<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 2000
REGISTRATION NO. 333-31754
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EXULT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
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 1000
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 1000
IRVINE, CALIFORNIA 92614
(949) 250-8002
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
Bruce R. Hallett, Esq. Edward Sonnenschein, Jr., Esq.
Ellen S. Bancroft, Esq. Mark E. Brubaker, Esq.
Elizabeth T. Hall, Esq. Latham & Watkins
Christine P. Le, Esq. 633 W. Fifth Street, Suite 4000
Brobeck, Phleger & Harrison LLP Los Angeles, CA 90071
38 Technology Drive (213) 891-8100
Irvine, California 92618
(949) 790-6300
</TABLE>
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(3)
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par value....................... $155,250,000 $40,986
=======================================================================================================================
</TABLE>
(1) Includes 1,350,000 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).
(3) The Registrant previously submitted $68,007 with the filing of this
Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
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 MAY 5, 2000
PROSPECTUS
9,000,000 SHARES
[EXULT LOGO]
COMMON STOCK
----------------------
This is Exult, Inc.'s initial public offering of common stock. We are
offering 9,000,000 shares. The U.S. underwriters are offering 7,650,000 shares
in the U.S. and Canada and the international managers are offering 1,350,000
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 $13 and $15 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 8 OF THIS PROSPECTUS.
----------------------
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<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price.............................. $ $
Underwriting discount.............................. $ $
Proceeds, before expenses, to Exult................ $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 1,147,500
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 202,500 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.
<PAGE> 3
[INSIDE COVER ART]
[EXULT LOGO]
OVERVIEW OF EXULT SERVICES
Our eHR solution will provide up to eighteen process management services that
address the five major categories of HR processes.
We plan to provide a comprehensive solution by
managing HR functions in all of these processes,
as well as third-party vendors.
<TABLE>
<CAPTION>
GLOBAL HR CATEGORIES PROCESS MANAGEMENT SERVICES
<S> <C>
ORGANIZATION AND PEOPLE - Organization Development
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>
OUR BUSINESS EXULT INTENDS TO OFFER A COMPREHENSIVE, INTEGRATED,
PROCESS MANAGEMENT SERVICE DESIGNED TO MANAGE HUMAN
RESOURCES DEPARTMENTS FOR LARGE, MULTINATIONAL
CORPORATIONS.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Information Regarding Forward-Looking Statements and
Industry Data............................................. 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 21
Selected Unaudited Pro Forma Condensed Combined Financial
Information............................................... 23
Selected Unaudited Pro Forma Condensed Combined Statement of
Operations Information.................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 33
Management.................................................. 44
Certain Transactions........................................ 57
Principal Stockholders...................................... 59
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find More Information......................... 70
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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3
<PAGE> 5
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 comprehensive management of human
resources departments for Global 500 corporations. We call our service "eHR(SM)"
because we will use our software, state-of-the-art information technology
capabilities, and Internet or web-enabled communications to transform our
clients' HR departments into proactive, global, knowledge-based organizations
focused on strategy and policy rather than transactions and administration. A
key component of our eHR solution is "myHR(SM)," our web-based system for
linking our clients and their employees together. myHR will act as a portal
through which our clients' employees, managers and annuitants can access their
HR information systems, and as a browser that can navigate through those systems
to find information and process transactions. myHR is designed to eliminate the
numerous organizational, transactional and communication barriers that exist in
large corporations, provide comprehensive data, information and decision
support, and facilitate our clients' business processes and interactive
communication 24 hours a day, seven days a week, regardless of business unit or
location. Our eHR solution also leverages resources and achieves economies of
scale through our HR best practices expertise, expert HR process consulting and
research capabilities, and shared client service centers, which handle our
clients' HR transaction, production and call center requirements. Our objective
is to become the leading provider of comprehensive HR process management
solutions that enable large, multinational corporations to reduce their HR costs
and increase the productivity of their human capital.
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. BP
Amoco is the nineteenth largest company in the Global 500, as compiled by
Fortune Magazine's Global 500 List for the Year 2000, and 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 approximately 70% of BP Amoco's more than 80,000 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 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 United States
alone.
The Internet makes our comprehensive service delivery model possible by
facilitating interactive communications among large groups 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 annual HR cost reductions of approximately 25%
to 30%. To date, however, HR organizations have not fully utilized the Internet
because they have not broadly implemented any mechanism for effectively
centralizing and organizing the large amount of information and electronic
4
<PAGE> 6
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 internal networks.
OUR STRATEGY
We believe that our eHR solution, together with our comprehensive
consulting services, will enable us to assume broad responsibility for
management of our clients' human resources people, processes, technologies and
third-party vendors, and to deliver our clients increased human capital
productivity at reduced cost. 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 across our client base;
- Provide expert consulting services;
- 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 1000, Irvine, California 92614, and our telephone number is
(949) 250-8002.
5
<PAGE> 7
THE OFFERING
Common stock offered by Exult....... 9,000,000 shares
Shares to be outstanding after this
offering............................ 87,529,981 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 78,529,981 shares outstanding as of March 31, 2000, and does not
include 11,233,560 shares of common stock issuable upon the exercise of options
outstanding as of March 31, 2000 at a weighted average exercise price of $1.79
per share, or 968,195 shares of common stock issuable upon the exercise of
warrants outstanding as of March 31, 2000 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 $14 per share;
- assumes that the underwriters will not exercise their over-allotment
option and no other person will exercise any other outstanding options or
warrants;
- gives effect to the exercise of warrants to purchase an aggregate of
667,844 shares of Series C preferred stock and 3,339,220 shares of common
stock;
- gives effect to the conversion of all outstanding shares of preferred
stock into an aggregate of 65,484,786 shares of our common stock at the
closing of this offering at a rate of 900 shares of common stock for each
share of Series A preferred stock; five shares of common stock for each
share of Series B and Series C preferred stock; and one share of common
stock for each share of Series D preferred stock. The purchase prices
paid for our preferred stock, which form the basis for the "conversion
price" or rate at which the preferred stock converts into common stock,
are as follows: $.044 per share for the Series A preferred stock, $1.084
per share for the Series B preferred stock, $2.056 per share for the
Series C preferred stock and $8.714 per share for the Series D preferred
stock. No further payments will be made in connection with conversion of
the preferred stock.
6
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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 to reflect our acquisition of certain assets of Gunn
Partners, Inc., as if such acquisition had occurred on January 1, 1999, 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 667,844 shares of Series C preferred stock,
the conversion of all outstanding preferred stock into 65,484,786 shares of
common stock, and the exercise of options to purchase 271,675 shares of common
stock. The pro forma consolidated statement of operations data for the three
months ended March 31, 2000 shows our pro forma results of operations to reflect
the subsequent exercise of warrants to purchase an aggregate of 3,339,220 shares
of common stock and 667,844 shares of Series C preferred stock and the
conversion of all outstanding preferred stock into 65,484,786 shares of common
stock upon completion of the offering.
<TABLE>
<CAPTION>
OCTOBER 29,
1998 PRO FORMA PRO FORMA
(INCEPTION) COMBINED THREE MONTHS ENDED THREE MONTHS
TO YEAR ENDED YEAR ENDED MARCH 31, ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------------- MARCH 31,
1998 1999 1999 1999 2000 2000
------------ ------------ ------------ ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue....................... $ -- $ 4,857 $ 15,245 $ -- $ 5,577 $ 5,577
Gross profit (loss)........... -- 359 7,075 -- (173) (173)
Loss from operations.......... (187) (15,475) (19,370) (516) (11,694) (11,694)
Net loss...................... (184) (15,212) (19,090) (510) (10,902) (10,902)
Net loss per share:
Basic and diluted........... $(140.48) $ (2.20) $ (0.25) $(56.66) $ (1.16) $ (0.14)
Weighted average number of
common shares outstanding:
Basic and diluted........... 1,307 6,906,334 75,998,174 9,000 9,434,300 78,258,306
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
---------------------------------------
DECEMBER 31, PRO FORMA
1999 ACTUAL PRO FORMA AS ADJUSTED
------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and investments.............. $39,199 $ 93,702 $106,138 $222,018
Working capital..................................... 31,957 83,121 95,557 211,437
Total assets........................................ 58,767 119,197 131,633 247,513
Long-term obligations, net of current portion....... 4,304 4,289 4,289 4,289
Convertible preferred stock......................... 58,768 122,734 -- --
Total stockholders' equity.......................... 46,110 99,748 112,184 228,064
</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 consolidated balance sheet data give effect to the
same transactions as described above for the pro forma combined consolidated
statement of operations data for the three months ended March 31, 2000. Our pro
forma as adjusted consolidated balance sheet data also give effect to the
receipt and application of the estimated net proceeds from the sale of the
9,000,000 shares offered by this prospectus. For more information regarding our
use of the proceeds from this offering, see "Use of Proceeds."
7
<PAGE> 9
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 could 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. We
have only three clients 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, produce satisfactory results for our
clients and attract new 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 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, and we anticipate revenue from this contract will represent a majority
of our future revenue for at least the next year and possibly in future periods.
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
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arrangement. We have no experience operating in foreign countries and we might
not be able to manage the HR needs of BP Amoco or potential future clients on a
global basis.
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 fully implemented. The system is complex and
the first release of myHR, with limited features, was only recently implemented
for BP Amoco in the second quarter of 2000. We expect to add greater
functionality in subsequent releases. Application of myHR to BP Amoco and other
clients requires 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. For example, we recently invested significant time in some potential
client relationships that have not yet resulted in contracts. It is possible
that these or any other 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. The transition of BP Amoco's HR processes to our systems and
infrastructure is not scheduled to be complete until February 2001, and could be
delayed. We attempt to negotiate long-term contracts in order to give us 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
$10.9 million for the three months ended March 31,
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<PAGE> 11
2000 and a net loss of $15.2 million for the year ended December 31, 1999. For
the year ended December 31, 1999, we used cash of $7.6 million in operating
activities and $9.6 million in investing activities. We expect to continue to
make significant and increasing investments in the development of our eHR
solution, client service centers, and web technologies, the expansion of our
sales and marketing and service capabilities and the procurement of additional
contracts. To the extent that these amounts are capitalized, significant
depreciation and amortization will be incurred reducing future profitability. 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 expect to incur net losses in 2000 and 2001, and 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.
Because 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. 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 for themselves the services we
contract to deliver. 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 have had difficulty finding enough people with the skills and
experience to meet all of our hiring needs, including in information
technology and business development. 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 currently have only one operational client service center near Houston
in The Woodlands, Texas and we plan to begin full-scale operations at a
second center in Glasgow, Scotland by mid to
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late 2000. These centers are designed to handle our existing client
demands, but we must open new client service centers in new geographic
locations to handle any significant growth in our business. 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 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.
DAMAGES, SERVICE INTERRUPTIONS OR FAILURES AT EITHER OF OUR CLIENT SERVICE
CENTERS OR IN OUR COMPUTER AND TELECOMMUNICATIONS SYSTEMS COULD ADVERSELY AFFECT
OUR BUSINESS, RESULTS OF OPERATIONS AND REPUTATION.
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 in The Woodlands, Texas and another center under development in
Glasgow, Scotland. 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 begin full-scale operations at a new client
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<PAGE> 13
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;
- 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. 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 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;
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<PAGE> 14
- content;
- 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.
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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 rely upon 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, but we cannot provide any assurance that we will be able to complete
any acquisitions, or that any acquisitions we may complete will enhance our
business. Pursuit and completion of acquisitions could subject us to a number of
risks, including:
- diversion of management's 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
computer systems are currently processing 21st century dates correctly, these
companies, including us, could experience latent Year 2000 problems.
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<PAGE> 16
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:
- disruption in our ability to deliver reliable, comprehensive HR services;
- increase in our allocation of resources to address Year 2000 problems
without additional revenues; and
- litigation costs relating to losses suffered by our customers due to Year
2000 problems.
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 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 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 72.8% OF OUR
STOCK AFTER THIS OFFERING AND CAN CONTROL 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 72.8% 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 $115.9
million 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.
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
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<PAGE> 17
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 attention 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.
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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," "plans," "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 goals and strategies, the
anticipated scope and result of our business operations, and our ability to:
- successfully implement a comprehensive eHR solution for BP Amoco and
potential future clients;
- complete development of myHR;
- obtain other comprehensive process management contracts;
- expand our centers of expertise;
- establish new client service centers in Glasgow, Scotland and in future
locations;
- increase revenue, control expenditures and recognize economies of scale;
and
- expand our sales and marketing capabilities and our technology and
general operating infrastructure.
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.
------------------------------
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.
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USE OF PROCEEDS
The net proceeds from the sale of the 9,000,000 shares of common stock sold
by us in this offering will be approximately $115.9 million, or approximately
$133.5 million if the underwriters' over-allotment option is exercised in full,
based on an assumed initial public offering price of $14 per share, after
deducting underwriting discounts and commissions and estimated offering expenses
payable by us.
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 the following purposes:
- The creation of new and expansion of existing client service centers,
including capital expenditures for equipment and leasehold improvements;
- the expansion of our technology infrastructure;
- the repayment of indebtedness related to our acquisition of Gunn Partners
in November 1999 (approximately $9.1 million was outstanding at March 31,
2000); and
- the expansion of our sales and marketing capabilities, principally
related to additional personnel and increased promotional activities.
We also plan to use an unspecified portion of the net proceeds of this
offering to acquire or invest in complementary businesses, services or
technologies. 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 evaluate potential acquisitions of these
businesses, assets, services or technologies. At this time, however, we do not
have any commitments to effect any acquisition and no such acquisition is
imminent.
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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CAPITALIZATION
The following table indicates our cash and cash equivalents and
capitalization as of March 31, 2000:
- on an actual basis;
- on a pro forma basis to reflect the subsequent exercise of warrants to
purchase an aggregate of 3,339,220 shares of common stock and 667,844
shares of Series C preferred stock, and the conversion of all outstanding
preferred stock into 65,484,786 shares of common stock upon the closing
of this offering;
- on a pro forma as adjusted basis to reflect the foregoing exercises and
conversions, as well as the issuance of 9,000,000 shares of common stock
in this offering at an assumed public offering price of $14 per share,
after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and investments.................. $ 93,702 $ 106,138 $ 222,018
========= ========= =========
Long-term obligations, net of current portion........... $ 4,289 $ 4,289 $ 4,289
Stockholders' equity:
Convertible preferred stock, $.0001 par value;
15,000,000 shares authorized; 13,462,497 shares
issued and outstanding, actual; no shares issued
and outstanding, pro forma and pro forma as
adjusted........................................... 122,734 -- --
Common stock, $.0001 par value; 500,000,000 shares
authorized; 9,705,975 shares issued and
outstanding, actual; 78,529,981 shares issued and
outstanding, proforma; 87,529,981 shares issued and
outstanding, proforma as adjusted.................. 1 8 9
Additional paid-in capital............................ 6,962 142,125 258,004
Deferred compensation................................. (3,652) (3,652) (3,652)
Accumulated deficit................................... (26,297) (26,297) (26,297)
--------- --------- ---------
Total stockholders' equity......................... 99,748 112,184 228,064
--------- --------- ---------
Total capitalization.......................... $ 104,037 $ 116,473 $ 232,353
========= ========= =========
</TABLE>
These share amounts exclude 11,233,560 shares of common stock issuable upon
the exercise of stock options outstanding as of March 31, 2000 at a weighted
average exercise price of $1.79 per share and 968,195 shares of common stock
issuable upon exercise of warrants outstanding as of March 31, 2000 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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DILUTION
The pro forma net tangible book value of Exult, Inc. as of March 31, 2000
was approximately $117.1 million, or $1.33 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 March 31, 2000, after giving effect
to the subsequent exercise of warrants to purchase an aggregate of 667,844
shares of Series C preferred stock and 4,307,415 shares of common stock, the
exercise of options to purchase an aggregate of 8,879,865 shares of common
stock, and the conversion of all outstanding shares of preferred stock into an
aggregate of 65,484,786 shares of common stock at the closing of this offering.
After giving effect to our sale of the 9,000,000 shares of common stock offered
by this prospectus at an initial public offering price of $14.00 per share and
the receipt and application of those net proceeds, our pro forma net tangible
book value as of March 31, 2000 would have been $233.0 million, or $2.39 per
share of common stock. This represents an immediate increase in pro forma net
tangible book value of $1.07 per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $11.61 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............. $14.00
Pro forma net tangible book value per share as of March
31, 2000............................................... $ 1.32
Increase per share attributable to new investors.......... 1.07
------
Pro forma net tangible book value per share after this
offering.................................................. 2.39
------
Dilution per share to new investors......................... $11.61
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000,
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
$14.00 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......... 78,529,981 80.7% $142,132,708 49.8% $ 1.81
Warrants and options
exercisable within sixty
days........................ 9,848,060 10.1 17,462,001 6.1 1.77
New investors................. 9,000,000 9.2 126,000,000 44.1 14.00
---------- ----- ------------ -----
Total.................... 97,378,041 100.0% $285,594,709 100.0%
========== ===== ============ =====
</TABLE>
The foregoing tables and calculations assume the exercise of warrants to
purchase 968,195 shares of common stock and options to purchase 8,879,865 shares
of common stock, at a weighted average exercise price of $1.27 and $1.83,
respectively, which will become exercisable within the next sixty days. The
foregoing tables assume no exercise of the underwriters' over-allotment option.
20
<PAGE> 22
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 public accountants, included elsewhere in this prospectus. The
following selected financial data for Gunn Partners as of December 31, 1997 and
1998, and for the years ended December 31, 1997 and 1998, and for the period
from January 1, 1999 to November 22, 1999, the date we acquired Gunn Partners,
has been derived from the audited financial statements of Gunn Partners included
elsewhere in this prospectus, which were audited by Vitale, Caturano and
Company, P.C., Gunn Partners' independent public accountants. The selected
financial data for Gunn Partners as of December 31, 1996 and for the years ended
December 31, 1995 and 1996 has been derived from Gunn Partners' unaudited
financial statements included elsewhere in this 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 financial statements for Gunn Partners,
previously an S corporation, reflect a pro forma adjustment for income taxes
that would have been paid if the Company had been a C corporation. The
adjustments are $0, $0, $0, $6,193 and $4,342 for the years ended December 31,
1995, 1996, 1997 and 1998, and for the period ended November 22, 1999,
respectively. 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) THREE MONTHS ENDED
TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ----------------------
1998 1999 1999 2000
------------ ------------ -------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ -- $ 4,857 $ -- $ 5,577
Cost of revenue............................................. -- 4,498 -- 5,750
-------- ---------- -------- ----------
Gross profit................................................ -- 359 -- (173)
Expenses:
Product development....................................... -- 368 -- 804
Selling, general and administrative....................... 187 15,466 516 10,717
-------- ---------- -------- ----------
Total expenses.......................................... 187 15,834 516 11,521
-------- ---------- -------- ----------
Loss from operations........................................ (187) (15,475) (516) (11,694)
Interest income, net........................................ 3 263 6 792
-------- ---------- -------- ----------
Net loss.................................................... $ (184) $ (15,212) $ (510) $ (10,902)
======== ========== ======== ==========
Net loss per share:
Basic and diluted......................................... $(140.48) $ (2.20) $ (56.66) $ (1.16)
======== ========== ======== ==========
Weighted average number of common shares outstanding:
Basic and diluted......................................... 1,307 6,906,334 9,000 9,434,300
======== ========== ======== ==========
Pro forma net loss per share:
Basic and diluted......................................... $ (0.20) $ (0.14)
========== ==========
Pro forma weighted average number of common shares
outstanding:
Basic and diluted......................................... 75,998,174 78,258,306
========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1998 1999 2000
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and investments...................... $ 851 $39,199 $ 93,702
Working capital............................................. 813 31,957 83,121
Total assets................................................ 854 58,767 119,197
Long term obligations, net of current portion............... -- 4,304 4,289
Convertible preferred stock................................. 1,000 58,768 122,734
Total stockholders' equity.................................. 816 46,110 99,748
</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.
21
<PAGE> 23
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)
<S> <C> <C> <C> <C> <C>
PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue........................ $7,961 $7,867 $8,783 $13,168 $10,388
Cost of revenue.................... 3,147 3,135 4,213 4,197 3,672
------ ------ ------ ------- -------
Gross profit....................... 4,814 4,732 4,570 8,971 6,716
Selling, general and administrative
expenses......................... 4,887 4,716 4,571 8,958 6,708
Income (loss) from operations...... (73) 16 (1) 13 8
Interest (expense) income, net..... (12) (3) 1 22 17
------ ------ ------ ------- -------
Net (loss) income.................. $ (85) $ 13 $ -- $ 35 $ 25
====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<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>
22
<PAGE> 24
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 the
following transactions had completed as of January 1, 1999: our acquisition of
the business 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 667,844 shares of Series C preferred stock, the conversion of all
outstanding preferred stock into 65,484,786 shares of common stock, and the
exercise of options to purchase 271,675 shares of common stock.
23
<PAGE> 25
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 $10,388 $ -- $ 15,245
Cost of revenue........................... 4,498 3,672 -- 8,170
-------- ------- ------- ----------
Gross profit.............................. 359 6,716 -- 7,075
-------- ------- ------- ----------
Total operating expense................... 15,834 6,708 3,903(b) 26,445
-------- ------- ------- ----------
(Loss) income from operations........ (15,475) 8 (3,903) (19,370)
-------- ------- ------- ----------
Interest income, net...................... 263 17 -- 280
-------- ------- ------- ----------
Net (loss) income.................... $(15,212) $ 25 $(3,903) $ (19,090)
======== ======= ======= ==========
Net loss per common share:
Basic and diluted....................... $ (0.25)
Weighted average common shares
outstanding:
Basic and diluted(c).................... 75,998,174
</TABLE>
- -------------------------
(a) We acquired the business of Gunn Partners on November 22, 1999 for
approximately $14.0 million and accounted for this acquisition under the
purchase method of accounting. 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 667,844 shares of Series C preferred
stock, the conversion of all outstanding preferred stock into 65,484,786
shares of common stock, and the exercise of options to purchase 271,675
shares of common stock.
24
<PAGE> 26
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 broad management responsibility for
processes throughout 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-enabled interface, myHR, in
August 1999 and deployed the first release of myHR with limited features for BP
Amoco 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 process management
services in December 1999. In addition, commencing in June 1999 we recognized
revenue for certain work we performed for BP Amoco before our contracts were
signed. 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. Under
the contracts for the United States and United Kingdom, we will manage BP
Amoco's basic HR processes in those countries, which represent approximately 70%
of BP Amoco's employees and annuitants. Through a mutually agreed upon schedule
and procedure, we will migrate the HR processes we have agreed to manage to our
client service centers and begin to implement 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 for itself the service we have agreed to
provide. During the 14 month transition period, we expect that our cost of
providing the service, managing the migration and implementing change will
exceed the revenue. 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 amounts 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. If savings in excess of the gain sharing threshold
are achieved, our revenue would be reduced by the amount of gain sharing due our
client. However, our gross profit measured in dollars and as a percentage of
revenue would increase. There are no assurances that savings can be achieved to
this magnitude and we may experience fluctuations in our revenue and gross
profit resulting from the use of estimates of gain sharing that differ from
actual results. Although gain sharing is an important component of the BP Amoco
contract and may be duplicated in future contracts to encourage efficiencies, we
do not expect gain sharing to have a significant impact on our results in any
given period because it is not applicable to all sources of revenue and cost,
and cost reductions are often implemented and realized over extended periods. If
we are unable to successfully manage the process and reduce the costs, we could
be subjected to further losses.
In November 1999, we purchased the business 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. The purchase price for this acquisition was $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 unit. In connection with this
transaction we hired approximately 35 of their employees.
25
<PAGE> 27
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 $3.5 million. 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 developing
another client service center in Glasgow, Scotland to support the BP Amoco
contracts.
We expect our primary source of revenue for the near future to be the fees
we earn for providing our eHR process management services under long-term
contracts. We recognize revenue under these contracts as the services are
rendered. A secondary source of revenue is the benchmarking studies and other
consulting services performed by Gunn Partners. We recognize revenue for these
benchmarking services either at the time the study is completed and the report
is delivered, or over the period in which services are performed as information
or feedback is provided to the client. As part of our eHR solution, we will also
manage our clients' relationships with third party vendors. In most cases, we
expect to become responsible for the vendor contracts and we will include in
revenue all charges that we collect from our clients. We will pay the costs of
these services to the third party vendors, and such costs will be included in
our cost of revenues. 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 framework for due
diligence and contract negotiations. Our letter of intent may provide for
reimbursement of some or all of our direct and indirect costs incurred during
this process if a contract is not signed. To the extent such costs are
guaranteed by the letter of intent, reimbursements of costs will be included in
revenue. To the extent reimbursements are not guaranteed, such amounts will be
expensed as incurred and will be 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
technology and general operating infrastructures. In addition, we recorded
aggregate deferred compensation for common stock and stock options issued of
approximately $3.6 million and $793,000 for the year ended December 31, 1999 and
for the period ended March 31, 2000, respectively. These amounts will be
amortized to expense using the straight-line method over the vesting period of
approximately forty-eight months. 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
26
<PAGE> 28
following table sets forth statement of operations data expressed as a
percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
<S> <C> <C>
Revenue.................................................... 100.0% 100.0%
Cost of revenue............................................ 92.6 103.1
------ ------
Gross profit............................................... 7.4 (3.1)
Expenses:
Product development...................................... 7.6 14.4
Selling, general and administrative...................... 318.4 192.2
------ ------
Total expenses........................................ 326.0 206.6
------ ------
Loss from operations....................................... (318.6) (209.7)
Interest income, net....................................... 5.4 14.2
------ ------
Net loss................................................... (313.2)% (195.5)%
====== ======
</TABLE>
Our primary activities in the first quarter of 1999 and the period Exult
existed in 1998 were organization and planning. During this time, we generated
no revenue and only minimal interest income. We hired a few employees and
incurred associated selling, general and administrative expenditures.
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
At March 31, 1999, we had only five employees and had not generated any
revenue. Selling, general and administrative expense for the three months ended
March 31, 1999 was $516,000, which consisted primarily of the salary and
benefits of the employees, legal, accounting and other consulting fees, and
facility costs. Due to the early stage of our business during the three months
ended March 31, 1999, our operating results for this period do not bear
significant relationship to our operating results for the three months ended
March 31, 2000.
Revenue
Revenue for the three months ended March 31, 2000 was $5.6 million, which
primarily consisted of approximately $2.5 million of contract revenue derived
from our three process management clients. The balance of our revenue primarily
consisted of consulting revenue generated from various clients through our Gunn
Partners business unit, which was acquired on November 22, 1999.
Cost of Revenue
Cost of revenue consists primarily of expenses associated with the third
party vendors whom we manage for our clients, salaries, bonuses and benefits of
employees directly involved in providing our services, computer and
communications equipment costs and services and facilities. Our cost of revenue
for the three months ended March 31, 2000 was $5.8 million and our gross margin
for the same period was a negative 3.1%. We expect gross profit to continue to
be negative for at least the rest of 2000 as we expand capacity and continue to
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 three months ended
March 31, 2000 was approximately $804,000 or 14.4% as a percentage of revenue.
We expect to continue to substantially increase our spending for product
development throughout 2000 and plan to continue to spend at least the same
dollar amount in future years. We did not capitalize any expenditures for either
development or research and
27
<PAGE> 29
benchmarking. We cannot assure you that our product development efforts will
provide us with the desired results or will 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. Selling, general
and administrative expense for the three months ended March 31, 2000 was $10.7
million or 192.2% as a percentage of revenue. We anticipate that selling,
general and administrative expense in 2000 will increase in absolute dollars as
we hire additional administrative and sales and marketing personnel, engage
additional consultants and expand our facilities to support our growing
infrastructure.
Depreciation and amortization included in selling, general and
administrative expense was approximately $1.7 million for the three months ended
March 31, 2000. This amount included amortization of intangibles associated with
the acquisition of certain assets of Gunn Partners which was approximately $1.1
million. Depreciation and amortization also included the amortization of
deferred compensation of approximately $275,000.
Interest Income, Net
Interest income, net for the three months ended March 31, 2000 was
approximately $792,000, which consisted primarily of interest income of
approximately $996,000 generated from short-term investments raised from private
equity placements, which was offset in part by interest expense of approximately
$204,000 associated with debt incurred in 1999 in connection with our purchase
of the business 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 the quarter, resulting in federal and state net
operating loss carryforwards which begin to expire in 2018 and 2006,
respectively.
Net Loss
The foregoing resulted in a net loss for the quarter ended March 31, 2000
of $10.9 million. We expect to continue to incur net losses for at least the
years 2000 and 2001.
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.
Cost of Revenue
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. We expect to incur a net loss in 2001 and may have negative
gross profit for that period depending upon our rate of growth and commensurate
expenditures.
28
<PAGE> 30
Product Development Expense
Product development expense for the year ended December 31, 1999 was
approximately $368,000 or 7.6% as a percentage of revenue. We did not capitalize
any costs in 1999 for internally developed software for research and
benchmarking.
Selling, General and Administrative Expense
For the year ended December 31, 1999, selling, general and administrative
expense was $15.5 million or 318.4% 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 $943,000. This amount included
amortization of intangibles associated with the acquisition of certain assets of
Gunn Partners was approximately $357,000. Also included was the amortization of
deferred compensation of approximately $479,000.
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 raised from private equity placements,
offset in part by interest expense of approximately $71,000 associated with Gunn
Partners acquisition debt and capitalized leases.
Income Taxes
We incurred losses in 1999, resulting in federal and state net operating
loss carryforwards which expire beginning in 2018 and 2006, respectively.
Net Loss
The foregoing resulted in a net loss for the year ended December 31, 1999
of $15.2 million. We expect to continue to incur net losses for at least the
years 2000 and 2001.
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.
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 six 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
29
<PAGE> 31
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, MARCH 31,
1998 1999 1999 1999 1999 2000
------------ --------- ----------- ------------- ------------ -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ -- $ -- $ 213 $ 2,031 $ 2,613 $ 5,577
Cost of revenue.................. -- -- 213 2,031 2,254 5,750
----- ----- --------- -------- ------- --------
Gross profit..................... -- -- -- -- 359 (173)
Expenses:
Product development............ -- -- 54 106 208 804
Selling, general and
administrative............... 187 516 2,616 3,639 8,695 10,717
----- ----- --------- -------- ------- --------
Total expenses............... 187 516 2,670 3,745 8,903 11,521
----- ----- --------- -------- ------- --------
Loss from operations............. (187) (516) (2,670) (3,745) (8,544) (11,694)
Interest income, net............. 3 6 61 67 129 792
----- ----- --------- -------- ------- --------
Net loss......................... $(184) $(510) $ (2,609) $ (3,678) $(8,415) $(10,902)
===== ===== ========= ======== ======= ========
AS A PERCENTAGE OF REVENUE:
Revenue.......................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................. 100.0 100.0 86.2 103.1
--------- -------- ------- --------
Gross profit..................... -- -- 13.8 (3.1)
Expenses:
Product development............ 25.3 5.2 8.0 14.4
Selling, general and
administrative............... 1,228.2 179.2 332.7 192.2
--------- -------- ------- --------
Total expenses............... 1,253.5 184.4 340.7 206.6
--------- -------- ------- --------
Loss from operations............. (1,253.5) (184.4) (326.9) (209.7)
Interest income, net............. 28.6 3.3 4.9 14.2
--------- -------- ------- --------
Net loss......................... (1,224.9)% (181.1)% (322.0)% (195.5)%
========= ======== ======= ========
</TABLE>
In the quarter ended March 31, 2000, we earned approximately $2.5 million
from our three process management clients and the remainder primarily from
consulting services rendered to various clients. In the quarter ended December
31, 1999, we acquired the business 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-enabled 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 our historical
results. See "Risk Factors -- Our quarterly revenues and operating results are
volatile and may cause our stock price to fluctuate."
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
$11.2 million for the three
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months ended March 31, 2000. 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 investing
activities was $9.6 million in 1999 and $3.6 million in the three months ended
March 31, 2000. Approximately $4.4 million in 1999 and $3.6 million in the three
months ended March 31, 2000, first quarter of 2000 was spent to purchase
computer and related equipment and office furnishings. Included in 1999 was $3.5
million spent to purchase assets used internally by a client and now used to
support that client as well as other clients. In 1999, we also spent $5.0
million in cash and incurred $10.0 million of debt in connection with our
acquisition of most of the assets of Gunn Partners. The aggregate purchase price
was allocated to costs incurred in connection with assembling a work force, Gunn
Partners' client list, the name "Gunn Partners", the non-compete covenant, the
research database and an immaterial amount of equipment which were assigned
lives ranging from one to five years. 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 to 15.0 million in 2000 and again in 2001 on capital
expenditures, which will be amortized over three to five years. In addition, we
expect to spend at least $4.0 million to $6.0 million in both years for research
and development, which we believe will not qualify for capitalization and
amortization. From time to time, in the ordinary course of business, we evaluate
potential acquisitions of related businesses, assets, services or technologies.
At this time, however, we do not have any commitments to effect any acquisition
and no such acquisition is imminent.
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
12 months. We are unable to predict whether the net proceeds from this offering
and cash on hand will be adequate to satisfy our working capital requirements
beyond 12 months after the offering because our capital needs will vary
depending upon future market conditions and business opportunities, among other
factors, and we are not certain when or if we will be able to achieve profitable
operations and positive cash flow. If we need additional funds, we will seek to
raise them from equity or debt financing. Regardless of whether additional funds
are actually 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
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<PAGE> 33
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.
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 the business of Gunn Partners
and hired most of its employees. The 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>
YEAR ENDED JANUARY 1,
DECEMBER 31, 1999 THROUGH
----------------- NOVEMBER 22,
1997 1998 1999
------ ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenue........................................ $8,783 $13,168 $10,388
Expenses........................................... 8,784 13,155 10,380
------ ------- -------
Profit (loss) from operations...................... (1) 13 8
Interest income, net............................... 1 22 17
------ ------- -------
Net income......................................... $ -- $ 35 $ 25
====== ======= =======
</TABLE>
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 $2.8 million to $10.4 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 $2.8 million to $10.4 million for the period
ended November 22, 1999, as compared to the prior year.
Gunn Partners operated as an S corporation and did not incur federal income
taxes because profits, if any, were either paid to the employee owners as
compensation or distributed to the owners. State income tax expense historically
has been immaterial.
Our current and future business operations are not comparable to the
operations of Gunn Partners.
We purchased the business 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.
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BUSINESS
OVERVIEW
Exult is the first company to offer comprehensive management of human
resources departments for Global 500 corporations. We call our service "eHR"
because we will use our software, state-of-the-art information technology
capabilities, and Internet or web-enabled communications to transform our
clients' HR departments into proactive, global, knowledge-based organizations
focused on strategy and policy rather than transactions and administration. A
key component of our eHR solution is "myHR," our web-based system for linking
our clients and their employees together. myHR will act as a portal through
which our clients' employees, managers and annuitants can access their HR
information systems, and as a browser that can navigate through those systems to
find information and process transactions. myHR is designed to eliminate the
numerous organizational, transactional and communication barriers that exist in
large corporations, provide comprehensive data, information and decision
support, and facilitate our clients' business processes and interactive
communication 24 hours a day, seven days a week, regardless of business unit or
location. Our eHR solution also leverages resources and achieves economies of
scale through our HR best practices expertise, expert HR process consulting and
research capabilities, and shared client service centers, which handle our
clients' HR transaction, production and call center requirements. Our objective
is to become the leading provider of comprehensive HR process management
solutions that enable large, multinational corporations to reduce their HR costs
and increase the productivity of their human capital.
INDUSTRY BACKGROUND
THE CURRENT STATE OF HUMAN RESOURCES DEPARTMENTS IN THE GLOBAL
500. Traditional human resources departments within large, multinational
corporations often struggle with the challenges 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. An employee base of this magnitude presents logistical complexities, and
the human resources function in a typical Global 500 corporation is complicated
by multiple human resources groups for different business units within the
corporation and the lack of central information repositories and coordinated
communications infrastructures. 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, multi-process 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 and the multiplicity of
divisions and third party vendors. Also, in order to manage an entire HR
organization effectively, 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.
EXPANSION OF THE INTERNET. The Internet makes our comprehensive service
delivery model possible by facilitating interactive communications among large
groups of individuals in multiple geographic locations. The Hunter Group
estimates that by using the functionality of the Internet to move HR delivery to
a
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largely self-service mode, organizations can achieve annual HR cost reductions
of approximately 25% to 30%. To date, however, HR organizations have not fully
utilized the Internet because they have not broadly implemented any mechanism
for effectively centralizing and organizing the large amount of information and
electronic transmissions generated by 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 internal networks.
OUR STRATEGY
We believe that our eHR solution, together with our comprehensive
consulting services, will enable us to assume broad responsibility for
management of our clients' human resources people, processes, technologies and
third party vendors, and to deliver our clients increased human capital
productivity at reduced cost. The following are the key elements of our
strategy:
- LEVERAGE TECHNOLOGY AND THE INTERNET FOR ENHANCED HR PERFORMANCE. Using
the Internet, emerging technologies and myHR, we are designing and
building an integrated eHR infrastructure to connect all of the various
people, processes, technologies and third party vendors involved in an HR
organization and to provide 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.
We plan to use our eHR infrastructure to implement, measure, monitor and
consistently apply best practices throughout clients' HR operations.
Employee access to this infrastructure through the myHR portal should
enhance communication and efficiency throughout our clients' global
organization.
- ESTABLISH MYHR AS AN INTEGRAL TOOL IN THE WORKPLACE. We expect myHR to
become the workplace home page for our clients' employees. Through this
portal, employees will be able to access personnel information, employee
productivity tools, and the Internet and communicate freely with other
people throughout the organization. myHR will enable employees to perform
both HR and non-HR tasks and 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. 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 and 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 complete transformation of
our clients' HR organizations which further demonstrates our mutual
commitment and shared goals. The long-term nature of our contracts helps
us to provide greater visibility of future revenue streams and better
information for determining future investment decisions.
- UTILIZE AND LEVERAGE SHARED RESOURCES ACROSS OUR CLIENT BASE. Through our
shared client service centers, we plan to share personnel and
technological, physical and third party resources across our client base.
Each service center facility will handle multiple clients and utilize
automated processes and technology to provide efficient client service
and achieve economies of scale. Our centers of expertise, which consist
of a team of HR experts spanning a broad spectrum of HR disciplines,
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.
We anticipate that our centers of expertise will also refine our
processes based on experience gained with multiple clients and
incorporate evolving best practices into our eHR solution so that our
clients receive the benefit of the best and most current thinking across
all HR processes and systems. 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
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performance and cost. We plan to leverage our shared service centers,
centers of expertise, and centralized vendor management to deliver
improved service levels and cost savings.
- PROVIDE EXPERT CONSULTING SERVICES. Through our Gunn Partners unit, we
offer expertise in the provision of consulting and research services to
major corporations in many aspects of human resources processes and
management. Gunn Partners generates revenue through its own consulting
and research activities, provides strategic assistance in structuring our
client relationships, assists in cross-marketing, and provides us with a
service offering for potential clients that are not yet ready for our
full eHR solution.
- 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 fields of HR and information
technology 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 and
transactional 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 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.
THE EHR SOLUTION
We believe that our eHR solution simplifies and standardizes our clients'
HR practices and procedures, and delivers improved management information and
employee communications at significant cost savings. Transition and
transformation of clients' HR management functions to eHR 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 unit, 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 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 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.
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<PAGE> 37
WEB-ENABLEMENT AND MYHR
By applying the Internet, emerging technologies and myHR 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. Our eHR solution will integrate state-of-the-art
technology and various software applications and business processes from the
client's own internal information and communications systems to compile and
centralize a wealth of HR information. Our browser interface, myHR, will enable
our clients and their employees to access that information easily and
efficiently and to use that information in new ways. We expect myHR to become
the employee's workplace home page and the personal portal for the direct
management of work experiences. Through this portal, employees will be able to
access personnel information, employee productivity tools and the Internet, and
communicate freely with other people throughout the organization. myHR will
enable employees to perform both HR and other work-related tasks and will
encourage employees to become more self-sufficient in handling many day-to-day
HR functions, ranging from changing benefits online to staffing a project. 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.
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 24 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. If the employee needs personalized assistance or has
questions, the employee can access an HR representative 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 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.
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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 center requirements 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
expect to add additional client service centers as our business grows and
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 continuously understand and address the needs of our clients and
their employees, and to introduce improved HR processes and procedures,
in each of the five major categories of HR processes. This group
currently consists of a small number of individuals and is expected to
expand significantly. These individuals will work from a variety of
locations throughout the world, 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 third
party vendors. 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 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 better service levels and 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.
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- SYSTEMS AND APPLICATIONS. We will manage 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 subcontracted 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 manage HR functions and third party vendors in all of
these processes 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.
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 timely and accurate processing of our
clients' payroll, and manage their deferred compensation, stock options,
long-term performance, defined benefit and 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 concerning HR best
practices from our consulting unit and our centers of
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expertise. 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
and manage our clients' 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.
GUNN PARTNERS ACQUISITION
In November 1999, we acquired the business of Gunn Partners, Inc., a
business process improvement consulting and research 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 now operates 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 benchmarking, studies 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
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
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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 until approximately February 2001.
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 enter into a supplemental agreement with
the affiliate for that country for an expected term of five years, subject to
consent from the relevant BP Amoco affiliate. 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, 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 for the remaining term of the
agreement but not to exceed two years. 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. We expect to rely upon BP
Amoco for the majority of our revenue for at least the next year and possibly in
future periods. If BP Amoco were to substantially reduce or stop the use of our
services, our reputation and future revenues would be seriously impaired. Short
of terminating an entire Country Agreement, BP Amoco may also terminate our
rights to provide particular
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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 operates approximately 85 facilities
in approximately 17 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 23,000 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 April 30, 2000, our sales group consisted of nine
professionals, and our marketing group consisted of seven professionals. We
employ a team approach to business development whereby our sales 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, advertising, 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 publicize 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
- 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.
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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 also filed service mark applications for these marks in Australia, Canada,
Europe, and Switzerland. 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 April 30, 2000, we employed 231 people, including 38 in service
development, 121 in operations and delivery, 16 in sales and marketing, 30 in
consulting and research and 26 in general and administrative. All employees
other than two 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.
FACILITIES
Our corporate headquarters are located in approximately 19,000 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 $77,000. We anticipate that we will need additional
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headquarters space before the end of that lease. We also currently lease
approximately 71,000 square feet of office space for our shared service center
in The Woodlands, Texas under a lease that expires in April 2006, and
approximately 31,000 square feet of office space for our shared service center
in Glasgow, Scotland under a lease that expires in March 2010. Under the Glasgow
lease the landlord or we may terminate the lease in March 2005 with 12 months'
prior notice. Our monthly base rental payment is approximately $36,000 for our
Texas facility and $73,000 for our Scotland facility. We also lease office space
for our consultants in Georgia, Massachusetts, New York, United Kingdom and
Switzerland.
The Texas service center is designed to house 350 personnel engaged
principally in call center, payroll, and other support activities necessary to
meet our service commitments to our current clients. We are currently building
out the infrastructure of our Glasgow facility, and when it is operational in
mid to late 2000, it will have capacity to house approximately 200 personnel
engaged principally in call center, payroll, and other support activities. These
centers are designed to handle our existing client demands and will accommodate
some incremental growth in our client base, but we expect to open new client
service centers in new geographic locations to handle any significant growth in
our business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information with respect to our executive
officers, key employees and directors as of May 5, 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 W. Gunn............................ 52 Vice President, Executive Client Lead
Mark B. Hodges............................ 36 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(1)....................... 40 Director
Steven A. Denning......................... 51 Director
Mark F. Dzialga........................... 35 Director
Michael A. Miles(2)....................... 60 Director
Thomas J. Neff(1)......................... 62 Director
John R. Oltman(2)......................... 55 Director
A. Michael Spence(1)(2)................... 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.
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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 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.
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, including as a partner for three years. 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 W. 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 1998, 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
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and Management Development Business for the New Zealand Board, the Asia-Pacific
Board and the 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 an 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
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member of the Board of Directors of Philip Morris Companies Inc. and Chairman
and Chief Executive 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, Inc.
THOMAS J. NEFF has been a Director of Exult since May 2000. Mr. Neff has
been the Chairman of Spencer Stuart, U.S. since October 1996, and has been
employed with Spencer Stuart since 1976, including as President from 1979 until
October 1996. Before joining Spencer Stuart, he was a principal with Booz, Allen
& Hamilton, Inc. from 1974 to 1976, served as President of Hospital Data
Sciences, Inc. from 1969 to 1974, and held a senior marketing position with TWA
from 1966 to 1969. Mr. Neff received his M.B.A. degree from Lehigh University
and a B.S. in Industrial Engineering from Lafayette College. He is a director of
ACE Limited, the Lord Abbett Mutual Funds and myjobsearch.com.
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 COUNCIL
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 council includes:
- Naomi Bloom, Managing Partner of Bloom & Wallace, a consulting company
focused on HR information technology and HR management systems;
- Row Henson, Vice President, Human Resources Management Systems for
PeopleSoft USA, Inc., a software provider of HR management systems;
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- Dave Ulrich, Professor of Business at the University of Michigan;
- Jac Fitz-enz, Ph.D., Chairman and founder of the Saratoga Institute, an
HR research and benchmarking firm;
- 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, a management consulting firm;
- Robert W. Gunn, Vice President, Executive Client Lead for Exult and
founder of Gunn Partners; and
- Patrick F. McNally, former Partner and Regional Managing Director,
Andersen Consulting.
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 is divided into three classes of directors serving
staggered three-year terms, with approximately one-third of the board of
directors elected each year. The term of our Class 1 directors, Messrs. Dzialga,
Neff and Miles, will expire at our 2001 annual meeting of stockholders and at
each third annual stockholders' meeting thereafter; the term of our Class 2
directors, Messrs. Oltman and Spence, will expire at our 2002 annual meeting of
stockholders and at each third annual stockholders' meeting thereafter; and the
term of our Class 3 directors, Messrs. Cline, Denning and Madden, will expire at
our 2003 annual meeting of stockholders and at each third annual stockholders'
meeting thereafter. Directors may be removed only for cause, and the board of
directors may fill vacancies or increase the size of the Board of Directors.
These provisions deter stockholders from removing incumbent directors and
filling these vacancies with their own nominees and make it difficult even for
stockholders voting a majority of our shares to change control of the board of
directors in less than two years.
COMMITTEES OF THE BOARD
The board of directors has an audit committee and a compensation committee.
The audit committee consists of Messrs. Miles, Oltman and Spence. 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. Cline, Neff 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.
During the last fiscal year, Mr. Madden participated in deliberations of our
board of directors concerning executive officer compensation. 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.
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<PAGE> 50
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 have in the past received various option grants and opportunities
to purchase shares of our common stock. In addition, each of our directors will
receive an option to purchase up to 25,000 shares of common stock upon our sale
of stock in this offering, with the exception of Mr. Cline who will receive an
option to purchase up to 50,000 shares of common stock at such time. The
exercise price for these options will be equal to the initial public offering
price. After the closing of this offering, new non-employee directors will upon
appointment receive an initial option to purchase up to 25,000 shares of common
stock at an exercise price equal to the fair market value of the common stock on
the date of grant. In addition, on the date of each annual stockholders' meeting
each non-employee director who has served as a director for at least 180 days
and is to continue as a non-employee director following that meeting will
receive an option to purchase up to 10,000 shares of common stock at an exercise
price equal to the fair market value of the common stock on the date of grant.
The options to be granted to current directors in connection with this offering
and the initial and annual options to be granted to non-employee directors in
the future will vest with respect to 25% of the underlying shares on the first
anniversary of the date of grant, and with respect to the balance of the
underlying shares in 36 equal monthly installments thereafter. See "-- Stock
Option/ Equity Incentive Plans."
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, based upon our financial performance 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, based upon
our financial performance as 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, based upon our financial performance as
determined by our board of directors and Chief Executive Officer, and her
achievement of specified management goals. 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
based upon our financial performance as determined by our board of
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<PAGE> 51
directors and Chief Executive Officer. 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 based upon our financial performance as determined by our board of
directors and Chief Executive Officer, and her achievement of specified
management goals. 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.
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by and paid to our
Chief Executive Officer and our four most highly compensated executive officers
other than the CEO 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
the officer's 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.
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(3) Includes $9,167 for life insurance premiums paid by Exult and $7,054 for
relocation expenses.
(4) Includes $97,052 for relocation expenses.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock options granted to
the named executive officers during 1999. We have not granted any stock
appreciation rights. Each option listed in the table below was granted under the
1999 plan.
<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>
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 from the fair market value on the date of grant are mandated by
rules of the Securities and Exchange Commission and do not represent our
estimate or projection of our future common stock prices. Actual gains, if any,
on stock option exercises are dependent on the future performance of our common
stock and overall stock market conditions.
YEAR-END OPTION HOLDINGS
The following table provides aggregated stock 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 $14 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 $ 7,841,341 $ 3,166,667
Stephen M. Unterberger............ 1,013,280 1,565,045 13,946,921 21,523,797
Barbara A. Coull-Williams......... 124,000 -- 1,692,902 --
Scott J. Figge.................... 353,185 441,400 4,770,453 5,832,860
Rebecca L. Work................... 147,510 -- 2,014,262 --
</TABLE>
Except to the extent exercisability is limited by the tax requirements
pertaining to incentive stock options, 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 with respect to 25% of the shares
on the first anniversary of the date of grant
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<PAGE> 53
and with respect to the remaining 75% of the shares in equal monthly
installments over the following 36 months. The option shares included in the
"unexercisable" columns above option shares are subject to this repurchase
right.
STOCK OPTION/EQUITY INCENTIVE PLANS
1999 PLANS
In May 1999 we adopted our basic 1999 Stock Option/Stock Issuance Plan for
awards to directors, officers, employees and consultants. In November 1999 we
adopted our 1999 Special Executive Stock Option Plan for grants of stock options
to officers and other highly compensated employees. As of March 31, 2000,
options to purchase an aggregate of 8,167,565 shares were outstanding and
2,232,215 shares were available for future option grants under the basic 1999
plan, and options to purchase an aggregate of 3,065,995 shares were outstanding
and no further shares were available for option grants under the special 1999
plan. Beginning with the effective date of this offering, we will grant stock
options under the 2000 Equity Incentive Plan described below, and the available
share reserve under the basic 1999 plan will be transferred to the 2000 plan. To
the extent we cancel, terminate or repurchase any unvested shares of common
stock issued under either 1999 plan, these shares will become available for
future issuance under the 2000 plan.
Options issued under the 1999 plans are 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. All options under
the 1999 plans were granted with an exercise price equal to the fair market
value of the common stock on the grant date, and have a term of ten years from
the grant date, except that incentive stock options granted to a holder of more
than 10% of our stock have an exercise price of 110% of the fair market value on
the grant date, and a term of five years from the grant date.
Options outstanding under the 1999 plans generally vest with respect to 25%
of the underlying shares on the first anniversary of the date of grant. Options
issued to officers, directors and some key employees vest with respect to the
balance of the underlying shares in 36 equal monthly installments following the
first anniversary of the date of grant. Other options vest with respect to the
balance of the underlying shares in three equal annual installments on the
second, third and fourth anniversaries of the date of grant, respectively.
Options issued under the 1999 plans generally may be exercised before
vesting, but unvested shares may be repurchased by us, at the option exercise
price paid per share, in the event of the termination of the optionee's services
with us before vesting in those shares.
2000 EQUITY INCENTIVE PLAN
The 2000 Equity Incentive Plan is the successor program to our 1999 Stock
Option/Stock Issuance Plan and our 1999 Special Executive Stock Option Plan. Our
2000 Equity Incentive Plan has been approved by our board of directors and
stockholders and is effective beginning with the date of this offering. All
outstanding options under our 1999 Stock Option/Stock Issuance Plan and 1999
Special Executive Stock Option Plan will be transferred to the 2000 Equity
Incentive Plan. Except as otherwise noted, the transferred options have
substantially the same terms as described below for options granted under the
discretionary option grant program of our 2000 plan.
Under the 2000 plan, 20,000,000 shares of our common stock have been
authorized for issuance. This share reserve consists of approximately 11.5
million shares subject to outstanding awards granted under the 1999 plans and
transferred to the 2000 plan, approximately 2.3 million shares authorized for
issuance under the 1999 Stock Option/Stock Issuance Plan but not issued or
subject to outstanding awards, and approximately 6.5 million additional shares.
The share reserve under our 2000 plan will automatically increase on the first
trading day in January of each year, beginning with calendar year 2001, by an
amount
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<PAGE> 54
equal to 5% of the total number of shares of our common stock outstanding on the
last trading day in December in the prior year, but in no event will any such
annual increase exceed 6,000,000 shares. In addition, no participant in our 2000
plan may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances for more than 1,000,000 shares of common stock
per calendar year.
Our 2000 plan has four separate programs:
- the discretionary option grant program, under which eligible individuals
may be granted options to purchase shares of our common stock at an
exercise price not less than the fair market value of those shares on the
grant date;
- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, either through the purchase of
such shares at a price not less than their fair market value at the time
of issuance, or as a bonus tied to the attainment of performance
milestones or the completion of a specified period of service;
- the non-employee directors' automatic option grant program, under which
option grants will automatically be made at specified times to eligible
non-employee board members to purchase shares of common stock at an
exercise price equal to the fair market value of those shares on the
grant date; and
- the director fee option grant program, under which non-employee board
members may elect to have all or a portion of their director fees
otherwise payable in cash applied to a special stock option grant.
The individuals eligible to participate in our 2000 plan include our
officers and other employees, our board members and any consultants we hire.
The 2000 plan is administered by our board of directors or its compensation
committee, which we refer to as the plan administrator. This plan administrator
determines which eligible individuals receive option grants or other awards, the
time or times when the awards are to be made, the number of shares subject to
each award, 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 award and the maximum term for which any award is to
remain outstanding. However, the plan administrator does not exercise discretion
with respect to the terms of non-employee directors' automatic option grants,
which are fixed by the 2000 plan. Furthermore, discretion over awards made under
the 2000 plan to persons who are subject to Section 16 of the Securities
Exchange Act of 1934 is exercised by a special option committee consisting of
two or more non-employee directors who meet the criteria set forth in the SEC's
rules under Section 16.
The exercise price for any options and the issue price for shares granted
pursuant to the plan may be paid in cash or in vested shares of our common stock
held long enough to avoid a charge to our earnings for financial reporting
purposes and valued at fair market value on the exercise date. Options may also
be exercised through a same-day sale program through which proceeds from sale of
underlying shares are applied to pay the exercise price. In addition, the plan
administrator may allow participants to deliver a full-recourse,
interest-bearing promissory note in payment of the exercise price for options or
issue price for shares and to deliver such a note or vested shares of our common
stock to satisfy any associated withholding taxes. The plan administrator may
also permit options to be exercised on a net-issuance basis through which we
retain enough of the shares issuable upon exercise, valued at fair market value
on the date of exercise, to cover the aggregate exercise price and any
associated withholding taxes.
The plan administrator will have the authority to cancel outstanding
options (other than non-employee directors' automatic options), 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.
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<PAGE> 55
Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the fair
market value of the shares subject to the surrendered options less the exercise
price payable for those shares. We may make the payment in cash or in shares of
our common stock. None of the outstanding options under the 1999 plans have any
stock appreciation rights.
If we are acquired or sell substantially all of our assets, each
outstanding option, including the options transferred from the 1999 plans (but
not including non-employee directors' automatic options) will automatically
accelerate, and all unvested shares will immediately become vested and
exercisable unless the successor corporation assumes the options or replaces
them with a cash incentive program of the successor corporation which preserves
the spread existing on the unvested option shares at the time of the transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to those option shares. 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 options issued to officers
and some key employees, and related repurchase rights for options exercised
before vesting, will automatically accelerate in the event of the termination of
the optionee's services or material diminution in terms of employment within a
designated period, not to exceed 18 months, following a transaction in which
those options are assumed or continued in effect.
The plan administrator may structure options and repurchase rights to vest
in their entirety if we are acquired in a merger or asset sale, or if more than
50% of our outstanding shares are acquired in a tender offer, or if there is a
change in the majority of our board through one or more contested elections for
board membership. The plan administrator may also structure outstanding or newly
granted options to vest in their entirety if we are acquired and the optionee's
service with us or the acquiring entity is terminated after the acquisition. The
vesting of any outstanding shares under the stock issuance program may be
accelerated upon similar terms and conditions.
Under the non-employee directors' automatic option grant program, each
individual who first becomes a non-employee board member at any time after the
effective date of this offering will receive an option to purchase up to grant
25,000 shares of common stock on the date such individual joins the board. In
addition, on the date of each annual stockholders meeting each non-employee
board member who is to continue to serve as a non-employee board member will
automatically receive an option to purchase up to 10,000 shares of common stock.
Each automatic grant will have an exercise price per share equal to the fair
market value per share of our common stock on the grant date and will have a
term of ten years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each automatic
grant and initial grant will vest with respect to 25% of the underlying shares
on the first anniversary of the grant date, and with respect to the balance of
the underlying shares in 36 equal monthly installments thereafter. The shares
subject to each outstanding non-employee directors' automatic option will
immediately vest in full upon certain changes in control or ownership.
If the plan administrator activates the director fee option grant program
in the future, each non-employee board member may elect to reduce any cash
retainer fee for the year and receive on the first trading day in January in the
year for which the fees would otherwise be payable in cash, an option to
purchase that number of shares of common stock determined by dividing the amount
of the fee applied to the program by two-thirds of the fair market value per
share of our common stock on the grant date. The option will have an exercise
price per share equal to one-third of the fair market value of the option shares
on the grant date. As a result, the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal to
the portion of the retainer fee applied to that option. The option will become
exercisable in a series of 12 equal monthly installments over the calendar year
for which the fee election is to be in effect.
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<PAGE> 56
Outstanding options under the automatic option and director fee option
grant programs will immediately vest if we are acquired by a merger or asset
sale or if there is a successful tender offer for more than 50% of our
outstanding voting stock or a change in the majority of our board through one or
more contested elections.
Limited stock appreciation rights will automatically be included as part of
each grant made under the automatic option program or director fee option grant
program. Options with this feature may be surrendered to us upon the successful
completion of a hostile tender offer for more than 50% of our outstanding voting
stock. In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based upon
the highest price per share of our common stock paid in that tender offer.
The board may amend or modify the 2000 plan and any provisions of the 1999
plans at any time, subject to any required stockholder approval. The 2000 plan
will terminate on May 31, 2010.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors and stockholders have approved our 2000 Employee
Stock Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code. This plan is administered through a series of successive
quarterly purchase periods beginning July 1, 2000. US employees who are
scheduled to work more than 20 hours per week or more than five calendar months
per year may elect to participate by contributing to the plan a portion, not in
excess of 10%, of their after-tax pay for each pay period during the quarter. We
will retain their accumulated contributions until the end of each quarter and
then apply them to the purchase of shares of our common stock. The purchase
price will be the lesser of the fair market value of the common stock on the
first day of the quarter or the fair market value of the common stock on the
last day of the quarter, minus a 15% discount. Participants may not transfer
shares purchased under the plan for at least 180 days after the purchase date.
Each participant's quarterly purchases are capped at $6,250 worth of stock. The
plan will continue to be in effect for a term of 20 years. The plan
administrator may at any time terminate or amend the plan, except as
specifically prohibited by law.
If we are acquired by merger or asset sale, all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price will be the lesser of the fair market value per
share of common stock on the first day of the quarter in which such acquisition
occurs or the fair market value per share of common stock immediately prior to
such acquisition, minus a 15% discount.
We also plan to implement stock purchase plans for our employees who live
in other countries. The terms of these additional plans will be as close as
practicable to the US plan, subject to compliance with local legal requirements.
The total number of shares available for purchase under the US plan and any
other stock purchase plans we may implement for our employees who reside in
other countries will be 2,000,000.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that our directors will not be
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as directors, provided that this provision does not eliminate
the liability of the directors for the following:
- breach of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct, or a knowing violation of law;
- payment of dividends or approval of stock repurchases or redemptions that
are prohibited by Delaware law; and
- any transaction from which the director derived an improper personal
benefit.
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Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors, officers, employees and agents against expenses
incurred in connection with legal actions arising from their service to the
corporation if they acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interest of the corporation and, with
respect to any criminal action or proceeding had no reasonable cause to believe
their conduct was unlawful. Our bylaws require us to indemnify our directors and
officers to the greatest extent permitted under Delaware law, and we have
entered into indemnification agreements with our directors and our executive
officers to the same effect. We also maintain directors' and officers' liability
insurance.
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, and 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> 58
CERTAIN TRANSACTIONS
Since our formation in October 1998, there has not been, nor is there any
proposed, transaction in which 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 Member of
General Atlantic Partners, LLC. Mark Dzialga, a director of Exult, is a member
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., General Atlantic Partners 57, 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 $39,361 to James Madden, our Chief Executive
Officer, President and Chairman of the Board. At the time of the sale, 922,500
of the shares were vested and the remaining 7,933,500 were unvested. The
unvested shares vest at the rate of 184,500 shares per month as long as Mr.
Madden remains employed by Exult. If Mr. Madden resigns his employment
voluntarily or if we terminate his employment with cause, we have the right to
repurchase any or all of the shares that have not vested at that time at a price
of $.004 per share. If we terminate Mr. Madden's employment without cause, we
have the right to repurchase up to half of the shares that have not vested at
that time. General Atlantic Partners, LLC will have a right to purchase any
unvested shares that we have a right to purchase but do not purchase upon
termination of Mr. Madden's employment. As of March 31, 2000, 5,904,000 of Mr.
Madden's shares remained unvested. All of the shares will have vested as of
December 1, 2002 if Mr. Madden remains employed with us until that time.
BP INTERNATIONAL LIMITED
We have entered into agreements to provide human resources management
services to BP International Limited and two of its affiliates. We estimate the
total amount payable to us for the expected duration of these agreements will be
approximately $600 million, although the actual amount will vary based upon a
number of factors, including failure to extend our services as broadly through
the client's organization as we expect, and our client's right to terminate the
agreements for convenience beginning in 2002, or at any time for our material
breach of significant and repeated performance failures. The actual amount we
receive under these agreements may be significantly less than we expect. The
agreements are described in "Business -- Major Clients -- BP Amoco."
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, and warrants to purchase up to 667,844 shares of our Series C preferred
stock, convertible into an aggregate of 3,339,220 shares of our common stock, at
an initial exercise price of $10.28 per share, increasing daily at an annual
rate of 12%, compounded daily, following the date of issuance of the warrant. BP
Amoco exercised these warrants effective in April 2000 for an aggregate exercise
price of $12,435,255 and we issued the shares of Series C preferred stock and
common stock underlying these warrants in May 2000. In February 2000, we sold
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<PAGE> 59
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, and these shares will convert into 1,929,025 shares of common
stock upon completion of this offering.
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 shareholder of Gunn Partners, and will receive
approximately $4.0 million of the total proceeds from this acquisition.
OTHER RELATED PARTY TRANSACTIONS
We have entered into an indemnification agreement with each of our
executive officers and directors containing provisions that 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, and to advance
expenses incurred as a result of any proceeding against them as to which they
could be indemnified, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of Exult and
its stockholders. 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 directors.
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<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table indicates information as of May 5, 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 of common stock beneficially owned and the percentage
of shares beneficially owned are based on 78,529,981 shares of common stock
deemed outstanding as of May 5, 2000, giving effect to the conversion of all of
our preferred stock into common stock upon consummation of this offering, and
87,529,981 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 May 5, 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% 60.2%
Mark Dzialga(2)............................................. 52,708,745 67.1 60.2
General Atlantic Partners and its affiliates(2)............. 52,698,745 67.1 60.2
James C. Madden(3).......................................... 9,562,988 12.1 10.8
BP International Limited.................................... 8,607,465 10.1 9.1
DB Capital Investors, L.P.(4)............................... 2,295,160 2.9 2.6
Goldman, Sachs & Co. and its affiliates(5).................. 2,295,160 2.9 2.6
Stephen M. Unterberger(6)................................... 1,950,001 2.4 2.2
Mellon Ventures II, L.P.(7)................................. 1,147,580 1.5 1.3
52nd Street Associates(8)................................... 874,240 1.1 1.0
Scott J. Figge(6)........................................... 647,343 * *
John R. Oltman(9)........................................... 200,150 * *
Thomas J. Neff(6)........................................... 200,000 * *
Rebecca L. Work(6).......................................... 157,905 * *
Barbara A. Coull-Williams(6)................................ 124,000 * *
A. Michael Spence(10)....................................... 127,195 * *
Michael A. Miles(10)........................................ 127,195 * *
J. Michael Cline(6)......................................... 10,000 * *
All officers and directors as a group (17 persons)(11)...... 67,267,833 80.6% 72.8%
</TABLE>
- -------------------------
* Less than one percent
(1) The address for each of the officers and directors is 4 Park Plaza, Suite
1000, 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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<PAGE> 61
(2) Includes 52,698,745 shares held by the following General Atlantic
partnerships: 4,191,300 shares held by GAP Coinvestment Partners, L.P.;
31,212,050 shares held by General Atlantic Partners 54, L.P.; 1,205,143
shares held by General Atlantic Partners 57, L.P.; 4,400,887 shares held by
GAP Coinvestment Partners II, L.P. and 11,689,365 shares held by General
Atlantic Partners 60, L.P. Also includes for each of Messrs. Dzialga and
Denning, options to purchase 10,000 shares of common stock which are
exercisable within 60 days of May 5, 2000. Each of Messrs. Denning and
Dzialga are directors of Exult. Mr. Denning is the Executive Managing
Member 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 of the
shares held by the General Atlantic partnerships, except to the extent of
their primary interest therein.
(3) Includes 885,600 shares issuable upon exercise of options that are
exercisable within 60 days of May 5, 2000.
(4) These shares are beneficially owned by Deutsche Bank AG, the parent
corporation of DB Capital Partners, Inc., which is the general partner of
DB Capital Investors, L.P.
(5) Includes 1,650,474 shares held by GS Capital Partners III, L.P.; 453,735
shares held by GS Capital Partners III Offshore, L.P.; 76,194 shares held
by Goldman, Sachs & Co. Verwaltungs GmbH; and 114,757 shares held by Stone
Street Fund 2000, L.L.C.
(6) Consists solely of shares issuable upon exercise of options that are
exercisable within 60 days of May 5, 2000.
(7) These shares are beneficially owned by MVMA, Inc., a Delaware corporation,
the general partner of MVMA II, L.P., a Delaware limited partnership, which
is the general partner of Mellon Ventures II, L.P.
(8) These shares are beneficially owned by McKinsey & Company, Inc., the parent
corporation of 52nd Street Associates.
(9) Includes (a) 190,150 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 May 5, 2000.
(10) Includes 10,000 shares issuable upon exercise of options that are
exercisable within 60 days of May 5, 2000.
(11) Includes 4,919,748 shares issuable upon exercise of options that are
exercisable within 60 days of May 5, 2000.
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<PAGE> 62
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.
Our authorized capital stock consists 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 31, 2000, and giving effect to the conversion of all outstanding
shares of our preferred stock into common stock in connection with this
offering, 78,529,981 shares of common stock were outstanding and held of record
by approximately 25 holders. Holders of our common stock are entitled to one
vote per share for each share held of record on all matters submitted to a vote
of common stockholders. Holders of common stock do not have cumulative voting
rights. Our board of directors is divided into three classes of directors
serving staggered three-year terms, with approximately one-third of the
directors elected each year. 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 our 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. 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 65,484,786 shares
of our common stock. Thereafter, the board of directors is authorized to issue
from time to time, without further vote or action by the stockholders, 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. 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 board
of directors could issue preferred stock having voting dividend and liquidation
rights superior to those of the common stock, which could adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others, and delay, defer or prevent 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, bylaws and Delaware law
described below may make it more difficult for third parties to acquire control
of Exult, deprive stockholders of the opportunity to
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<PAGE> 63
realize a premium on the shares of common stock owned by them, and adversely
affect the prevailing market price of our stock. Nevertheless, we believe these
provisions are beneficial because they may:
- 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 enhance the ability of the board of
directors to negotiate appropriate terms on behalf of stockholders;
- 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; and
- discourage unfair tactics that may be used in proxy fights.
DELAWARE ANTI-TAKEOVER LAW. We are subject to 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.
BOARD CLASSIFICATION. Under our bylaws, our board of directors is divided
into three classes of directors serving staggered three-year terms, with
approximately one-third of the directors elected each year. This prevents
majority stockholders or persons holding proxies to vote a majority of our
shares from changing control of our board of directors in fewer than two annual
stockholder meetings.
FILLING BOARD VACANCIES AND REMOVAL OF DIRECTORS. Subject to the rights of
the holders of any outstanding series of preferred stock, our bylaws permit
directors but not stockholders to fill board vacancies, including newly created
directorships. Under our bylaws and Delaware law, while the board is classified
directors may be removed by stockholders only for cause. Furthermore, our
certificate of incorporation requires the affirmative vote of holders of
two-thirds of the outstanding shares of voting stock to remove a director. These
provisions 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, and from influencing a change-in-control of Exult through
board representation.
STOCKHOLDER MEETINGS AND VOTING. Our certificate of incorporation prohibits
stockholder action by written consent without a meeting. Our bylaws provide that
only the board of directors, the Chairman of the Board, the Chief Executive
Officer, or the Secretary acting on request of the Chairman or Chief Executive
Officer may call special meetings of stockholders. Stockholders may not call
special meetings. At regular meetings of stockholders, stockholders may make
proposals and nominate directors only if they have complied with the advance
notice requirements set forth in our bylaws. These provisions 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.
SUPERMAJORITY VOTE REQUIREMENT. The board may amend our bylaws, but
stockholders may not change the provisions of our certificate of incorporation
and bylaws described above without a two-thirds vote. These voting requirements
give the board substantial flexibility, but make it more difficult for
stockholders to control or influence Exult by amending the certificate of
incorporation or bylaws 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 more
than two-thirds of our common stock. As a result, these stockholders will have
veto power with respect to stockholder actions or approvals for the foreseeable
future.
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<PAGE> 64
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. These
warrants may be exercised at any time and expire 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 of the warrant shares vest quarterly from the
respective date of each warrant over a one year period. The holder of each
warrant may exercise the warrant shares that have vested at any time up to
September 22, 2009.
REGISTRATION RIGHTS
After this offering, holders of 77,047,690 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. Upon sale pursuant to such 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.
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<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have 87,529,981 shares of common
stock outstanding assuming no exercise of options after March 31, 2000. Of this
amount, the 9,000,000 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, 43,944,640 additional 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................... 9,000,000 Freely tradable shares sold in this
offering
180 days............................. 43,944,640 Lock-up released; shares saleable
under Rule 144, 144(k) or 701
Over 180 days........................ 30,157,340 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 volume limitations described above. Persons
deemed to be affiliates are always subject to the volume limitations, 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 because 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, significant stockholders and a
purchaser of up to five percent of the shares in the offering have agreed 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 and
issue shares in connection with acquisitions and strategic transactions.
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
31, 2000, the holders of vested options to purchase approximately 659,424 shares
of common stock will be eligible to exercise their options and sell their shares
upon the expiration of the 180-day lockup period, subject to the vesting of
those options.
We intend to file registration statements on Form S-8 under the Securities
Act as soon as practicable after the completion of the offering to register all
shares of common stock reserved for issuance under our 1999 Stock Option/Stock
Issuance Plan, our 1999 Special Executive Stock Option Plan, our 2000 Employee
Stock Purchase Plan and our 2000 Equity Incentive Plan. This registration will
permit the resale
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<PAGE> 66
of these shares by nonaffiliates in the public market without restriction under
the 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 "-- Stock Option/Equity Incentive Plans."
In addition, holders of 77,047,690 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. See "Risk Factors -- Substantial sales of our common stock by
our existing investors following this offering could cause our stock price to
decline."
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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 1,350,000 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.......................................... 7,650,000
=========
</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 7,650,000 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 1,350,000 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.
Generally, we have agreed to indemnify each underwriter against liability
arising out of any untrue statement contained in the registration statement, any
preliminary prospectus or the final prospectus, or the omission of a material
fact required to be stated in the registration statement or such prospectus
necessary to make the statements in the registration statement or such
prospectus not misleading. In addition, we have agreed to indemnify each
underwriter against liability arising out of our violations of laws or
regulations of foreign jurisdictions where reserved shares have been offered.
The underwriters have agreed to indemnify us against liability with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the registration statement, any preliminary prospectus or the final
prospectus in reliance upon and in conformity with written information furnished
to us by that underwriter through Merrill Lynch expressly for use in the
registration statement, such preliminary prospectus or the prospectus. For more
detailed information on the terms of indemnification contained in the purchase
agreement, please see Exhibit 1.1 to the registration statement.
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.
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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.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to us. 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
1,147,500 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 202,500 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 10% of the shares offered by this prospectus for
sale to some of our directors, officers, employees, distributors, dealers,
business associates and related persons, including up to 5% to a strategic
business partner. 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.
67
<PAGE> 69
NO SALES OF SIMILAR SECURITIES
We, our executive officers, directors, all existing stockholders and a
purchaser of up to 5% of the shares in this offering have agreed, with
exceptions, including for issuances of shares relating to options, warrants,
employee benefits plans, acquisitions and strategic transactions, 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. Although Merrill Lynch may consider releasing certain
persons from the lockup restrictions due to financial hardship or a similar
reason, Merrill Lynch does not anticipate such a release, nor is any such
release currently contemplated.
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."
68
<PAGE> 70
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 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
Neither the Company nor the Underwriters will rely on third party providers
to comply with the prospectus delivery requirements. All purchasers will receive
a printed version of the final prospectus.
Merrill Lynch will be facilitating Internet distribution for this offering
to certain of its Internet subscription customers. Merrill Lynch intends to
allocate a limited number of shares for sale to its online brokerage customers.
An electronic prospectus is available on the website maintained by Merrill
Lynch. Other than the prospectus in electronic format, the information on the
Merrill Lynch website relating to this offering is not a part of this
prospectus.
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 31, 2000, Brobeck, Phleger & Harrison LLP and
certain entities or 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.
69
<PAGE> 71
The balance sheets of Gunn Partners, Inc. as of December 31, 1997 and 1998
and November 22, 1999, and the related statements of operations, retained
earnings and cash flows for the years ended December 31, 1997 and 1998 and the
period ended November 22, 1999 included in this prospectus and elsewhere in the
registration statement, have been audited by Vitale, Caturano and Company, P.C.,
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.
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.
70
<PAGE> 72
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
FINANCIAL STATEMENTS OF GUNN PARTNERS, INC.
Independent Auditor's Report................................ F-21
Balance Sheets.............................................. F-22
Statements of Income........................................ F-23
Statements of Retained Earnings............................. F-24
Statements of Cash Flows.................................... F-25
Notes to Financial Statements............................... F-26
Unaudited Statements of Income (Loss)....................... F-30
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> 73
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> 74
EXULT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
--------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
(NOTE 7)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents................... $ 850,965 $ 39,199,053 $ 88,701,505
Investments................................. -- -- 5,000,000
Accounts receivable......................... -- 824,399 3,432,097
Prepaid expenses and other current assets... -- 287,132 1,147,080
--------- ------------ ------------
Total Current Assets................. 850,965 40,310,584 98,280,682
--------- ------------ ------------
Property and equipment, net................... -- 4,439,882 7,656,016
Intangibles, net.............................. -- 13,603,134 12,541,022
Other assets.................................. 3,425 413,631 719,210
--------- ------------ ------------
Total Assets......................... $ 854,390 $ 58,767,231 $119,196,930
========= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................ $ 3,892 $ 1,453,593 $ 1,684,306
Accrued liabilities......................... 34,102 2,269,815 8,843,892
Current portion of long-term obligations.... -- 4,629,987 4,631,503
--------- ------------ ------------
Total Current Liabilities 37,994 8,353,395 15,159,701
--------- ------------ ------------
Long-Term Obligations, net of current
portion..................................... -- 4,304,219 4,289,084
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, 13,462,497 at March 31, 2000
(unaudited) and 0 pro forma (unaudited),
including additional paid-in capital.... 999,999 58,768,079 122,734,269 $ --
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,
9,705,975 at March 31, 2000 (unaudited)
and 78,529,981 pro forma (unaudited).... 1 943 970 7,852
Additional paid-in capital................ -- 5,970,616 6,962,214 142,124,856
Subscriptions receivable.................... -- (100,001) -- --
Deferred compensation....................... (3,134,172) (3,651,805) (3,651,805)
Accumulated deficit......................... (183,604) (15,395,848) (26,297,503) (26,297,503)
--------- ------------ ------------ ------------
Total Stockholders' Equity........... 816,396 46,109,617 99,748,145 112,183,400
--------- ------------ ------------ ------------
Total Liabilities and Stockholders'
Equity............................. $ 854,390 $ 58,767,231 $119,196,930
========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 75
EXULT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
OCTOBER 29,
1998
(INCEPTION) THREE MONTHS ENDED
TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ------------------------
1998 1999 1999 2000
------------ ------------ --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.................................. $ -- $ 4,857,190 $ -- $ 5,577,277
Cost of revenue.......................... -- 4,498,384 -- 5,750,321
--------- ------------ --------- ------------
Gross profit............................. -- 358,806 -- (173,044)
--------- ------------ --------- ------------
Expenses:
Product development.................... -- 368,012 -- 803,912
Selling, general and administrative.... 187,249 15,466,533 515,538 10,716,872
--------- ------------ --------- ------------
Total expenses...................... 187,249 15,834,545 515,538 11,520,784
--------- ------------ --------- ------------
Loss from operations..................... (187,249) (15,475,739) (515,538) (11,693,828)
Interest income, net................... 3,645 263,495 5,572 792,173
--------- ------------ --------- ------------
Net loss................................. $(183,604) $(15,212,244) $(509,966) $(10,901,655)
========= ============ ========= ============
Net loss per common share:
Basic and diluted...................... $ (140.48) $ (2.20) $ (56.66) $ (1.16)
Weighted average number of common shares
outstanding:
Basic and diluted...................... 1,307 6,906,334 9,000 9,434,300
Pro forma (note 7):
Net loss per common share:
Basic and diluted (unaudited).......... $ (0.20) $ (0.14)
Weighted average number of common shares
outstanding:
Basic and diluted (unaudited).......... 75,998,174 78,258,306
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 76
EXULT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
------------------------- --------------------------------------------
ADDITIONAL
PREFERRED PAID-IN DEFERRED
SHARES STOCK SHARES PAR CAPITAL COMPENSATION
---------- ------------ --------- ---- ---------- ------------
<S> <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...................................... -- -- -- -- -- --
---------- ------------ --------- ---- ---------- -----------
BALANCE, December 31, 1998...................... 25,000 999,999 9,000 1 -- --
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............. -- -- 8,856,000 885 38,476 --
Issuance of common stock for services and
subscription................................ -- -- 306,750 31 199,970 --
Common stock issued upon exercise of stock
options..................................... -- -- 262,550 26 196,539 --
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............................. -- -- -- -- 1,387,342 (1,387,342)
Deferred compensation related to stock options
granted..................................... -- -- -- -- 2,225,468 (2,225,468)
Amortization of deferred compensation......... -- -- -- -- -- 478,638
Net loss...................................... -- -- -- -- -- --
---------- ------------ --------- ---- ---------- -----------
BALANCE, December 31, 1999...................... 6,191,212 58,768,079 9,434,300 943 5,970,616 (3,134,172)
Common stock issued upon exercise of stock
options..................................... -- -- 271,675 27 198,598 --
Issuance of preferred stock:
Series C.................................... 385,805 3,966,117 -- -- -- --
Series D.................................... 6,885,480 60,000,073 -- -- -- --
Payment of subscription receivable............ -- -- -- -- -- --
Deferred compensation related to stock options
granted..................................... -- -- -- -- 793,000 (793,000)
Amortization of deferred compensation......... -- -- -- -- -- 275,367
Net loss...................................... -- -- -- -- -- --
---------- ------------ --------- ---- ---------- -----------
BALANCE, March 31, 2000 (unaudited)............. 13,462,497 $122,734,269 9,705,975 $970 $6,962,214 $(3,651,805)
========== ============ ========= ==== ========== ===========
<CAPTION>
TOTAL
ACCUMULATED SUBSCRIPTIONS STOCKHOLDERS'
DEFICIT RECEIVABLE EQUITY
------------ ------------- -------------
<S> <C> <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) -- (183,604)
------------ ------------ ------------
BALANCE, December 31, 1998...................... (183,604) -- 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 for services 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......... -- -- 478,638
Net loss...................................... (15,212,244) -- (15,212,244)
------------ ------------ ------------
BALANCE, December 31, 1999...................... (15,395,848) (100,001) 46,109,617
Common stock issued upon exercise of stock
options..................................... -- -- 198,625
Issuance of preferred stock:
Series C.................................... -- -- 3,966,117
Series D.................................... -- -- 60,000,073
Payment of subscription receivable............ -- 100,001 100,001
Deferred compensation related to stock options
granted..................................... -- -- --
Amortization of deferred compensation......... -- -- 275,367
Net loss...................................... (10,901,655) -- (10,901,655)
------------ ------------ ------------
BALANCE, March 31, 2000 (unaudited)............. $(26,297,503) $ -- $ 99,748,145
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 77
EXULT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
OCTOBER 29,
1998 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ------------------------
1998 1999 1999 2000
--------------- ------------ --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (183,604) $(15,212,244) $(509,966) $(10,901,655)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization........................... -- 942,752 598 1,687,469
Charge for warrants..................................... -- 4,546,580 -- --
Changes in operating assets and liabilities --
Investments............................................. -- -- -- (5,000,000)
Accounts receivable..................................... -- (824,399) -- (2,607,698)
Prepaid expenses and other current assets............... -- (287,132) (15,945) (859,948)
Other assets............................................ (3,425) (410,206) (500) (305,579)
Accounts payable........................................ 3,892 1,449,701 127,536 230,713
Accrued liabilities..................................... 34,102 2,235,713 (508) 6,574,077
---------- ------------ --------- ------------
Net cash used in operating activities............... (149,035) (7,559,235) (398,785) (11,182,621)
---------- ------------ --------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ -- (4,363,267) (10,766) (3,566,124)
Cash paid in acquisition of intangible assets............. -- (5,209,657) -- --
---------- ------------ --------- ------------
Net cash used in investing activities............... -- (9,572,924) (10,766) (3,566,124)
---------- ------------ --------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock................. 999,999 55,144,321 -- 63,966,190
Proceeds from issuance of common stock.................... 1 139,361 -- --
Payment of subscription receivable........................ -- -- -- 100,001
Exercise of stock options................................. -- 196,565 -- 198,625
Payments on capital lease obligation...................... -- -- -- (13,619)
---------- ------------ --------- ------------
Net cash provided by financing activities........... 1,000,000 55,480,247 -- 64,251,197
---------- ------------ --------- ------------
Net increase in cash and cash equivalents................... 850,965 38,348,088 (409,551) 49,502,452
Cash and cash equivalents, beginning of period.............. -- 850,965 850,965 39,199,053
---------- ------------ --------- ------------
Cash and cash equivalents, end of period.................... $ 850,965 $ 39,199,053 $ 441,414 $ 88,701,505
========== ============ ========= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ -- $ 4,615 $ -- $ 6,234
========== ============ ========= ============
Income taxes............................................ $ -- $ 800 $ -- $ 453
========== ============ ========= ============
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> 78
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
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 accounting
principles generally accepted in the United States 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.
Investments
As of March 31, 2000, the Company had approximately $5,000,000 invested in
certificates of deposit which bear interest at 5.87 percent and mature on
January 4, 2001.
Accounts Receivable
As of March 31, 2000, approximately $1,778,000 of unbilled receivables was
included in accounts receivable. Unbilled receivables consists of net amounts
earned in the course of providing services to clients which have not been billed
due to the timing in which the Company prepares, records and sends bills to its
clients.
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
F-7
<PAGE> 79
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
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.
Software Development
In accordance with Statement of Position ("SOP") 98-1, Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use, the Company
expenses all costs associated with the development or purchase of internal use
software other than those incurred during the application development stage.
Costs related to application development are capitalized and amortized over the
estimated useful life of the software, which ranges from three to five years.
The Company adopted SOP 98-1 on January 1, 1999. Prior to 1999, the Company did
not engage in the development of software. Expenditures subsequent to January 1,
1999, have been in connection with the conceptual formulation, design and
testing of various alternatives and have been expensed as incurred as they
pertain to research and development activity.
Intangibles, Net
Intangible assets consist of the portion of the purchase price of
businesses acquired in excess of the fair value of identifiable net tangible
assets acquired. Amortization is computed using the straight-line method over
the estimated useful lives of the assets.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, the Company assesses the recoverability of its
long-lived assets on an annual basis or whenever adverse events or changes in
circumstances of business climate indicate that expected undiscounted future
cash flows related to such long-lived assets may not be sufficient to support
the net book value of such assets. If undiscounted cash flows are not sufficient
to support the recorded assets, an impairment is recognized to reduce the
carrying value of the long-lived assets to the estimated fair value. Cash flow
projections, although subject to a degree of uncertainty, are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
Additionally, in conjunction with the review for impairment, the remaining
estimated lives of certain of the Company's long-lived assets are assessed. As
of December 31, 1999 and March 31, 2000, the Company has not recognized any
impairment of long-lived assets.
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.
After the Company has achieved a negotiated minimum cost reduction, the Company
is required to share further savings with its clients in a negotiated gain
sharing arrangement. The amount of savings to be shared with clients is
determined on a periodic basis in accordance with the terms 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
clients, revenue is recorded net of such amounts. For per diem contracts,
revenue is recognized based on contracted billing rates times actual hours
worked.
F-8
<PAGE> 80
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
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 Risk Factors
During the year ended 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 the first client for whom
the Company is assuming responsibility for management of functions in all of the
human resource processes. This contract is still at a very early stage. As such,
management believes that the Company's ability to secure future clients and
revenues will be largely dependent upon managing and administering this client's
human resource processes effectively and efficiently, and achieving service
levels and cost savings specified in the contract. Although this contract is not
scheduled to expire until December 2004, the client 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.
During the three months ended March 31, 2000, two of the Company's clients
accounted for approximately 19 percent and 20 percent of the Company's revenue.
The Company has and plans to continue to enter into fixed-price or
relatively fixed priced process management contracts. These contracts typically
are structured so that the Company receives fixed amounts that are generally
equal to or less than the client's historical costs incurred in connection with
the services the Company is assuming. After the Company has achieved a
negotiated minimum cost reduction, the Company is required to share further
savings with its clients in a negotiated gain sharing arrangement. If the
Company miscalculates the resources or time needed to perform under these
contracts or is not able to perform human resource management more cost
effectively than its clients, the costs of providing services could exceed the
fixed amount 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. 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 Company and its third-party vendors
are not able to meet these requirements, the clients can assess penalties
against the Company in accordance with the terms of the contracts. The
assessment of any penalties could adversely affect future operating results.
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-9
<PAGE> 81
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
Loss Per Share
Basic earnings per share is computed using the weighted-average number of
common stock 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 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 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.
Unaudited Interim Financial Information
The accompanying financial information for the three months ended March 31,
1999 and 2000, is unaudited. In the opinion of management, this information has
been prepared on substantially the same basis as the annual consolidated
financial statements and contains all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position and
results of operations as of such dates and for such periods.
F-10
<PAGE> 82
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
Recent Accounting Pronouncements
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 as
amended by SFAS No. 137, 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 SAB
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 and business, except for cash, accounts receivable, and unbilled
work-in-progress 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 (amounts in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Revenue..................................................... $ 15,245
Net loss.................................................... $(19,090)
Basic and diluted weighted average net loss per common
share..................................................... $ (0.25)
</TABLE>
The pro forma net loss includes $4,260,000 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-11
<PAGE> 83
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
4. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
Accounts Receivable
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
Billed................................................... $824,399 $1,654,236
Unbilled................................................. -- 1,777,861
-------- ----------
$824,399 $3,432,097
======== ==========
</TABLE>
Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
USEFUL LIFE 1999 2000
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures....................... 5 years $1,598,854 $1,715,540
Computers and equipment...................... 3 to 5 years 1,541,957 3,316,016
Leasehold improvements....................... Lease term 988,291 1,014,617
Construction-in-progress..................... 417,602 2,066,654
---------- ----------
4,546,704 8,112,827
Less: Accumulated depreciation and
amortization............................... (106,822) (456,811)
---------- ----------
Property and equipment, net.................. $4,439,882 $7,656,016
========== ==========
</TABLE>
Accrued Liabilities
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1998 1999 2000
------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued employee compensation benefits and
related costs.................................. $ -- $1,173,912 $3,516,546
Accrued professional services.................... -- 500,673 2,380,150
Other accrued liabilities........................ 34,102 595,230 2,947,196
------- ---------- ----------
Accrued liabilities.............................. $34,102 $2,269,815 $8,843,892
======= ========== ==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Lease Obligations
The Company leases space in the building it uses as its main office under
noncancellable operating lease agreements, which expire between July 1, 2002 and
May 10, 2003. On December 20, 1999, the Company purchased certain assets of
Pactive Corporation, including equipment and licenses for an aggregate purchase
price of approximately $3,500,000. As part of the asset purchase, several single
person office leases with varying expiration dates were assumed by the Company.
The Company assumed a building lease in Houston in association with the Pactiv
asset purchase, housing processing and shared
F-12
<PAGE> 84
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
service center staff. A furniture and equipment leasing facility was contracted
in November 1999 and is accounted for as a capitalized lease.
Future minimum rental commitments under leases, including those leases
entered into subsequent to December 31, 1999, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
-------- -----------
<S> <C> <C>
2000........................................................ $ 59,562 $ 2,726,282
2001........................................................ 59,562 3,003,137
2002........................................................ 49,635 2,849,580
2003........................................................ -- 2,084,184
2004........................................................ -- 1,830,460
Thereafter.................................................. -- 1,344,990
-------- -----------
Future minimum lease payments............................... 168,759 $13,838,633
===========
Less: Interest portion...................................... 30,109
--------
Present value of minimum lease payments..................... 138,650
Less: Current portion....................................... 42,831
--------
$ 95,819
========
</TABLE>
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, and March 31, 2000, were $6,165, $272,099, and
$440,486, respectively.
Service Agreement
On December 7, 1999, the Company entered into a seven-year Framework
Agreement with BP Amoco p.l.c. ("BP Amoco") to create a comprehensive human
resource services organization and provide a broad range of human resources
management services to BP Amoco and its affiliates. On the same date, the
Company entered into two five-year contracts under the Framework Agreement, a
U.S. Country Agreement and a United Kingdom Country Agreement. Under these
country agreements, the Company will assume management of BP Amoco's human
resources operations in the United States and the United Kingdom. In addition,
the Company has the right to provide human resources management services in
other countries in which BP Amoco desires to obtain such services, if the
Company can demonstrate its ability to meet their service needs and provide
specified cost savings.
The terms of the Framework Agreement require the Company to maintain a
letter of credit against certain contingencies for the first four years of the
contract. The Company provided an irrevocable two-year letter of credit from a
financial institution in the amount of $5,000,000. The Company achieved net
equity of $75,000,000 in February 2000, resulting in the elimination of its
obligation to provide letters of credit as previously required by the BP Amoco
agreement.
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.
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
F-13
<PAGE> 85
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
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 and $1,527,000 under the Incentive Plan in the year ended 1999 and
the period ended March 31, 2000, respectively, approximately $597,000 and
$2,044,000 of which was included in accrued liabilities as of December 31, 1999
and March 31, 2000, respectively.
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
percent annually.
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. At December 31, 1999, 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
authorized but unissued preferred stock which remain undesignated. On February
9, 2000, the third amended and restated Certificate of Incorporation designated
7,650,533 shares as series D convertible preferred stock.
In the event of liquidation, the series A, series B, series C and series D
preferred stock rank 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.
F-14
<PAGE> 86
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
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 shares of series A
convertible preferred stock in a private placement with institutional investors
for total consideration of approximately $1,000,000. Each share of series A
convertible preferred stock is convertible into 900 shares of common stock.
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. The Company estimated the fair value as of November 1998,
when his employment and the stock purchase was negotiated, based on recent cash
sales to third parties, adjusting the valuation for differences in rights
associated with each class of stock. 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 no
further shares vest. If the holder's employment terminates for any reason other
than cause, including death or disability, 50 percent of all unvested shares
will vest. Following termination of employment, the Company has the right to
repurchase any or all unvested shares at their original purchase price.
Subsequent to the lapse of the Company's repurchase right, the series A
institutional investors have a right to purchase the remaining unvested shares.
On April 27, 1999, the Company issued 1,696,369 shares of series B
convertible preferred stock in a private placement with institutional investors
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.
On June 6, 1999, the Company issued 306,750 shares of common stock to a
consultant in connection with services rendered valued at approximately $100,000
and for a subscription receivable of $100,001. The subscription receivable was
paid in the first quarter of 2000.
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 1999
Stock Option/Stock Issuance Plan.
On October 22, 1999, the Company issued 1,478,600 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
F-15
<PAGE> 87
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
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 1999 Stock Option/Stock Issuance 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 1999 Stock Option/Stock Issuance 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.
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 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. Each share of series D
convertible preferred stock is convertible into one share of common stock.
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.
Common Stock and Stock Option Deferred Compensation
The Company recorded aggregate deferred compensation for common stock and
stock options issued of approximately $3,134,000 and $3,652,000 for the year
ended December 31, 1999, and for the period ended March 31, 2000, respectively.
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 48-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 in the Company's certificate of incorporation,
all existing series A, series B, series C, and series D preferred stock will
automatically convert into common stock at the rate of 900 shares of common
stock for each share of series A preferred stock, five shares of common stock
for each share of series B and series C preferred stock, and one share of common
stock for each share of series D preferred 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
F-16
<PAGE> 88
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
December 31, 1999, reflects the Gunn acquisition, 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 667,844 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 271,675 shares of common stock.
The unaudited pro forma stockholders' equity at March 31, 2000, and the
unaudited pro forma net loss per share and weighted average number of common
shares outstanding for the period ended March 31, 2000, reflects the exercise of
warrants to purchase an aggregate of 3,339,220 shares of common stock and
667,844 shares of series C preferred stock and the conversion of all outstanding
preferred stock into 65,484,786 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. Under the terms of the Plan, the
maximum aggregate number and type of shares available pursuant to stock grants
and exercise of stock options under the Plan 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 is
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, and subject to Internal Revenue Service limitations for incentive
stock options, the option shares are initially unvested and subject to
repurchase by the Company upon termination of employment or services, at the
option exercise price per share. The optionee shall acquire a vested interest
in, and the Company's repurchase right shall lapse with respect to, 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.
At December 31, 1999, there were 262,550 shares subject to repurchase.
F-17
<PAGE> 89
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
1999 Special Executive Stock Option Plan
On November 19, 1999, the Company adopted the Special Executive Stock
Option Plan (the "Executive Plan"). Participation in the Executive Plan is
limited to officers and other highly compensated employees. As of March 31,
2000, options to purchase 3,065,995 common shares were outstanding under this
plan. No additional options may be granted under this 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 Executive Plan also provides that the exercise price for the shares of
common stock subject to option grants 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, 1999 MARCH 31, 2000
----------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ---------------- ---------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Options outstanding at beginning of
period................................. -- $ -- 10,145,360 $0.932
Granted................................ 10,407,910 0.927 1,499,955 8.166
Exercised.............................. (262,550) 0.748 (271,675) 0.720
Canceled............................... -- -- (140,080) 1.457
---------- ------ ---------- ------
Options outstanding at end of the
period................................. 10,145,360 $0.932 11,233,560 $1.790
========== ====== ========== ======
Options exercisable at end of period..... 5,809,270 $0.943 8,879,865 $1.828
</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:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net loss, as reported........................... $(15,212,244) $(10,901,655)
Pro forma adjustment............................ (242,939) (561,626)
------------ ------------
Pro forma net loss.............................. $(15,455,183) $(11,463,281)
============ ============
</TABLE>
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, and at March 31, 2000, the Company has reserved
14,000,000 shares of common stock for issuance under the Plan.
F-18
<PAGE> 90
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
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 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 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. 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,
and March 31, 2000, as it had incurred only operating losses as of these dates.
