25
<PAGE> 26
IN WITNESS WHEREOF, the undersigned have executed, or have
caused to be executed, this Agreement on the date first written above.
EXULT, INC.
By:
---------------------------------------------
Name: James C. Madden
Title: Chief Executive Officer
GENERAL ATLANTIC PARTNERS 54, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By:
---------------------------------------------
Name:
Title:
GENERAL ATLANTIC PARTNERS 57, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By:
---------------------------------------------
Name:
Title:
GENERAL ATLANTIC PARTNERS 60, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By:
---------------------------------------------
Name:
Title:
<PAGE> 27
GAP COINVESTMENT PARTNERS, L.P.
By:
---------------------------------------------
Name:
Title:
GAP COINVESTMENT PARTNERS II, L.P.
By:
---------------------------------------------
Name:
Title:
BP INTERNATIONAL LIMITED
By:
---------------------------------------------
Name:
Title:
---------------------------------------------
James Madden
<PAGE> 1
EXHIBIT 10.5.2
AMENDMENT NO. 1
TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
Amendment No. 1, dated February 10, 2000 (this "Amendment No.
1") to the Amended and Restated Registration Rights Agreement, dated December
23, 1999, by and among Exult, Inc., a Delaware corporation (the "Company"),
General Atlantic Partners 54, L.P., a Delaware limited partnership ("GAP LP"),
General Atlantic partners 57, L.P., a Delaware limited partnership ("GAP 57"),
General Atlantic Partners 60, L.P., a Delaware limited partnership ("GAP 60"),
GAP Coinvestment Partners, L.P., a New York limited partnership "GAP
Coinvestment"), GAP Coinvestment Partners II, L.P., a Delaware limited
partnership ("GAP Coinvestment II"), James Madden ("Madden") and BP
International Limited, a company formed in England ("BPI") (the "Registration
Rights Agreement"). Capitalized terms used herein but not otherwise defined
shall have the respective meaning ascribed thereto in the Registration Rights
Agreement.
WHEREAS, the Company intends to issue to GS Capital Partners
III, L.P., a Delaware limited partnership ("GSCP"), GS Capital Partners III
Offshore, L.P., a Cayman Islands exempted limited partnership ("GSCP Offshore"),
Goldman, Sachs & Co. Verwaltungs GmbH, a company organized under the laws of
Germany ("GSCV"), Stone Street Fund 2000, L.L.C., a Delaware limited liability
company ("Stone Street") (GSCP, GSCP Offshore, GSCV and Stone Street are
collectively referred to as the "Goldman Group"), DB Capital Investors, L.P., a
Delaware limited partnership ("DB"), Mellon Ventures II, L.P., a Delaware
limited partnership ("Mellon"), Wilmington Securities, Inc., a Delaware
corporation ("Wilmington"), The Henry L. Hillman Trust U/A dated November 18,
1985, a trust formed under the laws of Pennsylvania (the "1985 Henry Hillman
Trust"), Carl G. Grefenstette and Thomas G. Bigley, Trustees under Agreement of
Trust dated 12/30/76 for children of Juliet Lea Hillman Simonds, a trust formed
under the laws of Pennsylvania (the "1976 Juliet Hillman Trust"), Carl G.
Grefenstette and Thomas G. Bigley, Trustees under Agreement of Trust dated
12/30/76 for children of: Audrey Hillman Fisher, a trust formed under the laws
of Pennsylvania (the "1976 Audrey Fisher Trust"), Carl G. Grefenstette and
Thomas G. Bigley, Trustees under Agreement of Trust dated 12/30/76 for children
of: Henry Lea Hillman, Jr., a trust formed under the laws of Pennsylvania (the
"1976 Henry Hillman Jr. Trust"), and Carl G. Grefenstette and Thomas G. Bigley,
Trustees under Agreement of Trust dated 12/30/76 for children of: William
Talbott Hillman, a trust formed under the laws of Pennsylvania (the "1976
William Hillman Trust") (Wilmington, the 1985 Henry Hillman Trust, the 1976
Juliet Hillman Trust, the 1976 Audrey Fisher Trust, the 1976 Henry Hillman
Trust, Jr. and the 1976 William Hillman Trust collectively are referred to
herein as the "Hillman Group") (the Goldman Group, DB, Mellon and the Hillman
Group are collectively referred to herein as the "Series D Stockholders") an
aggregate of
<PAGE> 2
6,885,480 shares of Series D Preferred Stock pursuant to the Stock Purchase
Agreement, dated as of the date hereof, by and among the Company, the Goldman
Group, DB, Mellon and the Hillman Group.
WHEREAS, in order to induce each of the Goldman Group, DB,
Mellon, and the Hillman Group to purchase the Series D Preferred Stock, the
parties hereto desire to amend the Registration Rights Agreement to grant
certain registration rights with respect to the shares of Common Stock issuable
upon the conversion of the Series D Preferred Stock.