The components of the Company's net deferred income tax assets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 4,826,143 $ 7,167,134
Gross deferred tax assets................................. 1,107,062 2,486,028
----------- -----------
5,933,205 9,653,162
Less: Valuation allowance................................. (5,933,205) (9,653,162)
----------- -----------
Net deferred tax assets................................. $ -- $ --
=========== ===========
</TABLE>
A full valuation allowance is provided because of the uncertainty of
realizing the deferred tax assets.
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. At March 31, 2000, the Company had federal and state net operating
loss carryforwards of approximately $7,167,134, 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.
F-19
<PAGE> 91
EXULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
10. LOSS PER SHARE
The following is the calculation for net loss per share:
<TABLE>
<CAPTION>
OCTOBER 29,
1998 THREE MONTHS
(INCEPTION) TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1999 2000
-------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Basic:
Net loss................................ $(183,604) $(15,212,244) $(10,901,655)
--------- ------------ ------------
Weighted average common shares.......... 1,307 6,906,334 9,434,300
--------- ------------ ------------
Net loss per common share............... $ (140.48) $ (2.20) $ (1.16)
========= ============ ============
Diluted:
Net loss................................ $(183,604) $(15,212,244) $(10,901,655)
Weighted average common shares.......... 1,307 6,906,334 9,434,300
Stock options adjustment................ -- -- --
Convertible preferred stock............. -- -- --
--------- ------------ ------------
Average common shares outstanding....... 1,307 6,906,334 9,434,300
--------- ------------ ------------
Net loss per common share............... $ (140.48) $ (2.20) $ (1.16)
========= ============ ============
</TABLE>
At December 31, 1998 and 1999, and March 31, 2000, respectively,
outstanding options to purchase 0, 10,145,360, and 11,233,560 shares of common
stock, warrants to purchase common stock or to purchase preferred stock
convertible into common stock of 0, 7,646,635, and 7,646,635 shares of common
stock, as well as preferred shares convertible into 22,500,000, 53,331,060, and
62,145,566 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)
In April 2000, the Company announced its intention to adopt the 2000
Employee Stock Purchase Plan (the "2000 Stock Purchase Plan"). Under the 2000
Stock Purchase Plan, employees may elect to participate by contributing to the
plan or portion, not in excess of 10 percent, of their after-tax pay for each
pay period during the quarter. The stock purchase price will be the lesser of
the fair market value of the common stock on the first day of the quarter or the
fair market value of the common stock on the last day of the quarter, minus a 15
percent discount. The total number of shares available for purchase under the
2000 Stock Purchase Plan may not exceed 2,000,000 shares. The Company
anticipates that the 2000 Stock Purchase Plan will be adopted by the board of
directors and stockholders in May 2000.
In April 2000, the Company announced its intention to adopt the 2000 Equity
Incentive Plan. This plan is intended to be the successor program to the
existing 1999 plans. The 2000 Equity Incentive Plan provides various equity
incentive programs, including discretionary option grants for employees and
consultants and automatic option grants for non-employee directors. The initial
number of shares available under the 2000 Equity Incentive Plan is 20,000,000
shares which includes shares subject to outstanding options or available for
grant under the 1999 plan. The Company anticipates that the 2000 Equity
Incentive Plan will be adopted by the board of directors and stockholders in May
2000.
Subsequent to March 31, 2000, warrants to purchase an aggregate of 667,844
shares of Series C preferred stock and 3,339,200 shares of common stock were
exercised.
During the period ended March 31, 2000, employees of the Company exercised
their stock options to purchase 271,675 shares of common stock for total
consideration of approximately $199,000.
F-20
<PAGE> 92
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Gunn Partners, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Gunn Partners, Inc. as
of December 31, 1997 and 1998 and as of November 22, 1999, and the related
statements of income, retained earnings, and cash flows for the years ended
December 31, 1997 and 1998 and for the period from January 1, 1999 through
November 22, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gunn Partners, Inc., as of
December 31, 1997 and 1998, and as of November 22, 1999, the results of its
operations and its cash flows for the years ended December 31, 1997 and 1998 and
for the period from January 1, 1999 through November 22, 1999, the period
January 1, 1999 through November 22, 1999, and the years ended December 31, 1998
and 1997 in conformity with generally accepted accounting principles.
/s/ VITALE, CATURANO AND COMPANY, P.C.
March 16, 2000
Boston, Massachusetts
F-21
<PAGE> 93
GUNN PARTNERS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- NOVEMBER 22,
1996 1997 1998 1999
----------- ---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash............................................. $ 200,931 $ 187,202 $ 444,021 $ 794,751
Accounts receivable, net of allowance for
doubtful accounts of $75,000 in 1996
(unaudited), 1997, 1998 and November 22,
1999........................................... 1,260,672 1,810,213 1,670,185 2,275,280
Work-in-process.................................. -- -- -- --
Due from employees............................... 44,156 40,644 2,900 16,900
---------- ---------- ---------- ----------
Total current assets...................... 1,505,759 2,038,059 2,117,106 3,086,931
---------- ---------- ---------- ----------
Property and equipment, at cost:
Computer equipment............................... 214,524 225,983 218,480 188,811
Computer software................................ 46,850 66,592 78,016 79,042
Furniture and fixtures........................... 22,631 22,631 22,418 23,750
---------- ---------- ---------- ----------
284,005 315,206 318,914 291,603
Less -- accumulated depreciation................. 127,884 144,085 194,705 166,107
---------- ---------- ---------- ----------
Net property and equipment................ 156,121 171,121 124,209 125,496
---------- ---------- ---------- ----------
Other assets:
Organization costs, net of accumulated
amortization of $1,425 in 1996 (unaudited)..... 75 -- --
Deposits......................................... 12,238 12,709 9,743 15,759
---------- ---------- ---------- ----------
Total other assets........................ 12,313 12,709 9,743 15,759
---------- ---------- ---------- ----------
$1,674,193 $2,221,889 $2,251,058 $3,228,186
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 217,759 $ 222,213 $ 291,802 $ 580,044
Accrued and withheld liabilities................. 83,548 256,630 166,262 371,387
Accrued retirement plan contribution............. 472,515 294,312 577,401 537,601
Advances from shareholder........................ -- 170,000 -- --
---------- ---------- ---------- ----------
Total current liabilities................. 773,822 943,155 1,035,465 1,489,032
---------- ---------- ---------- ----------
Noncurrent liabilities:
Deferred compensation payable.................... 874,471 1,252,834 1,189,693 1,713,254
---------- ---------- ---------- ----------
Total noncurrent liabilities.............. 874,471 1,252,834 1,189,693 1,713,254
---------- ---------- ---------- ----------
Shareholders' equity:
Common stock, $.01 par value, 3,000 shares
authorized, 900 shares issued, 600 shares
outstanding.................................... 9 9 9 9
Additional paid-in capital....................... 39,991 39,991 39,991 39,991
Retained earnings................................ -- -- -- --
---------- ---------- ---------- ----------
40,000 40,000 40,000 40,000
Less -- 300 shares of treasury stock, at cost.... 14,100 14,100 14,100 14,100
---------- ---------- ---------- ----------
Total shareholders' equity................ 25,900 25,900 25,900 25,900
---------- ---------- ---------- ----------
$1,674,193 $2,221,889 $2,251,058 $3,228,186
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-22
<PAGE> 94
GUNN PARTNERS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
JANUARY 1,
1999
YEARS ENDED DECEMBER 31, THROUGH
-------------------------- NOVEMBER 22,
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net Revenue....................................... $ 8,783,365 $13,167,608 $10,388,296
Cost of revenue................................... 4,213,129 4,196,555 3,671,841
----------- ----------- -----------
Gross Profit............................ 4,570,236 8,971,053 6,716,455
General and administrative expenses............... 4,570,833 8,952,462 6,704,566
----------- ----------- -----------
Income (loss) from operations........... (597) 18,591 11,889
----------- ----------- -----------
Other income (expense):
Interest income................................. 3,277 31,352 17,059
Interest expense................................ (2,680) (8,657) --
----------- ----------- -----------
597 22,695 17,059
----------- ----------- -----------
Net income.............................. $ -- $ 41,286 $ 28,948
=========== =========== ===========
Proforma adjustment to reflect C Corporation
income taxes
Income before income taxes...................... $ -- $ 41,286 $ 28,948
Proforma C Corporation income taxes............. -- 6,193 4,342
----------- ----------- -----------
Proforma net income..................... $ -- $ 35,093 $ 24,606
=========== =========== ===========
Net income per common share:
Basic and diluted................................. $ -- $ 58.49 $ 41.01
=========== =========== ===========
Weighted average common shares outstanding:
Basic and diluted................................. 600 600 600
=========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE> 95
GUNN PARTNERS, INC.
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 1,
DECEMBER 31, 1999 THROUGH
------------------ NOVEMBER 22,
1997 1998 1999
-------- ------- ------------
<S> <C> <C> <C>
Retained earnings, beginning of period...................... $ -- $ -- $ --
Net income.................................................. -- 41,286 28,948
Shareholder distributions................................... -- (41,286) (28,948)
-------- ------- --------
Retained earnings, end of period............................ $ -- $ -- $ --
======== ======= ========
</TABLE>
See accompanying notes.
F-24
<PAGE> 96
GUNN PARTNERS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1, 1999
YEARS ENDED DECEMBER 31, THROUGH
------------------------ NOVEMBER 22,
1997 1998 1999
---------- ---------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ -- $ 41,286 $ 28,948
Adjustment to reconcile net income to cash
provided by (used in) operating activities
Depreciation and amortization.................. 82,465 79,856 39,076
Loss on disposal of equipment.................. 27,692 9,169 19,651
--------- --------- ---------
Cash provided by operating activities before
changes in assets and liabilities.............. 110,157 130,311 87,675
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable.......................... (549,541) 140,028 (605,095)
Deposits..................................... (471) 2,966 (6,016)
Increase (decrease) in:
Accounts payable............................. 4,454 69,589 288,242
Accrued and withheld liabilities............. 173,082 (90,368) 205,125
Accrued retirement plan contribution......... (178,203) 283,089 (39,800)
Deferred compensation payable................ 378,363 (63,141) 523,561
--------- --------- ---------
Net cash provided by (used in) operating
activities................................ (62,159) 472,474 453,692
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment................... -- 2,000 --
Acquisition of property and equipment............. (125,082) (44,113) (60,014)
Collections on advances to employees.............. 3,512 37,744 --
Advances to employees............................. -- -- (14,000)
--------- --------- ---------
Net cash used in investing activities..... (121,570) (4,369) (74,014)
--------- --------- ---------
Cash flows from financing activities:
Advances from shareholder......................... 170,000 -- --
Payment of shareholder loan....................... -- (170,000) --
Shareholder distributions......................... -- (41,286) (28,948)
--------- --------- ---------
Net cash provided by (used in) financing
activities.............................. 170,000 (211,286) (28,948)
--------- --------- ---------
Net increase (decrease) in cash..................... (13,729) 256,819 350,730
Cash, beginning of period........................... 200,931 187,202 444,021
--------- --------- ---------
Cash, end of period................................. $ 187,202 $ 444,021 $ 794,751
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest....................................... $ 2,680 $ 8,657 $ --
========= ========= =========
</TABLE>
See accompanying notes.
F-25
<PAGE> 97
GUNN PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company is a consulting and research firm specializing in human
resources and accounting process measurement and improvement. The Company 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.
Basis of Presentation
These financial statements reflect the Company's financial position,
results of operations, and cash flows as of December 31, 1997 and 1998, and
November 22, 1999, and for the years ended December 31, 1997 and 1998, and for
the period ended November 22, 1999, but prior to the sale of the Company's
operating assets as described in Note 7.
Revenue Recognition
Revenue, net of reimbursable expenses, is recognized in the period in which
the services are provided and are billable.
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 based upon management's
estimated amount of uncollectible accounts receivable. As of December 31, 1997
and 1998, and November 22, 1999, the allowance for doubtful accounts was
$75,000.
Work-in-Process
Work-in-process represents revenues for services which are not yet
billable. Work-in-process is fully reserved since management is uncertain of the
amount that is billable in the future. Fully reserved work-in-process as of
December 31, 1997 and 1998, and November 22, 1999, invoiced in the subsequent
period was approximately $0, $200,000 and $70,000, respectively.
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>
Computer equipment.......................................... 5 years
Computer software........................................... 3 years
Furniture and fixtures...................................... 5-10 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.
Foreign Currency Transactions
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than U.S. dollars are included in
the results of operations as incurred.
F-26
<PAGE> 98
GUNN PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 state income tax expense for the years ended
December 31, 1997 and 1998, and for the period from January 1, 1999 through
November 22, 1999, were immaterial.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," which requires companies with complex
capital structures or common stock equivalents to present both basic and diluted
earnings per share ("EPS") on the face of the statement of income. Basic EPS is
calculated as income available to common stockholders divided by the weighted
average number of common shares outstanding during the period. Diluted EPS is
calculated using the "if converted" method for convertible securities and the
treasury stock method for options and warrants as previously prescribed by
Accounting Principles Board Opinion No. 15, "Earnings Per Share."
Fair Value of Financial Instruments
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments,"
requires the disclosure of the fair value of financial instruments, including
assets and liabilities recognized in the balance sheet. Cash accounts
receivable, due from employees, deposits, accounts payable, and accrued
liabilities are reflected in the financial statements at cost, which
approximates fair value because of the short-term maturity of those instruments.
Comprehensive Income
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity during a period of non-owner
sources. The Company's comprehensive net income has not varied from the
Company's reported net income by a material amount.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
As issued, SFAS No. 133 is effective for all fiscal years beginning after June
15, 1999, with earlier application encouraged. In May 1999, the FASB delayed the
effective date of SFAS No. 133 for one year, to fiscal years beginning after
June 15, 2000. The Company does not currently nor does it intend in the future
to use derivative instruments and therefore does not expect that the adoption of
SFAS No. 133 will have any impact on its financial position or results of
operations.
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.
F-27
<PAGE> 99
GUNN PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
2. RETIREMENT PLANS
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 years ended December 31, 1997 and 1998, and for the period from January
1, 1999 through November 22, 1999, total employer contributions under these
retirement plans were $294,312, $585,051, and $537,601, respectively.
3. ADVANCES FROM SHAREHOLDER
During the year ended December 31, 1997, a shareholder advanced the Company
$170,000 which was payable on demand with interest at the prime rate plus 2%.
During the year ended December 31, 1998, the advances from shareholder were
repaid in full.
4. 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. For the years ended December 31,
1997 and 1998, and for the period from January 1, 1999, through November 22,
1999, deferred compensation was increased (reduced) by $378,364, $(63,141), and
$523,561, respectively.
5. CONTINGENCIES AND COMMITMENTS
The Company leases facilities, under operating lease agreements, in several
locations throughout the United States and Europe. In addition, the Company
leases certain equipment under operating lease agreements. At November 22, 1999,
prior to the acquisition for the Company by Exult, Inc., the future minimum
lease payments for the years ending December 31 are as follows:
<TABLE>
<S> <C>
2000........................................................ $230,000
2001........................................................ 131,000
2002........................................................ 41,000
2003........................................................ 13,000
--------
$415,000
========
</TABLE>
F-28
<PAGE> 100
GUNN PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED AND WITHHELD LIABILITIES
Accrued and withheld liabilities at December 31, 1997 and 1998, and
November 22, 1999, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- NOVEMBER 22,
1997 1998 1999
-------- -------- ------------
<S> <C> <C> <C>
Accrued payroll and withholdings..................... $256,630 $127,337 $358,747
Other................................................ -- 38,925 12,640
-------- -------- --------
Total accrued and withheld liabilities............... $256,630 $166,262 $371,387
======== ======== ========
</TABLE>
7. SUBSEQUENT EVENTS
On November 22, 1999, the Company sold substantially all of its operating
assets to Exult, Inc. The Company continues in existence to collect its accounts
receivable and pay its accounts payable outstanding on the date of closing.
Effective November 23, 1999, the Company no longer provided substantial services
to clients and is winding up its affairs.
F-29
<PAGE> 101
GUNN PARTNERS, INC.
UNAUDITED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996
---------- ----------
<S> <C> <C>
Net revenue................................................. $7,961,303 $7,867,161
Cost of revenue............................................. 3,147,585 3,135,039
---------- ----------
Gross profit...................................... 4,813,718 4,732,122
General and administrative expenses......................... 4,887,136 4,715,762
---------- ----------
Income (loss) from operations..................... (73,418) 16,360
---------- ----------
Other income (expense):
Interest income........................................... 6,343 4,002
Interest expense.......................................... (18,509) (6,862)
---------- ----------
(12,166) (2,860)
---------- ----------
Net income (loss) $ (85,584) $ 13,500
========== ==========
</TABLE>
F-30
<PAGE> 102
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 667,844 shares of Series C preferred stock, the
conversion of all outstanding preferred stock into 65,484,786 shares of common
stock, and the exercise of options to purchase 271,675 shares of common stock.
PF-1
<PAGE> 103
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 $10,388 $ -- $ 15,245
Cost of revenue........................... 4,498 3,672 -- 8,170
-------- ------- ------- ----------
Gross profit.............................. 359 6,716 -- 7,075
-------- ------- ------- ----------
Expenses:
Product development..................... 368 -- -- 368
Selling, general and administrative..... 15,466 6,708 3,903(b) 26,077
-------- ------- ------- ----------
Total expenses....................... 15,834 6,708 3,903 26,445
-------- ------- ------- ----------
Loss from operations................. (15,475) 8 (3,903) (19,370)
-------- ------- ------- ----------
Interest income, net...................... 263 17 -- 280
-------- ------- ------- ----------
Net loss............................. $(15,212) $ 25 $(3,903) $ (19,090)
======== ======= ======= ==========
Net loss per common share:
Basic and diluted....................... $ (0.25)
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 the Company's 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 667,844 shares of Series C preferred stock, the conversion of all
outstanding preferred stock into 65,484,786 shares of common stock, and the
exercise of options to purchase 271,675 shares of common stock.
PF-2
<PAGE> 104
[Cover Art]
[EXULT LOGO]
PROCESS EXCELLENCE, PROVEN RESULTS
<PAGE> 105
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
9,000,000 SHARES
[EXULT LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
ROBERTSON STEPHENS
SALOMON SMITH BARNEY
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 106
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 MAY 5, 2000
PROSPECTUS
9,000,000 SHARES
[EXULT LOGO]
COMMON STOCK
----------------------
This is Exult, Inc.'s initial public offering of common stock. We are
offering 9,000,000 shares. The international managers are offering 1,350,000
shares outside the U.S. and Canada and the U.S. underwriters are offering
7,650,000 shares in the U.S. and Canada.
Currently, no public market exists for our stock. We expect the initial
public offering price to be between $13 and $15 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 8 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 202,500
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 1,147,500 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> 107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
9,000,000 SHARES
[EXULT LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
ROBERTSON STEPHENS INTERNATIONAL
SALOMON SMITH BARNEY INTERNATIONAL
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 108
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 7,650,000
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.......................................... 1,350,000
=========
</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 1,350,000 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 7,650,000 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.
Generally, we have agreed to indemnify each underwriter against liability
arising out of any untrue statement contained in the registration statement, any
preliminary prospectus or the final prospectus, or the omission of a material
fact required to be stated in the registration statement or such prospectus
necessary to make the statements in the registration statement or such
prospectus not misleading. In addition, we have agreed to indemnify each
underwriter against liability arising out of our violations of laws or
regulations of foreign jurisdictions where reserved shares have been offered.
The underwriters have agreed to indemnify us against liability with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the registration statement, any preliminary prospectus or the final
prospectus in reliance upon and in conformity with written information furnished
to us by that underwriter through Merrill Lynch expressly for use in the
registration statement, such preliminary prospectus or the prospectus. For more
detailed information on the terms of indemnification contained in the purchase
agreement, please see Exhibit 1.1 to the registration statement.
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.
66
<PAGE> 109
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.
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
202,500 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 1,147,500 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 10% of the shares offered by this prospectus for
sale to some of our directors, officers, employees, distributors, dealers,
business associates and related persons, including up to 5% to a strategic
business partner. 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.
67
<PAGE> 110
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors, all existing stockholders and
a purchaser of up to 5% of the shares in this offering have agreed, with
exceptions, including for issuance of shares relating to options, warranties,
employee benefits plans, acquisitions and strategic transactions, 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. Although Merrill Lynch may consider releasing certain
persons from the lockup restrictions due to financial hardship or a similar
reason, Merrill Lynch does not anticipate such a release nor is any such release
currently contemplated.
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 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.
We expect the shares to be approved for quotation on the Nasdaq National
Market under the symbol "EXLT."
68
<PAGE> 111
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.
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.
ELECTRONIC DISTRIBUTION
Neither the Company nor the Underwriters will rely on third party providers
to comply with the prospectus delivery requirements. All purchasers will receive
a printed version of the final prospectus.
Merrill Lynch will be facilitating Internet distribution for this offering
to certain of its Internet subscription customers. Merrill Lynch intends to
allocate a limited number of shares for sale to its online brokerage customers.
An electronic prospectus is available on the website maintained by Merrill
Lynch. Other than the prospectus in electronic format, the information on the
Merrill Lynch website relating to this offering is not a part of this
prospectus.
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.
69
<PAGE> 112
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.
70
<PAGE> 113
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........................................ $ 40,986
NASD filing fee............................................. 16,025
Nasdaq National Market listing fee.......................... 95,000
Blue sky fees and expenses.................................. 10,000
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 450,000
Accounting fees and expenses................................ 300,000
Transfer Agent and Registrar fees........................... 10,000
Miscellaneous............................................... 127,989
----------
Total..................................................... $1,300,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, we may 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, we have entered into agreements to indemnify our directors and
certain of our officers in addition to the indemnification provided for in our
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
II-1
<PAGE> 114
person provides services to at our request. We intend to obtain directors' and
officers' liability insurance in connection with this offering.
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 $100,001 in cash and services valued at
$100,000.
(6) On September 22, 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.
(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 57, 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
initial exercise price of $10.28 per share increasing daily at an annual
rate of 12%, compounded daily, following the date of issuance of the
warrant. Each share of Series C Preferred Stock will be converted into five
shares of common stock upon the closing
II-2
<PAGE> 115
of this offering. BP Amoco exercised these warrants and the warrants
referred to in item 10 above effective on April 28, 2000 for an aggregate
exercise price of $12,435,255.
(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 266,340 shares of
common stock to J. Michael Spence, JRO Consulting, Inc. and Douglas
Shurtleff for an aggregate purchase price of $202,593.50 upon the exercise
of stock options.
(16) Since May 1999, we have granted stock options to purchase an
aggregate of 8,701,790 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 3,065,995 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.
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 Purchase 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.
2.2 Asset Purchase Agreement dated as of December 20, 1999 among
Pactiv Corporation, Pactiv Business Services, Inc. and
Exult, Inc.
3.1.1 Third Amended and Restated Certificate of Incorporation of
Exult, Inc.
3.1.2 Certificate of Amendment of Third Amended and Restated
Certificate of Incorporation of Exult, Inc.
3.1.3 Form of 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.
</TABLE>
II-3
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
5.1 Form of 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.
10.6.1 Office Space Lease between The Irvine Company and BPO-US,
Inc. dated as of June 28, 1999.
10.6.2 First Amendment to Office Space Lease between The Irvine
Company and Exult, Inc. dated February 29, 2000.
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.
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.
10.8+** Framework Agreement dated December 7, 1999 by and between
the Company and BP Amoco p.l.c.
10.9+** US Country Agreement dated December 7, 1999 by and between
the Company and BP America, Inc.
10.10+** UK Country Agreement dated December 7, 1999 by and between
Exult Limited and BP International Limited.
10.11.1 Executive Employment Agreement dated as of October 1, 1999
by and between Exult, Inc. and James C. Madden.
10.11.2 Memorandum dated February 29, 2000 regarding compensation.
</TABLE>
II-4
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.12.1 Executive Employment Agreement dated as of October 1, 1999
by and between Exult, Inc. and Stephen M. Unterberger.
10.12.2 Memorandum dated February 29, 2000 regarding compensation.
10.13 Executive Employment Agreement dated as of August 25, 1999
by and between Exult, Inc. and Barbara A. Coull-Williams.
10.14 Executive Employment Agreement dated as of October 1, 1999
by and between Exult, Inc. and Scott J. Figge.
10.15 Executive Employment Agreement dated as of August 25, 1999
by and between Exult, Inc. and Rebecca L. Work.
10.16 Registrant's 2000 Employee Stock Purchase Plan.
10.17 Lease among Scottish Mutual Assurance plc and Exult Limited
and Exult, Inc.
10.18 Registrant's 2000 Stock Incentive Plan.
21.1** Subsidiaries of Exult, Inc.
23.1 Form of Consent of Brobeck, Phleger & Harrison LLP (Included
in Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Vitale, Caturano and Company, P.C.
24.1** Power of Attorney (Included on signature pages hereto).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit 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)
II-5
<PAGE> 118
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Exult, Inc. has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Irvine, State of California, on the 5th day of May, 2000.
EXULT, INC.
By: /s/ DOUGLAS SHURTLEFF
------------------------------------
Executive Vice President, Treasurer
and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the 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>
* Chief Executive Officer, May 5, 2000
- ----------------------------------------------------- President and Chairman of the
James C. Madden, V Board (principal executive
officer)
/s/ DOUGLAS L. SHURTLEFF Executive Vice President, May 5, 2000
- ----------------------------------------------------- Treasurer and Chief Financial
Douglas L. Shurtleff Officer (principal financial
officer)
* Director May 5, 2000
- -----------------------------------------------------
J. Michael Cline
* Director May 5, 2000
- -----------------------------------------------------
Steven A. Denning
* Director May 5, 2000
- -----------------------------------------------------
A. Michael Spence
* Director May 5, 2000
- -----------------------------------------------------
John R. Oltman
* Director May 5, 2000
- -----------------------------------------------------
Michael A. Miles
* Director May 5, 2000
- -----------------------------------------------------
Mark Dzialga
</TABLE>
*By: /s/ DOUGLAS L. SHURTLEFF
------------------------------
Douglas L. Shurtleff
(Attorney-in-fact)
II-7
<PAGE> 120
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Purchase 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.
2.2 Asset Purchase Agreement dated as of December 20, 1999 among
Pactiv Corporation, Pactiv Business Services, Inc. and
Exult, Inc.
3.1.1 Third Amended and Restated Certificate of Incorporation of
Exult, Inc.
3.1.2 Certificate of Amendment of Third Amended and Restated
Certificate of Incorporation of Exult, Inc.
3.1.3 Form of 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 Form of 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.
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.6.1 Office Space Lease between The Irvine Company and BPO-US,
Inc. dated as of June 28, 1999.
10.6.2 First Amendment to Office Space Lease between The Irvine
Company and Exult, Inc. dated February 29, 2000.
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.
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.
10.8+** Framework Agreement dated December 7, 1999 by and between
the Company and BP Amoco p.l.c.
10.9+** US Country Agreement dated December 7, 1999 by and between
the Company and BP America, Inc.
10.10+** UK Country Agreement dated December 7, 1999 by and between
Exult Limited and BP International Limited.
10.11.1 Executive Employment Agreement dated as of October 1, 1999
by and between Exult, Inc. and James C. Madden.
10.11.2 Memorandum dated February 29, 2000 regarding compensation.
10.12.1 Executive Employment Agreement dated as of October 1, 1999
by and between Exult, Inc. and Stephen M. Unterberger.
10.12.2 Memorandum dated February 29, 2000 regarding compensation.
10.13 Executive Employment Agreement dated as of August 25, 1999
by and between Exult, Inc. and Barbara A. Coull-Williams.
10.14 Executive Employment Agreement dated as of October 1, 1999
by and between Exult, Inc. and Scott J. Figge.
10.15 Executive Employment Agreement dated as of August 25, 1999
by and between Exult, Inc. and Rebecca L. Work.
10.16 Registrant's 2000 Employee Stock Purchase Plan.
10.17 Lease among Scottish Mutual Assurance plc and Exult Limited
and Exult, Inc.
10.18 Registrant's 2000 Stock Incentive Plan.
21.1** Subsidiaries of Exult, Inc.
23.1 Form of Consent of Brobeck, Phleger & Harrison LLP (Included
in Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Vitale, Caturano and Company, P.C.
24.1** Power of Attorney (Included on signature pages hereto).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 1.1
================================================================================
EXULT, INC.
(a Delaware corporation)
_______________ Shares of Common Stock
PURCHASE AGREEMENT
Dated: _______________, 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. Representations and Warranties............................................... 2
(a) Representations and Warranties by the Company.............................. 2
(i) Compliance with Registration Requirements.......................... 2
(ii) Independent Accountants............................................ 3
(iii) Financial Statements............................................... 3
(iv) No Material Adverse Change in Business............................. 4
(v) Good Standing of the Company....................................... 4
(vi) Good Standing of Subsidiaries...................................... 4
(vii) Capitalization..................................................... 5
(viii) Authorization of Agreement......................................... 5
(ix) Authorization and Description of Securities........................ 5
(x) Absence of Defaults and Conflicts.................................. 5
(xi) Absence of Labor Dispute........................................... 6
(xii) Absence of Proceedings............................................. 6
(xiii) Accuracy of Exhibits............................................... 6
(xiv) Possession of Intellectual Property................................ 7
(xv) Absence of Further Requirements.................................... 7
(xvi) Possession of Licenses and Permits................................. 7
(xvii) Title to Property.................................................. 7
(xviii) Compliance with Cuba Act........................................... 8
(xix) Investment Company Act............................................. 8
(xx) Environmental Laws................................................. 8
(xxi) Registration Rights................................................ 8
(b) Officer's Certificates..................................................... 8
SECTION 2. Sale and Delivery to Underwriters; Closing................................... 9
(a) Initial Securities......................................................... 9
(b) Option Securities.......................................................... 9
(c) Payment.................................................................... 9
(d) Denominations; Registration................................................ 10
SECTION 3. Covenants of the Company..................................................... 10
(a) Compliance with Securities Regulations and Commission Requests............. 10
(b) Filing of Amendments....................................................... 10
(c) Delivery of Registration Statements........................................ 11
(d) Delivery of Prospectuses................................................... 11
(e) Continued Compliance with Securities Laws.................................. 11
(f) Blue Sky Qualifications.................................................... 11
(g) Rule 158................................................................... 12
(h) Use of Proceeds............................................................ 12
(i) Listing.................................................................... 12
(j) Restriction on Sale of Securities.......................................... 12
(k) Reporting Requirements..................................................... 12
(m) Compliance with Rule 463................................................... 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4. Payment of Expenses.......................................................... 13
(a) Expenses................................................................... 13
(b) Termination of Agreement................................................... 13
SECTION 5. Conditions of Underwriters' Obligations...................................... 13
(a) Effectiveness of Registration Statement.................................... 13
(b) Opinion of Counsel for Company............................................. 14
(c) Opinion of Counsel for Underwriters........................................ 14
(d) Officers' Certificate...................................................... 14
(e) Accountant's Comfort Letter................................................ 14
(f) Bring-down Comfort Letter.................................................. 15
(g) Approval of Listing........................................................ 15
(h) No Objection............................................................... 15
(i) Lock-up Agreements......................................................... 15
(j) Conditions to Purchase of Option Securities................................ 15
(i) Officers' Certificate................................................ 15
(ii) Opinion of Counsel for Company....................................... 15
(iii) Opinion of Counsel for Underwriters.................................. 15
(iv) Bring-down Comfort Letter............................................ 15
(k) Additional Documents....................................................... 16
(l) Termination of Agreement................................................... 16
SECTION 6. Indemnification.............................................................. 16
(a) Indemnification of Underwriters............................................ 16
(b) Indemnification of Company, Directors and Officers......................... 17
(c) Actions against Parties; Notification...................................... 17
(d) Settlement without Consent if Failure to Reimburse......................... 18
SECTION 7. Contribution................................................................. 18
SECTION 8. Representations, Warranties and Agreements to Survive Delivery............... 19
SECTION 9. Termination of Agreement..................................................... 19
(a) Termination; General....................................................... 19
(b) Liabilities................................................................ 20
SECTION 10. Default by One or More of the Underwriters.................................. 20
SECTION 11. Notices..................................................................... 21
SECTION 12. Parties..................................................................... 21
SECTION 13. GOVERNING LAW AND TIME...................................................... 21
SECTION 14. Effect of Headings.......................................................... 21
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SCHEDULES
Schedule A - List of Underwriters............................. Sch A-1
Schedule B - Pricing Information.............................. Sch B-1
Schedule C - List of Persons subject to Lock-up............... Sch C-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel.............. A-1
Exhibit B - Form of Lock-up Letter............................ B-1
ANNEXES
Annex A - Form of Accountants Comfort Letter.................. Annex A-1
</TABLE>
iii
<PAGE> 5
Draft of February 28, 2000
EXULT, INC.
(a Delaware corporation)
_________ Shares of Common Stock
(Par Value $.0001 Per Share)
PURCHASE AGREEMENT
_______________, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
FleetBoston Robertson Stephens Inc.
Salomon Smith Barney, Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Exult, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Inc., Bear, Stearns & Co. Inc., FleetBoston
Robertson Stephens Inc., and Salomon Smith Barney, Inc. are acting as
representatives (in such capacity, the "Representatives"), with respect to the
issue and sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of Common Stock,
par value $.0001 per share, of the Company ("Common Stock") set forth in said
Schedule A, and with respect to the grant by the Company to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b) hereof
to purchase all or any part of _______________ additional shares of Common Stock
to cover over-allotments, if any. The aforesaid _______________ shares of Common
Stock (the "Initial Securities") to be purchased by the Underwriters and all or
any part of the _______________ shares of Common Stock subject to the option
described in Section 2(b) hereof (the "Option Securities") are hereinafter
called, collectively, the "Securities".
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company and the Underwriters agree that up to ____________ shares of
the Securities to be purchased by the Underwriters (the "Reserved Securities")
shall be reserved for
<PAGE> 6
sale by the Underwriters to certain eligible employees and persons having
business relationships with the Company, as part of the distribution of the
Securities by the Underwriters, subject to the terms of this Agreement, the
applicable rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. and all other applicable laws, rules and regulations.
To the extent that such Reserved Securities are not orally confirmed for
purchase by such eligible employees and persons having business relationships
with the Company by the end of the first business day after the date of this
Agreement, such Reserved Securities may be offered to the public as part of the
public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-31754) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated ______________, 2000 together with the
Term Sheet and all references in this Agreement to the date of the Prospectus
shall mean the date of the Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section
2
<PAGE> 7
2(c) hereof, and as of each Date of Delivery (if any) referred to in Section
2(b) hereof, and agrees with each Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information has
been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), the Registration Statement, the
Rule 462(b) Registration Statement and any amendments and supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Prospectus, any
preliminary prospectus and any supplement thereto or prospectus wrapper
prepared in connection therewith, at their respective times of issuance
and at the Closing Time, complied and will comply in all material
respects with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus and such preliminary prospectus,
as amended or supplemented, if applicable, are distributed in connection
with the offer and sale of Reserved Securities. Neither the Prospectus
nor any amendments or supplements thereto (including any prospectus
wrapper), at the time the Prospectus or any such amendment or supplement
was issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. If Rule
434 is used, the Company will comply with the requirements of Rule 434
and the Prospectus shall not be "materially different", as such term is
used in Rule 434, from the prospectus included in the Registration
Statement at the time it became effective. The representations and
warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished to the Company in
writing by any Underwriter through Merrill Lynch expressly for use in
the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus delivered
to the Underwriters for use in connection with this offering was
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
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<PAGE> 8
(ii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iii)Financial Statements. The financial statements included in
the Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the
Company and its consolidated subsidiaries at the dates indicated and the
statement of operations, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein. The
selected financial data and the summary financial information included
in the Prospectus present fairly the information shown therein and have
been compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement. The pro forma
financial statements and the related notes thereto included in the
Registration Statement and the Prospectus present fairly the information
shown therein, have been prepared in accordance with the Commission's
rules and guidelines with respect to pro forma financial statements and
have been properly compiled on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
the Company and its subsidiaries considered as one enterprise, whether
or not arising in the ordinary course of business (a "Material Adverse
Effect"), (B) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and
its subsidiaries considered as one enterprise, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing in
each other jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
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<PAGE> 9
(vi) Good Standing of Subsidiaries. [Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) and Exult Limited and Exult Equity Partners, Inc. (each
a "Subsidiary" and, collectively, the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct
of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each such Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights
of any securityholder of such Subsidiary. The only subsidiaries of the
Company are [(a)] the subsidiaries listed on Exhibit 21 to the
Registration Statement.
(vii)Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus). The shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company.
(viii) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(ix) Authorization and Description of Securities. The Securities
have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement against payment of the consideration set
forth herein, will be validly issued and fully paid and non-assessable;
the Common Stock conforms to all statements relating thereto contained
in the Prospectus and such description conforms to the rights set forth
in the instruments defining the same; no holder of the Securities will
be subject to personal liability by reason of being such a holder; and
the issuance of the Securities is not subject to the preemptive or other
similar rights of any securityholder of the Company.
(x)Absence of Defaults and Conflicts. Neither the Company nor
any of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a party
or by
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<PAGE> 10
which it or any of them may be bound, or to which any of the property or
assets of the Company or any subsidiary is subject (collectively,
"Agreements and Instruments") except for such defaults that would not
result in a Material Adverse Effect; and the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein and in the Registration Statement (including the
issuance and sale of the Securities and the use of the proceeds from the
sale of the Securities as described in the Prospectus under the caption
"Use of Proceeds") and compliance by the Company with its obligations
hereunder have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any subsidiary pursuant to, the
Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any
subsidiary or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
subsidiary or any of their assets, properties or operations. As used
herein, a "Repayment Event" means any event or condition which gives the
holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any subsidiary.
(xi) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
any subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to result
in a Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in this Agreement or the performance by the Company of its
obligations hereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any subsidiary is a
party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could not
reasonably be expected to result in a Material Adverse Effect.
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(xiii) Accuracy of Exhibits. There are no contracts or documents
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
(xiv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject
of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except (i) such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws and (ii) such as have been obtained
under the laws and regulations of jurisdictions outside the United
States in which the Reserved Securities are offered.
(xvi) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xvii) Title to Property. The Company and its subsidiaries have
good and marketable title to all real property owned by the Company and
its subsidiaries and good title to all other properties owned by them,
in each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such
as (a) are described in the Prospectus or (b) do not, singly or in the
aggregate,
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<PAGE> 12
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company or
any of its subsidiaries; and all of the leases and subleases material to
the business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries holds
properties described in the Prospectus, are in full force and effect,
and neither the Company nor any subsidiary has any notice of any
material claim of any sort that has been asserted by anyone adverse to
the rights of the Company or any subsidiary under any of the leases or
subleases mentioned above, or affecting or questioning the rights of the
Company or such subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease.
(xviii) Compliance with Cuba Act. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba, codified
as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xix) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xx) Environmental Laws. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in
a Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials (collectively, "Environmental Laws"), (B) the
Company and its subsidiaries have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each
in compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental
Law against the Company or any of its subsidiaries and (D) there are no
events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against
or affecting the Company or any of its subsidiaries relating to
Hazardous Materials or any Environmental Laws.
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(xxi) Registration Rights. There are no persons with
registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional _______________ shares of
Common Stock at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial Securities but not payable on the Option Securities. The
option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a "Date
of Delivery") shall be determined by the Representatives, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A opposite the name of such Underwriter
bears to the total number of Initial Securities, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Brobeck, Phleger & Harrison LLP, 38 Technology Drive, Irvine, California 92618,
or at such other place as shall be agreed upon by the Representatives and the
Company, at 7:00 A.M. (California time) on the third (fourth, if the pricing
occurs after 4:30 P.M. (Eastern time) on any given day) business day after the
date hereof (unless postponed in accordance with the provisions of Section 10),
or such other time not later
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<PAGE> 14
than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company, on each Date of Delivery as specified in the notice from the
Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as Representatives of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Representatives immediately, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission and, in the
event that it was not, it will promptly file such prospectus. The
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<PAGE> 15
Company will make every reasonable effort to prevent the issuance of any stop
order and, if any stop order is issued, to obtain the lifting thereof at the
earliest possible moment.
(b) Filing of Amendments. The Company will give the Representatives
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus will
furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or counsel
for the Underwriters shall object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
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<PAGE> 16
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market and will
file with the Nasdaq National Market all documents and notices required by the
Nasdaq National Market of companies that have securities that are traded in the
over-the-counter market and quotations for which are reported by the Nasdaq
National Market.
(j) Restriction on Sale of Securities. During a period of 180 days from
the date of the Prospectus, the Company will not, without the prior written
consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to the
Securities to be sold hereunder.
(k) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to
12
<PAGE> 17
be filed with the Commission pursuant to the 1934 Act within the time periods
required by the 1934 Act and the rules and regulations of the Commission
thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that it will
ensure that the Reserved Securities will be restricted as required by the
[National Association of Securities Dealers, Inc. (the "NASD")] or the NASD
rules from sale, transfer, assignment, pledge or hypothecation for a period of
three months following the date of this Agreement. The Underwriters will notify
the Company as to which persons will need to be so restricted. At the request of
the Underwriters, the Company will direct the transfer agent to place a stop
transfer restriction upon such securities for such period of time. Should the
Company release, or seek to release, from such restrictions any of the Reserved
Securities, the Company agrees to reimburse the Underwriters for any reasonable
expenses (including, without limitation, legal expenses) they incur in
connection with such release.
(m) Compliance with Rule 463. The Company will file with the Commission
such reports on Form SR as may be required pursuant to Rule 463 of the 1933 Act
Regulations.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities and
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities and (x) the fees and expenses incurred in connection with the
inclusion of the Securities in the Nasdaq National Market and ( ) all costs and
expenses of the Underwriters, including the fees and disbursements of counsel
for the Underwriters, in connection with matters related to the Reserved
Securities which are designated by the Company for sale to employees and others
having a business relationship with the Company.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the
13
<PAGE> 18
Company shall reimburse the Underwriters for all of their out-of-pocket
expenses, including the reasonable fees and disbursements of counsel for the
Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).
(b) Opinion of Counsel for Company. At Closing Time, the Representatives
shall have received the favorable opinion, dated as of Closing Time, of Brobeck,
Phleger & Harrison LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters to the effect set forth
in Exhibit A hereto and to such further effect as counsel to the Underwriters
may reasonably request.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Latham & Watkins, counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters with respect
to the matters set forth in clauses (i), (ii), (v), (vi) (solely as to
preemptive or other similar rights arising by operation of law or under the
charter or by-laws of the Company), (viii) through (x), inclusive, (xii), (xiv)
(solely as to the information in the Prospectus under "Description of Capital
Stock--Common Stock") and the penultimate paragraph of Exhibit A hereto. In
giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of California, the federal
law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representatives. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company and its subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise,
14
<PAGE> 19
whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties in
Section 1(a) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or are contemplated by the
Commission.
(e) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from each of Arthur Andersen
LLP and Vitale, Caturano and Company, P.C., a letter dated such date, in form
and substance satisfactory to the Representatives, together with signed or
reproduced copies of such letter for each of the other Underwriters containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus.
(f) Bring-down Comfort Letter. At Closing Time, the Representatives
shall have received from Arthur Andersen LLP a letter, dated as of Closing Time,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (e) of this Section, except that the specified date
referred to shall be a date not more than three business days prior to Closing
Time.
(g) Approval of Listing. At Closing Time, the Securities shall have been
approved for inclusion in the Nasdaq National Market, subject only to official
notice of issuance.
(h) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form of
Exhibit B hereto signed by the persons listed on Schedule C hereto.
(j) Conditions to Purchase of Option Securities. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company contained herein and the statements in any certificates furnished
by the Company or any subsidiary of the Company hereunder shall be true and
correct as of each Date of Delivery and, at the relevant Date of Delivery, the
Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming
that the certificate delivered at the Closing Time pursuant to Section
5(d) hereof remains true and correct as of such Date of Delivery.
15
<PAGE> 20
(ii) Opinion of Counsel for Company. The favorable opinion of
Brobeck, Phleger & Harrison LLP, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, dated such Date
of Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(b) hereof.
(iii) Opinion of Counsel for Underwriters. The favorable opinion
of Latham & Watkins, counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinion required by
Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from Arthur Andersen
LLP, in form and substance satisfactory to the Representatives and dated
such Date of Delivery, substantially in the same form and substance as
the letter furnished to the Representatives pursuant to Section 5(f)
hereof, except that the "specified date" in the letter furnished
pursuant to this paragraph shall be a date not more than five days prior
to such Date of Delivery.
(k) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
(l) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the Company at
any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to
16
<PAGE> 21
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of any
applicable laws or regulations of foreign jurisdictions where Reserved
Securities have been offered and (B) any untrue statement or alleged
untrue statement of a material fact included in the supplement or
prospectus wrapper material distributed in foreign jurisdictions in
connection with the reservation and sale of the Reserved Securities to
eligible employees, directors, and other persons having relationships
with the Company or the omission or alleged omission therefrom of a
material fact necessary to make the statements therein, when considered
in conjunction with the Prospectus or preliminary prospectus, not
misleading;
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission or in
connection with any violation of the nature referred to in Section
6(a)(ii)(A) hereof, or any such alleged untrue statement or omission;
provided that (subject to Section 6(d) below) any such settlement is
effected with the written consent of the Company; and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation
of the nature referred to in Section 6(a)(ii)(A) hereof, to the extent
that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply
to any loss, liability, claim, damage or expense to the extent arising
out of any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Merrill
Lynch expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) Indemnification of Company, Directors and Officers. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of
17
<PAGE> 22
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Merrill Lynch expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
18
<PAGE> 23
(e) Indemnification for Reserved Securities. In connection with the
offer and sale of the Reserved Securities, the Company agrees, promptly upon a
request in writing, to indemnify and hold harmless the Underwriters from and
against any and all losses, liabilities, claims, damages and expenses incurred
by them as a result of the failure of eligible employees, directors, and other
persons having relationships with the Company to pay for and accept delivery of
Reserved Securities which, by the end of the first business day following the
date of this Agreement, were subject to a properly confirmed agreement to
purchase.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions, or in connection with
any violation of the nature referred to in Section 6(a)(ii)(A) hereof, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission or any violation of the nature referred to in Section
6(a)(ii)(A) hereof.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
19
<PAGE> 24
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the Underwriters.
20
<PAGE> 25
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the Nasdaq
National Market, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters to purchase and of the Company
to sell the Option Securities to be purchased and sold on
21
<PAGE> 26
such Date of Delivery shall terminate without liability on the part of
any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of Equity Capital
Markets; and notices to the Company shall be directed to it at 4 Park Plaza,
Suite 350, Irvine, California 92614, attention of General Counsel.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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<PAGE> 27
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.
Very truly yours,
EXULT, INC.
By
--------------------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
SALOMON SMITH BARNEY, INC.
By: MERILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
---------------------------------
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
23
<PAGE> 28
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
Bear, Sterns & Co. Inc..................................................
FleetBoston Robertson Stephens Inc......................................
Salomon Smith Barney, Inc...............................................
----------
Total...................................................................
==========
</TABLE>
Sch A-1
<PAGE> 29
SCHEDULE B
EXULT, INC.
_______________ Shares of Common Stock
(Par Value $.0001 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $_______________.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $_______________, being an amount equal to the
initial public offering price set forth above less $_______________ per share;
provided that the purchase price per share for any Option Securities purchased
upon the exercise of the over-allotment option described in Section 2(b) shall
be reduced by an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial Securities but not payable on
the Option Securities.
Sch B-1
<PAGE> 30
SCHEDULE C
List of persons and entities
subject to lock-up
Sch C-1
<PAGE> 31
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.
(iii) The Company has the status set forth opposite the jurisdictions
listed on Schedule A hereto.
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any, pursuant to
the Purchase Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the exercise of
convertible securities or options referred to in the Prospectus) and conforms to
the description thereof set forth in the Prospectus under the caption
"Description of Capital Stock" as of the respective dates set forth therein. The
shares of issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; and none of
the outstanding shares of capital stock of the Company was issued in violation
of (A) any preemptive right contained in the Certificate of Incorporation of the
Company as in effect at the time of such issuance or (B) any similar rights
contained in any agreements that the Company is a party to.
(v) The Securities have been duly authorized for issuance and sale to
the Underwriters pursuant to the Purchase Agreement and, when issued and
delivered by the Company pursuant to the Purchase Agreement against payment of
the consideration set forth in the Purchase Agreement, will be validly issued
and fully paid and non-assessable and no holder of the Securities is or will be
subject to personal liability by reason of being such a holder.
(vi) The issuance of the Securities is not subject to (A) preemptive
rights contained in the Restated Certificate or the Delaware General Corporation
Law or (B) to our knowledge, similar rights that entitle or will entitle any
person to acquire from the Company any shares of capital stock of the Company
upon the issuance and sale of the Shares by the Company.
(vii) Each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus. Each
Subsidiary has the status set forth opposite the jurisdictions listed on
Schedule B hereto. Except as otherwise disclosed in the Registration Statement,
all of the issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and, to the best
of our knowledge, is owned by the
A-1
<PAGE> 32
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of any Subsidiary was issued in violation of
the preemptive or similar rights of any securityholder of such Subsidiary.
(viii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus and each amendment or supplement to the Registration
Statement and Prospectus as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion) complied as to form
in all material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(xi) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.
(xii) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the Nasdaq National Market.
(xiii) To the best of our knowledge, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the Company or
any subsidiary is a party, or to which the property of the Company or any
subsidiary is subject, before or brought by any court or governmental agency or
body, domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder.
(xiv) The information in the Prospectus under "Description of Capital
Stock--Common Stock", "Business--Facilities", "Business--Major Clients",
"Business--Intellectual Property", "Business--Legal Proceedings",
"Business--Regulatory Matters", "Business--Litigation" and "Description of
Capital Stock" and in the Registration Statement under Item 14, to the extent
that it constitutes matters of law, summaries of legal matters, the Company's
charter and bylaws or legal proceedings, or legal conclusions, has been reviewed
by us and is correct in all material respects.
A-2
<PAGE> 33
(xv) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectus that are not described as
required.
(xvi) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its subsidiaries are a party are
accurate in all material respects; to the best of our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
(xvii) To the best of our knowledge, neither the Company nor any
subsidiary is in violation of its charter or by-laws and no default by the
Company or any subsidiary exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xviii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we need express
no opinion) is necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement or for the offering, issuance
or sale of the Securities.
(xix) The execution, delivery and performance of the Purchase Agreement
and the consummation of the transactions contemplated in the Purchase Agreement
and in the Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use Of Proceeds") and compliance
by the Company with its obligations under the Purchase Agreement do not and will
not, whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined in Section 1(a)(x) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument, known to us, to which the Company or any subsidiary is
a party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any subsidiary is subject (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would not
have a Material Adverse Effect), nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or any subsidiary, or
any applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any subsidiary or any of their
respective properties, assets or operations.
(xx) To the best of our knowledge, there are no persons with
registration rights or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the Company
under the 1933 Act.
A-3
<PAGE> 34
(xxi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
In addition, we participated in conferences with certain officers and
other representatives of the Company, its independent accountants, the
Underwriters and the Underwriters' counsel at which the contents of the
Registration Statement, the Prospectus and related matters were discussed. We
are not, however, passing upon, and do not assume any responsibility for, and we
have not independently checked or verified, the accuracy, completeness or
fairness of the information contained in the Registration Statement, except as
set forth in paragraph (xiv) above.
We may state, however, that based upon our participation as described in
the preceding paragraph, (i) we are of the opinion that the Registration
Statement and the Prospectus (except for the financial statements, including the
notes and schedules thereto and the other financial data included in the
Registration Statement and the Prospectus and the statistical data included in
or derived from such financial statements or financial data, as to which we
express no belief), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the 1933
Act and the applicable rules and regulations thereunder; (ii) we confirm that we
have no reason to believe that the Registration Statement (except for the
financial statements, including the notes and schedules thereto and the other
financial data included in the Registration Statement and the Prospectus and the
statistical data included in or derived from such financial statements or
financial data, as to which we express no belief) at the time the Registration
Statement became effective, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and (iii) we confirm that we have no
reason to believe that the Prospectus (except for the financial statements,
including the notes and schedules thereto and the other financial data included
in the Registration Statement and the Prospectus and the statistical data
included in or derived from such financial statements or financial data, as to
which we express no belief), on the date hereof, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements therein, in the lights of the circumstances under which they were
made, not misleading.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-4
<PAGE> 35
FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR
OTHER STOCKHOLDERS PURSUANT TO SECTION 5(i)
Exhibit B
_______________, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Bear, Sterns & Co. Inc.
FleetBoston Robertson Stephens Inc.
Salomon Smith Barney, Inc.
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Exult, Inc.
Dear Sirs:
The undersigned, a stockholder [and an officer and/or director] of
Exult, Inc., a Delaware corporation (the "Company"), understands that Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Bear, Sterns & Co. Inc., FleetBoston Robertson Stephens Inc., and
Salomon Smith Barney, Inc. propose to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company providing for the public offering of
shares (the "Securities") of the Company's common stock, par value $.0001 per
share (the "Common Stock"). In recognition of the benefit that such an offering
will confer upon the undersigned as a stockholder [and an officer and/or
director] of the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with each underwriter to be named in the Purchase Agreement that, during a
period of 180 days from the date of the Purchase Agreement, the undersigned will
not, without the prior written consent of Merrill Lynch, directly or indirectly,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any shares of the
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock, whether now owned or hereafter acquired by the undersigned or
with respect to which the undersigned has or hereafter acquires the power of
disposition, or file any registration statement under the Securities Act of
1933, as amended, with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such
B-1
<PAGE> 36
swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise.
In addition, the undersigned agrees that it will not, without the prior
written consent of Merrill Lynch, during a period of 180 days from the date of
the Purchase Agreement, make any demand for, or exercise any right with respect
to, the registration of any shares of the Common Stock or any securities
convertible into or exchangeable or exercisable for share of the Common Stock.
The undersigned understands that the Company and the Underwriters are
relying upon this agreement in proceeding toward consummation of the initial
public offering of the Securities. The undersigned further understands and
agrees that this agreement is irrevocable and shall be binding upon the
undersigned's heirs, legal representatives, successors and assigns.
Very truly yours,
Signature:
-----------------------------
Print Name:
-----------------------------
B-2
<PAGE> 37
Annex A
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)]
[We are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations]
(i) in our opinion, the audited financial statements [and the
related financial statement schedules] included in the Registration
Statement and the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the
published rules and regulations thereunder;
(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the unaudited interim [consolidated] financial statements of
the Company for the [three month periods ended _________, 19___ and
_________, 19___, the three and six month periods ended _________,
19___ and _________, 19___ and the three and nine month periods ended
_________, 19___ and _________, 19___, included in the Registration
Statement and the Prospectus (collectively, the "Quarterly
Financials")](1) [, a reading of the unaudited interim [consolidated]
financial statements of the Company for the _____-month periods ended
_________, 19___ and _________, 19___, included in the Registration
Statement and the Prospectus (the "____-month financials")](2) [, a
reading of the latest available unaudited interim [consolidated]
financial statements of the Company],(3) a reading of the minutes of all
meetings of the stockholders and directors of the Company [and its
subsidiaries] and the _________________ and __________________
Committees of the Company's Board of Directors [and any subsidiary
committees] since [day after end of last audited period], inquiries of
certain officials of the Company [and its subsidiaries] responsible for
financial and accounting matters, a review of interim financial
information in accordance with standards established by the American
Institute of Certified Public Accountants in Statement on Auditing
Standards No. 71, Interim Financial Information ("SAS 71"), with respect
to the [description of relevant periods](4) and such other inquiries and
procedures as may be specified in such letter, nothing came to our
attention that caused us to believe that:
[(A) the Quarterly Financials included in the Registration
Statement and the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and
the 1933 Act Regulations or any material modifications should be made to
the unaudited [consolidated] financial statements
- ----------
(1) Include the appropriate dates of the Quarterly Financials.
(2) Include if non-Quarterly unaudited interim financial statements are
included in the Registration Statement.
(3) Include if the most recent unaudited interim financial statements are not
included in the Registration Statement.
(4) The relevant periods include all interim unaudited condensed consolidated
financial statements included or incorporated by reference in the
Registration Statement.
Annex A-1
<PAGE> 38
included in the Registration Statement and the Prospectus for them to be
in conformity with generally accepted accounting principles;](5)
[( ) the _____-month financials included in the Registration
Statement and the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and
the 1933 Act Regulations applicable to unaudited interim financial
statements included in registration statements or any material
modifications should be made to the _____-month financials included in
the Registration Statement and the Prospectus for them to be in
conformity with generally accepted accounting principles;](6)
( ) at [_________, 19___ and at](7) a specified date not more
than five days8 prior to the date of this Agreement, there was any
change in the ___________ of the Company [and its subsidiaries] or any
decrease in the __________ of the Company [and its subsidiaries] or any
increase in the __________ of the Company [and its subsidiaries,] in
each case as compared with amounts shown in the latest balance sheet
included in the Registration Statement, except in each case for changes,
decreases or increases that the Registration Statement discloses have
occurred or may occur; or
( ) [for the period from _________, 19___ to _________, 19___
and ](9) for the period from _________, 19___ to a specified date not
more than five days prior to the date of this Agreement, there was any
decrease in _________, __________ or ___________, in each case as
compared with the comparable period in the preceding year, except in
each case for any decreases that the Registration Statement discloses
have occurred or may occur;
(iii) based upon the procedures set forth in clause (ii) above
and a reading of the [Selected Financial Data] included in the
Registration Statement, nothing came to our attention that caused us to
believe that the [Selected Financial Data] included in the Registration
Statement do not comply as to form in all material respects with the
disclosure requirements of Item 301 of Regulation S-K of the 1933 Act [,
that the amounts included in the [Selected Financial Data] are not in
agreement with the corresponding amounts in the audited [consolidated]
financial statements for the
- ----------
(5) Include if the Quarterly financials are included in the Registration
Statement.
(6) Include if non-quarterly, unaudited interim financial statements, not just
selected unaudited data, are included in the Registration Statement.
(7) Include, and insert the date of most recent balance sheet of the Company,
if those statements are more recent than the unaudited interim financial
statements included in the Registration Statement.
(8) According to Example A of SAS No. 72, the specified date should be five
calendar days prior to the date of the Underwriting Agreement rather than
five business days prior to such date.
(9) Include, and insert dates to describe the period from the date of the most
recent financial statements in the Registration Statement to the date of
the most recent unaudited interim financial statements of the Company, if
those dates are different. Regardless of whether this language is inserted
or not, the period including five days prior to the date of the
Underwriting Agreement should run from the date of the last financial
statement included in the Registration Statement, not from the later one
that is not included in the Registration Statement.
Annex A-2
<PAGE> 39
respective periods or that the financial statements not included in the
Registration Statement from which certain of such data were derived are
not in conformity with generally accepted accounting principles];
(iv) we have compared the information in the Registration
Statement under selected captions with the disclosure requirements of
Regulation S-K of the 1933 Act and on the basis of limited procedures
specified herein. nothing came to our attention that caused us to
believe that this information does not comply as to form in all material
respects with the disclosure requirements of Items 302, 402 and 503(d),
respectively, of Regulation S-K;
[(v) based upon the procedures set forth in clause (ii) above, a
reading of the unaudited financial statements of the Company for [the
most recent period] that have not been included in the Registration
Statement and a review of such financial statements in accordance with
SAS 71, nothing came to our attention that caused us to believe that the
unaudited amounts for _____________ for the [most recent period] do not
agree with the amounts set forth in the unaudited consolidated financial
statements for those periods or that such unaudited amounts were not
determined on a basis substantially consistent with that of the
corresponding amounts in the audited [consolidated] financial
statements;]
[(vi)] we are unable to and do not express any opinion on the
[Pro Forma Combining Statement of Operations] (the "Pro Forma
Statement") included in the Registration Statement or on the pro forma
adjustments applied to the historical amounts included in the Pro Forma
Statement; however, for purposes of this letter we have:
(A) read the Pro Forma Statement;
(B) performed [an audit] [a review in accordance with SAS 71] of
the financial statements to which the pro forma adjustments were
applied;
(C) made inquiries of certain officials of the Company who have
responsibility for financial and accounting matters about the basis for
their determination of the pro forma adjustments and whether the Pro
Forma Statement complies as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation S-X; and
(D) proved the arithmetic accuracy of the application of the pro
forma adjustments to the historical amounts in the Pro Forma Statement;
and on the basis of such procedures and such other inquiries and
procedures as specified herein, nothing came to our attention that
caused us to believe that the Pro Forma Statement included in the
Registration Statement does not comply as to form in all material
respects with the applicable requirements of Rule 11-02 of Regulation
S-X or that the pro forma adjustments have not been properly applied to
the historical amounts in the compilation of those statements; and
[(vii)]in addition to the procedures referred to in clause (ii)
above, we have performed other procedures, not constituting an audit,
with respect to certain amounts, percentages, numerical data and
financial information appearing in the Registration
Annex A-3
<PAGE> 40
Statement, which are specified herein, and have compared certain of such
items with, and have found such items to be in agreement with, the
accounting and financial records of the Company; and
[(viii)in addition, we [comfort on a financial forecast that is
included in the Registration Statement].
Annex A-4
<PAGE> 1
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of December 20, 1999, among PACTIV
CORPORATION, a Delaware corporation ("Pactiv"), PACTIV BUSINESS SERVICES INC., a
Delaware corporation formerly known as Tenneco Business Services, inc. ("PBS"),
and EXULT, INC., a Delaware corporation ("Exult").
PRELIMINARY STATEMENTS
A. PBS is an Affiliate of Pactiv, and operates as a business unit which
provides certain financial and administrative services (the "PBS Services") to
Pactiv, to certain Affiliates and former Affiliates of Pactiv (including Tenneco
Automotive Inc., a Delaware corporation ("TA")), to Packaging Corporation of
America, a Delaware corporation and divested Affiliate of Pactiv ("PCA"), and to
the folding carton division of Caraustar Industries Inc., which division was
formerly part of Pactiv ("Caraustar").
B. Upon the terms and subject to the conditions set forth more fully
herein, Pactiv and PBS desire to sell to Exult, and Exult desires to purchase
from Pactiv and PBS, certain of the assets used by PBS in providing such PBS
Services.
C. In connection with such sale, Exult will enter into (i) a service
agreement with Pactiv, pursuant to which Exult will provide certain services to
Pactiv and, pursuant to Pactiv's existing contracts with PCA and Caraustar, to
PCA and Caraustar, and (ii) a service agreement with TA
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth or as referenced below:
(a) "AFFILIATES" shall mean, with respect to any Person, any Persons
directly or indirectly controlling, controlled by or under common control with,
such other Person as of the date on which, or at any time during the period for
which, the determination of affiliation is being made. For the purpose of this
definition, "control" means (i) the ownership or control of 50% or more of the
equity interest in any Person, or (ii) the ability to direct or cause the
direction of the management or affairs of a Person, whether through the direct
or indirect ownership of voting interests, by contract or otherwise.
(b) "AGREEMENT" shall mean this Agreement (including the Preliminary
Statements and all Schedules), as the same may be amended or supplemented from
time to time in accordance with the terms hereof.
(c) "ANCILLARY AGREEMENTS" shall mean the Pactiv Services Agreement,
the TA Services Agreement, and each of the instruments of transfer and
assignment required to be delivered by the parties pursuant to Section 2.4 or
Section 2.5 of this Agreement.
<PAGE> 2
(d) "ASSUMED LIABILITIES" shall mean all liabilities, commitments, or
obligations of Pactiv or PBS accruing from and after the Effective Time under
the Transferred Contracts, provided that Exult is not assuming liabilities that
arise solely from the transfer of the Transferred Contracts to Exult.
(e) "BOOKS AND RECORDS" shall mean all books, records, files and
documents, in any medium relating to any of the Transferred Equipment, the
Transferred Licenses, or the Transferred Contracts.
(f) "CLAIM NOTICE" shall have the meaning set forth in Section 7.5.
(g) "CONSENT" shall mean any consent, approval, authorization, waiver,
permit, grant, franchise, concession, agreement, license, exemption or order of,
registration, certificate, declaration or filing with, or report or notice to
any Person, including any governmental authority necessary to effect the
transfer of the Purchased Assets from Pactiv or PBS to Exult.
(h) "EFFECTIVE TIME" shall mean 12:01 a.m. (Houston time) on January 1,
2000, or such later date or time as may be agreed to by the parties or as such
date or time may be extended in accordance with Section 6.1(d)..
(i) "EMPLOYEE BENEFIT PLAN" means any employee benefit plan as defined
in Section 3(3) of ERISA, including any pension plan, as defined in Section 3(2)
of ERISA, and any welfare plan, as defined in Section 3(1) of ERISA, and each
bonus or other incentive compensation, severance, reduction in force,
relocation, salary continuation for sickness or other disability, vacation or
education assistance program, or other employee benefit plan, policy or
arrangement.
(j) "EMPLOYEES" shall mean Persons who are employed by PBS or Pactiv at
the Woodlands Facility in providing the PBS Services as of the Effective Time,
including Inactive Employees. Employees shall include persons who are on the
active payroll of PBS or Pactiv immediately prior to the Effective Time and who,
although not performing direct services on such date, are deemed to be active
employees under PBS's or Pactiv's standard personnel policies, such as employees
on vacation, or employees who are on an unpaid leave of absence pursuant to the
Family and Medical Leave Act of 1993, as amended. Employees shall not include
persons who provide services to Pactiv or PBS pursuant to a contractual
relationship between PBS or Pactiv and a third party.
(k) "ENCUMBRANCES" shall mean liens, charges, encumbrances, security
interests, options or any other restrictions or third-party rights.
(l) "ENVIRONMENTAL LAWS" shall mean all statutes, ordinances, orders,
rules, regulations, plans, policies or decrees and the like relating to (i)
environmental matters, including those relating to fines, injunctions,
penalties, damages, contribution, cost recovery compensation, losses or injuries
resulting from the release or threatened release of Hazardous Substances, (ii)
the generation, use, storage, transportation or disposal of Hazardous
-2-
<PAGE> 3
Substances, or (iii) human safety and health and industrial hygiene in any
manner applicable to Pactiv, PBS, their respective Affiliates or the Woodlands
Facility, including the Comprehensive Environmental Response, Compensation, and
Liability Act "CERCLA" (42 U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601
et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
Section 136 et seq.), the Occupational Safety Planning and Community
Right-to-Know Act (42 U.S.C. Section 11001 et seq.), each as amended or
supplemented, and any analogous local, state and federal laws, ordinances, rules
and regulations promulgated pursuant thereto.
(m) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(n) "EXULT INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 7.3.
(o) "HAZARDOUS SUBSTANCES" means (i) any chemical, material or
substance of any quantity at any time defined as or included in the definition
of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "restricted hazardous waste", "infectious waste", "toxic
substances", "pollutant", "contaminant," special waste, medical waste, or any
formulations intended to define, list or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP
toxicity" or words of similar import under any applicable Environmental Laws or
publications promulgated pursuant thereto; (ii) an oil, petroleum, petroleum
fraction or petroleum derived substance; (iii) any drilling fluids, produced
waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources; (iv) any
radioactive materials; (v) asbestos in any form; (vi) urea formaldehyde foam
insulation; (vii) electrical equipment which contains any oil dielectric fluid
containing polychlorinated byphenyls; (viii) pesticides; and (ix) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any Environmental Laws.
(p) "INACTIVE EMPLOYEES" shall mean persons who are employed by PBS or
Pactiv at the Woodlands Facility but who are temporarily absent as of the
Effective Time from active employment by reason of illness or injury and who are
receiving, eligible to receive, or have previously received, with respect to
such illness or injury, workers' compensation or disability payments.
(q) "INDEMNIFIED PARTIES" shall have the meaning set forth in Section
7.3.
(r) "INDEMNIFYING PARTY" shall have the meaning set forth in Section
7.5.
(s) "KNOWLEDGE" or any similar phrase means the actual knowledge of
those management employees of Pactiv or PBS identified on Schedule 1.1.1.
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(t) "LOSSES" shall have the meaning set forth in Section 7.2.
(u) "NOTICE PERIOD" shall have the meaning set forth in Section 7.5.
(v) "PACTIV INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 7.2.
(w) "PACTIV SERVICES AGREEMENT" means the services agreement in
substantially the form of Exhibit A, to be entered into between Pactiv and
Exult.
(x) "PERSON" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization.
(y) "PURCHASED ASSETS" shall mean the following assets, properties and
rights of PBS or Pactiv, as the case may be, as they exist on the date hereof,
with such changes, deletions or additions thereto as may occur from the date
hereof to the Effective Time consistent with the terms and conditions of this
Agreement:
(i) the Transferred Equipment;
(ii) the Transferred Licenses;
(iii) the Transferred Contracts; and
(iv) the Books and Records.
The rights under the Transferred Contracts or Transferred Licenses accruing
prior to the Effective Time (including any claims for overpayments) are not
included in the Purchased Assets.
(z) "RETAINED ASSETS" shall mean all assets of Pactiv or PBS other than
the Purchased Assets.
(aa) "RETAINED LIABILITIES" shall mean all liabilities of Pactiv or PBS
other than the Assumed Liabilities. Without limiting the generality of the
foregoing, the Retained Liabilities include:
(i) Any liabilities or obligations under any Transferred
Contract or Transferred License required to be paid or performed on or
prior to the Effective Time;
(ii) Other than as set forth in Section 5.4(b) (regarding
Exult's obligation to employ certain Employees on Family Medical Leave
Act or Inactive Employees), Section 5.4(e) (regarding Exult's
obligation to grant Transferred Employees credit for their years of
service with Pactiv or PBS prior to the Effective Time) or Section 5.5
(regarding certain WARN Obligations), any accrued or other liability to
or with respect to any Employee relating to service prior to the
Effective Time or the transfer of the Transferred Employees to Exult,
including severance
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benefits, pension benefits, vacation benefits, sick leave benefits,
holiday pay and any accrued or other liability under any plan or
agreement of the type described in Section 3.8 with respect to any past
or present Employees of Pactiv, PBS or their current or former
Affiliates;
(iii) Any liabilities or obligations of Pactiv, PBS or their
respective Affiliates in respect of any Environmental Laws or any
Hazardous Substances;
(iv) Any liability of Pactiv, PBS or their current or former
Affiliates for any Taxes due before, on or after the date of this
Agreement, except as provided in Section 2.6;
(v) Any liabilities or obligations arising from any violation
by Pactiv, PBS or their respective current or former Affiliates of any
federal, state, local or foreign law, decree, order or regulation or
arising from their failure to obtain or maintain any federal, state,
local or foreign license, permit or other governmental authorization;
(vi) Any liability or obligation (contingent or otherwise)
arising out of any threatened or pending litigation against Pactiv or
PBS;
(vii) Any liability or obligation of Pactiv or PBS arising
prior to the Effective Time, including any liability or obligation
arising from any act, occurrence, event or omission which occurs (or
fails to occur) before the Effective Time; and
(viii) Any indebtedness of Pactiv, PBS or their respective
current or former Affiliates.
(bb) "TA SERVICES AGREEMENT" means the services agreement in
substantially the form of Exhibit B, to be entered into between TA and Exult.
(cc) "SERVICE AGREEMENTS" means the Pactiv Services Agreement and the
TA Services Agreement.
(dd) "TAXES" shall mean all federal, state, local or foreign taxes,
including but not limited to income, gross receipts, windfall profits, goods and
services, value added, severance, property, production, sales, use, license,
excise, franchise, employment, withholding or similar taxes, together with any
interest, additions or penalties with respect thereto and any interest in
respect of such additions or penalties.
(ee) "TRANSFERRED CONTRACTS" shall mean those contracts, leases and
other agreements listed on Schedule 1.1.2 hereof.
(ff) "TRANSFERRED EMPLOYEES" shall mean those Employees employed by
Exult pursuant to Section 5.4 hereof.
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(gg) "TRANSFERRED EQUIPMENT" shall mean all furniture, fixtures,
furnishings, leasehold improvements, machinery, equipment, computers and
computer peripheral, telecommunication devices, spare parts, and other tangible
personal property located at the Woodlands Facility (other than the items
identified on Schedule 1.1.3), and all express and implied warranties with
respect to any of the foregoing items. A list of certain items of Transferred
Equipment is attached hereto as Schedule 1.1.4.
(hh) "TRANSFERRED LICENSES" shall mean all permits, approvals,
certifications, and authorizations (to the extent transferrable to Exult) held
by Pactiv or PBS in connection with the other Purchased Assets, the Woodlands
Facility, or the services to be provided by Exult under the Service Agreements,
including those listed on Schedule 1.1.4 hereof.
(ii) "WOODLANDS FACILITY" shall mean the premises leased by PBS at 8401
New Trails Drive, The Woodlands, Texas.
1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of
this Agreement, and unless otherwise indicated shall have such meanings
throughout this Agreement.
1.3 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereof", "herein", and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement. The word "including"
means "including without limitation."
(b) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States dollars.
ARTICLE II
PURCHASE AND SALE OF ASSETS
II.1 PURCHASE AND SALE OF ASSETS. On the terms and subject to the
conditions set forth herein (a) Exult shall pay to Pactiv $3,500,000 as the
purchase price for the Purchased Assets, (b) Pactiv and PBS shall sell, convey,
transfer, assign and deliver to Exult all of Pactiv's and PBS's right, title and
interest in and to the Purchased Assets, and (c) Pactiv and PBS shall assign to
Exult, and Exult shall accept and assume, the Assumed Liabilities.
II.2 RETAINED ASSETS AND RETAINED LIABILITIES. Notwithstanding anything
herein to the contrary, (i) from and after the Effective Time each of Pactiv,
PBS, and their Affiliates shall retain all of its direct or indirect right,
title and interest in and to, and there shall be excluded from the sale,
conveyance, assignment or transfer to Exult hereunder, the Retained
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Assets, and (ii) the Retained Liabilities shall be retained by Pactiv and/or
PBS, as applicable, and shall not be assumed by Exult hereunder.
II.3 EFFECTIVE TIME. Subject to the satisfaction or waiver (by the
party entitled to waive the condition) of all conditions set forth in Article
VI, and the delivery by the parties of the items required by Section 2.4 and
Section 2.5 hereof, the transfer of the Purchased Assets, and the assignment and
assumption of the Assumed Liabilities, shall be deemed to occur at the Effective
Time.
II.4 DELIVERIES BY EXULT. Prior to the Effective Time Exult shall
deliver to Pactiv the following:
(a) PURCHASE PRICE. The purchase price, of which $500,000 plus
the interest earned thereon shall come from the escrow previously
established by the parties, and the balance of the purchase price paid
by Exult. All payments shall be in immediately available funds, and
paid by wire transfer to an account designated by Pactiv;
(b) ASSIGNMENT AND ASSUMPTION AGREEMENT. An Assignment and
Assumption Agreement, in form and substance reasonably acceptable to
Pactiv and Exult, pursuant to which Pactiv and PBS assign to Exult, and
Exult assumes from Pactiv and PBS, the Assumed Liabilities (the
"Assignment and Assumption Agreement"), duly executed by Exult;
(c) LEASE ASSIGNMENT. A duly executed copy of an Assignment
and Assumption of Lease, in form and substance reasonably acceptable to
Pactiv and Exult (the "Lease Assignment"), pursuant to which PBS
assigns to Exult, and Exult assumes, the rights and obligations of PBS
accruing from and after the Effective Time under the real estate lease
listed as item 1 on Schedule 1.1.2 (the "Lease").
(d) ANCILLARY AGREEMENTS. A duly executed copy of each other
Ancillary Agreement;
(e) REQUIRED CONSENTS. Evidence reasonably satisfactory to
Pactiv that Exult has obtained all Consents identified on Schedule 4.3.
(f) CLOSING CERTIFICATES. The certificate required to be
delivered pursuant to Section 6.2; and
(g) OTHER. Such other instruments or documents as Pactiv may
reasonably request to effect the transactions contemplated by this
Agreement
II.5 DELIVERIES BY PACTIV. Prior to the Effective Time, Pactiv shall
deliver to Exult the following:
(a) BILL OF SALE. A bill of sale, in form and substance
reasonably acceptable to Pactiv and Exult, transferring to Exult all of
the Purchased Assets (the "Bill of Sale"), duly executed by Pactiv and
PBS;
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(b) ASSIGNMENT AND ASSUMPTION AGREEMENT. A copy of the
Assignment and Assumption Agreement, duly executed by Pactiv and PBS;
(c) LEASE ASSIGNMENT. A copy of the Lease Assignment, duly
executed by PBS;
(d) LICENSE ASSIGNMENTS. Assignments assigning to Exult all
Transferred Licenses, duly executed by Pactiv and PBS, as applicable;
(e) ANCILLARY AGREEMENTS. A copy of each other Ancillary
Agreement, duly executed by Pactiv, PBS, or TA, as the case may be;
(f) REQUIRED CONSENTS. Evidence reasonably satisfactory to
Exult that Pactiv has obtained all Consents identified on Schedule 3.3.
(g) CLOSING CERTIFICATE. The certificate required to be
delivered pursuant to Section 6.1; and
(h) OTHER. Such other instruments or documents as Exult may
reasonably request to effect the transactions contemplated hereby.
II.6 TRANSFER TAXES AND RECORDING FEES. Any and all Taxes (other than
Taxes imposed on income or gains) or fees imposed or incurred by reason of the
transfer of the Purchased Assets hereunder and/or the filing or recording of any
instruments necessary to effect the transfer of the Purchased Assets hereunder,
regardless of when such Taxes or fees are levied or imposed, including sales,
use, value-added, excise, real estate transfer, lease assignment, stamp,
transfer gains, documentary and similar Taxes and fees (the "Transfer Costs")
shall be the responsibility of, and shall be paid by, Exult.
II.7 CERTAIN TRANSFERS. If prior to Effective Time the parties shall
have not received a Consent necessary for the transfer to Exult of any Purchased
Asset, the failure to obtain such Consent shall not prevent consummation of the
transactions contemplated hereby. In such case, the consummation of the
transactions contemplated by this Agreement shall not constitute a transfer, or
any attempted transfer thereof, and the asset affected thereby shall not be a
"Purchased Asset." Rather, following the Effective Time, the parties shall use
reasonable efforts, and cooperate with each other, to obtain promptly such
Consent, provided that neither Pactiv nor Exult shall be required to pay any
consideration therefor or incur any liability or obligation in connection
therewith, other than filing, recordation or similar fees payable to any
governmental authority, which fees shall be paid by Exult. To the extent that
any such Purchased Asset cannot be transferred because a Consent was not
obtained, until such Consent is obtained, Exult, Pactiv and PBS shall cooperate
with each other in any reasonable and lawful arrangements (including subleasing
or subcontracting if permitted) to provide to Exult the full economic (taking
into account Tax costs and benefits) and operational benefits and liabilities of
use of any such Purchased Asset. Once such Consent for the transfer of a
Purchased Asset not transferred at the Effective Time is obtained, Pactiv or PBS
shall
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promptly transfer or cause to be transferred, such Purchased Asset to Exult for
no additional consideration.
II.8 PURCHASE PRICE ALLOCATION. The purchase price for the Purchased
Assets shall be allocated in accordance with Schedule 2.8.
II.9 SALES AND USE TAXES. The parties will cooperate with each other in
the event of the imposition or claimed imposition of any sales or use tax audit
for any period covering the date of sale. Such assistance shall include
providing adequate documentation to support a claim of occasional sale regarding
the assets purchased in this Agreement.
II.10 PRORATIONS. Any real or personal property Taxes with respect to
the Purchased Assets and any charges for rent, operating expenses, utilities or
similar items of expense shall be prorated as of the Effective Time. All such
expenses due with respect to periods on or before the Effective Time shall be
paid or satisfied by Pactiv or PBS, and all obligations due with respect to
periods after the Effective Time shall be paid or satisfied by Exult.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PACTIV AND PBS
Pactiv and PBS makes the following representations and warranties, each
of which (i) is true as of the date of this Agreement, and (ii) will be true at
the Effective Time:
III.1 ORGANIZATION AND QUALIFICATION. Each of Pactiv and PBS is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware and has all requisite corporate power and authority to
own and operate the Purchased Assets and to carry on the PBS Services as
currently conducted. Each of Pactiv and PBS is qualified and in good standing in
the state of Texas.
III.2 CORPORATE AUTHORIZATION. Pactiv and PBS each has full corporate
power and authority to execute and deliver this Agreement and each of the
Ancillary Agreements to which it is a party, and to perform its respective
obligations hereunder and thereunder. The execution, delivery and performance by
Pactiv and PBS of this Agreement and each of the Ancillary Agreements to which
it is a party have been duly and validly authorized and no additional corporate
or shareholder authorization or consent is required in connection with the
execution, delivery and performance by Pactiv or PBS of this Agreement and each
of the Ancillary Agreements. Pactiv is the sole shareholder of PBS.
III.3 CONSENTS AND APPROVALS. Except as specifically set forth in
Schedule 3.3, no Consent is required to be obtained by Pactiv or PBS from, and
no notice or filing is required to be given by Pactiv or PBS to or made by
Pactiv or PBS with, any governmental authority or other Person or under any
Transferred Contract, in connection with the execution, delivery and performance
by Pactiv and PBS of this Agreement and each of the Ancillary Agreements, other
than in all cases where the failure to obtain such Consent, or to give or make
such notice or filing, would not materially impair or delay the ability of
Pactiv or PBS to perform their obligations hereunder or materially impair the
ability of Exult to own and use
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the Purchased Assets, use the Woodlands Facility, or to provide the services
required to be provided by it under the Service Agreements.
III.4 NON-CONTRAVENTION. The execution, delivery and performance by
Pactiv and PBS of this Agreement and each of the Ancillary Agreements, and the
consummation of the transactions contemplated hereby and thereby, does not and
will not (i) violate any provision of the certificate of incorporation or bylaws
of Pactiv or PBS, (ii) subject to obtaining the Consents referred to in Section
3.3, conflict with, or result in the breach of, or constitute a default under,
or result in the termination, cancellation or acceleration (whether after the
filing of notice or the lapse of time or both) of any right or obligation of
Pactiv or PBS under, or to a loss of any benefit to which Pactiv or PBS is
entitled under, any Transferred Contract or result in the creation of any
Encumbrance upon any of the Purchased Assets; or (iii) assuming compliance with
the matters set forth in Section 3.3, violate, or result in a breach of or
constitute a default under any law, rule, regulation, judgment, injunction,
order, decree or other restriction of any court or governmental authority to
which Pactiv or PBS is subject, other than, in the cases of clauses (ii) and
(iii), any conflict, breach, termination, default, cancellation, acceleration,
loss, violation or Encumbrance which, individually or in the aggregate, would
not materially impair or delay the ability of Pactiv or PBS to perform its
obligations hereunder or materially impair the ability of Exult to own and use
the Purchased Assets, use the Woodlands Facility, or to provide the services
required to be provided by it under the Service Agreements.
III.5 BINDING EFFECT. This Agreement constitutes, and each of the
Ancillary Agreements when executed and delivered by the parties thereto will
constitute, a valid and legally binding obligation of Pactiv or PBS, as the case
may be, enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors, rights and to general equity
principles.
III.6 LITIGATION AND CLAIMS. There is no civil, criminal or
administrative action, suit, demand, claim, hearing, proceeding or investigation
pending or, to the Knowledge of Pactiv or PBS, threatened, involving the PBS
Services or any of the Purchased Assets. To the Knowledge of Pactiv or PBS,
there is no civil, criminal or administrative action, suit, demand, claim,
hearing, proceeding or investigation pending or threatened involving the
Woodlands Facility. None of the Purchased Assets is subject to any order, writ,
judgment, award, injunction, or decree of any court or governmental or
regulatory authority of competent jurisdiction or any arbitrator or arbitrators.
III.7 TAXES. Pactiv and PBS have duly and timely filed (or caused to be
duly and timely filed) each tax return required to be filed with any tax
authority which includes or is based upon the Purchased Assets, or the
operations, ownership or activities of the PBS Services, such tax returns were
accurate, complete, and in compliance with law, in each case in all material
respects, and all Taxes which were shown to be due on such tax returns have been
paid prior to their due dates; provided, however, that the representations and
warranties set forth in this paragraph are made only to the extent that (i) such
Taxes are or may become Encumbrances on the Purchased Assets, or (ii) Exult is
or may be liable for any such Taxes.
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III.8 EMPLOYEE BENEFITS.
(a) Schedule 3.8 lists all Employee Benefit Plans currently
maintained by Pactiv, PBS, or their Affiliates for the Employees or in
which the Employees have the right to participate (collectively, the
"Pactiv Plans"). None of the Pactiv Plans constitutes a "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA. Pactiv has delivered
true and complete copies of each such Employee Benefit Plan to Exult.
Pactiv and PBS are in compliance, in all material respect, with each
such Employee Benefit Plan. There are no actions, suits, or claims
(other that routine claims for benefits) pending or, to the Knowledge
of Pactiv and PBS, threatened, against such Pactiv Plans, and to the
Knowledge of Pactiv and PBS, no facts exist which they believe will
give rise to any actions, suits or claims (other than routine claims
for benefits) against such Pactiv Plans or the assets of the Pactiv
Plans.
(b) To the Knowledge of Pactiv and PBS, no Employee Benefit
Plan is currently subject to an audit or other investigation by the
IRS, the Department of Labor, the Pension Benefit Guaranty Corporation
or any other governmental entity. No "prohibited transaction," as
defined in Section 406 of ERISA or Section 4975 of the Code, resulting
in material liability has occurred with respect to any Employee Benefit
Plan. Pactiv and PBS have no Knowledge of any breach of fiduciary
responsibility under Part 4 of Title I of ERISA which has resulted in
or would result in any material liability to Pactiv, PBS, any trustee,
administrator or fiduciary of any Employee Benefit Plan. Pactiv and PBS
have delivered or made available to Exult, for each Employee Benefit
Plan that is a pension plan that is intended to be "qualified" within
the meaning of Section 401(a) of the Code, a copy of the most recent
determination letter issued by the IRS to the effect that each such
Plan is so qualified and that each trust created thereunder is tax
exempt under Section 501 of the Code, and Pactiv and PBS are unaware of
any fact or circumstances that would jeopardize the qualified status of
each such pension plan or the tax exempt status of each trust created
thereunder. No Pactiv Plan has an "unfunded benefit liability" (as such
term is defined in Section 4001(a)(18) of ERISA). No Pactiv Plans which
are subject to Section 302 of ERISA or Section 412 of the Code has an
"accumulated funding deficiency" (as such term is defined in Section
302 of ERISA or Section 412 of the Code), whether or not waived. No
Pactiv Plan has a "liquidity shortfall" as defined in Section 412(m)(5)
of the Code. No notice has been required under Section 4011 of ERISA
with respect to any Pactiv Plan. No event described in Section
401(a)(29)of the Code has occurred or can reasonably be expected to
occur with respect to Pactiv or any of its Affiliates. No unreported
"reportable event" (as that term is defined in Section 4043 of ERISA
and for which the 30-day notice requirement has not been waived) has
occurred with respect to any such Pactiv Plan within the last six years
prior to the Effective Time, other than as may arise as a result of the
consummation of the transactions contemplated by this Agreement. Other
than pursuant to the Severance Benefit Plan, none of the Pactiv Plans
provides for post-employment life or health insurance, benefits or
coverage for any participant or any beneficiary of a participant,
except as may be required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, or as may be offered as
individual conversion rights. Neither Pactiv, PBS or Exult have or will
have any material liability or obligation for taxes, penalties,
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contributions, losses, claims, damages, judgments, settlement costs,
expenses, costs or any other liability or liabilities of any nature
whatsoever arising out of or in any manner relating to any Employee
Benefit Plan that has been, or is, contributed to by any entity,
whether or not incorporated, which is deemed to be under common control
(as defined in Section 414 of the Code), with Pactiv. Notwithstanding
anything herein to the contrary, the representations and warranties set
forth in this Section 3.8(b) are made only to the extent that (i) the
breach of such representations would or may give rise to Encumbrances
on the Purchased Assets, or (ii) Exult is or may be liable for any
amounts as a result of a breach of such representations or warranties.
III.9 LABOR MATTERS. Neither Pactiv nor PBS is a party to any labor or
collective bargaining agreement with respect to Employees, no Employees are
represented by any labor organization and, to the Knowledge of Pactiv and PBS,
there are no organizing activities (including any demand for recognition or
certification proceedings pending or threatened in writing to be brought or
filed with the National Labor Relations Board or other labor relations tribunal)
involving the Employees. There are no complaints, charges or claims against
Pactiv or PBS pending or, to the Knowledge of Pactiv or PBS, threatened to be
brought or filed with any governmental authority, arbitrator or court based on
or arising out of the employment by Pactiv or PBS of any Employee. There are no
employment agreements between Pactiv or PBS and any Transferred Employee, other
than retention agreements (which are Retained Liabilities). Pactiv and PBS are
in compliance, in all material respects, with respect to the Transferred
Employees with all laws relating to the employment of labor, including all such
laws and orders relating to wages, hours, collective bargaining, discrimination,
civil rights, safety and health, workers' compensation and the collection and
payment of withholding and/or social security and similar taxes.
III.10 TRANSFERRED CONTRACTS. Each Transferred Contract is a valid and
binding agreement of Pactiv or PBS, as the case may be, and, to the Knowledge of
Pactiv and PBS, is valid and binding agreement of the other party or parties
thereto, and is in full force and effect. Pactiv has provided a true and
complete copy of each Transferred Contract to Exult, including all amendments,
modifications, supplements, certificates, subordinations and other documents
relating thereto or incorporated therein. There has not occurred any default
under any Transferred Contract on the part of Pactiv or PBS (other than
non-material defaults, defaults which have been waived in writing by the other
party thereto or cured in accordance with the terms of such Transferred
Contracts) or, to the Knowledge of Pactiv and PBS, on the part of the other
parties thereto, and, to the Knowledge of Pactiv and PBS, no event has occurred
which with the giving of notice or the lapse of time, or both, would constitute
a default under any Transferred Contract. No past default has occurred which has
resulted in loss of any material rights under any of the Transferred Contracts.
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III.11 PURCHASED ASSETS.
(a) Pactiv or PBS has good and marketable title to the Purchased
Assets, free and clear of all Encumbrances , except as set forth in Schedule
3.11 and for liens for Taxes, assessments and other governmental charges not yet
due and payable (collectively, the "Permitted Encumbrances"). Pactiv and PBS
have the right to use the Purchased Assets and, subject to the Consents
specified in Schedule 3.3, to transfer the Purchased Assets to Exult. The
delivery to Exult of the Ancillary Agreements will vest good and marketable
title to the Purchased Assets in Exult, free and clear of all Encumbrances other
than the Permitted Encumbrances and other than Encumbrances arising through
Exult. The Purchased Assets and the other rights granted to Exult hereunder or
under the Ancillary Agreements include all assets, rights and interests used by
PBS to provide the services to be provided by Exult under the Services
Agreement, in all material respects.
(b) Each item of Transferred Equipment is in good operating condition
and repair in all material respects, subject to normal wear and tear which is
not material either individually or in the aggregate.
III.12 LEASE.
(a) Attached hereto as Schedule 3.12(a) is a true and complete copy of
the Lease, including all amendments, modifications, supplements related thereto,
including any waivers executed by PBS, and any other documents incorporated
therein. PBS is the lessee under the Lease. PBS has not assigned, transferred or
sublet all or any portion of the Woodlands Facility. The currently monthly Base
Rent (as defined in the Lease) is $36,624.17, and the current monthly Additional
Rent (as defined in the Lease) is $32,068.33. The landlord under the Lease does
not hold any security deposit under the Lease. All rent, charges and other
payments due to the landlord under the Lease have been paid in full through and
including December 31, 1999.
(b) To the Knowledge of Pactiv and PBS, (i) all of the buildings,
improvements, fixtures, mechanical systems (including elevators, plumbing,
heating, air conditioning, ventilation, and life safety), and electrical systems
and emergency power systems located at the Woodlands Facility are in good
operating condition and repair in all material respects, and (ii) the Woodlands
Facility and the conduct of the PBS Services at the Woodlands Facility does not
violate any applicable building code, zoning ordinance or other permit, law or
regulation.
(c) To the Knowledge of Pactiv and PBS, the Woodlands Facility is
supplied with all utility services necessary for the operation thereof as it is
currently operated. PBS has not experienced during the two years preceding the
date hereof any material interruption in the delivery of adequate quantities of
any utilities (including electricity, natural gas, potable water, water for
cooling or similar purposes and fuel oil) or other public services (including
sanitary and industrial sewer service).
(d) To the Knowledge of Pactiv and PBS, no part of the Facility is the
subject of any pending or threatened condemnation or eminent domain proceeding.
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(e) There are no Persons in possession of any portion of the Woodlands
Facility other than PBS and employees of Pactiv, Tenneco Management Company, and
TA, and to the Knowledge of Pactiv and PBS no other Persons have any rights to
occupy any portion of the Woodlands Facility.
III.13 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of Pactiv and PBS, the Woodlands Facility and all
operations conducted at the Facility comply with all Environmental Laws.
(b) Pactiv or PBS have obtained all authorizations under Environmental
Laws necessary for their operations at the Woodlands Facility and all such
authorizations are in good standing, and Pactiv and PBS are in compliance with
all material terms and conditions of such authorizations.
(c) Neither Pactiv nor PBS nor, to the Knowledge of Pactiv and PBS, the
owner of the Woodlands Facility, has received (i) any notice or claim to the
effect that it is or may be liable to any person or entity as a result of or in
connection with any Hazardous Substance used, stored, generated or disposed of
at the Woodlands Facility; or (ii) any letter or request for information under
Section 104 of the Comprehensive Environmental Response, Compensation, and
Liability Act (41 U.S.C. Section 9604) or comparable state laws regarding the
use, storage, generation or disposal of Hazardous Substances at the Woodlands
Facility. To the Knowledge of Pactiv and PBS, none of the operations conducted
at the Woodlands Facility is the subject of any federal or state investigation
relating to or in connection with any Hazardous Materials at the Woodlands
Facility or at any other location.
(d) To the Knowledge of Pactiv and PBS, none of the operations
conducted at the Woodlands Facility is subject to any judicial or administrative
proceeding alleging the violation of or liability under any Environmental Laws.
(e) Neither Pactiv nor PBS nor, to the Knowledge of Pactiv and PBS, any
predecessor-in-interest of Pactiv or PBS with respect to the Woodlands Facility
has filed any notice under any Environmental Law indicating past or present
treatment or release of Hazardous Substances at the Woodlands Facility, and none
of the operations at the Facility involves the generation, transportation,
treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R.
Parts 260-270 or any state equivalent, other than in compliance in all material
respects with all applicable Environmental Laws.
(f) No Hazardous Substances used in the operations of Pactiv or PBS at
the Woodlands Facility and, to their Knowledge, no other Hazardous Substances,
exist on, under or about the Woodlands Facility in a manner that has a
reasonable possibility of giving rise to a claim under Environmental Laws, and
neither Pactiv nor PBS or any of their respective Affiliates has filed any
notice or report of a release of any Hazardous Substance from the Woodlands
Facility.
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(g) Neither Pactiv nor PBS or their respective Affiliates, and, to the
Knowledge of Pactiv and PBS, none of their respective predecessors-in-interest
with respect to the Woodlands Facility, has disposed of any Hazardous Substances
generated on the Real Property in a manner that has a reasonable possibility of
giving rise to a claim under Environmental Laws.
(h) To the Knowledge of Pactiv and PBS, no underground storage tanks or
surface impoundments are at the Facility. Pactiv and PBS have disclosed to Exult
the existence of one aboveground storage tank at the Woodlands Facility, which
has all required permits.
(i) To the Knowledge of Pactiv and PBS, no lien claim or encumbrance in
favor of any person or entity relating to or in connection with any claims under
Environmental Laws has been filed or has been attached to the Woodlands
Facility.
(j) Neither Pactiv nor PBS or any of their respective Affiliates is
subject to any outstanding written order or agreement with any governmental
authority or private party relating to any Environmental Laws, or any claims
under Environmental Laws, which in any way relate to the Woodlands Facility.
III.14 COMPLIANCE WITH LAWS. To the Knowledge of Pactiv and PBS,
neither Pactiv, PBS nor the Woodlands Facility is in violation of any provision
of any law, decree, order or regulation (including the Americans with
Disabilities Act and those relating to employment practices, health and safety);
it being understood that nothing in this representation is intended to address
any compliance issue that is the subject of any other representation or warranty
set forth herein regarding compliance with specific laws. PBS has all Federal,
state and local licenses, permits and other governmental authorizations required
in the conduct of the PBS Services at the Woodlands Facility.
III.15 FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Pactiv or PBS who might be entitled to any fee or commission from Exult in
connection with the transactions contemplated by this Agreement.
III.16 YEAR 2000 COMPLIANCE. Pactiv and PBS have taken the following
steps to addresses the "Year 2000" issue where existing systems and equipment
are expected to remain in place beyond 1999: (i) Pactiv and PBS have developed a
detailed process in place to identify and assess Year 2000 issues and to
remediate, replace or establish alternative procedures addressing non-Year 2000
compliant systems, hardware, and equipment; (ii) Pactiv and PBS have
substantially completed inventorying its systems and equipment, including
computer systems and business applications, as well as date-sensitive technology
embedded in its equipment and facilities; (iii) Pactiv and PBS continue to plan
for and undertake remediation, replacement, or establishment of alternative
procedures for non-compliant Year 2000 systems and equipment; and (iv) Pactiv
and PBS continue to test remediated, replaced or alternative procedures for
systems and equipment. Pactiv and PBS believe that approximately 99% of its
major business applications systems had achieved Year 2000 compliance as of the
date hereof. Remediation, replacement, or establishment of alternative
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procedures for systems and equipment have been and are being undertaken on a
business priority basis.
III.17 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Article III, neither Pactiv,
PBS, nor any other Person makes any other express or implied representation or
warranty on behalf of Pactiv or PBS.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EXULT
Exult makes the following representations and warranties, each of which
(i) is true as of the date of this Agreement, and (ii) will be true at the
Effective Time:
IV.1 ORGANIZATION AND QUALIFICATION. Exult is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own and operate
and to carry on its business as currently conducted.
IV.2 CORPORATE AUTHORIZATION. Exult has full corporate power and
authority to execute and deliver this Agreement and each of the Ancillary
Agreements, and to perform its obligations hereunder and thereunder. The
execution, delivery and performance by Exult of this Agreement and each of the
Ancillary Agreements have been duly and validly authorized and no additional
corporate authorization or consent is required in connection with the execution,
delivery and performance by Exult of this Agreement and each of the Ancillary
Agreements.
IV.3 CONSENTS AND APPROVALS. No Consent is required to be obtained by
Exult from, and no notice or filing is required to be given by Exult to, or made
by Exult with, any governmental authority or other Person in connection with the
execution, delivery and performance by Exult of this Agreement and each of the
Ancillary Agreements, other than in all cases where the failure to obtain such
Consent, or to give or make such notice or filing, would not materially impair
or delay the ability of Exult to perform its obligations hereunder.
IV.4 NON-CONTRAVENTION. The execution, delivery and performance by
Exult of this Agreement and each of the Ancillary Agreements, and the
consummation of the transactions contemplated hereby and thereby, does not and
will not (i) violate any provision of the Certificate of Incorporation or
By-laws of Exult or (ii) violate or result in a breach of or constitute a
default under any law, rule, regulation, judgment, injunction, order, decree or
other restriction of any court or governmental authority to which Exult is
subject, other than any conflict, breach, termination, default, cancellation,
acceleration, loss, violation or Encumbrance which, individually or in the
aggregate, would not materially impair or delay the ability of Exult to perform
its obligations hereunder.
IV.5 BINDING EFFECT. This Agreement constitutes, and each of the
Ancillary Agreements when executed and delivered by the parties thereto will
constitute, a valid and legally binding obligation of Exult enforceable in
accordance with their respective terms,
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subject to bankruptcy, insolvency, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
IV.6 FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Exult who might be entitled to any fee or commission from Pactiv or PBS in
connection with the transactions contemplated by this Agreement.
IV.7 FINANCIAL CAPABILITY. Exult has, and on the Effective Time will
have, sufficient funds available, from cash on hand or from committed lines of
credit, to pay the purchase price and otherwise to effect the consummation of
the transactions contemplated by this Agreement.
IV.8 EXULT'S BUSINESS. Exult is engaged in the business of providing
services of the nature to be provided under the Service Agreements, and is not
engaged in the design, development, manufacture, sale or distribution of
automotive parts, modules, or systems for automotive original equipment
manufacturers, or for the automotive resale and replacement market.
IV.9 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Article IV, neither Exult nor
any other Person makes any other express or implied representation or warranty
on behalf of Exult.
ARTICLE V
COVENANTS
V.1 ACCESS. Pactiv and PBS shall permit Exult and its representatives
to have access, during regular business hours and upon reasonable advance
notice, to the Woodlands Facility, the Purchased Assets and Pactiv's and PBS's
personnel, subject to reasonable rules and regulations of Pactiv, and shall
furnish, or cause to be furnished, to Exult, any financial and operating data
and other information that is available with respect to the services to be
provided by Exult under the Services Agreement, the Purchased Assets and the
Woodlands Facility as Exult shall from time to time reasonably request. Exult
shall keep any and information furnished to it or its representatives pursuant
to this Section 5.1 confidential until the Effective Time, subject to the
provisions of the Service Agreements.
V.2 CONDUCT OF BUSINESS. During the period from the date hereof to the
Effective Time, except as otherwise contemplated by this Agreement or as Exult
shall otherwise agree in writing in advance, PBS shall conduct the PBS Services
in the ordinary and usual course, and use its reasonable efforts to preserve
intact its business organization and its relationships with third parties.
Notwithstanding the foregoing, except as set forth in Section 5.4 nothing shall
require Pactiv or PBS to pay any retention or stay bonuses to any Employees.
Neither Pactiv nor PBS shall, without Exult's prior written consent (which shall
not be unreasonably withheld), (i) sell, lease or otherwise dispose of any of
the Purchased Assets, (ii) modify, amend, terminate or waive any rights under
any of the Transferred Contracts, (iii) increase the compensation or benefits
payable or otherwise available to any of the Transferred Employees, other than
increases effective as of January 1, 2000, as previously disclosed to
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Exult, (iv) terminate or allow to lapse any of the Transferred Licenses, or (v)
agree to do any of the foregoing.
V.3 REASONABLE EFFORTS. The parties will cooperate and use their
respective reasonable efforts to fulfill the conditions precedent to their and
the other party's obligations hereunder, including securing as promptly as
practicable all Consents, required in connection with the transactions
contemplated hereby, provided that neither party shall be required to pay any
consideration or otherwise incur any liability or obligation in connection with
obtaining such Consents except as specifically set forth herein.
5.4 COVENANTS REGARDING EMPLOYEES.
(a) Schedule 5.4 sets forth a list of certain Employees, which Pactiv
and PBS represent and warrant correctly lists the respective position, job
location and salary rate of each Employee listed thereon. Subject to the
provisions of this Section 5.4, as of the Effective Time Exult shall employ on
an at-will basis all Employees listed on such Schedule, on the terms and subject
to the conditions specified by Exult in its employment letters to such Employees
in substantially the form disclosed to Pactiv (the Employees who are actually
employed by Exult are referred to collectively as the "Transferred Employees").
(b) The transfer to Exult of an Employee listed on Schedule 5.4 shall
be conditioned upon the closing of the transactions contemplated by this
Agreement and the Service Agreements, and upon such reasonable conditions as
Exult may include in its employment letter to such Employee. Only upon the
satisfaction of all such conditions shall an Employee become a Transferred
Employee, and until such time (i) the Employee shall not be eligible for
compensation from, or to participate in any benefit plans of, Exult, and (ii)
Exult shall have no liability with respect to any Employee.
(c) Any Employee listed on Schedule 5.4 who is (A) on an unpaid leave
of absence at the Effective Time pursuant to the Family and Medical Leave Act of
1993, as amended, or (B) an Inactive Employee shall be treated as a Transferred
Employee for purposes of this Agreement as of 12:01 a.m. of the day immediately
following the last day of such leave or the condition which caused such Employee
to be an Inactive Employee ceases (the "Leave Expiration Date"); provided, that
(i) as of the Leave Expiration Date, such Employee has met all other conditions
precedent to employment by Exult, (ii) such employee has been medically released
to return to work, if applicable, (iii) the Leave Expiration Date is no longer
than 12 weeks after such leave commenced, and is reasonably capable of
performing his or her former position with or without reasonable accommodation,
(iv) such Employee returns to his or her job on the first work day after the
Leave Expiration Date, and (v) such Employee is identified to Exult by Pactiv or
PBS promptly after the Effective Time.
(d) Each employment letter to an Employee pursuant to this Section
shall provide that the Employee shall initially be paid at the same base
compensation rate, and initially shall have the same position and place of
employment, as is listed on Schedule 5.4. The total compensation package
provided to the Transferred Employees shall, in the aggregate, be approximately
comparable to the total compensation package applicable to such Transferred
Employees on the date hereof (excluding any retention bonuses for which any of
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the Transferred Employees may be eligible), as disclosed by Schedule 5.4 and
Schedule 3.8. The benefits initially available to the Transferred Employees
shall include those listed on Schedule 5.4 (d) except as disclosed. Exult shall
not be required to offer any benefits not available to other employees of Exult.
(e) For purposes of eligibility, vesting and benefit accrual under
Exult's vacation policy, severance policy and 401(k) plan, Exult shall grant all
Transferred Employees credit for their years of service with Pactiv or Pactiv's
Affiliates prior to the Effective Time, to the same extent such service had been
taken into account under the Pactiv Plans. Exult shall offer coverage for
medical benefits effective as of the Effective Time to all Transferred Employees
in accordance with the terms of Exult's medical plan, provided, however, that
(i) any pre-existing condition limitation shall not apply to such Transferred
Employee's participation in such plan and (ii) such medical plan shall grant
credit against the deductible amount under such plan for eligible medical
expenses previously paid by a Transferred Employee during the same plan year.
Except as otherwise set forth herein, Transferred Employees shall be subject to
the terms and conditions of Exult's plans, policies and programs.
(f) Pactiv shall retain sponsorship of the Pactiv Plans and Exult shall
not be entitled to any assets of the Pactiv Plans. If Exult maintains or
establishes a defined contribution plan, such plan shall, subject to applicable
law and receipt of written assurances reasonably acceptable to Exult as to the
tax-qualified status of the Pactiv qualified plan(s) from which the relevant
distributions would be made (the "Transferor Plans") and as to the eligibility
of such distributions for rollover, accept eligible rollovers by Transferred
Employees of such distributions; provided, however, that the distributions from
the Transferor Plans are permitted under Section 401(k)(2)(B) of the Code, and
that the Transferor Plans permit distributions upon the occurrence of an event
described under Section 401(k)(10) of the Code.
(g) Pactiv and PBS shall be responsible for all paid time off benefits,
including vacation pay, sick pay and any other payments for time off of normal
work hours ("Paid Time Off") accrued by Transferred Employees up to the
Effective Time. Pactiv or PBS will pay out all accrued but unused Paid Time Off
to Transferred Employees promptly after the Effective Time. During the six
months following the Effective Time, Exult shall, to the extent a Transferred
Employee has not accrued vacation time with Exult, allow such Transferred
Employee vacation time off without pay up to a maximum of two weeks, scheduled
according to Exult' s normal procedures.
(h) Pactiv and PBS shall be responsible for payment of all retention
bonuses for all Transferred Employees to whom Pactiv or PBS has agreed to pay
such retention bonuses, subject to the terms thereof. At Exult's option, Exult
may elect to pay such retention bonuses, after first obtaining written
confirmation from Pactiv of the amount of the retention bonuses and that the
retention bonuses are payable. If Exult makes such payment upon receipt of such
confirmation, Pactiv and PBS shall promptly reimburse Exult for the amounts so
paid.
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V.5 COMPLIANCE WITH WARN AND SIMILAR LAWS. The parties do not
anticipate that there will be any major employment losses as a consequence of
the transactions contemplated by this Agreement that might trigger obligations
under the Worker Adjustment and Retraining Notification ("WARN") Act, 29 U.S.C.
Section 2101 et seq., or under any similar provision of any federal, state,
regional, foreign, or local law, rule, or regulation (referred to collectively
as "WARN Obligations"). Nevertheless, to the extent that any WARN Obligations
might arise with respect to the Transferred Employees solely as a consequence of
the transfer of the Transferred Employees to Exult, it is agreed that Exult will
timely give all notices to such Transferred Employees required to be given under
WARN or other similar statutes or regulations of Texas relating to any plant
closing or mass layoff or as otherwise required by any such statute. For this
purpose, Exult shall be deemed to have caused a mass layoff if the mass layoff
would not have occurred but for Exult's failure to employ the Transferred
Employees in accordance with the terms of this Agreement, but Exult shall have
no WARN Obligations with respect to any person not a Transferred Employee
V.6 FURTHER ASSURANCES. At any time after the Effective Time, the
parties shall promptly execute, acknowledge and deliver any other assurances or
documents reasonably requested by another party, and necessary for them or it to
satisfy their or its respective obligations hereunder or obtain the benefits
contemplated hereby. Similarly, if after the Effective Time Pactiv or PBS
identifies any assets that should have been transferred to Exult as part of the
Purchased Assets, but were not, Pactiv or PBS, as the case may be, shall
transfer such assets to Exult without further consideration, provided that
Pactiv and PBS will, to the extent such failure to include an asset constituted
a breach of its representations and warranties under this Agreement, be liable
to Exult for any Losses that might arise from such breach, subject to the
conditions and limitations set forth herein.
V.7 CERTAIN MATTERS RELATED TO RETAINED AND ASSUMED LIABILITIES.
(a) With respect to all Retained Liabilities, Exult Indemnified Parties
shall cooperate with Pactiv and PBS, provide Pactiv and PBS as promptly as
possible with notices and other information received by such parties as well as
all relevant materials, information and data requested by Pactiv and PBS and
shall grant Pactiv and PBS, without charge, reasonable access to Exult's
employees.
(b) With respect to all Assumed Liabilities, Pactiv Indemnified Parties
shall cooperate with Exult, provide Exult as promptly as possible with notices
and other information received by such parties as well as all relevant
materials, information and data requested by Exult and shall grant Exult,
without charge, reasonable access to Pactiv's or PBS's employees.
V.8 RECORDS AND RETENTION AND ACCESS. Exult shall keep and preserve in
an organized and retrievable manner the Books and Records for at least five
years from the Effective Time. Exult shall neither dispose of nor destroy such
Books and Records without first offering to turn over possession thereof to by
written notice to Pactiv and PBS at least thirty (30) days prior to the proposed
date of such disposition or destruction. While such Books and Records remain in
existence, Exult shall allow Pactiv and PBS, its representatives, attorneys and
accountants, at the requesting party's expense, access to the Books and Records
upon reasonable request and during normal business hours for the purpose of
interviewing, examining and copying.
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5.9 CERTAIN RETAINED ASSETS. Exult shall have the right to continue to
use the Retained Assets listed on Schedule 5.9 hereof, until March 31, 2000,
provided that (a) with respect to the equipment that is leased by Pactiv or PBS
pursuant to items 1 and 2 on Schedule 5.9, Exult shall pay Pactiv an amount
equal to the pro rata lease costs of Pactiv with respect to such equipment, as
reasonably determined by Pactiv, and (b) with respect to the independent
contractors covered by the contract listed as item 3 on Schedule 5.9, Pactiv and
Exult will agree on which persons shall, after the Effective Time, provide
services to Exult, in which event Exult shall reimburse Pactiv for all costs
associated with such persons accruing from and after the Effective Time, and
shall indemnify Pactiv and PBS from and against any Losses accruing from and
after the Effective Time with respect to such persons.
ARTICLE VI
CONDITIONS
VI.1 CONDITIONS TO THE OBLIGATIONS OF EXULT. The obligation of Exult to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction (or waiver in writing by Exult) prior to the Effective Time, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Pactiv and PBS contained herein shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects as of the Effective Time, as if made as of the Effective Time, and
Exult shall have received a certificate to such effect dated the Effective Time
and executed by a duly authorized officer of Pactiv and PBS.
(b) COVENANTS. The covenants and agreements of Pactiv and PBS to be
performed on or prior to the Effective Time shall have been duly performed in
all material respects, and Exult shall have received a certificate to such
effect dated the Effective Time and executed by a duly authorized officer of
Pactiv and PBS.
(c) NO LEGAL BAR. (i) There shall not have been instituted or
threatened by any person, entity or authority (excluding Pactiv and its
Affiliates) any legal proceeding seeking to prohibit the consummation of the
transactions contemplated by this Agreement or to obtain damages with respect
thereto, (ii) none of the parties hereto shall be prohibited by any order, writ,
injunction or decree of any governmental body of competent jurisdiction from
consummating the transactions contemplated by this Agreement, and (iii) no
action or proceeding (excluding proceedings instituted by or at the request of
Pactiv or its Affiliates) shall then be pending which questions the validity of
this Agreement, any of the transactions contemplated hereby, or any action which
has been taken by any of the parties in connection herewith.
(d) NO MATERIAL ADVERSE CHANGE. Neither the Purchased Assets nor the
Woodlands Facility shall have experienced any material adverse damage or
destruction since the date hereof. If after the date hereof and prior to the
Effective Time there occurs any material damage to or destruction of the
Purchased Assets or the Woodlands Facility, Pactiv
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and PBS shall promptly notify Exult of such fact, furnish all relevant
information to Exult, and defer the Effective Time by such time as Exult may
reasonably request to allow it to inspect such damage or destruction and
determine the consequences thereof. If the cost to repair such damage or
destruction, as reasonably determined by the parties, is less than $250,000, and
the parties agree that the repair can be completed within a time that meets
Exult's business needs, Pactiv shall be required to make such repairs, and, at
Exult's request, the Effective Time may be delayed until such repairs are
substantially completed. If the parties are unable, within 60 days of the date
of such casualty event (during which period the Effective Time shall be
deferred), to agree upon the cost of such repairs or that the repairs can be
completed within a time that meets Exult's business needs, either party shall
have the right to terminate this Agreement. If the cost to repair such damage or
destruction, as reasonably determined by the parties, is $250,000 or more,
Pactiv shall not be required to make such repairs, but rather the parties shall
negotiate in good faith with respect to such damage and destruction and, if no
agreement can be reached with respect to such damage or destruction within 60
days of the date of such casualty event (during which period the Effective Time
shall be deferred), either party shall have the right to terminate this
Agreement.
VI.2 CONDITIONS TO THE OBLIGATIONS OF PACTIV AND PBS. The obligation of
Pactiv and PBS to consummate the transactions contemplated by this Agreement is
subject to the satisfaction (or waiver by in writing Pactiv and PBS) prior to
the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Exult contained herein shall have been true and correct in all material
respects when made and shall be true and correct in all material respects as of
the Effective Time, as if made as of the Effective Time, and Pactiv shall have
received a certificate to such effect dated the Effective Time and executed by a
duly authorized officer of Exult.
(b) COVENANTS. The covenants and agreements of Exult to be performed on
or prior to the Effective Time shall have been duly performed in all material
respects, and Pactiv shall have received a certificate to such effect dated the
Effective Time and executed by a duly authorized officer of Exult.
(c) NO LEGAL BAR. (i) There shall not have been instituted or
threatened by any person, entity or authority (excluding Exult and its
Affiliates) any legal proceeding seeking to prohibit the consummation of the
transactions contemplated by this Agreement or to obtain damages with respect
thereto, (ii) none of the parties hereto shall be prohibited by any order, writ,
injunction or decree of any governmental body of competent jurisdiction from
consummating the transactions contemplated by this Agreement, and (iii) no
action or proceeding (excluding proceedings instituted by or at the request of
Exult or its Affiliates) shall then be pending which questions the validity of
this Agreement, any of the transactions contemplated hereby, or any action which
has been taken by any of the parties in connection herewith.
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ARTICLE VII
SURVIVAL; INDEMNIFICATION
VII.1 SURVIVAL. The representations and warranties contained in this
Agreement shall survive the Effective Time for a period of 12 months after the
Effective Time, except that (i) the representations and warranties in Section
3.11(b) shall survive only until 11:59 p.m. (Houston Time) on January 30, 2000,
(ii) the representations and warranties in Section 3.13 and Section 3.16 shall
terminate at the Effective Time. Any claim for indemnification for breach of
this Agreement must be made during such survival period, if any, provided,
however, that any claim for indemnification with respect to any Retained
Liability or Assumed Liability (regardless of whether the Retained Liability or
Assumed Liability also constitutes a breach of a representation or warranty
under this Agreement) shall not be subject to any time limitation.
VII.2 INDEMNIFICATION BY EXULT. Exult shall indemnify, defend and hold
harmless Pactiv, PBS, their Affiliates and, if applicable, their respective
directors, officers, shareholders, partners, attorneys, accountants, agents and
employees and their heirs, successors and assigns (the "Pactiv Indemnified
Parties") from, against and in respect of any damages, claims, losses, charges,
actions, suits, proceedings, deficiencies, Taxes, interest, penalties, and
reasonable costs and expenses (including reasonable attorneys' fees)
(collectively, the "Losses") imposed on, sustained, incurred or suffered by or
asserted against any of the Pactiv Indemnified Parties, directly or indirectly,
relating to or arising out of (a) subject to Section 7.4 hereof, any breach of
any representation, warranty, covenant or agreement made by Exult contained in
this Agreement, the Assignment and Assumption Agreement, or the Lease
Assignment, and (b) the Assumed Liabilities. Pactiv and PBS acknowledge that
this Article VII constitutes Pactiv's and PBS's sole remedy with respect to any
of the matters referred to herein, provided that Pactiv or PBS shall be
permitted to seek equitable or declaratory relief, where appropriate, and
provided further that the parties' rights and obligations with respect to claims
related to the provision of services under the Service Agreements shall be
determined by such agreements.
VII.3 INDEMNIFICATION BY PACTIV AND PBS. Pactiv and PBS shall jointly
and severally indemnify, defend and hold harmless Exult, its Affiliates and, if
applicable, their respective directors, officers, shareholders, partners,
attorneys, accountants, agents and employees (other than the Transferred
Employees for acts they were responsible for while they were Employees of Pactiv
or its Affiliates) and their heirs, successors and assigns (the "Exult
Indemnified Parties" and, collectively with the Pactiv Indemnified Parties, the
"Indemnified Parties") from, against and in respect of any Losses imposed on,
sustained, incurred or suffered by or asserted against any of the Exult
Indemnified Parties, directly or indirectly, relating to or arising out of (a)
subject to Section 7.4 hereof, any breach of any representation, warranty,
covenant or agreement made by Pactiv or PBS contained in this Agreement, the
Bill of Sale, the Assignment and Assumption Agreement, the License Assignment,
or the Lease Assignment, (b) the Retained Liabilities, or (c) any failure by
Pactiv or PBS to obtain any Consent. Exult acknowledges that this Article VII
constitutes Exult's sole remedy with respect to any of the matters referred to
herein, provided that Exult shall be permitted to seek equitable or declaratory
relief, where appropriate, and provided further that the parties' rights and
obligations with respect to claims related to the provision of services under
the Service Agreements shall be determined by such agreements.
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VII.4 LIMITATIONS. Neither party shall have any liability for any
Losses with respect to the matters contained in Section 7.2(a) or Section 7.3(a)
except to the extent (and then only to the extent) all Losses therefrom exceed
an aggregate amount equal to $100,000, and then only for all such Losses in
excess thereof up to an aggregate amount equal to $3,300,000. The foregoing
deductible and cap shall not be applicable to Losses arising under Section
7.2(b) or Section 7.3(b) or (c), even if such Losses would also give rise to a
claim under Section 7.2(a) or Section 7.3(a).
VII.5 INDEMNIFICATION PROCEDURES. With respect to third-party claims,
all claims for indemnification by any Indemnified Party hereunder shall be
asserted and resolved as set forth in this Section 7.5. In the event that any
written claim or demand for which Exult or Pactiv or PBS, as the case may be (an
"Indemnifying Party"), would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a third
party, such Indemnified Party shall promptly, but in no event more than 20 days
following such Indemnified Party's receipt of such claim or demand, notify the
Indemnifying Party of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim or demand) (the "Claim Notice");
provided, however, that failure to give such notice shall not relieve the
Indemnifying Party of any liability hereunder, except to the extent that such
party is actually prejudiced thereby. The Indemnifying Party shall have 45 days
from the personal delivery or mailing of the Claim Notice (or, if earlier, until
the fifth day preceding the deadline for any responsive pleading to the claim or
demand) (the "Notice Period") to notify the Indemnified Party (a) whether or not
the Indemnifying Party disputes the liability of the Indemnifying Party to the
Indemnified Party hereunder with respect to such claim or demand and (b) whether
or not the Indemnifying Party desires to defend the Indemnified Party against
such claim or demand. If the Indemnifying Party disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect to such claim
or demand, but it nevertheless desires to defend the Indemnified Party against
such claim or demand, it may do so, specifically reserving its rights as against
the Indemnified Party with respect to such claim or demand, provided that the
Indemnifying Party may not settle such matter without the prior written consent
of the Indemnified Party, such consent to not be unreasonably withheld. Except
as hereinafter provided, in the event that the Indemnifying Party notifies the
Indemnified Party within the Notice Period that it desires to defend the
Indemnified Party against such claim or demand, the Indemnifying Party shall
have the right to defend the Indemnified Party by appropriate proceedings using
counsel reasonably satisfactory to the Indemnified Party and shall have the sole
power to direct and control such defense in a manner reasonably acceptable to
the Indemnified Party. If any Indemnified Party desires to participate in any
such defense, it may do so at its sole cost and expense. The Indemnified Party
shall not settle a claim or demand without the consent of the Indemnifying
Party, such consent to not be unreasonably withheld. All costs and expenses
incurred by the Indemnifying Party in defending such claim or demand shall be a
liability of, and shall be paid by, the Indemnifying Party without regard to the
limitation in Section 7.4. The Indemnifying Party shall not, without the prior
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld, settle, compromise or offer to settle or compromise any
such claim or demand unless such settlement or compromise provides solely for
the payment of
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<PAGE> 25
money damages by the Indemnifying Party. If the Indemnified Party elects to
defend against such claim or demand, then the amount of any such claim or demand
or that portion thereof as to which such defense is unsuccessful (and the
reasonable costs and expenses pertaining to such defense), shall be the
liability of the Indemnifying Party hereunder, subject to the limitations set
forth in Section 7.4, if applicable. To the extent the Indemnifying Party shall
direct, control or participate in the defense or settlement of any third-party
claim or demand, the Indemnified Party will cooperate with, and give the
Indemnifying Party and its counsel reasonable access to, during normal business
hours, the relevant business records and other documents, and shall permit them
to consult with the employees and counsel of the Indemnified Party. To the
extent the Indemnified Party shall direct, control or participate in the defense
or settlement of any third-party claim or demand, the Indemnifying Party will
cooperate with, and give the Indemnified Party and its counsel reasonable access
to, during normal business hours, the relevant business records and other
documents, and shall permit them to consult with the employees and counsel of
the Indemnifying Party.
VII.6 COMPUTATION OF LOSSES SUBJECT TO INDEMNIFICATION. the amount of
any Loss for which indemnification is provided under this Article VII shall be
computed net of any insurance proceeds or Tax benefits received by the
Indemnified Party in connection with such Loss. No Indemnified Party shall be
entitled to assert directly against an Indemnifying Party any claim for
consequential, punitive, exemplary or similar damages. The foregoing sentence
shall not limit an Indemnified Party's rights hereunder to be indemnified
against any Losses (including punitive or exemplary) arising out of a
third-party claim against it.
7.7 CHARACTERIZATION OF INDEMNIFICATION PAYMENTS. All amounts paid by
Exult or Pactiv, as the case may be, under this Article VII shall be treated as
adjustments to the purchase price for all Tax purposes.
7.8 YEAR 2000 COMPLIANCE. Notwithstanding any other provision of this
Agreement, if any of Purchased Assets that are used or intended to be used by
Exult in connection with the input, output, storage or retrieval of date-related
data are not Year 2000 Complaint, PBS will, at its expense, take all necessary
actions to remediate such non-compliance, in a commercially reasonable manner.
For purposes hereof "Year 2000 Complaint" means such assets will accept input,
produce output, store, retrieve and make computations based on dates and
date-related data such that (a) 19th, 20th and 21st century dates and
date-related data are processed, displayed and transmitted to all recipients of
such data correctly, regardless of the year and century in which the processing
occurs, (b) no processing anomalies occur when the calendar or processing year
changes, and (c) all algorithms, processes, methodologies, data formats and
other aspects of such Purchased Assets comply with all applicable governmental
guidelines, rules and regulations applicable to the processing of data-related
data. Any claim under this Section 7.8 must be made within 12 months from the
Effective Time, and PBS's obligation hereunder is subject to the cap, but not
the deductible, of Section 7.4.
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<PAGE> 26
ARTICLE VIII
TERMINATION
VIII.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time:
(a) by agreement of the Parties; or
(b) by either party, in accordance with Section 6.1(d), if the
Purchased Assets or the Woodlands Facility shall have experienced any material
damage or destruction since the date hereof in excess of $250,000, and the
parties are unable to reach agreement with respect thereto; or
(c) subject to Section 6.1(d), by a party who is not then in breach of
its obligation under this Agreement if a condition precedent to its obligations
under this Agreement has not been satisfied or waived by the Effective Date.
VIII.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement in accordance with Section 8.1, this Agreement shall thereafter become
void and have no effect, and no party hereto shall have any liability to the
other party hereto or their respective Affiliates, directors, officers or
employees, except that (a) provisions contained in this Section 8.2 and in
Sections 9.1, 9.7, 9.8, 9.9 and 9.11 shall continue to be applicable
notwithstanding such termination, and (b) nothing herein will relieve any party
from liability for any breach of this Agreement prior to such termination. In
the event of a termination, the funds held in escrow, plus any interest thereon,
shall be released to Exult in accordance with the escrow agreement pursuant to
which such funds are held.
ARTICLE IX
MISCELLANEOUS
IX.1 NOTICES. All notices or other communications hereunder shall be
deemed to have been duly given and made if in writing and if served by personal
delivery upon the party for whom it is intended, if delivered by registered or
certified mail, return receipt requested, or by a national courier service, or
if sent by facsimile transmission (provided that the facsimile transmission is
followed (no later than the next business day) by notice delivered in one of the
other permitted manners) to the person at the address set forth below, or such
other address as may be designated in writing hereafter, in the same manner, by
such person:
To Exult: EXULT, INC.
Four Park Plaza
Suite 350
Irvine, California 92614
Telephone: (949) 250-8002
Fax: (949) 250-8086
Attn: Chief Financial Officer
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<PAGE> 27
To Pactiv or PBS: PACTIV CORPORATION
1900 West Field Court
Lake Forest, Illinois 60044
Telephone: (847) 482-2430
Fax: (847) 482-4589
Attn: General Counsel
IX.2 AMENDMENT; WAIVER. Any provision of this Agreement may be amended
or waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by Exult and Pactiv, or in the case of a waiver, by
the party against whom the waiver is to be effective. No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
IX.3 ASSIGNMENT. No party to this Agreement may assign any of its
rights or obligations under this Agreement without the prior written consent of
the other party hereto, provided, however, that Exult may assign its rights to
an Affiliate or to a lender as security for any financing arrangements, provided
that Exult shall remain liable for all of its obligations hereunder, including
its obligation to pay and perform the Assumed Liabilities.
IX.4 ENTIRE AGREEMENT. This Agreement (including the Preliminary
Statements, and all Schedules hereto) contains the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written, with respect to such
matters, except for any Confidentiality Agreement between the parties, which
will remain in full force and effect until the Effective Time, and shall then
expire.
IX.5 FULFILLMENT OF OBLIGATIONS. Any obligation of any party to any
other party under this Agreement or any of the Ancillary Agreements, which
obligation is performed, satisfied or fulfilled by an Affiliate of such party,
shall be deemed to have been performed, satisfied or fulfilled by such party.
IX.6 PARTIES IN INTEREST. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
confer upon any Person other than Exult, Pactiv, TA and the Indemnified Parties
(to the extent mentioned herein), or their respective successors or permitted
assigns, any rights or remedies under or by reason of this Agreement.
IX.7 PUBLIC DISCLOSURE. Notwithstanding anything herein to the
contrary, except as may be required to comply with the requirements of any
applicable Laws and the rules and regulations of each stock exchange upon which
the securities of one of the parties (or its Affiliate) is listed, no press
release or similar public announcement or communication shall ever, whether
prior to or subsequent to the Effective Time, be made or caused to be made
concerning the execution or performance of this Agreement unless specifically
approved in advance by the parties hereto. It is the parties expectation to
issue a jointly approved press
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<PAGE> 28
release shortly following the Effective Time. Neither party may disclose the
existence of the Service Agreements in advertising or marketing materials,
including websites, without the prior written approval of the other party, such
approval not to be unreasonably withheld.
IX.8 RETURN OF INFORMATION. If for any reason whatsoever the
transactions contemplated by this Agreement are not consummated (a) Exult shall
(i) return immediately to Pactiv all documents, information, data, and all of
the originals or copies of the Purchased Assets (including the Books and
Records), (ii) destroy all other copies in its possession or in the possession
of its Affiliates, directors, officers, employees, agents and attorneys, and
(iii) hold, and cause each of said parties to hold, all of such materials and
the information contained therein or given to Exult by Pactiv and PBS, its
Affiliates, directors, officers, employees, agents and attorneys, in confidence,
and (b) Pactiv and PBS shall (i) return immediately to Exult all documents,
information, data provided by it by Exult, (ii) destroy all other copies in its
possession or in the possession of its Affiliates, directors, officers,
employees, agents and attorneys, and shall hold, and (iii) cause each of said
parties to hold, all of such materials and the information contained therein or
given to Pactiv or PBS by Exult, its Affiliates, directors, officers, employees,
agents and attorneys, in confidence.
IX.9 EXPENSES. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be borne by the party incurring
such expenses.
IX.10 BULK TRANSFER LAWS. Exult acknowledges that Pactiv and PBS have
not taken, and does not intend to take, any action required to comply with any
applicable bulk sale or bulk transfer laws or similar laws and Exult waives the
right to any claim, suit or action with respect to, or Losses arising from, such
non-compliance. Pactiv and PBS will indemnify Exult against Losses in respect of
violations of any such laws.
IX.11 GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF FORUM.
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of Illinois. Each party hereto agrees that it shall bring any
action or proceeding in respect of any claim arising out of or related to this
agreement or the transactions contained in or contemplated by this agreement,
whether in tort or contract or at law or in equity, exclusively in the United
States District Court for the Northern District of Illinois or any state court
located in Cook County, Illinois (the "Chosen Courts") and (i) irrevocably
submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any
objection to laying venue in any such action or proceeding in the Chosen Courts,
(iii) waives any objection that the Chosen Courts are an inconvenient forum or
do not have jurisdiction over any party hereto, and (iv) agrees that service of
process upon such party in any such action or proceeding shall be effective if
notice is given in accordance with Section 9.1 of this Agreement.
IX.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
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<PAGE> 29
IX.13 HEADINGS. The heading references herein and the table of contents
hereto are for convenience purposes only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
IX.14 SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Asset Purchase
Agreement as of the date first written above.
PACTIV CORPORATION
By: /s/ James Faulkner
-----------------------------------------
Name: James Faulkner
Title: Vice President
PACTIV BUSINESS SERVICES INC.
By: /s/ James Faulkner
-----------------------------------------
Name: James Faulkner
Title: Vice President
EXULT, INC.
By: /s/ Stephen M. Unterberger
-----------------------------------------
Name: Stephen M. Unterberger
Title: COO
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<PAGE> 30
SCHEDULES AND EXHIBITS
SCHEDULES
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Schedule 1.1.1 - Pactiv and PBS Employees with "Knowledge"
Schedule 1.1.2 - Transferred Contracts
Schedule 1.1.3 - Equipment located at the Woodlands Facility excluded from
the Transferred Equipment
Schedule 1.1.4 - Certain Transferred Equipment
Schedule 1.1.5 - Transferred Licenses
Schedule 2.8 - Allocation of Purchase Price
Schedule 3.3 - Pactiv Consent and Approvals
Schedule 3.8 - Pactiv Plans
Schedule 3.11 - Encumbrances
Schedule 5.4 - List of Transferred Employees
Schedule 5.4(d) - Exult Employee Benefit Plans
Schedule 5.9 - Certain Retained Assets
EXHIBITS
- --------
Exhibit A - Pactiv Service Agreement
Exhibit B - TA Service Agreement
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<PAGE> 1
EXHIBIT 3.1.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EXULT, INC.
EXULT, INC. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in Delaware
under the name BPO-US, INC., and the date of its filing of its original
Certificate of Incorporation with the Secretary of State of the State of
Delaware was October 29, 1998.
SECOND: That the Board of Directors fully adopted resolutions proposing
to amend and restate the Second Amended and Restated Certificate of
Incorporation of the Corporation, declaring said amendment and restatement to be
advisable and in the best interests of the Corporation and its stockholders, and
authorizing the appropriate officers of the Corporation to solicit the consent
of the stockholders of the issued and outstanding Common Stock, par value
$.0001, per share (the "Common Stock"), Series A Preferred Stock, par value
$.0001 per share (the "Series A Preferred Stock"), Series B Preferred Stock, par
value $.0001 per share (the "Series B Preferred Stock") and Series C Convertible
Preferred Stock, par value $.0001 per share (the "Series C Preferred Stock"), in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law;
THIRD: That the resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Second Amended and Restated Certificate of
Incorporation of the Corporation be amended and restated in its entirety as
follows:
ARTICLE I
NAME
The name of the corporation is EXULT, Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office is 9 East Loockerman
Street, City of Dover, County of Kent, State of Delaware; and its registered
agent at such address is National Corporate Research Ltd.
<PAGE> 2
ARTICLE III
POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law.
ARTICLE IV
CAPITAL STOCK
The Corporation is authorized to issue two classes of stock to be
designated respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is Five Hundred Fifteen
Million (515,000,000) shares. Five Hundred Million (500,000,000) shares shall be
designated as Common Stock, par value $.0001 per share (the "Common Stock"), and
Fifteen Million (15,000,000) shares shall be designated as Preferred Stock, par
value $.0001 per share (the "Preferred Stock"). The Preferred Stock shall be
divided into four series. The first series shall consist of Twenty-Five Thousand
(25,000) shares designated as Series A Preferred Stock having the powers,
designations, preferences and rights set forth in Article IV(B) below (the
"Series A Preferred Stock"), the second series shall consist of One Million Six
Hundred Ninety-Six Thousand Three Hundred Sixty-Nine (1,696,369) shares
designated as Series B Preferred Stock having the powers, designations,
preferences and rights set forth in Article IV(B) below (the "Series B Preferred
Stock"), the third series shall consist of Five Million Five Hundred Thousand
(5,500,000) shares designated as Series C Convertible Preferred Stock having the
powers, designations, preferences and rights set forth in Article IV(B) below
(the "Series C Preferred Stock") and the fourth series shall consist of Seven
Million Six Hundred Fifty Thousand Five Hundred Thirty-Three (7,650,533) shares
designated as Series D Convertible Preferred Stock having the powers,
designations, preferences and rights set forth in Article IV(B) below (the
"Series D Preferred Stock"). The remaining One Hundred Twenty-Eight Thousand
Ninety-Eight (128,098) shares of Preferred Stock shall be undesignated as of the
date hereof (the "Undesignated Preferred Stock") and may be designated with such
powers, preferences and rights in accordance with Article IV(B) below.
Effective upon the filing of this Third Amended and Restated Certificate
of Incorporation by the Secretary of State of the State of Delaware, every one
share of Common Stock, par value $0.0001 per share, of the Corporation issued
and outstanding immediately prior thereto shall, without any action on the part
of the holder thereof, be changed into 5 shares of Common Stock.
The designation, relative rights, preferences and limitations of the
shares of each class are as follows:
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<PAGE> 3
A. COMMON STOCK.
1. Rank. The Common Stock shall, with respect to the distribution of
assets and rights upon a Liquidation rank (a) junior to (i) the Series A
Preferred Stock, (ii) the Series B Preferred Stock, (iii) the Series C Preferred
Stock and (iv) the Series D Preferred Stock and (b) senior to all classes of
capital stock of the Company hereafter created which do not expressly rank pari
passu with or senior to the Common Stock.
2. Dividends. The holders of Common Stock shall be entitled to
receive dividends, if any, out of funds legally available therefor at such times
and in such amounts as the Board of Directors may determine in its sole
discretion.
3. Liquidation Preference. Upon the voluntary or involuntary
liquidation under applicable bankruptcy or reorganization legislation or the
dissolution or winding up of the Corporation, after the payment or provision for
payment of all debts and liabilities of the Corporation and all preferential
amounts to which the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock and any Capital
Stock ranking senior to the Common Stock are entitled with respect to the
distribution of assets in liquidation, the holders of Common Stock shall be
entitled to share ratably in the remaining assets of the Corporation available
for distribution, if any, in proportion to the amount of such stock owned by
each such holder.
4. Redemption. The shares of Common Stock shall not be redeemed or
subject to redemption, whether at the option of the Corporation or any holder
thereof, or otherwise.
5. Voting Rights. The holder of each share of Common Stock shall be
entitled to one vote for each such share as determined on the record date for
the vote or consent of stockholders and shall vote together with the holders of
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock as a single class upon any
items submitted to a vote of stockholders, except as otherwise provided herein.
B. PREFERRED STOCK.
1. Undesignated Preferred Stock. Shares of Undesignated Preferred
Stock may be issued from time to time in one or more series of any number of
shares, provided that the aggregate number of shares of Preferred Stock issued
and not cancelled of any and all such series shall not exceed the total number
of shares of Preferred Stock hereinabove authorized, and with distinctive serial
designations, all as shall hereafter be stated and expressed in the resolution
or resolutions providing for the issue of such shares of Preferred Stock from
time to time adopted by the Board of Directors pursuant to authority so to do
which is hereby vested in the Board of Directors. Each series of shares of
Preferred Stock may have such voting powers, full or limited, or may be without
voting power and may have such powers, designations and preferences, and such
relative, participating, optional or other special rights, and such
qualifications, limitations or restrictions as shall be stated in said
resolution or resolutions providing for the issue of such shares of Preferred
Stock and as may be permitted by the General Corporation Law. Any of the voting
powers, designations, preferences, rights and qualifications, limitations or
restrictions of
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<PAGE> 4
any such series of Preferred Stock may be made dependent upon facts
ascertainable outside of the resolution or resolutions providing for the issue
of such Preferred Stock adopted by the Board of Directors pursuant to the
authority vested in it by this Article IV(B)(1), provided that the manner in
which such facts shall operate upon the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of such
series of Preferred Stock is clearly and expressly set forth in the resolution
or resolutions providing for the issue of such Preferred Stock. The term "facts"
as used in the next preceding sentence shall have the meaning given to it in
section 151(a) of the General Corporation Law of the State of Delaware. Shares
of Preferred Stock of any series that have been redeemed (whether through the
operation of a sinking fund or otherwise) or that if convertible or
exchangeable, have been converted into or exchanged for shares of any other
class or classes shall have the status of authorized and unissued shares of
Preferred Stock of the same series and may be reissued as a part of the series
of which they were originally a part or may be reclassified and reissued as part
of a new series of shares of Preferred Stock to be created by resolution or
resolutions of the Board of Directors or as part of any other series of shares
of Preferred Stock, all subject to the conditions or restrictions on issuance
set forth in the resolution or resolutions adopted by the Board of Directors
providing for the issue of an series of shares of Preferred Stock.
2. Series A Preferred Stock; Series B Preferred Stock; Series C
Preferred Stock; and Series D Preferred Stock.
(a) Rank. The Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock and the Series D Preferred Stock, shall, with
respect to distributions of assets and rights upon the occurrence of a
Liquidation, rank (a) pari passu with one another, and (b) senior to (i) all
classes of common stock of the Corporation (including, without limitation, the
Common Stock) and (ii) each other class or series of Capital Stock of the
Corporation hereafter created which does not expressly rank pari passu with or
senior to the Series A Preferred Stock, Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock (collectively with the Common
Stock, the "Junior Stock").
(b) Dividends. Each holder of shares of Series A Preferred Stock,
shares of Series B Preferred Stock, shares of Series C Preferred Stock and
shares of Series D Preferred Stock shall not be entitled to receive dividends
except in accordance with this Article IV(B)(2)(b). If the Corporation declares
and pays dividends on the Common Stock, then, in that event, the holders of
shares of Series A Preferred Stock, the holders of shares of Series B Preferred
Stock, the holders of shares of Series C Preferred Stock and the holders of
shares of Series D Preferred Stock shall be entitled to share in such dividends
on a pro rata basis, as if their shares had been converted into shares of Common
Stock pursuant to Article IV(B)(2)(f)(i) immediately prior to the record date
for determining the stockholders of the Corporation eligible to receive such
dividends.
(c) Liquidation Preference.
(i) Upon the occurrence of a Liquidation, (w) the holders of
shares of Series A Preferred Stock shall be entitled to be paid for each share
of Series A Preferred Stock held thereby, out of the assets of the Corporation
legally available for
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<PAGE> 5
distribution to its stockholders, an amount (the "Series A Liquidation Amount")
in cash equal to (i) $40.00 (as adjusted for any stock dividends, combinations,
splits or recapitalizations with respect to such shares) (the "Series A
Liquidation Preference") plus (ii) all declared and unpaid dividends thereon to
the date fixed for such Liquidation, before any payment or distribution is made
to any Junior Stock, (x) the holders of shares of Series B Preferred Stock shall
be entitled to be paid for each share of Series B Preferred Stock held thereby,
out of the assets of the Corporation legally available for distribution to its
stockholders, an amount (the "Series B Liquidation Amount") in cash equal to (i)
$5.42 (as adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) (the "Series B Liquidation
Preference") plus (ii) all declared and unpaid dividends thereon to the date
fixed for such Liquidation, before any payment or distribution is made to any
Junior Stock, (y) the holders of shares of Series C Preferred Stock shall be
entitled to be paid for each share of Series C Preferred Stock held thereby, out
of the assets of the Corporation legally available for distribution to its
stockholders, an amount (the "Series C Liquidation Amount") in cash equal to (i)
$10.28 (as adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) (the "Series C Liquidation
Preference") plus (ii) all declared and unpaid dividends thereon to the date
fixed for such Liquidation, before any payment or distribution is made to any
Junior Stock and (z) the holders of shares of Series D Preferred Stock shall be
entitled to be paid for each share of Series D Preferred Stock held thereby, out
of the assets of the Corporation legally available for distribution to its
stockholders, an amount (the "Series D Liquidation Amount") in cash equal to (i)
$8.714 (as adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) (the "Series D Liquidation
Preference") plus (ii) all declared and unpaid dividends thereon to the date
fixed for such Liquidation, before any payment or distribution is made to any
Junior Stock. Such payment to the holders of Series A Preferred Stock of the
Series A Liquidation Amount, such payment to the holders of the Series B
Preferred Stock of the Series B Liquidation Amount, such payment to the holders
of the Series C Preferred Stock of the Series C Liquidation Amount and such
payment to the holders of the Series D Preferred Stock of the Series D
Liquidation Amount shall be made pro rata. If the assets of the Corporation
available for distribution to the holders of Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock shall be insufficient to permit payment in full of the Series A
Liquidation Amount, the Series B Liquidation Amount, the Series C Liquidation
Amount and the Series D Liquidation Amount to the holders of outstanding shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, respectively, then the holders of all shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock shall share ratably in proportion to the amounts that
would be payable to such holders if such assets were sufficient to permit
payment in full.
(ii) After the holders of all shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall have been paid in full the amounts to which they are entitled pursuant to
Article IV(B)(2)(c)(i), the shares of Series A Preferred Stock, the shares of
Series B Preferred Stock, the shares of Series C Preferred Stock and the shares
of Series D Preferred Stock shall not be entitled to any further participation
in any distribution of assets of the Corporation and the remaining assets of the
Corporation shall be distributed to the holders of Junior Stock.
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(iii) In the event of a Merger or a Sale, if the consideration
received by the Corporation is other than cash, its value will be deemed its
fair market value as determined in good faith by the Board of Directors of the
Corporation, which determination shall be reasonably acceptable to the holders
of a majority of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock or the Series D Preferred Stock, as the case may be.
Any securities shall be valued as follows: (y) securities not subject to
investment letter or other similar restrictions on free marketability covered by
(z) shall be deemed to have a value equal to the Current Market Price and (z)
the method of valuation of securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely by
virtue of a stockholder's status as an affiliate or former affiliate) shall be
to make an appropriate discount from the Current Market Price to reflect the
approximate fair market value thereof, as determined by the Board of Directors,
which determination shall be reasonably acceptable to the holders of a majority
of the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock or the Series D Preferred Stock, as the case may be.
(iv) Written notice of a Liquidation stating a payment or
payments and the place where such payment or payments shall be payable, shall be
delivered in person, mailed by certified mail, return receipt requested, mailed
by overnight mail or sent by telecopier, not less than ten (10) days prior to
the earliest payment date stated therein, to the holders of record of the Series
A Preferred Stock, the holders of record of the Series B Preferred Stock, the
holders of record of the Series C Preferred Stock and the holders of record of
the Series D Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation.
(d) Redemption. The shares of Series A Preferred Stock, the shares of
Series B Preferred Stock, the shares of the Series C Preferred Stock and the
shares of the Series D Preferred Stock shall not be redeemed or subject to
redemption, whether at the option of the Corporation or any holder thereof, or
otherwise.
(e) Voting Rights; Election of Directors.
(i) The holders of Series A Preferred Stock, the holders of
Series B Preferred Stock, the holders of Series C Preferred Stock and the
holders of Series D Preferred Stock shall be entitled to vote on any matter
required or permitted to be voted upon by the stockholders of the Corporation.
(ii) Each outstanding share of Series A Preferred Stock, each
outstanding share of Series B Preferred Stock, each outstanding share of Series
C Preferred Stock and each outstanding share of Series D Preferred Stock shall
entitle the holder thereof to vote, in person or by proxy, at all special or
annual meetings of stockholders or in any actions taken by written consent, on
all matters entitled to be voted on by holders of Common Stock voting together
as a single class with the Common Stock (and all other classes and series of
stock of the Corporation entitled to vote thereon with the Common Stock), except
as otherwise provided by the General Corporation Law or as otherwise provided
herein. With respect to any such vote, each share of Series A Preferred Stock,
each share of Series B Preferred Stock, each share of Series C Preferred Stock
and each share of Series D Preferred Stock shall entitle the
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holder thereof to cast that number of votes per share as is equal to the number
of votes that such holder would be entitled to cast had such holder converted
its shares of Series A Preferred Stock, its shares of Series B Preferred Stock,
its shares of Series C Preferred Stock or its shares of Series D Preferred
Stock, as the case may be, into shares of Common Stock pursuant to Article
IV(B)(2)(f)(i) on the record date for determining the stockholders of the
Corporation eligible to vote on any such matters.
(iii) So long as General Atlantic Partners 54, L.P. and/or any
affiliate thereof owns shares of Common Stock and/or Series A Preferred Stock or
other securities of the Corporation convertible into or exchangeable for shares
of Common Stock, then the holders of the Series A Preferred Stock, voting
together as a separate class, shall be entitled to elect one director of the
Corporation (the "Series A Director"). The Series A Preferred Stock shall vote
together as a single class with the Common Stock (and all other classes and
series of stock of the Corporation entitled to vote thereon with the Common
Stock) with respect to the election of all of the other directors of the
Corporation (other than the Series B Director). At any meeting held for the
purpose of electing directors or in any action by written consent at a time when
the Series A Preferred Stock is entitled to vote as a separate class for the
election of the Series A Director, (i) the presence in person or by proxy of the
holders of a majority of the shares of Series A Preferred Stock then outstanding
shall constitute a quorum of the Series A Preferred Stock for the election of
the Series A Director; (ii) the holders of Series A Preferred Stock shall be
entitled to cast one vote per share of Series A Preferred Stock in any such
election; and (iii) the Series A Director shall be elected by the affirmative
vote of the holders of a majority of the outstanding shares of Series A
Preferred Stock. Until the date of the Initial Public Offering, a vacancy in a
directorship held by the Series A Director pursuant to this Article
IV(B)(2)(e)(iii) shall be filled only by vote or written consent of the holders
of the Series A Preferred Stock.
(iv) So long as General Atlantic Partners 54, L.P. and/or any
affiliate thereof own shares of Common Stock and/or Series B Preferred Stock or
other securities of the Corporation convertible into or exchangeable for shares
of Common Stock, then the holders of the Series B Preferred Stock, voting
together as a separate class, shall be entitled to elect one director of the
Corporation (the "Series B Director"). The Series B Preferred Stock shall vote
together as a single class with the Common Stock (and all other classes and
series of stock of the Corporation entitled to vote thereon with the Common
Stock) with respect to the election of all of the other directors of the
Corporation (other than the Series A Director). At any meeting held for the
purpose of electing directors at a time when the Series B Preferred Stock is
entitled to vote as a separate class for the election of the Series B Director,
(i) the presence in person or by proxy of the holders of a majority of the
shares of Series B Preferred Stock then outstanding shall constitute a quorum of
the Series B Preferred Stock for the election of the Series B Director; (ii) the
holders of Series B Preferred Stock shall be entitled to cast one vote per share
of Series B Preferred Stock in any such election; and (iii) the Series B
Director shall be elected by the affirmative vote of the holders of a majority
of the outstanding shares of Series B Preferred Stock. Until the date of the
Initial Public Offering, a vacancy in a directorship held by the Series B
Director pursuant to this Article IV(B)(2)(e)(iv) shall be filled only by vote
or written consent of the holders of the Series B Preferred Stock.
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(v) Notwithstanding anything to the contrary contained herein,
the vote of holders of a majority of the Series C Preferred Stock shall be a
prerequisite to the designation or issuance of any shares of Capital Stock of
the Corporation ranking pari passu with or senior to the Series C Preferred
Stock in the event of a Liquidation or otherwise.
(vi) Notwithstanding anything to the contrary contained herein,
the vote of holders of a majority of the Series D Preferred Stock shall be a
prerequisite to the designation or issuance of any shares of Capital Stock of
the Corporation ranking pari passu with or senior to the Series D Preferred
Stock in the event of a Liquidation or otherwise.
(f) Conversion.
(i) Optional Conversion. Any holder of Series A Preferred Stock,
any holder of Series B Preferred Stock, any holder of Series C Preferred Stock
and any holder of Series D Preferred Stock shall have the right, at its option,
at any time and from time to time, to convert, subject to the terms and
provisions of this Article IV(B)(2)(f), (w) any or all of such holder's shares
of Series A Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as is equal to the product of the number of shares of
Series A Preferred Stock being so converted multiplied by the quotient of (i)
the Series A Liquidation Preference divided by (ii) the conversion price of
$0.044444444 per share, subject to adjustment as provided in Article
IV(B)(2)(f)(v) (such price, the "Series A Conversion Price"), then in effect,
(x) any or all of such holder's shares of Series B Preferred Stock into such
number of fully paid and non-assessable shares of Common Stock as is equal to
the product of the number of shares of Series B Preferred Stock being so
converted multiplied by the quotient of (i) the Series B Liquidation Preference
divided by (ii) the conversion price of $1.084 per share, subject to adjustment
as provided in Article IV(B)(2)(f)(v) (such price, the "Series B Conversion
Price"), then in effect, (y) any or all of such holder's shares of Series C
Preferred Stock into such number of fully paid and non-assessable shares of
Common Stock as is equal to the product of the number of shares of Series C
Preferred Stock being so converted multiplied by the quotient of (i) the Series
C Liquidation Preference divided by (ii) the conversion price of $2.056 per
share, subject to adjustment as provided in Article IV(B)(2)(f)(v) (such price,
the "Series C Conversion Price"), then in effect and (z) any or all of such
holder's shares of Series D Preferred Stock into such number of fully paid and
non-assessable shares of Common Stock as is equal to the product of the number
of shares of Series D Preferred Stock being so converted multiplied by the
quotient of (i) the Series D Liquidation Preference divided by (ii) the
conversion price of $8.714 per share, subject to adjustment as provided in
Article IV(B)(2)(f)(v) (such price, the "Series D Conversion Price"), then in
effect. Such conversion right shall be exercised by the surrender of
certificate(s) representing the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as the
case may be, to be converted to the Corporation at any time during usual
business hours at its principal place of business to be maintained by it (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to the holders of Series A Preferred Stock, the holders of
Series B Preferred Stock, the holders of Series C Preferred Stock and the
holders of the Series D Preferred Stock), accompanied by written notice that the
holder elects to convert such shares of Series A Preferred Stock, such shares of
Series B Preferred Stock, such shares of Series C Preferred Stock or such shares
of Series D Preferred Stock, as the case may be, and specifying the name or
names
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(with address) in which a certificate or certificates for shares of Common Stock
are to be issued and (if so required by the Corporation) by a written instrument
or instruments of transfer in form reasonably satisfactory to the Corporation
duly executed by the holder or its duly authorized legal representative and
transfer tax stamps or funds therefor, if required pursuant to Article
IV(B)(2)(f)(xi). All certificates representing shares of Series A Preferred
Stock, all certificates representing shares of Series B Preferred Stock, all
certificates representing shares of Series C Preferred Stock and all
certificates representing shares of Series D Preferred Stock surrendered for
conversion shall be delivered to the Corporation for cancellation and canceled
by it. No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon the conversion of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock. Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, the
Corporation shall pay to the holder of the shares of Series A Preferred Stock,
the holder of shares of Series B Preferred Stock, the holder of shares of Series
C Preferred Stock or the holder of shares of Series D Preferred Stock, as the
case may be, that were converted a cash adjustment in respect of such fractional
shares in an amount equal to the same fraction of the market price per share of
the Common Stock (as determined in a reasonable manner prescribed by the Board
of Directors) at the close of business on the date of such conversion.
(ii) Automatic Conversion. Immediately prior to the closing of
the Initial Public Offering, each outstanding share of Series A Preferred Stock,
each outstanding share of Series B Preferred Stock, each outstanding share of
Series C Preferred Stock and each outstanding share of Series D Preferred Stock
shall be automatically converted, with no further action required to be taken by
the Corporation or the holder thereof, into (A) in the case of the Series A
Preferred Stock, the number of fully paid and nonassessable shares of Common
Stock equal to the product of the number of shares of Series A Preferred Stock
being converted multiplied by the quotient of (i) the Series A Liquidation
Preference divided by (ii) the Series A Conversion Price then in effect, (B) in
the case of the Series B Preferred Stock, the number of fully paid and
nonassessable shares of Common Stock equal to the product of the number of
shares of Series B Preferred Stock being converted multiplied by the quotient of
(i) the Series B Liquidation Preference divided by (ii) the Series B Conversion
Price then in effect, (C) in the case of the Series C Preferred Stock, the
number of fully paid and nonassessable shares of Common Stock equal to the
product of the number of shares of Series C Preferred Stock being converted
multiplied by the quotient (i) the Series C Liquidation Preference divided by
(ii) the Series C Conversion Price then in effect and (D) in the case of the
Series D Preferred Stock, the number of fully paid and nonassessable shares of
Common Stock equal to the product of the number of shares of Series D Preferred
Stock being converted multiplied by the quotient (i) the Series D Liquidation
Preference divided by (ii) the Series D Conversion Price then in effect.
Immediately upon conversion as provided herein, each holder
of Series A Preferred Stock, each holder of Series B Preferred Stock, each
holder of Series C Preferred Stock and each holder of Series D Preferred Stock
shall be deemed to be the holder of record of the Common Stock issuable upon
conversion of such holder's Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock, as the case may be,
notwithstanding that the share register of the Corporation shall then be closed
or that certificates representing the
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<PAGE> 10
Common Stock shall not then actually be delivered to such Person. Upon notice
from the Corporation, each holder of Series A Preferred Stock, each holder of
Series B Preferred Stock, each holder of Series C Preferred Stock and each
holder of Series D Preferred Stock so converted shall promptly surrender to the
Corporation at its principal place of business to be maintained by it (or at
such other office or agency of the Corporation as the Corporation may designate
by notice to the holders of Series A Preferred Stock, the holders of Series B
Preferred Stock, the holders of Series C Preferred Stock and the holders of the
Series D Preferred Stock) certificates representing the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock, as the case may be, so converted.
(iii) As promptly as practicable after the surrender of
certificate(s) representing any shares of Series A Preferred Stock, any shares
of Series B Preferred Stock, any shares of Series C Preferred Stock or any
shares of Series D Preferred Stock, as the case may be, as to which notice of
conversion has been delivered to the Corporation, the Corporation shall deliver
to the holder of such shares so surrendered certificate(s) representing the
number of fully paid and nonassessable shares of Common Stock into which such
shares of Series A Preferred Stock, shares of Series B Preferred Stock, shares
of Series C Preferred Stock or shares of Series D Preferred Stock, as the case
may be, have been converted in accordance with the provisions of this paragraph.
At the time of the surrender of such certificate(s), the Person in whose name
any certificate(s) for shares of Common Stock shall be issuable upon such
conversion shall be deemed to be the holder of record of such shares of Common
Stock on such date, notwithstanding that the share register of the Corporation
shall then be closed or that the certificates representing such Common Stock
shall not then be actually delivered to such Person.
(iv) To the extent permitted by law, when shares of Series A
Preferred Stock, shares of Series B Preferred Stock, shares of Series C
Preferred Stock or shares of Series D Preferred Stock, as the case may be, are
converted, all dividends declared and unpaid on such shares of Series A
Preferred Stock, such shares of Series B Preferred Stock, such shares of Series
C Preferred Stock or such shares of Series D Preferred Stock, as the case may
be, so converted to the date of conversion shall be immediately due and payable,
and, to the extent the Corporation has legally available funds therefor, payment
of such declared and unpaid dividends shall accompany the shares of Common Stock
issued upon such conversion.
(v) Anti-dilution Adjustments. The Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price and the Series D
Conversion Price, and the number and type of securities to be received upon
conversion of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock, shall be subject to
adjustment as follows:
(A) Dividend, Subdivision, Combination or Reclassification of
Common Stock. In the event that the Corporation shall at any time or from time
to time, prior to conversion of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock,
as the case may be, (w) pay a dividend or make a distribution (other than a
dividend or distribution paid or made to holders of
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shares of Series A Preferred Stock, the holders of the shares of Series B
Preferred Stock, the holders of the shares of Series C Preferred Stock and the
holders of the shares of Series D Preferred Stock, or in which holders of such
shares participate, in the manner provided in Article IV(B)(2)(b)) on the
outstanding shares of Common Stock payable in Capital Stock, (x) subdivide the
outstanding shares of Common Stock into a larger number of shares, (y) combine
the outstanding shares of Common Stock into a smaller number of shares or (z)
issue any shares of its Capital Stock in a reclassification of the Common Stock
(other than any such event for which an adjustment is made pursuant to another
clause of this Article IV(B)(2)(f)(v)), then, and in each such case, the Series
A Conversion Price, the Series B Conversion Price, the Series C Conversion Price
and the Series D Conversion Price in effect immediately prior to such event
shall be adjusted (and any other appropriate actions shall be taken by the
Corporation) so that the holder of any share of Series A Preferred Stock, the
holder of any share of Series B Preferred Stock, the holder of any share of
Series C Preferred Stock and the holder of any share of Series D Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other securities of the Corporation that such holder
would have owned or would have been entitled to receive upon or by reason of any
of the events described above, had such share of Series A Preferred Stock, such
share of Series B Preferred Stock, such share of Series C Preferred Stock and
such share of Series D Preferred Stock been converted immediately prior to the
record date applicable to such event. An adjustment made pursuant to this
Article IV(B)(2)(f)(v)(A) shall become effective retroactively to the close of
business on the day upon which such corporate action becomes effective.
(B) Issuance of Common Stock or Common Stock Equivalents
Below Series B Conversion Price, Series C Conversion Price or Series D
Conversion Price.
(i) In the event that the Corporation shall at any time
or from time to time, prior to conversion of the Series B Preferred Stock, issue
or sell any shares of Common Stock or Common Stock Equivalents at a price per
share that is less than the Series B Conversion Price then in effect as of the
record date or Series B Issue Date referred to in the following sentence, as the
case may be (the "Series B Relevant Date") (treating the price per share of
Common Stock, in the case of the issuance of any Common Stock Equivalent, as
equal to (x) the sum of the price for such Common Stock Equivalent plus any
additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such Common Stock
Equivalent divided by (y) the number of shares of Common Stock initially
underlying such Common Stock Equivalent), other than (i) issuances or sales for
which an adjustment is made pursuant to another paragraph of this Article
(IV)(B)(2)(f)(v) and (ii) issuances of Common Stock in connection with an
Excluded Transaction, then, and in each such case, the Series B Conversion Price
then in effect shall be adjusted by multiplying the Series B Conversion Price in
effect on the day immediately prior to the Series B Relevant Date by a fraction
(I) the numerator of which shall be the sum of the number of shares of Common
Stock outstanding on the Series B Relevant Date plus the number of shares of
Common Stock which the aggregate consideration received by the Corporation for
the total number of such additional shares of Common Stock so issued would
purchase at the Series B Conversion Price on the Series B Relevant Date (or, in
the case of Common Stock Equivalents, the number of shares of Common Stock into
which such Common Stock
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Equivalents may convert, exchange or be exercised plus the number of shares of
Common Stock which the aggregate amount of any additional consideration
initially payable upon conversion, exchange or exercise of such Common Stock
Equivalents would purchase at the Series B Conversion Price on the Series B
Relevant Date) and (II) the denominator of which shall be the sum of the number
of shares of Common Stock outstanding on the Series B Relevant Date plus the
number of additional shares of Common Stock issued or to be issued (or, in the
case of Common Stock Equivalents, the maximum number of shares of Common Stock
into which such Common Stock Equivalents initially may convert, exchange or be
exercised). For the purpose of the above calculation, the number of shares of
Common Stock outstanding immediately prior to such issue shall be calculated on
a fully diluted basis, as if all shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and all
Common Stock Equivalents had been fully converted, exchanged or exercised into
shares of Common Stock as of such date. Such adjustment shall be made whenever
such shares of Common Stock or Common Stock Equivalents are issued or sold, and
shall become effective retroactively (x) in the case of an issuance to the
stockholders of the Corporation, as such, to a date immediately following the
close of business on the record date for the determination of stockholders
entitled to receive such shares of Common Stock or Common Stock Equivalents and
(y) in all other cases, to the date of such issuance (the "the Series B Issue
Date"); provided, however, that the determination as to whether an adjustment is
required to be made pursuant to this Article IV(B)(2)(f)(v)(B)(i) shall be made
only upon the issuance of such shares of Common Stock or Common Stock
Equivalents, and not upon the issuance of any security into which the Common
Stock Equivalents convert, exchange or may be exercised; and provided further,
that if any Common Stock Equivalents (or any portions thereof) which shall have
given rise to an adjustment pursuant to this Article IV(B)(2)(f)(v)(B)(i) shall
have expired or terminated without the exercise thereof and/or if by reason of
the terms of such Common Stock Equivalents there shall have been an increase or
increases, with the passage of time or otherwise, in the price payable upon the
exercise or conversion thereof, then the Series B Conversion Price hereunder
shall be readjusted (but to no greater extent than originally adjusted) in order
to (i) eliminate from the computation any additional shares of Common Stock
corresponding to such Common Stock Equivalents as shall have expired or
terminated, (ii) treat the additional shares of Common Stock, if any, actually
issued or issuable pursuant to the previous exercise of such Common Stock
Equivalents as having been issued for the consideration actually received and
receivable therefor and (iii) treat any of such Common Stock Equivalents which
remain outstanding as being subject to exercise or conversion on the basis of
such exercise or conversion price as shall be in effect at the time.
(ii) In the event that the Corporation shall at any time
or from time to time, prior to conversion of the Series C Preferred Stock, issue
or sell any shares of Common Stock or Common Stock Equivalents at a price per
share (the "New Issue Price") that is less than the Series C Conversion Price
then in effect as of the record date or Issue Date referred to in the following
sentence, as the case may be (the "Series C Relevant Date") (treating the price
per share of Common Stock, in the case of the issuance of any Common Stock
Equivalent, as equal to (x) the sum of the price for such Common Stock
Equivalent plus any additional consideration payable (without regard to any
anti-dilution adjustments) upon the conversion, exchange or exercise of such
Common Stock Equivalent divided by (y) the number of shares of Common Stock
initially underlying such Common Stock Equivalent), other than (i)
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issuances or sales for which an adjustment is made pursuant to another paragraph
of this Article IV(B)(2)(f)(v) and (ii) issuances of Common Stock in connection
with an Excluded Transaction, then, and in each such case, the Series C
Conversion Price then in effect shall be adjusted to equal the New Issue Price.
Such adjustment shall be made whenever such shares of Common Stock or Common
Stock Equivalents are issued or sold, and shall become effective retroactively
(x) in the case of an issuance to the stockholders of the Corporation, as such,
to a date immediately following the close of business on the record date for the
determination of stockholders entitled to receive such shares of Common Stock or
Common Stock Equivalents and (y) in all other cases, to the date of such
issuance (the "Series C Issue Date"); provided, however, that the determination
as to whether an adjustment is required to be made pursuant to this Article
IV(B)(2)(f)(v)(B)(ii) shall be made only upon the issuance of such shares of
Common Stock or Common Stock Equivalents, and not upon the issuance of any
security into which the Common Stock Equivalents convert, exchange or may be
exercised; and provided further, that if any Common Stock Equivalents (or any
portions thereof) which shall have given rise to an adjustment pursuant to this
Article IV(B)(2)(f)(v)(B)(ii) shall have expired or terminated without the
exercise thereof and/or if by reason of the terms of such Common Stock
Equivalents there shall have been an increase or increases, with the passage of
time or otherwise, in the price payable upon the exercise or conversion thereof,
then the Series C Conversion Price hereunder shall be readjusted (but to no
greater extent than originally adjusted) in order to (i) eliminate from the
computation any additional shares of Common Stock corresponding to such Common
Stock Equivalents as shall have expired or terminated, (ii) treat the additional
shares of Common Stock, if any, actually issued or issuable pursuant to the
previous exercise of such Common Stock Equivalents as having been issued for the
consideration actually received and receivable therefor and (iii) treat any of
such Common Stock Equivalents which remain outstanding as being subject to
exercise or conversion on the basis of such exercise or conversion price as
shall be in effect at the time.
(iii) In the event that the Corporation shall at any
time or from time to time, prior to conversion of the Series D Preferred Stock,
issue or sell any shares of Common Stock or Common Stock Equivalents at a price
per share that is less than the Series D Conversion Price then in effect as of
the record date or Series D Issue Date referred to in the following sentence, as
the case may be (the "Series D Relevant Date") (treating the price per share of
Common Stock, in the case of the issuance of any Common Stock Equivalent, as
equal to (x) the sum of the price for such Common Stock Equivalent plus any
additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such Common Stock
Equivalent divided by (y) the number of shares of Common Stock initially
underlying such Common Stock Equivalent), other than (i) issuances or sales for
which an adjustment is made pursuant to another paragraph of this Article
(IV)(B)(2)(f)(v) and (ii) issuances of Common Stock in connection with an
Excluded Transaction, then, and in each such case, the Series D Conversion Price
then in effect shall be adjusted by multiplying the Series D Conversion Price in
effect on the day immediately prior to the Series D Relevant Date by a fraction
(I) the numerator of which shall be the sum of the number of shares of Common
Stock outstanding on the Series D Relevant Date plus the number of shares of
Common Stock which the aggregate consideration received by the Corporation for
the total number of such additional shares of Common Stock so issued would
purchase at the Series D Conversion Price on the Series D Relevant Date (or, in
the case of Common Stock
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Equivalents, the number of shares of Common Stock into which such Common Stock
Equivalents may convert, exchange or be exercised plus the number of shares of
Common Stock which the aggregate amount of any additional consideration
initially payable upon conversion, exchange or exercise of such Common Stock
Equivalents would purchase at the Series D Conversion Price on the Series D
Relevant Date) and (II) the denominator of which shall be the sum of the number
of shares of Common Stock outstanding on the Series D Relevant Date plus the
number of additional shares of Common Stock issued or to be issued (or, in the
case of Common Stock Equivalents, the maximum number of shares of Common Stock
into which such Common Stock Equivalents initially may convert, exchange or be
exercised). For the purpose of the above calculation, the number of shares of
Common Stock outstanding immediately prior to such issue shall be calculated on
a fully diluted basis, as if all shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and all
Common Stock Equivalents had been fully converted, exchanged or exercised into
shares of Common Stock as of such date. Such adjustment shall be made whenever
such shares of Common Stock or Common Stock Equivalents are issued or sold, and
shall become effective retroactively (x) in the case of an issuance to the
stockholders of the Corporation, as such, to a date immediately following the
close of business on the record date for the determination of stockholders
entitled to receive such shares of Common Stock or Common Stock Equivalents and
(y) in all other cases, to the date of such issuance (the "the Series D Issue
Date"); provided, however, that the determination as to whether an adjustment is
required to be made pursuant to this Article IV(B)(2)(f)(v)(B)(iii) shall be
made only upon the issuance of such shares of Common Stock or Common Stock
Equivalents, and not upon the issuance of any security into which the Common
Stock Equivalents convert, exchange or may be exercised; and provided further,
that if any Common Stock Equivalents (or any portions thereof) which shall have
given rise to an adjustment pursuant to this Article IV(B)(2)(f)(v)(B)(iii)
shall have expired or terminated without the exercise thereof and/or if by
reason of the terms of such Common Stock Equivalents there shall have been an
increase or increases, with the passage of time or otherwise, in the price
payable upon the exercise or conversion thereof, then the Series D Conversion
Price hereunder shall be readjusted (but to no greater extent than originally
adjusted) in order to (i) eliminate from the computation any additional shares
of Common Stock corresponding to such Common Stock Equivalents as shall have
expired or terminated, (ii) treat the additional shares of Common Stock, if any,
actually issued or issuable pursuant to the previous exercise of such Common
Stock Equivalents as having been issued for the consideration actually received
and receivable therefor and (iii) treat any of such Common Stock Equivalents
which remain outstanding as being subject to exercise or conversion on the basis
of such exercise or conversion price as shall be in effect at the time.
(iv) If, prior to the conversion of the Series D
Preferred Stock, the Corporation conducts its first underwritten public offering
of Common Stock pursuant to an effective registration statement under the
Securities Act and such public offering has a valuation of less than
$810,000,000 (for purposes of this subsection (iv), valuation shall mean the
amount equal to the product of (A) the number of issued and outstanding shares
of Common Stock on a pre-money (i.e. exclusive of the shares to be issued in
connection with such public offering) fully-diluted basis (other than Common
Stock Equivalents that are not "in-the-money") multiplied by (B) the initial
price to the public at which shares of the Corporation's Common Stock are sold
pursuant to such public offering then, the Series D Conversion Price
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then in effect shall be adjusted to equal the initial price to the public. Such
adjustment shall be made immediately prior to any mandatory conversion of the
Series D Preferred Stock in connection with the closing of the Initial Public
Offering.
(C) Certain Distributions. In case the Corporation shall at
any time or from time to time prior to conversion of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series
D Preferred Stock distribute to all holders of shares of the Common Stock
(including any such distribution made in connection with a merger or
consolidation in which the Corporation is the resulting or surviving Person and
the Common Stock is not changed or exchanged) cash, evidences of indebtedness of
the Corporation or another issuer, securities of the Corporation or another
issuer or other assets (excluding dividends or distributions paid or made to
holders of shares of Series A Preferred Stock, the holders of shares of Series B
Preferred Stock, the holders of shares of Series C Preferred Stock and the
holders of shares of Series D Preferred Stock, or in which holders of such
shares participate, in the manner provided in Article IV(B)(2)(b), and dividends
payable in shares of Common Stock for which adjustment is made under another
paragraph of this Article IV(B)(2)(f)(v) and any distribution in connection with
an Excluded Transaction) or rights or warrants to subscribe for or purchase
securities of the Corporation (excluding those distributions in respect of which
an adjustment in the Series A Conversion Price, the Series B Conversion Price,
the Series C Conversion Price and the Series D Conversion Price is made pursuant
to another paragraph of this Article IV(B)(2)(f)(v) and any distribution in
connection with an Excluded Transaction), then, and in each such case, each of
the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price and the Series D Conversion Price then in effect shall be
adjusted (and any other appropriate actions shall be taken by the Corporation)
by multiplying each of the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price and the Series D Conversion Price in effect
immediately prior to the date of such distribution by a fraction (x) the
numerator of which shall be the Current Market Price of the Common Stock
immediately prior to the date of distribution less the then fair market value
(as determined by the Board of Directors in the exercise of their fiduciary
duties) of the portion of the cash, evidences of indebtedness, securities or
other assets so distributed or of such rights or warrants applicable to one
share of Common Stock and (y) the denominator of which shall be the Current
Market Price of the Common Stock immediately prior to the date of distribution
(but such fraction shall not be greater than one); provided, however, that no
adjustment shall be made with respect to any distribution of rights or warrants
to subscribe for or purchase securities of the Corporation if the holder of
shares of Series A Preferred Stock, the holder of shares of Series B Preferred
Stock, the holder of shares of Series C Preferred Stock and the holder of shares
of Series D Preferred Stock would otherwise be entitled to receive such rights
or warrants upon conversion at any time of the shares of Series A Preferred
Stock, the shares of Series B Preferred Stock, the shares of Series C Preferred
Stock and the shares of Series D Preferred Stock into Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective retroactively to a date immediately following the close of business on
the record date for the determination of stockholders entitled to receive such
distribution.
(D) Other Changes. In case the Corporation at any time or
from time to time, prior to the conversion of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock, shall take any
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action affecting its Common Stock similar to or having an effect similar to any
of the actions described in any of Article IV(B)(2)(f)(v)(A) through (C) or
Article IV(B)(2)(f)(viii) (but not including any action described in any such
Article) and the Board of Directors in good faith determines that it would be
equitable in the circumstances to adjust the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price and/or the Series D
Conversion Price as a result of such action, then, and in each such case, each
of the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price and/or the Series D Conversion Price shall be adjusted in such
manner and at such time as the Board of Directors in good faith determines would
be equitable in the circumstances (such determination to be evidenced in a
resolution, a certified copy of which shall be mailed to the holders of the
shares of Series A Preferred Stock, the holders of the shares of Series B
Preferred Stock, the holders of the shares of Series C Preferred Stock and the
holders of the shares of Series D Preferred Stock).
(E) De Minimis Adjustments. Notwithstanding anything herein
to the contrary, no adjustment in the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price or the Series D Conversion Price
shall be required unless such adjustment would require a change of at least 1%
in the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price or the Series D Conversion Price, as the case may be; provided,
however, that any adjustments which by reason of this Article IV(B)(2)(f)(v)(E)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment.
(vi) Abandonment. If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, and shall thereafter and before the distribution
to stockholders thereof legally abandon its plan to pay or deliver such dividend
or distribution, then no adjustment in the Series A Conversion Price, the Series
B Conversion Price, the Series C Conversion Price or the Series D Conversion
Price shall be required by reason of the taking of such record.
(vii) Certificate as to Adjustments. Upon any increase or
decrease in the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price and/or the Series D Conversion Price, the Corporation
shall within a reasonable period (not to exceed 10 days) following the
consummation of any of the foregoing transactions deliver to each registered
holder of Series A Preferred Stock, each registered holder of Series B Preferred
Stock, each registered holder of Series C Preferred Stock and each registered
holder of Series D Preferred Stock a certificate, signed by (i) the President or
a Vice President of the Corporation and (ii) the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation, setting
forth in reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated and specifying the increased or decreased
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
and/or Series D Conversion Price then in effect following such adjustment.
(viii) Reorganization, Reclassification. In case of any Merger or
Sale (subject to Article IV(B)(2)(c)(i)), or any capital reorganization or
reclassification or other change of outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value), the Corporation shall execute and
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deliver to each holder of Series A Preferred Stock, each holder of Series B
Preferred Stock, each holder of Series C Preferred Stock and each holder of
Series D Preferred Stock at least ten (10) Business Days prior to effecting such
Merger, Sale, reorganization or reclassification a certificate stating that such
holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and/or Series D Preferred Stock, as the case may be, shall have the right
thereafter to convert such share of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and/or Series D Preferred Stock, as the case may
be, into the kind and amount of shares of stock or other securities, property or
cash receivable upon such Merger, Sale, reorganization or reclassification by a
holder of the number of shares of Common Stock into which such share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or
Series D Preferred Stock, as the case may be, could have been converted
immediately prior to such Merger, Sale, reorganization or reclassification, and
provision shall be made therefor in the agreement, if any, relating to such
Merger, Sale, reorganization or reclassification. Such certificate shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article IV(B)(2)(f). The provisions of this
Article IV(B)(2)(f)(viii) and any equivalent thereof in any such certificate
similarly shall apply to successive transactions. The foregoing notwithstanding,
in the event of a merger, consolidation or other business combination in which
the holders of a majority of the voting securities of the Corporation prior to
such a merger, consolidation or other business combination continue to own a
majority of the voting securities of the surviving Person, the Corporation will
take no action to cause the exchange or conversion of any outstanding shares of
any of the Series A, B, C or D Preferred Stock for or into any class or series
of capital stock of the surviving Person having rights preferences and
privileges inferior to those of the relevant series of Preferred Stock (whether
by the terms of such merger, consolidation or other business combination or
otherwise) (such a class or series an "Inferior Stock") without first obtaining
the separate approval of at least a majority of: (i) the Series A Preferred
Stock with regard to such an exchange or conversion of the Series A Preferred
Stock for or into an Inferior Stock, (ii) the Series B Preferred Stock with
regard to such an exchange or conversion of the Series B Preferred Stock for or
into an Inferior Stock, (iii) the Series C Preferred Stock with regard to such
an exchange or conversion of the Series C Preferred Stock for or into an
Inferior Stock, or (iv) the Series D Preferred Stock with regard to such an
exchange or conversion of the Series D Preferred Stock for or into an Inferior
Stock.
(ix) Notices. In case at any time or from time to time:
(w) the Corporation shall declare a dividend (or any other
distribution) on its shares of Common Stock;
(x) the Corporation shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or warrants;
(y) there shall be any reorganization or reclassification of
the Common Stock; or
(z) there shall occur a Merger or a Sale;
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then the Corporation shall mail to each holder of shares of Series A Preferred
Stock, each holder of shares of Series B Preferred Stock, each holder of shares
of Series C Preferred Stock and each holder of shares of Series D Preferred
Stock, at such holder's address as it appears on the transfer books of the
Corporation, as promptly as possible but in any event at least ten (10) days
prior to the applicable date hereinafter specified, a notice stating (A) the
date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights or warrants or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or granting of rights or warrants are to be
determined, or (B) the date on which such reorganization, reclassification,
Merger or Sale is expected to become effective and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for shares of stock or other securities or property or cash
deliverable upon such reorganization, reclassification, Merger or Sale.
Notwithstanding the foregoing, in the case of any event to which Article
IV(B)(2)(f)(viii) is applicable, the Corporation shall also deliver the
certificate described in such Article IV(B)(2)(f)(viii) to each holder of Series
A Preferred Stock, each holder of Series B Preferred Stock, each holder of
Series C Preferred Stock and each holder of Series D Preferred Stock at least 10
Business Days' prior to effecting such reorganization or reclassification as
aforesaid.
(x) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available for issuance upon the conversion of the Series
A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
and the Series D Preferred Stock, such number of its authorized but unissued
shares of Common Stock as will from time to time be sufficient to permit the
conversion of all outstanding shares of Series A Preferred Stock, all
outstanding shares of Series B Preferred Stock, all outstanding shares of Series
C Preferred Stock and all outstanding shares of Series D Preferred Stock, and
shall take all action to increase the authorized number of shares of Common
Stock if at any time there shall be insufficient authorized but unissued shares
of Common Stock to permit such reservation or to permit the conversion of all
outstanding shares of Series A Preferred Stock, all outstanding shares of Series
B Preferred Stock, all outstanding shares of Series C Preferred Stock and all
outstanding shares of Series D Preferred Stock.
(xi) No Conversion Tax or Charge. The issuance or delivery of
certificates for Common Stock upon the conversion of shares of Series A
Preferred Stock, shares of Series B Preferred Stock, shares of Series C
Preferred Stock or shares of Series D Preferred Stock, as the case may be, shall
be made without charge to the converting holder of shares of Series A Preferred
Stock, shares of Series B Preferred Stock, shares of Series C Preferred Stock or
shares of Series D Preferred Stock, as the case may be, for such certificates or
for any documentary stamp, or similar issue or transfer tax in respect of the
issuance or delivery of such certificates or the securities represented thereby,
and such certificates shall be issued or delivered in the respective names of,
or (subject to compliance with the applicable provisions of federal and state
securities laws) in such names as may be directed by, the holders of the shares
of Series A Preferred Stock, shares of Series B Preferred Stock, shares of
Series C Preferred Stock or shares of Series D Preferred Stock, as the case may
be, converted; provided, however, that the Corporation shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name other than that of the
holder of the shares of Series A Preferred Stock, shares of Series B Preferred
Stock, shares of
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Series C Preferred Stock or shares of Series D Preferred Stock, as the case may
be, converted, and the Corporation shall not be required to issue or deliver
such certificate unless or until the Person or Persons requesting the issuance
or delivery thereof shall have paid to the Corporation the amount of such tax or
shall have established to the reasonable satisfaction of the Corporation that
such tax has been paid.
(g) Certain Remedies. Any registered holder of Series A Preferred
Stock, any registered holder of Series B Preferred Stock, any registered holder
of Series C Preferred Stock and any registered holder of Series D Preferred
Stock shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Third Amended and Restated Certificate of Incorporation
and to enforce specifically the terms and provisions of this Third Amended and
Restated Certificate of Incorporation in any court of the United States or any
state thereof having jurisdiction, this being in addition to any other remedy to
which such holder may be entitled at law or in equity.
(h) Business Day. If any payment shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
ARTICLE V
DEFINITIONS
As used in this Third Amended and Restated Certificate of Incorporation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means any day except a Saturday, a 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.
"By-laws" shall have the meaning ascribed to it in Article VIII hereof.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock (but excluding any debt security whether or not it is exchangeable
for or convertible into such capital stock).
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" shall have the meaning ascribed to it in Article IV
hereof.
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"Common Stock Equivalent" shall mean any security or obligation which is
by its terms convertible into or exercisable or exchangeable for shares of
Common Stock or another Common Stock Equivalent, including, without limitation,
any option, warrant or other subscription or purchase right with respect to
Common Stock.
"Corporation" shall have the meaning ascribed to it in the first
paragraph of this Amended and Restated Certificate of Incorporation.
"Current Market Price" per share shall mean, as of the date of
determination, (a) the average of the daily Market Price under clause (a), (b)
or (c) of the definition thereof of the Common Stock during the immediately
preceding thirty (30) trading days ending on such date, and (b) if the Common
Stock is not then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, then the Market Price under
clause (d) of the definition thereof on such date.
"Excluded Transaction" means (i) any issuance by the Corporation to
employees, consultants or directors of the Corporation of options to purchase up
to 2,800,000 shares of Common Stock (subject to anti-dilution adjustment for
stock splits, combinations and the like), pursuant to a stock option plan or any
other employee benefit arrangement approved by the Board of Directors, (ii) any
issuance of shares of Common Stock upon conversion or exercise of any issued and
outstanding Common Stock Equivalent (including issued and outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock), (iii) any shares of Capital Stock issued as a
dividend or distribution on the Common Stock and Preferred Stock, (iv) any
shares of Common Stock issued in connection with any transaction approved by the
Board of Directors involving the acquisition of more than fifty percent (50%) of
the Capital Stock of another person or substantially all of the assets of
another person, whether by way of merger, exchange of shares or asset purchase
or otherwise, including all shares of stock issuable upon exercise of options,
warrants or other rights assumed by the Corporation in connection with such
transaction, (v) any shares of Common Stock issued or issuable upon exercise of
warrants or other rights granted in connection with loans, bank financings or
lease or equipment lines of credit approved by the Board of Directors, and (vi)
187,515 shares of Common Stock or Common Stock Equivalents (subject to
anti-dilution adjustment for stock splits, combinations and the like) issued or
issuable in connection with strategic alliances with customers, distributors,
suppliers or any other strategic partner of the Company (other than venture
capital firms, private equity firms (including, without limitation, private
equity businesses of investment or commercial banks), open-ended or closed-ended
investment companies or any entity similar to any of the foregoing) approved by
the Board of Directors.
"General Corporation Law" shall have the meaning ascribed to it in the
second paragraph of this Amended and Restated Certificate of Incorporation.
"Initial Public Offering" shall mean the Corporation's first
underwritten public offering of Common Stock pursuant to an effective
registration statement under the Securities Act (i) resulting in aggregate net
proceeds (after expenses and underwriting commissions and
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discounts) to the Corporation and any selling stockholders of at least
$20,000,000 and (ii) in which the IPO Valuation is at least $100,000,000.
"IPO Valuation" shall mean the amount equal to the product of (i) the
number of issued and outstanding shares of Common Stock on a fully diluted basis
(other than Common Stock Equivalents that are not "in-the-money") multiplied by
(ii) the midpoint of the anticipated price range per share of the Common Stock
to be offered in the Initial Public Offering as set forth in the information
provide in the initial registration statement for purposes of calculating the
Commission filing fee.
"Junior Stock" shall have the meaning ascribed to it in Article
IV(B)(2)(a) hereof.
"Liquidation" shall mean (a) the voluntary or involuntary liquidation
under applicable bankruptcy or reorganization legislation, or the dissolution or
winding up of the Corporation, (b) a Merger or (c) a Sale.
"Market Price" shall mean, as of the date of determination, (a) the
closing price per share of Common Stock 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
Common Stock is then listed or admitted to trading; or (b) if the Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the National
Association of Securities Dealers, Inc., the last trading price of the Common
Stock on such date; or (c) if there shall have been no trading on such date or
if the Common Stock is not so designated, the average of the reported closing
bid and asked prices of the Common Stock on such date as shown by the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotations System and reported by any member firm of the New York Stock Exchange
selected by the Corporation; or (d) if none of (a), (b) or (c) is applicable, a
market price per share determined in good faith by the Board of Directors, which
determination shall be reasonably acceptable to the holders of the majority of
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock or the Series D Preferred Stock, as the case may be. Any such
determination by the Board of Directors shall be based on a valuation of the
Corporation as an entirety without regard to any discount for minority interests
or disparate voting rights among classes of Capital Stock.
"Merger" shall mean (x) the merger, consolidation or other business
combination of the Corporation into or with one or more Persons or (y) the
merger, consolidation or other business combination of one or more Persons into
or with the Corporation, if, in the case of (x) or (y), the holders of a
majority of the voting securities of the Company prior to such a merger,
consolidation or other business combination do not own a majority of the voting
securities of the surviving Person.
"New Issue Price" shall have the meaning ascribed to it in Article
IV(B)(2)(f)(v)(B)(ii).
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"Other Entity" shall have the meaning ascribed to it in Article VIII
hereof.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any kind.
"Preferred Stock" has the meaning ascribed to it in Article II hereof.
"Proceeding" has the meaning ascribed to it in Article VIII hereof.
"Sale" shall mean the voluntary sale, conveyance, exchange or transfer
to another Person of all or substantially all of the assets of the Corporation.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Series A Conversion Price" shall have the meaning ascribed to it in
Article IV(B)(2)(f)(i).
"Series A Liquidation Amount" shall have the meaning ascribed to it in
Article IV(B)(2)(c)(i).
"Series A Liquidation Preference" shall have the meaning ascribed to it
in Article IV(B)(2)(c)(i).
"Series A Preferred Stock" shall have the meaning ascribed to it in the
second paragraph of this Amended and Restated Certificate of Incorporation.
"Series B Conversion Price" shall have the meaning ascribed to it in
Article IV(B)(2)(f)(i).
"Series B Issue Date" shall have the meaning ascribed to it in Article
IV(B)(2)(f)(v)(B)(i).
"Series B Liquidation Amount" shall have the meaning ascribed to it in
Article IV(B)(2)(c)(i).
"Series B Liquidation Preference" shall have the meaning ascribed to it
in Article IV(B)(2)(c)(i) hereof.
"Series B Preferred Stock" shall have the meaning ascribed to it in
Article II hereof.
"Series B Relevant Date" shall have the meaning ascribed to it in
Article IV (B)(2)(f)(v)(B)(i) hereof.
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"Series C Conversion Price" shall have the meaning ascribed to it in
Article IV(B)(2)(f)(i).
"Series C Issue Date" shall have the meaning ascribed to it in Article
IV(B)(2)(f)(v)(B)(ii).
"Series C Liquidation Amount" shall have the meaning ascribed to it in
Article IV(B)(2)(c)(i).
"Series C Liquidation Preference" shall have the meaning ascribed to it
in Article IV(B)(2)(c)(i) hereof.
"Series C Preferred Stock" shall have the meaning ascribed to it in
Article II hereof.
"Series C Relevant Date" shall have the meaning ascribed to it in
Article IV (B)(2)(f)(v)(B)(ii) hereof.
"Series D Conversion Price" shall have the meaning ascribed to it in
Article IV(B)(2)(f)(i).
"Series D Issue Date" shall have the meaning ascribed to it in Article
IV(B)(2)(f)(v)(B)(iii).
"Series D Liquidation Amount" shall have the meaning ascribed to it in
Article IV(B)(2)(c)(i).
"Series D Liquidation Preference" shall have the meaning ascribed to it
in Article IV(B)(2)(c)(i) hereof.
"Series D Preferred Stock" shall have the meaning ascribed to it in
Article II hereof.
"Series D Relevant Date" shall have the meaning ascribed to it in
Article IV (B)(2)(f)(v)(B)(iii) hereof.
"Undesignated Preferred Stock" has the meaning set forth in Article
IV(B)(1).
ARTICLE VI
ELECTION OF DIRECTORS
Members of the Board of Directors need not be elected by written ballot
unless the By-Laws of the Corporation so provide.
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ARTICLE VII
LIMITATION OF LIABILITY
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (c)
under section 174 of the General Corporation Law or (d) for any transaction from
which the director derived any improper personal benefits. If the General
Corporation Law is hereafter amended to permit further elimination or limitation
of the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law as so amended.
Any repeal or modification of the foregoing provision shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
ARTICLE VIII
INDEMNIFICATION
To the fullest extent permitted by applicable law, the Corporation will
provide indemnification of (and advancement of expenses to) its directors and
officers (and any other person to which Delaware law permits the Corporation to
provide indemnification) in excess of the indemnification and advancement
otherwise permitted by Section 145 of the General Corporation Law, subject only
to limits created by applicable Delaware law (statutory or non-statutory), with
respect to actions for breach of duty to the Corporation, its stockholders, and
others. Such indemnification may be provided through By-law provisions,
insurance, agreements with such directors, officers, agents or other persons,
vote of stockholders or disinterested directors or otherwise. The rights to
indemnification and advancement provided by, or granted pursuant to, this
Article VIII shall continue as to a person who has ceased to be a director or
officer (or other person indemnified hereunder) and shall inure to the benefit
of the executors, administrators, legatees and distributees of such person.
The provisions of this Article VIII shall be a contract between the
Corporation, on the one hand, and each director and officer who serves in such
capacity at any time while this Article VIII is in effect and any other person
entitled to indemnification hereunder, on the other hand, pursuant to which the
Corporation and each such director, officer, or other person intend to be, and
shall be, legally bound. No repeal or modification of this Article VIII shall
affect any rights or obligations with respect to any state of facts then or
theretofore existing or there-after arising or any proceeding theretofore or
there-after brought or threatened based in whole or in part upon any such state
of facts.