NOW THEREFORE, the parties hereto hereby agree as follows:
1 Each of the Goldman Group, DB, Mellon, and the Hillman Group is hereby
made a party to the Registration Rights Agreement as a Series D
Stockholder in accordance with this Amendment No. 1.
2 The following definitions are hereby added to Section 1 of the
Registration Rights Agreement in the appropriate alphabetical order:
"1976 Audrey Fisher Trust" means the Agreement of Trust dated 12/30/76
for children of: Audrey Hillman Fisher, a trust formed under the laws
of Pennsylvania.
"1976 Henry Hillman Jr. Trust" means the Agreement of Trust dated
12/30/76 for children of: Henry Lea Hillman, Jr., a trust formed under
the laws of Pennsylvania,
"1976 Juliet Hillman Trust" means Carl G. Grefenstette and Thomas G
Bigley Trustees under Agreement of Trust dated 12/30/76 for children of
Juliet Lea Hillman Simonds, a trust formed under the laws of
Pennsylvania.
"1976 William Hillman Trust" means the Agreement of Trust dated
12/30/76 for children of: William Talbott Hillman, a trust formed under
the laws of Pennsylvania.
"1985 Henry Hillman Trust" means The Henry L. Hillman Trust U/A dated
November 18, 1985, a trust formed under the laws of Pennsylvania.
"DB" shall mean DB Capital Investors, L.P., a Delaware limited
partnership.
"Goldman Group" shall mean GSCP, GSCP Offshore, GSCV and Stone Street.
"GSCP" shall mean GS Capital Partners III, L.P., a Delaware limited
partnership.
"GSCP Offshore" shall mean GS Capital Partners III Offshore, L.P., a
Cayman Islands exempted limited partnership.
"GSCV" shall mean Goldman, Sachs & Co. Verwaltungs GmbH, a company
organized under the laws of Germany.
<PAGE> 3
"Hillman Group" shall mean Wilmington, the 1985 Henry Hillman Trust,
the 1976 Juliet Hillman Trust, the 1976 Audrey Fisher Trust, the 1976
Henry Hillman Jr. Trust and the 1976 William Hillman Trust.
"Mellon" shall mean Mellon Ventures II, L.P., a Delaware limited
partnership.
"Series D Preferred Stock" shall mean the Series D Convertible
Preferred Stock, par value $.0001 per share, of the Company
"Series D Stockholders" shall mean the Goldman Group, DB, Mellon and
the Hillman Group and any Permitted Transferee (as defined in the
Stockholders Agreement) of any of them to which Shares (as defined in
the Stockholders Agreement) are transferred in accordance with Section
2.2 of the Stockholders Agreement, and the term "Series D Stockholders"
shall mean any such person.
"Stone Street" shall mean Stone Street Fund 2000, L.L.C., a Delaware
limited liability company.
"Wilmington" shall mean Wilmington Securities, Inc., a Delaware
corporation.
3 The definition of "Designated Holder" in Section 1 of the Registration
Rights Agreement is hereby amended to read in its entirety as follows:
"Designated Holder" means each of the Madden Stockholders, the General
Atlantic Stockholders, the BPI Stockholders and the Series D
Stockholders and any transferee of any of them to whom Registrable
Securities have been transferred in accordance with the provisions of
the Stockholders Agreement and Section 10(f) of this Agreement, other
than a transferee to whom Registrable Securities have been transferred
pursuant to a Registration Statement under the Securities Act or Rule
144 or Regulation S under the Securities Act (or any successor rule
thereto).
4 The definition of "Preferred Stock" in Section 1 of the Registration
Rights Agreement is hereby amended to read in its entirety as follows:
"Preferred Stock" means the Series A Preferred Stock ,the Series B
Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock.
5 The definition of "Stockholders Agreement" in Section 1 of the
Registration Rights Agreement is hereby amended to read in its entirety
as follows:
"Stockholders Agreement" means the Amended and Restated Stockholders
Agreement, dated December 23, 1999, by and among the Company, GAP LP,
GAP 57, GAP 60, GAP Coinvestment I, GAP Coinvestment II, Madden, BPI
and certain other stockholders of the Company, as amended.
<PAGE> 4
6 Section 2(a) of the Registration Rights Agreement is hereby amended to
read in its entirety as follows:
"(a) Grant of Rights: The Company hereby grants registration rights
to the Madden Stockholders, the General Atlantic Stockholders,
the BPI Stockholders and the Series D Stockholders upon the
terms and conditions set forth in this Agreement."
7 The first sentence of Section 3(a) of the Registration Rights Agreement
is hereby amended to read in its entirety as follows:
"At any time after the IPO Effectiveness Date, if the Company is not
eligible to use Form S-3 (or any successor form thereto) in connection
with a public offering of its securities, then each of (i) one or more
of the General Atlantic Stockholders as a group, acting through GAP LLC
or its written designee, (ii) one or more of the BPI Stockholders as a
group, acting through BPI or its written designee and (iii) one or more
of the Series D Stockholders (the "Initiating Holders"), may make a
written request to the Company to register, under the Securities Act
(other than pursuant to a Registration Statement on Form S-4 or S-8 or
any successor thereto) (a "Demand Registration"), the number of
Registrable Securities stated in such request; provided, however, that
the Company shall not be obligated to effect more than (I) two such
Demand Registrations for the General Atlantic Stockholders, (II) one
such Demand Registration for the BPI Stockholders or (III) one such
Demand Registration for the Series D Stockholders; and provided
further, that if a Series D Stockholder is the Initiating Holder, such
stockholder shall deliver a notice to the Series D Stockholders not
joining in making such a written request, who then shall have five (5)
business days following the receipt of such a notice to notify the
Company in writing that such Series D Stockholder wishes to join in the
request and be deemed an Initiating Holder for the purposes of the
Demand Registration.
8 Section 10(d) of the Registration Rights Agreement is hereby amended to
read in its entirety as follows:
"(d) Amendments and Waivers: Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless consented to in writing by (i) the
Company, (ii) the Madden Stockholders holding Registrable Securities
representing (after giving effect to any adjustments) at least a
majority of the aggregate number of Registrable Securities owned by all
of the Madden Stockholders, (iii) the General Atlantic Stockholders
holding Registrable Securities representing (after giving effect to any
adjustments) at least a majority of the aggregate number of Registrable
Securities owned by all of the General Atlantic Stockholders, (iv) the
BPI Stockholders holding Registrable Securities
<PAGE> 5
representing (after giving effect to any adjustments) at least a
majority of the aggregate number of Registrable Securities owned by all
of the BPI Stockholders and (v) the Series D Stockholders holding
Registrable Securities representing (after giving effect to any
adjustments) at least a majority of the aggregate number of Registrable
Securities owned by all of the Series D Stockholders. Any such written
consent shall be binding upon the Company and all of the Designated
Holders."
9 The following Sections 10(e)(iv) through 10(e)(viii) are hereby added
to Section 10(e) of the Registration Rights Agreement:
(iv) if to any member of the Goldman Group:
85 Broad Street
10th Floor
New York, NY 10004
Telecopy: (212) 357-5505
Attention: Katherine Enquist
with a copy to:
Brown Raysman Millstein Felder & Steiner LLP
120 West 45th Street
New York, NY 10036
Telecopy: (212) 840-2429
Attention: Stuart Bressman, Esq.
(v) if to DB Capital Investors, L.P.:
130 Liberty Street
25th Floor
New York, NY 10006
Telecopy: (212) 250-7651
Attention: Jon Mattson and Heidi Silverstein
with a copy to:
Gibson, Dunn & Crutcher, LLP
200 Park Avenue
New York, NY 10166
Attention: Steven R. Shoemate, Esq.
(vi) if to Mellon Ventures II, L.P.:
<PAGE> 6
400 S. Hope Street
5th Floor
Los Angeles, CA 90071-2806
Telecopy: (213) 553-9690
Attention: Jeff Anderson
with a copy to:
Milbank Tweed Hadley & McCloy, LLP
601 South Figueroa Street
Los Angeles, CA 90017
Telecopy: (213) 629-5063
Attention: Neil Wertlieb
(vii) if to Wilmington Securities, Inc.:
824 Market Street, Suite 900
Wilmington, DE 19801
Telecopy: (302) 656-4884
Attention: Andrew H. McQuarrie
with a copy to:
The Hillman Company
1900 Grant Building
Pittsburgh, PA 15219
Telecopy: (412) 338-3644
Attention: Carol J. Cusick Riley
(viii) if to any other member of the Hillman Group:
1800 Grant Building
Pittsburgh, PA 15219
Telecopy: (412) 338-3996
Attention: Maurice J. White
with a copy to:
The Hillman Company
1900 Grant Building
Pittsburgh, PA 15219
Telecopy: (412) 338-3644
Attention: Carol J. Cusick Riley
<PAGE> 7
10 Except as otherwise expressly provided in this Amendment No. 1, all of
the terms and conditions of the Registration Rights Agreement are
hereby ratified and shall remain in full force and effect.
11 This Amendment No. 1 may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE> 8
IN WITNESS WHEREOF, the undersigned have duly executed and
delivered this Amendment No. 1 as of the day and year first above written.
EXULT, INC.