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The rights to indemnification and advancement provided by, or granted
pursuant to, this Article VIII shall be enforceable by any person entitled to
such indemnification or advancement in any court of competent jurisdiction. The
burden of proving that such indemnification or advancement is not appropriate
shall be on the Corporation. Neither the failure of the Corporation (including
its Board of Directors, its independent legal counsel and its stockholders) to
have made a determination prior to the commencement of such action that such
indemnification or advancement is proper in the circumstances nor an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel and its stockholders) that such person is not entitled
to such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that such person is
not so entitled. Such a person shall also be indemnified for any expenses
incurred in connection with successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
Any person entitled to be indemnified or to be advanced expenses as a
matter of right pursuant to this Article VIII may elect to have the right to
indemnification or reimbursement or advancement of expenses interpreted on the
basis of the applicable law in effect at the time of the occurrence of the event
or events giving rise to the applicable proceeding, to the extent permitted by
law, or on the basis of the applicable law in effect at the time such
indemnification or reimbursement or advancement of expenses is sought. Such
election shall be made, by a notice in writing to the Corporation, at the time
indemnification or reimbursement or advancement of expenses is sought; provided,
however, that if no such notice is given, the right to indemnification or
reimbursement or advancement of expenses shall be determined by the law in
effect at the time indemnification or reimbursement or advancement of expenses
is sought.
ARTICLE IX
ADOPTION, AMENDMENT AND/OR REPEAL OF BY-LAWS
The Board of Directors may from time to time adopt, amend or repeal the
By-laws; provided, however, that any By-laws adopted or amended by the Board of
Directors may be amended or repealed, and any By-laws may be adopted, by the
stockholders of the Corporation by vote of a majority of the holders of shares
of stock of the Corporation entitled to vote in the election of directors of the
Corporation.
25
<PAGE> 26
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the Chief Executive Officer and the Secretary
of the Corporation this _____ day of February, 2000.
EXULT, INC.
By
----------------------------------------
James C. Madden, Chief Executive Officer
ATTEST
By
----------------------------------------
Steve Unterberger, Secretary
<PAGE> 1
EXHIBIT 3.1.2
CERTIFICATE OF AMENDMENT OF
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EXULT, INC.,
A DELAWARE CORPORATION
EXULT, INC. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law"), DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in Delaware under
the name BPO-US, INC., and the date of its filing of its original Certificate
of Incorporation with the Secretary of State of the State of Delaware was
October 29, 1998.
SECOND: That the Board of Directors fully adopted resolutions proposing
to amend the Third Amended and Restated Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and in the best interests
of the Corporation and its stockholders, and authorizing the appropriate
officers of the Corporation to solicit the consent of the stockholders of the
issued and outstanding Common Stock, par value $.0001, per share, Series A
Preferred Stock, par value $.0001 per share, Series B Preferred Stock, par
value $.0001 per share, and Series C Convertible Preferred Stock, par value
$.0001 per share, and the Series D Convertible Preferred Stock, $.0001 per
share in accordance with the applicable provisions of Sections 228 and 242 of
the General Corporation Law;
THIRD: That the resolution setting forth the proposed amendment is as
follows:
NOW, THEREFORE, BE IT RESOLVED, that the first paragraph of Article IV of
the Third Amended and Restated Certificate of Incorporation of the Corporation
be amended in its entirety as follows:
ARTICLE IV
CAPITAL STOCK
The Corporation is authorized to issue two classes of stock to be
designated respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is Five
Hundred Fifteen Million (515,000,000) shares. Five Hundred Million
(500,000,000) shares shall be designated as Common Stock, par value
$.0001 per share (the "Common Stock"), and Fifteen Million (15,000,000)
shares shall be designated as Preferred Stock, par value $.0001 per share
(the "Preferred Stock"). The Preferred Stock shall be divided into four
series. The first series shall consist of Twenty-Five Thousand (25,000)
shares designated as Series A Preferred Stock having the powers,
designations, preferences and rights set forth in Article IV(B) below (the
<PAGE> 2
"Series A Preferred Stock"), the second series shall consist of One
Million Six Hundred Ninety-Six Thousand Three Hundred Sixty-Nine
(1,696,369) shares designated as Series B Preferred stock having the
powers, designations, preferences and rights set forth in Article IV(B)
below (the "Series B Preferred Stock"), the third series shall consist of
Five Million Five Hundred Twenty-Three Thousand Five Hundred Thirty-Five
(5,523,535) shares designated as Series C Convertible Preferred Stock
having the powers, designations, preferences and rights set forth in
Article IV(B) below (the "Series C Preferred Stock") and the fourth series
shall consist of Seven Million Six Hundred Fifty Thousand Five Hundred
Thirty-Three (7,650,533) shares designated as Series D Convertible
Preferred Stock having the powers, designations, preferences and rights
set forth in Article IV(B) below (the "Series D Preferred Stock"). The
remaining One Hundred Four Thousand Five Hundred Sixty-Three (104,563)
shares of Preferred Stock shall be undesignated as of the date hereof (the
"Undesignated Preferred Stock") and may be designated with such powers,
preferences and rights in accordance with Article IV(B) below.
FOURTH: That in lieu of a meeting and vote of stockholders, said amendment
was approved by the stockholders of the Corporation entitled to vote thereon by
written consent, in accordance with Section 228 and Section 242 of the Delaware
General Corporation Law. Notice is being given as provided by Section 228 of
the Delaware General Corporation Law to every stockholder entitled to such
notice.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by James C. Madden, its President and Chief Executive Officer, as of this
28th day of April, 2000.
/s/ JAMES C. MADDEN
-----------------------------------
James C. Madden
President and Chief Executive
Officer
Attest:
/s/ BRIAN W. COPPLE
- -----------------------------------
Brian W. Copple
Secretary
<PAGE> 1
EXHIBIT 3.1.3
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EXULT, INC.
EXULT, INC. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in Delaware
under the name BPO-US, INC., and the date of filing of its original Certificate
of Incorporation with the Secretary of State of the State of Delaware was
October 29, 1998.
SECOND: That the Board of Directors of the Corporation (the "Board of
Directors") adopted resolutions proposing to amend and restate the Third Amended
and Restated Certificate of Incorporation of the Corporation, as amended,
declaring said amendment and restatement to be advisable and in the best
interests of the Corporation and its stockholders, and authorizing the
appropriate officers of the Corporation to solicit the consent of the
stockholders of the issued and outstanding Common Stock, par value $.0001 per
share (the "Common Stock"), Series A Preferred Stock, par value $.0001 per share
(the "Series A Preferred Stock"), Series B Preferred Stock, par value $.0001 per
share (the "Series B Preferred Stock"), Series C Convertible Preferred Stock,
par value $.0001 per share (the "Series C Preferred Stock"), and Series D
Convertible Preferred Stock, par value $.0001 per share (the "Series D Preferred
Stock"), in accordance with the applicable provisions of Sections 228, 242 and
245 of the General Corporation Law;
THIRD: That the resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Third Amended and Restated Certificate of
Incorporation of the Corporation, as amended, be amended and restated in its
entirety as follows:
ARTICLE I
NAME
The name of the corporation is EXULT, Inc. (the "Corporation").
<PAGE> 2
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office is 9 East Loockerman
Street, City of Dover, County of Kent, State of Delaware; and its registered
agent at such address is National Corporate Research Ltd.
ARTICLE III
POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law.
ARTICLE IV
CAPITAL STOCK
A. Number of Authorized Shares. The Corporation shall be authorized to
issue two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation shall have
authority to issue is five hundred fifteen million (515,000,000), of which five
hundred million (500,000,000) shares shall be Common Stock having a par value of
$0.0001 per share (the "Common Stock"), and fifteen million (15,000,000) shares
shall be Preferred Stock having a par value of $0.0001 per share (the "Preferred
Stock").
B. Common Stock. The Board of Directors of the Corporation (the "Board")
may authorize the issuance of shares of Common Stock from time to time. Shares
of Common Stock that are redeemed, purchased or otherwise acquired by the
Corporation may be reissued except as otherwise provided by law.
C. Preferred Stock. The Board may authorize the issuance of shares of
Preferred Stock from time to time in one or more series of any number of shares,
provided that the aggregate number of shares of Preferred Stock issued and not
cancelled of any and all such series shall not exceed the total number of shares
of Preferred Stock hereinabove authorized. The Board is hereby authorized to fix
or alter the designations, powers and preferences, and relative, participating,
optional or other rights, if any, and qualifications, limitations or
restrictions thereof, including without limitation, dividend rights (and whether
dividends are cumulative), conversion rights, if any, voting rights (including
the number of votes, if any, per share, as well as the number of members, if
any, of the Board or the percentage of members, if any, of the Board each class
or series of Preferred Stock may be entitled to elect), rights and terms of
redemption (including sinking fund provisions, if any), redemption price and
liquidation preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the designation thereof,
and to increase or decrease the number of shares of any such series subsequent
to the issuance of shares of such series, but not below the number of shares of
such series then outstanding. Any of the voting powers, designations,
2
<PAGE> 3
preferences, rights and qualifications, limitations or restrictions of any such
series of Preferred Stock may be made dependent upon facts ascertainable outside
of the resolution or resolutions providing for the issue of such Preferred Stock
adopted by the Board of Directors pursuant to the authority vested in it by this
Article IV(C), provided that the manner in which such facts shall operate upon
the voting powers, designations, preferences, rights and qualifications,
limitations or restrictions of such series of Preferred Stock is clearly and
expressly set forth in the resolution or resolutions providing for the issue of
such Preferred Stock. The term "facts" as used in the next preceding sentence
shall have the meaning given to it in section 151(a) of the General Corporation
Law of the State of Delaware. Shares of Preferred Stock of any series that have
been redeemed (whether through the operation of a sinking fund or otherwise) or
that if convertible or exchangeable, have been converted into or exchanged for
shares of any other class or classes shall have the status of authorized and
unissued shares of Preferred Stock of the same series and may be reissued as a
part of the series of which they were originally a part or may be reclassified
and reissued as part of a new series of shares of Preferred Stock to be created
by resolution or resolutions of the Board of Directors or as part of any other
series of shares of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the resolution or resolutions adopted by
the Board of Directors providing for the issue of any series of shares of
Preferred Stock.
ARTICLE V
MATTERS RELATED TO STOCKHOLDER VOTING
A. Election of Directors. Members of the Board of Directors need not be
elected by written ballot unless the By-Laws of the Corporation so provide.
B. Removal of Directors. Directors may not be removed by the
stockholders of the Corporation without affirmative vote of shares representing
at least two-thirds of the shares then entitled to vote at an election of
directors. This is in addition to, and does not affect, any restriction in the
Corporation's bylaws on removal of directors without cause.
C. Written Consents. The stockholders may not take action by written
consent. This Article V, Section C may not be amended without the affirmative
vote of holders of at least two-thirds of the shares then entitled to vote in an
election of directors.
ARTICLE VI
LIMITATION OF LIABILITY
To the fullest extent permitted by the General Corporation Law, as the
same exists or may hereafter be amended (provided that the effect of any such
amendment shall be prospective only) and as interpreted by the courts of the
State of Delaware ("Delaware Law"), a director of the Corporation shall not be
liable to the Corporation or its stockholders for monetary damages for breach of
his or her fiduciary duty as a director. Any repeal or modification of the
foregoing provision shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
3
<PAGE> 4
ARTICLE VII
ADOPTION, AMENDMENT AND/OR REPEAL OF BY-LAWS
The Board of Directors may from time to time adopt, amend or repeal the
By-laws. Any By-laws adopted or amended by the Board of Directors may be amended
or repealed, and any By-laws may be adopted, by the stockholders of the
Corporation only by affirmative vote of holders of at least two-thirds of the
shares then entitled to vote in an election of directors.
ARTICLE VIII
EFFECTIVENESS
The certificate shall be effective as of May ___, 2000 at ________ a.m.
FOURTH: The foregoing amendment and restatement has been duly adopted by
the Corporation's Board of Directors in accordance with the applicable
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
FIFTH: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of the corporation in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Fourth Amended and Restated Certificate of
Incorporation has been signed by the Chief Executive Officer and the Secretary
of the Corporation this _____ day of May, 2000.
EXULT, INC.
By
----------------------------------------
James C. Madden, Chief Executive Officer
ATTEST
By
----------------------------------------
Brian W. Copple, Secretary
4
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
EXULT, INC.
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I OFFICES...........................................................3
SECTION 1.1 Registered Office.........................................3
SECTION 1.2 Principal Office..........................................3
SECTION 1.3 Other Offices.............................................3
ARTICLE II MEETINGS OF STOCKHOLDERS.........................................3
SECTION 2.1 Place of Meetings.........................................3
SECTION 2.2 Annual Meetings...........................................3
SECTION 2.3 Special Meeting...........................................3
SECTION 2.4 Advance Notice of Stockholder Proposals and
Stockholder Nominations.................................4
SECTION 2.5 Conduct of Meetings.......................................5
ARTICLE III BOARD OF DIRECTORS..............................................6
SECTION 3.1 Number and Term of Office.................................6
SECTION 3.2 Vacancies and Removal.....................................6
SECTION 3.3 Place of Meeting..........................................7
SECTION 3.4 First Meeting.............................................7
SECTION 3.5 Regular Meetings..........................................7
SECTION 3.6 Special Meetings..........................................7
SECTION 3.7 Chairman of the Board.....................................7
SECTION 3.8 Quorum and Manner of Acting...............................7
SECTION 3.9 Committees................................................8
ARTICLE IV OFFICERS.........................................................8
SECTION 4.1 Officers..................................................8
SECTION 4.2 Election..................................................8
SECTION 4.3 Other Officers............................................8
SECTION 4.4 Removal and Resignation...................................8
SECTION 4.5 Vacancies.................................................8
SECTION 4.6 Chief Executive Officer...................................8
SECTION 4.7 Chairman..................................................9
SECTION 4.8 President.................................................9
SECTION 4.9 Secretary.................................................9
Section 4.10 Chief Financial Officer..................................10
ARTICLE V VOTING SECURITIES HELD BY THE CORPORATION........................10
SECTION 5.1 Corporate Actions........................................10
ARTICLE VI SHARES AND THEIR TRANSFER.......................................10
SECTION 6.1 Transfers of Stock.......................................10
SECTION 6.2 Regulations..............................................10
ARTICLE VII INDEMNIFICATION................................................10
SECTION 7.1 Indemnification of Directors and Officers................10
SECTION 7.2 Enforcement of Indemnification...........................11
ARTICLE VIII MISCELLANEOUS.................................................12
SECTION 8.1 Seal.....................................................12
SECTION 8.2 Amendments...............................................12
i
<PAGE> 3
EXULT, INC.
A DELAWARE CORPORATION
AMENDED AND RESTATED
BYLAWS
ARTICLE I
OFFICES
SECTION 1.1 Registered Office. The registered office of Exult, Inc.
(the "CORPORATION") shall be at National Registered Agents, Inc., 9 East
Loockerman Street, in the City of Dover 19901, County of Kent, and the name of
its registered agent at that address is National Registered Agents, Inc.
SECTION 1.2 Principal Office. The principal office for the transaction
of the business of the Corporation shall be as set forth in a resolution adopted
by the Board of Directors of the Corporation (the "Board").
SECTION 1.3 Other Offices. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meetings. All annual meetings of stockholders and
all other meetings of stockholders shall be held either at the principal office
of the Corporation or at such other place within or without the State of
Delaware that may be designated by the Board pursuant to authority hereinafter
granted to the Board.
SECTION 2.2 Annual Meetings. Annual meetings of stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other business as may properly come before such meetings may be held at
such time and place and on such date as the Board shall determine by resolution.
SECTION 2.3 Special Meetings. A special meeting of the stockholders for
the transaction of any proper business may be called at any time only by the
Board, the Chairman, the Chief Executive Officer, or the Secretary upon written
request of the Chairman or the Chief Executive Officer and may be held at such
time and place and on such date as the Board or Chairman, as applicable, shall
determine.
<PAGE> 4
SECTION 2.4 Advance Notice of Stockholder Proposals and Stockholder
Nominations.
(A) At any meeting of the stockholders, only such business shall
be conducted, and only such proposals shall be acted upon, as shall have been
brought before the meeting (i) by or at the direction of the Board, or (ii) by
any stockholder of the Corporation entitled to vote on such business who
complies with the notice procedures set forth in this Section 2.4(A). For
business to be properly brought before any meeting of the stockholders by a
stockholder, the stockholder must have given notice thereof in writing which is
received by the Secretary of the Corporation not less than ninety (90) days or
more than one hundred twenty (120) days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary, notice by the stockholder, to be timely, must be so
delivered or received not later than the close of business on the tenth day
following the earlier of the date of the first public announcement of the date
of such meeting and the date on which such notice of the scheduled meeting was
mailed. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the meeting (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business and any stockholders known by such stockholder to be supporting such
proposal, (iii) the class and number of shares of the Corporation that are
beneficially owned by the stockholder and by any other stockholder known by such
stockholder to be supporting such matter on the date of such stockholder notice,
and (iv) any material interest of the stockholder in such business. In addition,
the stockholder making such proposal shall promptly provide any other
information reasonably requested by the Corporation. Notwithstanding anything in
these Bylaws to the contrary, no business shall be conducted at any meeting of
the stockholders except in accordance with this Section 2.4(A). The presiding
officer of the meeting shall determine and declare at the meeting whether the
stockholder proposal was made in accordance with the terms of this Section
2.4(A). If the presiding officer determines that a stockholder proposal was not
made in accordance with the terms of this Section 2.4(A), he or she shall so
declare at the meeting and any such proposal shall not be acted upon at the
meeting. This provision shall not prevent the consideration and approval or
disapproval at the meeting of reports of officers, directors and committees of
the board of directors, but, in connection with such reports, no new stockholder
business shall be acted upon at such meeting unless stated, filed and received
as herein provided.
(B) Nominations for the election of directors may be made by the
Board, any nominating committee or person appointed by the Board, or by any
stockholder entitled to vote in the election of directors; provided, however,
that, subject to the rights, if any, of the holders of shares of Preferred Stock
then outstanding, a stockholder may nominate a person for election as a director
at a meeting only if written notice of such stockholder's intent to make such
nomination has been received by the Secretary of the Corporation not less than
ninety (90) days or more than one hundred twenty (120) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is more than 30
2
<PAGE> 5
days before or more than 60 days after such anniversary, notice by the
stockholder, to be timely, must be so delivered or received not later than the
close of business on the tenth day following the earlier of the date of the
first public announcement of the date of such meeting and the date on which such
notice of the scheduled meeting was mailed. Each such notice shall set forth:
(i) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (ii) the class and number of
shares of the Corporation's stock that are beneficially owned by the stockholder
and a representation that such stockholder intends to appear in person or by
proxy at the meeting and nominate the person or persons specified in the notice;
(iii) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (iv) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, by the Board; and (v) the
consent of each nominee to serve as a director of the Corporation if so elected.
In addition, the stockholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with this Section 2.4(B). The presiding officer of the meeting shall
determine and declare at the meeting whether the nomination was made in
accordance with the terms of this Section 2.4(B). If the presiding officer
determines that a nomination was not made in accordance with the terms of this
Section 2.4(B), he or she shall so declare at the meeting and any such defective
nomination shall be disregarded. No stockholder may nominate any person for
election as a director to any Class for which such stockholder is not entitled
to vote.
(C) Nothing herein is intended or shall be construed to limit
requirements imposed by applicable laws or regulations upon stockholder
proposals, opposition thereto by the Corporation, or inclusion thereof in the
Corporation's proxy materials.
SECTION 2.5 Conduct of Meetings. The Board may adopt by resolution such
rules and regulations for the conduct of each meeting of stockholders as it
deems appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board, the chairman of any meeting of stockholders
shall have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
appropriate for the proper conduct of the meeting. Such rules, regulations or
procedures, whether adopted by the Board or prescribed by the chairman of the
meeting, may include, without limitation, the following: (i) the establishment
of an agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the Corporation, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.
3
<PAGE> 6
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 Number and Term of Office.
(A) Number of Directors. The total number of directors shall be
between three and eleven, with the actual total number of directors set from
time to time exclusively by resolution of the Board. The Board shall consist of
seven members until changed by such a resolution.
(B) Classes of Directors. There shall be three classes of
directors (each, a "CLASS"), known as Class 1, Class 2 and Class 3. Each of the
existing directors shall be placed into Class 1, Class 2, or Class 3 by
resolution of the Board. The initial Class 1, Class 2 and Class 3 directors
shall serve in office as follows. Class 1 shall retire at the Corporation's 2001
annual meeting of stockholders and each third successive annual meeting
thereafter; Class 2 shall retire at the Corporation's 2002 annual meeting of
stockholders and each third successive annual meeting thereafter; and Class 3
shall retire at the Corporation's 2003 annual meeting of stockholders and each
third successive annual meeting thereafter. Each director in a retiring Class
shall be eligible for re-election if nominated, and such director's seat shall
be open for election of a director, at the annual meeting of stockholders of the
Corporation at which such Class shall retire, to hold office for three years or
until his successor is elected or appointed.
(C) Additional Directors. Any additional directors elected or
appointed shall be elected or appointed to such Class as will ensure that the
number of directors in each Class remains as nearly equal as possible, and if
all Classes have an equal number of directors or if one Class has one director
more than the other two Classes, then to the Class that does not have more
directors than any other Class and is subject to election at an ensuing annual
meeting before any other such Class.
SECTION 3.2 Vacancies and Removal. Vacancies due to resignation, death,
increases in the number of directors, or any other cause shall be filled only by
the Board (unless there are no directors, in which case vacancies will be filled
by the stockholders) in accordance with the rule that each Class of directors
shall be as nearly equal in number of directors as possible. Notwithstanding
such rule, in the event of any change in the authorized number of directors each
director then continuing to serve as such will nevertheless continue as a
director of the Class of which he or she is a member, until the expiration of
his or her current term or his earlier death, resignation or removal. If any
newly created directorship or vacancy on the Board may be allocated to more than
one Class consistent with the rule that the three Classes shall be as nearly
equal in number of directors as possible, the Board shall allocate it to that of
the available Classes whose term of office is due to expire at the earliest date
following such allocation. When the Board fills a vacancy, the director chosen
to fill that vacancy shall be of the same Class as the director or she he
succeeds and shall hold office until such director's successor shall have been
elected and qualified or until such director shall resign or shall have been
removed. No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office. As long as the Board is classified, directors may be removed by the
stockholders of the Corporation only for cause.
4
<PAGE> 7
SECTION 3.3 Place of Meeting. The Board or any committee thereof may
hold any of its meetings at such place or places within or without the State of
Delaware as the Board or such committee may from time to time by resolution
designate or as shall be designated by the person or persons calling the meeting
or in the notice or a waiver of notice of any such meeting.
SECTION 3.4 First Meeting. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.
SECTION 3.5 Regular Meetings. Regular meetings of the Board may be held
at such times as the Board shall from time to time by resolution determine.
SECTION 3.6 Special Meetings. Special meetings of the Board for any
purpose or purposes shall be called at any time by the Chairman of the Board or,
if the Chairman of the Board is absent or unable or refuses to act, by the Vice
Chairman, and may also be called by any two (2) members of the Board. Except as
otherwise provided by law or by these Bylaws, written notice of the time and
place of special meetings shall be delivered personally or by facsimile or other
electronic means to each director, or sent to each director by mail or by other
form of written communication, charges prepaid, addressed to such director at
such director's address as it is shown upon the records of the Corporation, or,
if it is not so shown on such records and is not readily ascertainable, at the
place in which the meetings of the directors are regularly held. In case such
notice is mailed, it shall be deposited in the United States mail in the county
in which the principal office for the transaction of the business of the
Corporation is located at least five (5) business days prior to the time of the
holding of the meeting. In case such notice is delivered personally or by
facsimile or other electronic means as above provided, it shall be delivered at
least one (1) business day prior to the time of the holding of the meeting. Such
mailing, delivery or facsimile or electronic transmission as above provided
shall be due, legal and personal notice to such director. Except where otherwise
required by law or by these Bylaws, notice of the purpose of a special meeting
need not be given. Notice of any meeting of the Board shall not be required to
be given to any director who is present at such meeting, except a director who
shall attend such meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
SECTION 3.7 Chairman of the Board. The Chairman of the Board, when
present, shall preside at all meetings of the Board and all meetings of
stockholders. The Chairman of the Board shall perform other duties commonly
incident to his or her office and shall also perform such other duties and have
such other powers as the Board shall designate from time to time.
SECTION 3.8 Quorum and Manner of Acting. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, provided any action taken is approved by at least a
majority of the required quorum for such meeting. In the absence of a quorum, a
majority of directors present at any meeting may adjourn the same from time to
time until a quorum shall be present. Notice of any adjourned meeting need not
be given. The directors shall act only as a Board, and the individual directors
shall have no power as such.
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SECTION 3.9 Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees. Any such
committee shall keep written minutes of its meetings and report the same to the
Board at the next regular meeting of the Board. Unless the Board otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board conducts
its business pursuant to Article III of these Bylaws.
ARTICLE IV
OFFICERS
SECTION 4.1 Officers. The executive officers of the Corporation shall
be a Chief Executive Officer or President or both, a Chairman, a Secretary, a
Chief Financial Officer, a Treasurer, and such other officers as may be
appointed at the discretion of the Board or the Chief Executive Officer in
accordance with the provisions of Section 4.3 hereof. Except to the extent
prohibited by applicable law, the same person may hold more than one office.
SECTION 4.2 Election. The officers of the Corporation, except such
officers as may be appointed or elected in accordance with the provisions of
Section 4.3 hereof, shall be chosen annually by the Board at the first meeting
thereof after the annual meeting of stockholders, and each officer shall hold
office until such officer shall resign or shall be removed or otherwise
disqualified to serve, or until such officer's successor shall be elected and
qualified.
SECTION 4.3 Other Officers. In addition to the officers chosen annually
by the Board at its first meeting, the Board or the Chief Executive Officer also
may appoint or elect such other officers as the business of the Corporation may
require, each of whom shall have such authority and perform such duties as are
provided in these Bylaws or as the Board or the Chief Executive Officer may from
time to time specify, and shall hold office until such officer shall resign or
shall be removed or otherwise disqualified to serve, or until such officer's
successor shall be elected and qualified.
SECTION 4.4 Removal and Resignation. Any officer may be removed, either
with or without cause, by resolution of the Board, at any regular or special
meeting of the Board, or except in case of an officer chosen by the Board, by
any officer upon whom such power of appointment or removal may be conferred by
the Board. Any officer may resign at any time by giving written notice of his or
her resignation to the Board or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein, or, if the time is
not specified, upon receipt thereof by the Board or the Secretary, as the case
may be; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 4.5 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
SECTION 4.6 Chief Executive Officer. The Chief Executive Officer shall
preside at all meetings of the stockholders and at all meetings of the Board,
unless the Chairman of the Board has been appointed and is present. The Chief
Executive Officer shall be the chief
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executive officer of the Corporation and shall, subject to the control of the
Board, have general supervision, direction and control of the business and
affairs of the Corporation. The Chief Executive Officer shall have the power to
sign all stock certificates, contracts and other instruments of the Corporation
which are authorized and shall have general supervision and direction of all the
other officers, employees and agents of the Corporation. The Chief Executive
Officer shall also perform such other duties and have such other powers as the
Board may designate from time to time.
SECTION 4.7 Chairman. The Chairman shall have such powers and perform
such duties with respect to the administration of the business and affairs of
the Corporation as are commonly incident to his or her office or as may from
time to time be assigned to such Chairman by the Board, or as may be prescribed
by these Bylaws.
SECTION 4.8 President. The President shall preside at all meetings of
the stockholders and at all meetings of the Board, unless the Chairman of the
Board has been appointed and is present or, in the absence of the Chairman of
the Board, the Chief Executive Officer has been appointed and is present.
Subject to the provisions of these Bylaws and to the direction of the Board and
Chief Executive Officer, the President shall have the responsibility for the
general management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of President or which are delegated to him or her by the Board or the
Chief Executive Officer.
SECTION 4.9 Secretary. The Secretary shall attend all meetings of the
stockholders and of the Board and shall record all acts and proceedings thereof
in the minute book of the Corporation. The Secretary shall give notice in
conformity with these Bylaws of all meetings of the stockholders and of all
meetings of the Board and any committee thereof requiring notice. The Secretary
shall perform all other duties given him or her in these Bylaws and other duties
commonly incident to his or her office and shall also perform such other duties
and have such other powers as the Board shall designate from time to time. The
Secretary shall keep, or cause to be kept, at the principal office of the
Corporation or such other place as the Board may order, a book of minutes of all
meetings of directors and stockholders, with the time and place of holding,
whether regular or special, and if special, how authorized and the notice
thereof given, the names of those present at meetings of directors, the number
of shares present or represented at meetings of stockholders, and the
proceedings thereof. The Secretary shall keep, or cause to be kept, at the
principal office of the Corporation's transfer agent, a share register, or a
duplicate share register, showing the name of each stockholder, the number of
shares of each class held by such stockholder, the number and date of
certificates issued for such shares, and the number and date of cancellation of
every certificate surrendered for cancellation. The Secretary shall have custody
of the corporate seal of the Corporation, and the Secretary, or an Assistant
Secretary, shall have authority to impress the same on any instrument requiring
it, and when so impressed the seal may be attested by the signature of the
Secretary or by the signature of such Assistant Secretary. The Board may give
general authority to any other officer to impress the seal of the Corporation
and to attest the same by such officer's signature. The Secretary or an
Assistant Secretary may also attest all instruments signed by any officer of the
Corporation.
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SECTION 4.10 Chief Financial Officer. The Chief Financial Officer shall
keep or cause to be kept the books of account of the Corporation in a thorough
and proper manner and shall render statements of the financial affairs of the
Corporation in such form and as often as required by the Board or the Chief
Executive Officer. The Chief Financial Officer, subject to the order of the
Board, shall have the custody of all funds and securities of the Corporation.
The Chief Financial Officer shall perform other duties commonly incident to his
or her office and shall also perform such other duties and have such other
powers as the Board or the Chief Executive Officer shall designate from time to
time.
ARTICLE V
VOTING SECURITIES HELD BY THE CORPORATION
SECTION 5.1 Corporate Actions. Unless otherwise ordered by the Board,
the Chief Executive Officer, or in the absence of the Chief Executive Officer,
the President shall have full power and authority on behalf of the Corporation
to attend, act, and vote at any meeting of security holders, or to consent to
corporate action in writing without a meeting, of other corporations in which
the Corporation may hold securities. In taking such actions, the Chief Executive
Officer, or in the absence of the Chief Executive Officer, the President shall
possess and may exercise any and all rights and powers incident to the ownership
of those securities which the Corporation might have possessed and exercised.
The Board may, from time to time, confer like powers upon any other person or
persons.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.1 Transfers of Stock. Whenever any transfer of shares shall
be made for collateral security, and not absolutely, such fact shall be so
expressed in the entry of transfer if, when the certificate or certificates
shall be presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
SECTION 6.2 Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
ARTICLE VII
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 7.1 Indemnification of Directors and Officers. The Corporation
shall indemnify, in the manner and to the fullest extent permitted by Delaware
Law (but in the case of any amendment in the Delaware General Corporation Law
(the "DGCL"), only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than permitted prior thereto), any person
(or the estate of any person) who is or was a party to, or is threatened to be
made a party to, any threatened, pending or completed action, suit or
proceeding, whether or not by or in the right of the Corporation, and whether
civil, criminal,
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administrative, investigative or otherwise, by reason of the fact that such
person is or was a director or executive officer, as designated by the Board, of
the Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise. Any director or executive officer, as designated by the Board,
of the Corporation serving as director or officer for (i) another corporation of
which a majority of the shares entitled to vote in the election of its directors
is held, directly or indirectly, by the Corporation, or (ii) any employee
benefit plan of the Corporation or any corporation referred to in clause (i),
shall be deemed to be doing so at the request of the Corporation. To the fullest
extent permitted by Delaware Law, the indemnification provided herein shall
include expenses as incurred (including attorneys' fees), judgments, fines and
amounts paid in settlement and any such expenses shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the person seeking
indemnification to repay such amounts if it is ultimately determined that he or
she is not entitled to be indemnified. Notwithstanding the foregoing or any
other provision of this Section 7.1, no advance shall be made by the Corporation
if a determination is reasonably and promptly made by the Board by a majority
vote of a quorum of disinterested directors, or (if such a quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs) by independent legal counsel to the Corporation, that, based upon the
facts known to the Board or such counsel at the time such determination is made,
(a) the party seeking an advance acted in bad faith or deliberately breached his
or her duty to the Corporation or its stockholders, and (b) as a result of such
actions by the party seeking an advance, it is more likely than not that it will
ultimately be determined that such party is not entitled to indemnification
pursuant to the provisions of this Section 7.1. The indemnification provided
herein shall not be deemed to limit the right of the Corporation to indemnify
any other person for any such expenses to the fullest extent permitted by
Delaware Law, nor shall it be deemed exclusive of any other rights to which any
person seeking indemnification from the Corporation may be entitled under any
agreement, these Bylaws, any vote of stockholders or disinterested directors, or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office.
SECTION 7.2 Enforcement of Indemnification. The rights to
indemnification and the advancement of expenses conferred above shall be
contract rights. No repeal or modification of this Section 7.2 shall affect any
rights or obligations with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts. If a claim
under this Article VII is not paid in full by the Corporation within sixty (60)
days after written claim has been received by the Corporation, except in the
case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of such claim.
If successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expenses of
prosecuting or defending such suit. In any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and any suit by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met any applicable standard for indemnification set forth in the DGCL.
Neither the failure of the Corporation (including its Board, independent legal
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counsel or stockholders) to have made a determination prior to the commencement
of such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of conduct
set forth in the DGCL, nor an actual determination by the Corporation (including
its Board, independent legal counsel or stockholders) that the indemnitee has
not met such applicable standard of conduct, shall either create a presumption
that the indemnitee has not met the applicable standard of conduct or, in the
case of such a suit brought by the indemnitee, be a defense to such suit. In any
suit brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article VII or otherwise shall be on the
Corporation.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Seal. The Board shall adopt a corporate seal, which shall
be in the form of two concentric circles with the name of the Corporation
between the two circles and the date and state of incorporation appearing in the
inner circle.
SECTION 8.2 Amendments. Except as otherwise provided herein or in the
Certificate of Incorporation of the Corporation, these Bylaws or any of them may
be altered, amended, repealed or rescinded and new Bylaws may be adopted only by
the Board or by the affirmative vote of shares representing at least two-thirds
of the total voting power of all outstanding shares of voting stock of the
Corporation.
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CERTIFICATE OF SECRETARY
The undersigned, being the duly elected Secretary of Exult, Inc., a
Delaware corporation, hereby certifies that the Amended and Restated Bylaws to
which this Certificate is attached were duly adopted by the Board of Directors
of said Corporation as of ___________________________, 2000.
---------------------------------
Brian W. Copple
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EXHIBIT 5.1
May 5, 2000
Exult, Inc.
4 Park Plaza, Suite 1000
Irvine, CA 92614
Re: Exult, Inc. Registration Statement on Form S-1
for 10,350,000 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to Exult, Inc., a Delaware corporation (the
"Company"), in connection with the proposed issuance and sale by the Company of
up to 10,350,000 shares of the Company's Common Stock (the "Shares") pursuant to
the Company's Registration Statement on Form S-1 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE> 2
May 5, 2000
Page 2
This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<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 of 1933, as amended (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.
<PAGE> 2
The Company shall not be required (i) to transfer on its books any
Shares which have been sold or transferred in violation of the provisions of
this Agreement or (ii) to treat as the Purchaser of the Shares, or otherwise to
accord voting, dividend or liquidation rights to, any transferee to whom the
Shares have been transferred in contravention of this Agreement.
3. Rights to Purchase Unvested Shares.
(a) Company Repurchase Right. In the event that the Purchaser's
employment with the Company, or one or more of its parent or subsidiary
corporations, terminates, for any reason, the Company shall have the right (the
"Company Repurchase Right"), exercisable at any time during the thirty (30) day
period following the date that Purchaser's employment with the Company is
terminated (the "Company Repurchase Right Period"), to repurchase, at the
Purchase Price per share paid by the Purchaser pursuant to this Agreement (the
"Repurchase Price"), all or any portion of the Unvested Shares in which the
Purchaser has not yet acquired a vested interest (as calculated in accordance
with Section 3(d) below) as of the date that Purchaser's employment with the
Company is terminated (the "Termination Date"). The Company Repurchase Right
shall be exercisable by written notice delivered to the Purchaser and to GAP
prior to the expiration of the Company Repurchase Right Period, which notice
shall indicate the number of Unvested Shares to be repurchased by the Company.
The failure of the Company to exercise the Company Repurchase Right within the
Company Repurchase Right Period shall be deemed to be a waiver of the Company
Repurchase Right, provided that the Company may waive its rights under this
Section 3(a) prior to the expiration of the Company Repurchase Right Period by
giving written notice to the Purchaser, with a copy to GAP.
(b) GAP Purchase Right. If the Company does not elect to purchase
all of the Unvested Shares in which Purchaser has not yet acquired a vested
interest (calculated in accordance with Section 3(d) below) as of the
Termination Date pursuant to Section 3(a), then for a period of thirty (30) days
after the earlier to occur of (i) the expiration of the Company Repurchase Right
Period pursuant to Section 3(a) and (ii) the date upon which the Purchaser shall
have received written notice from the Company of its exercise of the Company
Repurchase Right pursuant to Section 3(a) or its waiver thereof (the "Purchase
Right Period"), then GAP shall have the right (the "GAP Purchase Right") to
purchase any remaining Unvested Shares at the Repurchase Price. The GAP Purchase
Right shall be exercisable by delivering written notice of the exercise thereof,
prior to the expiration of the Purchase Right Period, to the Purchaser with a
copy to the Company, which notice shall indicate the number of Unvested Shares
to be purchased by GAP. The failure of GAP to respond within the Purchase Right
Period to the Purchaser shall be deemed to be a waiver of the GAP Purchase
Right, provided that GAP may waive its rights under this Section 3(b) prior to
the expiration of such Purchase Right Period by giving written notice thereof to
the Purchaser, with a copy to the Company.
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(c) Closing. The closing of the repurchase of Unvested Shares under
Section 3(a) and/or the purchase of Unvested Shares by GAP under Section 3(b)
shall be held at the executive office of the Company at 10:00 a.m., local time,
on the 30th day after (i) the giving by the Company of the notice contemplated
by Section 3(a), if the Company has proposed to repurchase all of the Unvested
Shares, or (ii) the earlier of (x) the giving by GAP of the notice contemplated
by Section 3(b) and (y) the expiration of the 30-day Purchase Right Period or at
such other time and place as the parties to the transaction may agree. At such
closing, the Purchaser shall deliver certificates representing the Unvested
Shares, duly endorsed for transfer and accompanied by all requisite transfer
taxes, if any. If the certificates representing Unvested Shares are held in
escrow, the Company shall release such certificates from escrow at the closing
so that the Purchaser may endorse such certificates for transfer. The Company
and/or GAP, as the case may be, purchasing Unvested Shares shall deliver at the
closing payment of the purchase price in full in immediately available funds for
the Unvested Shares purchased by it. At such closing, all of the parties to the
transaction shall execute such additional documents as are otherwise necessary
or appropriate.
(d) Termination of Company Repurchase Right and GAP Purchase Right.
The Company Repurchase Right and GAP Purchase Right shall initially apply to
Eight Thousand Eight Hundred Fifteen (8,815) of the Shares (the "Unvested
Shares"), but shall lapse with respect to any and all Unvested Shares in which
the Purchaser acquires a vested interest. For purposes of this Agreement, the
Purchaser shall acquire a vested interest in, and accordingly the Company
Repurchase Right and GAP Purchase Right shall lapse with respect to, the
Unvested Shares in a series of forty-three (43) successive equal monthly
installments upon the Purchaser's completion of each additional month of
employment with the Company over the forty-three (43) month period measured from
the date of this Agreement. Notwithstanding the foregoing, the following
provisions shall apply in the event that the Purchaser's employment with the
Company terminates:
(i) If the Purchaser's employment with the Company is terminated
by the Company for Cause (as defined below), or if the Purchaser
voluntarily terminates his employment with the Company, the Purchaser
shall forfeit his right to vest in any Unvested Shares in which he has
not yet acquired a vested interest as of the Termination Date;
(ii) If the Purchaser's employment with the Company is
terminated by the Company for any reason other than Cause, including by
reason of the death or disability of the Purchaser, he will vest in 50%
of all Unvested Shares in which he has not yet acquired a vested
interest as of the Termination Date.
For the purpose of the foregoing, termination for "Cause" shall mean any
involuntary cessation of employment of the Purchaser effected by reason of (i)
chronic alcoholism or drug addiction; (ii) financial dishonesty, including,
without limitation, misappropriation of funds or property of the Company, or any
attempt by the Purchaser to secure any personal profit related to the business
and the business opportunities of the Company without the informed approval of
the Board of Directors of the Company; (iii) a repeated refusal to comply with
reasonable directives of the Board of Directors of the Company, which has not
been cured by the Purchaser, as determined by the Board of Directors, within two
(2) days of written notice thereof given by the Board of Directors to the
Purchaser; (iv) the recklessness or willful misconduct in the performance of, or
the continuing neglect in the performance of, duties reasonably assigned to
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the Purchaser by the Board of Directors of the Company, which has not been cured
by the Purchaser, as determined by the Board of Directors, within two (2) days
of written notice thereof given by the Board of Directors to the Purchaser; or
(v) the conviction of the Purchaser for any felony or any misdemeanor involving
moral turpitude or fraud.
4. Additional Shares or Substituted Securities. In the event of any
stock dividend, stock split, recapitalization or other change affecting the
Company's outstanding Common Stock as a class without receipt of consideration,
any new, substituted or additional securities or other property (including money
paid other than as a regular cash dividend) which is by reason of any such
transaction distributed to the Purchaser with respect to the Shares shall be
immediately subject to the Company Repurchase Right and GAP Purchase Right to
the extent such Shares are Unvested Shares. Appropriate adjustments to reflect
the distribution of such securities or property shall be made to the number of
Unvested Shares for all purposes relating to the Company Repurchase Right and
GAP Purchase Right, and the Company (or its successor) may require the
establishment of an escrow account for any property or money (other than regular
cash dividends) distributed with respect to the Shares covered by the Company
Repurchase Right and GAP Purchase Right in order to facilitate the exercise of
such rights. Appropriate adjustments shall also be made to the price per share
to be paid upon the exercise of the Company Repurchase Right and/or GAP Purchase
Right in order to reflect the effect of any such transaction upon the Company's
capital structure; provided, however, that the aggregate Repurchase Price shall
remain the same.
5. Representations and Warranties of the Purchaser.
(a) Investment Intent. This Agreement is made with the Purchaser in
reliance upon his representation to the Company, which by the Purchaser's
acceptance hereof Purchaser confirms, that the Shares have been acquired with
the Purchaser's own funds for investment for an indefinite period for the
Purchaser's own account, not as a nominee or agent, and not with a view to the
sale or distribution of any part thereof, and that the Purchaser has no present
intention of selling, granting participation in, or otherwise distributing the
same. By executing this Agreement, the Purchaser further represents that the
Purchaser does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer, or grant participations, to such person or to any
third person, with respect to any of the Shares.
(b) Restricted Securities. The Purchaser understands that the Shares
have not been registered under the 1933 Act, on the ground that the sale
provided for in this Agreement is exempt from the registration requirements of
the 1933 Act, and that the Company's reliance on such exemption is predicated on
his representations set forth herein. The Purchaser understands that if the
Company does not register the Shares with the Securities and Exchange Commission
pursuant to sections 12 or 15 of the Securities Exchange Act of 1934, as
amended, or if a registration statement covering the Shares (or a filing
pursuant to the exemption from registration under Regulation A of the 1933 Act)
under the 1933 Act is not in effect when the Purchaser desires to sell the
Shares, the Purchaser may be required to hold the Shares for an indeterminate
period. The Purchaser also acknowledges that the Purchaser understands that the
Shares are not currently eligible for resale under Rule 144 and that any future
sale of the Shares that might be made by the Purchaser in reliance upon Rule 144
under the 1933 Act may be made only in limited amounts in accordance with the
terms and conditions of that rule and that the
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Purchaser may not be able to sell the Shares at the time or in the amount the
Purchaser so desires. The Purchaser is familiar with Rule 144 and understands
that the Shares constitute "restricted securities" within the meaning of that
Rule.
(c) Investment Experience. In connection with the investment
representations made herein the Purchaser represents that he is able to fend for
himself in the transactions contemplated by this Agreement, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of his investment, has the ability to bear the economic
risks of his investment and has been furnished with and has had access to such
information as he has requested and deems appropriate to his investment
decision.
6. Legends. All certificates representing Shares shall have endorsed
thereon the following legends:
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A CERTAIN FOUNDER STOCK PURCHASER AGREEMENT
WHICH INCLUDES A REPURCHASE RIGHT IN FAVOR OF THE COMPANY. COPIES OF
THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF
THE COMPANY."
(ii) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH
SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF SUCH SECURITIES THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR
HYPOTHECATION IS IN FULL COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNLESS SOLD IN COMPLIANCE WITH RULE 144 UNDER SUCH ACT."
(iii) Any other legend required to be placed thereon by applicable
state laws.
7. Escrow of Shares.
(a) Escrow Holder. Any Unvested Shares in which the Purchaser has
not acquired a vested interest shall be held in escrow by the Secretary of the
Company, as escrow holder ("Escrow Holder"), along with an Assignment Separate
from Certificate executed by the Purchaser in blank in the form attached hereto
as Exhibit A, until expiration of the Company's Repurchase Right and GAP
Purchase Right.
(b) Instructions to Escrow Holder. The Escrow Holder is hereby
directed to permit the transfer or repurchase of Shares only in accordance with
this Agreement upon instructions signed by the Purchaser and an officer of the
Company other than the Purchaser. Notwithstanding anything to the contrary set
forth in this Agreement, if the Company Repurchase Right and/or GAP Purchase
Right is exercised, the Escrow Holder is hereby
5
<PAGE> 6
authorized to take all necessary and appropriate action, including, without
limitation, the completion and delivery to the Company and/or GAP of Exhibit A
hereto, to effect the purposes of this Agreement. In the event that further
instructions are desired by the Escrow Holder, he or she shall be entitled to
rely upon directions executed by an officer of the Company other than the
Purchaser. The Escrow Holder shall have no liability for any act or omission
hereunder while acting in good faith in the exercise of his or her own judgment.
Upon lapse of the Company Repurchase Right and GAP Purchase Right with respect
portions of the Unvested Shares in which the Purchaser acquires a vested
interest pursuant to Section 3(d) hereof, the Escrow Holder shall, upon the
Purchaser's request, promptly cause a new certificate to be issued for such
released Unvested Shares and shall deliver such certificate to the Purchaser.
Upon lapse of the Company Repurchase Right and GAP Purchase Right with respect
to all of the Unvested Shares, the Escrow Agent shall deliver to the Purchaser
all documents, securities or other property belonging to the Purchaser, and
shall be discharged of all further obligations hereunder.
(c) Rights of the Stockholder. Subject to the terms hereof, the
Purchaser shall have all the rights of a stockholder with respect to Unvested
Shares while such shares are held in escrow, including without limitation the
right to vote the Unvested Shares and receive any cash dividends declared
thereon.
8. Miscellaneous.
(a) Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
(b) No Employment or Service Contract. Nothing in this Agreement
shall confer upon the Purchaser any right to continue his employment with the
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Company (or any Parent or Subsidiary
employing or retaining the Purchaser) or of the Purchaser, which rights are
hereby expressly reserved by each, to terminate the Purchaser's employment at
any time for any reason, with or without Cause.
(c) Cancellation of Shares. If the Company shall make available, at
the time and place and in the amount and form provided in this Agreement, the
consideration for the 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 Purchaser and holder of such Shares, whether or not the certificates
therefor have been delivered as required by this Agreement, and such Shares
shall be cancelled.
(d) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at his or her
address hereinafter shown below his or her signature or at such other address as
such party may designate by ten (10) days' advance written notice to the other
party hereto in accordance with this Agreement.
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<PAGE> 7
(e) Governing Law; Assignment and Enforcement. The Agreement is
governed by the internal law of California and shall inure to the benefit of,
and be binding upon, the successors and assigns of the Company, including any
direct or indirect successor by purchase, merger, consolidation or otherwise to
substantially all of the business and/or assets of the Company, and, be binding
upon the Purchaser, his heirs, executors, administrators, guardians, successors
and assigns. The prevailing party in any action to enforce this Agreement shall
be entitled to attorneys' fees and costs. The parties hereby agree that damages
are not an adequate remedy for the Purchaser's breach hereof and the Company
shall accordingly be entitled to specific performance of this Agreement. The
Company may assign the Company Repurchase Right to any person or entity selected
by the Board, including (without limitation) one or more stockholders of the
Company.
(f) Entire Agreement; Amendments. This Agreement represents the
entire understanding of the parties with respect to the subject matter hereof
and supersedes all previous understandings, written or oral. This Agreement may
only be amended with the written consent of the parties hereto, and no oral
waiver or amendment shall be effective under any circumstances whatsoever.
(g) No Waiver. The failure of the Company or GAP in any instance to
exercise the Company Repurchase Right or GAP Purchase Right, as the case may be,
granted hereunder shall not constitute a waiver of any other repurchase or
purchase right that may subsequently arise under the provisions of this
Agreement or any other agreement between the Company, the Purchaser and GAP. 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.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and signature pages may be delivered by facsimile, each of which
shall be enforceable against the parties actually executing such counterparts,
and all of which together shall constitute one instrument.
(i) Attorneys' Fees. In the event that any dispute among the parties
under or with respect to this Agreement should result in litigation, the
prevailing party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement, including without limitation,
such reasonable fees and expenses of attorneys and accountants, which shall
include, without limitation, all fees, costs and expenses of appeals.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BPO-US, INC.
By: /s/ JAMES MADDEN
------------------------------
Name: James Madden
-------------------------
Title:
-----------------------
Address:
----------------------------------
----------------------------------
----------------------------------
PURCHASER
/s/ JAMES MADDEN
----------------------------------
JAMES MADDEN
Address:
----------------------------------
----------------------------------
----------------------------------
GENERAL ATLANTIC PARTNERS, LLC.
By: /s/ THOMAS J. MURPHY
------------------------------
Name: Thomas J. Murphy
-------------------------
Title:
-----------------------
Address:
----------------------------------
----------------------------------
----------------------------------
8
<PAGE> 9
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, _________________, hereby sell, assign and
transfer unto _______________________ (__________) shares of the Common Stock of
BPO-US, INC. standing in my name on the books of said corporation represented by
Certificate No. ___ herewith and do hereby irrevocably constitute and appoint
___________________ to transfer said stock on the books of the within-named
corporation with full power of substitution in the premises.
Dated: __________________, 19__.
Signature:
-----------------------------------
This Assignment Separate from Certificate was executed in conjunction
with the terms of a Founder Stock Purchase Agreement between the above assignor
and BPO-US, INC. dated April 1, 1999 and shall not be used in any manner except
as provided in such Founder Stock Purchase Agreement .
9
<PAGE> 10
ELECTION PURSUANT TO SECTION 83(b)
OF THE INTERNAL REVENUE CODE
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The person who performed the services is:
Name:
-----------------------------------------
Address:
--------------------------------------
--------------------------------------
Taxpayer Ident. No.:
--------------------------
Taxable Year: Calendar Year 1999
(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 April 10, 1999.
(4) The property is subject to a repurchase right pursuant to which the
issuer has the right to repurchase the property at the original purchase price
if for any reason the shareholder's employment with the issuer is terminated.
The issuer's repurchase right lapses in a series of installments ending on
____________, 200_.
(5) 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.
(6) The amount paid for such property is $.____per share.
(7) A copy of this statement was furnished to BPO-US, Inc., for whom
Purchaser rendered the service underlying the transfer of property.
-------------------------------
Purchaser
-------------------------------
Spouse (if any)
Dated:_________________
10
<PAGE> 1
EXHIBIT 10.6.1
OFFICE SPACE LEASE
BETWEEN
THE IRVINE COMPANY
AND
BPO-US, INC.
<PAGE> 2
OFFICE SPACE LEASE
THIS LEASE is made as of the 28th day of June, 1999, by and between THE
IRVINE COMPANY, a Delaware corporation, hereafter called "Landlord," and BPO-US,
INC., a Delaware corporation, hereinafter called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. TENANT'S TRADE NAME: N/A
2. PREMISES: Suite No. 350 (the Premises are more particularly described in
Section 2.1).
ADDRESS OF BUILDING: 4 Park Plaza, Irvine, CA 92614
PROJECT DESCRIPTION (IF APPLICABLE): Jamboree Center
3. USE OF PREMISES: General Office and for no other use. In no event shall the
Premises be used for purposes substantially and directly involved with mobile
telecommunications (i.e., voice or data transmission to, from or between
mobile users of service, but excluding one-way radio for entertainment
purposes or the provision of computer hardware or software) products and/or
services marketed to the public at large.
4. ESTIMATED COMMENCEMENT DATE: July 1, 1999
5. LEASE TERM: Thirty-six (36) months, plus such additional days as may be
required to cause this Lease to terminate on the final day of the calendar
month.
6. BASIC RENT: Seventeen Thousand One Hundred Seventy-Six Dollars ($17,176.00)
per month.
RENTAL ADJUSTMENTS:
Commencing twelve (12) months following the Commencement Date, the Basic Rent
shall be Seventeen Thousand Nine Hundred Four Dollars ($17,904.00) per month.
Commencing twenty-four (24) months following the Commencement Date, the Basic
Rent shall be Eighteen Thousand Six Hundred Thirty-Two Dollars ($18,632.00)
per month.
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<PAGE> 3
7. PROPERTY TAX BASE: The Property Taxes per rentable square foot actually
incurred by Landlord for the twelve month period ending June 30, 2000.
BUILDING COST BASE: The Building Costs per rentable square foot actually
incurred by Landlord for the twelve month period ending June 30, 2000.
EXPENSE RECOVERY PERIOD: Every twelve month period during the Term (or
portion thereof during the first and last Lease years) ending June 30.
8. FLOOR AREA OF PREMISES: approximately 7,278 rentable square feet
9. SECURITY DEPOSIT: $20,495.00
10. BROKER(s): CB Richard Ellis
11. PLAN APPROVAL DATE: N/A
12. PARKING: Twenty (20) unreserved vehicle parking spaces.
13. ADDRESS FOR PAYMENTS AND NOTICES:
<TABLE>
<CAPTION>
LANDLORD TENANT
<S> <C>
The Irvine Company BPO-US, Inc.
c/o Tooley & Company 4 Park Plaza
5 Park Plaza, Suite 100 Suite 350
Irvine, CA 92614 Irvine, CA 92614
Attn: Property Manager
</TABLE>
with a copy of notices to:
THE IRVINE COMPANY
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Operations - Office Properties
2
<PAGE> 4
ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant rents
from Landlord the premises shown in Exhibit A (the "Premises"), containing
approximately the floor area set forth in Item 8 of the Basic Lease Provisions
and known by the suite number identified in Item 2 of the Basic Lease
Provisions. The Premises are located in the building identified in Item 2 of the
Basic Lease Provisions (which together with the underlying real property, is
called the "Building"), and is a portion of the project described in Item 2 (the
"Project").
SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that except as
expressly provided in this Lease, neither Landlord nor any representative of
Landlord has made any representation or warranty with respect to the Premises or
the Building or the suitability or fitness of either for any purpose, except as
set forth in this Lease. The taking of possession or use of the Premises by
Tenant for the commencement of its business operations shall conclusively
establish that the Premises were in satisfactory condition and in conformity
with the provisions of this Lease in all respects, except for latent defects of
which Landlord is notified within one (1) year following the Commencement Date
and for those matters which Tenant shall have brought to Landlord's attention on
a written punch list. The punch list shall be delivered to Landlord within
thirty (30) days after the term ("Term") of this Lease commences as provided in
Article III below. Nothing contained in this Section shall affect the
commencement of the Term or the obligation of Tenant to pay rent. Landlord shall
diligently complete all punch list items of which it is notified as provided
above. Notwithstanding the foregoing, Landlord warrants that all building
systems shall be in good working order as of the Commencement Date.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building and/or the Project
as any part of Tenant's corporate or trade name. Landlord shall have the right
to change the name, number or designation of the Building or Project without
liability to Tenant.
SECTION 2.4. AVAILABLE SPACE. Upon request by Tenant from time to time,
Landlord will advise Tenant of the suites within the Project that Landlord in
good faith anticipates will become available for lease during the next following
six (6) months. Nothing contained herein, however, shall be deemed to grant
Tenant any option or other right to lease any such space that may become
available.
ARTICLE III. TERM
SECTION 3.1. GENERAL. The Term shall be for the period shown in Item 5
of the Basic Lease Provisions. The Term shall commence ("Commencement Date") on
the earlier of (a) subject to the provisions of Section 3.2 and Exhibit X, the
Estimated Commencement Date as set forth in Item 4 of the Basic Lease
Provisions, or (b) the date Tenant commences its business activities within the
Premises. Promptly following request by Landlord, the parties shall memorialize
on a form provided by Landlord the actual Commencement Date and the expiration
date ("Expiration Date") of this Lease.
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<PAGE> 5
SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on or before the
Estimated Commencement Date, this Lease shall not be void or voidable nor shall
Landlord be liable to Tenant for any resulting loss or damage. However, Tenant
shall not be liable for any rent and the Commencement Date shall not occur until
Landlord delivers possession of the Premises and the Premises are in fact ready
for occupancy as defined below, except that if Landlord's failure to so deliver
possession on the Estimated Commencement Date is attributable to any action or
inaction by Tenant (including without limitation any Tenant Delay described in
the Work Letter, if any, attached to this Lease), then the Commencement Date
shall not be advanced to the date on which possession of the Premises is
tendered to Tenant, and Landlord shall be entitled to full performance by Tenant
(including the payment of rent) from the date Landlord would have been able to
deliver the Premises to Tenant but for Tenant's delay(s). The Premises shall be
deemed ready for occupancy upon the tendered date, but only if and when
Landlord, to the extent applicable, (a) has put into operation all building
services (including the parking required herein) essential for the use of the
Premises by Tenant, (b) has provided reasonable access to the Premises for
Tenant so that they may be used without unnecessary interference, (c) has
substantially completed all the work required to be done by Landlord in this
Lease (including Exhibit X hereto) and the Premises are clean and free of debris
from such work, and (d) has obtained requisite governmental approvals to
Tenant's occupancy. Notwithstanding the foregoing, however, if Landlord fails to
deliver possession of the Premises on or before the "Outside Date" (as defined
below), then Tenant may, by thirty (30) days prior written notice to Landlord
thereafter, but prior to Landlord's delivery of the Premises, elect to terminate
this Lease; in such event, this Lease shall terminate at the end of that thirty
(30) day period unless Landlord shall so deliver the Premises within that
period. For purposes of the foregoing, the "Outside Date" shall mean the date
that is two (2) months following the last to occur of (i) Tenant's execution and
delivery of this Lease in final form, (ii) Tenant's written approval of final
construction drawings and pricing, if applicable, for the tenant improvement
work, and (iii) the payment by Tenant of all sums and deposits required
hereunder prior to the commencement of construction; provided that the Outside
Date shall be extended on a day-for-day basis for the period of any Tenant
Delays.
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset (except as otherwise provided
herein) Basic Rent for the Premises in the total amount shown (including
subsequent adjustments, if any) in Item 6 of the Basic Lease Provisions. Any
rental adjustment shown in Item 6 shall be deemed to occur on the specified
monthly anniversary of the Commencement Date, whether or not that date occurs at
the end of a calendar month. The rent shall be due and payable in advance
commencing on the Commencement Date (as prorated for any partial month) and
continuing thereafter on the first day of each successive calendar month of the
Term. No demand, notice or invoice shall be required. An installment of rent in
the amount of one (1) full month's Basic Rent at the
4
<PAGE> 6
initial rate specified in Item 6 of the Basic Lease Provisions shall be
delivered to Landlord concurrently with Tenant's execution of this Lease and
shall be applied against the Basic Rent first due hereunder.
SECTION 4.2. OPERATING EXPENSE INCREASE.
(a) Commencing on the first day of the thirteenth month of the
Lease Term, Tenant shall compensate Landlord, as additional rent, for Tenant's
proportionate shares of "Building Costs" and "Property Taxes," as those terms
are defined below, incurred by Landlord in the operation of the Building and
Project. Property Taxes and Building Costs are mutually exclusive and may be
billed separately or in combination as reasonably determined by Landlord.
Tenant's proportionate share of Property Taxes shall equal the product of the
rentable floor area of the Premises multiplied by the difference of (i) Property
Taxes per rentable square foot less (ii) the Property Tax Base set forth in Item
7 of the Basic Lease Provisions. Tenant's proportionate share of Building Costs
shall equal the product of the rentable floor area of the Premises multiplied by
the difference of (i) Building Costs per rentable square foot less (ii) the
Building Cost Base set forth in Item 7 of the Basic Lease Provisions. Tenant
acknowledges Landlord's rights to make changes or additions to the Building
and/or Project from time to time pursuant to Section 6.5 below, in which event
the total rentable square footage within the Building and/or Project may be
adjusted. For convenience of reference, Property Taxes and Building Costs may
sometimes be collectively referred to as "Operating Expenses."
(b) Commencing prior to the start of the first full "Expense
Recovery Period" of the Lease (as defined in Item 7 of the Basic Lease
Provisions), and prior to the start of each full or partial Expense Recovery
Period thereafter, Landlord shall give Tenant a written estimate of the amount
of Tenant's proportionate shares of Building Costs and Property Taxes for the
Expense Recovery Period or portion thereof. Commencing on the first day of the
thirteenth month of the Lease Term, Tenant shall pay the estimated amounts to
Landlord in equal monthly installments, in advance, with Basic Rent. If Landlord
has not furnished its written estimate for any Expense Recovery Period by the
time set forth above, Tenant shall continue to pay cost reimbursements at the
rates established for the prior Expense Recovery Period, if any; provided that
when the new estimate is delivered to Tenant, Tenant shall, at the next monthly
payment date, pay any accrued cost reimbursements based upon the new estimate.
Landlord may from time to time change the Expense Recovery Period to reflect a
calendar year or a new fiscal year of Landlord, as applicable, in which event
Tenant's share of Operating Expenses shall be equitably prorated for any partial
year.
(c) Within one hundred twenty (120) days after the end of each
Expense Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Property Taxes and Building Costs
incurred by Landlord during the period, and the parties shall within thirty (30)
days thereafter make any payment or allowance necessary to adjust Tenant's
estimated payments, if any, to Tenant's actual proportionate shares as shown by
the annual statement. If Tenant has
5
<PAGE> 7
not made estimated payments during the Expense Recovery Period, any amount owing
by Tenant pursuant to subsection (a) above shall be paid to Landlord in
accordance with Article XVI. If actual Property Taxes or Building Costs
allocable to Tenant during any Expense Recovery Period are less than the
Property Tax Base or the Building Cost Base, respectively, Landlord shall not be
required to pay the differential to Tenant. Should Tenant fail to object in
writing to Landlord's determination of actual Operating Expenses within one (1)
year following delivery of Landlord's expense statement, Landlord's
determination of actual Operating Expenses for the applicable Expense Recovery
Period shall be conclusive and binding on the Tenant.
(d) Even though the Lease has terminated and the Tenant has
vacated the Premises, when the final determination is made of Tenant's share of
Property Taxes and Building Costs for the Expense Recovery Period in which the
Lease terminates, Tenant shall within ten (10) days of receipt of written notice
pay the entire increase due over the estimated expenses paid. Conversely, any
overpayment made in the event expenses decrease shall be promptly rebated by
Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period, any one
or more of the Operating Expenses are reasonably increased to a rate(s) or
amount(s) in excess of the rate(s) or amount(s) used in calculating the
estimated expenses for the year, then Tenant's estimated share of Property Taxes
or Building Costs, as applicable, shall be increased for the month in which the
increase becomes effective and for all succeeding months by an amount equal to
Tenant's proportionate share of the increase. Landlord shall give Tenant written
notice of the amount or estimated amount of the increase, the month in which the
increase will become effective, Tenant's monthly share thereof and the months
for which the payments are due. Tenant shall pay the increase to Landlord as a
part of Tenant's monthly payments of estimated expenses as provided in paragraph
(b) above, commencing with the month in which effective.
(f) The term "Building Costs" shall include all reasonable
expenses of operation and maintenance of the Building and the Project, together
with all appurtenant Common Areas (as defined in Section 6.2), and shall include
the following reasonable charges by way of illustration but not limitation:
water and sewer charges; insurance premiums or reasonable premium equivalents
should Landlord elect to self-insure any risk that Landlord is authorized to
insure hereunder; license, permit, and inspection fees; heat; light; power;
janitorial services; repairs; air conditioning; supplies; materials; equipment;
tools; tenant services; programs instituted to comply with transportation
management requirements; amortization of capital investments to the extent they
produce a reduction in operating charges or energy conservation; amortization of
capital investments necessary to bring the Building into compliance with
applicable laws and building codes enacted subsequent to the completion of
construction of the Building; labor; reasonably allocated wages and salaries,
fringe benefits, and payroll taxes for administrative and other personnel
directly applicable to the Building and/or Project, including both Landlord's
personnel and outside personnel; any expense incurred pursuant to Sections 6.1,
6.2, 6.4, 7.2, and 10.2 and Exhibits B and C below; and a commercially
reasonable overhead/management fee. It is understood that Building
6
<PAGE> 8
Costs shall include competitive charges for direct services provided by any
subsidiary or division of Landlord. The term "Property Taxes" as used herein
shall include the following: (i) all real estate taxes, as such property taxes
may be reassessed from time to time; and (ii) other taxes, documentary transfer
fees, charges and assessments which are levied with respect to this Lease or to
the Building and/or the Project, and any improvements, fixtures and equipment
and other property of Landlord located in the Building and/or the Project,
except that general net income and franchise taxes imposed against Landlord
shall be excluded; and (iii) any tax, surcharge or assessment which shall be
levied in addition to or in lieu of real estate or personal property taxes,
other than taxes covered by Article VIII; and (iv) reasonable costs and expenses
incurred in contesting the amount or validity of any Property Tax by appropriate
proceedings to the extent of any resulting tax reduction. A copy of Landlord's
unaudited statement of expenses shall be made available to Tenant upon request.
The variable component of Building Costs shall be extrapolated by Landlord to
reflect at least ninety-five percent (95%) occupancy of the rentable area of the
Building.
(g) Notwithstanding the provisions of this Section 4.2 to the
contrary, Operating Expenses shall not include any cost or expense identified as
the responsibility of Landlord and not an Operating Expense by the express terms
of this Lease, and shall not include any of the following:
(1) Leasing commissions, attorneys' fees, costs,
disbursements and other expenses incurred by Landlord or its agents in
connection with negotiations for leases with tenants, other occupants or
prospective tenants or other occupants of the Project, and similar costs
incurred in connection with disputes with and/or enforcement of any lease with
tenants, other occupants, or prospective tenants or other occupants of the
Project;
(2) "Tenant allowances", "tenant concessions", work
letter payments, and other costs or expenses (including permit, license and
inspection fees) incurred in completing, fixturing, furnishing, renovating or
otherwise improving, decorating or redecorating space for other tenants or
occupants of the Project, or vacant, leasable space in the Project, including
space planning/interior design fees for same;
(3) Depreciation and other "non-cash" expense items;
(4) Services, items and benefits for which Tenant or any
other tenant or occupant of the Project specifically reimburses Landlord or for
which Tenant or any other tenant or occupant of the Project pays third persons
or services, and items or benefits which are not generally made available to
Tenant as an occupant of the Building or the Project;
(5) Costs or expenses (including fines, penalties and
legal fees) incurred due to the violation by Landlord of any terms and
conditions of this Lease or of the leases of other tenants in the Project, that
would have incurred but for such violation by Landlord;
7
<PAGE> 9
(6) Penalties for late payment of any Operating Expenses
by Landlord, including, without limitation, with respect to taxes, equipment
leases, etc.;
(7) Payments in respect of overhead and/or profit to any
subsidiary or affiliate of Landlord, as a result of a non-competitive selection
process for services (other than the management fee) on or to the Project, or
for goods, supplies or other materials, to the extent that the costs of such
services, goods, supplies or materials exceed the costs that would have been
paid if the services, goods, supplies or materials had been provided by parties
unaffiliated with Landlord, of similar skill, competence and experience, on a
competitive basis;
(8) Payments of principal, finance charges or interest
on debt or amortization on any deed of trust or other debt encumbering the
Project, and rental payments (or increases in same) under any ground or
underlying lease or leases encumbering the Project (except to the extent the
same may be made to pay or reimburse, or may be measured by Property Taxes);
(9) Except for a management fee which is reasonable and
commercially competitive for similar projects in the area of the Project, costs
of Landlord's general overhead and general administrative expenses (individual,
partnership or corporate, as the case may be) and wages, salaries and other
compensation and benefits (as well as adjustments thereto) for all employees and
personnel of Landlord above the level of manager for the Project, which costs
would not be chargeable to Operating Expenses in accordance with generally
accepted accounting principles, consistently applied;
(10) Rentals and other related expenses, if any,
incurred in leasing air conditioning systems or other equipment ordinarily
considered to be of a capital nature, except equipment which is used in
providing janitorial services and Which is not affixed to the Project and
equipment which is leased on a temporary basis in emergency situations;
(11) Advertising and promotional expenses;
(12) Costs or expenses for the acquisition of sculpture,
paintings or other works of art, but not the reasonable expenses of maintaining,
repairing and insuring same;
(13) Costs for which Landlord is compensated through or
reimbursed by insurance;
(14) Contributions to operating expense reserves
(including tax reserves), except for reasonable reserves for the roof of the
Building and as specifically otherwise set forth herein;
(15) Contributions to political or charitable
organizations;
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(16) Costs incurred in removing the property of former
tenants and/or other occupants of the Project;
(17) The costs of any "tap fees" or one-time lump sum
sewer, water or other utility connection fees for the Project;
(18) Costs or fees relating to the defense of Landlord's
title to or interest in the Building and/or the Project, or any part thereof;
and
(19) Except as otherwise authorized herein, capital
expenditures and any other expense which, under generally accepted accounting
principles, consistently applied, would not be considered to be a normal
maintenance or operating expense of the Building and/or the Project.
(h) Provided Tenant is not then in default hereunder, Tenant
shall have the right to cause a certified public accountant to audit Operating
Expenses by inspecting Landlord's general ledger of expenses not more than once
during any Expense Recovery Period. Tenant shall give notice to Landlord of
Tenant's intent to audit within nine (9) months after Tenant's receipt of
Landlord's expense statement which sets forth Landlord's actual Operating
Expenses. Such audit shall be conducted at a mutually agreeable time during
normal business hours at the office of Landlord or its management agent where
such accounts are maintained. If Tenant's audit determines that actual Operating
Expenses have been overstated by more than five percent (5%), then subject to
Landlord's right to review and/or contest the audit results, Landlord shall
reimburse Tenant for the reasonable out-of-pocket costs of such audit. Tenant's
rent shall be appropriately adjusted to reflect any overstatement in Operating
Expenses. In addition, if any component of Operating Expenses is determined to
be either inappropriate or excessive during an Expense Recovery Period, and if
the Building Cost Base or Property Tax Base also included such component, then
the appropriate Base shall concurrently be adjusted if and to the extent
appropriate. In the event of a dispute between Landlord and Tenant regarding the
results of such audit, either party may elect to submit the matter for binding
arbitration pursuant to Section 14.7(b) below. All of the information obtained
by Tenant and/or its auditor in connection with such audit, as well as any
compromise, settlement, or adjustment reached between Landlord and Tenant as a
result thereof, shall be held in strict confidence and, except as may be
required pursuant to litigation, shall not be disclosed to any third party,
directly or indirectly, by Tenant or its auditor or any of their officers,
agents or employees. Landlord may require Tenant's auditor to execute a separate
confidentiality agreement affirming the foregoing as a condition precedent to
any audit. In the event of a violation of this confidentiality covenant in
connection with any audit, then in addition to any other legal or equitable
remedy available to Landlord, Tenant shall forfeit its right to any
reconciliation or cost reimbursement payment from Landlord due to said audit
(and any such payment theretofore made by Landlord shall be promptly returned by
Tenant), and Tenant shall have no further audit rights under this Lease.
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SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of
this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9
of the Basic Lease Provisions (the "Security Deposit"), to be held by Landlord
as security for the full and faithful performance of Tenant's obligations under
this Lease to pay any rent as and when due, including without limitation such
additional rent as may be owing under any provision hereof, and to maintain the
Premises as required by Sections 7.1 and 15.3. Upon any breach of those
obligations by Tenant, Landlord may apply all or part of the Security Deposit as
full or partial compensation. If any portion of the Security Deposit is so
applied, Tenant shall within ten (10) days after receipt of written demand by
Landlord deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its original amount. Landlord shall not be required to keep
this Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on the Security Deposit. If Tenant fully performs its
obligations under this Lease, the Security Deposit or any balance thereof shall
be returned to Tenant or, at Landlord's option, to the last assignee of Tenant's
interest in this Lease.
SECTION 4.4. ADDITIONAL SECURITY DEPOSIT/RENT CREDIT. In addition to the
Security Deposit set forth in Item 9 of the Basic Lease Provisions, and as
additional security hereunder, Tenant shall deliver to Landlord concurrently
with its execution and delivery of this Lease, the sum of One Hundred Thousand
Dollars ($100,000.00) (the "Additional Security Deposit"). In the event that
Tenant is not in default under the Lease at any time, and provided further that
Tenant has not at any time been more than ten (10) days late with respect to any
payments of rent due under the Lease, Landlord shall return a portion of the
Additional Security Deposit in the form of credits in the amount of Twenty-Five
Thousand Dollars ($25,000.00) each against the Basic Rent payable by Tenant
under the Lease for the twelfth (12th) and twenty-fourth (24th) Lease months.
Landlord agrees to deposit the Additional Security Deposit into an interest
bearing account during the Term of this Lease; provided, however, that Landlord
may, in its discretion, instead elect to commingle such funds with its general
accounts, in which event interest shall be imputed thereon at the simple
interest rate of four percent per annum (based on a 365 day year). In the event
of a default by Tenant, Landlord may elect to utilize any accrued interest to
cure any such default before applying the principal balance of the Additional
Security Deposit. Otherwise, the accrued interest shall be delivered to Tenant
concurrently with the delivery of the balance of the Security Deposit pursuant
to Section 4.3 above.
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions. The parties agree that any
contrary use shall be deemed to cause material and irreparable harm to Landlord
and shall entitle Landlord to injunctive relief in addition to any other
available remedy. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way unreasonably interfere with the rights or
quiet enjoyment of other occupants of the Building or the Project, or use or
allow the Premises to be used for any unlawful purpose, nor shall Tenant permit
any nuisance or commit any waste in the Premises or
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the Project. Tenant shall not knowingly do or permit to be done anything which
will invalidate or increase the cost of any insurance policy(ies) covering the
Building, the Project and/or their contents, and shall comply with all
reasonable and applicable insurance underwriters rules and the requirements of
the Pacific Fire Rating Bureau or any other organization performing a similar
function. Tenant shall comply at its expense with all present and future laws,
ordinances and requirements of all governmental authorities that pertain to
Tenant or its use of the Premises, including without limitation all federal and
state occupational health and safety and handicap access requirements, whether
or not Tenant's compliance will necessitate expenditures or interfere with its
use and enjoyment of the Premises. Tenant shall not generate, handle, store or
dispose of hazardous or toxic materials (as such materials may be identified in
any federal, state or local law or regulation) in the Premises or Project
without the prior written consent of Landlord; provided that the foregoing shall
not be deemed to proscribe the use by Tenant of customary office supplies in
normal quantities so long as such use comports with all applicable laws. Tenant
agrees that it shall promptly complete and deliver to Landlord any disclosure
form regarding hazardous or toxic materials that may be required by any
governmental agency. Tenant shall also, from time to time upon reasonable
request by Landlord, execute such affidavits concerning Tenant's best knowledge
and belief regarding the presence of hazardous or toxic materials in the
Premises. Landlord shall have the right upon reasonable prior notice to Tenant
to perform an assessment of the environmental condition of the Premises and of
Tenant's compliance with this Section. As part of any such assessment, Landlord
shall have the right, upon reasonable prior notice to Tenant, to enter and
inspect the Premises and to perform tests, provided those tests are performed in
a manner that minimizes disruption to Tenant. Tenant will reasonably cooperate
with Landlord in connection with any assessment by, among other things, promptly
responding to inquiries and providing relevant documentation and records. The
reasonable cost of the assessment/testing shall be reimbursed by Tenant to
Landlord if such assessment/testing determines that Tenant failed to comply with
the requirements of this Section. In all events Tenant shall indemnify Landlord
in the manner elsewhere provided in this Lease from any release of hazardous or
toxic materials caused by Tenant, its agents, employees, contractors, subtenants
or licensees. Conversely, Landlord hereby represents that to the best of its
knowledge and except for normal office, janitorial and maintenance supplies, the
Premises, Building and Project do not contain materials or substances classified
as hazardous or toxic under any applicable law or regulation. Should any such
material or substance be discovered and should Landlord be required by law to
remediate same, then except to the extent the material or substance was
introduced by Tenant, its agents, contractors or employees, Landlord shall
perform such remediation and shall hold Tenant harmless from any liability or
cost in connection therewith. In addition, should Landlord, its agents or
employees cause the release of any such hazardous or toxic substance as a result
of their negligence or willful misconduct, then in such event Landlord shall
indemnify Tenant against any liability or cost resulting therefrom. The
foregoing covenants shall survive the expiration or earlier termination of this
Lease.
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SECTION 5.2. SIGNS. Tenant, upon obtaining the approval of Landlord in
writing (which approval shall not be unreasonably withheld, conditioned or
delayed), may affix a sign (restricted solely to Tenant's name as set forth
herein or such other name as Landlord may consent to in writing, which consent
shall not be unreasonably withheld, conditioned or delayed) adjacent to the
entry door of the Premises and shall maintain the sign in good condition and
repair during the Term. The sign shall conform to the criteria for signs
established by Landlord and shall be ordered through Landlord at a commercially
reasonable cost. Tenant shall not place or allow to be placed any other sign,
decoration or advertising matter of any kind that is visible from the exterior
of the Premises.
ARTICLE VI. LANDLORD SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Landlord shall furnish to the
Premises the utilities and services described in Exhibit B, subject to the
reasonable conditions and payment obligations and standards set forth in this
Lease. Landlord shall not be liable for any failure to furnish any services or
utilities when the failure is the result of any accident or other cause beyond
Landlord's reasonable control, nor shall Landlord be liable for damages
resulting from power surges or any breakdown in telecommunications facilities or
services. Landlord's temporary inability to furnish any services or utilities
shall not entitle Tenant to any damages, relieve Tenant of the obligation to pay
rent or constitute a constructive or other eviction of Tenant, except that
Landlord shall diligently attempt to restore the service or utility promptly.
Notwithstanding the foregoing, however, in the event the Premises are rendered
untenantable for more than ten (10) consecutive days due to Landlord's failure
to furnish a utility or service, Tenant's rent shall abate following the tenth
day until such matter is rectified. Tenant shall comply with all rules and
regulations which Landlord may reasonably establish for the provision of
services and utilities, and shall cooperate with all reasonable conservation
practices established by Landlord. Landlord shall at all reasonable times have
free access to all electrical and mechanical installations of Landlord.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term,
Landlord shall operate, repair and maintain all Common Areas within the Building
and the Project in a first-class manner comparable to other Class A office
buildings in the vicinity. Landlord shall cause all Common Areas to comply with
any applicable requirements of law, including without limitation the provisions
of Title III of the Americans With Disabilities Act of 1990, as amended, and all
attendant regulations. The term "Common Areas" shall mean all areas within the
Building and other buildings in the Project which are not held for exclusive use
by persons entitled to occupy space, and all other appurtenant areas and
improvements provided by Landlord for the common use of Landlord and tenants and
their respective employees and invitees, including without limitation parking
areas and structures, driveways, sidewalks, landscaped and planted areas,
hallways and interior stairwells not located within the
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premises of any tenant, common entrances and lobbies, elevators, and restrooms
not located within the premises of any tenant.
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the
Premises shall include the use of the Common Areas in common with Landlord and
with all others for whose convenience and use the Common Areas may be provided
by Landlord, subject, however, to compliance with all reasonable and
non-discriminatory rules and regulations as are prescribed from time to time by
Landlord. Landlord shall at all times during the Term have exclusive control of
the Common Areas, and may reasonably restrain any use or occupancy, except as
authorized by Landlord's rules and regulations. Tenant shall keep the Common
Areas clear of any obstruction or unauthorized use related to Tenant's
operations. Landlord may temporarily close any portion of the Common Areas for
repairs, remodeling and/or alterations diligently performed, to prevent a public
dedication or the accrual of prescriptive rights, or for any other reasonable
purpose.
SECTION 6.4. PARKING. Landlord hereby leases to Tenant, and Tenant
hereby agrees to lease from Landlord for the Term of this Lease, the number of
vehicle parking spaces set forth in Item 12 of the Basic Lease Provisions (the
"Committed Stalls"). In addition, Tenant shall have the right to lease up to
eight (8) additional unreserved stalls on a month-to-month basis (the
"Additional Stalls"). The parking spaces shall be provided in accordance with
the provisions set forth in Exhibit C to this Lease.
SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Building or the Project, or to the
attendant fixtures, equipment and Common Areas. No change shall entitle Tenant
to any abatement of rent or other claim against Landlord, provided that the
change does not deprive Tenant of reasonable access to or use of the Premises or
its allotted parking. In no event shall Tenant's proportionate share of
Operating Expenses increase as a result of any alteration or addition to the
Project.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense
shall make all repairs necessary to keep the Premises in the condition as
existed on the Commencement Date (or on any later date that the improvements may
have been installed), excepting ordinary wear and tear. All repairs shall be at
least equal in quality to the original work, shall be made only by a licensed,
bonded contractor reasonably approved in writing in advance by Landlord and
shall be made only at the time or times reasonably approved by Landlord. Any
contractor utilized by Tenant shall be subject to Landlord's reasonable standard
requirements for contractors, as modified from time to time. Landlord may impose
reasonable restrictions and requirements with respect to repairs, as provided in
Section 7.3, and the provisions of Section 7.4 shall apply to all repairs. If
Tenant fails to maintain or repair the Premises as required in this Section 7.1,
then following written notice to Tenant and a reasonable opportunity to
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cure, Landlord may elect to make any such repair on behalf of Tenant and at
Tenant's expense, and Tenant shall promptly reimburse Landlord as additional
rent for all reasonable costs incurred upon submission of an invoice.
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR.
(a) Subject to Section 7.1 and Article XI, Landlord shall
provide service, maintenance and repair, in a manner consistent with other Class
A office buildings in the vicinity of the Project, with respect to any air
conditioning, ventilating or heating equipment which serves the Premises
(exclusive of any supplemental HVAC equipment installed by or at the request of
Tenant) and shall maintain in good repair the roof, foundations, footings, the
exterior surfaces of the exterior walls of the Building, and the structural,
electrical and mechanical systems as provided here and elsewhere in the Lease,
except that Tenant at its expense shall make all repairs (but only within the
Premises) which Landlord deems reasonably necessary as a result of the act or
negligence of Tenant, its agents, employees, invitees, subtenants or
contractors. Landlord shall have the right to employ or designate any reputable
person or firm, including any employee or agent of Landlord or any of Landlord's
affiliates or divisions, to perform any service, repair or maintenance function.
Landlord need not make any other improvements or repairs except as specifically
required under this Lease, and nothing contained in this Section shall limit
Landlord's right to reimbursement from Tenant for reasonable maintenance, repair
costs and replacement costs as provided elsewhere in this Lease. Tenant
understands that it shall not make repairs at Landlord's expense or by rental
offset.
(b) Except as provided in this Lease, there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements to any portion of the Building, including repairs to
the Premises, nor shall any related activity by Landlord constitute an actual or
constructive eviction; provided, however, that in making repairs, alterations or
improvements, Landlord shall interfere as little as reasonably practicable with
the conduct of Tenant's business in the Premises.
SECTION 7.3. ALTERATIONS. Tenant shall make no alterations, additions or
improvements to the Premises without the prior written consent of Landlord.
Landlord's consent shall not be unreasonably withheld, conditioned or delayed as
long as the proposed changes do not affect the structural, electrical or
mechanical components or systems of the Building and are not visible from the
exterior of the Premises. Landlord may impose, as a condition to its consent,
reasonable requirements as to the manner, time, and contractor for performance
of the work. Without limiting the generality of the foregoing, Tenant shall use
Landlord's designated mechanical and electrical contractors for all work
affecting the mechanical or electrical systems of the Building except as
otherwise provided herein. Tenant shall obtain all required permits for the work
and shall perform the work in compliance with all applicable laws, regulations
and ordinances, and Landlord shall be entitled to a supervision fee in the
amount of five percent (5%) of the cost of the work. Under no
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circumstances shall Tenant make any improvement which incorporates
asbestos-containing construction materials into the Premises. Any request for
Landlord's consent shall be made in writing and shall contain architectural
plans describing the work in detail reasonably satisfactory to Landlord. Unless
Landlord otherwise agrees in writing, all alterations, additions or improvements
affixed to the Premises (excluding moveable trade fixtures and furniture) shall
become the property of Landlord and shall be surrendered with the Premises at
the end of the Term, except that Landlord may, by notice to Tenant given at the
time of Landlord's consent to the alteration or improvement, require Tenant to
remove by the Expiration Date, or sooner termination date of this Lease, all or
any alterations, decorations, fixtures, additions, improvements and the like
installed either by Tenant or by Landlord at Tenant's request and to repair any
damage to the Premises arising from that removal. Landlord may require Tenant to
remove an improvement provided as part of the initial build-out pursuant to
Exhibit X, if any, if and only if the improvement is a non-building standard
item and Tenant is notified of the requirement prior to the build-out. Except as
otherwise provided in this Lease or in any Exhibit to this Lease, should
Landlord make any alteration or improvement to the Premises at the request of
Tenant, Landlord shall be entitled to prompt reimbursement from Tenant for all
reasonable costs incurred.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or obligations
incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly cause
any such lien to be released by posting a bond in accordance with California
Civil Code Section 3143 or any successor statute. In the event that Tenant shall
not, within thirty (30) days following the imposition of any lien, cause the
lien to be released of record by payment or posting of a proper bond, Landlord
shall have, in addition to all other available remedies, the right to cause the
lien to be released by any reasonable means, including payment of or defense
against the claim giving rise to the lien. All actual and reasonable expenses so
incurred by Landlord, including Landlord's reasonable attorneys' fees, shall be
reimbursed by Tenant promptly following receipt of Landlord's demand, together
with interest from the date of payment by Landlord at the rate of ten percent
(10%) per annum until paid. Tenant shall give Landlord no less than twenty (20)
days' prior notice in writing before commencing construction of any kind on the
Premises so that Landlord may post and maintain notices of nonresponsibility on
the Premises.
SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon reasonable prior written or oral notice (except in emergencies),
have the right to enter the Premises to inspect them, to supply services in
accordance with this Lease, to protect the interests of Landlord in the
Premises, to make repairs and renovations as reasonably deemed necessary by
Landlord, and to submit the Premises to prospective or actual purchasers or
encumbrance holders (or, during the last one hundred and eighty (180) days of
the Term or when an uncured Tenant default exists, to prospective tenants), all
without being deemed to have caused an eviction of Tenant and without abatement
of rent except as provided elsewhere in this Lease. Landlord shall at all times
have and retain a key which unlocks all of the doors in the Premises,
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excluding Tenant's vaults and safes, and Landlord shall have the right to use
any and all means which Landlord may reasonably deem proper to open the doors in
an emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord pursuant to this Section 7.5 shall not under any
circumstances be deemed to be a forcible or unlawful entry into, or a detainer
of, the Premises, or any eviction of Tenant from the Premises. Nothing in this
Section 7.5 shall be deemed to relieve Landlord from any liability for the
negligence or willful misconduct of Landlord, its agents or employees.
SECTION 7.6. SPACE PLANNING AND SUBSTITUTION. Landlord shall have the
right, upon providing not less than sixty (60) days written notice, to move
Tenant to other space of comparable size and quality on the third floor or
higher in the Building or in the Project; provided that Landlord shall not cause
Tenant to be relocated pursuant to this Section more than once during the
initial Term of this Lease. The new space shall be provided with improvements of
comparable quality to those within the Premises. Landlord shall pay the
reasonable out-of-pocket costs to relocate and reconnect Tenant's personal
property and equipment within the new space; provided that Landlord may elect to
cause such work to be done by its contractors. Landlord shall also reimburse
Tenant for such other reasonable out-of-pocket costs that Tenant may incur in
connection with the relocation, including without limitation necessary
stationery revisions, provided that a reasonable estimate thereof is given to
Landlord within twenty (20) days following Landlord's notice. In no event,
however, shall Landlord be obligated to incur or fund total relocation costs,
exclusive of tenant improvement expenditures, in an amount in excess of three
(3) months of Basic Rent at the rate then payable hereunder. Within ten (10)
days following receipt of request by Landlord, Tenant shall execute an amendment
to this Lease prepared by Landlord to memorialize the relocation. Should Tenant
fail timely to execute and deliver the amendment to Landlord for any reason
(including without limitation the inability of the parties to reach an agreement
on the proposed relocation), or should Tenant thereafter fail to comply with the
terms thereof, then provided such failure is not cured within five (5) business
days after receipt of written notice from Landlord, Landlord may at its option
elect to terminate this Lease upon not less than ninety (90) days prior written
notice to Tenant. In the event of such termination, Tenant's obligation to pay
Basic Rent during the final two (2) months of the Term shall be waived. Upon the
effective date of any termination of this Lease, Tenant shall vacate the
Premises in accordance with Section 15.3.
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay before delinquency, all taxes
and assessments levied against all personal property of Tenant located in the
Premises. When possible Tenant shall cause its personal property to be assessed
and billed separately from the real property of which the Premises form a part.
If any taxes on Tenant's personal property are levied against Landlord or
Landlord's property and if Landlord pays the same, or if the assessed value of
Landlord's property is increased by the inclusion of a value placed upon the
personal property of Tenant and if Landlord
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pays the taxes based upon the increased assessment, Tenant shall pay to Landlord
the taxes so levied against Landlord or the proportion of the taxes resulting
from the increase in the assessment.
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ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES.
(a) Notwithstanding any provision of this Lease to the contrary,
but except for transfers to "Tenant Affiliates" as provided below, Tenant will
not, either voluntarily or by operation of law, assign, sublet, encumber, or
otherwise transfer all or any part of Tenant's interest in this lease, or permit
the Premises to be occupied by anyone other than Tenant, without Landlord's
prior written consent, which consent shall not unreasonably be withheld,
conditioned or delayed in accordance with the provisions of Section 9.1.(c). No
assignment (whether voluntary, involuntary or by operation of law) and no
subletting shall be valid or effective without Landlord's prior written consent
and, at Landlord's election, shall constitute a material default of this Lease.
Landlord shall not be deemed to have given its consent to any assignment or
subletting by any other course of action, including its acceptance of any name
for listing in the Building directory. To the extent not prohibited by
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
"Bankruptcy Code"), including Section 365(f)(1), Tenant on behalf of itself and
its creditors, administrators and assigns waives the applicability of Section
365(e) of the Bankruptcy Code unless the proposed assignee of the Trustee for
the estate of the bankrupt meets Landlord's standard for consent as set forth in
Section 9.1 (c) of this Lease. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord an
instrument confirming that assumption.
(b) [intentionally omitted]
(c) If Tenant desires to transfer an interest in this Lease, it
shall first notify Landlord of its desire and shall submit in writing to
Landlord: (i) the name and address of the proposed transferee; (ii) the nature
of any proposed subtenant's or assignee's business to be carried on in the
Premises; (iii) the terms and provisions of any proposed sublease or assignment;
and (iv) any other information reasonably requested by Landlord and related to
the transfer. Except as provided in Subsection (d) of this Section, Landlord
shall not unreasonably withhold or condition its consent, provided: (1) the use
of the Premises will be consistent with the provisions of this Lease and with
Landlord's commitment to other tenants of the Building and Project; (2) fifty
percent (50%) of any excess rent received by the Tenant from the assignment or
subletting, whether during or after the Term of this Lease, shall be paid to
Landlord when received; (3) any proposed subtenant or assignee demonstrates that
it is financially responsible by submission to Landlord of all reasonable
information as Landlord may request concerning the proposed subtenant or
assignee, including, but
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not limited to, a balance sheet of the proposed subtenant or assignee as of a
date within ninety (90) days of the request for Landlord's consent and
statements of income or profit and loss of the proposed subtenant or assignee
for the two-year period preceding the request for Landlord's consent; (4) any
proposed subtenant or assignee demonstrates to Landlord's reasonable
satisfaction a record of successful experience in business; (5) the proposed
assignee or subtenant is neither an existing tenant of the Building or Project
nor a prospective tenant with whom Landlord is then actively negotiating; and
(6) the proposed transfer will not impose unreasonable additional burdens or
adverse tax effects on Landlord. If Landlord consents to the proposed transfer,
Tenant may within ninety (90) days after the date of the consent effect the
transfer upon the terms described in the information furnished to Landlord;
provided that any material change in the terms shall be subject to Landlord's
reasonable consent as set forth in this Section. Landlord shall approve or
disapprove any requested transfer within ten (10) business days following
receipt of Tenant's written request and the information set forth above. Tenant
shall pay to Landlord a transfer fee of Five Hundred Dollars ($500.00) if and
when any transfer requested by Tenant is approved.
(d) Notwithstanding the provisions of Subsection (c) above, in
lieu of consenting to a proposed assignment of this Lease or subletting of the
entire Premises to other than a Tenant Affiliate, Landlord may elect to
terminate this Lease effective on the date that the proposed sublease or
assignment would have become effective. Landlord may thereafter, at its option,
assign or re-let any space so recaptured to any third party, including without
limitation the proposed transferee of Tenant.
(e) Notwithstanding the foregoing in this Article IX, Landlord's
consent shall not be required for any of the following transfers (each of which
shall be a "Permitted Transfer": (1) to any person(s) or entity who controls, is
controlled by or is under common control with Tenant, (2) to any entity
resulting from the merger, consolidation or other reorganization with Tenant,
whether or not Tenant is the surviving entity or (3) to any person or legal
entity which acquires all or substantially all of the assets or stock of Tenant
(each of the foregoing is hereafter referred to as a "Tenant Affiliate");
provided that before such assignment shall be effective, (i) said Tenant
Affiliate shall assume, in full, the obligations of Tenant under this Lease,
(ii) Landlord shall be given written notice of such assignment and assumption
and (iii) the use of the Premises by the Tenant Affiliate shall be as set forth
in Item 3 of the Basic Lease Provisions. For purposes of this paragraph, a
public or private offering of Tenant stock is a Permitted Transfer and the term
"control" means possession, directly or indirectly, of the power to direct or
cause the direction of the management, affairs and policies of anyone, whether
through the ownership of voting securities, by contract or otherwise. The bonus
rental provisions of Section 9.1(c) and the recapture provisions of Section
9.1(d) of this Lease shall not apply to an assignment or sublease by Tenant to a
Tenant Affiliate.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant, or any successor-in-interest to
Tenant hereunder, of its obligation to pay rent and to perform all its other
obligations
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under this Lease. Moreover, Tenant shall indemnify and hold Landlord harmless,
as provided in Section 10.3, for any act or omission by an assignee or
subtenant. Each assignee, other than Landlord, shall be deemed to assume all
obligations of Tenant under this Lease and shall be liable jointly and severally
with Tenant for the payment of all rent, and for the due performance of all of
Tenant's obligations, under this Lease. Such joint and several liability shall
not be discharged or impaired by any subsequent modification or extension of
this Lease. No transfer to other than a Tenant Affiliate shall be binding on
Landlord unless any document memorializing the transfer is delivered to Landlord
and both the assignee/subtenant and Tenant deliver to Landlord an executed
consent to transfer instrument prepared by Landlord and consistent with the
requirements of this Article. The acceptance by Landlord of any payment due
under this Lease from any other person shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any transfer.
Consent by Landlord to one or more transfers shall not operate as a waiver or
estoppel to the future enforcement by Landlord of its rights under this Lease.
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be included in each sublease:
(a) Tenant hereby irrevocably assigns to Landlord all of
Tenant's interest in all rentals and income arising from any sublease of the
Premises, and Landlord may collect such rent and income and apply same toward
Tenant's obligations under this Lease; provided, however, that until a default
occurs in the performance of Tenant's obligations under this Lease, Tenant shall
have the right to receive and collect the sublease rentals. Landlord shall not,
by reason of this assignment or the collection of sublease rentals, be deemed
liable to the subtenant for the performance of any of Tenant's obligations under
the sublease. Tenant hereby irrevocably authorizes and directs any subtenant,
upon receipt of a written notice from Landlord stating that an uncured default
exists in the performance of Tenant's obligations under this Lease, to pay to
Landlord all sums then and thereafter due under the sublease. Tenant agrees that
the subtenant may rely on that notice without any duty of further inquiry and
notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have
no right or claim against the subtenant or Landlord for any rentals so paid to
Landlord. In the event Landlord collects amounts from subtenants that exceed the
total amount then due from Tenant hereunder, Landlord shall promptly remit the
excess to Tenant.
(b) In the event of the termination of this Lease, Landlord may,
at its sole option, take over Tenant's entire interest in any sublease to a
third party other than a Tenant Affiliate and, upon notice from Landlord, the
subtenant shall attorn to Landlord. In no event, however, shall Landlord be
liable for any previous act or omission by Tenant under the sublease or for the
return of any advance rental payments or deposits under the sublease that have
not been actually delivered to Landlord, nor shall Landlord be bound by any
sublease modification executed without Landlord's consent or for any advance
rental payment by the subtenant in excess of one month's rent. The general
provisions of this Lease, including without limitation those pertaining to
insurance and
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indemnification, shall be deemed incorporated by reference into the sublease
despite the termination of this Lease.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord shall provide all of the
following types of insurance, with or without deductible and in amounts and
coverages as may be determined by Landlord in its reasonable discretion: "all
risk" property insurance, subject to standard exclusions, covering the Building
or Project, and such other risks as Landlord or its mortgagees may from time to
time deem appropriate, and commercial general liability coverage. Landlord shall
not be required to carry insurance of any kind on Tenant's leasehold
improvements, trade fixtures, furnishings, equipment, interior plate glass,
signs and all other items of personal property, and shall not be obligated to
repair or replace that property should damage occur. All proceeds of insurance
maintained by Landlord upon the Building and Project shall be the property of
Landlord, whether or not Landlord is obligated to or elects to make any repairs.
SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by
law, but subject to the terms of this Lease, Tenant shall defend, indemnify and
hold harmless Landlord, its agents, lenders, and any and all affiliates of
Landlord, from and against any and all claims, liabilities, costs or expenses
arising either before or after the Commencement Date from Tenant's use or
occupancy of the Premises, the Building or the Common Areas, or from the conduct
of its business, or from any default in the performance of any obligation on
Tenant's part to be performed under this Lease, or from any act or negligence of
Tenant or its agents, employees, subtenants, invitees or licensees.
Notwithstanding the foregoing, Tenant's indemnity obligation shall not apply to
the extent any loss, damage or injury is attributable to the negligence or
willful misconduct of Landlord, its agents, employees or contractors, and
Landlord shall, subject to the terms of this Lease, indemnify Tenant against any
such loss, damage or injury.
SECTION 10.4. LANDLORD'S NONLIABILITY. Except for losses arising from
the negligence or willful misconduct of Landlord, its agents or employees and
not covered by Tenant's insurance, Landlord shall not be liable to Tenant, its
employees, agents and invitees, and Tenant hereby waives all claims against
Landlord, its employees and agents for loss of or damage to any property, or any
injury to any person, or loss or interruption of business or income, resulting
from any condition including, but not limited to, fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak or flow from or
into any part of the Premises or from the breakage, leakage, obstruction or
other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning, electrical works or other fixtures in the Building,
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whether the damage or injury results from conditions arising in the Premises or
in other portions of the Building. It is understood that any such condition may
require the temporary evacuation or closure of all or a portion of the Building.
Should Tenant elect to receive any service from a concessionaire, licensee or
third party tenant of Landlord, Tenant shall not seek recourse against Landlord
for any breach or liability of that service provider. Neither Landlord nor its
agents shall be liable for interference with light or other similar intangible
interests. Tenant shall immediately notify Landlord in case of fire or accident
in the Premises, the Building or the Project and of defects in any improvements
or equipment.
SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other on account of loss and damage
occasioned to the property of such waiving party to the extent that the waiving
party is entitled to proceeds for such loss and damage under any "all risk"
property insurance policies carried or otherwise required to be carried by this
Lease. By this waiver it is the intent of the parties that neither Landlord nor
Tenant shall be liable to any insurance company (by way of subrogation or
otherwise) insuring the other party for any loss or damage insured against under
any "all-risk" property insurance policies, even though such loss or damage
might be occasioned by the negligence of such party, its agents, employees,
contractors or invitees. The foregoing waiver by Tenant shall also inure to the
benefit of Landlord's management agent for the Building.
ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If the Building of which the Premises are a part and/or the
parking facilities servicing the Building are damaged as the result of an event
of casualty, Landlord shall diligently repair that damage as soon as reasonably
possible unless: (i) Landlord reasonably determines that the cost of repair
would exceed ten percent (10%) of the full replacement cost of the Building
("Replacement Cost") and the damage is not covered by Landlord's fire and
extended coverage insurance (or by a normal extended coverage policy should
Landlord fail to carry that insurance); or (ii) Landlord reasonably determines
that the cost of repair would exceed twenty-five percent (25%) of the
Replacement Cost; or (iii) Landlord reasonably determines that the cost of
repair would exceed ten percent (10%) of the Replacement Cost and the damage
occurs during the final twelve (12) months of the Term. Should Landlord elect
not to repair the damage for one of the preceding reasons, Landlord shall so
notify Tenant in the "Casualty Notice" (as defined below), and this Lease shall
terminate as of the date of delivery of that notice.
(b) As soon as reasonably practicable following the casualty
event but not later than sixty (60) days thereafter, Landlord shall notify
Tenant in writing ("Casualty Notice") of Landlord's election, if applicable, to
terminate this Lease. If this Lease is not so terminated, the Casualty Notice
shall set forth the anticipated period for repairing the casualty damage. If the
anticipated repair period exceeds one hundred
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fifty (150) days and if the damage is so extensive as to reasonably prevent
Tenant's substantial use and enjoyment of the Premises and the attendant parking
facilities, then Tenant may elect to terminate this Lease by written notice to
Landlord within ten (10) days following delivery of the Casualty Notice.
(c) From and after the eleventh day after the casualty event,
the rental to be paid under this Lease shall be abated in the same proportion
that the floor area of the Premises that is rendered unusable by the damage from
time to time bears to the total floor area of the Premises.
(d) The provisions of this Section shall not be deemed to
require Landlord to repair any improvements or fixtures that Tenant is obligated
to repair or insure pursuant to any other provision of this Lease.
SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of
the Premises which materially impairs Tenant's ability to conduct business from
the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the Building or
Project, other than the Premises, is taken or sold in lieu of taking, and if
Landlord elects to restore the Building in such a way as to alter the Premises
materially, either party may terminate this Lease, by written notice to the
other party, effective on the date of vesting of title. In the event neither
party has elected to terminate this Lease as provided above, then Landlord shall
promptly, after receipt of a sufficient condemnation award, proceed to restore
the Premises to substantially their condition prior to the taking, and a
proportionate allowance shall be made to Tenant for the Basic Rent and Operating
Expenses corresponding to the time during which, and to the part of the Premises
of which, Tenant is deprived on account of the taking and restoration. In the
event of a taking, Landlord shall be entitled to the entire amount of the
condemnation award without deduction for any estate or interest of Tenant;
provided that nothing in this Section shall be deemed to give Landlord any
interest in, or prevent Tenant from seeking any award against the taking
authority for, the taking of personal property and fixtures belonging to Tenant
or for relocation or business interruption expenses recoverable from the taking
authority.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent, and
any award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed ninety (90)
days.
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SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide sufficient
parking to comply with this Lease, Landlord may substitute reasonably equivalent
parking in a location reasonably close to the Building; provided that if
Landlord fails to make that substitution within ninety (90) days following the
taking and if the taking materially impairs Tenant's use and enjoyment of the
Premises, Tenant may, at its option, terminate this Lease by written notice to
Landlord. If this Lease is not so terminated by Tenant, there shall be no
abatement of rent and this Lease shall continue in effect.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE
SECTION 13.1. SUBORDINATION. At the option of Landlord or any of its
mortgagees/deed of trust beneficiaries, this Lease shall be either superior or
subordinate to all ground or underlying leases, mortgages and deeds of trust, if
any, which may hereafter affect the Building, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
that so long as Tenant is not in default under this Lease beyond any applicable
cure period, this Lease shall not be terminated or Tenant's quiet enjoyment of
the Premises disturbed in the event of termination of any such ground or
underlying lease, or the foreclosure of any such mortgage or deed of trust, to
which Tenant has subordinated this Lease pursuant to this Section. In the event
of a termination or foreclosure, Tenant shall become a tenant of and attorn to
the successor-in-interest to Landlord upon the same terms and conditions as are
contained in this Lease, and shall promptly execute any instrument reasonably
required by Landlord's successor for that purpose. Tenant shall also, within ten
(10) days following written request of Landlord (or the beneficiary under any
deed of trust encumbering the Building), execute and deliver all instruments as
may be required from time to time by Landlord or such beneficiary (including
without limitation any subordination, nondisturbance and attornment agreement in
the form customarily required by such beneficiary) to subordinate this Lease and
the rights of Tenant under this Lease to any ground or underlying lease or to
the lien of any mortgage or deed of trust; provided, however, that any such
beneficiary may, by written notice to Tenant given at any time, subordinate the
lien of its deed of trust to this Lease. Failure of Tenant to execute any
statements or instruments necessary or desirable to effectuate the provisions of
this Article, within twenty (20) days after Tenant's receipt of written request
by Landlord, shall constitute a default under this Lease. In that event,
Landlord, in addition to any other rights or remedies it might have, shall have
the right, by written notice to Tenant, to terminate this Lease as of a date not
less than thirty (30) days after Tenant's receipt of Landlord's notice.
Landlord's election to terminate shall not relieve Tenant of any liability for
its default. Tenant acknowledges that Landlord's mortgagees and
successors-in-interest and all beneficiaries under deeds of trust encumbering
the Building are intended third party beneficiaries of this Section.
SECTION 13.2. ESTOPPEL CERTIFICATE. Tenant shall, at any time upon not
less than ten (10) business days prior written notice from Landlord, execute,
acknowledge and deliver to Landlord, in any form that Landlord may reasonably
require (so long as such form is factually accurate), a statement in writing in
favor of Landlord
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and/or any prospective purchaser or encumbrancer of the Building (i) certifying
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of the modification and certifying that this Lease, as
modified, is in full force and effect) and the dates to which the rental,
additional rent and other charges have been paid in advance, if any, and (ii)
acknowledging that, to Tenant's knowledge, there are no uncured defaults on the
part of Landlord, or specifying each default if any are claimed, and (iii)
setting forth all further information that Landlord may reasonably require.
Tenant's statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the Building or Project. Tenant's failure
to deliver any estoppel statement within thirty (30) days of the request shall
constitute a default under this Lease and shall be conclusive upon Tenant as to
any third party (but not Landlord) that (i) this Lease is in full force and
effect, without modification except as may be represented by Landlord, (ii)
there are not uncured defaults in Landlord's performance, and (iii) not more
than one month's rental has been paid in advance.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of
default set forth in this Lease, the occurrence of any one or more of the
following events shall constitute a default by Tenant:
(a) The failure by Tenant to make any payment of rent or
additional rent required to be made by Tenant, as and when due, where the
failure continues for a period of five (5) business days after written notice
from Landlord to Tenant; provided, however, that any such notice shall be in
lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 and 1161(a) as amended. For purposes of these
default and remedies provisions, the term "additional rent" shall be deemed to
include all amounts of any type whatsoever other than Basic Rent to be paid by
Tenant pursuant to the terms of this Lease.
(b) Assignment, sublease, encumbrance or other transfer of the
Lease by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord except as permitted under Article IX above.
(c) The discovery by Landlord that any financial statement
provided by Tenant, or by any affiliate, successor or guarantor of Tenant, was
materially false.
(d) The failure or inability by Tenant to observe or perform any
of the covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in any other subsection of this Section, where
the failure continues for a period of thirty (30) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161 and 1161 (a) as amended. However, if the nature of the
failure is such that more than thirty (30) days are reasonably required for its
cure, then Tenant shall not be deemed to be in default if
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Tenant commences the cure within thirty (30) days, and thereafter diligently
pursues the cure to completion.
(e) (i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing by or against Tenant of a petition to have
Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within sixty (60) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within sixty (60) days; (iv) the attachment, execution or
other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within sixty (60) days; or (v) Tenant's convening of a meeting of its
creditors for the purpose of effecting a moratorium upon or composition of its
debts. Landlord shall not be deemed to have knowledge of any event described in
this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.
SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, then in addition to
any other remedies available to Landlord, Landlord may exercise the following
remedies:
(i) Landlord may terminate Tenant's right to possession
of the Premises by any lawful means, in which case this Lease shall terminate
and Tenant shall immediately surrender possession of the Premises to Landlord.
Such termination shall not affect any accrued obligations of Tenant under this
Lease. Upon termination, Landlord shall have the right to reenter the Premises
and remove all persons and property. Landlord shall also be entitled to recover
from Tenant:
(1) The worth at the time of award of the unpaid
rent and additional rent which had been earned at the time of termination;
(2) The worth at the time of award of the amount
by which the unpaid rent and additional rent which would have been earned after
termination until the time of award exceeds the amount of such loss that Tenant
proves could have been reasonably avoided;
(3) The worth at the time of award of the amount
by which the unpaid rent and additional rent for the balance of the Term after
the time of award exceeds the amount of such loss that Tenant proves could be
reasonably avoided;
(4) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations
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under this Lease or which in the ordinary course of things would be likely to
result from Tenant's default, including, but not limited to, the cost of
recovering possession of the Premises, commissions and other expenses of
reletting, including necessary repair, renovation, improvement and alteration of
the Premises for a new tenant, the unamortized portion of any tenant
improvements and brokerage commissions funded by Landlord in connection with
this Lease, reasonable attorneys' fees, and any other reasonable costs; and
(5) At Landlord's election, all other amounts in
addition to or in lieu of the foregoing as may be permitted by law. The term
"rent" as used in this Lease shall be deemed to mean the Basic Rent and all
other sums required to be paid by Tenant to Landlord pursuant to the terms of
this Lease. Any sum, other than Basic Rent, shall be computed on the basis of
the average monthly amount accruing during the twenty-four (24) month period
immediately prior to default, except that if it becomes necessary to compute
such rental before the twenty-four (24) month period has occurred, then the
computation shall be on the basis of the average monthly amount during the
shorter period. As used in subparagraphs (1) and (2) above, the "worth at the
time of award" shall be computed by allowing interest at the rate of ten percent
(10%) per annum. As used in subparagraph (3) above, the "worth at the time of
award" shall be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
(ii) Landlord may elect not to terminate Tenant's right
to possession of the Premises, in which event Landlord may continue to enforce
all of its rights and remedies under this Lease, including the right to collect
all rent as it becomes due. Efforts by the Landlord to maintain, preserve or
relet the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this subsection (ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the Premises
subject to the reasonable standards for Landlord's consent as are contained in
this Lease.
(b) The various rights and remedies reserved to Landlord in this
Lease or otherwise shall be cumulative and, except as otherwise provided by
California law, Landlord may pursue any or all of its rights and remedies at the
same time. No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of the right or remedy or of any default by
Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other than
the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a default
under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent required by
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this Lease shall be deemed to be other than a partial payment on account of the
earliest due stipulated rent, nor shall any endorsement or statement on any
check or letter be deemed an accord and satisfaction and Landlord shall accept
the check or payment without prejudice to Landlord's right to recover the
balance of the rent or pursue any other remedy available to it. Tenant hereby
waives any right of redemption or relief from forfeiture under California Code
of Civil Procedure Section 1174 or 1179, or under any other present or future
law, in the event this Lease is terminated by reason of any default by Tenant.
No act or thing done by Landlord or Landlord's agents during the Term shall be
deemed an acceptance of a surrender of the Premises, and no agreement to accept
a surrender shall be valid unless in writing and signed by Landlord. No employee
of Landlord or of Landlord's agents shall have any power to accept the keys to
the Premises prior to the termination of this Lease, and the delivery of the
keys to any employee shall not operate as a termination of the Lease or a
surrender of the Premises.
SECTION 14.3. LATE PAYMENTS. Any rent due under this Lease that is not
paid to Landlord within ten (10) days of the date when due shall bear interest
at the rate of ten percent (10%) per annum from the date due until fully paid.
The payment of interest shall not cure any default by Tenant under this Lease.
In addition, Tenant acknowledges that the late payment by Tenant to Landlord of
rent will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult and impracticable to
ascertain. Those costs may include, but are not limited to, administrative,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any rent due from Tenant shall not be received by
Landlord or Landlord's designee within ten (10) days after the date due, then
Tenant shall pay to Landlord, in addition to the interest provided above, a late
charge in the amount of one hundred dollars ($100.00) for each delinquent
payment. Acceptance of a late charge by Landlord shall not constitute a waiver
of Tenant's default with respect to the overdue amount, nor shall it prevent
Landlord from exercising any of its other rights and remedies.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off. If
Tenant fails to pay any sum of money, or fails to perform any other act on its
part to be performed under this Lease, and the failure continues beyond any
applicable grace period set forth in Section 14.1, then in addition to any other
available remedies, Landlord may, at its election make the payment or perform
the other act on Tenant's part. Landlord's election to make the payment or
perform the act on Tenant's part shall not give rise to any responsibility of
Landlord to continue making the same or similar payments or performing the same
or similar acts. Tenant shall, promptly upon demand by Landlord, reimburse
Landlord for all reasonable sums paid by Landlord and all reasonable and
necessary incidental costs, together with interest at the rate of ten percent
(10%) per annum from the date of the payment by Landlord.
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SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in reasonable detail the nature and
extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion.
SECTION 14.6. EXPENSES AND LEGAL FEES. Should either Landlord or Tenant
bring any action in connection with this Lease, the prevailing party shall be
entitled to recover as a part of the action its reasonable attorneys' fees, and
all other reasonable costs actually incurred. The prevailing party for the
purpose of this paragraph shall be determined by the trier of the facts.
SECTION 14.7. WAIVER OF JURY TRIAL/RIGHT TO ARBITRATE.
(a) LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS
HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHT TO TRIAL BY
JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL
SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT
BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY
MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.
(b) SHOULD A DISPUTE ARISE BETWEEN THE PARTIES REGARDING ANY MATTER
DESCRIBED ABOVE, THEN EXCEPT WITH RESPECT TO ACTIONS FOR UNLAWFUL OR FORCIBLE
DETAINER EITHER PARTY MAY CAUSE THE DISPUTE TO BE SUBMITTED TO JAMS/ENDISPUTE OR
ITS SUCCESSOR ("JAMS") IN THE COUNTY IN WHICH THE BUILDING IS SITUATED FOR
BINDING ARBITRATION BEFORE A SINGLE ARBITRATOR. HOWEVER, EACH PARTY RESERVES THE
RIGHT TO SEEK A PROVISIONAL REMEDY BY JUDICIAL ACTION. NO ARBITRATION ELECTION
BY EITHER PARTY PURSUANT TO THIS SUBSECTION SHALL BE EFFECTIVE IF MADE LATER
THAN THIRTY (30) DAYS FOLLOWING SERVICE OF A JUDICIAL SUMMONS AND COMPLAINT BY
OR UPON SUCH PARTY CONCERNING THE DISPUTE. THE ARBITRATION SHALL BE CONDUCTED IN
ACCORDANCE WITH THE RULES OF PRACTICE AND PROCEDURE OF JAMS AND OTHERWISE
PURSUANT TO THE CALIFORNIA ARBITRATION ACT (CODE OF CIVIL PROCEDURE SECTIONS
1280 ET SEQ.). NOTWITHSTANDING THE FOREGOING, THE ARBITRATOR IS SPECIFICALLY
DIRECTED TO LIMIT DISCOVERY TO THAT WHICH IS ESSENTIAL TO THE EFFECTIVE
PROSECUTION OR DEFENSE OF THE ACTION, AND IN NO EVENT
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SHALL SUCH DISCOVERY BY EITHER PARTY INCLUDE MORE THAN ONE NON-EXPERT WITNESS
DEPOSITION UNLESS BOTH PARTIES OTHERWISE AGREE. THE ARBITRATOR SHALL APPORTION
THE COSTS OF THE ARBITRATION, TOGETHER WITH THE ATTORNEYS' FEES OF THE PARTIES,
IN THE MANNER DEEMED EQUITABLE BY THE ARBITRATOR, IT BEING THE INTENTION OF THE
PARTIES THAT THE PREVAILING PARTY ORDINARILY BE ENTITLED TO RECOVER ITS
REASONABLE COSTS AND FEES. JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR
MAY BE ENTERED BY ANY COURT HAVING JURISDICTION.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term, Landlord may, at its option, treat Tenant as a tenant
at sufferance only, commencing on the first (1st) day following the termination
of this Lease. Any hold-over by Tenant shall be subject to all of the terms of
this Lease, except that the monthly rental shall be one hundred fifty percent
(150%) of the total monthly rental for the month immediately preceding the date
of termination, subject to Landlord's right to modify same upon thirty (30) days
notice to Tenant. If Tenant fails to surrender the Premises upon the expiration
of this Lease despite demand to do so by Landlord, Tenant shall indemnify and
hold Landlord harmless from all loss or liability, including without limitation,
any claims made by any succeeding tenant relating to such failure to surrender.
Acceptance by Landlord of rent after the termination shall not constitute a
consent to a holdover or result in a renewal of this Lease. The foregoing
provisions of this Section are in addition to and do not affect Landlord's right
of re-entry or any other rights of Landlord under this Lease or at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate any
or all existing subleases unless Landlord, at its option, elects in writing to
treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, reasonable wear and tear and repairs which are Landlord's obligation
excepted, and shall, without expense to Landlord, remove or cause to be removed
all wallpapering and voice and/or data transmission cabling installed by or for
Tenant, together with all personal property, telephone systems, equipment, trade
fixtures not permanently attached to the Premises, and debris, except for any
items that Landlord may by written
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<PAGE> 32
authorization allow to remain. Tenant shall repair all damage to the Premises
resulting from the removal, which repair shall include the patching and filling
of holes and repair of structural damage, provided that Landlord may instead
elect to repair any structural damage at Tenant's expense. If Tenant shall fail
to comply with the provisions of this Section, Landlord may effect the removal
and/or make any repairs, and the reasonable cost to Landlord shall be additional
rent payable by Tenant upon demand. If requested by Landlord following
expiration of the Term, Tenant shall execute, acknowledge and deliver to
Landlord an instrument in writing releasing and quitclaiming to Landlord all
right, title and interest of Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction
or offset (except as otherwise provided herein), in lawful money of the United
States to Landlord at its address set forth in Item 13 of the Basic Lease
Provisions, or at any other place as Landlord may designate in writing. Unless
this Lease expressly provides otherwise, as for example in the payment of rent
pursuant to Section 4.1, all payments shall be due and payable within five (5)
business days after demand. All payments requiring proration shall be prorated
on the basis of a thirty (30) day month and a three hundred sixty (360) day
year. Any notice, election, demand, consent, approval or other communication to
be given or other document to be delivered by either party to the other may be
delivered to the other party, at the address set forth in Item 13 of the Basic
Lease Provisions, by personal service or telegram, telecopier, or electronic
facsimile transmission, or by any courier or "overnight" express mailing
service, or may be deposited in the United States mail, postage prepaid. Either
party may, by written notice to the other, served in the manner provided in this
Article, designate a different address. If any notice or other document is sent
by mail, it shall be deemed served or delivered three (3) business days after
mailing or, if sooner, upon actual receipt. If more than one person or entity is
named as Tenant under this Lease, service of any notice upon any one of them
shall be deemed as service upon all of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to comply with the Rules and Regulations attached as
Exhibit E, and any reasonable and nondiscriminatory amendments, modifications
and/or additions as may be adopted and published by written notice to tenants by
Landlord for the safety, care, security, good order, or cleanliness of the
Premises, Building, Project and/or Common Areas. Landlord shall not be liable to
Tenant for any violation of the Rules and Regulations or the breach of any
covenant or condition in any lease or any other act or conduct by any other
tenant, and the same shall not constitute a constructive eviction hereunder. One
or more waivers by Landlord of any breach of the Rules and Regulations by Tenant
or by any other tenant(s) shall not be a waiver of any subsequent breach of that
rule or any other. Tenant's failure to keep and observe the Rules and
Regulations shall constitute a default under this Lease. In the case of any
conflict between the Rules and Regulations and this Lease, this Lease shall be
controlling.
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ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Each party warrants that it has had no dealings with any other real
estate broker or agent in connection with the negotiation of this Lease, and
agrees to indemnify and hold the other party harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent employed
or claiming to represent or to have been employed by the indemnifying party in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the termination of this Lease.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or deed
of trust to which this Lease is or may be subordinate shall be responsible in
connection with the Security Deposit, unless the mortgagee or holder of the deed
of trust or the landlord actually receives the Security Deposit. It is intended
that the covenants and obligations contained in this Lease on the part of
Landlord shall, subject to the foregoing, be binding on Landlord, its successors
and assigns, only during and in respect to their respective successive periods
of ownership. The transferor shall remain liable for all obligations which have
accrued as of the date of the transfer and which are not assumed by the
transferee.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.
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<PAGE> 34
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to
the performance of every provision of this Lease in which time of performance is
a factor.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by law.
SECTION 20.8. WAIVER. One or more waivers by Landlord or Tenant of any
breach of any term, covenant or condition contained in this Lease shall not be a
waiver of any subsequent breach of the same or any other term, covenant or
condition. Consent to any act by one of the parties shall not be deemed to
render unnecessary the obtaining of that party's consent to any subsequent act.
No breach of this Lease shall be deemed to have been waived unless the waiver is
in a writing signed by the waiving party.
SECTION 20.9. INABILITY TO PERFORM. In the event that either party shall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, then the performance of the work or the doing
of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further effect.
Tenant waives its rights to rely on any representations or promises made by
Landlord or others which are not contained in this Lease. No verbal agreement or
implied covenant shall be held to modify the provisions of this Lease, any
statute, law, or custom to the contrary notwithstanding.
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SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of
all the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of its board of directors' resolution or partnership agreement or
certificate authorizing or evidencing the execution of this Lease.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.
SECTION 21.5. AMENDMENTS. No amendment or mutual termination of this
Lease shall be effective unless in writing signed by authorized signatories of
Tenant and Landlord, or by their respective successors in interest. No actions,
policies, oral or informal arrangements, business dealings or other course of
conduct by or between the parties shall be deemed to modify this Lease in any
respect.
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ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms or this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees and attorneys, shall not (unless required by law
or court order) intentionally and voluntarily disclose the terms and conditions
of this Lease to any other tenant or apparent prospective tenant of the Building
or Project, either directly or indirectly, without the prior written consent of
Landlord, provided, however, that Tenant may disclose the terms to prospective
subtenants or assignees under this Lease.
SECTION 22.2. REPRESENTATIONS BY TENANT. The application, financial
statements and tax returns, if any, submitted and certified to by Tenant as an
accurate representation of its financial condition have been prepared, certified
and submitted to Landlord as an inducement and consideration to Landlord to
enter into this Lease. The application and statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of execution of this Lease by Tenant.
Tenant shall during the Term promptly furnish Landlord with annual financial
statements reflecting Tenant's financial condition upon written request from
Landlord.
SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Building, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not materially increase the obligations of Tenant or materially and adversely
affect the leasehold interest created by this Lease.
SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part
of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Building
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord, including, if
necessary to effect the cure, time to obtain possession of the Building by power
of sale or judicial foreclosure provided that such foreclosure remedy is
diligently pursued.
SECTION 22.5. DISCLOSURE STATEMENT. Tenant acknowledges that it has
read, understands and, if applicable, shall comply with the provisions of
Exhibit F to this Lease, if that Exhibit is attached.
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<PAGE> 37
LANDLORD: TENANT:
THE IRVINE COMPANY BPO-US, INC.
By /s/ WILLIAM R. HALFORD By /s/ JAMES C. MADDEN, V
--------------------------------- ----------------------------------
William R. Halford, President,
Irvine Office Company, Printed Name James C. Madden, V
a division of The Irvine Company -----------------------
Title President and CEO
------------------------------
By /s/ VINCENT P. HAYES By /s/ STEPHEN M. UNTERBERGER
--------------------------------- ----------------------------------
Vincent P. Hayes
Assistant Secretary Printed Name Stephen M. Unterberger
-----------------------
Title COO - Chief Operating Officer
------------------------------
36
<PAGE> 38
EXHIBIT A
DIAGRAM OF JAMBOREE CENTER
4 PARK PLAZA
THIRD FLOOR
INDICATING SUITE 350 SITE
<PAGE> 39
EXHIBIT B
UTILITIES AND SERVICES
The following standards for utilities and services shall be in effect at
the Building. Landlord reserves the right to adopt commercially reasonable and
nondiscriminatory modifications and additions to these standards. In the case of
any conflict between these standards and the Lease, the Lease shall be
controlling. Subject to all of the provisions of the Lease, including but not
limited to the restrictions contained in Section 6.1, the following shall apply:
1. Landlord shall furnish to the Premises during the hours of 8:00 a.m.
to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on Saturday,
generally recognized national holidays and Sundays excepted, reasonable air
conditioning, heating and ventilation services. Subject to the provisions set
forth below, Landlord shall also furnish the Building with elevator service (if
applicable), reasonable amounts of electric current for normal lighting by
Landlord's standard overhead fluorescent and incandescent fixtures and for
fractional horsepower office machines, and water for lavatory and drinking
purposes. Tenant will not, without the prior written consent of Landlord,
consume electricity in the Premises at a level in excess of 5 watts per square
foot or otherwise increase the amount of electricity, gas or water usually
furnished or supplied for use of the Premises as general office space; nor shall
Tenant connect any apparatus, machine or device with water pipes or electric
current (except through existing electrical outlets in the Premises) for the
purpose of using electric current or water. This paragraph shall at all times be
subject to applicable governmental regulations.
2. Upon written request from Tenant delivered to Landlord at least 24
hours prior to the period for which service is requested, but during normal
business hours, Landlord will provide any of the foregoing building services to
Tenant at such times when such services are not otherwise available. Tenant
agrees to pay Landlord for those afterhour services at commercially reasonable
rates that Landlord may establish from time to time. If Tenant requires electric
current in excess of that which Landlord is obligated to furnish under this
Exhibit B, Tenant shall first obtain the reasonable consent of Landlord, and
Landlord may cause an electric current meter to be installed in the Premises to
measure the amount of electric current consumed. The cost of installation,
maintenance and repair of the meter shall be paid for by Tenant, and Tenant
shall reimburse Landlord promptly upon demand for all electric current consumed
for any special power use as shown by the meter. The reimbursement shall be at
the rates charged for electrical power by the local public utility furnishing
the current, plus any reasonable additional expense incurred in keeping account
of the electric current consumed.
3. If any lights, machines or equipment (including without limitation
electronic data processing machines) are used by Tenant in the Premises which
materially affect
<PAGE> 40
the temperature otherwise maintained by the air conditioning system, or generate
substantially more heat in the Premises than would be generated by the building
standard lights and usual fractional horsepower office equipment, Landlord shall
have the right, based on its reasonable determination of same, to install or
modify any machinery and equipment to the extent Landlord reasonably deems
necessary to restore temperature balance. The cost of installation, and any
additional cost of operation and maintenance, shall be paid by Tenant to
Landlord promptly upon demand.
4. Landlord shall furnish water for drinking, personal hygiene and
lavatory purposes only. If Tenant requires or uses water for any purposes in
addition to ordinary drinking, cleaning and lavatory purposes, Landlord may,
based on its reasonable determination of same, install a water meter to measure
Tenant's water consumption. Tenant shall pay Landlord for the cost of the meter
and the cost of its installation, and for consumption throughout the duration of
Tenant's occupancy. Tenant shall keep the meter and installed equipment in good
working order and repair at Tenant's own cost and expense, in default of which
Landlord may cause the meter to be replaced or repaired at Tenant's expense.
Tenant agrees to pay for water consumed, as shown on the meter and when bills
are rendered, and on Tenant's default (beyond any applicable cure period) in
making that payment Landlord may pay the charges on behalf of Tenant. Any
reasonable costs or expenses or payments made by Landlord for any of the reasons
or purposes stated above shall be deemed to be additional rent payable by Tenant
to Landlord upon demand.
5. In the event that any utility service to the Premises is separately
metered or billed to Tenant, Tenant shall pay all charges for that utility
service to the Premises and the cost of furnishing the utility to tenant suites
shall be excluded from the Operating Expenses as to which reimbursement from
Tenant is required in the Lease. If any utility charges are not paid when due
Landlord may, upon the expiration of any applicable cure period, pay them, and
any amounts paid by Landlord shall immediately become due to Landlord from
Tenant as additional rent. If Landlord elects to furnish any utility service to
the Premises, Tenant shall purchase its requirements of that utility from
Landlord as long as the rates charged by Landlord do not exceed those which
Tenant would be required to pay if the utility service were furnished it
directly by a public utility.
6. Landlord shall provide janitorial services five days per week,
equivalent to that furnished in comparable first-class buildings, and window
washing as reasonably required; provided, however, that Tenant shall pay for any
additional or unusual janitorial services required by reason of any nonstandard
improvements in the Premises, including without limitation wall coverings and
floor coverings installed by or for Tenant, or by reason of any use of Premises
other than exclusively as offices. The cleaning services provided by Landlord
shall also exclude refrigerators, eating utensils (plates, drinking containers
and silverware), and interior glass partitions. Tenant shall pay to Landlord the
cost of removal of any of Tenant's refuse and rubbish, to the extent
<PAGE> 41
that they unreasonably exceed the refuse and rubbish usually attendant with
general office usage.
7. Tenant shall have access to the Building 24 hours per day, 7 days per
week, 52 weeks per year; provided that Landlord may, with at least 24 hours
written notice to Tenant, install access control systems as it deems advisable
for the Building. Such systems may, but need not, include full or part-time
lobby supervision, the use of a sign-in sign-out log, a card identification
access system, building parking and access pass system, closing hours
procedures, access control stations, fire stairwell exit door alarm system,
electronic guard system, mobile paging system, elevator control system or any
other access controls. In the event that Landlord elects to provide any or all
of those services, Landlord may discontinue providing them at any time with or
without notice. Landlord may impose a reasonable charge for access control cards
and/or keys issued to Tenant. Landlord shall have no liability to Tenant for the
provision by Landlord of improper access control services, for any breakdown in
service, or for the failure by Landlord to provide access control services.
Tenant further acknowledges that Landlord's access systems may be temporarily
inoperative during building emergency and system repair periods. Tenant agrees
to assume responsibility for compliance by its employees with any reasonable
regulations established by Landlord with respect to any card key access or any
other system of building access as Landlord may establish. Tenant shall be
liable to Landlord for any loss or damage resulting from its or its employees
use of any access system.
<PAGE> 42
EXHIBIT C
PARKING
The following parking regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable, nondiscriminatory modifications
and additions to the regulations by providing reasonable advance written notice
to Tenant. In the case of any conflict between these regulations and the Lease,
the Lease shall be controlling.
1. Landlord agrees to maintain, or cause to be maintained, an automobile
parking area ("Parking Area") in reasonable proximity to the Building for the
benefit and use of the visitors and patrons and, except as otherwise provided,
employees of Tenant, and other tenants and occupants of the Building. The
Parking Area shall include, whether in a surface parking area or a parking
structure, the automobile parking stalls, driveways, entrances, exits, sidewalks
and attendant pedestrian passageways and other areas designated for parking.
Landlord shall have the right and privilege of reasonably determining the nature
and extent of the automobile Parking Area, whether it shall be surface,
underground or other structure, and of making such changes to the Parking Area
from time to time which in its opinion are desirable and for the best interests
of all persons using the Parking Area. Landlord shall keep the Parking Area in a
neat, clean and orderly condition, and shall repair any damage to its
facilities. Landlord shall not be liable for any damage to motor vehicles of
visitors or employees, for any loss of property from within those motor
vehicles, or for any injury to Tenant, its visitors or employees, unless
ultimately determined to be caused by the sole active negligence or willful
misconduct of Landlord. Unless otherwise instructed by Landlord, every parker
shall park and lock his or her own motor vehicle. Landlord shall also have the
right to establish, and from time to time amend, and to enforce against all
users of the Parking Area all reasonable rules and regulations (including the
designation of areas for employee parking) as Landlord may deem necessary and
advisable for the proper and efficient operation and maintenance of the Parking
Area. Garage managers or attendants are not authorized to make or allow any
exceptions to these regulations.
2. Landlord may, if it deems advisable in its sole discretion, charge
for parking and may establish for the Parking Area a system or systems of permit
parking for Tenant, its employees and its visitors, which may include, but not
be limited to, a system of charges against nonvalidated parking, verification of
users, a set of regulations governing different parking locations, and an
allotment of reserved or nonreserved parking spaces based upon the charges paid
and the identity of users. In no event shall Tenant or its employees park in
reserved stalls leased to other tenants or in stalls within designated visitor
parking zones, nor shall Tenant or its employees utilize more than the number of
parking stalls allotted in this Lease to Tenant. It is understood that Landlord
shall not have any obligation to cite improperly parked vehicles or otherwise
attempt to enforce reserved parking rules during hours when parking attendants
are not present at the Parking Area. Tenant shall comply with such system in its
use (and in the use of its visitors, patrons and employees) of the Parking Area,
1
<PAGE> 43
provided, however, that the system and rules and regulations shall apply to all
persons entitled to the use of the Parking Area, and all charges to Tenant for
use of the Parking Area shall be no greater than Landlord's then current
scheduled charge for parking.
3. Tenant shall, upon request of Landlord from time to time, furnish
Landlord with a list of its employees' names and of Tenant's and its employees'
vehicle license numbers. Tenant agrees to acquaint its employees with these
regulations and assumes responsibility for compliance by its employees with
these parking provisions, and shall be liable to Landlord for all unpaid parking
charges incurred by its employees. Any amount due from Tenant shall be deemed
additional rent. In the event Landlord elects or is required to limit or control
parking by tenants, employees, visitors or invitees of the Building, whether by
validation of parking tickets, parking meters or any other method of assessment,
Tenant agrees to participate in the validation or assessment program under
reasonable rules and regulations as are established by Landlord and/or any
applicable governmental agency.
4. Landlord may establish an identification system for vehicles of
Tenant and its employees which may consist of stickers, magnetic parking cards
or other identification devices supplied by Landlord. All identification devices
shall remain the property of Landlord, shall be displayed as required by
Landlord or upon request and may not be mutilated or obliterated in any manner.
Those devices shall not be transferable and any such device in the possession of
an unauthorized holder shall be void and may be confiscated. Landlord may impose
a reasonable fee for identification devices and a replacement charge for devices
which are lost or stolen. Each identification device shall be returned to
Landlord promptly following the Expiration Date or sooner termination of this
Lease. Loss or theft of parking identification devices shall be reported to
Landlord or its Parking Area operator immediately and a written report of the
loss filed if requested by Landlord or its Parking Area operator.
5. Persons using the Parking Area shall observe all directional signs
and arrows and any posted speed limits. Unless otherwise posted, in no event
shall the speed limit of 5 miles per hour be exceeded. All vehicles shall be
parked entirely within painted stalls, and no vehicles shall be parked in areas
which are posted or marked as "no parking" or on or in ramps, driveways and
aisles. Only one vehicle may be parked in a parking space. In no event shall
Tenant interfere with the use and enjoyment of the Parking Area by other tenants
of the Building or their employees or invitees.
6. Parking Areas shall be used only for parking vehicles. Washing,
waxing, cleaning or servicing of vehicles, or the parking of any vehicle on an
overnight basis, in the Parking Area (other than emergency services) by any
parker or his or her agents or employees is prohibited unless otherwise
authorized by Landlord. Tenant shall have no right to install any fixtures,
equipment or personal property (other than vehicles) in the Parking Area, nor
shall Tenant make any alteration to the Parking Area.
7. It is understood that the employees of Tenant and the other tenants
of Landlord within the Building and Project shall not be permitted to park their
automobiles
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in the portions of the Parking Area which may from time to time be designated
for patrons of the Building and/or Project and that Landlord shall at all times
have the right to establish reasonable rules and regulations for employee
parking. During the initial thirty-six (36) month Lease Term only, Tenant or its
employees shall pay to Landlord or its agents for the use of employee parking
spaces Fifty Dollars ($50.00) per unreserved stall per month for each of the
Committed Stalls and for five (5) of the Additional Stalls; the remaining
Additional Stalls leased by Tenant, if any, shall be billed at Landlord's
scheduled parking rate from time to time. Thereafter, the stall charge payable
by Tenant's employees for all spaces shall be the amounts as Landlord shall from
time to time determine. Landlord may authorize persons other than those
described above, including occupants of other buildings, to utilize the Parking
Area. In the event of the use of the Parking Area by other persons, those
persons shall pay for that use in accordance with the terms established above;
provided, however, Landlord may allow those persons to use the Parking Area on
weekends, holidays, and at other non-office hours without payment.
8. Notwithstanding the foregoing paragraphs 1 through 7, but except as
otherwise specifically prohibited in the Lease, Landlord shall be entitled to
pass on to Tenant its proportionate share of any charges or parking surcharge or
transportation management costs levied by any governmental agency. The foregoing
parking provisions are further subject to any governmental regulations which
limit parking or otherwise seek to encourage the use of carpools, public transit
or other alternative transportation forms or traffic reduction programs. Tenant
agrees that it will use its best efforts to cooperate, including registration
and attendance, in programs which may be undertaken to reduce traffic. Tenant
acknowledges that as a part of those programs, it may be required to distribute
employee transportation information, participate in employee transportation
surveys, allow employees to participate in commuter activities, designate a
liaison for commuter transportation activities, distribute commuter information
to all employees, and otherwise participate in other programs or services
initiated under a transportation management program.
9. Should any parking spaces be allotted by Landlord to Tenant, either
on a reserved or nonreserved basis, Tenant shall not assign or sublet any of
those spaces, either voluntarily or by operation of law, without the prior
written consent of Landlord, except in connection with an authorized assignment
of this Lease or subletting of the Premises (inclusive of Permitted Transfers
pursuant to Section 9.1(e)).
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EXHIBIT D
TENANT'S INSURANCE
The following standards for Tenant's insurance shall be in effect at the
Building. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions to those standards. Tenant agrees to obtain and
present evidence to Landlord that it has fully complied with the insurance
requirements.
1. Tenant shall, at its sole cost and expense, commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term, procure, pay for and keep in full force and effect: (i) commercial general
liability insurance with respect to the Premises and the operations of or on
behalf of Tenant in, on or about the Premises, including but not limited to
bodily injury, nonowned automobile, blanket contractual, independent
contractors, broad form property damage, fire legal liability, products
liability (if a product is sold from the Premises), liquor law liability (if
alcoholic beverages are sold, served or consumed within the Premises), and cross
liability and severability of interest clauses, which policy(ies) shall be
written on an "occurrence" basis and for not less than $2,000,000 combined
single limit (with a $50,000 minimum limit on fire legal liability) per
occurrence for bodily injury, death, and property damage liability, or the
current limit of liability carried by Tenant, whichever is greater; (ii)
workers' compensation insurance coverage as required by law, together with
employers' liability insurance coverage; (iii) with respect to improvements,
alterations, and the like required or permitted to be made by Tenant under this
Lease, builder's all-risk insurance, in amounts satisfactory to Landlord; (iv)
insurance against fire, vandalism, malicious mischief and such other additional
perils as may be included in a standard "all risk" form, insuring the leasehold
improvements, trade fixtures, furnishings, equipment and items of personal
property in the Premises, in an amount equal to not less than ninety percent
(90%) of their actual replacement cost (with replacement cost endorsement),
which policy shall also include loss of income/business interruption/extra
expense coverage in an amount not less than nine months loss of income from
Tenant's business in the Premises. In no event shall the limits of any policy be
considered as limiting the liability of Tenant under this Lease.
2. All policies of insurance required to be carried by Tenant pursuant
to this Exhibit shall be written by responsible insurance companies authorized
to do business in the State of California and with a general policyholder rating
of not less than "A" and financial rating of not less than "X" in the most
current Best's Insurance Report. Any insurance required of Tenant may be
furnished by Tenant under any blanket policy carried by it or under a separate
policy. A certificate of insurance, certifying that the policy has been issued,
provides the coverage required by this Exhibit and contains the required
provisions, together with endorsements acceptable to Landlord evidencing the
waiver of subrogation and additional insured provisions required under Paragraph
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below, shall be delivered to Landlord prior to the date Tenant is given the
right of possession of the Premises. Proper evidence of the renewal of any
insurance coverage shall also be delivered to Landlord not less than thirty (30)
days prior to the expiration of the coverage.
3. Unless otherwise provided below, each policy evidencing insurance
required to be carried by Tenant pursuant to this Exhibit shall contain the
following provisions and/or clauses satisfactory to Landlord: (i) with respect
to Tenant's commercial general liability insurance, a provision that the policy
and the coverage provided shall be primary and that any coverage carried by
Landlord shall be excess and noncontributory, together with a provision
including Landlord and any other parties in interest designated by Landlord as
additional insureds; (ii) a waiver by the insurer of any right to subrogation
against Landlord, its agents, employees, contractors and representatives which
arises or might arise by reason of any payment under the policy or by reason of
any act or omission of Landlord, its agents, employees, contractors or
representatives; and (iii) a provision that the insurer will not cancel or
change the coverage provided by the policy without first giving Landlord thirty
(30) days prior written notice.
4. In the event that Tenant fails beyond any applicable cure period to
procure, maintain and/or pay for, at the times and for the durations specified
in this Exhibit, any insurance required by this Exhibit, or fails to carry
insurance required by any governmental authority, Landlord may at its election
procure that insurance and pay the premiums, in which event Tenant shall repay
Landlord all reasonable sums paid by Landlord, together with interest at the
rate of ten percent (10%) per annum and any related costs or expenses reasonably
incurred by Landlord, within ten (10) business days following Landlord's written
demand to Tenant.
NOTICE TO TENANT: IN ACCORDANCE WITH THE TERMS OF THIS LEASE, TENANT
MUST PROVIDE EVIDENCE OF THE REQUIRED INSURANCE TO LANDLORD'S MANAGEMENT AGENT
PRIOR TO OCCUPANCY OF THE PREMISES.
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EXHIBIT E
RULES AND REGULATIONS
The following Rules and Regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable nondiscriminatory modifications
and additions at any time. In the case of any conflict between these regulations
and the Lease, the Lease shall be controlling.
1. Except with the prior written consent of Landlord, Tenant shall not
sell, or permit the retail sale of, newspapers, magazines, periodicals, or
theater tickets, in or from the Premises, nor shall Tenant carry on, or permit
or allow any employee or other person to carry on, the business of stenography,
typewriting or any similar business in or from the Premises for the service or
accommodation of occupants of any other portion of the Building. Tenant shall
not allow the Premises to be utilized for any manufacturing of any kind, or the
business of a public barber shop, beauty parlor, or a manicuring and chiropodist
business, or any business other than that specifically provided for in the
Lease.
2. The sidewalks, halls, passages, elevators, stairways, and other
common areas shall not be obstructed by Tenant or used by it for storage or for
any purpose other than for ingress to and egress from the Premises. The halls,
passages, entrances, elevators, stairways, balconies and roof are not for the
use of the general public, and Landlord shall in all cases retain the right to
control and prevent access to those areas of all persons whose presence, in the
reasonable judgment of Landlord, shall be prejudicial to the safety, character,
reputation and interests of the Building and its tenants. Nothing contained in
this Lease shall be construed to prevent access to persons with whom Tenant
normally deals only for the purpose of conducting its business on the Premises
(such as clients, customers, office suppliers and equipment vendors and the
like) unless those persons are engaged in illegal activities. Neither Tenant nor
any employee or contractor of Tenant shall go upon the roof of the Building
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed.
3. The sashes, sash doors, windows, glass lights, solar film and/or
screen, and any lights or skylights that reflect or admit light into the halls
or other places of the Building shall not be covered or obstructed. The toilet
rooms, water and wash closets and other water apparatus shall not be used for
any purpose other than that for which they were constructed, and no foreign
substance of any kind shall be thrown in those facilities, and the reasonable
expense of any breakage, stoppage or damage resulting from the violation of this
rule shall be borne by Tenant.
4. No sign, advertisement or notice visible from the exterior of the
Premises shall be inscribed, painted or affixed by Tenant on any part of the
Building or the Premises without the prior written consent of Landlord. If
Landlord shall have given its
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consent at any time, whether before or after the execution of this Lease, that
consent shall in no way operate as a waiver or release of any of the provisions
of this Lease, and shall be deemed to relate only to the particular sign,
advertisement or notice so consented to by Landlord and shall not be construed
as dispensing with the necessity of obtaining the specific written consent of
Landlord with respect to any subsequent sign, advertisement or notice. If
Landlord, by a notice in writing to Tenant, shall object to any curtain, blind,
tinting, shade or screen attached to, or hung in, or used in connection with,
any window or door of the Premises, the use of that curtain, blind, tinting,
shade or screen shall be immediately discontinued and removed by Tenant. No
awnings shall be permitted on any part of the Premises.
5. Tenant shall not knowingly do or permit anything to be done in the
Premises, or knowingly bring or keep anything in the Premises, which shall in
any way increase the rate of fire insurance on the Building, or on the property
kept in the Building, or obstruct or interfere with the rights of other tenants,
or in any way injure or annoy them, or conflict with the regulations of the Fire
Department or the fire laws, or with any insurance policy upon the Building, or
any portion of the Building or its contents, or with any rules and ordinances
established by the Board of Health or other governmental authority.
6. The installation and location of any unusually heavy equipment in the
Premises, including without limitation file storage units, safes and electronic
data processing equipment, shall require the reasonable prior written approval
of Landlord. Landlord may restrict the weight and position of any equipment that
may exceed the weight load limits for the structure of the Building, and may
further reasonably require, at Tenant's expense, the reinforcement of any
flooring on which such equipment may be placed and/or an engineering study to be
performed to determine whether the equipment may safely be installed in the
Building and the necessity of any reinforcement. The moving of large or heavy
objects shall occur only between those hours as may be designated by, and only
upon previous written notice to, Landlord, and the persons employed to move
those objects in or out of the Building must be reasonably acceptable to
Landlord. No freight, furniture or bulky matter of any description shall be
received into or moved out of the lobby of the Building or carried in any
elevator other than the freight elevator designated by Landlord unless approved
in writing by Landlord.
7. Landlord shall clean the Premises as provided in the Lease, and
except with the written consent of Landlord, no person or persons other than
those approved by Landlord or otherwise provided for in the Lease will be
permitted to enter the Building for that purpose. Tenant shall not cause
unnecessary labor by reason of Tenant's carelessness and indifference in the
preservation of good order and cleanliness. Landlord shall not be responsible to
Tenant or its employees for loss or damage to property in connection with the
provision of janitorial services by third party contractors.
8. Tenant shall not sweep or throw, or permit to be swept or thrown,
from the Premises any dirt or other substance into any of the corridors or halls
or elevators, or
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out of the doors or windows or stairways of the Building, and Tenant shall not
use, keep or permit to be used or kept any foul or noxious gas or substance in
the Premises, or permit or suffer the Premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the Building
by reason of noise, odors and/or vibrations, or interfere in any way with other
tenants or those having business with other tenants, nor shall any animals or
birds be kept by Tenant in or about the Building. Smoking or carrying of lighted
cigars, cigarettes, pipes or similar products anywhere within the Premises or
Building is strictly prohibited, and Landlord may enforce such prohibition
pursuant to Landlord's leasehold remedies. Smoking is permitted outside the
Building and within the project only in areas designated by Landlord.
9. No cooking shall be done or permitted by Tenant on the Premises,
except pursuant to the normal use of a U.L. approved microwave oven, toaster
oven and coffee maker for the benefit of Tenant's employees and invitees, nor
shall the Premises be used for the storage of merchandise or for lodging.
10. Tenant shall not use or keep in the Building any kerosene, gasoline,
or inflammable fluid or any other illuminating material, or use any method of
heating other than that supplied by Landlord.
11. If Tenant desires telephone, telegraph, burglar alarm or similar
connections, Landlord will direct electricians as to where and how the wires are
to be introduced based on good faith consultation with Tenant. No boring or
cutting for wires or otherwise shall be made without directions from Landlord.
12. Upon the termination of its tenancy, Tenant shall deliver to
Landlord all the keys to offices, rooms and toilet rooms and all access cards
which shall have been furnished to Tenant or which Tenant shall have had made.
13. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises, except to
install normal wall hangings. Tenant shall not affix any floor covering to the
floor of the Premises in any manner except by a paste, or other material which
may easily be removed with water, the use of cement or other similar adhesive
materials being expressly prohibited. The method of affixing any floor covering
shall be subject to reasonable approval by Landlord. The expense of repairing
any damage resulting from a violation of this rule shall be borne by Tenant.
14. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 p.m. and 8:00 a.m., access to the Building, or to the halls,
corridors, elevators or stairways in the Building, or to the Premises, may be
refused unless the person seeking access complies with any access control system
that Landlord may establish. Landlord shall in no case be liable for damages for
the admission to or exclusion from the Building of any person whom Landlord has
the right to exclude under Rules 2 or 18 of this Exhibit. In case of invasion,
mob, riot, public excitement, or other commotion, or in the event of any other
situation reasonably requiring the evacuation of
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the Building, Landlord reserves the right at its election and without liability
to Tenant to prevent access to the Building by closing the doors or otherwise,
for the safety of the tenants and protection of property in the Building.
15. Tenant shall be responsible for protecting the Premises from theft,
which includes keeping doors and other means of entry closed and securely
locked. Tenant shall cause all water faucets or water apparatus to be shut off
before Tenant or Tenant's employees leave the Building, and that all
electricity, gas or air shall likewise be shut off, so as to prevent waste or
damage.
16. Tenant shall not alter any lock or install a new or additional lock
or any bolt on any door of the Premises without the prior written consent of
Landlord. If Landlord gives its consent, Tenant shall in each case promptly
furnish Landlord with a key for any new or altered lock.
17. Tenant shall not install equipment, such as but not limited to
electronic tabulating or computer equipment, requiring electrical or air
conditioning service in excess of that to be provided by Landlord under the
Lease except in accordance with Exhibit B.
18. Landlord shall have full and absolute authority to reasonably
regulate or prohibit the entrance to the Premises of any vendor, supplier,
purveyor, petitioner, proselytizer or other similar person. In the event any
such person is a guest or invitee of Tenant, Tenant shall notify Landlord in
advance of each desired entry, and Landlord shall authorize the person so
designated to enter the Premises, provided that in the reasonable judgment of
Landlord, such person will not be involved in general solicitation activities,
or the proselytizing, petitioning, or disturbance of other tenants or their
customers or invitees, or engaged or likely to engage in conduct which may in
Landlord's opinion distract from the use of the Premises for its intended
purpose.
19. Tenant shall be required to utilize the third party contractor
designated by Landlord for the Building to provide any telephone wiring services
from the minimum point of entry of the telephone cable in the Building to the
Premises. Notwithstanding the foregoing, however, in the event Tenant does not
have a telephone switch within the Premises, Tenant may, with Landlord's
approval and supervision, use a trained contractor to provide such wiring
services, but only from the Premises to the telephone room on the floor on which
the Premises are situated.
20. Landlord may from time to time grant tenants individual and
temporary variances from these Rules, provided that any variance does not have a
material adverse effect on the use and enjoyment of the Premises by Tenant.
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EXHIBIT X
WORK LETTER
TENANT IMPROVEMENTS
The tenant improvement work by Landlord shall consist of installing
sidelights and relocating the telephone backboard ("Tenant Improvements"). All
materials and finishes utilized in completing the Tenant Improvements shall be
Landlord's building standard. Landlord's total contribution for the Tenant
Improvements, inclusive of Landlord's construction management fee, shall not
exceed Twenty-Four Thousand Nine Hundred Sixty Dollars ($24,960.00) ("Landlord's
Contribution"). Any excess cost shall be borne solely by Tenant and shall be
paid to Landlord within twenty (20) days following Landlord's billing for such
excess cost.
Landlord shall permit Tenant and its agents to enter the Premises at
least two (2) weeks prior to the Commencement Date in order that Tenant may
perform any work to be performed by Tenant hereunder through its own
contractors, subject to Landlord's prior written approval (which shall not be
unreasonably withheld, conditioned or delayed), and in a manner and upon terms
and conditions and at times reasonably satisfactory to Landlord's
representative. The foregoing license to enter the Premises prior to the
Commencement Date is, however, conditioned upon Tenant's contractors and their
subcontractors and employees working in harmony and not interfering with the
work being performed by Landlord. If at any time that entry shall unreasonably
interfere with the work being performed by Landlord, this license may be
withdrawn by Landlord upon twenty-four (24) hours written notice to Tenant. That
license is further conditioned upon the compliance by Tenant's contractors with
all requirements imposed by Landlord on third party contractors, including
without limitation the maintenance by Tenant and its contractors and
subcontractors of workers' compensation and public liability and property damage
insurance in amounts and with companies and on forms reasonably satisfactory to
Landlord, with certificates of such insurance being furnished to Landlord prior
to proceeding with any such entry. The entry shall be deemed to be under all of
the provisions of the Lease except as to the covenants to pay rent. Landlord
shall not be liable in any way for any injury, loss or damage which may occur to
any such work being performed by Tenant, the same being solely at Tenant's risk.
In no event shall the failure of Tenant's contractors to complete any work in
the Premises extend the Commencement Date of the Lease beyond the date that
Landlord has completed its tenant improvement work and tendered the Premises to
Tenant.
After the Tenant Improvements to the Premises are substantially
completed (excepting punch list items) and prior to the Commencement Date,
Landlord shall cause Landlord's contractor to inspect the Premises with the
Tenant's representative and complete a punch list of unfinished or incorrect
items of the Tenant Improvements. Authorized representatives for the Landlord
and Tenant shall execute said punch list to indicate their approval thereof. The
items listed on such punch list shall be completed
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by Landlord within thirty (30) days after the approval of such punch list or as
soon thereafter as reasonably practicable.
The following costs shall be borne solely by Landlord (and Landlord's
Contribution shall not be used to pay for the same): (1) attorneys' fees and
costs incurred in connection with the negotiation of construction contracts and
architectural agreements or the resolution of any disputes concerning
construction, (2) premiums for any bonds obtained in connection with the
construction, (3) costs associated with financing the construction costs, (4)
costs incurred due to Landlord's or Landlord's employees', agents' or
contractors' delay, negligence or willful misconduct, (5) penalties and late
charges attributable to the failure of Landlord or Landlord's employees, agents
or contractors to pay construction costs.
Tenant hereby designates Steve Unterberger, Telephone No. (949)
476-3732, as its representative, agent and attorney-in-fact for the purpose of
receiving notices, approving submittals and issuing requests for changes, and
Landlord shall be entitled to rely upon authorizations and directives of such
person(s) as if given by Tenant. Tenant may amend the designation of its
construction representative(s) at any time upon delivery of written notice to
Landlord.
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EXHIBIT 10.6.2
February 29, 2000
05/98
FIRST AMENDMENT TO LEASE
I. PARTIES AND DATE.
This First Amendment to Lease (the "First Amendment") dated 2/29, 2000,
is by and between THE IRVINE COMPANY ("Landlord"), and EXULT, INC., a Delaware
corporation, formerly known as BPO-US, INC., a Delaware corporation ("Tenant").
II. RECITALS.
On June 28, 1999, Landlord and Tenant entered into an office space lease
("Lease") for space in a building located at 4 Park Plaza, Suite 350, Irvine,
California ("Premises").
Landlord and Tenant each desire to modify the Lease to change the
location of the Premises to Suite 1000 comprising approximately 22,529 rentable
square feet of space on the tenth (10th) floor of the Building, extend the Lease
Term, adjust the Basic Rent, and make such other modifications as are set forth
in "Ill. MODIFICATIONS" next below.
III. MODIFICATIONS.
A. Basic Lease Provisions. The Basic Lease Provisions are hereby amended
as follows:
1. Effective as of the Commencement Date for Suite 1000, Item 2
shall be amended by deleting "Suite 350" therefrom and substituting "Suite 1000"
in lieu thereof.
2. Item 4 is hereby amended by adding the following.
"Estimated Commencement Date for Suite 1000: June 1,
2000"
3. Item 5 is hereby deleted in its entirety and the following
shall be substituted in lieu thereof:
"5. Lease Term: The Term of this Lease shall expire
thirty-six (36) months following the Commencement Date
for Suite 1000, plus such additional days as may be
required to cause this Lease to terminate on the final
day of the calendar month."
4. Effective as of the Commencement Date for Suite 1000, Item 6
shall be deleted in its entirety and the following shall be substituted in lieu
thereof:
"6. Basic Rent: Fifty-Eight Thousand Five Hundred
Seventy-Five Dollars ($58,575.00) per month.
Rental Adjustments: Commencing twelve (12) months
following the Commencement Date for Suite 1060, the
Basic Rent shall be Sixty Thousand Eight Hundred
Twenty-Eight Dollars ($60,828.00) per month.
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Commencing twenty-four (24) months following the
Commencement Date for Suite 1000, the Basic Rent shall
be Sixty-Three Thousand Eighty-One Dollars ($63,081.00)
per month."
5. Effective as of the Commencement Date for Suite 1000, Item 8
shall be deleted in its entirety and the following shall be substituted in lieu
thereof:
"8. Floor Area of Premises: approximately 22,529
rentable square feet."
6. Effective as of the Commencement Date for Suite 1000, Item 12
shall be deleted in its entirety and the following shall be substituted in lieu
thereof:
"12. Parking: Forty (40) unreserved vehicle parking
spaces."
7. Effective as of the Commencement Date for Suite 1000, Item 13
shall be amended by deleting "Suite 350" therefrom and substituting "Suite 1000"
in lieu thereof.
B. Operating Expenses. Notwithstanding any contrary provision in the
Lease, Landlord hereby agrees that Tenant shall not be obligated to reimburse
Landlord for Operating Expenses accruing during the twelve (12) month period
following the Commencement Date for Suite 1000.
C. Floor Plan of Premises. Effective as of the Commencement Date for
Suite 1000, Exhibit A attached to the Lease is deleted and is substituted by the
Revised Exhibit A attached to this First Amendment.
D. Parking.
(a) Effective as of the Commencement Date for Suite 1000,
Section 6.4 of the Lease shall be deleted in its entirety
and the following shall be substituted in lieu thereof:
"SECTION 6.4. PARKING. Landlord hereby leases to Tenant, and
Tenant hereby agrees to lease from Landlord for the Term of this
Lease, the number of vehicle parking spaces set forth in Item 12
of the Basic Lease Provisions (the "Committed Stalls"). The
parking spaces shall be provided in accordance with the
provisions set forth in Exhibit C to this Lease."
(b) Landlord agrees that up to seven (7) of Tenant's Committed
Stalls may be converted by Tenant to reserved stalls (the
"Converted Reserved Stalls") by providing written notice of
such election to Landlord at any time during the initial six
(6) months following the Commencement Date for Suite 1000
(the "Parking Election Period"). Tenant acknowledges that,
if such written notice of election is not delivered to
Landlord within the Parking Election Period, then the
conversion of those seven (7) Committed Stalls to reserved
stalls shall be subject to the month to month availability
of such reserved stalls as determined by Landlord. In
addition to the Committed Stalls, Tenant shall have the
right to lease up to thirty-seven
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(37) additional unreserved parking spaces (the "Additional
Unreserved Stalls") by providing written notice to Landlord at
any time during the Parking Election Period. Notwithstanding the
provisions of Exhibit C to the Lease, Landlord agrees that the
stall charges payable by Tenant during the initial thirty-six
(36) months following the Commencement Date for Suite 1000 shall
be: (i) Fifty Dollars ($50.00) per month per for each of the
Committed Stalls; (ii) One Hundred Twenty-Five Dollars ($125.00)
per month for each Converted Reserved Stall leased by Tenant
during the Parking Election Period; and (iii) Fifty Dollars
($50.00) per month for each Additional Unreserved Stall leased
by Tenant during the Parking Election Period. Tenant understands
and agrees that any Converted Reserved Stalls and any Additional
Unreserved Stalls leased by Tenant after the Parking Election
Period shall be subject to the month to month availability of
such stalls as determined by Landlord and shall be at Landlord's
scheduled parking rates from time to time.
E. Tenant Improvements. Landlord hereby agrees to complete the Tenant
Improvements for Suite 1000 in accordance with the provisions of Exhibit X, Work
Letter, attached hereto.
F. Right to Extend this Lease. Provided that Tenant is not in default
under any provision of this Lease at the time of exercise of the extension right
granted herein, and provided further that Tenant is occupying the entire
Premises and has not assigned or sublet any of its interest in this Lease,
Tenant may extend the Term of this Lease for one (1) period of thirty-six (36)
months. Tenant shall exercise its right to extend the Term by and only by
delivering to Landlord. not less than ten (10) months or more than twelve (12)
months prior to the expiration date of the Term, Tenant's written notice of its
irrevocable commitment to extend (the "Commitment Notice"). Should Tenant fail
timely to deliver the Commitment Notice, then this extension right shall
thereupon lapse and be of no further force or effect. The Basic Rent payable
under the Lease during the extension of the Term shall be at the prevailing
market rental rate (including periodic adjustments) for comparable and similarly
improved space within the Building as of the commencement of the extension
period, as determined by Landlord based on a reasonable extrapolation of its
then-current leasing rates. Promptly following receipt of the Commitment Notice,
Landlord shall prepare an appropriate amendment to the Lease memorializing the
extension of the Term in accordance with the foregoing, and Tenant shall duly
execute and return same to Landlord within fifteen (15) days. Should Tenant fail
timely to execute and deliver the amendment, then Landlord may, at its sole
written election, either specifically enforce the Commitment Notice or
extinguish Tenant's right to extend the Term. Should Landlord elect the latter,
then this Lease shall terminate upon the scheduled date of expiration and
Tenant's rights under this paragraph shall be of no further force or effect. Any
attempt to assign or transfer any right or interest created by this paragraph
shall be void from its inception. Tenant shall have no other right to extend the
Term beyond the single thirty-six (36) month extension created by this
paragraph. Unless agreed to in a writing signed by Landlord and Tenant, any
extension of the Term, whether created by an amendment to this Lease or by a
holdover of the Premises by Tenant, or otherwise, shall be deemed a part of, and
not in addition to, any duly exercised extension period permitted by this
paragraph. Time is specifically made of the essence of this paragraph.
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G. Commencement Date for Suite 1000. Subject to the provisions of
Paragraph H, the Lease Term for Suite 1000 shall commence ("Commencement Date
for Suite 1000") fourteen (14) days following the date Suite 1000 is ready for
occupancy as described in Paragraph H, or, if earlier, upon the date that Tenant
commences its business operations in Suite 1000. It is understood that Tenant
shall be afforded full access to Suite 1000 during that fourteen (14) day period
for the purpose of installing its furniture, fixtures and equipment therein, all
without any rental obligation but subject to the other provisions of this Lease.
Promptly following request by Landlord, the parties shall memorialize on a form
provided by Landlord the actual Commencement Date for Suite 1000 and the
expiration date ("Expiration Date") of the Lease.
H. Delay in Possession. If Landlord, for any reason whatsoever, cannot
deliver possession of Suite 1000 to Tenant on or before the Estimated
Commencement Date for Suite 1000 as set forth hereinabove, this First Amendment
shall not be void or voidable nor shall Landlord be liable to Tenant for any
resulting loss or damage. However, Tenant shall not be liable for any rent and
the Commencement Date for Suite 1000 shall not occur until fourteen (14) days
after Suite 1000 is in fact tendered to Tenant ready for occupancy as defined
below, except that if Landlord's failure to so deliver possession is delayed as
the result of any action or inaction by Tenant (including without limitation any
Tenant Delay ("Tenant Delay") as described in the Work Letter attached to this
First Amendment), then the Commencement Date for Suite 1000 shall be deemed to
have occurred, and Landlord shall be entitled to full performance by Tenant
(including the payment of rent), fourteen (14) days following the date Landlord
would have been able to deliver Suite 1000 to Tenant but for Tenant's delay(s).
Suite 1000 shall be deemed ready for occupancy only if and when Landlord, to the
extent applicable, (a) has put into operation all building services essential
for the use of Suite 1000 by Tenant, (b) has provided reasonable access to Suite
1000 for Tenant so that they may be used without unnecessary interference, (c)
has substantially completed all the work required to be done by Landlord in this
First Amendment, and (d) has obtained requisite government approvals to Tenant's
occupancy. Notwithstanding anything to the contrary contained in this Paragraph
H, but subject to the terms and conditions hereinafter provided, if for any
reason other than Tenant Delays or other matters beyond Landlord's reasonable
control, the actual Commencement Date for Suite 1000 has not occurred by the
date that is one hundred eighty (180) days following Tenant's approval of final
construction drawings and pricing for the tenant improvement work, then Tenant
may, by written notice to Landlord given at any time thereafter but prior to the
actual occurrence of the Commencement Date for Suite 1000, elect to terminate
this First Amendment. Notwithstanding the foregoing, if at any time during the
construction period, Landlord reasonably believes that the Commencement Date for
Suite 1000 will not occur on or before one hundred eighty (180) days following
Tenant's approval of final construction drawings and pricing for the tenant
improvement work, Landlord may notify Tenant in writing of such fact and of a
new outside date on or before which the Commencement Date for Suite 1000 will
occur, and Tenant must elect within ten (10) days of receipt of such notice to
either terminate this First Amendment or waive its right to terminate this First
Amendment provided the Commencement Date for Suite 1000 occurs on or prior to
the new outside date established by Landlord in such notice to Tenant. Tenant's
failure to elect to terminate this First Amendment within such ten (10) day
period shall be deemed Tenant's waiver of its right to terminate this First
Amendment as provided in this
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paragraph as to the previous outside date, but not as to the new outside date
established by said notice.
I. Termination of Suite 350. Landlord and Tenant agree that the rights
and obligations of the parties under the Lease with respect to Suite 350 shall
terminate in their entirety, effective as of midnight on the day preceding the
Commencement Date for Suite 1000, provided that such termination shall not
relieve Tenant of (a) any accrued obligation or liability under the Lease with
respect to Suite 350 as of said termination date, or (b) any obligation under
the Lease with respect to Suite 350 which was reasonably intended to survive the
expiration or earlier termination thereof. Tenant understands and agrees that it
shall completely vacate Suite 350 by midnight on the day preceding the
Commencement Date for Suite 1000 and shall remove all property therefrom in
accordance with the provisions of Section 15.3 of the Lease.
J. Monument Signage. It is understood that Landlord is presently seeking
approval from the City of Irvine for the installation of an additional monument
sign at the Building. If and when Landlord installs such monument sign, Tenant
shall have the right to install nonexclusive signage, which signage shall
consist only of the name "Exult" or "Exult, Inc." The type, location and design
of such signage shall be subject to the prior written approval of Landlord and
the City of Irvine. Fabrication, installation, insurance, and maintenance of
such signage shall be at Tenant's sole cost and expense. Tenant understands and
agrees that it shall use Landlord's designated contractor for installing the
monument signage. Should Tenant fail to have the monument signage installed
within nine (9) months of receipt of approval of the construction thereof by the
City of Irvine, then Tenant's right to install same thereafter shall be deemed
null and void. Except for the foregoing, no sign, advertisement or notice
visible from the exterior of the Premises shall be inscribed, painted or affixed
by Tenant on any part of the Premises without the prior consent of Landlord.
Tenant's signage right shall belong solely to Exult, Inc., a Delaware
corporation and may not be transferred or assigned without Landlord's prior
written consent, which may be withheld by Landlord in Landlord's sole
discretion. In the event Tenant, exclusive of any subtenant(s), fails to occupy
the entire tenth (10th) floor of the Building, then Tenant shall, within thirty
(30) days following notice from Landlord, remove the monument signage at
Tenant's expense. Tenant shall also remove such signage promptly following the
expiration or earlier termination of the Lease. Any such removal shall be at
Tenant's sole expense, and Tenant shall bear the cost of any resulting repairs
to the monument that are reasonably necessary due to the removal.
K. Right of First Offer. Provided Tenant is not then in default
hereunder, Landlord hereby grants Tenant a one-time right ("First Right") to
lease any space which may become available for lease on the ninth (9th) floor of
the Building ("First Right Space") in accordance with and subject to the
provisions of this Paragraph; provided, however, that this First Right shall
cease to be effective during the final twelve (12) months of the Term, as the
Term may have been extended by Tenant pursuant to Paragraph G above. At any time
after the date of this First Amendment, but prior to leasing the first Right
Space, or any portion thereof, to any other party, Landlord shall give Tenant
written notice of the basic economic terms including but not limited to the
Basic Rent, term, operating expense base, security deposit, and tenant
improvement allowance (collectively, the "Economic Terms"), upon which Landlord
is willing to lease such particular First Right Space to Tenant or to a third
party; provided that the Economic Terms shall
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<PAGE> 6
exclude brokerage commissions and other Landlord payments that do not directly
inure to the tenant's benefit. It is understood that should Landlord intend to
lease other space in addition to the First Right Space as part of a single
transaction, then Landlord's notice shall so provide and all such space shall
collectively be subject to the following provisions. Within five (5) business
days after receipt of Landlord's notice, Tenant must give Landlord written
notice pursuant to which Tenant shall elect to (i) lease all, but not less than
all, of the space specified in Landlord's notice (the "Designated Space") upon
such Economic Terms and the same non-Economic Terms as set forth in this Lease;
(ii) refuse to lease the Designated Space, specifying that such refusal is not
based upon the Economic Terms, but upon Tenant's lack of need for the Designated
Space, in which event Landlord may lease the Designated Space upon any terms it
deems appropriate; or (iii) refuse to lease the Designated Space, specifying
that such refusal is based upon said Economic Terms, in which event Tenant shall
also specify revised Economic Terms upon which Tenant shall be willing to lease
the Designated Space. In the event that Tenant does not so respond in writing to
Landlord's notice within said period, Tenant shall be deemed to have elected
clause (ii) above. In the event Tenant gives Landlord notice pursuant to clause
(iii) above, Landlord may elect to either (x) lease the Designated Space to
Tenant upon such revised Economic Terms and the same other non-Economic Terms as
set forth in this Lease, or (y) lease the Designated Space to any third party
upon Economic Terms which are not materially more favorable to such party than
those Economic Terms proposed by Tenant. Should Landlord so elect to lease the
Designated Space to Tenant, then Landlord shall promptly prepare and deliver to
Tenant an amendment to this Lease consistent with the foregoing, and Tenant
shall execute and return same to Landlord within ten (10) days. Tenant's failure
to timely return the amendment shall entitle Landlord to specifically enforce
Tenant's commitment to lease the Designated Space, to lease such space to a
third party, and/or to pursue any other available legal remedy. Notwithstanding
the foregoing, it is understood that Tenant's First Right shall be subject to
any extension or expansion rights granted by Landlord to any existing third
party tenant in the Building, and to any extension or expansion rights granted
by Landlord to any third party tenant occupying the First Right Space or any
portion thereof, and in no event shall any such First Right Space be deemed
available for leasing until the existing tenant thereof shall have vacated the
First Right Space. Tenant's rights under this Paragraph shall belong solely to
Exult, Inc., a Delaware corporation and may not be assigned or transferred by
it. Any attempted assignment or transfer shall be void and of no force or
effect.
L. Space Planning and Substitution. Notwithstanding any contrary
provision in Section 7.6 of the Lease, Landlord agrees that provided Tenant is
occupying the entire tenth (10th) floor of the Building, it shall not enforce
the provisions of said Section 7.6 during the initial thirty-six (36) month
period following the Commencement Date for Suite 1000.
M. Additional Security Deposit/Rent Credit. Section 4.4 of the Lease
entitled "Additional Security Deposit/Rent Credit" is hereby amended by deleting
the second sentence therefrom and substituting the following in lieu thereof:
"In the event that Tenant is not then in default under the Lease
at any time, and provided further that Tenant has not at any
time been more than ten (10) days late with respect to any
payments of rent due under the Lease, Landlord shall return the
Additional Security Deposit to Tenant in the form of credits in
the amount of
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Twenty-Five Thousand Dollars ($25,000.00) against the Basic Rent
payable for July, 2000, Twenty-Five Thousand Dollars
($25,000.00) against the Basic Rent payable for July, 2001, and
One Thousand One Hundred Fifty-Six Dollars ($1,156.00) against
the Basic Rent payable for July, 2002."
IV. GENERAL.
A. Effect of Amendments. The Lease shall remain in full force and effect
except to the extent that it is modified by this Amendment.
B. Entire Agreement. This Amendment embodies the entire understanding
between Landlord and Tenant with respect to the modifications set forth in "III.
MODIFICATIONS" above and can be changed only by a writing signed by Landlord and
Tenant.
C. Counterparts. If this Amendment is executed in counterparts, each is
hereby declared to be an original; all, however, shall constitute but one and
the same amendment. In any action or proceeding, any photographic, photostatic,
or other copy of this Amendment may be introduced into evidence without
foundation.
D. Defined Terms. All words commencing with initial capital letters in
this Amendment and defined in the Lease shall have the same meaning in this
Amendment as in the Lease, unless they are otherwise defined in this Amendment.
E. Corporate and Partnership Authority. If Tenant is a corporation or
partnership, or is comprised of either or both of them, each individual
executing this Amendment for the corporation or partnership represents that he
or she is duly authorized to execute and deliver this Amendment on behalf of the
corporation or partnership and that this Amendment is binding upon the
corporation or partnership in accordance with its terms.
F. Attorneys' Fees. The provisions of the Lease respecting payment of
attorneys' fees shall also apply to this Amendment.
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<PAGE> 8
V. EXECUTION.
Landlord and Tenant executed this Amendment on the date as set forth in
"I. PARTIES AND DATE." above.
LANDLORD: TENANT:
THE IRVINE COMPANY EXULT, INC.
By: By:
-------------------------------- ---------------------------------
William R. Halford, President, Title:
Irvine Office Company ---------------------------
a division of The Irvine Company
By: By:
-------------------------------- ---------------------------------
Vincent P. Hayes Title:
Assistant Secretary ---------------------------
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EXHIBIT A
DIAGRAM OF JAMBOREE CENTER
4 PARK PLAZA
TENTH FLOOR
<PAGE> 10
EXHIBIT X
WORK LETTER
DOLLAR ALLOWANCE
[SECOND GENERATION SPACE]
The Tenant Improvement work (herein "Tenant Improvements") shall consist of any
work required to complete Suite 1000 pursuant to plans and specifications
approved by both Landlord and Tenant. All of the Tenant Improvement work shall
be performed in accordance with the procedures below by a contractor selected on
the basis of a competitive bidding process involving three (3) general
contractors designated by Landlord.
I. ARCHITECTURAL AND CONSTRUCTION PROCEDURES
A. Tenant and Landlord have approved, or shall approve within the time
period set forth below, a detailed space plan for Suite 1000,
prepared by Landlord's architect, which includes interior partitions,
ceilings, interior finishes, interior office doors, suite entrance,
floor coverings, window coverings, lighting, electrical and telephone
outlets, plumbing connections, heavy floor loads and other special
requirements ("Preliminary Plan"). Landlord agrees that the
Preliminary Plan may include plans for a computer room, provided that
such room shall be subject to specifications approved by Landlord and
provided further that Landlord may elect to require Tenant to return
any such portion of the Premises to building standard condition at
Tenant's sole expense upon the expiration or earlier termination of
the Lease. Tenant shall approve or disapprove the Preliminary Plan by
signing copies of the appropriate instrument and delivering same to
Landlord within three (3) business days of its receipt by Tenant. If
Tenant disapproves any matter, Tenant shall specify in detail the
reasons for disapproval and Landlord shall attempt to modify the
Preliminary Plan to incorporate Tenant's suggested revisions in a
mutually satisfactory manner. Notwithstanding the foregoing, however,
Tenant shall approve in all respects a Preliminary Plan not later
than March 13, 2000 ("Plan Approval Date").
B. On or before the Plan Approval Date, Tenant shall provide in writing
to Landlord or Landlord's Architect all specifications and
information requested by Landlord for the preparation of final
construction documents and costing, including without limitation
Tenant's final selection of wall and floor finishes, complete
specifications and locations (including load and HVAC requirements)
of Tenant's equipment, and details of all improvements to be
installed in Suite 1000 (collectively, "Programming Information").
Tenant's failure to provide the Programming Information by the Plan
Approval Date shall constitute a Tenant Delay for purposes of this
First Amendment. Tenant understands that final construction documents
for the Tenant Improvements shall be predicated on the
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Programming Information, and accordingly that such information must
be accurate and complete.
C. Upon Tenant's approval of the Preliminary Plan and delivery of the
complete Programming Information, Landlord's architect and engineers
shall prepare and deliver to Tenant working drawings and
specifications ("Working Drawings and Specifications") for the Tenant
Improvements. Tenant shall have five (5) working days from the
receipt thereof to approve or disapprove the Working Drawings and
Specifications. Tenant shall not unreasonably withhold or delay its
approval, and any disapproval or requested modification shall be
limited to items not contained in the approved Preliminary Plan.
Should Tenant disapprove the Working Drawings and Specifications,
such disapproval shall be accompanied by a detailed list of
revisions, Any revision requested by Tenant and accepted by Landlord
shall be incorporated into a revised set of Working Drawings and
Specifications, and Tenant shall approve same in writing within five
(5) business days of receipt without further revision. Upon Tenant's
approval of the Working Drawings and Specifications, Landlord shall
cause the same to be competitively bid as provided above. The lowest
responsible bid shall, unless otherwise agreed by the parties, be
deemed the "Final Cost Estimate" for the construction of the Tenant
Improvements. In no event shall Tenant disapprove the Final Cost
Estimate if it does not exceed the approved Preliminary Cost
Estimate. Should Tenant disapprove the Final Cost Estimate, such
disapproval shall be accompanied by a detailed list of revisions. Any
revision requested by Tenant and accepted by Landlord shall be
incorporated by Landlord's architect into a revised Final Cost
Estimate, and Tenant shall approve same in writing within three (3)
business days of receipt without further revision. Tenant's failure
to comply in a timely manner with any of the requirements of this
paragraph shall constitute a Tenant Delay. Without limiting the
rights of Landlord for Tenant Delays as set forth herein, in the
event Tenant has not approved both the Working Drawings and
Specifications and the Final Cost Estimate within ninety (90) days
following the date of this First Amendment, then Landlord may, at its
option, elect to terminate this First Amendment by written notice to
Tenant. In the event Landlord elects to effect such a termination,
Tenant shall, within ten (10) days following demand by Landlord, pay
to Landlord any costs incurred by Landlord in connection with the
preparation or review of plans, construction estimates, price
quotations, drawings or specifications under this Work Letter and for
all costs incurred in the preparation and execution of this First
Amendment, including any leasing commissions.
D. In the event that Tenant requests in writing a revision in the
approved Working Drawings and Specifications ("Change"), then
provided such Change is acceptable to Landlord, Landlord shall advise
Tenant by written change order as soon as is practical of any
increase in the Completion Cost and/or any Tenant Delay such Change
would cause. Tenant shall approve or disapprove such change order in
writing within two (2) business days following its receipt from
Landlord. Tenant's approval of a Change shall be accompanied by
Tenant's payment of any
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resulting increase in the Completion Cost. It is understood that
Landlord shall have no obligation to interrupt or modify the Tenant
Improvement work pending Tenant's approval of a change order.
E. It is understood that the Preliminary Plan and the Working Drawings
and Specifications, together with any Changes thereto, shall be
subject to the prior approval of Landlord. Landlord shall identify
any disapproved items within three (3) business days (or two (2)
business days in the case of Changes) after receipt of the applicable
document. In lieu of disapproving an item, Landlord may approve same
on the condition that Tenant pay to Landlord, prior to the start of
construction and in addition to all sums otherwise due hereunder, an
amount equal to the cost, as reasonably estimated by Landlord, of
removing and replacing the item upon the expiration or termination of
the Lease. Should Landlord approve work that would necessitate any
ancillary Building modification or other expenditure by Landlord,
then except to the extent of any remaining balance of the "Landlord's
Contribution" as described below, Tenant shall, in addition to its
other obligations herein, promptly fund the cost thereof to Landlord.
F. Notwithstanding any provision in the First Amendment or this Work
Letter to the contrary, if Tenant fails to comply with any of the
time periods specified in this Work Letter, fails otherwise to
approve or reasonably disapprove any submittal within three (3)
business days, fails to approve in writing the Preliminary Plan for
the Tenant Improvements by the Plan Approval Date, fails to provide
all of the Programming Information requested by Landlord by the Plan
Approval Date, fails to approve in writing the Working Drawings and
Specifications and the Final Cost Estimate within the time provided
herein, requests any Changes, furnishes inaccurate or erroneous
specifications or other information, or otherwise delays in any
manner the completion of the Tenant Improvements (including without
limitation by specifying materials that are not readily available) or
the issuance of an occupancy certificate (any of the foregoing being
referred to in this Work Letter as a "Tenant Delay"), then Tenant
shall bear any resulting additional construction cost or other
expenses, and the Commencement Date for Suite 1000 shall be deemed to
have occurred for all purposes, including Tenant's obligation to pay
rent, as of the date Landlord reasonably determines that it would
have been able to deliver Suite 1000 to Tenant but for the collective
Tenant Delays. In no event, however, shall such date be earlier than
the Estimated Commencement Date for Suite 1000 as set forth in the
First Amendment. Should Landlord determine that the Commencement Date
for Suite 1000 should be advanced in accordance with the foregoing,
it shall so notify Tenant in writing. Landlord's determination shall
be conclusive unless Tenant notifies Landlord in writing, within five
(5) business days thereafter, of Tenant's election to contest same by
arbitration with JAMS/ENDISPUTE pursuant to Section 14.7(b) of the
Lease. Pending the outcome of such arbitration proceedings, Tenant
shall make timely payment of all rent due under this First Amendment
based upon the Commencement Date for Suite 1000 as set forth in the
aforesaid notice from Landlord.
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G. Tenant hereby designates Patty Furuya, Telephone No. (949) 809-8732,
as its representative, agent and attorney-in-fact for the purpose of
receiving notices, approving submittals and issuing requests for
Changes, and Landlord shall be entitled to rely upon authorizations
and directives of such person(s) as if given directly by Tenant.
Tenant may amend the designation of its construction
representative(s) at any time upon delivery of written notice to
Landlord.
II. COST OF TENANT IMPROVEMENTS
A. Landlord shall complete, or cause to be completed, the Tenant
Improvements, at the construction cost shown in the approved Final
Cost Estimate (subject to the provisions of this Work Letter), in
accordance with final Working Drawings and Specifications approved by
both Landlord and Tenant. Landlord shall pay towards the final
constructions costs ("Completion Cost") as incurred a maximum of Two
Hundred Thirty-One Thousand Eight Hundred Four Dollars ($231,804.00)
("Landlord's Contribution"), based on $12.00 per usable square foot
of Suite 1000, and Tenant shall be fully responsible for the
remainder ("Tenant's Contribution"). Landlord agrees that if the
actual cost of completion of the Tenant Improvements is less than the
maximum amount provided for the Landlord's Contribution, than at any
time following the Commencement Date for Suite 1000 but prior to
December 31, 2000, Tenant shall be permitted to utilize such savings
towards other improvement work in the Premises, provided that such
work is subject to the prior written approval of Landlord
("Additional Improvements"). Tenant acknowledges that any such excess
funds shall be utilized by no later than December 31, 2000;
thereafter, any remaining funds of the Landlord's Contribution shall
inure to the benefit of Landlord and shall be considered forfeited by
Tenant. It is understood that the Additional Improvements shall be
done during Tenant's occupancy of Suite 1000. In this regard, Tenant
agrees to assume any risk of injury, loss or damage which may result.
Tenant further agrees that no rental abatement shall result while the
Additional Improvements are completed in Suite 1000.
B. The Completion Cost shall include all direct costs of Landlord in
completing the Tenant Improvements, including but not limited to the
following: (i) payments made to architects, engineers, contractors,
subcontractors and other third party consultants in the performance
of the work, (ii) permit fees and other sums paid to governmental
agencies, (iii) costs of all materials incorporated into the work or
used in connection with the work, and (iv) keying and signage costs.
The Completion Cost shall also include an administrative/ supervision
fee to be paid to Landlord in the amount of five percent (5%) of all
such direct costs.
C. Prior to start of construction of the Tenant Improvements, Tenant
shall pay to Landlord the amount of the Tenant's Contribution set
forth in the approved Final Cost Estimate. In addition, if the actual
Completion Cost of the Tenant Improvements is greater than the Final
Cost Estimate because of modifications or extras not reflected on the
approved working drawings, or because of Tenant
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Delays,then Tenant shall pay to Landlord, within ten (10) days
following submission of an invoice therefor, all such additional
costs, including any additional architectural fee. If Tenant defaults
in the payment of any sums due under this Work Letter, Landlord shall
(in addition to all other remedies) have the same rights as in the
case of Tenant's failure to pay rent under the Lease.
D. After the Tenant Improvements to Suite 1000 are substantially
completed (excepting punch list items) and prior to the Commencement
Date for Suite 1000, Landlord shall cause Landlord's contractor to
inspect Suite 1000 with the Tenant's representative and complete a
punch list of unfinished or incorrect items of the Tenant
Improvements. Authorized representatives for the Landlord and Tenant
shall execute said punch list to indicate their approval thereof. The
items listed on such punch list shall be completed by Landlord within
thirty (30) days after the approval of such punch list or as soon
thereafter as reasonably practicable.
E. The following costs shall be borne solely by Landlord (and Landlord's
Contribution shall not be used to pay for the same): (1) attorneys'
fees and costs incurred in connection with the negotiation of
construction contracts and architectural agreements or the resolution
of any disputes concerning construction, (2) premiums for any bonds
obtained in connection with the construction, (3) costs associated
with financing the construction costs, (4) costs incurred due to
Landlord's or Landlord's employees', agents' or contractors' delay,
negligence or willful misconduct, (5) penalties and late charges
attributable to the failure of Landlord or Landlord's employees,
agents or contractors to pay construction costs.
<PAGE> 1
EXHIBIT 10.7.1
LEASE AGREEMENT
VENTURE TECHNOLOGY CENTER VI BUILDING
THE WOODLANDS, MONTGOMERY COUNTY, TEXAS
THIS LEASE AGREEMENT (the "Lease") is made and entered into as of the
15th day of August, 1995, ("Effective Date") between THE WOODLANDS CORPORATION,
a Delaware corporation ("Lessor"), whose address for purposes hereof is 2201
Timberloch Place, The Woodlands, Texas 77380, and TENNECO BUSINESS SERVICES
INC., a Delaware Corporation ("Lessee"), whose address, for the purposes hereof
is 8401 New Trails Drive, The Woodlands, Texas 77381.
1. Premises. Upon the terms, provisions and conditions hereinafter set
forth, Lessor does hereby lease, demise and let to Lessee, and Lessee does
hereby lease and take from Lessor that certain building ("Building" or
"Premises") containing 71,000 rentable square feet of floor space, a floor plan
of which is attached hereto as Exhibit "A", together with all appurtenances
thereto, located at 8401 New Trails Drive, The Woodlands, Montgomery County,
Texas. The Building is located on a tract of land containing 6,495 acres, as
described in Exhibit "A-1" attached hereto ("Land"). At no additional cost,
Lessee shall also have the exclusive right to use 300 parking spaces in the
parking areas provided by Lessor on the Land and to use all access drives for
access to the parking spaces.
2. Term. The term of this Lease ("Term") shall commence on April 1,
1996 ("Commencement Date"), and shall expire on March 31, 2006. ("Termination
Date"), subject to earlier termination as hereinafter provided. Lessor agrees to
promptly commence construction of the Building in accordance with Exhibit "B"
attached hereto and shall use its best efforts to have the Premises, including
all tenant improvements to be made by Lessor pursuant to Exhibit "B",
substantially completed and ready for occupancy on or before the Commencement
Date. If the Premises are not substantially complete and ready for occupancy on
or before the Commencement Date set forth herein, said date subject to extension
due to delays caused by Lessee or events of force majeure or weather delays,
then the Commencement Date and Termination Date of the Lease shall be extended 1
day for each day of such delay. Notwithstanding anything contained herein to the
contrary, if the Premises are not substantially complete and ready for occupancy
by July 1, 1996, which date shall not be extended for any reason, including
force majeure and weather delays, except for delays caused by Lessee, Lessee
shall have the right to terminate the Lease by written notice to Lessor. Lessee
agrees to execute a memorandum setting forth the Commencement Date and
Termination Date on or prior to the actual Commencement Date of the Lease.
3. Use. Lessee shall use the entire Premises solely for office and
research purposes, and for no other use.
4. Security Deposit. INTENTIONALLY DELETED.
<PAGE> 2
5. Base Rent. The Base Rent, which Lessee hereby agrees to pay to
Lessor monthly, in advance, at Lessor's address stated above, shall be, as
follows:
Lease Years Monthly Base Rent 1/12th of
----------- ---------------------------
1 - 5 $6.19 Per Rentable Square Foot of
Floor Space in the Premises Per Year
6 - 10 $7.69 Per Rentable Square Foot of
Floor Space in the Premises Per Year
Base Rent payments shall be due and payable on the first day of each calendar
month during the Term hereof, without offset or deduction. A late charge of 10%
shall be added to any payment of Base Rent or Additional Rent which remains
unpaid after more than 10 business days after written notice thereof from
Lessor. "Lease Year" shall be that period commencing on the Commencement Date
and ending 12 months thereafter.
6. Additional Rent. Lessee agrees to pay all Operating Expenses (as
defined in Section 7 below) Within 90 days following the completion of each
calendar year, Lessor will provide to Lessee a statement showing in reasonable
detail the Operating Expenses for the preceding calendar year, the Additional
Rent due and Lessor's reasonable estimate of Operating Expenses for the then
current calendar year. Lessee shall, on or before 30 days following receipt of
said statement, pay to Lessor the amount of Additional Rent due as provided
herein, less the amount of Additional Rent paid in advance (if any) during the
preceding calendar year. Any overpayment will be credited by Lessor to the next
rental payment(s) due or refunded to Lessee upon Lessee's request. Lessee agrees
to pay Additional Rent each month thereafter, in addition to Base Rent, in an
amount necessary to amortize the estimated Operating Expenses for the then
current calendar year over a period equal to the lesser of (i) the number of
months remaining in the Term or (ii) the number of months remaining in the
current calendar year. Notwithstanding that the Term has expired or been
terminated, Lessee shall remain liable for and agrees to pay to Lessor within 30
days following receipt of an invoice therefor, its portion of Operating Expenses
for the calendar year (or portion thereof) during which the Term expired or was
terminated. Lessee shall have the right, at its expense and at a reasonable
time, to audit Lessor's books relevant to the Additional Rent due under this
Section. If an error is found in the amount of Additional Rent in excess of 3%,
Lessor will reimburse Lessee for the cost of the audit, not to exceed $1,000.00.
Lessee also agrees to pay to Lessor, as Additional Rent, a management fee
("Management Fee"). During the calendar year 1996 (ending December 31, 1996) the
Management Fee shall be $20,000 (prorated monthly during the Term as hereinafter
provided). Beginning in the second Lease Year the Management Fee shall be
increased or decreased by the amount of increase or decrease, if any, in the
Consumer Price Index published by the Department of Labor for the Houston
Metropolitan Area for all wage earners (or equivalent index chosen by Lessor if
said index is no longer published) for the prior year. Lessee agrees to pay the
Management Fee each month, in addition to other Additional Rent and Base Rent,
during each calendar year of the Term in an amount necessary to amortize the
Management Fee for the then current calendar year over a 12 month period. For
the calendar year in which the Term begins or ends, Lessee shall only be
responsible for the amortized Management Fee for the months of each such
calendar year that the Lease is in force. It is understood and agreed that the
estimated Operating Expenses for calendar year 1996 will be approximately $4.60
per net rentable square feet of floor space in the Premises (with tax abatement)
if the Building were
<PAGE> 3
in existence for the full calendar year 1996.