By: _________________________________
Name:
Title:
GENERAL ATLANTIC PARTNERS 54, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC, its
General Partner
By: ________________________________
Name:
Title:
GENERAL ATLANTIC PARTNERS 57, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC, its
General Partner
By: ________________________________
Name:
Title:
GENERAL ATLANTIC PARTNERS 60, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC, its
General Partner
By: ________________________________
Name:
Title:
<PAGE> 9
GAP COINVESTMENT PARTNERS, L.P.
By: _________________________________
Name:
Title:
GAP COINVESTMENT PARTNERS II, L.P.
By: ____________________________________
Name:
Title:
---------------------------------------
James Madden
BP INTERNATIONAL LIMITED
By: _________________________________
Name:
Title:
GS CAPITAL PARTNERS III, L.P.
By: GS Advisors III, L.L.C., its general partner
By: _________________________________
Name:
Title:
GS CAPITAL PARTNERS III OFFSHORE, L.P
By: GS Advisors III, L.L.C., its general partner
By: __________________________________
Name:
Title:
<PAGE> 10
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By: ____________________________________
Name:
Title:
and
By: ____________________________________
Name
Title
STONE STREET FUND 2000, L.L.C.
By: ___________________________________
Name:
Title:
DB CAPITAL INVESTORS, L.P.
By: ___________________________________
Name: Robert Sharp
Title: Managing Director
MELLON VENTURES II, L.P.
By: MVMA II, L.P., a Delaware Limited Partnership
Its: General Partner
By: MVMA, Inc., a Delaware Corporation
Its: General Partner
By: ___________________________
Jeffrey H. Anderson
<PAGE> 11
WILMINGTON SECURITIES, INC.
By: ___________________________________
Andrew H. McQuarrie
Vice President
HENRY L. HILLMAN, ELSIE HILLIARD
HILLMAN AND C.G. GREFENSTETTE,
TRUSTEES OF THE HENRY L. HILLMAN
TRUST U/A DATED NOVEMBER 18, 1985
By: ___________________________________
C.G. Grefenstette
Trustee
THOMAS G. BIGLEY AND C.G. GREFENSTETTE,
TRUSTEES UNDER AGREEMENT OF TRUST
DATED 12/30/76 FOR CHILDREN OF: JULIET
LEA HILLMAN SIMONDS
By: ___________________________________
Thomas G. Bigley
Trustee
By: ___________________________________
C.G. Grefenstette
Trustee
<PAGE> 12
THOMAS G. BIGLEY AND C.G. GREFENSTETTE,
TRUSTEES UNDER AGREEMENT OF TRUST
DATED 12/30/76 FOR CHILDREN OF: AUDREY
HILLMAN FISHER
By: _________________________________
Thomas G. Bigley
Trustee
By: _________________________________
C.G. Grefenstette
Trustee
THOMAS G. BIGLEY AND C.G. GREFENSTETTE,
TRUSTEES UNDER AGREEMENT OF TRUST
DATED 12/30/76 FOR CHILDREN OF: HENRY
LEA HILLMAN, JR.
By: __________________________________
Thomas G. Bigley
Trustee
By: _________________________________
C.G. Grefenstette
Trustee
THOMAS G. BIGLEY AND C.G. GREFENSTETTE,
TRUSTEES UNDER AGREEMENT OF TRUST
DATED 12/30/76 FOR CHILDREN OF: WILLIAM
TALBOTT HILLMAN
By: _________________________________
Thomas G. Bigley
Trustee
By: _________________________________
C.G. Grefenstette
Trustee
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction
---- ------------
Exult Limited U.K.
Exult Equity Partners, Inc. Delaware
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and all references to our Firm) included in this registration
statement.
/s/ ARTHUR ANDERSEN LLP
Orange County, California
March 3, 2000
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> OCT-29-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 850,965 39,199,053
<SECURITIES> 0 0
<RECEIVABLES> 0 824,399
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 850,965 40,310,584
<PP&E> 0 4,546,704
<DEPRECIATION> 0 106,822
<TOTAL-ASSETS> 854,390 58,767,231
<CURRENT-LIABILITIES> 37,994 8,353,395
<BONDS> 0 4,304,219
0 0
999,999 58,768,079
<COMMON> 1 189
<OTHER-SE> (183,604) (12,658,651)
<TOTAL-LIABILITY-AND-EQUITY> 854,390 58,767,231
<SALES> 0 0
<TOTAL-REVENUES> 0 4,857,190
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<TOTAL-COSTS> 0 4,498,384
<OTHER-EXPENSES> 187,249 15,635,151
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (3,645) (263,495)
<INCOME-PRETAX> (183,604) (15,012,850)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (183,604) (15,012,850)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> (183,604) (15,012,850)
<EPS-BASIC> (140.48) (2.17)
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