7. Operating Expenses. The term "Operating Expenses", as used in this
Lease, means all of Lessor's costs to operate and maintain the Land and the
Building, including, but not limited to, (except to the extent and only to the
extent same are Lessor's obligation to pay or furnish under the other provisions
of this Lease), all sums expended by Lessor, or in the case of major repairs or
improvements having a life expectancy in excess of 1 year, an amortized portion
of such sums, whether or not such repair or improvement is properly chargeable
to capital expenses or capital improvements under generally accepted accounting
principals, in connection with providing heating, air conditioning, utilities,
janitorial services and supplies, "courtesy guard" services, elevator
maintenance, landscaping, parking area maintenance and lighting, and general
maintenance and repairs. Operating Expenses shall also include all ad valorem
taxes or assessments and Annual Assessments of The Woodlands Commercial Owners
Association, which accrue against the Building or the Land during the Term,
together with all insurance premiums, if any, which Lessor is required to pay or
deems necessary to pay, with respect to the Building or the Land. It is
understood and agreed that Operating Expenses shall not include those items set
forth on Exhibit "D" attached hereto.
8. Services to be Furnished by Lessor. Lessor covenants and agrees to
provide and pay for, as part of Operating Expenses, the following:
A. Gas and electricity;
B. Hot and cold water at those points of supply specified in
the building plans and specifications and in the tenant finish work
plans and specifications;
C. Central heat and air conditioning, as per drawings of the
Building furnished to Lessee at the times determined by Lessee.
D. Janitor and waste disposal service as set out in the
specifications attached hereto as Exhibit "E" five days a week, except
on Lessee's holidays, a list of which will be delivered to Lessor on or
before January 1 of each year of the Term. The list of Lessee's
holidays for calendar year 1996 shall be delivered to Lessor prior to
the Commencement Date;
E. Except as otherwise expressly stipulated herein, Lessor
shall make, do and perform all maintenance or repairs of any kind or
character on the Land, parking areas, the Building and all building
machinery and components, which shall include the painting and repair
of walls, floors, corridors, windows and other structures and equipment
serving the Premises, and such repairs and maintenance thereto as may
be necessary because of damage or negligence by persons other than
Lessee, its agents, employees, invitees, licensees or visitors; and
F. Maintenance upon request by Lessee, of Lessee's leasehold
improvements for a sum equal to Lessor's actual cost of such
maintenance plus l0% overhead.
Failure by Lessor to any extent to furnish these defined services or
any cessation thereof which results from causes beyond the control of Lessor
shall not render Lessor liable in any respect for damages to either person or
property, nor be construed as an eviction of Lessee, nor work an abatement of
rent, nor relieve Lessee from fulfillment of any covenant or agreement herein.
In the event of any
<PAGE> 4
such interruption, however, Lessor shall use reasonable diligence during normal
business hours to restore such service in any circumstance in which such
restoration is within the reasonable control of Lessor.
The costs of the Services provided by Lessor shall not exceed
competitive costs for the services. Upon Lessee's written request, Lessor shall
secure bids for the services rendered and re-bid the services if costs are not
competitive or change contractors if the services performed are not satisfactory
to Lessee.
9. Peaceful Enjoyment. Lessee shall and may peacefully have, hold and
enjoy the Premises for the Term, subject to the terms and conditions of this
Lease, provided that Lessee pays the rentals and other sums herein recited and
performs all of its covenants and agreements herein contained. It is understood
and agreed that this covenant and any and all other covenants of Lessor
contained in this Lease shall be binding upon Lessor and its successors and
assigns, but only with respect to breaches occurring during its and their
respective ownership of Lessor's interest hereunder.
10. Covenants of Lessee.
A. Payment. Lessee shall pay all rent and other sums provided
to be paid to Lessor hereunder at the time and in the manner herein
provided.
B. Repairs by Lessee. Lessee shall pay to Lessor all of
Lessor's actual costs and expenses, plus 10% overhead, to repair or
replace any damage or injury done to the Building or any part thereof
(except improvements installed by Lessee and normal wear and tear),
caused by Lessee or Lessee's agents, employees, invitees, licensees or
visitors. Said sums shall constitute Additional Rent due with the next
payment of Base Rent.
C. Waste or Damage. Lessee shall not commit or allow any waste
or damage to be committed to any portion of the Building or the Land,
and at the termination of this Lease by lapse of time or otherwise,
shall deliver up the Premises to Lessor in as good condition as at the
commencement date of this Lease, ordinary wear and tear excepted.
D. Alterations Additions and Improvements. Lessee shall not
make or allow to be made any alterations or physical additions in or to
the Premises which affect the structural integrity of the Premises
without first obtaining the written consent of Lessor, which consent
shall not be unseasonably withheld or delayed. Any and all alterations,
additions or improvements shall be made at Lessee's sole expense. All
such alterations, additions or improvements shall, upon completion,
become the property of Lessor and shall be surrendered to Lessor upon
the termination of this Lease by lapse of time or otherwise; provided,
however this clause shall not apply to removable equipment or furniture
owned by Lessee and which can be removed without damage to the Building
or the Premises. Lessee agrees to provide Lessor with as-build drawings
of alterations and improvements Lessee makes to the Premises. Lessor
agrees that Lessee may make initial improvements to the Premises on the
terms set forth in Exhibit "B" attached hereto.
E. Lessee's Duty to Provide Security. Lessee, at Lessee's own
cost and expense at all
<PAGE> 5
times during the term of this Agreement, agrees to provide and be
responsible for the safety and security of the Premises.
F. Use and Insurance Rates. Lessee shall not use or permit the
Premises to be used for any other purpose than that stated in Section 3
hereof, or occupy1 use or permit any portion of the Premises to be
occupied or used for any business or purpose which is unlawful,
disreputable or deemed to be extrahazardous on account of fire, or
permit anything to be done which would in any way increase the rate of
fire insurance on the Building or its contents. If an increase in the
fire and extended coverage insurance premiums paid by Lessor for the
Building is caused by Lessee's use and occupancy of the Premises, then
Lessee shall pay as Additional Rent due with the next payment of Base
Rent after written notice, the full amount of such increase, in
addition to all other sums due hereunder.
G. Compliance With Laws. Lessee shall promptly comply with all
present and future laws, ordinances, orders, rules, regulations and
requirements of all federal, state, and municipal governments,
including all municipal and road utility districts and municipal
utility districts, departments, commissions, boards and officers
thereof, or any other body exercising similar functions, which now or
hereafter may be applicable to the Premises, the improvements in the
Premises, or to the use or manner of use of the Premises or the
improvements, including but not limited to, all environmental laws and
the Americans With Disabilities Act. In the event of a violation of any
environmental law by lessee, Lessee shall conduct a Standard 1 cleanup
so that there is a total and complete removal of all contaminates from
the Premises. No such cleanup shall be subject to a risk reduction
standard and no deed recordation notice shall be recorded by Lessee
against the Premises.
H. Compliance With Rules and Regulations. Lessee will comply
with the Rules and Regulations of the Building, a copy of which are
attached hereto as Exhibit "C". Lessor may amend said Rules and
Regulations, from time to time, if reasonably necessary for the safety,
care or cleanliness of the Building, provided that no amendment shall
alter any covenant or provision contained in this Lease. Lessee agrees
to comply with any amendment which is made to said Rules and
Regulations in compliance with the terms of this paragraph.
I. Entry by Lessor. Lessee shall permit Lessor or Lessor's
agents, representatives, or employees to enter upon the Premises at
reasonable times, and upon having given Lessee reasonable advance
notice, (a) to inspect the Premises, to determine whether Lessee is in
compliance with the terms of this Lease; (b) to show the Premises to
prospective purchasers, mortgagees, beneficiaries under trust deeds, or
insurers (but as to prospective lessees only during the last 7 months
of the Term), and (c) to make repairs, improvements, additions and
alterations thereto, as Lessor is permitted to make according to the
terms of the Lease. Any inspections of the Premises pursuant to this
subparagraph shall be at Lessor's cost and expense; provided, however,
in the event it is determined by Lessor that an environmental study
should be conducted on the Premises and said environmental study
determines that Lessee has not complied with all then existing
environmental laws, Lessee shall reimburse Lessor for the cost of the
study within 15 days after receipt of an invoice setting forth the
cost, and Lessee shall promptly take all action necessary to remedy any
noncompliance discovered by such study in accordance with subparagraph
F hereinabove.
J. Nuisance. Lessee shall conduct its business and control its
agents, employees,
<PAGE> 6
invitees and visitors in such a manner as not to create a nuisance or
interfere with, annoy or disturb any other tenant in the Building or
Lessor in its management of the Building.
11. Liens. In the event that any mechanic's, materialmen's, or other
lien shall at any time be filed against the Premises, the Building or the Land
purporting to be for work, labor, services or materials performed for or
furnished to Lessee or anyone holding the Premises through or under Lessee, or
arising out of any alleged act or omission of Lessee, Lessee shall forthwith
cause the same to be properly bonded or released. If Lessee shall fail to cause
such lien to be bonded or released within 15 days after being notified of the
filing thereof, then, in addition to any other right or remedy of Lessor, Lessor
may, but shall not be obligated to, discharge the same by posting a bond or
paying the amount claimed to be due, and the amount so paid by Lessor, and all
costs and expenses incurred by Lessor in procuring the discharge of such lien,
including reasonable attorney's fees, shall be due and payable by Lessee to
Lessor as Additional Rent on the first day of the next succeeding month. Notice
is hereby given that Lessor shall not be liable for any labor or materials
furnished to Lessee upon credit, and that no mechanics', materialmen's or other
liens for any such labor or materials shall attach to or affect the estate or
interest of Lessor in and to the Land or Building.
12. Subordination. Lessee agrees that this Lease is and shall be
subordinate to any mortgage or deed of trust which may now or hereafter encumber
the Building or the Land, and to all renewals, modifications, consolidations,
replacements and extensions thereof, provided, however, that the holder of any
such mortgage or deed of trust shall agree that Lessee shall not be disturbed in
its possession of the Premises or its rights hereunder terminated or amended by
the mortgagee, any purchaser at or in lieu of foreclosure or other party so long
as Lessee is not in default under this Lease. In confirmation of such
subordination, Lessee shall at Lessor's request execute promptly any appropriate
certificate or instrument that Lessor may reasonably request. In the event of
the enforcement by the trustee or the beneficiary under a mortgage or deed of
trust of the remedies provided for by law or by such mortgage or deed of trust,
Lessee will, upon request of any person or party succeeding to the interest of
Lessor as a result of such enforcement, automatically become the lessee of such
successor in interest without change in the terms or other provisions of this
Lease; provided, however, that such successor in interest shall not be bound by
(i) any payment of Base Rent or Additional Rent for more than one month in
advance except prepayments in the nature of security for the performance by
Lessee of its obligations under this Lease; (ii) any amendment or modifications
under this Lease made without the written consent of such trustee, beneficiary,
or successor in interest; (iii) any default by the prior owner or landlord in
the observance or performance of any of its covenants or obligations hereunder
any right of offset which Lessee may have had against the prior owner or
landlord. Upon request by any successor in interest, Lessee shall execute and
deliver an instrument or instruments confirming the attornment herein provided
for. It is understood and agreed that Lessor shall use reasonable efforts to
obtain a commercially reasonable Nondisturbance, Attornment and Subordination
Agreement from all mortgagees of the Premises.
Within 15 days after Lessor's request, Lessee agrees to execute an
estoppel certificate or other agreement certifying to Lessor and/or any
mortgagee of the Building such facts and agreeing to such reasonable notice
provisions as such mortgagee may request in connection with Lessor's financing,
subject, however, to the non-disturbance rights of Lessee above-described. In
addition, Lessee hereby irrevocably appoints Lessor its attorney in fact to
execute in its place and stead any such estoppel certificate or other instrument
required under this Section.
13. Condemnation. If the whole or any part of the Premises
shall be taken under the power of
<PAGE> 7
eminent domain, this Lease shall terminate as to the part so taken on the date
Lessee is required to yield possession thereof to the condemning authority.
Lessor shall make such repairs and alterations as may be necessary in order to
restore the part not taken to a useful condition, and the Base Rent shall be
reduced proportionately to the portion of the Premises so taken. If the amount
of the Premises so taken substantially impairs the usefulness of the Premises
for the purposes set forth in Section 3, either party may terminate this Lease
within 30 days after Lessee is dispossessed, effective as of the date when
Lessee is required to yield possession. All compensation awarded for any taking
shall belong to and be the property of Lessor.
14. Fire and Casualty. In the event of a fire or other casualty in the
Premises, Lessee shall immediately give notice thereof to Lessor. If the
Premises, through no fault or neglect of Lessee, its agents, employees,
invitees, licensees or visitors, shall be destroyed by fire or other casualty so
as to render the Premises unrenantable, the rental herein shall be reduced
proportionally to the portion of the Premises rendered unrenantable until such
time as the Premises are made tenantable by Lessor. If from such cause the same
shall be so damaged that Lessor shall decide not to rebuild, then all rent and
other sums owed hereunder up to the time of such destruction or casualty shall
be paid by Lessee, arid thenceforth this Lease shall cease and come to an end.
Notwithstanding anything contained herein to the contrary, if Lessor decides to
rebuild the Premises and the repairs are contemplated to take more than 180 days
after the date of the casualty or completed within the last 12 months of the
Term, Lessee may terminate the Lease on written notice to Lessor if Lessor is
unable to provide alternate space acceptable to Lessee for the period the
Premises are unrenantable.
15. Casualty Insurance. Lessor shall, at all times during the Term,
maintain a policy or policies of insurance with the premiums thereon fully paid
in advance, issued by and binding upon some solvent insurance company, insuring
Lessor's interest in the Building against loss or damage by fire and other
hazards within the coverage of a Texas standard form of fire and extended
coverage policy, for the full replacement value thereof, with payments for
losses thereunder payable solely to Lessor or its designee. Lessee may maintain
in force a like policy insuring Lessee's interest in any furniture, equipment,
machinery, goods or supplies which Lessee may bring or obtain upon the Premises,
or any improvements which Lessee may construct thereon.
16. Liability Insurance. Lessor and Lessee shall each maintain, at its
expense, at all times during the Term, a policy or policies of commercial
general liability insurance, with the premiums thereon fully paid in advance,
issued by (i) an insurance company or companies rated "A-" or higher under the
most current edition of A.M. Best's Key Rating Guide, (ii) a Lloyds of London
underwriter, or (ii) an insurance company agreed to by Lessor. All insurers must
be licensed to do business in the State of Texas. The insurance shall afford
protection of not less than $2,000,000 combined single limit bodily injury and
property damage per occurrence. The policy or policies shall name Lessor as an
additional insured. As to any injury or damage occurring in or on the Premises,
Lessee's insurance shall be primary. As to any injury or damage occurring
outside of the Premises, to the extent that Lessee and Lessor have overlapping
insurance coverage, the allocation of coverage between the policies shall be
based upon the percentage of legal responsibility of the named insured under
each policy. Lessee's policy shall contain an agreement by the insurer that such
policy, or policies may not be cancelled or materially modified without 30 days'
prior notice to Lessor. Lessee shall provide Lessor a copy of the required
policy or policies, or a certificate evidencing the required coverage, before
beginning any work in the Premises or taking occupancy of same. Additionally,
Lessee shall provide Lessor evidence of the renewal of each policy at least 30
days before the expiration of the policy. Notwithstanding anything contained
herein to the contrary, Lessee shall have the right to self-insure,
<PAGE> 8
as to the insurance requirements set forth herein; provided, Lessee shall no
longer be permitted to self-insure it its net worth shall fall below
$10,000,000.00.
17. Release of Claims: Waiver of Subrogation. Anything in this Lease to
the contrary notwithstanding, Lessor and Lessee each waive any and all right of
recovery, claim, action or cause of action against the other and its partners
(if any), and the agents, officers , and employees of the other party or its
partners, for any loss or damage
(i) to the Premises, the Building, or any improvements
thereto, or any personal property of such party
therein, by reason of fire, the elements or any other
cause which could have been insured against under a
Texas standard form of fire and extended coverage
insurance policy, or
(ii) arising out of any business interruption, including
but not limited to loss of profits, by reason of
fire, the elements or any other cause,
regardless of cause or origin, including the sole or concurrent negligence of
the other party or its partners, or the agents, officers, or employees of the
other party or its partners. Lessor and Lessee covenant that no insurer shall
hold any right of subrogation against the other party for any losses which could
be insured against under a Texas standard broad from policy of fire and extended
coverage insurance regardless of whether a policy is in force at the time of the
loss. This Section shall Survive the termination of this Lease
18. Release and Indemnification by Lessee. Subject to Section 17 above,
Lessee releases and agrees to defend, indemnify and hold Lessor and its
partners, and the agents, officers and employees of Lessor or its partners,
harmless from and against all claims or causes of action for damage or injury or
death to persons or property occurring on or in the Premises, unless caused by
the negligent or willful act or omission of Lessor.
19. Holding Over. In the event of holding over by Lessee after the
expiration or termination of the Term and without the written consent of Lessor,
Lessee shall pay monthly rent equal to 150% of the amount of all Base Rent and
Additional Rental payable during the last month of the Term. Further, Lessee
shall indemnify Lessor against all claims for damages by any other lessee to
whom Lessor may have leased all or any part of the Premises. No holding over by
Lessee, either with or without the consent and acquiescence of Lessor, shall
operate to extend the Lease for a longer period than I month. Any holding over
with the consent of Lessor in writing shall thereafter constitute this Lease a
lease from month to month.
20. Default by Lessee. If (a) Lessee defaults in the timely payment of
any sum to be paid by Lessee under this Lease and said default continues for
more than 10 days after Lessor delivers written notice to Lessee as described in
Article 25 hereof; (b) Lessee defaults in the performance of any of its other
duties or obligations under this Lease and such default Continues for 20 days
after Lessor delivers written notice to Lessee as described in Article 25
hereof, except that said 20 day period will be extended up to 45 days if Lessee
commences to cure the default within the 20 day period and diligently proceeds
to cure the default; (c) any of the following actions occur and Lessee fails to
Vigorously contest and cause same to be removed, dismissed, or vacated within 30
days from the date of entry or filing: (i) Lessee's interest under this Lease is
levied on under execution or other legal
<PAGE> 9
process, or (ii) any petition is filed by or against Lessee to declare Lessee a
bankrupt or to delay, reduce or modify Lessee's debts or obligations, or (iii)
any petition under the Bankruptcy Code is filed or other action taken to
reorganize or modify Lessee's capital structure, or (iv) Lessee is declared
insolvent according to law, or (v) any general assignment of Lessee's property
is made for the benefit of creditors, or (vi) a receiver or trustee is appointed
for Lessee or its property; (d) if Lessee is a corporation, Lessee ceases to
exist as a corporation in good standing in the State of Texas; or (e) if Lessee
is a partnership or other entity, Lessee is dissolved or otherwise liquidated,
then Lessor may treat the occurrence of any one or more of the foregoing events
as a breach of this Lease and thereupon, at Lessor's option, Lessor may have any
one or more of the following described remedies, in addition to all other rights
and remedies provided at law or in equity:
A. Lessor may terminate this Lease and forthwith repossess the
Premises and be entitled to recover forthwith as damages a sum of money
equal to the total of (i) the cost of recovering the Premises,
including the cost of the removal and storage of any of Lessee's
possessions left within the Premises, (ii) the unpaid Base Rent and
Additional Rent earned at the time of termination, plus interest
thereon at the lesser of 18% or the then maximum interest rate
permitted to be charged by applicable law ("Interest") from the due
date until paid, (iii) the balance of the Base Rent and Additional Rent
for the remainder of the Term, less the present fair market rental
value (allowing a reasonable period for reletting) of the Premises for
said period, both discounted to their present values at the rate of 12
% per annum (provided said sum shall not be less than zero), and (iv)
any other sum of money and damages owed by Lessee to Lessor.
B. Without terminating this Lease, Lessor may terminate
Lessee's right of possession and repossess the Premises by forcible
entry and detainer suit or otherwise, without demand or notice of any
kind to Lessee. If Lessor pursues this remedy, Lessor may, but shall
not be obligated to, relet the Premises for Lessee's account, for such
rent and upon such terms and conditions as Lessor deems satisfactory.
For the purpose of such reletting, Lessor is authorized to decorate or
to make any repairs, changes, alterations or modifications in or to the
Premises as it deems necessary to prepare the Premises to relet at
Lessee's expense. If Lessor fails to relet the Premises, then Lessee
shall pay to Lessor as damages a sum equal to the amount of the Base
Rent and Additional Rent provided for in this Lease for such period or
periods. If Lessor relets the Premises and fails to realize a
sufficient sum from such reletting after deducting (a) the due and
unpaid Base Rent and Additional Rent, (b) the accrued Interest thereon,
(c) the cost of recovering possession, (d) the costs and expenses of
all decorations, repairs, changes, alteration and modifications, and
(e) the expense of such reletting and the collection of the rent
accruing therefrom, then Lessee shall pay to Lessor any such deficiency
upon demand from time to time. Lessor may file one or more suits to
recover any sums falling due under this Section from time to time. Any
reletting shall not be an election by Lessor to terminate this Lease
unless Lessor gives a written notice of such intention to Lessee.
Notwithstanding any such reletting without termination, Lessor may at
any time thereafter elect to terminate this Lease for such previous
default.
C. Lessor may change the locks on the Premises and not return
the new key to the Lessee unless the Lessee cures the default(s). The
Lessor will not have to give the Lessee a new key unless the Lessee
cures the default(s); and the new key will be provided only during
Lessor's regular business hours.
<PAGE> 10
21. Waiver. Failure of Lessor to declare any default immediately upon
occurrence thereof, or delay in taking any action in connection therewith, shall
not waive such default, but Lessor shall have the right to declare any such
default at any time and take such action as might be lawful or authorized
hereunder, either in law or at equity.
22. Lien for Rent. INTENTIONALLY DELETED.
23. Assignment by Lessor. Lessor shall have the right to sell, transfer
or assign, in whole or in part, all of its rights and obligations hereunder and
in the Building and the Land. In such event and upon the assumption by such
transferee of Lessor's obligations hereunder, no further liability or obligation
shall thereafter accrue against Lessor hereunder. Lessee may assign this Lease
or any interest therein, sublet the Premises or any part thereof or any right or
privilege appurtenant thereto, and permit any other person, firm or entity to
occupy or use the Premises or any portion thereof without obtaining the written
consent of Lessor. An assignment or sublease shall not release Lessee from
liability for the continued performance of the terms and provisions to be kept
and performed by Lessee hereunder, unless Lessor specifically and in writing
releases Lessee from said liability. Lessee covenants and agrees that in the
event the subletting or assignment is to be arranged through public
advertisement or listing of any kind, Lessee will treat any such applications
for sublease or assignment received from public advertising or listing in a
uniform manner and will award leases according to objective standards. No
decision on any application shall be made on the grounds of the applicant's
race, color, religion, sex, handicap, familial status, or national origin.
25. Transfer of Control. INTENTIONALLY DELETED.
26. Notices. Any notice required or permitted to be given pursuant to
the terms of this Lease shall be in writing and shall be deemed to have been
given: (a) on the 3rd business day after being properly deposited in certified
or registered U.S. mail, return receipt requested, or (b) when delivered by a
reputable overnight courier, providing confirmation of delivery, to Lessor at
2201 Timberloch Place, The Woodlands, Texas 77380, Attn: Property Management,
and to Lessee at the Premises, Attn: Vice President, with a copy to 1010 Milam,
P.O. Box 2511, Houston, Texas 77252, Attn: Legal Department. The place to which
such notices shall be sent may be changed by either party giving notice of such
change to the other party in the manner hereinabove provided.
27. Severability. If any of the provisions of this Lease shall
contravene or be invalid under the laws of the particular state, county, or
jurisdiction where applied, such contravention or invalidity shall not
invalidate the Lease or any other portions thereof and the remainder of this
Lease or the application thereof to other persons or circumstances shall not be
affected thereby.
28. Corporate Authority. If Lessee signs as a corporation, each of the
persons executing this Lease on behalf of Lessee represents and warrants that
Lessee is a duly organized and existing corporation, that Lessee has and is
qualified to do business in Texas, that the corporation has full right and
authority to enter into this Lease, and that all persons signing on behalf of
the corporation were authorized to do so by appropriate corporate actions.
29. Title. This Lease is subject to all matters of record in the Real
Property Records of
<PAGE> 11
Montgomery County. By execution of the Lease, Lessee consents to all plats and
replats of the Land, if any, in compliance with all applicable laws.
30. Not an Offer. The submission of this Lease to Lessee shall not be
construed as an offer, nor shall Lessee have any rights with respect thereto
unless Lessor executes a copy of this Lease and delivers the same to Lessee.
31. Exhibits, Riders and Addenda. This Lease also includes and
incorporates herein for all purposes all attached Exhibits, Riders, and Addenda,
if any.
32. Joint and Several Tenancy. If more than one person executes this
Lease as Lessee, their obligations hereunder are joint and several, and any act
or notice of or to, or refund to, or the signature of, any one or more of them,
in relation to the renewal or termination of this Lease, or under or with
respect to any of the terms hereof shall be fully binding on each and all of the
persons executing this Lease as a Lessee.
33. Binding Effect. This Lease shall be binding upon and inure to the
benefit of the heirs, successors or assigns of Lessor and Lessee, subject to the
limitation on subleasing and assignment herein contained.
34. Entire Agreement. This Lease shall constitute the sole and only
agreement of Lessor and Lessee with regard to the lease of the Premises, and
shall supercede any prior or contemporaneous oral or written agreements. This
Lease may not be altered, changed or amended, except by an instrument in
writing, signed by both parties hereto.
35. Pronouns. Pronouns which refer to either Lessor or Lessee shall be
construed to mean the appropriate number and gender intended.
36. Force Majeure. If either party shall be delayed or prevented from:
the performance of any act required hereunder by reason of acts of God, strikes,
lockouts, labor troubles, inability to procure materials, restrictive
governmental laws or regulations or other cause without fault and beyond the
control of the party obligated (financial inability, such as inability to obtain
financing or a party's lack of capital, excepted), performance of such act shall
be excused for the period of the delay, and the period for the performance of
any such act shall be extended by a period equal to the period of such delay;
provided, however, nothing in this Section shall excuse Lessee from the prompt
payment of any rental or other charge required of Lessee hereunder, except as
may be expressly provided elsewhere in this Lease.
37. General. Time is of the essence of this Lease. All rights and
remedies of Lessor and Lessee under this Lease shall be cumulative and none
shall exclude any other rights or remedies allowed by law. This Lease shall be
declared to be a Texas lease, and all of the terms hereof shall be construed
according to the laws of the State of Texas. Said Lease shall be performable
only in Montgomery County, Texas, and venue for any action hereunder shall be
exclusively in Montgomery County, or in the Southern District of Texas, Houston
Division, as appropriate.
IN TESTIMONY WHEREOF, the parties hereto have executed this Lease in
duplicate counterparts, each of which shall constitute an original but
collectively shall constitute only one document, such execution to be effective
on the date first above written.
<PAGE> 12
LESSOR
THE WOODLANDS CORPORATION
Date: By: /s/ Michael H. Richmond
------------------------ --------------------------------------------
Name: Michael H. Richmond
Title: Executive Vice President
LESSEE
TENNECO BUSINESS SERVICES INC.
Date: By: /s/ Matthew W. Appel
------------------------ --------------------------------------------
Name: Matthew W. Appel
Title: President
<PAGE> 13
THE WOODLANDS RESEARCH FOREST
6.495 ACRES
Being a 6.495 acre tract of land situated in Montgomery County, Texas in the
Henry Applewhite Survey, A-51, and being all of Restricted Reserve "B", of
Medical Research Park Section 5 as recorded in Cabinet "G", Sheet 68-B of the
Montgomery County Map Records and being more particularly described by metes and
bounds as follows with all control referred to the Texas State Plane Coordinate
System, Lambert Projection, South Central Zone:
BEGINNING at a 5/8 inch iron rod with an aluminum cap found for the north corner
of said Restricted Reserve "B", common to the east corner of Reserve "A" of
Medical Research Park Section 6 as recorded in Cabinet "H", Sheet 41-A of the
Montgomery County Map Records located in the southwest right-of-way line of New
Trails County Map Records. Said POINT OF BEGINNING having a Texas State Plan
Coordinate Value of X = 3,111,141.82, Y = 871,852.83 and being N 48'34'13" W,
1,581.93 feet from the southeast corner of said Henry Applewhite Survey, A-51,
common to the southwest corner of the James Stephens Survey, A-536, located in
the north line of the John Taylor Survey, A-547;
THENCE along the northeast line of said Reserve "B", common to the southwest
right-of-way line of said New Trails Drive, S 46'27'36" E, 490.00 feet to a
point for corner at the intersection of said southwest right-of-of-way line with
the northwest right-of-way line of Technology Forest Place as recorded with said
Section 5;
THENCE along the southeast line of said Reserve "B" common to the northwest
right-of-way line of said Technology Forest Place, S 01'27'36" E, 35.36 feet to
a point for corner;
THENCE continuing along said common line S 43'32'24" W, 525.00 feet to the south
corner of said Reserve "B" common to the east corner of Restricted Reserve "A"
of said Section 5;
THENCE along the common line between Reserves "A" and "B" N 46'27'36" W, 515
feet to the north corner of said Reserve "A" common to the west corner of said
Reserve "B" located in the southeast line of the above-mentioned Reserve "A" of
said Section 6;
THENCE along the common line between said Reserve "A" of Section 6 and Reserve
"B" of said Section 5, N 43'32'24" E, 550.00 feet to the POINT OF BEGINNING and
containing 6.495 acres of land.
EXHIBIT "A"
<PAGE> 14
Exhibit "B"
TENNECO BUSINESS SERVICES INC.
___________________________
___________________________
Re: Building Construction Agreement for a Building to contain
approximately 71,000 square feet ("Premises")
Gentlemen:
You (as "Lessee") and we (as "Lessor") are executing, simultaneously
with this letter agreement, a written lease covering space referred to above as
more particularly described in the Lease (and hereinafter called the
"Premises").
To induce Lessee to enter into the Lease (which is hereby incorporated
by reference to the extent that the provisions of the Lease may apply hereto)
and in consideration of the mutual covenants herein, Lessor agrees to construct
the Building, with Lessee completing its own Tenant Improvements on the
following terms and conditions:
(1) Improvement Plans and Specifications:
It is understood that the shell building plans and specifications are
complete. The building will be constructed in accordance with the plans
and specifications ("Shell Building Contract Documents") and the
following Construction Schedule. The aforementioned plans and
specifications have been bid, by six qualified General Contractors, and
were awarded to Fretz Construction.
(2) Bid Procedure:
As mentioned above, Shell Building Contract Documents for the building
have been bid and awarded to Fretz Construction.
It is Lessee's responsibility to award the construction contract for
the Tenant Improvements to a qualified contractor from a list mutually
acceptable to Lessee and Lessor. Lessee will contract direct with the
successful contractor and its is Lessee's responsibility to insure that
the established Tenant Improvement Construction Schedule is met.
<PAGE> 15
(3) Shell Building Construction Schedule:
The following schedule has been reviewed and approved by Lessee. "Days"
as used herein shall mean working days (Monday-Friday).
TENNECO PROJECT CONSTRUCTION SCHEDULE
-------------------------------------
Shell Building
Construction Schedule Estimated Start Date Estimated Completion Date
--------------------- -------------------- -------------------------
PER ATTACHED SCHEDULE "A"
(4) Substantial Completion:
The Premises shall be deemed substantially complete when Lessor has
procured and delivered to Lessee a certificate signed by Lessor and
Lessor's architect, certifying that the Premises is substantially
complete in accordance wit the Contract Documents. For the purposes of
the Lease and this Building Construction Agreement, the work to be done
by Lessor shall be deemed substantially complete even though minor
details or adjustments, which shall not materially interfere with
Lessee's use of the Premises, may not then have been completed, but
which work Lessor agrees will thereafter be completed within thirty
(30) days thereafter, subject to extension of delay in completion is
outside Lessor's reasonable control (i.e. nondelivery of items) or if
the work is not of the nature that it can reasonably be completed with
the thirty (30) days provided Lessor is diligently pursuing completion.
(5) Tenant Improvement Construction Schedule:
Lessee agrees to complete and approve Tenant Improvements Contract
Documents in accordance with the following schedule. "Days" as used
herein shall mean working days (Monday-Friday).
Tenant Improvement
Construction Schedule Estimated Start Date Estimated Completion Date
--------------------- -------------------- -------------------------
PER ATTACHED SCHEDULE "B"
(6) Lessee Delay:
Notwithstanding anything herein or in the Lease to the contrary, in the
event Lessor shall be delayed in substantial completion of the
Improvements as a result of an event of Lessee Delay, the commencement
of the Term of the Lease and the payment of rental thereunder
<PAGE> 16
shall be accelerated one (1) day for each day of such Lessee Delay. For
the purposes of the Exhibit "B", "Lessee Delay" shall mean any of the
following:
(a) Lessee's delay in completing Tenant Improvement Contract
Documents.
(b) Lessee's delay in bidding and awarding a construction
contract.
(c) Delay in the Construction Schedule due to delays on the part
of Lessee's contractor.
(7) Payment of Costs:
Lessor shall provide a Tenant Improvement Allowance of $15.00 per
square foot toward completion of Lessee's Tenant Improvements. Lessee
agrees to pay all Tenant Improvement costs in excess of the Tenant
Improvement Allowance. Lessee may hire Lessor to provide Construction
Management of Lessee's Tenant Improvements for a fee equal to three
percent (3%) of Tenant Improvement cost over and above Lessor's Tenant
Improvement Allowance.
If the foregoing correctly sets forth our understanding, kindly
acknowledge your approval in the space provide below for that purpose.
THE WOODLANDS CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
TENNECO BUSINESS SERVICES INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 17
OUTLINE SPECIFICATIONS
----------------------
TENNECO OFFICE BUILDING - VTC VI
--------------------------------
THE WOODLANDS, TEXAS
August 8, 1995
I. BUILDING DATA
A. Location: The Woodlands Research Forest
The Woodlands, Texas
B. Parcel Size: 6.5Acees
C. Building Size:
Office Building: 71,000 Square Feet
Parking: 300 cars - Regular Surface Parking Spaces
D. Stories:
Office Building: One (1)
II. SITE WORK
A. CLEARING:
All rubbish and debris will be removed from the site. All
shrubbery, grass and roots will be stripped away to a depth of
six inches under the building location and under all paving
areas.
B. STORM SEWER:
All paving areas will drain into an underground system which
will terminate in the street storm sewer piping. Roof areas
will drain to internal roof drains and into the underground
storm sewer.
C. PAVING:
1. Concrete paving shall consist of 5" thick, 3,000 psi
concrete reinforced with #3 bars at 18" o.c. each way
over a cement stabilized 8" sub-base. Construction
joints to be Armor stresslock galvanized steel
control joints sectioning paving into maximum 400
square foot areas. Expansion joints to be redwood
"Kelode" sectioning paving into maximum 400 square
foot areas. Tops of all joints to be sealed.
<PAGE> 18
Tenneco Office Building - VTC VI
Outline Specifications
August 8, 1995
Page 2
C. PAVING CONTINUED:
2. Curbs to be reinforced concrete.
3. Walks to be 4" thick, 2500 psi concrete with 6 x 6 x
10/10 W.W.M. on 1" sand base. Provide sawcut control
joints at 5'-0" o.c. and sealed expansion joints at
20'-0" o.c.
D. FILL:
Fill under building slab and paving areas to be select soil
with a maximum plasticity index of 20, compacted to a minimum
95% Standard Proctor Density. Cut and fill conditions to be
established on site grading and drainage plan.
E. SITE LIGHTING:
Parking areas shall be Illuminated with metal halide fixtures
on 12' poles. Dock area shall be illuminated with wall packs
mounted on concrete panels above the doors. Decorative granite
and glass lanterns will be located along the front walk.
F. DUMPSTER AREA.
Dumpster area shall be enclosed along three sides by a 7'
tilt-up concrete wall as shown on the drawings.
G. LANDSCAPING:
To be under separate contract. General Contractor shall bring
rough grade to within 8" of finish slab elevation; grade shall
slope uniformly away from building to paving areas, where
rough grade shall be brought to within 4" of top of curb.
General Contractor to provide P.V.C. sleeves under paving
areas for installation of landscape irrigation system. Areas
so designated on the drawings shall be fenced off so as to be
made "off limits" to any construction activity. After the
General Contractor has staked out the building location,
individual trees will be identified for preservation; these
trees will be protected during construction.
H. POND:
The Contractor will construct a pond where shown on the
drawings. The size and shape will be determined during
construction and will contain a fountain and separate rock
waterfall.
<PAGE> 19
Tenneco Office Building - VTC VI
Outline Specifications
August 8, 1995
Page 3
III. BUILDING SHELL
A. SLAB:
Concrete slab will be 4-1/2" thick, 3,000 psi concrete with 6
x 6 w2.9 x w2.9 lbs. w.w.f, cast over a 6 mil polyethe1ene
vapor barrier on a 1" sand leveling layer. Final elevations of
slab to be determined by Civil Engineer.
B. EXTERNAL SKIN:
Walls which face the rear of building are to be 5-1/2 " thick,
3,000 psi job-cast concrete panels (reinforcing to be
determined by the Structural Engineer). The panels are to be
painted with two coats of textured exterior latex over one
coat of alkali-resistive primer.
All other walls are to be constructed of an aluminum and glass
curtain wall system.
C. GLAZING:
Rear building glazing shall consist of high performance,
reflective 1/4" tempered glass in a clear anodized aluminum
1-3/4" x 4" flush glaze frame system. Glazing in curtain wall
system shall be butt glazed high performance, reflective 1/4"
tempered glass in a clear anodized aluminum 1-3/4" x 4" frame.
D. GLAZED ENTRY DOORS:
As part of the rear building wall system, two glazed entry
doors shall be installed. Each door to have automatic closers,
thresholds, and push and pull door hardware. Doors shall have
dear anodized narrow stile aluminum frames.
E. ROOF:
Shall be single ply Duro-last system on a 3" thick lightweight
concrete roof deck.
F. STRUCTURAL STEEL:
Structural framing shall be composed of steel pipe columns and
open web joists to support the roof deck. All structural
framing to be shop primed.
G. CLEAR HEIGHT:
16' minimum clear height to bottom of structure.
<PAGE> 20
Tenneco Office Building - VTC VI
Outline Specifications
August 8, 1995
Page 4
IV. BUILDING UTILITIES
A. ELECTRICAL:
Underground primary shall run to a pad-mounted transformer at
the rear of the site. Underground secondary will run from
transformer to a meter bank at the truck dock. Power provided
will be 48O/277V transformed to 280/120V. A separate 3" empty
conduit is provided to each building bay for fixture tenant
use.
B. GAS:
Gas service will be brought to the rear of the building and
terminated in stub-ups at each bay.
C. TELEPHONE:
Telephone service is brought underground to a telephone panel
located at the truck dock. Secondary cable will be run in the
roof joists along the rear of the building with connection
fittings at each bay.
D. PLUMBLNG:
Piping
Water piping (underground) - Type K Copper
Water piping (aboveground) - Type L Copper
Sanitary, Vents and Roof Drainage - Cast Iron
Sanitary Waste - PVC
Storm Drainage - PVC and Concrete
An insulated main water supply line is located along the
center of the building in the joist space. Valved tees are
located in this line in each building bay.
A main sanitary sewer line is located underground along the
center of the building.
V. ADA COMPLIANCE
The Building common areas and parking area will be constructed
in compliance with the American with Disabilities Act.
<PAGE> 21
EXHIBIT C
TO LEASE AGREEMENT
RULES AND REGULATIONS
PASSAGE WAY OBSTRUCTION
The sidewalks, entries, passages, courts, corridors and stairways shall not be
obstructed by any Lessee, its employees or agents, or used by them for other
purposes than for ingress and egress to and from their respective suites.
UPKEEP OF PREMISES
All glass, locks and trimmings in or about the doors and windows, and all
electric globes and shades belonging to the Building shall be kept whole, and
whenever broken by the Lessee or its agents or invitees, shall be immediately
replaced or repaired and put in order by Lessee to its condition prior to damage
under the direction and to the satisfaction of Lessor, and on removal shall be
left whole and in good repair.
SKYLIGHTS AND WINDOWS
No floors, skylights or windows that reflect or admit light into the corridors
or passage-ways, or to any other place in the Building, shall be covered or
obstructed by any tenant. If Lessee desires blinds or window coverings, they
must be of such shade, color, material and make as shall be prescribed by Lessor
(and any awning proposed may be prohibited by Lessor).
SIGNAGE
No sign, advertisement or notice shall be inscribed, painted or affixed on any
part of the inside or outside of the Building unless of such color, size and
style, and in such place upon or in the Building as shall be first designated by
the Lessor. There shall be no duty on Lessor to allow any sign, advertisement or
notice to be inscribed, painted or affixed on any part of the inside or outside
of the Building. A directory in a conspicuous place, with names of the lessees,
will be provided by Lessor; any necessary revision in this will be made by
Lessor within a reasonable time after notice from lessee of the error or change
making the revision necessary. No furniture shall be placed in front of the
Building.
EXHIBIT "C"
Page 1 of 5
<PAGE> 22
NOISE
No person shall disturb the occupants of the Building by the use of any musical
instruments, the making of unseemly noises, or in any other way. No dogs or
other animals shall be allowed in the Building.
USE OF PREMISES
No portion of the Building shall be used for the purpose of lodging-rooms, or
for any immoral or unlawful purposes.
FIRE PROTECTION
No Lessee shall do or permit anything to be done in the premises or the common
areas of the Building, or bring or keep anything therein, which will in any way
increase the rate of fire insurance on the Building or property kept therein, or
obstruct or interfere with the rights of other Lessees, or in any way injure or
annoy them, or conflict with the laws relating to fire, or with any regulations
of the fire department, or with any insurance policy upon the Building or any
part thereof, or conflict wit any of the rules or ordinances of any city,
county, state or federal authority. Lessee shall not be permitted to use or keep
in the building any kerosene, camphene or other burning fluid.
PARKING
All vehicles will be parked within striped lanes. Parking across the stripes or
in unmarked areas, blocking of walkways, loading areas, entrances or driveways
will not be permitted. Unauthorized cars will not be allowed in the reserved
parking areas. Should such a situation exist, Lessee, at its option, shall have
the right to tow such vehicle away at the owner's expense in compliance with
Texas law.
JANITORIAL SERVICE
No Lessee shall employ any person or persons other than the janitor of the
Lessor for the purpose of cleaning or taking care of the premises leased,
without the written consent of Lessor. Lessor shall be in no way responsible to
any Lessee for any loss of property from the leased premises, however occurring,
or for any damage done to the furniture by the janitor or any of its employees,
or by any other person or persons whomsoever. Any person or persons employed by
Lessee, with the written consent of Lessor, must be subject to and under the
control and direction of
EXHIBIT "C"
Page 2 of 5
<PAGE> 23
the janitor of the Building at all times while working in the Building. The
janitor of the Building may at all times keep a pass key. The janitor and other
agents of Lessor shall at all times be allowed admittance to said leased
premises.
EXCESS TRASH DISPOSAL
In the even Lessee must dispose of crates, boxes, etc., which will not fit into
office waste paper baskets, it will be the responsibility of Lessee to dispose
of same. In no event will Lessee set such items in the public areas of the
Building.
DEBRIS
Nothing shall be thrown out of the windows of the Building, or down the
stairways or other passages.
CARPET DAMAGE
Lessee will be responsible for any damage to carpeting and flooring as a result
of rust or corrosion of file cabinets, water staining from planters, excessive
wearing by roller chairs and metal objects.
HEAVY EQUIPMENT
All safes or other heavy articles shall be carried up or into the premises only
at such times and in such manner as shall be prescribed by Lessor, and Lessor
shall in all cases have the right to specify the proper weight and position of
any such safe or other heavy article. Any damage done to the Building by taking
in or removing any safe or from overloading any floor in any way shall be paid
by Lessee. Defacing or injuring in any way any part of the Building by Lessee,
its agents or servants, shall be paid for by Lessee.
WATER USAGE
The water closets and other water fixtures shall not be used for any purpose
other than those for which they were intended, and any damage resulting to them
from misuse, or the defacing or injury of any part of the Building shall be
borne by the person who shall occasion it. No person shall waste water by
interfering with the faucets or otherwise.
EXHBIIT "C"
Page 3 of 5
<PAGE> 24
LOCKS AND KEYS
Lessor agrees to furnish Lessee two keys for the doors entering the Building,
Lessee's suite and each entry door therein. Any additional keys will be
furnished at a charge by Lessor equal to its cost plus 10% overhead. No
additional locks shall be placed upon any doors without the written consent of
Lessor. All necessary keys shall be furnished by Lessor, and the same shall be
surrendered upon the termination of this lease, and Lessee shall then give to
Lessor or its agents explanation of the combination of all locks upon the doors
of vaults.
ELECTRICAL AND TELEPHONE SERVICE
If Lessee desires telegraphic, telephonic or other electric connections, Lessor
or its agents will direct the electricians as to where and how the wires may be
introduced, and without such direction no boring or cutting for wires will be
permitted. Access to any mechanical, electrical or telephone rooms must be
approved by Lessor.
ALTERATIONS AND CONTRACTOR APPROVAL
All contractors and/or technicians performing any alterations for Lessee within
the Building must be referred to Lessor for approval and shall, prior to
commencement, execute property lien waivers.
LESSOR'S RIGHT OF ENTRY
Lessor or its agents shall have the right to enter the Premises to examine the
same or to make such repairs, alterations, or additions as Lessor shall deem
necessary for the safety, preservation or improvement of the Building upon
reasonable notice, at reasonable hours, except in the case of an emergency when
no notice shall be required. Lessor or its agents may show said premises and
place on the windows or doors thereof, or upon the bulleting board, a notice "To
Rent" for one month prior to the expiration of the term of the Lease.
EXHIBIT "C"
Page 4 of 5
<PAGE> 25
ADDITIONAL RULES AND REGULATIONS
Lessor reserves the right to make such other and further reasonable rules and
regulations as in its judgment may from time to time be necessary for the
safety, care and cleanliness of the Building and its occupants and for the
preservation of good order therein.
TENNECO BUSINESS SERVICES INC.
By:
------------------------------
Name: Matthew W. Appel
Title: President
LESSEE
THE WOODLANDS CORPORATION
By:
------------------------------
Name: Michael H. Richmond
Title: Executive Vice President
EXHIBIT "C"
Page 5 of 5
<PAGE> 26
EXHIBIT "D"
Lessor and Lessee agree that the following items shall be excluded from
Operating Expenses:
A. Capital expenditures in accordance with generally accepted accounting
principles except that Operating Expenses shall include the costs
(amortized over such period as Landlord shall determine, together with
interest thereon at the Prime Rate adjusted daily on the unamortized
balance thereof) of any capital improvement:
1) which acts in any manner to reduce Operating Expenses;
2) which is required under any governmental law, code or
regulation passed or enacted on or after the effective date of
this Lease;
3) which is a replacement (as opposed to additions or new
improvements) of items located in the common areas adjacent to
the Building, the parking area and other facilities used in
connection with the Building, or involving the exterior of the
Building.
Prime Rate, as used herein, shall mean the varying per annum rate of
interest which shall from day to day be equal to the per annum rate of
interest then most recently established and announced by Texas Commerce
Bank, N.A., Houston as its prime lending rate of interest, with each
such change in such per annum rate of interest to become effective on
the effective date of each such change.
B. Costs of correcting defects in the Building, the common areas adjacent
thereto and the parking area and other facilities used in connection
therewith, or the equipment used therein and the replacement of
defective equipment to the extent such costs are covered by warranties
of manufacturers, suppliers, or contractors, or are otherwise borne by
parties other than Lessor, except that conditions resulting from
ordinary wear and tear will not be deemed defects for the purposed of
this category.
C. Costs of bringing the Building, the common areas adjacent thereto and
the parking area and other facilities used in connection therewith into
compliance with building codes, laws, rules, regulations, ordinances,
or any other governmental rules or requirements, including, without
limitation, the Americans With Disabilities Act of 1990, which
compliance was required prior to the effective date of this Lease.
EXHIBIT "D" - Page 1 of 4
<PAGE> 27
D. Costs of repairs or other work occasioned by fire, windstorm, or other
casualty of an insurable nature, whether or not Lessor carries such
insurance, and costs reimbursable to Lessor by governmental authorities
in eminent domain or condemnation proceedings, except that the amount
of any insurance deductible up to the amount of $25,000.00 shall be
included in Operating Expenses.
E. Any expenses or costs that, under generally accepted accounting
principles attributable to losses due to uncollected rent or fees or
reserves for bad debts.
F. Any expenses that are or should be separately metered or billed
directly to or separately paid by another lessee or other third party.
G. Costs of preparation of space, including buildout, renovating, or
otherwise improving, changing decorating, or redecorating space, for
new lessees, prospective lessees, or other occupants in the Building,
Land or vacant space in the Building or Land except for routine,
periodic repair, and replacement not considered to be capital items
under generally accepted accounting principles.
H. Costs incurred in removing the property or improvements of former
lessees or other occupants of the Building or Land.
I. Architectural fees, leasing commission, attorneys' fees, costs and
disbursements, and other expenses incurred in connection with
negotiations or disputes with lessees, prospective lessees, or other
occupants of the Building or Land and any such expenses incurred in
connection with this Lease.
J. Specific costs incurred for third parties (including other lessees),
including without limitation, above Building standard electrical and/or
janitorial services, and other services above Building standard.
K. All utility costs for which Lessee directly contract with local utility
companies.
L. Costs incurred due to acts of Lessor, any other lessee, or other
occupant of the Building causing an increase in the rate of insurance
on the Building or its contents.
M. Costs, fines, interest penalties, attorneys' fees, and costs of
litigation incurred due to late payment of taxes (except for penalties
associated with Lessor's good faith contest of real estate taxes),
utility bills, ground rentals, or mortgage debt, and other such costs
incurred by Lessor's failure to make such payments when due.
N. Penalties, fines, and other costs incurred due to violations or alleged
violations by Lessor, any other lessee, or any
EXHIBIT "D" - Page 2 of 4
<PAGE> 28
third party of any laws, rules, regulations, codes, or ordinances. It
is understood and agreed that Operating Expenses shall include costs to
comply with laws, rules, regulations passed or enacted by the
governmental authority on or after the effective date of this Lease.
O. Costs incurred due to violations or alleged violations by Lessor, any
other lessee, or other occupant of the Building of the terms and
conditions of any lease or other rental arrangement covering space in
the Building.
P. Wages, salaries, and other compensation of any kind or nature paid to
any executive employees above the grade of director or property
management (manager) and any related overhead, administrative and
general office expense other than the management fee specifically
provided for in the Lease.
Q. Costs incurred in the operation or construction of any concession
serving the Building, including, without limitation, parking
facilities.
R. Compensation paid to clerks, attendants, and other persons in any
concessions operated by Lessor.
S. Ground rentals, payment of principal and interest on debt (and other
debt costs), amortization payments on any mortgage or mortgages
executed by Lessor covering the Building or the Land (or any portion
thereof) (except to the extent that any of the foregoing may include
payments or prepayments of insurance premiums or taxes that would be
included in Operating Expenses if paid directly by Lessor), rental
concessions, and negative cash flow guarantees.
T. Costs incurred in connection with the sale refinancing, mortgaging, or
selling, or change of ownership of the Building or the Land, including,
without limitation, brokerage commission, attorneys' and accountants'
fees, loan brokerage fees, closing costs, interest charges and property
transfer taxes.
U. State, local, federal, personal, and corporate income taxes measured by
the income of Lessor from all sources or from sources other than rent
alone; estate and inheritance taxes; franchise, succession and transfer
taxes.
V. All costs incurred by Lessor in connection with any dispute relating
tot he Lessor's title to or ownership of the Building or the Land.
W. Advertising and promotional expenditures.
X. Costs and expenses for owning, leasing, and maintaining sculpture,
painting, and other works of art installed in and/or on the Building or
the Land.
EXHIBIT "D" - Page 3 of 4
15
<PAGE> 29
Y. Contributions to charitable organizations.
Z. Expenses and costs relating in any way whatsoever to the
identification, testing, monitoring and control, encapsulation,
removal, replacement, repair, or abatement of any hazardous materials
within the Building or the Land a) which material was classified as
"hazardous" prior to the effective date of this Lease and b) was
required to be removed, replaced, repaired or abated prior to the
effective date of this Lease.
AA. Any cost related to the Houston Open Golf Tournament.
BB. Depreciation and amortization, except as provided in A above.
CC. Fees or other compensation paid to subsidiaries or affiliates of Lessor
for services on or to the Building providing the scope of work is the
same, to the extent that the costs of such services exceed competitive
costs of such services were they not so rendered by a subsidiary or
affiliate.
DD. Management Fees in excess of that provided for in the Lease.
EE. Repairs or replacements of the roof, foundation, structure, and
exterior walls of the Building caused by deficient design, selection of
materials, or construction.
FF. Repairs or replacements of any equipment or component of the Building
caused by deficient design, selection of materials, or construction.
GG. Initial construction clean-up and initial landscaping.
HH. Any other expense which under generally accepted accounting principles
and practice would not be rendered as a normal maintenance or operating
expense.
II. Any expense in excess of Lessor's actual operating costs.
(Consequently, Lessor may not pass onto the Lessee any cost which
Lessor did not actually incur.)
EXHIBIT "D" - Page 4 of 4
<PAGE> 30
EXHIBIT "E"
CLEANING SPECIFICATIONS
NIGHTLY SERVICES - OFFICES, PUBLIC AREAS (Mon.-Fri. 6:00 p.m.-10:00 p.m.)
1. Empty waste receptacles, transfer to designated location for
removal.
2. Sweep hard surface flooring with chemically treated dry mop,
creating no dust and wet mop thoroughly.
3. Hand dust office furniture, paneling, and window sills. Spot
clean desk tops to remove film, smudges, and markings where
desks are left free of papers, office equipment, etc.
4. Empty and clean ashtrays. Empty debris from sand urns, smooth
sand, and replace when necessary.
5. Wash, clean and disinfect dispensing area of water fountains
and coolers. Wash metal housings and shiny metal fixture
units.
6. Spot clean main entrance door glass, any adjacent side glass
and interior partition glass to remove fingerprints and
smudges.
7. Use lights only in areas being cleaned.
8. Vacuum carpeted areas. All traffic lane areas of tenant spaces
and common corridors will be vacuumed with a machine which
utilizes an agitation devise. Spot clean spills and smudges
caused during the day.
9. Police sidewalks at lobby entrance and exterior break areas,
picking up trash and cleaning as needed.
10. Spot clean walls and vertical woodwork within reach.
11. Vacuum and spot clean all elevators thoroughly - floors,
walls, tracks, phones, etc. Parking garage elevator included
where applicable.
12. Remove main entrance door mats, vacuum mats and return to
proper location.
13. Remove smudges, fingerprints and scuff marks from doors and
door jams.
<PAGE> 31
NIGHTLY SERVICES - LAVATORIES
1. Wet mop thoroughly and disinfect lavatory floors.
2. Polish mirrors, brightwork, enameled surfaces.
3. Wash and disinfect all basins, bowls and urinals.
4. Hand dust, clean and disinfect all partitions, counter tops,
tile ledges, hand towel, toilet tissue and sanitary napkin
dispenses.
5. Clean and fill toilet tissue, hand soap, hand towel, and
sanitary napkin dispensers.
6. Empty and clean all waste receptacles.
7. Spot clean vinyl and ceramic walls.
8. Remove smudges, fingerprints and scuff marks from both sides
of entry doors.
9. Clean and polish floor drain covers.
WEEKLY SERVICES
1. Remove fingerprints, smudges, and scuff marks from vertical
and horizontal surfaces within reach. This includes, but may
not be limited to, doors, walls, glass partitions, and window
sills.
2. Perform high and low dusting, including cleaning baseboards
with a damp cloth.
3. Polish entry door thresholds.
4. Polish elevator door tracks.
MONTHLY SERVICES
1. Wash down ceramic tile walls in lavatory compartment
partitions.
2. Perform high dusting on air vents and exterior of light
fixtures.
3. Machine scrub exterior entrance surface and walkways.
4. Shampoo interior and exterior mats.
5. Shampoo lobby stairs carpet.
6. Clean exterior building signage between the hours of 5:00 a.m.
- 1:30 p.m. with ground crew.
<PAGE> 32
FLOOR SERVICES (Perform the following as often as necessary but at least as
often as indicated.)
1. Lobby Pavers (as applicable)
a. Strip and seal - annually
b. Scrub and wax - bi-monthly
c. Hi-speed buff - semi-monthly
d. Lobby floors not requiring finish will be scrubbed
semi-monthly
2. Restroom Floors
a. Scrub - monthly
3. Vinyl Floors
a. Strip and seal - annually
b. Scrub and wax - bi-monthly
c. Hi-speed buff - three times per month
GLASS
1. Clean all perimeter exterior windows two (2) times per year.
Any interior window cleaning is at tenant's expense.
<PAGE> 33
RIDER NO. 1
TO LEASE AGREEMENT DATED
_________________, 19___, BY AND BETWEEN
THE WOODLANDS CORPORATION, AS LESSOR, and
TENNECO BUSINESS SERVICES INC., AS LESSEE
1. RENEWAL OPTION
Lessor and Lessee agree that the term of this Lease may, at the option of
Lessee, be extended for one (1) additional term of five (5) years ("Renewal
Term"); provided that, (i) this Lease is in full force and effect and no
condition or event of default exists uncured at the time of the election to
extend and at the commencement of the Renewal Term; (ii) Lessee gives written
notice to Lessor, not more than eight (8) months nor less than six (6) months
prior to the end of the initial Term of this Lease advising Lessor of Lessee's
conditional election to extend the Term of this Lease; (iii) within fifteen (15)
days of receipt of Lessee's conditional exercise of its option to extend the
term of this Lease, Lessor shall advise Lessee of what it determines to be the
then prevailing market Base Rent Rate for comparable space in the Building at
the time the Renewal Term commences and failure of Lessor to respond within ten
(1) business days after receipt thereof shall be a response that there is no
increase in Base Rent Rate for the Renewal Term; and (iv) within fifteen (15)
days of receipt of Lessor's determination of the prevailing market Base Rent
Rate ("as is" with no broker commission payable space), Lessee shall either (a)
rescind its election, or (b) confirm its election--failure of Tenant to respond
shall be a rescission of its election. The renewal of this Lease shall be upon
the same terms and conditions of this Lease, except (a) the Base Rent during the
Renewal Term shall be the prevailing market Base Rent rate (similarly defined)
for space in a similar building in The Woodlands area at the time Renewal Term
commences, (b) Lessee shall have no option to renew this Lease beyond the
Renewal Term set out above, (c) the leasehold improvements will be provided in
their then existing condition (on an "as is" basis) at the time the Renewal Term
commences, (d) the "Term" as defined in the Lease, shall include any Renewal
Term that has been duly exercised by Lessee and provisions 2, 4, 5, 6, and 7 of
this Rider 1 shall not apply.
2. CANCELLATION OPTION
Notwithstanding anything to the contrary herein, provided there is no uncured
default by Lessee in any of the terms and conditions of the Lease, Lessee
reserves the option to terminate this Lease to be effective on that date which
is five (5) years after the Commencement Date ("early termination date").
Lessee's option of early termination can only be exercised upon satisfaction of
the following conditions precedent:
(i) Notice. Delivery of written notice of early termination to
Lessor at least 360 days prior tot he early termination date
described above; and
(ii) Termination Fee. Delivery to Lessor, together with the notice,
of a termination fee of $250,000.00.
(iii) Termination of Cancellation Option. If Lessee fails to
exercise this option within the period herein stipulated, the
cancellation option shall terminate and be of no further force
or effect.
1
<PAGE> 34
3. Lessor agrees to provide Lessee with a sign panel on the monument sign
located on the Land at Lessee's sole expense. Lessor consents to such
signage. Lessee shall have the right to rename the Building.
4. EMPLOYEE INCENTIVES
Provided there is no uncured default by Lessee in any of the terms and
conditions of the Lease, Lessor shall make available to lessee or its employees
the following incentives during the period ("Incentive Period") commencing with
the Effective Date and terminating on September 30, 1996:
(A) For each employee of Lessee who finances the purchase of a
home in The Woodlands through Lessor's subsidiary, Mitchell
Mortgage Company, during the Incentive Period, Lessor will
cause Mitchell Mortgage Company to reduce the origination fee
charged to such employee to one half of 1%;
(B) During the Incentive Period, Lessor will provide room rates of
$85.00 per night for up to six (6) rooms (subject to
availability) at The Woodlands Executive Conference Center and
Resort for Lessee's employees needing overnight accommodations
for the purpose of locating housing with The Woodlands.
(C) During the Incentive Period, subject to availability, Lessor
will make available to Lessee two (2) furnished two (2)
bedroom apartments in an apartment project in The Woodlands
owned by Lessor at 30% off the regular monthly rental. The
rent will not include utilities or maid service. Lessee must
give Lessor at least 30 days prior notice of the need for each
apartment.
5. TEMPORARY SPACE
Between the Effective Date and the Commencement Date, provided there is
no default by Lessee in any of the terms and conditions of the Lease, Lessor
will make available to Lessee, rent free, on an "as is" basis, subject to
availability, 3,000 to 5,000 square feet of rentable floor area in a building in
The Woodlands owned by Lessor, said space to be designated by Lessor.
6. PAVILION TICKETS
Lessor shall provide Lessee with four (4) season tickets for the 1996
concert season of The Cynthia Woods Mitchell Pavilion.
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<PAGE> 35
7. WARRANTY
Notwithstanding anything in the Lease to the contrary, Lessor warrants
all mechanical components of the Building for a period of one (1) year from the
Commencement Date and the roof and structural components of the Building for the
Term of the Lease. Lessor shall pay for all roof replacements, if any, and all
repairs to structural components of the Building, which costs shall not be a
part of Operating Expenses. Patching and roof repairs shall be paid by Lessee as
a part of Operating Expenses.
8. TAX ABATEMENT AND UTILITY DISCOUNT
It is understood and agreed that all tax abatement benefits and/or
utility discounts, if any, shall accrue to the benefit of Lessee. Lessee agrees
to comply with the terms of all utility discount and tax abatement agreements
entered into or assigned to lessee, if any. Lessee shall be responsible for
payment to Lessor of any and all taxes and/or charges rolled back and penalties
incurred due to default by Lessee in any of the terms of these agreements.
THE WOODLANDS CORPORATION
By:
--------------------------------------
TENNECO BUSINESS SERVICES INC.
By:
--------------------------------------
3
<PAGE> 1
EXHIBIT 10.7.2
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "ASSIGNMENT") dated as of
January 1, 2000, by and between PACTIV BUSINESS SERVICES INC., a Delaware
corporation formerly known as Tenneco Business Services Inc. ("ASSIGNOR"), and
EXULT, INC., an Indiana corporation ("ASSIGNEE").
1. Assignor and Assignee have entered into that certain Asset Purchase
Agreement dated as of December 20, 1999 (the "AGREEMENT"), pursuant to which
Assignor has agreed to sell and Assignee has agreed to purchase substantially
all of Assignor's assets in and related to its business.
2. Assignor is the tenant under that certain Lease Agreement dated as
of August 15, 1995, consisting of twelve (12) pages, and including all
attachments as described on EXHIBIT "A" attached hereto and made a part hereof
(collectively, the "LEASE") with Woodlands Office Equities - '95 Limited, a
Texas limited partnership ("LESSOR") (as successor to The Woodlands Corporation,
a Delaware corporation, the original landlord under the Lease) for approximately
71,000 square feet of space in the building known as Venture Technology Center
VI Building, having an address of 8401 New Trails Drive, The Woodlands,
Montgomery County, Texas 77381 (the "PREMISES").
3. In connection with the Lease, Assignor has entered into various
other agreements and received various confirmations from the Lessor which are
more fully described on EXHIBIT "B" attached hereto and made a part hereof (the
"RELATED DOCUMENTS").
4. Pursuant to the Agreement, Assignor has agreed to assign to Assignee
all of Assignor's right, title and interest in, to and under the Lease and the
Related Documents, and Assignee has agreed to assume all of Assignor's duties
and obligations under the Lease and Related Documents, in accordance with the
terms and conditions set forth herein.
A G R E E M E N T S:
NOW THEREFORE, in consideration of the foregoing premises and the
respective agreements, covenants and conditions herein contained, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Assignor and Assignee hereby agree as follows:
1. Assignment. Effective as of the Effective Time under the under the
Agreement (hereinafter referred to as the "EFFECTIVE TIME"), Assignor does
hereby sell, assign, transfer and set over unto Assignee, all of Assignor's
right, title and interest, in, to and under the Lease and the Related Documents.
Assignor hereby reserves unto itself and excepts and excludes from the foregoing
assignment any and all refunds of Base Rent and Additional Rent, including,
without limitation, any and all refunds of operating expenses, ad valorem taxes
or assessments and insurance premiums, to the extent refunds of such items
relate to any period or periods prior to the Effective Time.
2. Acceptance and Assumption. Assignee does hereby accept the foregoing
assignment and agrees to assume, pay, perform and discharge, as and when due
from and after the Effective Time, all of the agreements and obligations of
Assignor under or in respect of the Lease and the Related Documents to the
extent such relate to any period or periods from and after the Effective Time
and agrees to be bound by all of the terms and conditions of the Lease and the
Related Documents.
<PAGE> 2
3. Successors and Assigns. The provisions of this Assignment shall be
binding upon, and shall inure to the benefit of, the successors and assigns of
Assignor and Assignee, respectively.
4. Counterparts. This Assignment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor and Assignee have caused their duly
authorized representatives to execute this Assignment as of the date first above
written.
ASSIGNOR: ASSIGNEE:
PACTIV BUSINESS SERVICES EXULT, INC.,
INC., a Delaware corporation a Delaware corporation
By: /s/ James Faulkner By: /s/ Stephen Unterberger
-------------------------------- --------------------------------
Its: Vice President Its: COO
------------------------------- -------------------------------
STATE OF ___________)
)
COUNTY OF __________)
This instrument was acknowledged before me, the undersigned authority,
on December ___, 1999, by _________________________, _____________________ of
Pactiv Business Services Inc., a Delaware corporation, on behalf of the
corporation.
-----------------------------------
NOTARY PUBLIC
STATE OF ___________)
)
COUNTY OF __________)
This instrument was acknowledged before me, the undersigned authority,
on December ___, 1999, by ______________________, _____________________ of
Exult, Inc., a Delaware corporation, on behalf of the corporation.
-----------------------------------
NOTARY PUBLIC
<PAGE> 3
EXHIBIT "A"
DESCRIPTION OF THE LEASE
AND ATTACHMENTS TO THE LEASE
Lease Agreement dated August 15, 1995 (12 pages) together with the following
attachments:
- -- Exhibit A (legal description);
- -- Exhibit A (site plan)
- -- Exhibit B (terms and conditions for completion of tenant improvements)
consisting of three pages and signed on the third page;
- -- Construction Schedule (2 pages);
- -- Outline Specifications dated August 8, 1995 consisting of four pages
- -- Exhibit C to Lease Agreement (Rules and Regulations) consisting of five
pages and signed on page 5 of 5;
- -- Exhibit D consisting of the list of items that shall be excluded from
Operating Expenses, consisting of four pages (unsigned);
- -- Exhibit E (Cleaning Specifications) consisting of three pages;
- -- Rider No. 1 to Lease Agreement consisting of three pages and signed on
the third page.
<PAGE> 4
EXHIBIT "B"
DESCRIPTION OF DOCUMENTS RELATED TO THE LEASE
1. Letter Agreement dated August 22, 1995 from Steve McPhetridge, Vice
President of The Woodlands Corporation, to Mr. James W. Toney of
Tenneco Business Services Inc. and signed by each party on the second
page of such letter.
2. Tax Abatement Agreement dated September 25, 1995 by and between
Montgomery County, Texas, The Woodlands Corporation and Tenneco
Business Services Inc.
3. Tax Abatement Agreement entered into as of October 9, 1995 by and
between The Woodlands Road Utility District No. 1 of Montgomery County,
Texas, The Woodlands Corporation and Tenneco Inc. d/b/a/ Tenneco
Business Services Inc.
4. Tax Abatement Agreement entered into as of August 28, 1995 by and
between The Woodlands Metro Center Municipal Utility District of
Montgomery County, Texas, The Woodlands Corporation and Tenneco, Inc.
d/b/a Tenneco Business Services Inc.
5. Assessment Abatement Agreement dated September 27, 1996 by and between
The Woodlands Commercial Owner's Association, The Woodlands Corporation
and Tenneco Business Services Inc.
6. Letter dated August 9, 1995 from Steve McPhetridge to James W. Toney
providing for a guaranty to Tenneco Business Services Inc. that Tenneco
Business Service Inc's share of the real property tax burden will not
exceed certain amounts for Year 1, Year 2 and Year 3 of the Lease.
7. Letter dated December 30, 1998 from Ross Foldetta of The Woodlands
Operating Company to Tenneco Business Services Inc. giving notice of
the 1999 estimated operating expenses.
8. Letter dated July 27, 1999 from Lucy Cauley of The Woodlands Operating
Company to Tenneco Business Services Inc. concerning breakdown of
monthly projected operating cost.
<PAGE> 1
EXHIBIT 10.11.1
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of October 1, 1999 by and between Exult,
Inc. (the "Company"), and James C. Madden, V ("Executive").
1. DUTIES AND RESPONSIBILITIES.
A. Executive shall serve as the Company's Chief Executive Officer and
shall report to and perform the duties and responsibilities assigned to you by
the Company's Board of Directors.
B. Executive agrees to devote his full time and attention to the
Company, to use his best efforts to advance the business and welfare of the
Company, to render his services under this Agreement fully, faithfully,
diligently, competently and to the best of his ability, and not to engage in any
other employment activities.
C. Executive shall be based at the Company's office located at the
Corporate Headquarters at 4 Park Plaza, Suite 350, Irvine, California, but
Executive shall be required to travel to other geographic locations in
connection with the performance of his executive duties.
2. PERIOD OF EMPLOYMENT. Executive's employment with the Company shall
be governed by the provisions of this Agreement for the period commencing
October 1, 1999 and continuing until this Agreement terminates pursuant to
written notice by either the Company or Executive. The period during which
Executive's employment continues in effect shall be hereafter referred to as the
"Employment Period."
3. CASH COMPENSATION.
A. Effective January 1, 2000, Executive's initial base salary shall be
$366,000 per year payable in accordance with the Company's standard payroll
schedule. Executive's base salary shall be subject to annual review by the
Company, and may be increased or decreased in the Company's discretion. Prior to
January 1, 2000, Executive's base salary shall remain at its current level of
$500,000 per year, and Executive shall not be eligible for additional bonus
payment.
B. For each fiscal year during the Employment Period, Executive shall
be eligible for a bonus. Your annual bonus target will be 50% of your base
salary, prorated for the portion of the fiscal year worked. The bonus amount
will be based on the financial performance of the Company as determined and
measured by the Company's Board of Directors. The bonus amount is intended to
reward contribution to the Company's performance over an entire fiscal year, and
consequently will be paid only if Executive is employed and in good standing at
the time of bonus payments, which generally occurs within 45 days after the
close of the Company's fiscal year. Bonus determinations will be made in the
Company's sole discretion.
1
<PAGE> 2
C. The Company shall deduct and withhold from the compensation payable
to Executive hereunder any and all applicable Federal, State and local income
and employment withholding taxes and any other amounts required to be deducted
or withheld by the Company under applicable statutes, regulations, ordinances or
orders governing or requiring the withholding or deduction of amounts otherwise
payable as compensation or wages to employees.
4. EQUITY COMPENSATION. Pursuant and subject to the terms and
conditions of the Company's stock option plan, the Company will grant Executive
options which will vest over time. The option price will be established as of
the date the Company's Board of Directors grants such options pursuant to the
Company's stock option plan and in an amount determined by the Company's Board
of Directors in its sole discretion.
5. EXPENSE REIMBURSEMENT. In addition to the compensation specified in
Paragraph 3, Executive shall be entitled, in accordance with the reimbursement
policies in effect from time to time, to receive reimbursement from the Company
for reasonable business expenses incurred by Executive in the performance of his
duties hereunder, provided Executive furnishes the Company with vouchers,
receipts and other details of such expenses in the form required by the Company
sufficient to substantiate a deduction for such business expenses under all
applicable rules and regulations of federal and state taxing authorities.
6. FRINGE BENEFITS.
A. Executive shall, throughout the Employment Period, be eligible to
participate in all executive life and disability insurance plans, group term
life insurance plans, group health plans, accidental death and dismemberment
plans and disability programs and other executive perquisites which are made
available to the Company's executives and for which Executive qualifies.
B. Executive shall earn vacation time during the Employment Period at
the rate of four (4) weeks per year. Vacation shall accrue and be taken pursuant
to the Company's vacation benefit policy set forth in the Company's Employee
Handbook.
7. MOVING EXPENSES. It is the understanding of both the Company and the
Executive that the Executive will not be expected to relocate outside of the
Newport Beach, CA metropolitan area without the written, mutual consent of both
the Company and the Executive. The Executive understands that from time to time
the Executive will be required to attend a reasonable number of meetings at GAP
LLC's offices in Greenwich, CT and New York, NY. Notwithstanding the
aforementioned, should the Company and the Executive mutually agree in writing
to relocate the Executive, the Company will advance Executive up to the maximum
as specified in the Company's relocation policy for reasonable expenses incurred
by Executive in a relocation requested by the Company. The Company's complete
policy on moving expenses can be obtained from the Company's Human Resources
Department. The moving expense advance will be forgiven by the Company at the
rate of one-eighteenth (1/18) of the advanced amount each month Executive
remains employed by the Company. Should Executive terminate his employment prior
to full repayment of the advanced amount, amounts which remain outstanding will
be deducted from Executives final paychecks for unpaid wages and accrued but
unused vacation.
2
<PAGE> 3
8. EMPLOYMENT AT WILL. Executive's employment with the Company is at
will and not for a specific term and may be terminated by either the Company or
Executive at any time, for any reason without notice. Similarly the Company may
change the terms and conditions of Executives employment at any time for any
reason. Should the Company terminate Executive's employment, the Company shall
have no obligation to Executive under this Agreement other than for payment of
accrued but unpaid wages and accrued but unused vacation. Executive may,
however, be entitled to severance benefits in accordance with the Company's
Executive Severance Plan. A summary of the Company's Executive Severance Plan
will be provided to Executive.
Should the Company terminate Executive's employment for cause, as
defined in the following paragraph, the Company shall have no further obligation
to Executive under this Agreement other than for accrued but unpaid salary and
vacation as of the date of termination. For purposes of this Agreement, "cause"
shall mean a reasonable belief that Executive has engaged in any one of the
following: (i) financial dishonesty, including, without limitation,
misappropriation of funds or property, or any attempt by Executive to secure any
personal profit related to the business or business opportunities of the Company
without the informed, written approval of the Company's Board of Directors; (ii)
a repeated refusal to comply with reasonable directives of the Company's Board
of Directors, which has not been cured as determined by the Board within two (2)
days receipt of written notice thereof given by the Board; (iii) gross
negligence or reckless or willful misconduct in the performance of Executive's
duties, which has not been cured as determined by the Board within two (2) days
receipt of written notice thereof given by the Board; (iv) failure to perform,
or continuing neglect in the performance of, duties assigned to Executive, which
has not been cured as determined by the Board within two (2) days receipt of
written notice thereof given by the Board ; (v) intentional, gross misconduct
which has a materially adverse effect upon the Company's business or reputation;
(vi) the conviction of, or plea of nolo contendre to, or an misdemeanor
involving moral turpitude or fraud; (vii) the material breach of any provision
of this agreement; of (viii) violation of Company policies including, without
limitation, the Company's policies on equal employment opportunity and
prohibition of unlawful harassment.
Notwithstanding the aforementioned paragraphs in section 8, should the
Company terminate the Executive's employment for reasons other then cause, the
Executive will be entitled to severance in the greater amount of the Company's
current Executive Severance Policy or as specified below:
(a) In the event the Company terminates your employment other than for
Cause, the Executive will be entitled to receive one year's annual
salary and bonus.
(b) Within 18 months of a change in control of the Company, if the
Executive is assigned a level of responsibility or duties not
commensurate with your current level and duties; or your salary or
bonus target is reduced; or your primary location of work is
greater then 50 miles from Newport Beach, CA, you will be entitled
to one year's salary and bonus in the event you terminate your
employment with the Company.
3
<PAGE> 4
(c) In the event of your death, this letter agreement will terminate
and the Company shall have no obligations hereunder, except that
your legal representatives shall be entitled to receive six months
of your annual salary, payable in equal installments in accordance
with Company's standard payroll schedule (subject to all applicable
withholdings required by law).
(d) If during the Term you become physically or mentally disabled,
whether totally or partially, as evidenced by a written statement
of a competent physician licensed to practice medicine in the
United States who is mutually acceptable to Company and you (or
your legal representative if you are not then able to make such a
choice), so that you are unable substantially to perform your
obligations under this letter agreement for (i) a period of two
consecutive months or (ii) for shorter periods aggregating to two
months during any one year, the Company may, without any liability
under this letter agreement and by written notice to you, at any
time after the last day of the consecutive two months of disability
or the day on which the shorter periods of disability equal an
aggregate of two months, suspend the Term provided that you shall
be entitled to receive your annual salary, paid in accordance with
the Company's regular payroll schedule for a period six months. The
company may then discontinue payments of your annual salary for the
duration of the disability, provided that you will be entitled to
your annual salary in accordance with Section 2 above for periods
of disability shorter than the periods specified in clauses (i) and
(ii) above.
(e) Notwithstanding anything to the contrary set forth in this letter
agreement, (i) in the event that you terminate your employment with
Company or Company terminates your employment with Company, in each
case for any reason or no reason, or (ii) upon the expiration of
the Term, your obligations under Section 9 below shall continue and
survive such termination or expiration.
9. RESTRICTIVE COVENANTS. During the Employment Period:
(i) Executive shall devote Executive's full time and energy
solely and exclusively to the performance of Executive's
duties described herein, except during periods of illness or
vacation periods.
(ii) Executive shall not directly or indirectly provide services
to or through any person, firm or other entity except the
Company, unless otherwise authorized by the Board in writing.
(iii) Executive shall not render any services of any kind or
character for Executive's own account or for any other
person, firm or entity without first obtaining the Company's
written consent.
4
<PAGE> 5
Executive, however, shall have the right to perform such incidental services as
are necessary in connection with (a) Executive's private passive investments,
but only if Executive is not obligated or required to (and shall not in fact)
devote any managerial efforts which interfere with the services required to be
performed by him, or (b) Executive's charitable or community activities, or
participation in trade or professional organizations, but only if such
incidental services do not interfere with the performance of Executive's
services to the company.
10. NON-COMPETITION. Executive acknowledges and agrees that given the
extent and nature of the confidential and proprietary information he will obtain
during the course of his employment with the Company, it would be inevitable
that such confidential information would be disclosed or utilized by the
Executive should he obtain employment from, or otherwise become associated with,
an entity or person that is engaged in a business or enterprise that directly
competes with the Company. Consequently, during any period for which Executive
is receiving payments from the Company, either as wages or as a severance
Executive shall not, without prior written consent of the Company's Board of
Directors, directly or indirectly own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or be
employed by or connected in any manner with, any enterprise which is engaged in
any business competitive with or similar to that of the Company; provided,
however, that such restriction shall not apply to any passive investment
representing an interest of less than two percent (2%) of an outstanding class
of publicly-traded securities of any company or other enterprise which is not,
at the time of such investment, engaged in a business competitive with the
Company's business.
11. NON-SOLICITATION. During the Employment Period and for one (1) year
following termination of Executive's employment, Executive shall not encourage
or solicit any of the Company's employees to leave the Company's employ for any
reason or interfere in any other manner with employment relationships at the
time existing between the Company and its employees; or solicit any client of
the Company, induce any of the Company's clients to terminate its existing
business relationship with the Company or interfere in any other manner with any
existing business relationship between the Company and any client or other third
party.
Executive hereby acknowledges that monetary damages may not be
sufficient to compensate the Company for any economic loss which may be incurred
by reason of her breach of the foregoing restrictive covenants. Accordingly, in
the event of any such breach, the Company shall, in addition to the termination
of this Agreement and any remedies available to the Company at law, be entitled
to obtain equitable relief in the form of an injunction precluding Executive
from continuing such breach.
12. PROPRIETARY INFORMATION. As a condition precedent to Executive's
employment with the Company, Executive will execute the Company's standard
Confidential Information and Assignment of Inventions Agreement. Executive's
obligations pursuant to the Confidential Information and Assignment of
Inventions Agreement will survive termination of Executive's employment with the
Company.
13. SUCCESSORS AND ASSIGNS. This Agreement is personal in its nature
and the Executive shall not assign or transfer his rights under this Agreement.
The provisions of this Agreement shall inure to the benefit of, and be binding
on each successor of the Company whether by merger, consolidation, transfer of
all or substantially all assets, or otherwise and the heirs and legal
representatives of Executive.
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<PAGE> 6
14. NOTICES. Any notices, demands or other communications required or
desired to be given by any party shall be in writing and shall be validly given
to another party if served either personally or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt requested.
If such notice, demand or other communication shall be served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by mail, such notice
shall be conclusively deemed given forty-eight (48) hours after the deposit
thereof in the United States mail addressed to the party to whom such notice,
demand or other communication is to be given as hereinafter set forth:
To the Company: Exult, Inc.
4 Park Plaza, Suite 350
Irvine, California 92614
To Executive: James C. Madden, V
10 Hillsborough
Newport Beach, California 92660
Any party may change its address for the purpose of receiving notices, demands
and other communications by providing written notice to the other party in the
manner described in this paragraph.
15. GOVERNING DOCUMENTS. This Agreement along with the Company's
Proprietary Information and Assignment of Inventions Agreement constitute the
entire agreement and understanding of the Company and Executive with respect to
the terms and conditions of Executive's employment with the Company and the
payment of severance benefits and supersedes all prior and contemporaneous
written or verbal agreements and understandings between Executive and the
Company relating to such subject matter. This Agreement may only be amended by
written instrument signed by Executive and an authorized officer of the Company.
Any and all prior agreements, understandings or representations relating to the
Executive's employment with the Company are terminated and cancelled in their
entirety and are of no further force or effect.
16. GOVERNING LAW. The provisions of this letter agreement will be
construed and interpreted under the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. If any provision of this Agreement as applied to any party or to any
circumstance should be adjudged by a court of competent jurisdiction to be void
or unenforceable for any reason, the invalidity of that provision shall in no
way affect (to the maximum extent permissible by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this Agreement, or the enforceability or
invalidity of this Agreement as a whole. Should any provision of this Agreement
become or be deemed invalid, illegal or unenforceable in any jurisdiction by
reason of the scope, extent or duration of its coverage, then
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<PAGE> 7
such provision shall be deemed amended to the extent necessary to conform to
applicable law so as to be valid and enforceable or, if such provision cannot be
so amended without materially altering the intention of the parties, then such
provision will be stricken and the remainder of this Agreement shall continue in
full force and effect.
17. REMEDIES. All rights and remedies provided pursuant to this
Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Agreement.
18. ARBITRATION. Any and all disputes between Executive and the Company
which arise out of Executive's employment under the terms of this Agreement
shall be resolved through final and binding arbitration. This shall include,
without limitation, disputes relating to this Agreement, Executive's employment
by the Company or the termination thereof, claims for breach of contract or
breach of the covenant of good faith and fair dealing, and any claims of
discrimination or other claims under Title VII of the Civil Rights Act of 1964,
the Age Discrimination in Employment Act, the Americans With Disabilities Act,
the California Fair Employment and Housing Act, or any other federal, state or
local law or regulation now in existence or hereinafter enacted and as amended
from time to time concerning in any way the subject of Executive's employment
with the Company or its termination. The only claims not covered by this
Agreement are claims for benefits under the workers' compensation or
unemployment insurance laws, which will be resolved pursuant to those laws.
Binding arbitration will be conducted in Orange County, California in accordance
with the rules and regulations of the American Arbitration Association. Each
party will split the cost of the arbitration filing and hearing fees, and the
cost of the arbitrator; each side will bear its own attorneys' fees, that is,
the arbitrator will not have authority to award attorneys' fees unless a
statutory section at issue in the dispute authorizes the award of attorneys'
fees to the prevailing party, in which case the arbitrator has authority to make
such award as permitted by the statute in question. Executive understands and
agrees that the arbitration shall be instead of any civil litigation and that
this means that she is waiving her right to a jury trial as to such claims. The
parties further understand and agree that the arbitrator's decision shall be
final and binding to the fullest extent permitted by law and enforceable by any
court having jurisdiction.
19. NO WAIVER. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any later
breach of that provision.
20. COUNTERPARTS. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
EXULT, INC.
By: /s/ JAN L. MCLELLAND
-----------------------------------
Name: Jan L. McLelland
Title: Vice President, Human Resources
EXECUTIVE
/s/ JAMES C. MADDEN, V
----------------------------------------
James C. Madden, V
7
<PAGE> 1
EXHIBIT 10.11.2
[EXULT LOGO]
MEMORANDUM
To: James Madden
From: Jan McLelland
Date: 02/29/00
Re: Compensation
- -------------------------------------------------------------------------------
This memorandum is to confirm the consensus recommendation made by the
compensation committee. Effective January 1, 2000 your base compensation
increased to an annual $450,000. The bonus target amount will remain at 50%
payable at the fiscal year end.
JM/rma
<PAGE> 1
EXHIBIT 10.12.1
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of October 1, 1999 by and between Exult
(the "Company"), and Stephen M. Unterberger ("Executive").
1. DUTIES AND RESPONSIBILITIES.
A. Executive shall serve as the Company's Vice President and Chief
Operating Officer and shall report to and perform the duties and
responsibilities assigned to you by the Company's Chief Executive Officer, or
such other person as may be designated by the Company's Chief Executive Officer.
B. Executive agrees to devote his full time and attention to the
Company, to use his best efforts to advance the business and welfare of the
Company, to render his services under this Agreement fully, faithfully,
diligently, competently and to the best of his ability, and not to engage in any
other employment activities.
C. Executive shall be based at the Company's office located at the
Corporate Headquarters at 4 Park Plaza, Suite 350, Irvine, California, but
Executive shall be required to travel to other geographic locations in
connection with the performance of his executive duties.
2. PERIOD OF EMPLOYMENT. Executive's employment with the Company shall
be governed by the provisions of this Agreement for the period commencing
October 1, 1999 and continuing until this Agreement terminates pursuant to
written notice by either the Company or Executive. The period during which
Executive's employment continues in effect shall be hereafter referred to as the
"Employment Period."
3. CASH COMPENSATION.
A. Effective January 1, 2000, Executive's initial base salary shall be
$285,000 per year payable in accordance with the Company's standard payroll
schedule. Executive's base salary shall be subject to annual review by the
Company, and may be increased or decreased in the Company's discretion. Prior to
January 1, 2000, Executive's base salary shall remain at its current level of
$350,000, and Executive shall not be eligible for additional bonus payment.
B. For each fiscal year during the Employment Period, Executive shall
be eligible for a bonus. Your annual incentive target will be 50% of your base
salary, prorated for the portion of the fiscal year worked. The bonus amount
will be based on the financial performance of the Company as determined and
measured by the Company's Board of Directors and Chief Executive Officer. The
bonus amount is intended to reward contribution to the Company's performance
over an entire fiscal year, and consequently will be paid only if Executive is
employed and in good standing at the time of bonus payments, which generally
occurs within 45 days after the close of the Company's fiscal year. Bonus
determinations will be made in the Company's sole discretion.
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<PAGE> 2
C. The Company shall deduct and withhold from the compensation payable
to Executive hereunder any and all applicable Federal, State and local income
and employment withholding taxes and any other amounts required to be deducted
or withheld by the Company under applicable statutes, regulations, ordinances or
orders governing or requiring the withholding or deduction of amounts otherwise
payable as compensation or wages to employees.
4. EQUITY COMPENSATION. Pursuant and subject to the terms and
conditions of the Company's stock option plan, the Company will grant Executive
options which will vest over time. The option price will be established as of
the date the Company's Board of Directors grants such options pursuant to the
Company's stock option plan and in an amount determined by the Company's Board
of Directors in its sole discretion.
5. EXPENSE REIMBURSEMENT. In addition to the compensation specified in
Paragraph 3, Executive shall be entitled, in accordance with the reimbursement
policies in effect from time to time, to receive reimbursement from the Company
for reasonable business expenses incurred by Executive in the performance of his
duties hereunder, provided Executive furnishes the Company with vouchers,
receipts and other details of such expenses in the form required by the Company
sufficient to substantiate a deduction for such business expenses under all
applicable rules and regulations of federal and state taxing authorities.
6. FRINGE BENEFITS.
A. Executive shall, throughout the Employment Period, be eligible to
participate in all executive life and disability insurance programs, group term
life insurance plans, group health plans, accidental death and dismemberment
plans and disability programs and other executive perquisites which are made
available to the Company's executives and for which Executive qualifies.
B. Executive shall earn vacation time during the Employment Period at
the rate of four (4) weeks per year. Vacation shall accrue and be taken pursuant
to the Company's vacation benefit policy set forth in the Company's Employee
Handbook.
7. MOVING EXPENSES. The Company will advance Executive up to the
maximum as specified in the Company's relocation policy for reasonable expenses
incurred by Executive in a relocation requested by the Company. The Company's
complete policy on moving expenses can be obtained from the Company's Human
Resources Department. The moving expense advance will be forgiven by the Company
at the rate of one-eighteenth (1/18) of the advanced amount each month Executive
remains employed by the Company. Should Executive terminate his employment prior
to full repayment of the advanced amount, amounts which remain outstanding will
be deducted from Executives final paychecks for unpaid wages and accrued but
unused vacation.
8. EMPLOYMENT AT WILL. Executive's employment with the Company is at
will and not for a specific term and may be terminated by either the Company or
Executive at any time, for any reason without notice. Similarly the Company may
change the terms and conditions of Executives employment at any time for any
reason. Should the Company terminate Executive's employment, the Company shall
have no obligation to Executive under
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<PAGE> 3
this Agreement other than for payment of accrued but unpaid wages and accrued
but unused vacation. Executive may, however, be entitled to severance benefits
in accordance with the Company's Executive Severance Plan. A summary of the
Company's Executive Severance Plan will be provided to Executive.
Should the Company terminate Executive's employment for cause, as
defined in the following paragraph, the Company shall have no further obligation
to Executive under this Agreement other than for accrued but unpaid salary and
vacation as of the date of termination. For purposes of this Agreement, "cause"
shall mean a reasonable belief that Executive has engaged in any one of the
following: (i) financial dishonesty, including, without limitation,
misappropriation of funds or property, or any attempt by Executive to secure any
personal profit related to the business or business opportunities of the Company
without the informed, written approval of the Company's Board of Directors; (ii)
refusal to comply with reasonable directives of the Company's Chief Executive
Officer or Board of Directors; (iii) gross negligence or reckless or willful
misconduct in the performance of Executive's duties; (iv) failure to perform, or
continuing neglect in the performance of, duties assigned to Executive; (v)
intentional misconduct which has a materially adverse effect upon the Company's
business or reputation; (vi) the conviction of, or plea of nolo contendre to, or
an misdemeanor involving moral turpitude or fraud; (vii) the material breach of
any provision of this agreement; of (viii) violation of Company policies
including, without limitation, the Company's policies on equal employment
opportunity and prohibition of unlawful harassment.
Notwithstanding the aforementioned paragraphs in this section 8, should
the Company terminate the Executive's employment for reasons other then cause,
the Executive will be entitled to severance in the greater amount of the
Company's current Executive Severance Policy or as specified below:
(a) In the event the Company terminates your employment other than for
Cause, the Executive will be entitled to receive one year's annual
salary and bonus.
(b) Within 18 months of a change in control of the Company, if the
Executive is assigned a level of responsibility or duties not
commensurate with your current level and duties; or your salary or
bonus target is reduced; or your primary location of work is
greater then 50 miles from Irvine, CA, you will be entitled to one
year's salary and bonus in the event you terminate your employment
with the Company.
(c) In the event of your death, this letter agreement will terminate
and the Company shall have no obligations hereunder, except that
your legal representatives shall be entitled to receive six months
of your annual salary, payable in equal installments in accordance
with Company's standard payroll schedule (subject to all applicable
withholdings required by law).
(d) If during the Term you become physically or mentally disabled,
whether totally or partially, as evidenced by a written statement
of a competent physician licensed to practice medicine in the
United States who is mutually acceptable to Company and you (or
your legal representative if you are not
3
<PAGE> 4
then able to make such a choice), so that you are unable
substantially to perform your obligations under this letter
agreement for (i) a period of two consecutive months or (ii) for
shorter periods aggregating to two months during any one year, the
Company may, without any liability under this letter agreement and
by written notice to you, at any time after the last day of the
consecutive two months of disability or the day on which the
shorter periods of disability equal an aggregate of two months,
suspend the Term provided that you shall be entitled to receive
your annual salary, paid in accordance with the Company's regular
payroll schedule for a period six months. The company may then
discontinue payments of your annual salary for the duration of the
disability, provided that you will be entitled to your annual
salary in accordance with Section 2 above for periods of disability
shorter than the periods specified in clauses (i) and (ii) above.
(e) Notwithstanding anything to the contrary set forth in this letter
agreement, (i) in the event that you terminate your employment with
Company or Company terminates your employment with Company, in each
case for any reason or no reason, or (ii) upon the expiration of
the Term, your obligations under Section 9 below shall continue and
survive such termination or expiration.
9. RESTRICTIVE COVENANTS. During the Employment Period:
(i) Executive shall devote Executive's full time and energy
solely and exclusively to the performance of Executive's
duties described herein, except during periods of illness or
vacation periods.
(ii) Executive shall not directly or indirectly provide services
to or through any person, firm or other entity except the
Company, unless otherwise authorized by the Board in writing.
(iii) Executive shall not render any services of any kind or
character for Executive's own account or for any other
person, firm or entity without first obtaining the Company's
written consent.
Executive, however, shall have the right to perform such incidental services as
are necessary in connection with (a) Executive's private passive investments,
but only if Executive is not obligated or required to (and shall not in fact)
devote any managerial efforts which interfere with the services required to be
performed by him, or (b) Executive's charitable or community activities, or
participation in trade or professional organizations, but only if such
incidental services do not interfere with the performance of Executive's
services to the company.
10. NON-COMPETITION. Executive acknowledges and agrees that given the
extent and nature of the confidential and proprietary information he will obtain
during the course of his employment with the Company, it would be inevitable
that such confidential information would be disclosed or utilized by the
Executive should he obtain employment from, or otherwise become associated with,
an entity or person that is engaged in a business or enterprise that
4
<PAGE> 5
directly competes with the Company. Consequently, during any period for which
Executive is receiving payments from the Company, either as wages or as a
severance Executive shall not, without prior written consent of the Company's
Board of Directors, directly or indirectly own, manage, operate, join, control
or participate in the ownership, management, operation or control of, or be
employed by or connected in any manner with, any enterprise which is engaged in
any business competitive with or similar to that of the Company; provided,
however, that such restriction shall not apply to any passive investment
representing an interest of less than two percent (2%) of an outstanding class
of publicly-traded securities of any company or other enterprise which is not,
at the time of such investment, engaged in a business competitive with the
Company's business.
11. NON-SOLICITATION. During the Employment Period and for one (1) year
following termination of Executive's employment, Executive shall not encourage
or solicit any of the Company's employees to leave the Company's employ for any
reason or interfere in any other manner with employment relationships at the
time existing between the Company and its employees; or solicit any client of
the Company, induce any of the Company's clients to terminate its existing
business relationship with the Company or interfere in any other manner with any
existing business relationship between the Company and any client or other third
party.
Executive hereby acknowledges that monetary damages may not be
sufficient to compensate the Company for any economic loss which may be incurred
by reason of her breach of the foregoing restrictive covenants. Accordingly, in
the event of any such breach, the Company shall, in addition to the termination
of this Agreement and any remedies available to the Company at law, be entitled
to obtain equitable relief in the form of an injunction precluding Executive
from continuing such breach.
12. PROPRIETARY INFORMATION. As a condition precedent to Executive's
employment with the Company, Executive will execute the Company's standard
Confidential Information and Assignment of Inventions Agreement. Executive's
obligations pursuant to the Confidential Information and Assignment of
Inventions Agreement will survive termination of Executive's employment with the
Company.
13. SUCCESSORS AND ASSIGNS. This Agreement is personal in its nature
and the Executive shall not assign or transfer his rights under this Agreement.
The provisions of this Agreement shall inure to the benefit of, and be binding
on each successor of the Company whether by merger, consolidation, transfer of
all or substantially all assets, or otherwise and the heirs and legal
representatives of Executive.
14. NOTICES. Any notices, demands or other communications required or
desired to be given by any party shall be in writing and shall be validly given
to another party if served either personally or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt requested.
If such notice, demand or other communication shall be served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by mail, such notice
shall be conclusively deemed given forty-eight (48) hours after the deposit
thereof in the United States mail addressed to the party to whom such notice,
demand or other communication is to be given as hereinafter set forth:
To the Company: Exult, Inc.
4 Park Plaza, Suite 350
Irvine, California 92614
To Executive: Stephen M. Unterberger
939 Emerald Bay
Laguna Beach, California 92651
Any party may change its address for the purpose of receiving notices, demands
and other communications by providing written notice to the other party in the
manner described in this paragraph.
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<PAGE> 6
15. GOVERNING DOCUMENTS. This Agreement along with the Company's
Proprietary Information and Assignment of Inventions Agreement constitute the
entire agreement and understanding of the Company and Executive with respect to
the terms and conditions of Executive's employment with the Company and the
payment of severance benefits and supersedes all prior and contemporaneous
written or verbal agreements and understandings between Executive and the
Company relating to such subject matter. This Agreement may only be amended by
written instrument signed by Executive and an authorized officer of the Company.
Any and all prior agreements, understandings or representations relating to the
Executive's employment with the Company are terminated and cancelled in their
entirety and are of no further force or effect.
16. GOVERNING LAW. The provisions of this letter agreement will be
construed and interpreted under the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. If any provision of this Agreement as applied to any party or to any
circumstance should be adjudged by a court of competent jurisdiction to be void
or unenforceable for any reason, the invalidity of that provision shall in no
way affect (to the maximum extent permissible by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this Agreement, or the enforceability or
invalidity of this Agreement as a whole. Should any provision of this Agreement
become or be deemed invalid, illegal or unenforceable in any jurisdiction by
reason of the scope, extent or duration of its coverage, then such provision
shall be deemed amended to the extent necessary to conform to applicable law so
as to be valid and enforceable or, if such provision cannot be so amended
without materially altering the intention of the parties, then such provision
will be stricken and the remainder of this Agreement shall continue in full
force and effect.
17. REMEDIES. All rights and remedies provided pursuant to this
Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Agreement.
18. ARBITRATION. Any and all disputes between Executive and the Company
which arise out of Executive's employment under the terms of this Agreement
shall be resolved
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<PAGE> 7
through final and binding arbitration. This shall include, without limitation,
disputes relating to this Agreement, Executive's employment by the Company or
the termination thereof, claims for breach of contract or breach of the covenant
of good faith and fair dealing, and any claims of discrimination or other claims
under Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans With Disabilities Act, the California Fair
Employment and Housing Act, or any other federal, state or local law or
regulation now in existence or hereinafter enacted and as amended from time to
time concerning in any way the subject of Executive's employment with the
Company or its termination. The only claims not covered by this Agreement are
claims for benefits under the workers' compensation or unemployment insurance
laws, which will be resolved pursuant to those laws. Binding arbitration will be
conducted in Orange County, California in accordance with the rules and
regulations of the American Arbitration Association. Each party will split the
cost of the arbitration filing and hearing fees, and the cost of the arbitrator;
each side will bear its own attorneys' fees, that is, the arbitrator will not
have authority to award attorneys' fees unless a statutory section at issue in
the dispute authorizes the award of attorneys' fees to the prevailing party, in
which case the arbitrator has authority to make such award as permitted by the
statute in question. Executive understands and agrees that the arbitration shall
be instead of any civil litigation and that this means that she is waiving her
right to a jury trial as to such claims. The parties further understand and
agree that the arbitrator's decision shall be final and binding to the fullest
extent permitted by law and enforceable by any court having jurisdiction.
19. NO WAIVER. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any later
breach of that provision.
20. COUNTERPARTS. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
EXULT, INC.
/s/ JAMES C. MADDEN, V
------------------------------------
By: James C. Madden, V
Title: President & CEO
/s/ STEPHEN M. UNTERBERGER
------------------------------------
EXECUTIVE
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<PAGE> 1
EXHIBIT 10.12.2
[EXULT LOGO]
MEMORANDUM
To: Steven Unterberger
From: James McLelland
Date: 02/29/00
Re: Compensation
- -------------------------------------------------------------------------------
This memorandum is to confirm the consensus recommendation made by the
compensation committee. Effective January 1, 2000 your base compensation
increased to an annual $400,000. The bonus target amount will remain at 50% or
$200,000 payable at the fiscal year end.
JM/rma
<PAGE> 1
EXHIBIT 10.13
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of August 25, 1999 by and between Exult
(the "Company"), and Barbara A. Coull-Williams ("Executive").
1. DUTIES AND RESPONSIBILITIES.
A. Executive shall serve as the Company's Vice President, Human
Resource Processes and shall report to and perform the duties and
responsibilities assigned to you by the Company's Chief Operating Officer, or
such other person as may be designated by the Company's Chief Executive Officer.
B. Executive agrees to devote her full time and attention to the
Company, to use her best efforts to advance the business and welfare of the
Company, to render her services under this Agreement fully, faithfully,
diligently, competently and to the best of her ability, and not to engage in any
other employment activities.
C. Executive shall be based at the Company's office located at the
Corporate Headquarters at 4 Park Plaza, Suite 350, Irvine, California, but
Executive shall be required to travel to other geographic locations in
connection with the performance of her executive duties.
2. PERIOD OF EMPLOYMENT. Executive's employment with the Company shall
be governed by the provisions of this Agreement for the period commencing May
19, 1999 and continuing until this Agreement terminates pursuant to written
notice by either the Company or Executive. The period during which Executive's
employment continues in effect shall be hereafter referred to as the "Employment
Period."
3. CASH COMPENSATION.
A. Executive's initial base salary shall be $215,000 per year payable
in accordance with the Company's standard payroll schedule. Executive's base
salary shall be subject to annual review by the Company, and may be increased or
decreased in the Company's discretion.
B. For each fiscal year during the Employment Period, Executive shall
be eligible for an incentive bonus. Your annual incentive target will be
$107,500, prorated for the portion of the fiscal year worked. The bonus amount
will be based on the following factors: (1) the financial performance of the
Company as determined and measured by the Company's Board of Directors and Chief
Executive Officer; and (2) Executive's achievement of management targets and
goals as set by the Company. The bonus amount is intended to reward contribution
to the Company's performance over an entire fiscal year, and consequently will
be paid only if Executive is employed and in good standing at the time of bonus
payments, which generally occurs within 45 days after the close of the Company's
fiscal year. Bonus determinations will be made in the Company's sole discretion.
C. The Company shall deduct and withhold from the compensation payable
to Executive hereunder any and all applicable Federal, State and local income
and employment
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<PAGE> 2
withholding taxes and any other amounts required to be deducted or withheld by
the Company under applicable statutes, regulations, ordinances or orders
governing or requiring the withholding or deduction of amounts otherwise payable
as compensation or wages to employees.
4. EQUITY COMPENSATION. Pursuant and subject to the terms and
conditions of the Company's stock option plan, the Company will grant Executive
options which will vest over time. The option price will be established as of
the date the Company's Board of Directors grants such options pursuant to the
Company's stock option plan and in an amount determined by the Company's Board
of Directors in its sole discretion.
5. EXPENSE REIMBURSEMENT. In addition to the compensation specified in
Paragraph 3, Executive shall be entitled, in accordance with the reimbursement
policies in effect from time to time, to receive reimbursement from the Company
for reasonable business expenses incurred by Executive in the performance of her
duties hereunder, provided Executive furnishes the Company with vouchers,
receipts and other details of such expenses in the form required by the Company
sufficient to substantiate a deduction for such business expenses under all
applicable rules and regulations of federal and state taxing authorities.
6. FRINGE BENEFITS.
A. Executive shall, throughout the Employment Period, be eligible to
participate in all group term life insurance plans, group health plans,
accidental death and dismemberment plans and disability programs and other
executive perquisites which are made available to the Company's executives and
for which Executive qualifies.
B. Executive shall earn vacation time during the Employment Period at
the rate of 4 weeks per year. Vacation shall accrue and be taken pursuant to the
Company's vacation benefit policy set forth in the Company's Employee Handbook.
7. MOVING EXPENSES. The Company will advance Executive up to the
maximum as specified in the Company's relocation policy for reasonable expenses
incurred by Executive in relocating from Northern California to Orange County,
CA. The Company's complete policy on moving expenses can be obtained from the
Company's Human Resources Department. The moving expense advance will be
forgiven by the Company at the rate of one-eighteenth (1/18) of the advanced
amount each month Executive remains employed by the Company. Should Executive
terminate her employment prior to full repayment of the advanced amount, amounts
which remain outstanding will be deducted from Executives final paychecks for
unpaid wages and accrued but unused vacation.
8. EMPLOYMENT AT WILL. Executive's employment with the Company is at
will and not for a specific term and may be terminated by either the Company or
Executive at any time, for any reason without notice. Similarly the Company may
change the terms and conditions of Executives employment at any time for any
reason. Should the Company terminate Executive's employment, the Company shall
have no obligation to Executive under this Agreement other than for payment of
accrued but unpaid wages and accrued but unused vacation. Executive may,
however, be entitled to severance benefits in accordance with the Company's
Executive Severance Plan. A summary of the Company's Executive Severance Plan
will be provided to Executive.
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<PAGE> 3
Should the Company terminate Executive's employment for cause, as
defined in the following paragraph, the Company shall have no further obligation
to Executive under this Agreement other than for accrued but unpaid salary and
vacation as of the date of termination. For purposes of this Agreement, "cause"
shall mean a reasonable belief that Executive has engaged in any one of the
following: (i) financial dishonesty, including, without limitation,
misappropriation of funds or property, or any attempt by Executive to secure any
personal profit related to the business or business opportunities of the Company
without the informed, written approval of the Company's Board of Directors; (ii)
refusal to comply with reasonable directives of the Company's Chief Executive
Officer or Board of Directors; (iii) gross negligence or reckless or willful
misconduct in the performance of Executive's duties; (iv) failure to perform, or
continuing neglect in the performance of, duties assigned to Executive; (v)
intentional misconduct which has a materially adverse effect upon the Company's
business or reputation; (vi) the conviction of, or plea of nolo contendre to, or
an misdemeanor involving moral turpitude or fraud; (vii) the material breach of
any provision of this agreement; of (viii) violation of Company policies
including, without limitation, the Company's policies on equal employment
opportunity and prohibition of unlawful harassment.
9. RESTRICTIVE COVENANTS. During the Employment Period:
(i) Executive shall devote Executive's full time and energy
solely and exclusively to the performance of Executive's
duties described herein, except during periods of illness or
vacation periods.
(ii) Executive shall not directly or indirectly provide services
to or through any person, firm or other entity except the
Company, unless otherwise authorized by the Board in writing.
(iii) Executive shall not render any services of any kind or
character for Executive's own account or for any other
person, firm or entity without first obtaining the Company's
written consent.
Executive, however, shall have the right to perform such incidental services as
are necessary in connection with (a) Executive's private passive investments,
but only if Executive is not obligated or required to (and shall not in fact)
devote any managerial efforts which interfere with the services required to be
performed by her, or (b) Executive's charitable or community activities, or
participation in trade or professional organizations, but only if such
incidental services do not interfere with the performance of Executive's
services to the company.
10. NON-COMPETITION. Executive acknowledges and agrees that given the
extent and nature of the confidential and proprietary information she will
obtain during the course of her employment with the Company, it would be
inevitable that such confidential information would be disclosed or utilized by
the Executive should she obtain employment from, or otherwise become associated
with, an entity or person that is engaged in a business or enterprise that
directly competes with the Company. Consequently, during any period for which
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<PAGE> 4
Executive is receiving payments from the Company, either as wages or as a
severance benefit Executive shall not, without prior written consent of the
Company's Board of Directors, directly or indirectly own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be employed by or connected in any manner with, any enterprise which is engaged
in any business competitive with or similar to that of the Company; provided,
however, that such restriction shall not apply to any passive investment
representing an interest of less than two percent (2%) of an outstanding class
of publicly-traded securities of any company or other enterprise which is not,
at the time of such investment, engaged in a business competitive with the
Company's business.
11. NON-SOLICITATION. During the Employment Period and for one (1) year
following termination of Executive's employment, Executive shall not encourage
or solicit any of the Company's employees to leave the Company's employ for any
reason or interfere in any other manner with employment relationships at the
time existing between the Company and its employees; or solicit any client of
the Company, induce any of the Company's clients to terminate its existing
business relationship with the Company or interfere in any other manner with any
existing business relationship between the Company and any client or other third
party.
Executive hereby acknowledges that monetary damages may not be
sufficient to compensate the Company for any economic loss which may be incurred
by reason of her breach of the foregoing restrictive covenants. Accordingly, in
the event of any such breach, the Company shall, in addition to the termination
of this Agreement and any remedies available to the Company at law, be entitled
to obtain equitable relief in the form of an injunction precluding Executive
from continuing such breach.
12. PROPRIETARY INFORMATION. As a condition precedent to Executive's
employment with the Company, Executive will execute the Company's standard
Confidential Information and Assignment of Inventions Agreement. Executive's
obligations pursuant to the Confidential Information and Assignment of
Inventions Agreement will survive termination of Executive's employment with the
Company.
13. SUCCESSORS AND ASSIGNS. This Agreement is personal in its nature
and the Executive shall not assign or transfer her rights under this Agreement.
The provisions of this Agreement shall inure to the benefit of, and be binding
on each successor of the Company whether by merger, consolidation, transfer of
all or substantially all assets, or otherwise and the heirs and legal
representatives of Executive.
14. NOTICES. Any notices, demands or other communications required or
desired to be given by any party shall be in writing and shall be validly given
to another party if served either personally or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt requested.
If such notice, demand or other communication shall be served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by mail, such notice
shall be conclusively deemed given forty-eight (48) hours after the deposit
thereof in the United States mail addressed to the party to whom such notice,
demand or other communication is to be given as hereinafter set forth:
To the Company: Exult
4 Park Plaza, Suite 350
Irvine, California 92614
To Executive: Barbara A. Coull-Williams
228 Larkspur Avenue
Corona del Mar, California 92625
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<PAGE> 5
Any party may change its address for the purpose of receiving notices, demands
and other communications by providing written notice to the other party in the
manner described in this paragraph.
15. GOVERNING DOCUMENTS. This Agreement along with the Company's
Proprietary Information and Assignment of Inventions Agreement constitute the
entire agreement and understanding of the Company and Executive with respect to
the terms and conditions of Executive's employment with the Company and the
payment of severance benefits and supersedes all prior and contemporaneous
written or verbal agreements and understandings between Executive and the
Company relating to such subject matter. This Agreement may only be amended by
written instrument signed by Executive and an authorized officer of the Company.
Any and all prior agreements, understandings or representations relating to the
Executive's employment with the Company are terminated and cancelled in their
entirety and are of no further force or effect.
16. GOVERNING LAW. The provisions of this letter agreement will be
construed and interpreted under the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. If any provision of this Agreement as applied to any party or to any
circumstance should be adjudged by a court of competent jurisdiction to be void
or unenforceable for any reason, the invalidity of that provision shall in no
way affect (to the maximum extent permissible by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this Agreement, or the enforceability or
invalidity of this Agreement as a whole. Should any provision of this Agreement
become or be deemed invalid, illegal or unenforceable in any jurisdiction by
reason of the scope, extent or duration of its coverage, then such provision
shall be deemed amended to the extent necessary to conform to applicable law so
as to be valid and enforceable or, if such provision cannot be so amended
without materially altering the intention of the parties, then such provision
will be stricken and the remainder of this Agreement shall continue in full
force and effect.
17. REMEDIES. All rights and remedies provided pursuant to this
Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Agreement.
18. ARBITRATION. Any and all disputes between Executive and the Company
which arise out of Executive's employment under the terms of this Agreement
shall be resolved through final and binding arbitration. This shall include,
without limitation, disputes relating to
5
<PAGE> 6
this Agreement, Executive's employment by the Company or the termination
thereof, claims for breach of contract or breach of the covenant of good faith
and fair dealing, and any claims of discrimination or other claims under Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act,
the Americans With Disabilities Act, the California Fair Employment and Housing
Act, or any other federal, state or local law or regulation now in existence or
hereinafter enacted and as amended from time to time concerning in any way the
subject of Executive's employment with the Company or its termination. The only
claims not covered by this Agreement are claims for benefits under the workers'
compensation or unemployment insurance laws, which will be resolved pursuant to
those laws. Binding arbitration will be conducted in Orange County, California
in accordance with the rules and regulations of the American Arbitration
Association. Each party will split the cost of the arbitration filing and
hearing fees, and the cost of the arbitrator; each side will bear its own
attorneys' fees, that is, the arbitrator will not have authority to award
attorneys' fees unless a statutory section at issue in the dispute authorizes
the award of attorneys' fees to the prevailing party, in which case the
arbitrator has authority to make such award as permitted by the statute in
question. Executive understands and agrees that the arbitration shall be instead
of any civil litigation and that this means that she is waiving her right to a
jury trial as to such claims. The parties further understand and agree that the
arbitrator's decision shall be final and binding to the fullest extent permitted
by law and enforceable by any court having jurisdiction.
19. NO WAIVER. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any later
breach of that provision.
20. COUNTERPARTS. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
EXULT
/s/ James C. Madden, V
------------------------------------
By: James C. Madden, V
Title: CEO & President
/s/ Barbara Coull Williams
------------------------------------
EXECUTIVE
6
<PAGE> 1
EXHIBIT 10.14
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of October 1, 1999 by and between Exult
(the "Company"), and Scott Figge ("Executive").
1. DUTIES AND RESPONSIBILITIES.
A. Executive shall serve as the Vice President, Business Development
and shall report to and perform the duties and responsibilities assigned to you
by the Company's Chief Executive Officer, or such other person as may be
designated by the Company's Chief Executive Officer.
B. Executive agrees to devote his full time and attention to the
Company, to use his best efforts to advance the business and welfare of the
Company, to render his services under this Agreement fully, faithfully,
diligently, competently and to the best of his ability, and not to engage in any
other employment activities.
C. Executive shall be based at the Company's office located at the
Corporate Headquarters at 4 Park Plaza, Suite 350, Irvine, California, but
Executive shall be required to travel to other geographic locations in
connection with the performance of his executive duties.
2. PERIOD OF EMPLOYMENT. Executive's employment with the Company shall
be governed by the provisions of this Agreement for the period commencing
October 1, 1999 and continuing until this Agreement terminates pursuant to
written notice by either the Company or Executive. The period during which
Executive's employment continues in effect shall be hereafter referred to as the
"Employment Period."
3. CASH COMPENSATION.
A. Executive's base salary shall be $230,000 per year payable in
accordance with the Company's standard payroll schedule. Executive's base salary
shall be subject to annual review by the Company, and may be increased or
decreased in the Company's discretion.
B. For each fiscal year during the Employment Period, Executive shall
be eligible for an incentive bonus. Your annual incentive target will be
$140,000, prorated for the portion of the fiscal year worked. The bonus amount
will be based on the financial performance of the Company as determined and
measured by the Company's Board of Directors and Chief Executive Officer. The
bonus amount is intended to reward contribution to the Company's performance
over an entire fiscal year, and consequently will be paid only if the Executive
is employed and in good standing at the time of bonus payments, which generally
occurs within 45 days after the close of the Company's fiscal year. Bonus
determinations will be made in the Company's sole discretion.
C. The Company shall deduct and withhold from the compensation payable
to Executive hereunder any and all applicable Federal, State and local income
and employment
1
<PAGE> 2
withholding taxes and any other amounts required to be deducted or withheld by
the Company under applicable statutes, regulations, ordinances or orders
governing or requiring the withholding or deduction of amounts otherwise payable
as compensation or wages to employees.
4. EQUITY COMPENSATION. Pursuant and subject to the terms and
conditions of the Company's stock option plan, the Company will grant Executive
options which will vest over time. The option price will be established as of
the date the Company's Board of Directors grants such options pursuant to the
Company's stock option plan and in an amount determined by the Company's Board
of Directors in its sole discretion. Notwithstanding the aforementioned, the
Executive will have an opportunity to earn another 0.25% of equity in the form
of stock options based upon the Executive's performance in outsourcing sales and
other key management objectives as mutually agreed and approved by the CEO.
Further, your achievement of these objectives and sales will be measured by the
company, and, if materially achieved, the Company will elect to grant you the
additional equity. No future grants are committed beyond this potential grant.
5. EXPENSE REIMBURSEMENT. In addition to the compensation specified in
Paragraph 3, Executive shall be entitled, in accordance with the reimbursement
policies in effect from time to time, to receive reimbursement from the Company
for reasonable business expenses incurred by Executive in the performance of his
duties hereunder, provided Executive furnishes the Company with vouchers,
receipts and other details of such expenses in the form required by the Company
sufficient to substantiate a deduction for such business expenses under all
applicable rules and regulations of federal and state taxing authorities.
6. FRINGE BENEFITS.
A. Executive shall, throughout the Employment Period, be eligible to
participate in all group term life insurance plans, group health plans,
accidental death and dismemberment plans and disability programs and other
executive perquisites which are made available to the Company's executives and
for which Executive qualifies.
B. Executive shall earn vacation time during the Employment Period at
the rate of 4 weeks per year. Vacation shall accrue and be taken pursuant to the
Company's vacation benefit policy set forth in the Company's Employee Handbook.
7. MOVING EXPENSES. The Company will advance Executive up to the
maximum as specified in the Company's relocation policy for reasonable expenses
incurred by Executive in a relocation requested by the Company. The Company's
complete policy on moving expenses can be obtained from the Company's Human
Resources Department. The moving expense advance will be forgiven by the Company
at the rate of one-eighteenth (1/18) of the advanced amount each month Executive
remains employed by the Company. Should Executive terminate his employment prior
to full repayment of the advanced amount, amounts which remain outstanding will
be deducted from Executives final paychecks for unpaid wages and accrued but
unused vacation.
8. EMPLOYMENT AT WILL. Executive's employment with the Company is at
will and not for a specific term and may be terminated by either the Company or
Executive at
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<PAGE> 3
any time, for any reason without notice. Similarly the Company may change the
terms and conditions of Executives employment at any time for any reason. Should
the Company terminate Executive's employment, the Company shall have no
obligation to Executive under this Agreement other than for payment of accrued
but unpaid wages and accrued but unused vacation. Executive may, however, be
entitled to severance benefits in accordance with the Company's Executive
Severance Plan. A summary of the Company's Executive Severance Plan will be
provided to Executive.
Should the Company terminate Executive's employment for cause, as
defined in the following paragraph, the Company shall have no further obligation
to Executive under this Agreement other than for accrued but unpaid salary and
vacation as of the date of termination. For purposes of this Agreement, "cause"
shall mean a reasonable belief that Executive has engaged in any one of the
following: (i) financial dishonesty, including, without limitation,
misappropriation of funds or property, or any attempt by Executive to secure any
personal profit related to the business or business opportunities of the Company
without the informed, written approval of the Company's Board of Directors; (ii)
refusal to comply with reasonable directives of the Company's Chief Executive
Officer or Board of Directors; (iii) gross negligence or reckless or willful
misconduct in the performance of Executive's duties; (iv) failure to perform, or
continuing neglect in the performance of, duties assigned to Executive; (v)
intentional misconduct which has a materially adverse effect upon the Company's
business or reputation; (vi) the conviction of, or plea of nolo contendre to, or
an misdemeanor involving moral turpitude or fraud; (vii) the material breach of
any provision of this agreement; of (viii) violation of Company policies
including, without limitation, the Company's policies on equal employment
opportunity and prohibition of unlawful harassment.
Notwithstanding the aforementioned paragraphs in section 8, should the
Company terminate the Executives employment for reasons other then cause, the
Executive will be entitled to severance in the greater amount of the company's
current Executive Severance Policy or one year of salary.
9. RESTRICTIVE COVENANTS. During the Employment Period:
(i) Executive shall devote Executive's full time and energy
solely and exclusively to the performance of Executive's
duties described herein, except during periods of illness or
vacation periods.
(ii) Executive shall not directly or indirectly provide services
to or through any person, firm or other entity except the
Company, unless otherwise authorized by the Board in writing.
(iii) Executive shall not render any services of any kind or
character for Executive's own account or for any other
person, firm or entity without first obtaining the Company's
written consent.
Executive, however, shall have the right to perform such incidental services as
are necessary in connection with (a) Executive's private passive investments,
but only if Executive is not obligated or required to (and shall not in fact)
devote any managerial efforts which interfere with the services required to be
performed by him, or (b) Executive's charitable or community activities, or
participation in trade or professional organizations, but only if such
incidental services do not interfere with the performance of Executive's
services to the company.
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<PAGE> 4
10. NON-COMPETITION. Executive acknowledges and agrees that given the
extent and nature of the confidential and proprietary information he will obtain
during the course of his employment with the Company, it would be inevitable
that such confidential information would be disclosed or utilized by the
Executive should he obtain employment from, or otherwise become associated with,
an entity or person that is engaged in a business or enterprise that directly
competes with the Company. Consequently, during any period for which Executive
is receiving payments from the Company, either as wages or as a severance
Executive shall not, without prior written consent of the Company's Board of
Directors, directly or indirectly own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or be
employed by or connected in any manner with, any enterprise which is engaged in
any business competitive with or similar to that of the Company; provided,
however, that such restriction shall not apply to any passive investment
representing an interest of less than two percent (2%) of an outstanding class
of publicly-traded securities of any company or other enterprise which is not,
at the time of such investment, engaged in a business competitive with the
Company's business.
11. NON-SOLICITATION. During the Employment Period and for one (1) year
following termination of Executive's employment, Executive shall not encourage
or solicit any of the Company's employees to leave the Company's employ for any
reason or interfere in any other manner with employment relationships at the
time existing between the Company and its employees; or solicit any client of
the Company, induce any of the Company's clients to terminate its existing
business relationship with the Company or interfere in any other manner with any
existing business relationship between the Company and any client or other third
party.
Executive hereby acknowledges that monetary damages may not be
sufficient to compensate the Company for any economic loss which may be incurred
by reason of her breach of the foregoing restrictive covenants. Accordingly, in
the event of any such breach, the Company shall, in addition to the termination
of this Agreement and any remedies available to the Company at law, be entitled
to obtain equitable relief in the form of an injunction precluding Executive
from continuing such breach.
12. PROPRIETARY INFORMATION. As a condition precedent to Executive's
employment with the Company, Executive will execute the Company's standard
Confidential Information and Assignment of Inventions Agreement. Executive's
obligations pursuant to the Confidential Information and Assignment of
Inventions Agreement will survive termination of Executive's employment with the
Company.
13. SUCCESSORS AND ASSIGNS. This Agreement is personal in its nature
and the Executive shall not assign or transfer his rights under this Agreement.
The provisions of this Agreement shall inure to the benefit of, and be binding
on each successor of the Company whether by merger, consolidation, transfer of
all or substantially all assets, or otherwise and the heirs and legal
representatives of Executive.
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<PAGE> 5
14. NOTICES. Any notices, demands or other communications required or
desired to be given by any party shall be in writing and shall be validly given
to another party if served either personally or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt requested.
If such notice, demand or other communication shall be served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by mail, such notice
shall be conclusively deemed given forty-eight (48) hours after the deposit
thereof in the United States mail addressed to the party to whom such notice,
demand or other communication is to be given as hereinafter set forth:
To the Company: Exult, Inc.
4 Park Plaza, Suite 350
Irvine, California 92614
To Executive: Scott Figge
4081 Hampstead Road
La Canada, California 91011
Any party may change its address for the purpose of receiving notices, demands
and other communications by providing written notice to the other party in the
manner described in this paragraph.
15. GOVERNING DOCUMENTS. This Agreement along with the Company's
Proprietary Information and Assignment of Inventions Agreement constitute the
entire agreement and understanding of the Company and Executive with respect to
the terms and conditions of Executive's employment with the Company and the
payment of severance benefits and supersedes all prior and contemporaneous
written or verbal agreements and understandings between Executive and the
Company relating to such subject matter. This Agreement may only be amended by
written instrument signed by Executive and an authorized officer of the Company.
Any and all prior agreements, understandings or representations relating to the
Executive's employment with the Company are terminated and cancelled in their
entirety and are of no further force or effect.
16. GOVERNING LAW. The provisions of this letter agreement will be
construed and interpreted under the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. If any provision of this Agreement as applied to any party or to any
circumstance should be adjudged by a court of competent jurisdiction to be void
or unenforceable for any reason, the invalidity of that provision shall in no
way affect (to the maximum extent permissible by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this Agreement, or the enforceability or
invalidity of this Agreement as a whole. Should any provision of this Agreement
become or be deemed invalid, illegal or unenforceable in any jurisdiction by
reason of the scope, extent or duration of its coverage, then such provision
shall be deemed amended to the extent necessary to conform to applicable law so
as to be valid and enforceable or, if such provision cannot be so amended
without materially altering the intention of the parties, then such provision
will be stricken and the remainder of this Agreement shall continue in full
force and effect.
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<PAGE> 6
17. REMEDIES. All rights and remedies provided pursuant to this
Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Agreement.
18. ARBITRATION. Any and all disputes between Executive and the Company
which arise out of Executive's employment under the terms of this Agreement
shall be resolved through final and binding arbitration. This shall include,
without limitation, disputes relating to this Agreement, Executive's employment
by the Company or the termination thereof, claims for breach of contract or
breach of the covenant of good faith and fair dealing, and any claims of
discrimination or other claims under Title VII of the Civil Rights Act of 1964,
the Age Discrimination in Employment Act, the Americans With Disabilities Act,
the California Fair Employment and Housing Act, or any other federal, state or
local law or regulation now in existence or hereinafter enacted and as amended
from time to time concerning in any way the subject of Executive's employment
with the Company or its termination. The only claims not covered by this
Agreement are claims for benefits under the workers' compensation or
unemployment insurance laws, which will be resolved pursuant to those laws.
Binding arbitration will be conducted in Orange County, California in accordance
with the rules and regulations of the American Arbitration Association. Each
party will split the cost of the arbitration filing and hearing fees, and the
cost of the arbitrator; each side will bear its own attorneys' fees, that is,
the arbitrator will not have authority to award attorneys' fees unless a
statutory section at issue in the dispute authorizes the award of attorneys'
fees to the prevailing party, in which case the arbitrator has authority to make
such award as permitted by the statute in question. Executive understands and
agrees that the arbitration shall be instead of any civil litigation and that
this means that she is waiving her right to a jury trial as to such claims. The
parties further understand and agree that the arbitrator's decision shall be
final and binding to the fullest extent permitted by law and enforceable by any
court having jurisdiction.
19. NO WAIVER. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any later
breach of that provision.
20. COUNTERPARTS. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
EXULT
/s/ James C. Madden, V
--------------------------------
By: James C. Madden, V
Title: President & CEO
/s/ Scott J. Figge
--------------------------------
EXECUTIVE
6
<PAGE> 1
EXHIBIT 10.15
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of August 25, 1999 by and between Exult
(the "Company"), and Rebecca L. Work ("Executive").
1. DUTIES AND RESPONSIBILITIES.
A. Executive shall serve as the Company's Vice President & Chief
Information Officer and shall report to and perform the duties and
responsibilities assigned to you by the Company's Chief Operating Officer, or
such other person as may be designated by the Company's Chief Executive Officer.
B. Executive agrees to devote his full time and attention to the
Company, to use her best efforts to advance the business and welfare of the
Company, to render her services under this Agreement fully, faithfully,
diligently, competently and to the best of her ability, and not to engage in any
other employment activities.
C. Executive shall be based at the Company's office located at the
Corporate Headquarters at 4 Park Plaza, Suite 350, Irvine, California, but
Executive shall be required to travel to other geographic locations in
connection with the performance of her executive duties.
2. PERIOD OF EMPLOYMENT. Executive's employment with the Company shall
be governed by the provisions of this Agreement for the period commencing April
26, 1999 and continuing until this Agreement terminates pursuant to written
notice by either the Company or Executive. The period during which Executive's
employment continues in effect shall be hereafter referred to as the "Employment
Period."
3. CASH COMPENSATION.
A. Executive's initial base salary shall be $190,000 per year payable
in accordance with the Company's standard payroll schedule. Executive's base
salary shall be subject to annual review by the Company, and may be increased or
decreased in the Company's discretion.
B. For each fiscal year during the Employment Period, Executive shall
be eligible for an incentive bonus. Your annual incentive target will be
$95,000, prorated for the portion of the fiscal year worked. The bonus amount
will be based on the following factors: (1) the financial performance of the
Company as determined and measured by the Company's Board of Directors and Chief
Executive Officer; and (2) Executive's achievement of management targets and
goals as set by the Company. The bonus amount is intended to reward contribution
to the Company's performance over an entire fiscal year, and consequently will
be paid only if Executive is employed and in good standing at the time of bonus
payments, which generally occurs within 45 days after the close of the Company's
fiscal year. Bonus determinations will be made in the Company's sole discretion.
C. The Company shall deduct and withhold from the compensation payable
to Executive hereunder any and all applicable Federal, State and local income
and employment
1
<PAGE> 2
withholding taxes and any other amounts required to be deducted or withheld by
the Company under applicable statutes, regulations, ordinances or orders
governing or requiring the withholding or deduction of amounts otherwise payable
as compensation or wages to employees.
4. EQUITY COMPENSATION. Pursuant and subject to the terms and
conditions of the Company's stock option plan, the Company will grant Executive
options which will vest over time. The option price will be established as of
the date the Company's Board of Directors grants such options pursuant to the
Company's stock option plan and in an amount determined by the Company's Board
of Directors in its sole discretion.
5. EXPENSE REIMBURSEMENT. In addition to the compensation specified in
Paragraph 3, Executive shall be entitled, in accordance with the reimbursement
policies in effect from time to time, to receive reimbursement from the Company
for reasonable business expenses incurred by Executive in the performance of her
duties hereunder, provided Executive furnishes the Company with vouchers,
receipts and other details of such expenses in the form required by the Company
sufficient to substantiate a deduction for such business expenses under all
applicable rules and regulations of federal and state taxing authorities.
6. FRINGE BENEFITS.
A. Executive shall, throughout the Employment Period, be eligible to
participate in all group term life insurance plans, group health plans,
accidental death and dismemberment plans and disability programs and other
executive perquisites which are made available to the Company's executives and
for which Executive qualifies.
B. Executive shall earn vacation time during the Employment Period at
the rate of 4 weeks per year. Vacation shall accrue and be taken pursuant to the
Company's vacation benefit policy set forth in the Company's Employee Handbook.
7. EMPLOYMENT AT WILL. Executive's employment with the Company is at
will and not for a specific term and may be terminated by either the Company or
Executive at any time, for any reason without notice. Similarly the Company may
change the terms and conditions of Executives employment at any time for any
reason. Should the Company terminate Executive's employment, the Company shall
have no obligation to Executive under this Agreement other than for payment of
accrued but unpaid wages and accrued but unused vacation. Executive may,
however, be entitled to severance benefits in accordance with the Company's
Executive Severance Plan. A summary of the Company's Executive Severance Plan
will be provided to Executive.
Should the Company terminate Executive's employment for cause, as
defined in the following paragraph, the Company shall have no further obligation
to Executive under this Agreement other than for accrued but unpaid salary and
vacation as of the date of termination. For purposes of this Agreement, "cause"
shall mean a reasonable belief that Executive has engaged in any one of the
following: (i) financial dishonesty, including, without limitation,
misappropriation of funds or property, or any attempt by Executive to secure any
personal profit related to the business or business opportunities of the Company
without the informed, written approval of the Company's Board of Directors; (ii)
refusal to comply with reasonable directives
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of the Company's Chief Executive Officer or Board of Directors; (iii) gross
negligence or reckless or willful misconduct in the performance of Executive's
duties; (iv) failure to perform, or continuing neglect in the performance of,
duties assigned to Executive; (v) intentional misconduct which has a materially
adverse effect upon the Company's business or reputation; (vi) the conviction
of, or plea of nolo contendre to, or an misdemeanor involving moral turpitude or
fraud; (vii) the material breach of any provision of this agreement; of (viii)
violation of Company policies including, without limitation, the Company's
policies on equal employment opportunity and prohibition of unlawful harassment.
8. RESTRICTIVE COVENANTS. During the Employment Period:
(i) Executive shall devote Executive's full time and energy solely
and exclusively to the performance of Executive's duties
described herein, except during periods of illness or vacation
periods.
(ii) Executive shall not directly or indirectly provide services to
or through any person, firm or other entity except the
Company, unless otherwise authorized by the Board in writing.
(iii) Executive shall not render any services of any kind or
character for Executive's own account or for any other person,
firm or entity without first obtaining the Company's written
consent.
Executive, however, shall have the right to perform such incidental services as
are necessary in connection with (a) Executive's private passive investments,
but only if Executive is not obligated or required to (and shall not in fact)
devote any managerial efforts which interfere with the services required to be
performed by her, or (b) Executive's charitable or community activities, or
participation in trade or professional organizations, but only if such
incidental services do not interfere with the performance of Executive's
services to the company.
9. NON-COMPETITION. Executive acknowledges and agrees that given the
extent and nature of the confidential and proprietary information he will obtain
during the course of his employment with the Company, it would be inevitable
that such confidential information would be disclosed or utilized by the
Executive should he obtain employment from, or otherwise become associated with,
an entity or person that is engaged in a business or enterprise that directly
competes with the Company. Consequently, during any period for which Executive
is receiving payments from the Company, either as wages or as a severance
benefit Executive shall not, without prior written consent of the Company's
Board of Directors, directly or indirectly own, manage, operate, join, control
or participate in the ownership, management, operation or control of, or be
employed by or connected in any manner with, any enterprise which is engaged in
any business competitive with or similar to that of the Company; provided,
however, that such restriction shall not apply to any passive investment
representing an interest of less than two percent (2%) of an outstanding class
of publicly-traded securities of any company or other enterprise which is not,
at the time of such investment, engaged in a business competitive with the
Company's business.
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10. NON-SOLICITATION. During the Employment Period and for one (1) year
following termination of Executive's employment, Executive shall not encourage
or solicit any of the Company's employees to leave the Company's employ for any
reason or interfere in any other manner with employment relationships at the
time existing between the Company and its employees; or solicit any client of
the Company, induce any of the Company's clients to terminate its existing
business relationship with the Company or interfere in any other manner with any
existing business relationship between the Company and any client or other third
party.
Executive hereby acknowledges that monetary damages may not be
sufficient to compensate the Company for any economic loss which may be incurred
by reason of her breach of the foregoing restrictive covenants. Accordingly, in
the event of any such breach, the Company shall, in addition to the termination
of this Agreement and any remedies available to the Company at law, be entitled
to obtain equitable relief in the form of an injunction precluding Executive
from continuing such breach.
11. PROPRIETARY INFORMATION. As a condition precedent to Executive's
employment with the Company, Executive will execute the Company's standard
Confidential Information and Assignment of Inventions Agreement. Executive's
obligations pursuant to the Confidential Information and Assignment of
Inventions Agreement will survive termination of Executive's employment with the
Company.
12. SUCCESSORS AND ASSIGNS. This Agreement is personal in its nature
and the Executive shall not assign or transfer her rights under this Agreement.
The provisions of this Agreement shall inure to the benefit of, and be binding
on each successor of the Company whether by merger, consolidation, transfer of
all or substantially all assets, or otherwise and the heirs and legal
representatives of Executive.
13. NOTICES. Any notices, demands or other communications required or
desired to be given by any party shall be in writing and shall be validly given
to another party if served either personally or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt requested.
If such notice, demand or other communication shall be served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by mail, such notice
shall be conclusively deemed given forty-eight (48) hours after the deposit
thereof in the United States mail addressed to the party to whom such notice,
demand or other communication is to be given as hereinafter set forth:
To the Company: Exult
4 Park Plaza, Suite 350
Irvine, California 92614
To Executive: Rebecca L. Work
6901 E. Ocean
Long Beach, California 90803
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Any party may change its address for the purpose of receiving notices, demands
and other communications by providing written notice to the other party in the
manner described in this paragraph.
14. GOVERNING DOCUMENTS. This Agreement along with the Company's
Proprietary Information and Assignment of Inventions Agreement constitute the
entire agreement and understanding of the Company and Executive with respect to
the terms and conditions of Executive's employment with the Company and the
payment of severance benefits and supersedes all prior and contemporaneous
written or verbal agreements and understandings between Executive and the
Company relating to such subject matter. This Agreement may only be amended by
written instrument signed by Executive and an authorized officer of the Company.
Any and all prior agreements, understandings or representations relating to the
Executive's employment with the Company are terminated and cancelled in their
entirety and are of no further force or effect.
15. GOVERNING LAW. The provisions of this letter agreement will be
construed and interpreted under the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. If any provision of this Agreement as applied to any party or to any
circumstance should be adjudged by a court of competent jurisdiction to be void
or unenforceable for any reason, the invalidity of that provision shall in no
way affect (to the maximum extent permissible by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this Agreement, or the enforceability or
invalidity of this Agreement as a whole. Should any provision of this Agreement
become or be deemed invalid, illegal or unenforceable in any jurisdiction by
reason of the scope, extent or duration of its coverage, then such provision
shall be deemed amended to the extent necessary to conform to applicable law so
as to be valid and enforceable or, if such provision cannot be so amended
without materially altering the intention of the parties, then such provision
will be stricken and the remainder of this Agreement shall continue in full
force and effect.
16. REMEDIES. All rights and remedies provided pursuant to this
Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Agreement.
17. ARBITRATION. Any and all disputes between Executive and the Company
which arise out of Executive's employment under the terms of this Agreement
shall be resolved through final and binding arbitration. This shall include,
without limitation, disputes relating to this Agreement, Executive's employment
by the Company or the termination thereof, claims for breach of contract or
breach of the covenant of good faith and fair dealing, and any claims of
discrimination or other claims under Title VII of the Civil Rights Act of 1964,
the Age Discrimination in Employment Act, the Americans With Disabilities Act,
the California Fair Employment and Housing Act, or any other federal, state or
local law or regulation now in existence or hereinafter enacted and as amended
from time to time concerning in any way the subject of Executive's employment
with the Company or its termination. The only claims not covered by this
Agreement are claims for benefits under the workers' compensation or
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unemployment insurance laws, which will be resolved pursuant to those laws.
Binding arbitration will be conducted in Orange County, California in accordance
with the rules and regulations of the American Arbitration Association. Each
party will split the cost of the arbitration filing and hearing fees, and the
cost of the arbitrator; each side will bear its own attorneys' fees, that is,
the arbitrator will not have authority to award attorneys' fees unless a
statutory section at issue in the dispute authorizes the award of attorneys'
fees to the prevailing party, in which case the arbitrator has authority to make
such award as permitted by the statute in question. Executive understands and
agrees that the arbitration shall be instead of any civil litigation and that
this means that she is waiving her right to a jury trial as to such claims. The
parties further understand and agree that the arbitrator's decision shall be
final and binding to the fullest extent permitted by law and enforceable by any
court having jurisdiction.
18. NO WAIVER. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any later
breach of that provision.
19. COUNTERPARTS. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
EXULT
/s/ James C. Madden, V
--------------------------------
By: James C. Madden, V
Title: CEO & President
/s/ Rebecca L. Work
--------------------------------
EXECUTIVE
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EXHIBIT 10.16
EXULT, INC. COMPANY
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the Exult, Inc.
2000 Employee Stock Purchase Plan (the "PLAN").
1. PURPOSE.
The purpose of the Plan is to maintain competitive equity
compensation programs and to provide employees of Exult, Inc. (the "COMPANY")
and its subsidiaries with an opportunity and incentive to acquire a proprietary
interest in the Company through the purchase of the Company's Common Stock,
thereby more closely aligning the interests of the Company's employees and
stockholders. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of
1986, as amended ("SECTION 423"). Accordingly, the provisions of the Plan shall
be construed to extend and limit participation consistent with the requirements
of Section 423.
2. DEFINITIONS.
Capitalized terms used in this Plan and not otherwise defined
have the meanings set forth below.
"ADMINISTRATOR" means the Committee, or the Board if the Board
asserts administrative authority over the Plan pursuant to Section 12.
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means a change in ownership of the Company
pursuant to any of the following transactions:
(i) a stockholder-approved merger or consolidation in which
securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such transaction, or
(ii) a stockholder-approved sale, transfer or other
disposition of all or substantially all of the assets of the Company,
other than in the ordinary course of business, or
(iii) the acquisition, directly or indirectly, by a person or
related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by or is under common
control with the Company) of beneficial ownership (within the meaning
of Rule 13d-3 of the Securities Exchange Act of 1934) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"COMMITTEE" means a committee of members of the Board meeting
the qualifications described in Section 12 and appointed by the Board to
administer the Plan.
"COMMON STOCK" means the Common Stock of the Company.
"COMPENSATION" means the total cash earnings of a participant.
Total cash earnings shall include (i) the regular base salary paid to a
participant by one or more Participating Companies during such individual's
period of participation in one or more Purchase Periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions or
other incentive-type payments received during such period. Such cash earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any contributions made by the participant to any Code
Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit
program now or hereafter established by the Company. However, cash earnings
shall NOT include any contributions made by the Company or any Subsidiary on the
participant's behalf to any employee benefit or welfare plan now or hereafter
established (other than Code Section 401(k) or Code Section 125 contributions
deducted from such cash earnings).
"EFFECTIVE DATE" has the meaning specified in Section 14.
"EMPLOYEE" means any individual employed by the Company or any
other Participating Company on a basis under which he or she is expected to work
for more than 20 hours per week or more than five calendar months per year for
earnings considered wages under Code Section 3401 (a). For purposes of the Plan,
the employment relationship shall be treated as continuing while the individual
is on sick leave or other leave of absence approved by the employer, except that
when the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship will be deemed to have terminated on the 91st day of such leave.
"ENROLLMENT DATE" means the first day of each Purchase Period,
i.e. each January 1, April 1, July 1, and October 1 for the duration of the
Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE DATE" means the last day of each Purchase Period,
i.e. March 31, June 30, September 30, or December 31, as applicable for the
duration of the Plan.
"FAIR MARKET VALUE" of the Common Stock as of the date of any
determination thereof means the value of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or trades on the Nasdaq National Market, its Fair Market Value
shall be the most recent closing sales price for such stock (or the closing bid,
if no sales were reported), as quoted on such exchange or system (or the
exchange or system with the greatest volume of trading in the Common Stock) as
of the date of such determination as reported in the Wall Street Journal or such
other source as the Administrator deems reliable; or
(2) If the Common Stock is quoted on the Nasdaq Stock
Market (but not on the Nasdaq National Market) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between
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the high and low asked prices for the Common Stock on the date of such
determination (or, if such date is not a Trading Day, then on the next preceding
Trading Day), as reported in the Wall Street Journal or such other source as the
Administrator deems reliable; or
(3) In the absence of an established market for the
Common Stock, the Fair Market Value of the Common Stock shall be determined in
good faith by the Administrator.
"PURCHASE PERIOD" means each calendar quarter during the term
of the Plan (i.e., January 1 to March 31, April 1 to June 30, July 1 to
September 30, and October 1 to December 31). The Administrator shall have the
power to change the duration of Purchase Periods without stockholder approval if
such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Purchase Period to be affected.
"OPTION" means the option granted to each participant pursuant
to Section 4 upon enrollment in the Plan.
"PARTICIPATING COMPANIES"" mean the Company and such
Subsidiaries as may be authorized from time to time by the Administrator to
allow their Employees to participate in the Plan. The Participating Companies in
the Plan are listed in attached Schedule A.
"PERIODIC EXERCISE LIMIT" has the meaning set forth in Section
4(a).
"PLAN ACCOUNT" means an account maintained by the Company for
each participant in the Plan, to which are credited the payroll deductions made
for such participant pursuant to Section 5 and from which are debited amounts
paid for the purchase of shares upon exercise of such participant's Options
pursuant to Section 6.
"PURCHASE PRICE" on any Exercise Date means an amount equal to
85% of the lower of (i) the Fair Market Value of a share of Common Stock on that
Exercise Date or (ii) the Fair Market Value of a share of Common Stock on the
Enrollment Date for the Purchase Period ending on that Exercise Date.
"RESERVES" means the number of shares of Common Stock covered
by each Option that have not yet been exercised and the number of shares of
Common Stock that have been authorized for issuance under the Plan, but not yet
placed under Option.
"STOCK PLAN MANAGER" means the person and/or entity designated
by the Company from time to time to accept notices, process subscriptions,
terminations and changes, and perform other tasks related to administration of
the Plan.
"SUBSIDIARY" has the meaning as set forth under Section 424(f)
of the Code.
"TRADING DAY" means a day on which national stock exchanges
and the Nasdaq National Market (or other market or exchange upon which the
Common Stock principally trades) is open for trading.
3. PURCHASE PERIODS AND PARTICIPATION.
The Plan shall be implemented through a series of consecutive
Purchase Periods. An Employee may enroll in the Plan by delivering a
subscription agreement in the
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form of Exhibit A hereto to the Stock Plan Manager. Each subscription agreement
shall take effect, and the Employee submitting the subscription agreement shall
be a Plan participant, as of the next Enrollment Date occurring at least ten
days after the filing of such subscription agreement with the Stock Plan
Manager. A subscription agreement in effect for a Plan participant (as such
subscription agreement may be changed pursuant to Section 5) shall continue in
effect for all Purchase Periods beginning with the effectiveness of the
subscription agreement if the participant remains an Employee and has not
withdrawn pursuant to Section 7.
4. OPTIONS.
(a) Grants. On the Enrollment Date for each Purchase Period,
each Employee enrolled in such Purchase Period shall be granted an Option to
purchase on the Exercise Date at the end of that Purchase Period (at the
applicable Purchase Price) up to that number of shares of Common Stock
determined by dividing $6,250 by the Fair Market Value of a share of Common
Stock as of the opening of business on the Enrollment Date (such number of
shares being the "PERIODIC EXERCISE LIMIT"). Each Option shall expire
immediately after the Exercise Date at the end of that Purchase Period for which
the Option was granted.
(b) Grant Limitations. Any provisions of the Plan to the
contrary notwithstanding, no participant shall be granted an Option under the
Plan:
(i) if, immediately after the grant, such participant
(or any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own
stock and/or hold outstanding options to purchase stock
possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company
or of any Subsidiary; or
(ii) which permits such participant's rights to
purchase stock under all employee stock purchase plans of the
Company and its Subsidiaries to accrue at a rate that exceeds
Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the Fair Market Value of the shares at the time
such Options are granted) in any calendar year.
(c) No Rights in Respect of Underlying Stock. The participant
will have no interest or voting right in shares covered by an Option until such
Option has been exercised.
5. PAYROLL DEDUCTIONS.
(a) Participant Designations. The subscription agreement
applicable to a Purchase Period shall designate payroll deductions to be made on
an after-tax basis on each payday during the Purchase Period as a whole number
percentage not exceeding ten percent (10%) of such Employee's Compensation for
the pay period corresponding to such payday.
(b) Plan Account Balances. The Company shall make payroll
deductions as specified in each participant's subscription agreement on each
payday during the Purchase Period and credit such payroll deductions to such
participant's Plan Account. A participant may not make any additional payments
into such Plan Account. No interest will accrue on any payroll deductions. All
payroll deductions received or held by the Company under the
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Plan may be used by the Company for any corporate purpose, and the Company shall
not be obligated to segregate such payroll deductions.
(c) Participant Changes. A participant may discontinue his or
her participation in the Plan as provided in Section 7. A participant may
increase or decrease his or her rate of payroll deductions by filing with the
Stock Plan Manager a new subscription agreement authorizing the change. Such
change shall become effective as of the Enrollment Date for the first Purchase
Period beginning at least ten days after the filing of the new subscription
agreement with the Stock Plan Manager.
(d) Decreases. Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and Section 4(b) herein,
a participant's payroll deductions may be decreased to 0% at such time during
any Purchase Period that is scheduled to end during a calendar year (the
"CURRENT PURCHASE PERIOD") when the aggregate of all payroll deductions
previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Purchase Period that is scheduled to end
in the following calendar year, unless terminated by the participant as provided
in Section 8.
(e) Tax Obligations. At the time of each exercise of a
participant's Option, and at the time any Common Stock issued under the Plan to
a participant is disposed of, the participant must adequately provide for the
Company's federal, state, or other tax withholding obligations, if any, that
arise upon the exercise of the Option or the disposition of the Common Stock. At
any time, the Company may, but will not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefit attributable to sale or
early disposition of Common Stock by the Employee.
(f) Statements of Account. The Company shall maintain each
participant's Plan Account and shall give each Plan participant a statement of
account at least annually. Such statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any, for the period covered.
6. EXERCISE OF OPTIONS AND HOLDING PERIOD.
(a) Automatic Exercise on Exercise Dates. Unless a participant
withdraws as provided in Section 7, his or her Option for a Purchase Period will
be exercised automatically on the Exercise Date at the end of that Purchase
Period for the maximum number of shares of Common Stock, including fractional
shares, that can then be purchased at the applicable Purchase Price with the
payroll deductions accumulated in such participant's Plan Account and not yet
applied to the purchase of shares under the Plan, subject to the Periodic
Exercise Limit. During a participant's lifetime, a participant's Options to
purchase shares hereunder are exercisable only by the participant.
(b) Delivery of Shares. As promptly as practicable after each
Exercise Date on which a purchase of shares occurs, the Company shall arrange
the issuance of the shares purchased on behalf of each Participant whose Option
is exercised at that time. The Company may deliver a stock certificate for the
purchased shares or arrange a book entry
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transfer representing the shares, provided that the Company may in its
discretion hold fractional shares for the accounts of the participants pending
aggregation to whole shares. Shares purchased under the Plan may be issued to
the participant or the participant and his or her spouse or a trust designated
by the participant in which the employee and his or her spouse are the sole
trustees and beneficiaries.
(c) Compliance with Law. Shares shall not be issued with
respect to an Option unless the exercise of such Option and the issuance and
delivery of such shares pursuant thereto comply with all applicable provisions
of law, domestic or foreign, including, without limitation, the Securities Act
of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or market system upon
which the shares may then be listed or traded, and shall be further subject to
the approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the participant
for whom an Option is exercised to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law. Shares issued upon purchase under
the Plan may be subject to such transfer restrictions and stop-transfer
instructions as the Administrator deems appropriate.
(d) Excess Plan Account Balances. If, due to application of
the Periodic Exercise Limit, there remains in a participant's Plan Account
immediately following exercise of such participant's Option on an Exercise Date
any cash accumulated such Exercise Date and not applied to the purchase of
shares under the Plan, such cash shall promptly be returned to the participant.
(e) Required Holding Period. Shares purchased pursuant to this
Plan may not be transferred during the period of 180 days immediately following
the Exercise Date upon which such shares were acquired. For this purpose,
"transfer" includes any sale, pledge, hypothecation, or other transfer of the
shares or any interest therein other than (i) a transfer to the Company, (ii) a
transfer other than a sale made for estate planning purposes, or (iii) a
transfer that does not eliminate the beneficial ownership of the transferor. The
Company may enforce this transfer restriction by placing appropriate legends
upon certificates representing the shares and by issuing appropriate stop
transfer instructions to its transfer agent.
7. WITHDRAWAL: TERMINATION OF EMPLOYMENT.
(a) Voluntary Withdrawal. A participant may withdraw from a
Purchase Period, at any time on or before the fifth business day before the
Exercise Date for that Purchase Period, by giving written notice to the Stock
Plan Manager in the form and according to the procedures specified by the Stock
Plan Manager from time to time. Such withdrawal shall be effective five business
days after receipt by the Stock Plan Manager of notice thereof. On or promptly
following the effective date of any withdrawal, all (but not less than all) of
the withdrawing participant's payroll deductions credited to his or her Plan
Account and not yet applied to the purchase of shares under the Plan will be
paid to such participant, and on the effective date of such withdrawal such
participant's Option for the Purchase Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made during
the Purchase Period. If a participant withdraws from a Purchase Period, payroll
deductions will not resume at the beginning of any succeeding
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Purchase Period unless the participant delivers to the Company a new
subscription agreement with respect thereto.
(b) Termination of Employment. Promptly after a participant's
ceasing to be an Employee for any reason the payroll deductions credited to such
participant's Plan Account and not yet applied to the purchase of shares under
the Plan will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 9, and such
participant's Option will be automatically terminated, provided that, if the
Company does not learn of such death more than five (5) business days prior to
an Exercise Date, payroll deductions credited to such participant's Plan account
may be applied to the purchase of shares under the Plan on such Exercise Date.
8. TRANSFERABILITY.
Neither payroll deductions credited to a participant's Plan
Account nor any rights with regard to the exercise of an Option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of by the participant in any way other than by will, the laws of
descent and distribution or as provided in Section 9 hereof. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Administrator may treat such act as an election to withdraw from
a Purchase Period in accordance with Section 7.
9. DESIGNATION OF BENEFICIARY.
A participant may file a written designation of a beneficiary
who is to receive any cash from the participant's Plan Account in the event of
such participant's death and any shares purchased for the participant upon
exercise of his or her Option but not yet issued. If a participant is married
and the designated beneficiary is not the spouse, spousal consent may be
required for such designation to be effective. A designation of beneficiary may
be changed by a participant at any time by written notice to the Stock Plan
Manager. In the event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
10. STOCK.
The maximum number of shares of the Company's Common Stock
that shall be made available for sale under the Plan and any other employee
stock purchase plans maintained by the Company from time to time shall be
2,000,000 shares, subject to adjustment upon changes in capitalization of the
Company as provided in Section 11. Any sales of shares of the Company's Common
Stock under other employee stock purchase plans maintained by the Company from
time to time will reduce, on a share-for-share basis, the number of shares
remaining available for sale under this Plan. If on a given Enrollment Date or
Exercise Date the number of shares with respect to which Options are to be
granted or exercised exceeds the number of shares then available under the Plan,
the Administrator shall make a pro rata allocation of the shares remaining
available for purchase in as uniform a manner as shall be practicable and as it
shall determine to be equitable. Shares of Common
7
<PAGE> 8
Stock subject to unexercised Options that expire, terminate or are cancelled
will again become available for the grant of further Options under the Plan.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the Reserves as well as the Purchase Price,
Periodic Exercise Limit, and other characteristics of the Options, shall be
appropriately and proportionately adjusted for any increase or decrease or
exchange in the issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, exchange or any other increase or decrease in the number of shares
of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option. The Administrator may, if it so determines
in the exercise of its sole discretion, provide for adjusting the Reserves, as
well as the Purchase Price, Periodic Exercise Limit, and other characteristics
of the Options, in the event the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of shares
of its outstanding Common Stock.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, all pending Purchase Periods will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Administrator, and all Plan Account balances will be
paid to participants as appropriate consistent with applicable law.
(c) Change in Control. Each outstanding Option shall
automatically be exercised, immediately prior to any Change in Control, by
applying the payroll deductions of each participant for the Purchase Period in
which such Change in Control occurs to the purchase of whole shares of Common
Stock at a purchase price per share equal to eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock on the Enrollment
Date of the Purchase Period in which such Change in Control occurs or (ii) the
Fair Market Value per share of Common Stock immediately prior to such Change in
Control. However, the applicable Periodic Exercise Limit per participant shall
continue to apply to any such purchase.
The Company shall use its best efforts to provide at least ten
(10) days' prior written notice of the occurrence of any Change in Control, and
the participants shall, following the receipt of such notice, have the right to
withdraw from the Purchase Period prior to the Change in Control.
8
<PAGE> 9
12. ADMINISTRATION.
The Plan shall be administered by the Committee, which shall
have the authority to construe, interpret and apply the terms of the Plan and
any agreements defining the rights and obligations of the Company and
participants under the Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, to determine eligibility and to adjudicate all
disputed claims filed under the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. The Administrator
may, in its discretion, delegate ministerial responsibilities under the Plan to
the Company. Every finding, decision and determination made by the Committee
shall, to the full extent permitted by law, be final and binding upon all
parties. Any action of the Committee shall be taken pursuant to a majority vote
or by the unanimous written consent of its members. The Committee shall be
constituted so as to comply with or preserve the qualifications of the Plan
under Section 423 , and any other applicable law or regulation, as appropriate.
The Board may from time to time in its discretion exercise any responsibilities
or authority allocated to the Committee under the Plan. No member of the
Committee or any designee thereof will be liable for any action or determination
made in good faith with respect to the Plan or any transaction arising under the
Plan.
13. AMENDMENT OR TERMINATION.
(a) Administrator's Discretion. The Administrator may, at any
time and for any reason, terminate or amend the Plan. Except as provided in
Section 11, no such termination can affect Options previously granted, provided
that a Purchase Period may be terminated by the Administrator on or before its
Exercise Date if the Administrator determines that such termination is in the
best interests of the Company and its stockholders. Except as provided herein,
no amendment may make any change in any Option theretofore granted that
adversely affects the rights of any participant. To the extent necessary to
comply with and qualify under Section 423 and any successor rule or provision
and any other applicable law or regulation, the Administrator shall obtain
stockholder approval of amendments to the Plan in such a manner and to such a
degree as required.
(b) Administrative Modifications. Without stockholder consent
(except as specifically required by applicable law or regulation) and without
regard to whether any participant rights may be considered to have been
"adversely affected," the Administrator shall be entitled to amend the Plan to
the extent necessary to comply with and qualify under Section 423 and any
successor rule or provision and any other applicable law or regulation, change
the Purchase Periods, reduce the duration of any holding requirement under
Section 6(e), change the frequency and/or number of permitted changes in payroll
deductions during Purchase Periods, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant to adjust for
delays or mistakes in the processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Administrator determines in its sole discretion to be
advisable and which are consistent with the Plan.
14. TERM OF PLAN.
The Plan shall become effective on July 1, 2000 (the
"EFFECTIVE DATE"), provided that the Plan has been approved by the stockholders
of the Company before such
9
<PAGE> 10
date. After becoming effective, the Plan shall continue in effect for a term of
twenty (20) years unless sooner terminated pursuant to the terms of the Plan.
15. MISCELLANEOUS.
(a) Notices. All notices or other communications by a
participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the receipt
thereof.
(b) Other Participating Companies. The Administrator may from
time to time in its discretion allow the Employees of one or more Subsidiaries
to participate in the Plan upon the same terms and conditions, and subject to
the same limitations and restrictions, as the Employees of the Company who are
at the time participating in the Plan.
(c) No Employment Rights. The Plan does not, directly or
indirectly, create any right for the benefit of an employee or class of
employees to purchase any shares under the Plan, or create in any employee or
class of employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an employee's employment at any time.
(d) Applicable Law. The laws of the State of California shall
govern all matters relating to the Plan, except to the extent (if any)
superseded by the laws of the United States.
(e) Headings. Headings used herein are for convenience of
reference only and do not affect the meaning or interpretation of the Plan.
10
<PAGE> 11
EXHIBIT A
---------
EXULT, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. I hereby elect to participate in the Exult, Inc. 2000 Employee Stock
Purchase Plan (the "Plan"), and in successive Purchase Periods under
the Plan, and subscribe to purchase shares of Common Stock of Exult,
Inc. (the "Company") in accordance with this Subscription Agreement and
the Plan.
2. I hereby authorize payroll deductions to be made on an after-tax basis
from each paycheck in the amount of ____% (whole number not to exceed
10%) of my Compensation (as defined in the Plan) on each payday during
the Purchase Period in accordance with the Plan.
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Plan. I understand that if I do not
withdraw from the Plan, any accumulated payroll deductions will be used
to automatically exercise my Option and purchase shares on each
Exercise Date.
4. I understand that I may not transfer (as such term is defined in the
Plan) shares purchased pursuant to the Plan during the period of 180
days immediately following the Exercise Date upon which such shares
were acquired, and that the Company may enforce this transfer
restriction by placing appropriate legends upon certificates
representing the shares and by issuing appropriate stop transfer
instructions to its transfer agent.
5. I have received a copy of the complete Plan and I agree to be bound by
the terms of the Plan. I understand that my participation in the Plan
is in all respects subject to my eligibility and the other terms of the
Plan, that capitalized terms used herein have the same meanings as
ascribed thereto in the Plan, and that in case of any inconsistency
between this Subscription Agreement and the Plan, the Plan shall
govern.
6. Shares purchased for me under the Plan are to be issued as follows:
(note: the shares may be issued only in the name(s) of the employee or
the employee and his or her spouse or any trust in which the employee
and his or her spouse are the sole trustees and beneficiaries:_________
______________________________________________________________________.
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive (in proportion to the percentages listed
below) all payments and shares due me under the Plan (use additional
sheets to add beneficiaries):
NAME: (Please print) __________________________________________________
(First) (Middle) (Last)
<PAGE> 12
______________________________ ________________________________
Relationship
Percentage: __________ ________________________________
(Address)
NAME: (Please print) __________________________________________________
(First) (Middle) (Last)
______________________________ ________________________________
Relationship
Percentage: __________ ________________________________
(Address)
Employee's Social
Security Number: ______________________________________
Employee's Address: ______________________________________
______________________________________
______________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE PURCHASE PERIODS UNLESS TERMINATED BY ME.
Dated: ___________________ ______________________________________
Signature of Employee
______________________________________
Spouse's Signature (If beneficiary
other than spouse)
2
<PAGE> 1
EXHIBIT 10.17
LEASE
among
SCOTTISH MUTUAL ASSURANCE
plc
and
EXULT LIMITED
and
EXULT, INC.
SUBJECTS: Part First Floor,
301 St. Vincent Street, Glasgow
<PAGE> 2
INDEX
Clause 1. Definitions and Interpretation
2. Grant of Lease, Entry, Period, Initial Rent etc.
3. Tenant's obligations : Rent and other annual or recurring sums
4. Tenant's obligations: Maintenance and Repair etc.
4.1 To repair and renew
4.2 To comply with Management Regulations
4.3 Not to duplicate insurance
4.4 Plant and Equipment and Service Systems
4.5 Internal divisions
4.6 To keep secure
4.7 To decorate interior/ clean and treat interior surfaces
4.8 To keep Premises clean and tidy
4.9 To permit entry by Landlord and others
4.10 To comply with Landlord's notices
4.11 Not to introduce dangerous things
4.12 To pay excess and other irrecoverable insurance monies
4.13 Statutory requirements
4.14 Fire regulations
4.15 Not to overload
4.16 Not to harm drains
4.17 Permitted use
4.18 Not to use for certain purposes etc
4.19 Not to make alterations
4.20 Servitudes
4.21 Adjoining development permitted
4.22 Signs, advertisements, etc
4.23 Alienation
<PAGE> 3
-2-
4.24 Intimation of assignations
4.25 Costs of enforcing Tenant's obligations
4.26 Landlord's Costs
4.27 Applications for consent
4.28 Planning Acts
4.29 To inform Landlord of notices
4.30 Re-letting or sale
4.31 To inform Landlord of defects or destruction
4.32 to indemnify Landlord
4.33 Car parking
4.34 To observe title conditions
4.35 To remove
4.36 VAT
5. LANDLORD'S OBLIGATIONS
5.1 To insure
5.2 Application of insurance monies
5.3 Landlord's Services
6. GENERAL
6.1 Irritancy
6.2 No compensation
6.3 Rei interitus not to apply
6.4 Loss of rent
6.5 Notices
6.6 Demand for rent
6.7 Disclaimer of liability
6.8 Approvals
6.9 Atrium Glazing
<PAGE> 4
-3-
7. RENT REVIEW
7.1 Date of Review
7.2 Valuation
7.3 Decision on Rental Value
7.4 Upwards only
7.5 Payment after date of review
7.6 Statutory Restriction
7.7 Memorandum
8. GUARANTOR'S OBLIGATIONS
9. LAW OF SCOTLAND TO APPLY
10. WARRANDICE
11. CERTIFICATE
12. CONSENT TO REGISTRATION
THE SCHEDULE
Schedule Contents
Part 1: Premises
Part lA: The Building
Part 1B: Plans
Part 1C: The Premises
Part 2: The Main Common Parts
Part 3: Ancillary rights and reservations
Part 3A: Exceptions and Reservations
Part 3B: Pertinents, Rights and Privileges
Part 4: Services
Part 5: Service Charge
Part 6: Refurbishment Works
Part 7: Guarantee
Part 8: List of Assumed Elements of Refurbishment Works for Rent Review
<PAGE> 5
IT IS CONTRACTED AND AGREED
among
(1) SCOTTISH MUTUAL ASSURANCE PLC, incorporated under the
Companies Acts with Registered Number 133846 and having
its Registered Office formerly at 109 St Vincent
Street, Glasgow and now at Abbey National House, 301
St. Vincent Street, Glasgow (hereinafter designed as
"THE LANDLORD" pursuant to Clause 1. 1)
and
(2) EXULT LIMITED incorporated under the Companies Acts
with Registered Number 3821294 and having its
Registered Office at Regis House, 45 King William
Street, London, EC4R 9AN (hereinafter designed as "THE
TENANT" pursuant to Clause 1.1)
and
(3) EXULT, INC incorporated on 29 October 1998, under the
name BPO-US, with corporate number 2960887, under the
laws of Delaware, USA and having its principal place of
business at 4 Park Plaza, Suite 350, Irvine, California
92614, USA (hereinafter designed as "THE GUARANTOR")
1. DEFINITIONS AND INTERPRETATION
1.1 In this Lease and the Schedule, unless the context or the subject
otherwise requires:
"Building" means ALL and WHOLE that building known as and forming 301
St. Vincent Street, Glasgow including the ground effeiring thereto
more particularly described in Part lA of the Schedule;
"Building Insurance" means such policy of insurance in respect of the
Building for the Insured Risks as the Landlord is obliged to or has
the right to effect from time to time pursuant to this Lease for the
Full Cost of Reinstatement;
<PAGE> 6
-2-
"Car Park" means that area of the ground effeiring to or forming part
of the Building which is from time to time designated by the Landlord
for private car parking as such area as it shall exist at the Date of
Entry and is indicatively shown outlined red and hatched in black on
the Site Plan and outlined red on the Car Park Plan (but subject
always to the declaration at the end of the definition of "Common
Parts");
"Car Park Plan" means the plan of floor L1.5 and L2 so marked
reproduced in Part 1B of the Schedule;
"Common Parts" means the Car Park and the Main Common Parts; Declaring
that in the event of any part of the Building and/or the Common Parts
being resumed by the Landlord or redeveloped by the construction
thereon of any building or other erection the same shall forthwith
upon the commencement of such development or the resumption as the
case may be cease to form part of the Common Parts;
"Computerhall Common Parts" means the plant and equipment which
exclusively serves the Computer Halls located within the Building and
comprising the following items:- air handling units 20 No., power
distribution units 14 No., uninterrupted power supply units 3 No.,
underfloor fire alarms system, underfloor liquid alarms system, South
Computer Hall lift 1 No., control system, generator system, chillers 2
No., cooling towers 2 No., pumps system, fire alarms system, fresh air
make up system 2 No., HV switch gear system, transformer system, power
distribution cabling system and fire appliances system;
"Date of Entry" has the meaning given to it in Clause 2.1;
"Exceptions and Reservations" means in relation to the Premises those
rights, privileges, parts and others which are excepted and reserved
by the Landlord from this Lease and as are more fully described in
Part 3A of the Schedule;
<PAGE> 7
-3-
"First Floor Plan" means the floor plan of the first floor of the
Building reproduced in Part 1B of the Schedule;
"Full Cost of Reinstatement" means in relation to the Insured Risks
the whole costs, including the cost of temporary support and shoring,
demolition, site clearance, fees payable to architects, surveyors and
other professional advisers and VAT where applicable, which would be
likely to be incurred by the Landlord in reinstating the Building at
the time when such reinstatement is necessary having regard to all
relevant factors (including any anticipated increases in costs) and as
shall be determined by the Landlord from time to time;
"Ground Floor Plan" means the floor plan of the ground floor of the
Building reproduced in Part 1B of the Schedule;
"Initial Parking Spaces Plan" means the plan so marked and reproduced
in Part 1B of the Schedule;
"Insured Risks" means the risks of loss or damage by fire, explosion,
aircraft and other aerial devices (other than are hostile) or articles
dropped therefrom, storm or tempest, flood, bursting or overflowing of
water tanks, apparatus or pipes, impact by vehicles, riot and civil
commotion, malicious damage, and, where the Landlord considers it
appropriate, terrorist damage and such other normal commercial risks
as the Landlord may from time to time and acting reasonably determine;
"Insurers" means at any time such reputable insurance company or
underwriter as may be selected by the Landlord and with whom the
Landlord has effected or intends to effect the Building Insurance and
the Loss of Rent Insurance at that time;
"L2. Floor Plan" means the floor plan of the lower lower ground floor
of the Building reproduced in Part 1B of the Schedule;
"Landlord" means the party herein named as the Landlord or in
substitution its successors to the landlord's interest under this
Lease;
<PAGE> 8
-4-
"this Lease" means this Lease including the Schedule and any minute of
extension or alteration or variation thereof or any other deed or
document entered into between the Landlord and the Tenant which is
expressed to be supplemental to this Lease;
"Lettable Unit" means at any time any part of the Building which is at
that time exclusively let by the Landlord or made available by the
Landlord for a letting yet to be arranged or capable of or intended
for letting in each case for the exclusive occupation or use by an
individual tenant or any part of the Building exclusively occupied or
capable of being exclusively occupied by the Landlord and which in any
event excludes the Common Parts;
"Loss of Rent Insurance" means such policy of insurance in respect of
the Premises as the Landlord is obliged to or has the right to effect
from time to time pursuant to this Lease for such sum of money as the
Landlord acting reasonably may from time to time calculate as
representing the loss of the rent payable under this Lease for a
period of three years and taking into account potential increases in
rent under this Lease;
"Main Common Parts" means those parts and portions of the Building
which are described in Part 2 of the Schedule (but subject always to
the declaration at the end of the definition of "Common Parts");
"Managing Agent" means any appropriately qualified agent appointed or
employed or to be appointed or employed by the Landlord in respect of
the Building and declaring that if the Landlord elects not to employ
such agent then reference in this Lease to Managing Agents shall be a
reference to the Landlord;
"Management Regulations" means such reasonable rules and regulations
(if any) as are from time to time made by the Landlord to control and
regulate the day to day use of the Common Parts (or any part thereof)
a copy of which shall be provided to the Tenant from time to time on
request ; Declaring that no such rules and regulations shall be such
as may hamper or interfere or impede the full and proper use and
enjoyment of the Premises and the Pertinents, Rights and Privileges,
the Tenant acknowledging that such rules and regulations may preclude
the Tenant from using kettles and toasters in the Premises;
<PAGE> 9
-5-
"Normal Working Hours" means 8 a.m. to 6 p.m. Monday to Friday
(excepting English public holidays and the first working day in
England after the 1 January in any year) and such other additional
times as the Landlord (acting reasonably) previously nominates and
intimates in writing to the Tenant;
"Period of this Lease" means as the context requires (1) the period
for which this Lease is granted together with any continuation thereof
constituted by a formal extension entered into between the parties or
arising by operation of law and (2) any shorter period arising by
virtue of the sooner determination of this Lease;
"Pertinents, Rights and Privileges" means those pertinents rights and
privileges described in Part 3B of the Schedule;
"Phase 3" means that part of the Building forming the Phase 3
extension as shown coloured blue and cross hatched in black on the
Site Plan;
"Planning Acts" means the Town and Country Planning (Scotland) Act
1997, the Local Government and Planning (Scotland) Act 1982 and any
other legislation of a similar nature;
"Plant and Equipment" means all electrical, mechanical and other
plant, machinery and equipment which do not serve exclusively a
Lettable Unit including without prejudice to the generality of the
foregoing, (i) the passenger lifts, window cleaning car and cradle and
the motors, cabling and other equipment associated therewith (ii) the
chiller plant and units and the other plant and units for the supply
of cooled and heated air together with the ductwork associated
therewith and all other parts of the air conditioning system plant and
equipment (except and to the extent that individual air conditioning
units and ductwork are contained within the Premises and other
Lettable Units) (iii) the central heating radiators and other heating
plant and equipment (iv) exterior lighting of and on the Building, and
interior and exterior lighting of the Common Parts, the wiring and
switching therefor, and
<PAGE> 10
-6-
any stand-by and emergency systems and equipment (v) the fire
precautions and firefighting equipment, and the fire alarm, security
alarm and relative systems but excluding first aid fire fighting
equipment; and (vi) security equipment including CCTV and guarding
equipment; But declaring that there is not included within the Plant
and Equipment (a) any part of Phase 3, (b) the Computerhall Common
Parts and (c) any part of any development of the type contemplated in
the declaration at the end of the definition of "Common Parts";
"Premises" means the whole subjects hereby let as more fully described
in Part 1C of the Schedule and each and every part thereof;
"Prescribed Rate" means the rate of interest which is from time to
time 4% above the Base Rate for the time being of The Royal Bank of
Scotland plc or above such other rate equivalent thereto which may
from time to time be substituted therefor by the Landlord acting
reasonably;
"Quarter Days" means 28 February, 28 May, 28 August and 28 November in
each year;
"Refurbishment Works" means the works carried out to the Premises by
the Tenant and more particularly described in Part 6 of the Schedule;
"Schedule" means the Schedule annexed and executed as relative hereto;
"Service Charge" has the meaning given to it in Part 5 of the
Schedule;
"Service Charge Percentage" means 10.38% or such other percentage as
may be substituted therefor by the Landlord in accordance with
paragraph 12 of Part 3A of the Schedule;
"Services" has the meaning given to it in Part 4 of the Schedule;
"Service Systems" means those of the Common Parts comprising channels,
drains, sewers, pipes, wires, cables, aerials or other conducting
media, pumps, valves, meters and connections in and passing through
the Building or some
<PAGE> 11
-7-
part thereof except and to the extent that the same are comprised in
the Plant and Equipment or pertain exclusively to a Lettable Unit;
"Site Plan" means the plan so marked reproduced in Part 1B of the
Schedule;
"VAT" means in relation to any sum of money Value Added Tax as defined
in the Value Added Tax Act 1983, or any tax replacing the same or any
similar tax for the time being in force.
1.2 Words and expressions importing the neuter gender shall include any
other gender and vice versa.
1.3 Words and expressions importing the singular number shall include the
plural number and vice versa.
1.4 Subject to the proviso that nothing in this Lease shall express or
imply any continuing obligation on a person in right of the tenant's
interest under this Lease after completion and intimation of a
permitted assignation of that right, the expression "the Tenant"
includes where the context so admits any permitted assignee of the
party herein named as the Tenant and, where the context so admits,
"the Tenant's foresaids" includes the Tenant and any assignee, or any
other occupier of the Premises or any part thereof permitted by the
Tenant, or any other person for whom the Tenant is legally responsible
and where at any time there are two or more persons included in the
expression "the Tenant" obligations contained in this Lease undertaken
by the Tenant shall be binding jointly and severally on each of them
and their respective executors and representatives whomsoever without
the necessity of discussing them in their order; in the case where at
any time the Tenant is a firm or partnership the obligations of the
Tenant shall be binding jointly and severally on all persons who are
or who shall become partners of that firm at any time during the
Period of this Lease and their respective executors and
representatives whomsoever as well as on that firm and its whole
stock, funds, assets and estate without the necessity of discussing
them in their order and such obligations shall subsist and remain in
full force and effect notwithstanding the dissolution of the firm or
partnership or any change or changes which may take place in the firm
or partnership whether by the assumption of a new partner or partners
or by the retiral, bankruptcy or death
<PAGE> 12
-8-
of any individual partner or by a change in the firm name (Declaring
that in the event of the retiral, bankruptcy or death of any
individual partner the Landlord will not unreasonably withhold or
delay the giving of its consent to the release of such retired partner
or the estate of such bankrupt or deceased partner).
1.5 Words importing persons shall include corporations and vice versa.
1.6 Any reference to an Act of Parliament shall include any modification,
extension or reenactment thereof for the time being in force and shall
also include all instruments, orders, plans, regulations, and
directions for the time being made, issued or given thereunder or
deriving validity therefrom.
1.7 Anything in this Lease to be authorised or done by the Landlord may be
authorised or done on its behalf by the Managing Agent.
1.8 In relation to matters which concern the day to day management and
regulation of the Building if at any time there is not a Managing
Agent its duties and functions may be performed by the Landlord itself
and for the foregoing purpose a reference to the Managing Agent shall
be deemed to include a reference to the Landlord and vice versa.
1.9 The clause headings and the Index shall be ignored.
2. GRANT OF LEASE, ENTRY, PERIOD, INITIAL RENT, ETC
2.1 The Landlord IN CONSIDERATION of the rent and other prestations
hereinafter specified hereby lets to the Tenant (but excluding always
assignees and sub-tenants legal or voluntary and creditors and
managers for creditors in any form except where expressly permitted in
accordance with the terms of this Lease) the Premises TOGETHER WITH
the Pertinents, Rights and Privileges but UNDER RESERVATION of the
Exceptions and Reservations and the Tenant hereby accepts the Premises
and the Common Parts as in good and tenantable condition
notwithstanding all (if any) defects therein whether latent, inherent
or otherwise and is held to have satisfied itself in all respects that
the Premises and the Common Parts are fit for their purpose and that
for the period of ten years from Thirteenth March Two Thousand (herein
called
<PAGE> 13
-9-
the "Date of Entry") notwithstanding the date or dates hereof until
Twelfth March Two thousand and Ten but subject to the options in
favour of both the Landlord and the Tenant to break this Lease
pursuant to Clause 2.2;
2.2 The Tenant and the Landlord shall both be entitled to terminate this
Lease at Thirteenth March Two thousand and five provided that not less
than twelve months' prior written notice (time being of the essence)
is given by one party to the other of its intention to exercise its
option to terminate this Lease prior to the date of termination and
further provided that such termination shall be without prejudice to
the claims of the Landlord against the Tenant or vice versa in respect
of any antecedent breach of or failure to perform the obligations
under this Lease but declaring for the avoidance of doubt that the
existence of any such breach or failure shall not preclude the
Landlord and the Tenant exercising the aforesaid right of termination;
2.3 FOR WHICH CAUSES and on the OTHER PART the Tenant binds itself to pay
to the Landlord without any written demand therefor and by Banker's
Order if the Landlord so requires the clear yearly rent of FIVE
HUNDRED AND TWENTY SEVEN THOUSAND SIX HUNDRED POUNDS (Pound Sterling
527,600) per annum (calculated as at the Date of Entry as representing
Pound Sterling 504,850 per annum in respect of the Premises at Pound
Sterling 22,750 per annum in respect of the Tenant's right to use the
13 car parking spaces as part of the Pertinents, Rights and
Privileges)(subject to variation as hereinafter provided for) by equal
quarterly payments in advance on the Quarter Days the first of such
payments for the period from the Date of Entry until the Quarter Day
following the Date of Entry (notwithstanding the last date or dates
hereof) to be made on or before the Date of Entry the next on the
Quarter Day following the Date of Entry for the quarter following and
so forth quarterly, termly and proportionately thereafter, together
with in addition VAT as may from time to time properly be chargeable
by the Landlord on each payment of rent (and which VAT the Tenant
shall be bound to pay along with each instalment of rent); Declaring
however that in the event of neither the Landlord nor the Tenant
exercising their right of termination of this Lease pursuant to Clause
2.2 the Tenant shall be entitled to a rent free period of six months
duration in respect of the period from Thirteenth March Two thousand
and five until Thirteenth September Two thousand and five (declaring
however that said rent free period shall only be in respect of the
Premises and not in respect of
<PAGE> 14
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the Pound Sterling 22,750 per annum payable in respect of the
aforesaid right to use 13 car parking spaces as part of the
Pertinents, Rights and Privileges as the same may be reviewed in
accordance with the terms of this Lease);
2.4 2.4.1 At the times specified in Part 5 of the Schedule the Service
Charge (as ascertained from time to time in terms of Part 5 of
the Schedule);
2.4.2 Within fourteen days of demand the Service Charge Percentage of
the market rate of premiums in respect of the Building Insurance
and maintaining insurance under Clause 5.1.2;
2.4.3 Within fourteen days of demand the market rate of premiums in
respect of the Loss of Rent Insurance;
2.4.4 The Tenant shall pay within fourteen days of demand the cost
incurred by or in the name of the Landlord for the provision to
the Premises of (a) "Small Power" meaning electricity supplied
by means of the underfloor electrical distribution system and
(b) electrical power for ceiling lighting, which in both cases
shall be all in the amounts metered; Declaring that the
foregoing shall not be comprised within the Service Charge;
2.4.5 The Tenant shall pay within fourteen days of demand a sum
equivalent to the reasonable and proper cost incurred by or in
the name of the Landlord for the provision to the Premises of
air conditioning outwith the Normal Working Hours calculated
having regard to the number of hours outwith the Normal Working
Hours during which the air conditioning serving the Premises was
in use by the Tenant; Declaring that the foregoing shall not be
comprised within the Service Charge.
2.4.6 The Tenant shall pay within fourteen days of demand the cost to
the Landlord of providing security passes for the Tenant's
employees and visitors in accordance with the Management
Regulations.
<PAGE> 15
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3. TENANT'S OBLIGATIONS: RENT AND OTHER ANNUAL OR RECURRING SUMS
3.1 The Tenant HEREBY UNDERTAKES to the Landlord and binds and obliges
itself and its successors throughout the Period of this Lease to pay
the rent and all other sums payable to the Landlord pursuant to this
Lease and that at the times and in the manner herein specified and in
each case clear of all deductions.
3.2 Without prejudice to any other right, remedy or power herein contained
or otherwise available to the Landlord if any rent or any other sum
due in terms of this Lease shall not be paid on the due date by the
Tenant and shall remain unpaid for fourteen days thereafter the Tenant
undertakes to pay on demand to the Landlord interest on such rent and
all other such sums at the Prescribed Rate from the date when the same
became due as aforesaid until payment thereof including any period
after any decree or judgement.
3.3 The Tenant further undertakes to pay and discharge:-
3.3.1 all existing and future rates, taxes (except taxes payable by
the Landlord in consequence of dealings or deemed dealings by
the Landlord with its interest in the Building or any part
thereof), duties, charges, assessments, impositions and
outgoings whatsoever whether parliamentary, national, parochial,
local or otherwise and whether or not of a wholly novel or
capital or non- recurring nature which now are or may at any
time hereafter during the Period of this Lease be charged,
levied, assessed or imposed upon or in respect of the Premises
or upon the owner or occupier thereof and if and for so long as
the Premises are not separately assessed for rating purposes the
Tenant shall pay to the Landlord on demand an equitable
proportion assessed by the Landlord acting reasonably of the
rates payable in respect of the Building or such parts thereof
as includes the Premises for rating purposes;
3.3.2 within fourteen days of a written demand therefor the cost
incurred by or in name of the Landlord for the provision of
electricity and gas and for the provision of chilled water and
hot and cold water by the Landlord to the Premises in all cases
in the amounts metered (where
<PAGE> 16
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separate metering or sub-metering has been installed by the
Landlord and/or the Tenant to measure and record the amounts in
volume of electricity gas and water consumed within the
Premises) and in all cases where no such separate metering or
sub-metering exists such reasonable and equitable contribution;
Declaring that the foregoing shall not be comprised within the
Service Charge.
4. TENANT'S OBLIGATIONS: MAINTENANCE AND REPAIR ETC
The Tenant HEREBY UNDERTAKES to the Landlord
TO REPAIR AND RENEW:
4.1 At all times throughout the Period of this Lease at the Tenant's
expense to keep the Premises in good and substantial condition and
without prejudice to the foregoing generality well and substantially
to uphold, repair, maintain, and where necessary renew, rebuild, and
reinstate the Premises and every part thereof regardless of the age or
state of dilapidation of the Premises and irrespective of the cause or
extent of the damage or other want of repair and including any such as
may be rendered necessary by any latent or inherent defect in the
Premises and in addition to carry out all necessary regular
maintenance and cleansing in respect of the Premises; Provided that
there is excluded from the obligations of the Tenant under this Clause
repairs and renewals rendered necessary as a consequence of damage to
or destruction of the Premises or any part thereof by any of the
Insured Risks unless and to the extent that the Building Insurance is
vitiated in whole or in part or payment of the insurance monies
thereunder is withheld in whole or in part by reason solely or partly
of any act, neglect or default of the Tenant or the Tenant's
foresaids.
TO COMPLY WITH MANAGEMENT REGULATIONS:
4.2 To observe, perform and comply with Management Regulations and to take
all reasonable steps to secure compliance with Management Regulations
by the Tenant's staff and visitors.
<PAGE> 17
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NOT TO DUPLICATE INSURANCE:
4.3 Not at any time during the Period of this Lease specifically to insure
the Premises against the Insured Risks nor specifically to duplicate
the Building Insurance or the Loss of Rent Insurance.
PLANT AND EQUIPMENT AND SERVICE SYSTEMS:
4.4.1 To keep in good and substantial repair and condition and where
necessary for the foregoing purposes to renew and replace all plant
and equipment forming part of the Premises other than any such as are
comprised in the Plant and Equipment.
4.4.2 To keep in good and substantial repair and condition and clear and
free from obstruction all service systems and conducting media forming
part of the Premises from time to time other than any such as are
comprised in the Service Systems and to take all necessary precautions
against frost damage to pipes and water apparatus and all reasonable
care to avoid water damage to the Building or any part thereof by
reason of the bursting or overflowing of any pipes, tanks or water
apparatus.
INTERNAL DIVISIONS:
4.5 To pay within fourteen days of demand in respect of any non load
bearing wall column or partition forming an internal division between
the Premises and other parts of the Building a fair and equitable
contribution towards the cost and expense of repairing and maintaining
the same which may necessarily be incurred by the Landlord or by any
other tenant in the Building whose premises receive the benefit of
such internal division.
TO KEEP SECURE:
4.6 To ensure that all entrances to and from the Premises and, so far as
within the Tenant's control, all entrances to and from the Car Park
and Common Parts are kept lockfast and secure outwith the Normal
Working Hours.
<PAGE> 18
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TO DECORATE INTERIOR/CLEAN AND TREAT INTERIOR SURFACES:
4.7.1 Regularly (but no less frequently than once in every three years) and
also during the last year of this Lease howsoever the same may be
determined (but not if already carried out by the Tenant in the
preceding twelve months) to paint with two coats at least of good
quality paint of a colour which if different from the present colour
shall be previously approved in writing by the Landlord (such approval
not to be unreasonably withheld or delayed) and well and sufficiently
to paper, plaster, grain, treat and varnish all the interior parts of
the Premises as are usually papered, plastered, grained, treated and
varnished, and generally to redecorate the interior of the Premises
throughout, and to carry out all such work with good quality materials
of their several kinds available and in accordance with good standards
of workmanship and to the reasonable satisfaction of the Landlord.
4.7.2 As often and in such manner as the Landlord may reasonably require to
clean or treat in an appropriate manner to the reasonable satisfaction
of the Landlord all surfaces and finishes of the interior of the
Premises which ought normally to be so cleaned and treated and to wash
all surfaces requiring to be washed.
TO KEEP THE PREMISES CLEAN AND TIDY:
4.8 At all times during the Period of this Lease to keep the Premises in a
clean and tidy condition, to clear away all waste, and to clean as
frequently as circumstances reasonably require the inside of the
windows and window frames of the Premises and all the glass (if any)
in the entrance doors thereto.
TO PERMIT ENTRY BY THE LANDLORD AND OTHERS:
4.9 To permit the Landlord and its agents including the Managing Agent at
all reasonable times with or without workmen on giving reasonable
notice to the Tenant (except in cases of emergency) to enter upon the
Premises to inspect and view the state of repair and condition thereof
and to take a schedule of the Landlord's fixtures and fittings;
Declaring that in the exercise of the foregoing right, the Landlord
shall act reasonably in minimising disruption to the Tenant's
enjoyment and use of the Premises.
<PAGE> 19
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TO COMPLY WITH LANDLORD'S NOTICES:
4.10 Well and substantially to make good all wants of repair and decoration
and to comply with any other matters which the Tenant is liable to
make good and to comply with (in so far as the Tenant is otherwise
liable for such repairs, decoration or other matters in terms of this
Lease), and as are specified in a notice in writing given to the
Tenant by the Landlord or the Managing Agent, and that within two
calendar months after the giving of such notice or within such longer
period as may be reasonable in the circumstances; and if the Tenant
fails to comply with any such notice the Landlord shall be entitled at
its option (without prejudice to any other right or remedy available
to the Landlord pursuant to this Lease) to enter upon the Premises
with workmen and to make good all wants of repair and decoration and
to carry out any other works specified in such notice and the costs
incurred by the Landlord in pursuance thereof shall be repaid by the
Tenant to the Landlord on demand together with all Managing Agent's
and Solicitors' charges and other expenses which may be properly
incurred by the Landlord in connection therewith.
NOT TO INTRODUCE DANGEROUS THINGS:
4.11 Not to bring or permit to be brought into the Building or the Premises
or to place or store or permit to be placed or stored or to remain
near to or about the Building or the Premises any article or thing
which is or may become contaminative, dangerous, explosive,
inflammable or radio-active and not to carry on or do or permit to be
carried on or done thereon any hazardous trade or act in consequence
of which the Landlord would or might be prevented from insuring the
Premises or the Building at the ordinary rate of premium, or whereby
any insurance effected in respect of the Premises or the Building
would or might be vitiated or prejudiced and not without the written
consent of the Landlord to do or allow to be done anything whereby any
additional premium may become payable for the Building Insurance or
the Loss of Rent Insurance and if reasonably requested by the Landlord
to do so to comply with any reasonable terms and conditions imposed
from time to time by the Insurers in respect of the Premises.
<PAGE> 20
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TO PAY EXCESS AND OTHER IRRECOVERABLE INSURANCE MONIES:
4.12 To pay on demand to the Landlord in the event of the Premises or the
Common Parts or any parts thereof being destroyed or damaged by any of
the Insured Risks (1) the Service Charge Percentage of any normal
commercial excess applicable to the Building Insurance and (2) in the
event of the insurance monies payable under the Building Insurance
being wholly or partly irrecoverable by reason solely or partly of any
act or default of the Tenant or the Tenant's foresaids a sum equal to
the extent to which such insurance monies are thus irrecoverable.
STATUTORY REQUIREMENTS:
4.13 To execute all works as are or may under or in pursuance of any Act of
Parliament or European Community Directive enforceable by Act of
Parliament (including but without prejudice to the generality of the
foregoing the Offices, Shops and Railway Premises Act 1963, the
Factories Act 1961, the Fire Precautions Act 1971, The Health and
Safety at Work etc. Act 1974, the Control of Pollution Act 1974 and
the Environmental Protection Act 1990) already or hereafter to be
passed, be directed or required to be executed upon or in respect of
the Premises and whether such works are directed to be executed by the
owner or the occupier thereof and to comply at all times with all the
requirements as to the Tenant's use of the Premises of any such Act of
Parliament and all notices thereunder or which otherwise may be
competently given or served by any public, local or statutory
authority all at the Tenant's sole expense, and to indemnify the
Landlord against all fees penalties, charges, claims, costs and
expenses incurred as a consequence of the Tenant's failure to comply
with the foregoing provisions or otherwise in relation to any such Act
of Parliament.
FIRE REGULATIONS:
4.14 Without prejudice to the foregoing, at the Tenant's own expense at all
times to keep the Premises sufficiently supplied and equipped with
fire fighting and extinguishing apparatus and appliances (which shall
be open to the inspection of and maintained to the reasonable
satisfaction of the Landlord) as are necessary to comply with all
statutory requirements and any relevant code of practice as are
applicable at those times to the Premises and not to obstruct the
access to or the means of working such apparatus and appliances.
<PAGE> 21
-17-
NOT TO OVERLOAD:
4.15 Not without the previous consent in writing of the Landlord to place
or keep or permit to be placed or kept in the Premises or any part
thereof any heavy articles in such position or in such quantity or
weight or otherwise in such manner as to cause damage to the Premises
or impose a load, allowing a due margin for safety, which is greater
than that for which the Premises or such part were designed to bear,
and not to permit or suffer the electrical circuits in the Premises to
be overloaded.
NOT TO HARM DRAINS:
4.16 Not to allow to pass into the sewers, drains or watercourses serving
the Building any noxious or deleterious effluent or other substance
which might cause any contamination or obstruction in or injury to the
said sewers, drains or watercourses and in the event of any such
contamination, obstruction or injury as soon as reasonably practicable
to take all necessary steps to remove the same and to make good all
such damage to the reasonable satisfaction of the Landlord.
PERMITTED USE:
4.17 To use the Premises only as good quality office accommodation and any
purpose ancillary to such office use.
NOT TO USE FOR CERTAIN PURPOSES ETC.:
4.18 Not to use or permit the Premises to be used for any noisy,
offensive or dangerous trade, manufacture, business or occupation
or for gambling or any illegal or immoral purpose and not to do or
suffer to be done on the Premises any act or thing whatsoever which
in the reasonable opinion of the Landlord may be or may become a
legal nuisance or cause of damage, disturbance or inconvenience to
the prejudice of the Landlord or to the owners or occupiers of any
adjoining or neighbouring premises or any of them and without
<PAGE> 22
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prejudice to the foregoing, not to hold or permit to be held upon the
Premises or any part any sale by auction or public exhibition or
public show or spectacle or political meeting.
NOT TO MAKE ALTERATIONS:
4.19.1 Not to make or permit or suffer to be made any structural alterations
or additions whatsoever to the Premises without first obtaining the
Landlord's consent;
4.19.2 Without prejudice to the foregoing not to cut, remove, divide, alter,
or injure the Premises or any part thereof and not to merge the
Premises with any adjoining premises nor make or permit or suffer to
be made any non structural alterations or additions to the Premises
except with the previous consent in writing of the Landlord and in
accordance with drawings and specifications previously submitted to
and approved in writing by the Landlord which consent and approval
shall not be unreasonably withheld or decision thereon unreasonably
delayed.
SERVITUDES:
4.20 Not to stop up or darken any window or light in the Premises nor to
stop up or obstruct any access of light enjoyed to any other part of
the Building or permit any new wayleave, servitude, right, privilege
or encroachment to be made into or upon or acquired against the
Premises and in case any such servitude, right, privilege or
encroachment shall be made or attempted to be made to give immediate
notice thereof to the Landlord and to permit the Landlord and its
agents to enter upon the Premises for the purpose of ascertaining the
nature of any such servitude, right, privilege or encroachment and at
the request of the Landlord to adopt such means as may be reasonably
required for preventing any such encroachment or the acquisition of
any such servitude, right, privilege or encroachment and in the event
of any of the owners or occupiers of adjacent land or buildings doing
or threatening to do anything which obstructs the access of light to
any of the said windows or openings to notify the same as soon as
reasonably practicable to the Landlord and to permit the Landlord
with the consent of the Tenant (such consent not to be unreasonably
withheld or delayed) to bring such proceedings as it may
<PAGE> 23
-19-
think fit in the name of the Tenant (but at the joint cost of the
Landlord and the Tenant) against any of the owners and/or occupiers of
the adjacent land in respect of the obstruction of the access of light
to any of the windows or openings in the Premises.
ADJOINING DEVELOPMENT PERMITTED:
4.21 Unless the same will or may materially adversely affect the Tenant's
use and enjoyment of the Premises, not at any time during the Period
of this Lease to bring any action or make any claim or demand on
account of any injury to the Tenant's interest in this Lease or to the
Premises in consequence of the erection or alteration of any building,
land or premises adjacent, neighbouring or opposite to the Premises to
be carried out by the Landlord or for which the Landlord may give its
consent or in respect of any servitude, right or privilege granted or
to be granted by the Landlord for the benefit of any land or building
or premises adjacent, neighbouring or opposite to the Premises and if
required to concur with the Landlord at its expense in any consent
which the Landlord may give or any grant which it may make as herein
mentioned.
SIGNS: ADVERTISEMENTS ETC:
4.22 Not at any time during the Period of this Lease either to affix or
exhibit or permit to be affixed or exhibited in or upon any part of
the Premises any placard, advertisement, neon, or other sign or any
other kind of display, any of which shall be visible from the outside
of the Premises or to erect any aerials or dishes on the roof of the
Building except such as shall have been approved in writing by the
Landlord but which approval if given may be given subject to (a) the
Tenant obtaining at its own cost all necessary statutory permissions
and (b) such conditions as to the style and type and positioning
thereof as the Landlord may impose; Declaring however that the
Landlord shall permit the Tenant to place signage indicating its
occupancy of the Premises within the main ground floor entrance to the
Building and on the first floor at or about the top of the elevators
outside the entrance to the Premises subject to Landlord's consent as
regards, design, materials and location (such consent not to be
unreasonably withheld or delayed having regard always to the high
quality nature of the building and the other signage therein).
<PAGE> 24
-20-
ALIENATION:
4.23 Not at any time to assign this Lease or sub-let or otherwise dispose
of or otherwise deal with the Tenant's interest in this Lease or part
with or share possession or occupation of the Premises or any part
thereof except in accordance with the following provisions of this
Clause:
4.23.1 The Tenant shall not assign or attempt to assign, transfer,
charge or mortgage anything less than the Tenant's entire
interest in this Lease.
4.23.2 The Tenant shall not assign or attempt to assign its entire
interest in this Lease without the prior written consent of
the Landlord which consent shall not be unreasonably withheld
or delayed in the case of a proposed assignee who is
demonstrated to be of sound financial standing and good repute
and to be well able to fulfil the whole obligations falling on
the Tenant under this Lease.
4.23.3 The Tenant shall not sub let or agree to sub let the whole of
the Premises or any part being less than the whole of the
Premises unless such part comprises either the whole of Zone 3
(North and South) shown hatched green on the First Floor Plan
or Zone 4 shown hatched brown on the First Floor Plan
(together with, as the Tenant shall reasonably require,
ancillary rights in relation to the use of toilet and other
common facilities within the Premises), in any case without
the prior written consent of the Landlord which consent shall
not be unreasonably withheld or decision thereon unreasonably
delayed in the case of a proposed sub tenant who is
demonstrated to be of sound financial standing and good
repute, and in any permitted sub-lease there shall be
provisions that :-
4.23.3.1 the rent payable under such sub-lease shall be
payable no more than one quarter in advance and shall
be subject to review in an upward direction only at
such time and in such manner as to coincide with the
rent review provided for under this Lease;
<PAGE> 25
-21-
4.23.3.2 the sub-tenant thereunder shall be prohibited from
assigning its interest under such sub-lease without
the consent of the Landlord (which consent shall not
be unreasonably withheld or a decision thereon
unreasonably delayed) and from granting any further
sub-lease; and
4.23.3.3 the initial rent under such sub-lease shall not be
less than the open market rent in respect of such
premises sub-let.
4.23.3.4 notwithstanding any provision in this Lease apparently
to the contrary, the Tenant shall not require to
obtain the consent of the Landlord to the sub-letting
of, or granting of rights of occupancy in, the whole
or part of the Premises to any company which is for
the time being a holding company of the Tenant or a
subsidiary of the Tenant or a subsidiary of such
holding company (as the terms "subsidiary" and
"holding company" are defined in Section 736 of the
Companies Act 1985) provided that advance notice
thereof and the expiry thereof is given to the
Landlord and that no tenancy rights are thereby
constituted.
4.23.4 For the avoidance of doubt, nothing contained in this clause
nor Clause 4.17 shall be taken to entitle the Tenant and the
Tenant shall not be entitled to use, assign or sub-let the
whole or part of the Premises as or to any party operating a
financial services business (specifically including the selling
of financial services in competition with the Abbey National
Group of Companies); declaring however that the foregoing shall
not prohibit use, assignation or sub-letting to or by a party
which as part of its business provides outsourced business
processed management services including without limitation
finance and administration functions within the organisations
of the clients of the Tenant.
<PAGE> 26
-22-
INTIMATION OF ASSIGNATIONS:
4.24 Within twenty one days after the date of any assignation of this Lease
or the grant of any sub-lease of the whole or part of the Premises or
any assignation of such sub-lease or any other devolution however
remote of this Lease or of any such sub-lease to produce, supply or
cause to be supplied (and without any demand therefor) to the Landlord
for registration a certified copy of the deed, document or instrument
effecting such assignation, sub-lease, assignation of sub-lease or
devolution.
COSTS OF ENFORCING TENANT'S OBLIGATIONS:
4.25 To pay to the Landlord all properly incurred fees, costs, charges,
expenses and disbursements, incurred to the Managing Agent and where
applicable any Solicitors, Counsel, Architects, Surveyors, Messengers
at Arms or Sheriff Officers or any other persons engaged or employed
by or on behalf of the Landlord (plus any VAT on all such fees and
costs which may be properly chargeable to the Tenant and in respect of
which a VAT invoice is issued to the Tenant) of and in connection with
remedying any breach of the Tenant's obligations under this Lease and
including without prejudice to the foregoing generality costs properly
incurred in relation to the preparation and service of any schedule of
dilapidations or other notice relating to wants of repair for which
the Tenant is otherwise liable hereunder and that whether the same be
served during or within three months after the expiry or sooner
determination of the Period of this Lease.
LANDLORD'S COSTS:
4.26 To pay on demand to the Landlord all reasonably and properly incurred
fees and outlays of the Landlord's surveyors or the Managing Agent and
the Landlord's solicitors, all as may be applicable in connection with
any application for consent or approval (whether or not consent or
approval is refused or the application withdrawn but, in the case of a
refusal, only if such refusal is proper in accordance with the
provisions of this Lease) and if consent or approval is given in
connection with or incidental to the preparation of any licence or
other document used to record such consent or approval.
<PAGE> 27
-23-
APPLICATIONS FOR CONSENT:
4.27 Upon making an application for any consent or approval which is
required under this Lease to make disclosure therein of all relevant
matters relating thereto and to provide to the Landlord such
information in relation to such application as the Landlord may
reasonably require.
PLANNING ACTS:
4.28 In relation to the Planning Acts the Tenant undertakes:-
(a) To comply in all respects with the Planning Acts and to indemnify
and keep the Landlord indemnified from all liability costs and
claims arising as a consequence of a breach by the Tenant or the
Tenant's foresaids of the foregoing obligation;
(b) Not to make any application for planning permission nor give any
notice to any authority of an intention to commence any
development without the previous written consent of the Landlord
which consent shall not be unreasonably withheld or delayed save
in relation to an application for change of use where Landlord's
consent may be given or withheld at its discretion; Provided that
the Landlord may withhold consent if it reasonably considers that
the making of any such application by the Tenant could lead to the
acquisition by any statutory authority or body of the Landlord's
interest in the Premises or to adverse financial or taxation
consequences upon the Landlord;
(c) To make at its own cost any application for planning permission
which may be necessary for any development (as defined in the
Planning Acts) to which the Landlord has consented pursuant to
this Lease;
(d) As soon as reasonably practicable, but in any event not less than
7 days prior to the expiry of any relevant notice or appeal
period, after the grant or refusal of such application to give to
the Landlord full particulars in writing thereof and free of cost
to the Landlord to supply a copy thereof (including all relevant
plans) for the retention of the Landlord;
<PAGE> 28
-24-
(e) Not to implement any planning permission until the conditions
attaching thereto have been submitted to and approved in writing
by the Landlord, which approval shall not be unreasonably withheld
or delayed;
(f) Unless the Landlord shall otherwise direct to carry out before the
termination of this Lease (howsoever the same may be determined)
any works stipulated to be carried out to the Premises by a date
subsequent to such expiration or sooner determination as a
condition of any planning permission which may have been granted
to the Tenant;
(g) As soon as reasonably practicable, but in any event not less than
7 days prior to the expiry of any relevant notice or appeal
period, after receiving any notice, order or proposal affecting
the Premises from any competent authority under or by virtue of
the Planning Acts to send a copy to the Landlord;
(h) At the request of the Landlord to make or join with the Landlord
in making such objection or representation against or in respect
of any notice, order or proposal made under or pursuant to the
Planning Acts as the Landlord acting reasonably shall deem
expedient.
(i) Not to object to any planning permission in respect of any
resumption or building as referred to in paragraph 7 of and as
permissible in terms of Part 3A of the Schedule.
TO INFORM LANDLORD OF NOTICES:
4.29 Upon the receipt of any notice, order, requisition, direction or other
intimation which adversely affects the Landlord's interest in the
Premises as soon as reasonably practicable, but in any event not less
than 7 days prior to the expiry of any relevant notice or appeal
period, to deliver full particulars or a copy thereof to the Landlord.
<PAGE> 29
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RE-LETTING OR SALE:
4.30 To permit the Landlord to fix and retain in a suitable position
outside the Premises a notice board for the re-letting of the Premises
and/or the sale of the Building but not so as to restrict the use and
enjoyment of the Premises by the Tenant and to permit all persons
authorised in writing by the Landlord or its agents to view the
Premises at all reasonable hours upon reasonable notice being given;
Declaring however that in the exercise of the foregoing right, the
Landlord shall act reasonably in minimising disruption to the Tenant's
enjoyment and use of the Premises.
TO INFORM LANDLORD OF DEFECTS OR DESTRUCTION:
4.31 To inform the Landlord in writing as soon as reasonably practicable
but in any event within seven days of becoming aware of the same of
any material defect in the Premises and of any destruction or damage
caused to the Premises by the Insured Risks.
TO INDEMNIFY LANDLORD:
4.32 Except when caused by any of the Insured Risks or the subject of any
of the other insurances effected by the Landlord under this Lease
(save to the extent that the same are vitiated by the Tenant's
foresaids), to indemnify the Landlord in respect of all liability
which may be incurred by the Landlord in connection with or incidental
to:
(a) Any unauthorised use of the Premises or any defect in the Premises
or want of repair arising due to the failure by the Tenant to
comply with its obligations under this Lease;
(b) The execution of any alterations or additions to the Premises by
the Tenant albeit consented to by the Landlord;
(c) Any other breach by the Tenant of the obligations undertaken in
this Lease; and
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(d) Any interference or obstruction by the Tenant of any servitude,
right or wayleave or other right now existing for the benefit of
any adjoining occupier or tenant or adjoining or neighbouring
property.
CAR PARKING:
4.33 (a) Not to use or permit the Car Park to be used other than for the
parking of private cars or motorcycles in connection with the
Tenant's business and other than in compliance with the Management
Regulations;
(b) Not at any time to obstruct or permit to be obstructed the
entrance or any access to or from any part of the Car Park.
TO OBSERVE TITLE CONDITIONS:
4.34 Not to breach any of the obligations, burdens, conditions and others
contained or referred to in the Land Certificate or other title deeds
from time to time affecting the Building and to keep the Landlord
indemnified against any breach of the foregoing obligation.
TO REMOVE:
4.35.1 Immediately prior to the expiration or sooner determination of
the Period of this Lease at the cost of the Tenant:-
(a) to renew and replace any of the Landlord's fixtures and
fittings which shall be missing, broken, worn, damaged or
destroyed with others of a similar character, condition and
quality;
(b) to remove every moulding, sign, writing or painting of the
name or business of the Tenant or other occupiers from the
Premises and from any other part of the Building and to
remove any alterations or additions (other than the
Refurbishment Works and those which the Landlord has agreed
need not be removed), and all Tenant's fixtures and
fittings, furniture and effects from the Premises making
good to the reasonable satisfaction of the Landlord all
damage caused by such removal; and
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(c) if so requested by the Landlord (the Landlord being obliged
to make such request (or decline to do so, in which case
the Tenant shall not be under any obligation to remove and
make good as aftermentioned) within two weeks of having
asked) to remove and make good alterations or additions
made to the Premises (other than the Refurbishment Works)
and well and substantially to reinstate the Premises in
such manner as the Landlord shall direct and to its
satisfaction acting reasonably.
4.35.2 Notwithstanding the provisions of Clause 4.35.1 the Tenant's
obligations as regards reinstatement and/or removal of the
Refurbishment Works and items associated therewith shall be the
following. The Tenant shall:-
Electrical Services
o Reinstate automatic fire alarms and sounders to suit open
plan occupation in full compliance with BS 5839 L1
protection.
o Reinstate emergency lighting to suit open plan occupation
in full compliance with BS 5266 protection.
o Reinstate Public Address System to that suitable for open
plan announcements.
o Reconfigure lighting circuits and PIR control to reflect
open plan arrangement.
o Remove all localised control of the lighting installation.
o Remove all power cabling and equipment from the demised area
associated with the tenant UPS system, security system, and
intruder alarm system and fire suppression system.
o Remove and replace any decorative lighting installed in
cellular or office areas with the troffer lighting module --
rewire as required.
o Clean and re-lamp all luminaries in the demised area.
o Carry out full periodic test and certify the entire
electrical installation in the demised area.
o Produce revised record electronic drawings of the
reinstatement works.
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Mechanical Services and BMS Installation
o Relocate all VAV boxes to open plan linear arrangements as
original layout.
o Test and certify any new ductwork necessary to achieve the
open plan linear arrangement.
o Isolate, drain and remove all chilled water pipe work to the
riser for the server room fan coil unit installation.
o Remove all fan coil unit power and controls installation.
o Remove all local set point adjusters and associated cabling
to the cellular offices.
o Reconfigure the BMS installation due to the system
changes/deletions.
o Remove all mains water supplies to vending machines in all
areas other than the TSZ zone back to the riser valve
position.
Building and General Works
o Remove all cellular offices partitions, furniture and
appliances -- make good walls and columns to original
specification.
o Make good suspended ceilings to match existing where
necessary.
o Clean all ceilings, VAV diffusers and luminaries.
o Reinstate carpet tiles to a single tile colour and clean
same. Alternatively, if wear and tear is excessive, then
renew carpets to similar spec to the remainder of the
building. Include lift lobby in this requirement.
o De-rock and level all suspended floors in the demised area.
o High quality clean to all toilet areas including repair and
replacement of sanitary fixing and fittings.
o Removal of all tenants fixtures and fitings throughout the
demised area.
o Replace tea point floor finishes with new non-slip vinyl as
original specification.
o Reinstate all finishes, fittings and furniture to the tea
points all as original specification.
o Renew and reinstate as required existing mechanical and
electrical services to the tea points.
<PAGE> 33
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o Remove all tenants services and equipment and reinstate to
original condition the risers and duct areas.
o Redecorate all escape lobby areas to match existing
electrostatic finish.
o Reinstate and redecorate zone 3 -- store finishes to ceiling
and walls to original specification.
o Reinstate and redecorate cleaners cupboard finishes to
ceiling and walls to original specification.
o Remove all plants, fixtures and fittings from site.
o Vertical blinds to be overhauled and cleaned to full working
order.
o Atrium glass to have all film removed and cleaned.
o Link corridors to have all ceilings and lighting returned to
original specification.
o Entire demise to have high quality clean to include all
marble finishes, glass and general environment.
o Entire demise to have painted finish reapplied to match
existing specification to all walls solid ceilings and door
sets.
o Re-test and certify fire-fighting equipment to suit open
plan arrangements.
4.35.3 At the expiration or sooner determination of the Period of this
Lease without any warning away or process of removal to that
effect to remove from and leave the Premises empty and cleaned
and in such good and substantial repair and condition as shall
be in accordance with the obligations of the Tenant under this
Lease together with all fixtures and fittings (excepting
Tenant's fixtures and fittings) and improvements and additions
which now are or may at any time hereafter be in or about the
Premises save such as the Tenant has been required to remove
pursuant to Clause 4.35.1 (as qualified by the provisions of
Clause 4.35.2). Provided that if at such expiration or sooner
determination the Premises shall not be empty and cleaned and
in such good and substantial repair then at its sole option the
Landlord shall be entitled to require that either (a) the
Tenant carries out at its cost the works necessary to put the
Premises into such condition or (b) the Tenant pays to the
Landlord such sum as shall be certified by the Landlord or the
Managing Agent as being equal to the fair cost of carrying out
such work along with a sum equivalent to the loss of rent and
service charge suffered by the Landlord in respect of the
<PAGE> 34
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period from such expiration or sooner determination until the
expiry of such period (which shall in no circumstances be more
than three months after such expiration or sooner
determination) as the Landlord shall reasonably require to
carry out all such necessary works; Declaring that to the
extent that the Landlord is in receipt of rent and/or service
charge in respect of such period the Landlord will be deemed
not to have suffered any such loss.
VAT:
4.36 To pay to the Landlord VAT in respect of all monies, including the
rent, undertaken to be paid to the Landlord by the Tenant pursuant to
this Lease and in every case where in this Lease the Tenant undertakes
to pay an amount of money such amount shall be construed as being
exclusive of all VAT which may from time to time be legally payable
thereon.
5. LANDLORD'S OBLIGATIONS
TO INSURE:
5.1.1 The Landlord shall, provided always and to the extent that cover
for all or any of the Insured Risks is obtainable in respect of
the Building in the United Kingdom insurance market, until the
expiry or sooner determination of this Lease insure and keep
insured the Building under the Building Insurance (except to the
extent that the Building Insurance shall be vitiated in whole or
in part by any act, neglect, default or omission of the Tenant
or the Tenant's foresaids) against loss or damage by the Insured
Risks and shall keep in force the Loss of Rent Insurance in each
case through such agency as shall be selected by the Landlord
from time to time. The Landlord shall procure that the interest
of the Tenant (whether specifically or as one of the Landlord's
tenants generally) is endorsed on the policy for the Building
Insurance.
5.1.2 The Landlord shall also insure against Third Party risks and
Property Owners' liability for such sum or sums as the Landlord
acting reasonably shall require.
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5.1.3 The Landlord shall supply to the Tenant a copy of the Building
Insurance and the Loss of Rent Insurance (including the risks
insured against) or a summary thereof and that within fourteen
days of being requested to do so.
APPLICATION OF INSURANCE MONIES:
5.2 The Landlord undertakes that as often as the Building or any part
thereof shall be destroyed or damaged by any of the Insured Risks then
save to the extent that and then only for so long as payment of the
insurance monies shall have been withheld in whole or in part by
reason of any act or default of the Tenant or the Tenant's foresaids
and provided that payment has been made by the Tenant of all (if any)
sums due by it pursuant to Clause 4.12 the Landlord shall as soon as
reasonably possible use all reasonable endeavours to rebuild, repair,
restore and reinstate the Building or such part with such variations
as may be necessary or in the Landlord's reasonable opinion desirable
having regard to statutory provisions, bye-laws and regulations then
in force and any planning approval necessary and also to building
standards then prevailing to the intent that the Building or such part
when rebuilt, repaired or restored shall conform to the practice then
current and shall afford to the Tenant a substantially comparable area
to that contained in the Premises as at the date of damage or
destruction. The Landlord undertakes that all monies received by
virtue of the Building Insurance effected hereunder (except in respect
of Loss of Rent) shall be applied in so far as the same shall be
necessary in rebuilding and reinstating the Building or such part and
declaring that for the purposes of this Clause 5.2 only reference to
Building shall be a reference to the Premises and to such parts of the
Common Parts as are requisite for the beneficial use and enjoyment of
the Premises and the Pertinents, Rights and Privileges from time to
time. The Landlord will be under obligation to make good out of the
Landlord's own monies any shortfall in such insurances caused by under
insurance except (1) in respect of any excess for which the Tenant is
responsible in terms of Clause 4.12 and (2) to the extent that the
insurance monies shall have been withheld in whole or part as
aforesaid.
<PAGE> 36
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LANDLORD'S SERVICES:
5.3 Subject to the provisions of Clause 5.2 and subject also to the Tenant
paying the Service Charge in terms of Clause 2, the Landlord
undertakes (a) to apply all sums recovered from the Insurers pursuant
to the Building Insurance and from the Tenant pursuant to Clause 4.12
so far as necessary in effecting any repair or reinstatement rendered
necessary by the Insured Risks and (b) to use all reasonable
endeavours to carry out, provide and fulfil for the benefit of the
Tenant and the other tenants in the Building such of the Services
specified in Part 4 of the Schedule as the Landlord acting reasonably
and in the interests of good estate management may from time to time
consider necessary or desirable; DECLARING THAT in relation to any
question of providing Services regard shall be had to (i) the
remaining provisions of this Lease and (ii) any programme for
provision of Services including the carrying out of repairs,
maintenance, and (where necessary) replacement, renewal and
reinstatement of the Common Parts which the Landlord may adopt in the
interest of the good and efficient management of the Building PROVIDED
ALWAYS that the Landlord shall not be liable to the Tenant for any
failure to perform the foregoing such obligations (or any of them)
owing to any cause or circumstance outwith the control of the
Landlord.
6. GENERAL
IRRITANCY:
6.1 Subject to the provisions of Sections 4, 5 and 6 of the Law Reform
(Miscellaneous Provisions) (Scotland) Act 1985 if the rent herein
provided for or any part thereof or any other sum due under this Lease
shall at any time be in arrears for fourteen days after the due date
for payment (whether demanded or not) or if there shall be any breach
of any of the undertakings on the part of the Tenant contained in this
Lease or if the Tenant shall become apparently insolvent or shall make
any arrangement with creditors or shall suffer any diligence to be
levied on the Premises or the contents thereof or if the Tenant being
a company shall go into liquidation whether voluntary or compulsory
(otherwise than a voluntary liquidation of a solvent company for the
purpose of amalgamation or reconstruction) or suffer a Receiver or
Administrator to be appointed then and in any such case it shall be
lawful for
<PAGE> 37
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the Landlord at any time thereafter by notice in writing to bring this
Lease to an end forthwith and to enter the Premises and repossess and
enjoy the same as if this Lease had not been granted but without
prejudice to any right of action or remedy of the Landlord in respect
of any previous breach of any of the undertakings by the Tenant
contained in this Lease. PROVIDED THAT (a) in the case of a breach
which is capable of being remedied (albeit late) the Landlord shall
not be entitled to terminate this Lease as aforesaid unless the
Landlord shall first have given notice in writing of the breach to the
Tenant prescribing a time which in the opinion of the Landlord is
reasonable in the circumstances (such circumstances not including the
financial position of the Tenant) within which such breach must be
remedied and the Tenant shall have failed to remedy the breach within
the time prescribed in the notice and declaring that where the breach
is a failure to pay any sum of money, a reasonable time shall be a
period of not less than fourteen days and (b) in the case of the
Tenant going into liquidation (other than for the purpose of
re-construction or amalgamation as aforesaid) or having an
Administrator or Receiver appointed (or being an individual or firm
becoming apparently insolvent or signing a trust deed for creditors)
then the Landlord shall allow the liquidator or receiver or
administrator or trustee for creditors, as the case may be, a period
of six months or such shorter period as may be requested by the
administrator, receiver, liquidator, trustee for creditors as
aforesaid in which to dispose of the Tenant's interest in this Lease
and the Landlord shall only be entitled to exercise its right of
irritancy on such grounds of administration, receivership, liquidation
or insolvency or others as aforesaid but without prejudice to the
Landlord's right to irritate on any other ground if the liquidator or
receiver or administrator or trustee for creditors as aforesaid, as
the case may be, shall have failed to dispose of the Tenant's interest
in this Lease by the end of the said period provided further that the
liquidator or receiver or administrator or trustee for creditors, as
the case may be, shall have first personally accepted in writing in
self proving form within two weeks of his appointment liability for
performance of all the obligations (monetary and non-monetary) of the
Tenant under this Lease from the date of his appointment until the
date of disposal or expiry of such six month (or shorter) period or
forfeiture or surrender to the Landlord of the Tenant's interest
hereunder whichever is the earlier (including the performance or
remedying of any outstanding obligations monetary or non monetary
which may subsist at the date of liquidation or receivership or
insolvency as the case may be).
<PAGE> 38
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And it is hereby declared that the Landlord shall deal with any
request for consent to assign this Lease made by such liquidator,
receiver, administrator, trustee for creditors, as aforesaid as the
case may be in the same manner as if the request had been made by the
Tenant.
NO COMPENSATION:
6.2 Neither the Tenant nor any sub-tenant (whether immediate or
derivative) shall be entitled on quitting the Premises or any part
thereof to claim any compensation from the Landlord under any Act of
Parliament whether enacted before or after the Date of Entry.
REI INTERITUS NOT TO APPLY:
6.3.1 Save as provided in Clause 6.3.2, this Lease shall not be
terminated by reason of any damage to or destruction of the
Premises or the Building or any part thereof but shall,
notwithstanding any such damage or destruction and any rule of
law to the contrary, remain in full force and effect and endure
for the full Period of this Lease.
6.3.2 In the event of the Premises or the Common Parts or any other
part of the Building as are necessary for the proper enjoyment
and use of the Premises or the Pertinents, Rights and
Privileges, having been destroyed or damaged by any of the
Insured Risks and not having been repaired or reinstated in the
manner provided for in Clause 5.2 within a period of three years
from the date of such damage or destruction and provided that
(a) the Building Insurance effected by the Landlord in terms of
Clause 5.1.1 or 5.1.2 shall not have been vitiated as a
consequence of any act or default of the Tenant and/or (b) no
demand shall have been made upon the Tenant by the Landlord in
terms of Clause 4.12 or if such demand shall have been made it
shall have been met in full by the Tenant within the timescale
provided in Clause 4.12 then the Tenant may terminate this Lease
by giving notice to that effect to the Landlord within three
months after the expiry of said three year period under
declaration that (A) time shall be of the essence with regard to
the giving of said notice (B) the date of termination of this
Lease shall be the date of service of said notice and (C) all
insurance monies (save those already expended by the Landlord in
repairing and reinstating the Building and excepting those
<PAGE> 39
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referable to the Tenant's fixtures and fittings which shall be
paid to the Tenant) shall forthwith upon the giving of said
notice belong to the Landlord in questions with the Tenant and
(save as aforesaid) the Tenant shall have no claim on the same.
6.3.3 In the event of the Premises or the Common Parts or any other
part of the Building as are necessary for the proper enjoyment
and use of the Premises or the Pertinents, Rights and Privileges
having been destroyed or damaged by any of the Insured Risks,
the Landlord shall use all reasonable endeavours within three
months of any such damage or destruction to give the Tenant a
reasonable estimate of how long it will take to effect any
necessary repair or reinstatement. In the event that the
Landlord fails to give such estimate, the Tenant will be
entitled, by serving written notice on the Landlord, to require
the Landlord to give such estimate which the Landlord will be
obliged to give within one month of receipt of said notice. For
the avoidance of doubt the Landlord will have no liability for
any loss or damage incurred by the Tenant's foresaids as a
result of (a) failure to give such estimate, or (b) such
estimate subsequently proving to be inaccurate.
LOSS OF RENT:
6.4 In case the Premises or such of the Common Parts and any other parts
of the Building as are necessary for the proper use of the Premises or
the Pertinents, Rights and Privileges shall at any time during the
Period of this Lease be so damaged or destroyed by any of the Insured
Risks as to render the Premises unfit for beneficial occupation and
use in accordance with the terms and provisions of this Lease then
except to the extent that the insurance monies payable under the Loss
of Rent Insurance shall be wholly or partially irrecoverable by reason
solely or in part of any act or default of the Tenant or the Tenant's
foresaids the rent and Service Charge payable hereunder or a fair
proportion thereof according to the nature and extent of the damage
sustained shall be suspended until the Premises and/or such of the
Common Parts and any other parts of the Building, as the case may be,
shall again be rendered fit for occupation and use or until the expiry
of three years whichever shall be the earlier PROVIDED ALWAYS that in
the event of dispute as to the amount or duration of the rent or
Service Charge to be suspended such dispute shall be settled by a
single arbiter to be appointed on
<PAGE> 40
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the application of either party by the Chairman or senior office
holder of the Scottish Branch of the Royal Institution of Chartered
Surveyors which arbiter shall have the power to award costs and
expenses, and the decision of such arbiter shall be final and binding
upon both the Landlord and the Tenant.
NOTICES:
6.5 Any notice, intimation, request for consent or demand to be given
under this Lease (each hereinafter in this clause referred to as
"notice") shall be in writing. Without prejudice to any other
competent method of service any notice shall be sufficiently served if
delivered by hand, sent by facsimile transmission or sent by Recorded
Delivery Post (a) to the Tenant (if the Tenant shall be a body
incorporated in the United Kingdom) to its Registered Office and (if
the Tenant shall be a natural person) to his last known address in
Great Britain or Northern Ireland or to the Premises and (if the
Tenant shall be a firm) to the firm and any one or more of the
partners thereof at the Premises and (in any other case) to the Tenant
at the Premises (b) to the Landlord (if the Landlord shall be an
incorporated body) to its Registered Office and (if the Landlord shall
be a natural person or a firm) to him or it at his or its last known
address in Great Britain or Northern Ireland and to the Landlord's
nominated Solicitors in Scotland from time to time and (c) to the
Guarantor at the address stated in this Lease or such alternative
address as may be intimated from time to time to the Landlord. Any
notice sent by Recorded Delivery Post shall be deemed duly served at
the expiry of two working days after the day of posting. In proving
service it shall be sufficient to prove that an envelope containing
the notice was duly addressed to the Tenant or the Landlord or the
Guarantor (as the case may be) in accordance with this Clause and
posted or sent to the place to which it was so addressed.
DEMAND FOR RENT:
6.6 (a) No demand for or acceptance of rent or any other sum due under
this Lease by the Landlord or its agent at a time when the Tenant
is in breach of any of the obligations of this Lease shall be or
be deemed to be a waiver wholly or partially of any such breach;
<PAGE> 41
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(b) For the avoidance of doubt no demand for or acceptance of rent by
the Landlord or its agent at a rate other than that to which the
Landlord may be entitled in terms of this Lease shall personally
bar the Landlord from instituting or proceeding with or requiring
any payment properly due in terms of this Lease.
DISCLAIMER OF LIABILITY:
6.7.1 Save where due to the negligent act or default or breach of
contract of the Landlord or those for whom they are legally
responsible, the Landlord shall at no time become liable to the
Tenant for any loss, damage or expense sustained by the Tenant
in relation to the Premises or the Common Parts or the Services
by or through any defect, decay, inadequacy, want of repair or
decoration or otherwise in the Building or any part thereof, or
from the failure or disruption of any power supply or arising
from the choking, bursting, stoppage or failure of any water
supply, waste or other pipes, drains, sewers, rhones,
conductors, gutters, ducts, water courses, cisterns or others or
for any loss, damage or expense caused to the Tenant through any
act or omission of the proprietors, tenants or occupiers of any
adjoining or neighbouring parts of the Building or other
property.
6.7.2 Nothing herein shall be or be deemed to constitute any warranty
by the Landlord that the Premises or any part thereof are
authorised for use under the Planning Acts for the permitted use
hereunder.
APPROVALS:
6.8 Where by the terms of this Lease the consent or approval of the
Landlord is required such consent or approval shall be in writing and
without prejudice to any other reasons stated by the Landlord, the
Landlord shall be deemed to be acting reasonably in withholding such
consent or approval if the Landlord reasonably considers that the
interests of good estate management so require.
ATRIUM GLAZING:
6.9 Notwithstanding any of the other provisions of this Lease the Tenant
shall not be responsible for carrying out or for the cost of carrying
out (whether
<PAGE> 42
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through the Service Charge or otherwise) any works which the Local
Authority or any other body may require to be carried out to the
glazing surrounding the atrium within or forming part of the
boundaries to the Premises by reason of the same not complying fully
with all relevant and applicable statutory or other requirements save
where said works are solely required as a result of the specific
requirements of any works carried out by the Tenant. In the event of
any such works being required to such glazing and the Landlord not
succeeding in persuading the relevant authorities to dispense with
such requirement (which the Landlord shall be entitled to request the
relevant authorities to do) the Landlord will (save as aforesaid)
carry out all such works as may be necessary as soon as reasonably
practicable and in so doing the Landlord shall act reasonably in
minimising disruption to the Tenant's use and enjoyment of the
Premises (and in particular shall only carry out such works after 6pm
and before 8am on Monday to Friday or at any time on Saturday and
Sunday) and that all at the sole expense of the Landlord (no part of
the cost thereof to form part of the Service Charge). For the
avoidance of doubt the Landlord will not require to make its own
enquiries into such compliance.
7. RENT REVIEW
PROVIDED ALWAYS THAT IT IS HEREBY FURTHER AGREED that:
DATE OF REVIEW:
7.1 With effect from the expiration of five years from the Date of Entry
(the date of expiration of such five year period being hereinafter
referred to as the "Date of Review") the yearly rent provided for in
Clause 2.3 shall be increased to such an amount as shall be the
greater of (a) the yearly amount of the rent payable by the Tenant to
the Landlord in terms of Clause 2.3 immediately before such Date of
Review or (b) an amount (hereinafter called "the Revised Rent") which
shall represent the full rental value of the Premises at such Date of
Review assessed in accordance with the following provisions of this
Clause.
<PAGE> 43
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VALUATION:
7.2 The full rental value of the Premises at such Date of Review shall be
such an amount as may be agreed between the Landlord and the Tenant or
determined in accordance with Clause 7.3 as representing the open
market rent (at the rate running following the expiry of such rent
free period of occupation as would be granted in the market at the
time for the purposes of fitting-out the Premises) which the Premises
could reasonably be expected to obtain if leased in the open market on
the Date of Review for a period commencing on the Date of Review of
ten years, by a willing landlord to a willing tenant on the terms and
conditions of this Lease (excepting the amount of rent payable in
terms of Clause 2 but including provision for quinquennial review of
the rent) with vacant possession and without the payment of any fine,
grassum or premium but upon the suppositions (if not facts):-
7.2.1 that the Premises are in existence, have (but only to the extent
of those parts thereof set out or referred to in the list
forming Part 8 of the Schedule) had the Refurbishment Works
carried out and are otherwise in such a condition as to be ready
for an incoming occupier to carry out its initial fitting-out
works;
7.2.2 that the Tenant has complied with all the obligations on the
part of the Tenant imposed by this Lease (but without prejudice
to any rights of the Landlord in regard thereto);
7.2.3 that if the Premises or any part thereof or the means of access
thereto or any of the Common Parts or services enjoyed by the
Premises shall have been destroyed or damaged the same had
before the Date of Review been fully reinstated;
7.2.4 that both the Landlord and the Tenant are able to recover all
input Value Added Tax in full; and
7.2.5 that the net lettable area of the Premises is 31553 square feet
in extent whether or not that in fact be the case.
and taking no account of and disregarding:-
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7.2.6 any goodwill attributable to the Premises by reason of any trade
or business carried on therein by the Tenant or any sub-tenant
or other permitted occupier;
7.2.7 the Tenant's initial fitting out works, and any alterations or
other works to the Premises carried out by the Tenant or any
sub-tenant (other than those parts of the Refurbishment Works
set out or referred to in the list forming Part 8 of the
Schedule) and otherwise than in pursuance of any obligation to
the Landlord under the provisions of this Lease;
7.2.8 for the avoidance of doubt, all parts of the Refurbishment Works
not set out or referred to in the list forming Part 8 of the
Schedule;
7.2.9 the fact that the Tenant or any sub-tenant or other permitted
occupier is or may have been in occupation of the Premises.
DECISION ON RENTAL VALUE :
7.3 If the Landlord and the Tenant shall be unable to agree on the amount
of the full rental value as aforesaid by the Date of Review then at
the election of the Landlord or the Tenant the matter shall at any
time thereafter be decided by a Chartered Surveyor (who shall act and
be deemed to act as an expert and not as an arbiter) to be agreed upon
by the parties hereto or in the event of failure so to agree then the
same shall be decided by a Surveyor (hereinafter called the
"Surveyor") experienced in the valuation of properties comparable to
the Premises in the area where the Premises are situated such Surveyor
to act as an expert also and to be nominated at any time at the
request of the Landlord or the Tenant by the Chairman or senior office
holder for the time being of the Scottish Branch of the Royal
Institution of Chartered Surveyors and the decision of the Surveyor
shall be binding on both the Landlord and the Tenant. Within one month
of the date upon which the Surveyor is agreed upon or appointed as
aforesaid the Landlord and the Tenant shall each be entitled to submit
to the Surveyor written valuations, statements and other evidence
relating to or supporting their assessment of the full rental value in
which event they shall, at the same time, deliver to the other party a
copy of
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all such valuations and others submitted as aforesaid. If the Surveyor
dies or is for any other reason unable to act before he shall have
given his decision then either party hereto may request the Chairman
or Senior Office Holder aforesaid to nominate a further Surveyor
(hereinafter called the "Second Surveyor") to act on the terms of this
sub-clause and such request may be repeated as often as may be
necessary. The fees payable to the Chairman and any Surveyor who could
not deliver his decision and the Second Surveyor shall be borne and
paid by the parties hereto in such shares and in such manner as the
Surveyor or which failing the Second Surveyor shall determine and
failing any such decision and subject thereto in equal shares.
UPWARDS ONLY:
7.4 Notwithstanding the decision of the Surveyor or Second Surveyor
hereinbefore referred to in no event shall the rent payable by the
Tenant after the Date of Review be less than the rent payable by the
Tenant immediately before the Date of Review.
PAYMENT AFTER DATE OF REVIEW:
7.5 If by the Date of Review the amount of the revised rent has not been
agreed between the parties hereto or determined as aforesaid then in
respect of the period of time (hereinafter called the "Interval")
beginning with the Date of Review and ending on the Quarter Day
immediately following the date upon which the amount of the revised
rent is agreed or determined as aforesaid (hereinafter called the
"Relevant Date") the Tenant shall continue to pay the rent provided
for in Clause 2.3 to the Landlord in the manner hereinbefore provided
at the yearly rate payable immediately before the Date of Review;
Provided that on the Relevant Date there shall be due as a debt
payable by the Tenant to the Landlord an amount equal to the
difference between the revised rent and the rent actually paid during
the Interval and apportioned on a daily basis in respect of the
Interval together with interest at the rate four per cent below the
Prescribed Rate on each part of that amount from the date upon which
that part would otherwise have been paid until paid.
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STATUTORY RESTRICTION:
7.6 If at the Date of Review the Landlord shall be obliged legally or
otherwise to comply with any Act of Parliament dealing with the
control of rent and which shall restrict or modify the Landlord's
right to revise the rent payable in terms of Clause 2.3 in accordance
with the terms of this Lease or which shall restrict the right of the
Landlord to demand or accept payment of the full amount of the rent
payable in terms of Clause 2.3 for the time being payable under this
Lease then the Landlord shall on each occasion that any such enactment
is removed, relaxed or modified, be entitled on giving not less than
three months' notice in writing to the Tenant expiring after the date
of each such removal, relaxation or modification to introduce an
intermediate Review Date (hereinafter called the "Intermediate Review
Date") which shall be the date of expiration of such notice and the
rent payable hereunder from an Intermediate Review Date to the next
succeeding Date of Review or Intermediate Review Date (whichever shall
first occur) shall be determined in like manner as the rent payable
from each Date of Review as hereinbefore provided; Declaring that in
no circumstances will this Clause 7.6 operate so as to render the
Tenant liable to pay to the Landlord more than it would have been
obliged to pay had there been no such restriction or modification.
MEMORANDUM:
7.7 As soon as the amount of rent payable by the Tenant to the Landlord in
terms of Clause 2.3 with effect from after the Date of Review has been
agreed or ascertained in accordance with the terms hereof (and if
required by the Landlord so to do) the Landlord and the Tenant will
execute a separate memorandum specifying the yearly amount of the said
revised rent and all stamp duties (if any) payable in respect thereof
and the cost of registration thereof and of three Extracts ( two being
for the Landlord's purposes) shall be borne and paid for by the
Tenant.
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8. GUARANTOR'S OBLIGATIONS
The Guarantor HEREBY UNDERTAKES to the Landlord and binds and obliges itself
to implement, perform and fulfil the obligations and undertakings set out in
Part 7 of the Schedule.
9. LAW OF SCOTLAND TO APPLY
This Lease shall be interpreted and given effect in accordance with the Law
of Scotland and any dispute, difference or question of any kind which may
arise between the parties shall be determined in accordance with the Law of
Scotland.
10. WARRANDICE
Subject to the terms of this Lease, the Landlord hereby grants warrandice.
11. CERTIFICATE
We certify that there are no Missives of Let (constituting a Lease) to which
this Lease gives effect.
12. CONSENT TO REGISTRATION
The parties consent to registration of this Lease and of any certificate
issued thereunder for preservation and execution: IN WITNESS WHEREOF
<PAGE> 48
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This is the Schedule referred to in the
foregoing Lease among Scottish Mutual
Assurance plc and Exult Limited and
Exult, Inc. in respect of Part First
Floor, 301 St. Vincent Street, Glasgow.
PART 1: PREMISES
lA: THE BUILDING
ALL and WHOLE that area of ground together with the building as the same may
be altered or extended from time to time thereon known as 301 St. Vincent
Street, Glasgow and any other buildings or erections from time to time
thereon all being the subjects registered in the Land Register under Title
Number GLA 370 as the same may be amended from time to time in accordance
with the provisions of this Lease.
lB: PLANS
Site Plan - annexed
Car Park Plan - annexed
L2. Floor Plan - annexed
Ground Floor Plan - annexed
First Floor Plan - annexed
Initial Car Parking Spaces Plan - annexed
1C: THE PREMISES
ALL and WHOLE the premises shown outlined blue and coloured yellow (and in
certain respects hatched green or brown) on the First Floor Plan situated
within part of the Building (herein referred to as "the Premises") and which
expression "the Premises" shall include each and every part of the subjects
hereinbefore described and shall include:-
(i) the non-load bearing walls and partitions and the plasterwork, wall
finishes, wall coverings and surface treatment of all walls and
columns; the suspended ceilings and floor (and the spaces below and
above the same but excluding the beams and slabs and screeding of such
slabs) with the ceiling tiles, carpets and other floor coverings (so
far as not belonging to the Tenant) the windows and other glazing (but
excluding the frames for any of the foregoing); doors and other
entrances; the light fittings; the electricity distribution systems;
first aid and fire fighting equipment; and the Service Systems where
installed solely or used only for the purposes of the Premises, and
(ii) The pertinents of the Premises and all additions, alterations and
improvements to the Premises which may be carried out during the Period
of this Lease and also the Landlord's fixtures and fittings from time
to time in and about the same;
but shall exclude anything within the definition of the Common Parts.
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PART 2: THE MAIN COMMON PARTS
Subject always to the declaration at the end of the definition of "Common
Parts", those parts and pertinents of the Building which are not comprised
exclusively in any Lettable Unit including without prejudice to the foregoing
generality:-
1. the solum on which the Building is erected and the foundations, roof, back,
front and gable walls of the Building, the internal load-bearing walls and
columns (but excluding plasterwork and all other wall finishes and surface
treatment) the beams and ceiling and floor slabs and the screeding of such
slabs, the window and door frames and all other structural parts of the
Building;
2. the boundary walls and fences and all doors, gates and pillars therein of
the said area or piece of ground which forms the Building and is unbuilt
upon and all external areas, roads, footpaths, pavements and lanes so far as
included in or in respect of which the Landlord has a responsibility
therefor in terms of the Land Certificate or title deeds to the Building or
otherwise and all drains, soil and main water supply pipes and all other
common pipes and rhones, conductors, systems, electric mains, cables, wires,
pipes, conduits and gas and waste pipes and sewers of every description
serving inter alia the Building but not any such as serve exclusively any
Lettable Unit;
3. the front and rear steps, light well, the entrance from the street, the
reception area within the ground floor or storey of the Building and any
vestibules or halls, stairs, stairways, passages, corridors, communal doors,
fire escapes, fire fighting appliances, store-rooms, plant-rooms, landscaped
or paved areas, servicing areas, staff accommodation rooms or areas required
for the provision of the Services and toilets or lavatories with the
sanitary apparatus therein (excluding toilets or lavatories which are
exclusively leased to a single tenant) and the carpeting, wall coverings,
plasterwork, glazing and doors within any of the aforesaid but excluding any
of the foregoing exclusively pertaining to or within any Lettable Unit;
4. all other parts of the Building including the Service Systems therein the
use or benefit of which is common to the Premises and to the remainder of
the Building or any part or parts thereof and all other part or parts of the
Building which may from time to time be designated by the Landlord as set
aside for the common use and benefit of the Premises and other parts of the
Building;
<PAGE> 50
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5. the Plant and Equipment;
6. the Service Systems; and
7. any additions to or amendments of the foregoing which are provided or made
by the Landlord acting reasonably except in so far as the same shall pertain
exclusively to a Lettable Unit.
But declaring that there is not included within the Main Common Parts :-
(a) the Computerhall Common Parts; or
(b) anything comprised within Phase 3.
<PAGE> 51
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PART 3: ANCILLARY RIGHTS AND RESERVATIONS
3A: EXCEPTIONS AND RESERVATIONS
1. The free passage of ventilation, heating, water, soil and electricity
and other services in and through the Service Systems in, under, over or
passing through the Premises.
2. The right to enter upon the Premises (including the lift lobbies between
the lifts located between Zone 3 and Zone 4 and thence into the lifts
for the purpose of maintaining or repairing the lifts) at all reasonable
times (upon prior appointment except in the case of emergency) for the
purposes of inspecting, and where necessary cleaning, repairing or
renewing any part of the Building including the Premises themselves the
Service Systems, Plant and Equipment and other of the Common Parts and
including also any repairs, renewals or reinstatement rendered necessary
by an Insured Risk, and for the purpose also of installing new or
additional parts of any of the Common Parts, including Service Systems
and Plant and Equipment and for the purposes of providing the Services
and for all other reasonable purposes pursuant to this Lease and the
right upon giving to the Tenant reasonable notice (except in cases of
emergency) to erect scaffolding on the Building or any part thereof for
the foregoing purposes or any other reasonable purpose; PROVIDED ALWAYS
that the foregoing rights shall be exercisable by the Landlord on
condition that the Landlord makes good as soon as reasonably practicable
all physical damage thereby occasioned to the Premises.
3. The right to take into use all boundary walls of and Service Systems
within the Premises and to build upon, connect with or otherwise use the
same the Landlord making good as soon as reasonably practicable all
physical damage thereby occasioned to the Premises and causing as little
interference as reasonably possible to the Tenant.
4. A right of support, shelter and protection for the adjoining and
adjacent properties from the Premises.
5. The right where it is in the interest of the efficient management of the
Building to regulate and control the use of the Common Parts including
the Plant and Equipment and the Service Systems by making, intimating,
amending and enforcing against the Tenant and all other tenants and
occupiers of the Building, the Management Regulations.
<PAGE> 52
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6. The right to execute such works upon and to the parts of the Building
not included in the Premises (including the airspace above the Premises)
as the Landlord shall determine and in such manner and otherwise as the
Landlord may desire and permit and the right to use the parts of the
Building not included in the Premises in whatever lawful manner the
Landlord may desire and permit and whether or not any amenity at present
appertaining to the Premises shall be lessened or affected in any way
provided that the beneficial use and enjoyment of the Premises is not
materially affected thereby.
7. The right to alter, amend, extend or diminish the Common Parts and to
resume and/or to build upon or rebuild upon any part of the Common Parts
and/or the Building.
8. The right at any time to suspend, temporarily or permanently, any of the
rights of access granted to the Tenant over the Building for the purpose
of executing any works on the same or for any other purpose considered
necessary or desirable by the Landlord and that without any claim
competent against the Landlord at the instance of the Tenant for
compensation or otherwise, provided always that, in the case of
temporary or permanent suspension, suitable and adequate alternative
access is provided.
9. The right of access through and across the Premises for the purposes of
maintenance and security.
10. The right to lead pipes, cables and all other necessary transmitters
through, over, under or across the Premises to provide services to other
parts of the Building.
11. The right of access and egress through the Premises to and from other
parts of the Building for any personnel working in the Building in cases
of emergency.
<PAGE> 53
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12. The right to vary the Service Charge Percentage from time to time
provided that it is reasonable and equitable to do so.
DECLARING that the foresaid rights shall be exercised only after reasonable
prior notice to the Tenant (except in the case of emergency) in such a
manner, in so far as reasonably practical, as to cause a minimum of
inconvenience and disturbance to the Tenant and shall not be exercised in
such a manner as may materially prejudice or interfere with the Tenant's
business or their beneficial use and enjoyment of the Premises, and
declaring further that the Landlord will procure that those exercising the
foresaid rights make good any physical damage to the Premises caused thereby
without delay. To the extent that the foregoing rights include the
installation of items within the Premises or the erection of notices or
scaffolding or others whatsoever in or in the areas adjoining or adjacent to
the Premises the rights may only be exercised after reasonable prior
notification in writing to the Tenant save in emergency of the location of
the items to be installed or notices or scaffolding or others whatsoever.
The foregoing rights may be exercised by entering upon the Premises only if
there is no other reasonably practicable and economic alternative means of
achieving the same purpose without such entry; AND DECLARING FURTHER THAT
none of the foresaid rights or otherwise shall permit the Landlord from (a)
carrying out any works the effect of which would be to raise the height of
Phase 3 above the lower floor slab of the Premises in such a way as would
obscure the windows of the Premises or (b) resuming any part of the Building
and/or the Common Parts if the effect of so doing would materially adversely
affect the Tenant's beneficial use and enjoyment of the Premises or any of
the Pertinents, Rights and Privileges.
<PAGE> 54
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3B: PERTINENTS, RIGHTS AND PRIVILEGES
1. The exclusive right to the use of 13 external parking spaces which are
shown coloured yellow on the Initial Parking Spaces Plan for parking of
private motor vehicles onlyprovided always that the Landlord shall be
entitled to relocate said parking spaces to elsewhere within the Building
by providing no less than 14 days' prior written notice.
2. The free passage of ventilation, heating, water, soil and electricity and
other services in and through that part of the Service Systems serving
inter alia the Premises.
3. The benefit and, where appropriate, use of the Plant and Equipment.
4. The right to support, shelter and protection from the adjoining and
adjacent premises.
5. The right at all times of access and egress to and from the Premises (a)
through the main entrance to the Building wherever situated from time to
time and along the main mall and access corridors, stairs and lifts from
time to time but initially as shown coloured green on the Ground Floor
Plan and the L2. Floor Plan and (b) from and to the Car Park as shown on
the Initial Parking Spaces Plan.
DECLARING that the Tenant and those for whom they are legally responsible
shall be prohibited at all times from entering any Lettable Unit without
prior and specific permission from the Landlord or the party in permitted
occupation of such Lettable Unit.
<PAGE> 55
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PART 4: SERVICES
In this Lease including this Part of the Schedule "Services" means the
following:-
MAINTENANCE AND REPAIR OF COMMON PARTS
1. The maintenance of the Common Parts in good and substantial repair and
condition at all times and for that purpose the repair, maintenance, and
where necessary renewal, rebuilding and reinstatement of the Common Parts
regardless of the age or state of dilapidation of the Building and
irrespective of the cause or extent of the damage or other want of repair
and including any repairs or renewals rendered necessary by latent or
inherent defect.
TITLE DEEDS
2. Complying with the Land Certificate and title deeds relating to the Common
Parts.
PLANT AND EQUIPMENT AND SERVICE SYSTEMS
3. The provision, maintenance and servicing (including the carrying out of
repairs in the nature of maintenance and servicing), operation, management
and insurance of and when necessary cleaning, draining, extending and
renewing or replacing of the Plant and Equipment and the Service Systems;
Declaring that the Landlord will, unless and until the Tenant requires
otherwise, ensure that the passenger lifts located between Zone 3 and Zone 4
do not open so as to provide access to or egress from the Premises.
ELECTRICITY AND WATER
4. The provision of electricity and water to the Premises and to the Common
Parts, at least sufficient for the Tenant's full use of the Premises as good
quality office accommodation and the Common Parts.
EXTERIOR PAINTING ETC.
5. The obligation so often as may in the reasonable opinion of the Landlord be
necessary so as to be kept in a well maintained condition, and in a proper
and
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workmanlike manner to prepare and paint in colours selected by the Landlord
all the metal, cladding and all other exterior parts of the Building as
require to be or have previously been so painted in colours selected by the
Landlord with two coats at least of good quality undercoat paint and one
coat of good quality gloss paint and in the like manner to prepare, clean,
treat and polish and otherwise maintain all the cladding and other parts of
the outside which require to be so cleaned and treated with good quality
materials and also in like manner as often as in the reasonable opinion of
the Landlord shall be reasonably necessary (but not more frequently than
once in every ten years of the foregoing Lease) to stone clean the stonework
and other finishes to the exterior of the Building by such method as shall
be chosen by the Landlord acting reasonably and in particular and (without
prejudice to the generality of this obligation) regularly to clean and treat
in a suitable manner for its maintenance in good condition all the outside
metal and other work not required to be painted or polished and when
necessary to clean all tiles, glazed brick and similar washable surfaces.
INTERNAL PAINTING ETC. OF COMMON PARTS
6. The obligation so often as may in the reasonable opinion of the Landlord be
necessary so as to be kept in a clean and well maintained condition, and in
a proper and workmanlike manner to prepare and paint in colours selected by
the Landlord such of the inside wood, metal and others of the Common Parts
of the Building as shall from time to time require to be painted with one
coat at least of good quality undercoat paint and one coat of good quality
gloss paint and also to whitewash, colourwash, grain, varnish, french or wax
polish, paper and otherwise decorate in a proper and workmanlike manner with
good quality materials such of the internal parts of the Common Parts as
shall from time to time require to be so treated and also to clean and treat
in a suitable manner for its maintenance in good condition all the inside
wood and metal work and polished stone not required to be painted or
polished and when necessary to clean all tiles, marble, glazed brick and
similar washable surfaces as shall from time to time require to be so
treated so as to be kept in a clean and well maintained condition.
MAINTAINING PARTY WALLS, DRAINS. ETC.
7. The payment of such proportion (if any) as the Landlord may be legally
liable to pay of the cost of repairing, maintaining, renewing, and cleansing
the pavements and lane
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ex adverso the Building and all sewers, drains, pipes, watercourses, mutual
structures and other items which may belong to or be used for the Building
in common with other subjects near or adjoining thereto.
REGULAR CLEANING, LIGHTING ETC
8. The regular cleaning, as necessary (and at least once in every calendar
month), of the external faces of all windows and other glasswork of the
Building and the internal and external faces of the atrium, and the internal
faces of all other windows and other glasswork in the Common Parts and, as
may be necessary, keeping cleaned the common entrance steps, entrance way,
doorway, hall, atrium, passages and balconies, the lift, landings and
staircases, and all floor coverings thereof and wall finishes and all other
portions of the Common Parts including the Car Park and external areas and
providing additional lighting apparatus for such of the Common Parts
(whether internal or external) and including the Car Park area as the
Landlord acting reasonably shall from time to time think fit and maintaining
and operating the lighting apparatus provided for the Common Parts including
the Car Park.
PAYMENT OF RATES, ETC.
9. The payment of all rates, taxes, duties, levies, charges, assessments,
impositions and outgoings whatsoever whether parliamentary, regional,
district, parochial, local or of any other description which are now or at
any time hereafter may be taxed, assessed, charged or imposed upon or
payable in respect of the Common Parts.
STATUTORY NOTICES
10. Complying with any statutory or other notice served by a Local or other
competent Authority in connection with the Building or any part thereof
including any such as relate to the Acts of Parliament referred to in Clause
4.13 of this Lease and other fire or health and safety or environmental
legislation, or any order or regulation made thereunder but only where any
obligation to comply is not attributable to an individual tenant or other
occupier in the Building.
<PAGE> 58
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PROVISION OF FACILITIES MANAGEMENT, RECEPTION, SECURITY AND CLEANING STAFF
11. The employment, appointment or provision of such facilities management,
reception, supervisory, security, maintenance, cleaning and other staff in
the Building as the Landlord acting reasonably shall think necessary for the
efficient provision of the Services.
PUBLIC LIABILITY ETC.
12. Insuring in such manner and to the extent that the Landlord shall reasonably
determine the Building in respect of any public liability, and third party
liability of the Landlord and also insuring in the manner and to the extent
foresaid, any risks for which the Landlord may be liable as employer of
persons working on or engaged in relation to the management or maintenance
of the Building.
EQUIPMENT
13. The provision, maintenance, renewal or replacement where necessary of such
equipment, furniture for the reception area, decorative items and others, as
may from time to time, in the reasonable opinion of the Landlord, be
necessary or desirable for the efficient provision of the Services.
PROVISION OF ACCOMMODATION
14. The provision, and where necessary or desirable, the maintenance, repair,
decoration, heating and lighting of accommodation to house equipment,
materials and personnel (during working hours) utilised or employed in the
provision of Services to the Building.
SURVEYOR
15. The appointment of any surveyor or other professional adviser in connection
with the determination of the Full Cost of Reinstatement.
<PAGE> 59
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FIRE FIGHTING SYSTEMS AND EQUIPMENT
16. The provision, purchase, maintenance, testing, servicing and renewal or
replacement where necessary and insurance of fire alarms and firefighting
systems, appliances and equipment for the Common Parts.
SECURITY SYSTEMS AND EQUIPMENT
17. The provision, purchase, maintenance, testing, servicing and renewal or
replacement where necessary and insurance of security alarms and systems for
the Common Parts.
LANDSCAPING
18. The maintenance, repair and if necessary renewal and/or replacement or
replanting of landscaping in unbuilt upon parts of the Building and the
clearing and removal of any rubbish therefrom and keeping the same neat and
tidy.
AIR CONDITIONING
19. The provision to the Premises during Normal Working Hours of air
conditioning and when so requested by the Tenant by 3 p.m. Monday to
Thursday in respect of the following day and by 3 p.m. on Friday in respect
of the following Saturday, Sunday and Monday the provision to the Premises
of air conditioning at any other times.
ADDITIONAL SERVICES
20. The fulfilment of any other obligation or duty in relation to the Common
Parts and/or the provision of any other equipment or service and the
maintenance, repair and where necessary renewal or replacement of such
equipment any of which, it is reasonable for the Landlord to provide for
maintaining and securing the facilities and amenities of the Building as
good quality office accommodation acting in the interests of good estate
management and having due regard to the interests of the tenants in general
within the Building.
<PAGE> 60
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PART 5: SERVICE CHARGE
PAYMENT
1. The Tenant shall pay to the Landlord the Service Charge at the times
provided for in and otherwise in accordance with this Part of the Schedule.
DEFINITIONS
2. In this Part of the Schedule:-
2.1 "Year" means where the context admits the First Year, each consecutive
period beginning on 1 January and ending on 31 December after the
First Year, and the Last Year;
2.2 "First Year" means the period beginning on the Date of Entry and
ending on 3l December immediately succeeding;
2.3 "Last Year" means the period beginning on 1 January immediately prior
to and ending on the expiration or sooner determination of the Period
of this Lease;
2.4 "Service Expenditure (Car Park)" means in relation to any Year the
whole costs, charges, liabilities and other expenditure properly
incurred by the Landlord in or about the provision of the Services or
otherwise in the performance of the obligations undertaken by the
Landlord in Part 4 of the Schedule so far as relating to that part of
the Car Park shown outlined in red and hatched black on the Site Plan
(for as long as and to the extent that the same is used for private
car parking); DECLARING THAT the Service Expenditure (Car Park) shall
exclude to the intent that such excluded items of expenditure shall be
the personal responsibility of the Landlord in questions with the
Tenant, any expenditure or liability or other sum which, but for this
proviso to this Part of the Schedule would fall within the definition
of Service Expenditure (Car Park), but which:-
(a) was incurred to remedy or arose directly or indirectly from damage
or deterioration arising from:-
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(i) any of the Insured Risks save to the extent (i) that the
Building Insurance shall have been rendered void or voidable
or the payment of policy monies refused or withheld in whole
or in part in consequence of any act or default on the part
of the Tenant's foresaids and (ii) of any normal commercial
excess under the Building Insurance;
(ii) any negligent act or omission or any breach of contract by
the Landlord or any other tenant or occupier of part of the
Building or by their respective employees, servants, agents,
contractors or others for whom they are responsible but only
to the extent that they are so negligent or so in breach;
(b) incurred in respect of (i) any rent reviews under leases
of any Lettable Unit or (ii) the default of any other
tenant of a Lettable Unit or other occupier of any part
of the Building;
(c) relate to any Lettable Unit within the Building which is
unlet or unoccupied from time to time;
2.5 "Service Charge" means in relation to any Year the sum which
represents the aggregate of (i) Service Charge (Building) and (ii)
12.50% (or such other percentage as the Landlord may determine
provided that it is reasonable and equitable to do so) of the Service
Expenditure (Car Park) for that Year all calculated and payable by the
Tenant in respect of that Year as set out in this Part of the
Schedule.
2.6 "Service Charge (Building)" means initially the sum calculated with
reference to an annual rate of ONE HUNDRED AND TEN THOUSAND FOUR
HUNDRED AND THIRTY FIVE POUNDS AND FIFTY PENCE (Pound
Sterling110,435.50) STERLING (exclusive of Value Added Tax) per annum
and the Service Charge (Building) in respect of the First Year shall
be a proportionate payment (calculated on an annual/daily basis) for
the period from the Date of Entry until the end of the First Year.
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The said amount of Pound Sterling 110,435.50 shall be increased in
each Year on 1 January by adding to the Service Charge (Building)
payable in respect of the immediately preceding Year a sum calculated
in accordance with the following formula:-
X = A x B - C
-----
C
Where X is the sum to be added to the Service Charge (Building) in
respect of the immediately preceding Year, A is the Service Charge
(Building) in respect of the immediately preceding Year, B is the
Retail Prices Index as at the commencement of the Year for which the
Service Charge (Building) is being calculated and C is the Retail
Prices Index as at the date of commencement of the immediately
preceding Year, and such calculation shall be carried out on a yearly
basis throughout the duration of this Lease.
The Retail Prices Index shall be the general index of retail prices
(all items) as published monthly by HM Government or in the event that
such Retail Prices Index ceases to be published, such Official Index
will be used as the Landlord and the Tenant may agree (both parties
acting reasonably) is reasonably equivalent thereto. In the event that
the product of the foregoing formula is a negative figure, the Service
Charge (Building) shall not be reduced but shall remain at the same
rate as was payable in respect of the said immediately preceding Year.
2.7 "Service Charge Quarter Day" means (but only in respect of the Service
Charge (Building)) the Quarter Days (as defined in the foregoing
Lease) or in substitution any four other days at approximately three
monthly intervals, in any Year as the Managing Agent acting reasonably
in the interest of the efficient management of the Building may from
time to time select and intimate to the Tenant.
PAYMENT
3.1 The Tenant shall pay that part of the Service Charge comprising the
Service Charge (Building) in respect of each Year in quarterly
instalments as follows:
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(a) On the Date of Entry a proportionate payment until the next
succeeding Service Charge Quarter Day and thereafter an equal
quarterly instalment in advance on each succeeding Service Charge
Quarter Day during the First Year;
(b) in respect of each Year (other than the First Year and the Last
Year) an equal quarterly instalment in advance on each Service
Charge Quarter Day;
(c) in respect of the Last Year a proportionate payment from the last
Service Charge Quarter Day until the expiry of the Lease whether
by nature, passage of time or otherwise.
3.2 The Tenant shall pay within fourteen days of receipt of a written
demand therefor that part of the Service Charge comprising 12.50% (or
such other percentage as the Landlord may have determined as
aforesaid) of the Service Expenditure (Car Park) which the Landlord
shall have incurred, the Landlord using all reasonable endeavours so
far as possible to issue such demands within a reasonable period of
time after the Service Expenditure (Car Park) shall have been
incurred.
3.3 As soon as is practicable upon or after the end of each Year there
shall be an accounting for Service Charge (in so far as relating to
the Service Expenditure (Car Park) and, where there has been an error
in the calculation of the Retail Prices Index, the Service Charge
(Building)) in respect of such Year between the parties and any
underpayment or overpayment of Service Charge shall be settled within
14 days from a written demand by a single payment by one party to the
other.
3.4 The provisions of this Part of the Schedule shall continue to apply
notwithstanding the expiration or sooner determination of the Period
of this Lease but only in respect of the period prior to and including
the date of such expiration or sooner determination of the Period of
this Lease.
<PAGE> 64
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PART 6: REFURBISHMENT WORKS
Abbey National House -- Glasgow
Summary of Landlord and Tenant Works to 1st Floor Zones 3 & 4
Index
1. Preambles.
2. Landlord's Works (By Exult on behalf of Landlord) 2.1 Electrical Services.
2.2 Mechanical Services and BMS Installation.
2.3 Toilet Areas.
2.4 Builders Work.
3. Fit-Out Modifications to Accommodate Exult.
3.1 Electrical Services and Data Comms.
3.2 Mechanical Services and BMS Installation.
3.3 Building and General Items.
3.4 Coffee Areas.
3.5 Window Finishes and Blinds.
3.6 General Items.
Summary of Landlord and Tenant Works to 1st Floor Zones 3 & 4
1. Preambles
This document must be read in conjunction with the Landlords Approvals
documents as issued by EIC on behalf of Exult.
All repairs shall match the existing where appropriate using materials and
construction methods to match the original.
All materials are to be the best of their respective kinds fixed and applied
using recognised and approved methods in a correct and workmanlike manner.
The tenant is required to carry out works incidental to and rendered
necessary to comply with the covenants of the Lease whether specifically
scheduled herein or not.
<PAGE> 65
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Where painting, papering or other decorative works are scheduled herein,
they shall include the necessary preparation of surfaces and in the case of
plastered surfaces, cutting out, making good and all stopping as required.
All colours are to be agreed with the Landlord prior to the work being
carried out.
A specification for the works is to be agreed with the Landlord prior to the
works being carried out.
Tenants fixtures, fittings, furniture and appliances are to be removed from
this property as necessary to allow for the execution of the works.
The repair works undertaken are to be specified and completed to the entire
satisfaction of the Landlord.
The Landlord's surveyor reserves the right to add additional items to the
schedule irrespective of when these become apparent and/or where further
exposure or inspection reveals additional repairs to be required.
Clean down all internal surfaces of the property including floor coverings
coving, wall and ceiling surfaces and remove all build-up of grit, debris,
grease, algae, mould or other dirt accumulations.
Clean down all internal door and window ironmongery, leave free from all
dirt accumulations, and paint splashes.
Clean down all sanitary fittings and leave free from marking, discolouration
and disinfect as necessary.
Clean down and overhaul all windows, replacing all defective glazing, putty,
opening mechanisms and leave windows in full working order.
Provide keys for all opening mechanisms.
Overhaul all door ironmongery replacing all defective fittings and leaving
in full work order. Provide keys for all doors.
<PAGE> 66
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2. Landlords Works (by Exult on behalf of Landlord)
2.1 Electrical Services
o Installation of new power supplies for VAV automation.
o New communications cabling for automatic VAV units.
o New containment to house communication cabling.
o Check, test and certify existing electrical services to these zones.
o Re-instate automatic fire alarms and sounders to suit open plan
occupation in full compliance with BS 5839 L1 protection.
o Remove existing and install new circuit wiring and battery packs for
emergency lighting installation to comply fully with BS 5266.
o Remove existing and install new lighting control panels to link to the
current BMS system.
o Install new PIR detection units for lighting control to suit open plan
arrangements.
o Remove existing and install new emergency lighting test facilities.
o Re-test and certify all modified existing lighting circuits.
o Provide new record drawings and electronic data as required.
2.2 Mechanical Services and BMS Installation
o Fit new electronic regulation devices to the existing VAV units.
o Install new PC3 local controllers to communicate with VAV regulators
and local PIR units.
o Link slaves and master units to suit open plan arrangement.
o Re-commission branch ductwork and rebalance the VAV system in both
zones.
o Reconfigure BMS graphics to accommodate new VAV controllers.
2.3 Toilet Areas -- TSZ 3 and 2 toilet Numbers T3, T4, T5, T6 and T7 (see
EIC Drawing Number 500.400)
o Strip out existing services and all partition systems sanitary ware
and pipework.
o Refit toilets with new piped services, new floor finishes, IPS
systems, sanitary ware and lighting.
o Modify existing toilet ventilation and re-commission as necessary.
o Supply and install new sanitary ware and finishes to match existing in
new disabled toilet.
<PAGE> 67
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2.4 Builderswork
Tea Points
o Strip out and replace existing sink unit/kitchen base unit.
o Deep clean and re-grout tiled wall as required.
o Clean, re-level ceiling system and re-lamp all luminaries.
o Deep clean to tiled floor.
o Redecorate.
Windows and Blinds
o Clean glass and frames.
o Overhaul mechanisms and dry clean all perimeter vertical blinds.
Flooring
o Remove existing carpet tiles.
o De-rock all raised floor panels.
o Install new carpets to match second floor specification.
Ceiling
o Replace damaged ceiling tiles and re-level.
o Clean VAV diffusers, ceiling panels and luminaries.
o Re-lamp all luminaries.
Toilets
o Replace damaged ceiling tiles, re-level and clean.
o Replace all existing luminaries with new low energy fittings --
install PIR detection.
o Remove redundant hand dryers and macerators, replace with new matching
wall panels.
o Replace damaged wall panels/IPS components/sanitary ware.
o Lift existing floor coverings with new non-slip material to match
second floor specification.
o Deep clean, repair/replace and re-grout all wall finishes.
<PAGE> 68
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General Decoration
o Repair and redecorate all walls, columns, doors, screens and
skirtings.
o Clean all perimeter heater casings and repair as necessary.
Fire Fighting Equipment
o Re-test and certify as necessary for open plan arrangements.
3. Fit-Out Modifications to Accommodate Exult.
3.1 Electrical Services and Data Comms
o Modify local lighting circuits to suit cellular office layout.
o Install additional local PIR detection and override switches to suit
cellular office layout.
o Remove and replace toilet lighting installation to suit revised
layout.
o Install new hand dryers.
o Install new UPS unit to serve critical services.
o Remove existing lighting troffer and install new decorative lighting
to meeting rooms, team rooms, interview rooms and the upgraded first
floor lobby.
o Remove existing hard wired power systems and data cabling
installations and install a new plug-in busbar to match the existing
building philosphy.
o Install new floor service boxes complete with RCD units in each box.
o Supply and install new additional PC3 outstations to suit subdivision
and all associated wiring.
o Modify Fire Alarm Installation to suit cellular office by installation
of new detectors and sounders as required to meet BS 5839 -- L1
protection.
o Install full Inergen fire suppression system to the data equipment
room -- connect to local alarms only.
o Install new and relocate existing emergency lighting modules to suit
cellular office layouts all to fully comply with BS 5266.
o Modify lighting control panel switching to suit cellular office
layouts.
o Re-configure BMS to suit modifications.
o Install new underfloor data cabling installation to suit tenants
requirements on cable tray containment.
o Install new security access equipment to access doors with
compatibility to the Abbey National Cardkey System.
o Install new intruder alarm to be dedicated to the demised area.
<PAGE> 69
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3.2 Mechanical Services and BMS Installation
o Install new pipework and valves to allow connection to the existing
Abbey National high temperature chilled water system for equipment
room fan coil cooling unit.
o Install new commissioning sets and BMS connection to the fan coil unit
controls.
o Relocate VAV modules to suit cellular office layout including new
connections to the existing supply branch ductwork.
o Install new local space set point adjusters to all cellular offices
and connect to BMS local controllers.
o Modify existing local hot and cold pipework within the demised toilet
areas to suit revised layouts.
o Modify existing above ground drainage system within the demised toilet
areas to suit revised layouts.
o Install new cold water mains pipework to serve new vending areas
located in the open plan office area.
3.3 Building and General Items -- By Exult
Open Plan Office Area
(see EIC Drawing Number 500.100)
o Install cellular office partitioning system complete with solid and
glazing panels as required.
o All partition systems shall be floor to ceiling only except the
data/server room which will be slab to slab.
o Remove existing suspended floor in area designated computer/file
server room -- install new higher suspended floor and ramp system.
3.4 Coffee Areas 1, 2 and 3
(see EIC Drawing Number 500.100)
o Strip out existing tea point services and equipment and refurbish area
complete with new wall units, sink units and various white goods.
Install new water services and drainage to suit.
3.5 Window Finishes and Blinds
o Supply and install new vertical window blinds to match existing in the
open plan area.
<PAGE> 70
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o Install new blackout blinds in the training room in Zone 4.
o Apply opaque window film detail to the atrium and internal glazed
partitions as agreed with Landlord.
3.6 General Items
o Install new tables and chairs to suit current layout.
o Replace damaged floor tiles.
o Install new ceiling tiles into existing grid. New tiles to match
existing Burgess type for the open plan areas and Luxalon type for the
circulation areas.
o Install new satellite dish on roof subject to local authority planning
approvals.
o Install new telephone cabling within existing risers to connect to
external services.
o Electrostatic paint application to existing plant access and riser
doors.
o Installation of electronic computing and audio visual equipment as
required throughout the demised area.
o New Corporate signage to the entrance areas and 1st floor lobby with
Landlord's approvals.
o Demolish internal non-load bearing walls as shown on the plans to
facilitate additional toilet cubicles. Including the creation of new
disabled persons facility.
<PAGE> 71
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PART 7 -- GUARANTEE
THE GUARANTOR, HEREBY binds and obliges itself:-
(1) to the Landlord as cautioners, co-obligants and full debtors for and along
with the Tenant (the expression "THE TENANT" meaning throughout this Part
7 of the Schedule the said Exult Limited and which expression specifically
excludes the successors and assignees of the said Exult Limited) in the
whole of the obligations whatsoever (present and future) undertaken by or
incumbent on the Tenant directly or indirectly under or by virtue of this
Lease (including without prejudice to the generality the payment of all
rents due thereunder from time to time both before and after any reviews
and that whether or not we have been consulted in regard to the same) and
that in all respects: The liability hereby undertaken by us the Guarantor
shall be an independent obligation continuing in force while any liability
or provision under or by virtue of this Lease remains wholly or partially
undischarged or unimplemented by the Tenant and further, notwithstanding
any rule of law or practice to the contrary, shall not be discharged or
otherwise impaired or prejudiced by the Landlord, whether or not we, the
Guarantor shall have been consulted, releasing or giving up any right of
obligation or remedy (present and future) for the indebtedness or
liabilities of the Tenant or giving time or any other indulgence to the
Tenant or otherwise modifying the terms of this Lease;
(2) that (i) in the event of the Tenant going into liquidation, receivership
or administration and the Liquidator, Receiver or Administrator (as the
case may be) not adopting this Lease or (ii) in the event of the Tenant
being struck off by the Registrar of Companies, then and in any such event
we, the Guarantor, shall, if required so to do by the Landlord by written
notice served within six months of the occurrence of any of the above
events, accept, execute and deliver to the Landlord a new lease of the
Premises for the remainder of the intended duration of this Lease (running
said new lease as and from the date of occurrence of the relevant event)
on terms and conditions similar to those contained in this Lease (and, for
the avoidance of doubt, it is hereby declared that the rent provisions in
said new lease shall be a continuation of the rent provisions in this
Lease) and we, the Guarantor, further bind and oblige ourselves as
aforesaid to pay on demand to the Landlord the whole proper and reasonable
legal costs incurred by the Landlord in regard to such new lease and also
the stamp duty and registration or recording dues thereon (including the
cost of three Extracts) (one for the Guarantor);
<PAGE> 72
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(3) Further, the Guarantor in so far as we are not or may in the future not be
subject to the jurisdiction of the Court of Session, hereby prorogate the
jurisdiction of said Court of Session and bind ourselves to submit to the
jurisdiction of the said Court of Session in relation to all actions at
the instance of the Landlord arising out of or in connection with this
Lease and also in relation to all lawful execution which may follow as a
result of the registration of these presents for execution;
(4) The obligations and others undertaken by the Guarantor in terms of the
foregoing provisions of this Part 7 of the Schedule shall be deemed to
have been discharged by the Landlord with effect from the date of entry
under a permitted assignation of this Lease granted by the said Exult
Limited of its interest as Tenant under this Lease and the provisions of
this Part 7 of the Schedule shall thereupon cease to be of effect.
<PAGE> 73
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PART 8 -- LIST OF ASSUMED ELEMENTS OF REFURBISHMENT WORKS FOR RENT REVIEW
Abbey National House -- Glasgow
Index
1. Landlord's Works (By Exult on behalf of Landlord)
1.1 Electrical Services.
1.2 Mechanical Services and BMS Installation.
1.3 Toilet Areas.
1.4 Builders Work.
1. Landlords Works (by Exult on behalf of Landlord)
1.1 Electrical Services
o Installation of new power supplies for VAV automation.
o New communications cabling for automatic VAV units.
o New containment to house communication cabling.
o Check, test and certify existing electrical services to these zones.
o Re-instate automatic fire alarms and sounders to suit open plan
occupation in full compliance with BS 5839 L1 protection.
o Remove existing and install new circuit wiring and battery packs for
emergency lighting installation to comply fully with BS 5266.
o Remove existing and install new lighting control panels to link to
the current BMS system.
o Install new PIR detection units for lighting control to suit open
plan arrangements.
o Remove existing and install new emergency lighting test facilities.
o Re-test and certify all modified existing lighting circuits.
o Provide new record drawings and electronic data as required.
1.2 Mechanical Services and BMS Installation
o Fit new electronic regulation devices to the existing VAV units.
o Install new PC3 local controllers to communicate with VAV regulators
and local PIR units.
<PAGE> 74
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o Link slaves and master units to suit open plan arrangement.
o Re-commission branch ductwork and rebalance the VAV system in both
zones.
o Reconfigure BMS graphics to accommodate new VAV controllers.
1.3 Toilet Areas -- TSZ 3 and 2 Toilet Numbers T3, T4, T5, T6 and
T7 (see EIC Drawing Number 500.400)
o Strip out existing services and all partition systems sanitary ware
and pipework.
o Refit toilets with new piped services, new floor finishes, IPS
systems, sanitary ware and lighting.
o Modify existing toilet ventilation and re-commission as necessary.
o Supply and install new sanitary ware and finishes to match existing
in new disabled toilet.
1.4 Builderwork
Tea Points
o Strip out and replace existing sink unit/kitchen base unit.
o Deep clean and re-grout tiled wall as required.
o Clean, re-level ceiling system and re-lamp all luminaries.
o Deep clean to tiled floor.
o Redecorate.
Windows and Blinds
o Clean glass and frames.
o Overhead mechanisms and dry clean all perimeter vertical blinds.
Flooring
o Remove existing carpet tiles.
o De-rock all raised floor panels.
o Install new carpets to match second floor specification.
Ceiling
o Replace damaged ceiling tiles and re-level.
o Clean VAV diffusers, ceiling panels and luminaries.
o Re-lamp all luminaries.
<PAGE> 75
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Toilets
o Replace damaged ceiling tiles, re-level and clean.
o Replace all existing luminaries with new low energy fittings --
install PIR detection.
o Remove redundant hand dryers and macerators, replace with new
matching wall panels.
o Replace damaged wall panels/IPS components/sanitary ware.
o Lift existing floor coverings and replace with new non-slip material
to match second floor specification.
o Deep clean, repair/replace and re-grout all wall finishes.
General Decoration
o Repair and redecorate all walls, columns, doors, screens and
skirtings.
o Clean all perimeter heater casings and repair as necessary.
Fire Fighting Equipment
o Re-test and certify as necessary for open plan arrangements.
<PAGE> 1
EXHIBIT 10.18
EXULT, INC.
2000 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2000 Stock Incentive Plan is intended to promote the interests
of Exult, Inc., a Delaware corporation, by providing eligible persons in the
Corporation's service with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity incentives
programs:
- 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,
- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,
- 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),
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at
designated intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special stock option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
<PAGE> 2
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, 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 Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any stock option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
2
<PAGE> 3
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or 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. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such 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 under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the 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 for such
shares.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at the time he
or she first becomes a non-employee Board member, but shall be eligible to
receive periodic option grants under the Automatic Option Grant Program while he
or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.
3
<PAGE> 4
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed twenty million
(20,000,000) shares. Such reserve shall consist of (i) the number of shares
estimated to remain available for issuance, as of the Plan Effective Date, under
the Predecessor Plans as last approved by the Corporation's stockholders,
including the shares subject to outstanding options under the Predecessor Plans,
plus (ii) an additional increase of approximately six million five hundred
thousand (6,500,000) shares.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2001, by
an amount equal to five percent (5%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
ten million (10,000,000) shares.
C. No one person participating in the Plan may receive stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than one million (1,000,000) shares of Common Stock in the
aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options (including
options transferred to this Plan from the Predecessor Plan) shall be available
for subsequent issuance under the Plan to the extent (i) those 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 cancelled or repurchased
by the Corporation, at the original 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 available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. However, should the exercise
price of an option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an option or the vesting of a stock issuance under the Plan,
then the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option is exercised
or which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance. Shares of
Common Stock underlying one or more stock appreciation rights exercised under
Section IV of Article Two, Section III of Article Three, Section II of Article
Five or Section III of Article Six of the Plan shall NOT be available for
subsequent issuance under the Plan.
4
<PAGE> 5
E. If any change is 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 by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and exercise
price per share in effect under each outstanding option transferred to this Plan
from the Predecessor Plan and (vi) the maximum number and/or class of securities
by which the share reserve is to increase automatically each calendar year
pursuant to the provisions of Section V.B of this Article One. Such adjustments
to the outstanding options are to be effected in a manner which shall preclude
the enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5
<PAGE> 6
ARTICLE TWO
DISCRETIONARY 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 shall not be less than one hundred percent (100%) 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 Seven
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) 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
(iii) 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
to (a) 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) 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.
6
<PAGE> 7
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. 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) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance or by the Optionee's
designated beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for
Misconduct or should the Optionee otherwise engage in Misconduct while
holding one or more outstanding options under this Article Two, then all
those options shall terminate immediately and cease to be outstanding.
(iv) 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 to the extent the option is not otherwise at
that time exercisable for vested shares.
2. The Plan Administrator shall have complete 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 the Optionee's cessation of Service from
the limited exercise 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
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<PAGE> 8
(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 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 a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. 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. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same restriction, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to Optionee's former spouse, to the extent such assignment is in connection
with the Optionee's estate plan or pursuant to a domestic relations order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
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 Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
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A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. 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 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.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive 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, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option under the Discretionary Option Grant Program shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become exercisable for all the shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully vested shares of Common Stock. However, an
outstanding option shall NOT become exercisable on such an accelerated basis if
and to the extent: (i) such option is, in connection with the Corporate
Transaction, to be assumed by the 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 at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/vesting schedule applicable to those 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 under the Discretionary Option
Grant Program shall automatically terminate, 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 to be 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 under the Discretionary Option Grant
Program shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof).
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<PAGE> 10
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 to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year and (iv) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year. To the extent the actual holders of the Corporation's outstanding Common
Stock receive cash consideration for their Common Stock in consummation of the
Corporate Transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Discretionary Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Corporate Transaction.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon the consummation of such
Corporate Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become exercisable for all the shares of
Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated 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 options are assumed
and do not otherwise accelerate. In addition, the Plan Administrator may
structure one or more of the Corporation's repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.
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G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options 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 Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or a 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 grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
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(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution
from the Corporation in an amount equal to the excess of (a) the Fair
Market Value (on the option surrender date) of the number of shares in
which the Optionee is at the time vested under the surrendered option
(or surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so
approved, then the distribution to which the Optionee shall be entitled
may be made in shares of Common Stock valued at Fair Market Value on the
option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender
each such option to the Corporation. In return for the surrendered
option, the Optionee shall receive a cash distribution from the
Corporation in an amount equal to the excess of (A) the Take-Over Price
of the shares of Common Stock at the time subject to such option
(whether or not the option is otherwise at that time vested and
exercisable for those shares) over (B) the aggregate exercise price
payable for those shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
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(iii)
At the time such limited stock appreciation right is granted,
the Plan Administrator shall pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no
further approval of the Plan Administrator or the Board shall be
required at the time of the actual option surrender and cash
distribution.
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ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Option Grant Program on the first trading day in January of the
calendar year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option 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.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) 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 be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
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<PAGE> 15
A is the dollar amount by which the Optionee's base salary
is to be reduced for the calendar year pursuant to his or her
election under the Salary Investment Option Grant Program, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or the laws of inheritance or by the designated beneficiary
or beneficiaries of the option. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the three (3)-year period measured from the date
of the Optionee's cessation of Service. However, the option shall, immediately
upon the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed shall remain exercisable for the fully vested
shares until the earlier of (i) the expiration of the ten (10)-year option term
or (ii) the expiration of the three (3)-year period measured from the date of
the Optionee's cessation of Service.
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<PAGE> 16
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over while the Optionee
remains in Service, such Optionee shall have a thirty (30)-day period in which
to surrender to the Corporation each outstanding option held by him or her under
the Salary Investment Option Grant Program. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to the surrendered option (whether or not the option is otherwise at the
time exercisable for those shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the surrender of the option to the Corporation. The Primary
Committee shall, at the time the option with such limited stock appreciation
right is granted under the Salary Investment Option Grant Program, pre-approve
any subsequent exercise of that right in accordance with the terms of this
Paragraph C. Accordingly, no further approval of the Primary Committee or the
Board shall be required at the time of the actual option surrender and cash
distribution.
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 the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Salary Investment Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
E. The grant of options under the Salary Investment Option Grant
Program 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.
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<PAGE> 17
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
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<PAGE> 18
ARTICLE FOUR
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. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
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. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
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
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<PAGE> 19
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 the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives 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.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all 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 to be 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 in the Stock Issuance
Agreement.
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<PAGE> 20
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, 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).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, either upon the occurrence of a Change in Control
or upon the subsequent termination of the Participant's Service by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of that Change in Control.
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.
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<PAGE> 21
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase twenty-five thousand (25,000) shares of Common
Stock, provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as a
non-employee Board member, whether or not that individual is standing for
re-election to the Board at that particular Annual Meeting, shall automatically
be granted a Non-Statutory Option to purchase ten thousand (10,000) shares of
Common Stock, provided such individual has served as a non-employee Board member
for at least six (6) months. There shall be no limit on the number of such
10,000-share option grants any one non-employee Board member may receive over
his or her period of Board service, and non-employee Board members who have
previously been in the employ of the Corporation (or any Parent or Subsidiary)
or who have otherwise received one or more stock option grants from the
Corporation prior to the Underwriting Date shall be eligible to receive one or
more such annual option grants over their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each automatic
option grant shall vest, and the Corporation's repurchase right shall
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lapse, in a series of installments over the Optionee's period of continued Board
service as follows: (i) twenty-five percent (25%) of the option shares shall
vest upon the Optionee's completion of one year of service as a Board member
measured from the grant date, and (ii) the balance of the option shares shall
vest in a series of thirty-six (36) successive equal monthly installments upon
the Optionee's completion of each of the next thirty-six (36) months of
continued service as a Board member thereafter.
E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Five may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with the Optionee's estate plan
or pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.
F. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or the designated beneficiary or
beneficiaries of such option) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to
exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time
of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for any or all of those shares as fully
vested shares of Common Stock.
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<PAGE> 23
(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve
(12)-month 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 Board
service for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of a Corporate Transaction while the Optionee
remains a Board member, the shares of Common Stock at the time subject to each
outstanding option held by such Optionee under this Automatic Option Grant
Program but not otherwise vested shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the option shares as fully vested shares
of Common Stock and may be exercised for any or all of those vested shares.
Immediately following the consummation of the Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
B. In the event of a Change in Control while the Optionee remains a
Board member, the shares of Common Stock at the time subject to each outstanding
option held by such Optionee under this Automatic Option Grant Program but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the option shares as fully vested shares of Common Stock and
may be exercised for any or all of those vested shares. Each such option shall
remain exercisable for such fully vested option shares until the expiration or
sooner termination of the option term or the surrender of the option in
connection with a Hostile Take-Over.
C. All outstanding repurchase rights under this under this Automatic
Option Grant Program shall automatically terminate, and the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction or Change in Control.
D. Upon the occurrence of a Hostile Take-Over while the Optionee
remains a Board member, such Optionee shall have a thirty (30)-day period in
which to surrender to the Corporation each of his or her outstanding options
under this Automatic Option Grant Program. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those
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<PAGE> 24
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required at the time of the actual option surrender and
cash distribution.
E. 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 the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Automatic Option Grant Program, substitute one or more shares
of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
F. The grant of options under the Automatic Option Grant Program
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.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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<PAGE> 25
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program. Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the retainer fee election is in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) 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 be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee
subject to the non-employee Board member's election under
this Director Fee Option Grant Program, and
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<PAGE> 26
B is the Fair Market Value per share of Common
Stock on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each calendar month of Board service during the calendar year for
which the retainer fee election is in effect. Each option shall have a maximum
term of ten (10) years measured from the option grant date.
D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Six may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with Optionee's estate plan or
pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Six, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from
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<PAGE> 27
the date of such cessation of Board service. To the extent such option is held
by the Optionee at the time of his or death, that option may be exercised by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully
vested shares until the earliest to occur of (i) the expiration of the ten
(10)-year option term, (ii) the expiration of the three (3)-year period measured
from the date of the Optionee's cessation of Board service or (iii) the
surrender of the option in connection with a Hostile Take-Over.
B. In the event of a Change in Control while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.
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<PAGE> 28
C. Upon the occurrence of a Hostile Take-Over while the Optionee
remains a Board member, such Optionee shall have a thirty (30)-day period in
which to surrender to the Corporation each outstanding option held by him or her
under the Director Fee Option Grant Program. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the option is otherwise at
the time exercisable for those shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.
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 the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Director Fee Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
E. The grant of options under the Director Fee Option Grant Program
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. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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<PAGE> 29
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest-bearing promissory note payable in one or more
installments. 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
such 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. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
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<PAGE> 30
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date, and the initial
option grants under the Automatic Option Grant Program shall also be made on the
Plan Effective Date to any non-employee Board members eligible for such grants
at that time. However, no options 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 Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plans,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plans after the Plan Effective Date. All options outstanding under
the Predecessor Plans on the Plan Effective Date shall be transferred to the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so transferred shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such transferred options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options transferred from
the Predecessor Plans which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) May
31, 2010, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on May 31, 2010, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. 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 stock 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 or regulations.
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<PAGE> 31
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares 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 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.
V. 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.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted 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 stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/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.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under Article Five of the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. 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.
A-1.
<PAGE> 33
G. CORPORATION shall mean Exult, Inc., a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of Exult, Inc. which shall by appropriate action adopt the Plan.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under Article Two of the Plan.
J. 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.
K. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
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 such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market and published in The Wall Street Journal. 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 and published in The Wall Street
Journal. 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) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
A-2.
<PAGE> 34
M. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. 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
bonus 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 by the
Corporation without the individual's consent.
P. 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 in any way preclude or restrict the right of the Corporation (or any
Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other
person in the Service of the Corporation (or any Parent or Subsidiary) for any
other acts or omissions, but such other acts or omissions shall not be deemed,
for purposes of the Plan, to constitute grounds for termination for Misconduct.
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. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
A-3.
<PAGE> 35
T. 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.
U. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED 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 expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
W. PLAN shall mean the Corporation's 2000 Stock Incentive Plan, as
set forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean the date the Plan shall become
effective and shall be coincident with the Underwriting Date.
Z. PREDECESSOR PLANS shall mean (i) the Corporation's 1999 Stock
Option/Stock Issuance Plan, as in effect immediately prior to the Plan Effective
Date hereunder, and (ii) the Corporation's 1999 Special Executive Stock Option
Plan, as in effect immediately prior to the Plan Effective Date hereunder.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
BB. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under Article Three of the Plan.
A-4.
<PAGE> 36
CC. SECONDARY COMMITTEE shall mean a committee of one or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
DD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
EE. SERVICE shall mean the performance of services for 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 or stock issuance.
FF. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
GG. 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.
HH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under Article Four of the Plan.
II. 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.
JJ. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
KK. 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).
LL. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
MM. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
A-5.
<PAGE> 37
NN. WITHHOLDING TAXES shall mean the Federal, state and local income
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
A-6.
<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 fourth amendment to the
registration statement.
/s/ ARTHUR ANDERSEN LLP
- -------------------------------------
Arthur Andersen LLP
Orange County, California
May 4, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Exult, Inc.
As independent public accountants, we hereby consent to the use of our reports
(and all references to our Firm) included in this amendment to the registration
statement.
/s/ VITALE, CATURANO AND COMPANY, P.C.
May 3, 2000
Boston, Massachusetts
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