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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE
ACT OF 1934
Commission File No. 0-28830
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Navigant Consulting, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 36-4094854
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
615 North Wabash Avenue, Chicago, Illinois 60611
(Address of principal executive offices, including zip code)
(312) 573-5600
(Registrant's telephone number, including area code)
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Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
<S> <C>
Common Stock, par value $0.001 per share New York Stock Exchange
Preferred Stock Purchase Rights
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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As of March 6, 2000, 41.1 million shares of the Registrants common stock,
par value $.001 per share ("Common Stock"), were outstanding. The aggregate
market value of shares of Common Stock held by non-affiliates, based upon the
closing sale price of the stock on the New York Stock Exchange on March 6,
2000, was approximately $401.0 million.
The Registrant's Proxy Statement for the Annual Meeting of Stockholders,
scheduled to be held May 30, 2000, is incorporated by reference into Part III
of this Annual Report on Form 10-K.
Statements included in this report which are not historical in nature, are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the Private Securities Litigation Reform Act of 1995. Such
statements appear in a number of places in this report, including, without
limitation, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations." When used in this report, the words
"anticipate," "believe," "intend," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company cautions readers that
forward-looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity, and
income, are subject to certain risks and uncertainties that could cause actual
results to differ materially from those indicated in the forward looking
statements, due to several important factors herein identified, among others,
and other risks and factors identified from time to time in the Company's
reports filed with the SEC. The Company undertakes no obligation to publicly
update or revise any forward-looking statements to reflect current or future
events or circumstances.
2
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PART I
Item 1. Business
General
Navigant Consulting, Inc., formerly The Metzler Group, Inc., ("We" or the
"Company") is a provider of consulting services to electric and gas utilities,
insurance companies and pharmaceutical companies, as well as other Fortune 100
companies. As of December 31, 1999, our services included: management
consulting, strategic consulting, financial and claims services, and economics
and policy consulting. We believe that our experience, reputation, industry
focus and broad range of services will enable us to compete effectively in the
consulting marketplace. Our growth strategy is to:
--Continue to build a complementary spectrum of consulting services;
--Leverage existing relationships and expand our client base in both
domestic and international markets;
--Continue to recruit and retain highly skilled professionals; and
--Continue to acquire consulting companies that provide complementary
services or geographic presence.
Our executive office is located at 615 North Wabash Avenue, Chicago,
Illinois 60611. Our telephone number is (312) 573-5600.
Marketing and Sales
We market our services directly to mid-level and senior executives using a
variety of business development and marketing techniques to communicate
directly with current and prospective clients, including on-site presentations,
industry seminars and industry-specific articles and other publications.
A significant portion of new business arises from prior client engagements.
In addition, we seek to leverage the client relationships of firms we have
acquired by cross-selling existing services. Clients frequently expand the
scope of engagements during delivery to include follow-on complementary
activities. Also, our on-site presence affords us the opportunity to become
aware of, and to help define, additional project opportunities as they are
identified by the client. The client relationships arising out of many
engagements often facilitate our ability to market additional capabilities to
clients in the future.
Human Resources
As of December 31, 1999, we had approximately 2,200 employees. Our success
depends in large part on attracting, retaining and motivating talented,
creative and experienced professionals at all levels. In connection with our
hiring efforts, we employ internal recruiters, retain executive search firms
and utilize personal and business contacts to recruit professionals with
significant utility industry or consulting experience. Our consultants are
drawn from the industries we serve and from accounting and other consulting
organizations. We seek to promote loyalty and continuity of our consultants by
offering packages of base and incentive compensation and benefits that we
believe are attractive and competitive.
We derive our revenues almost exclusively from services performed by our
professional consultants. Our future performance will continue to depend in
large part upon our ability to attract and retain highly skilled professionals
possessing appropriate skills and senior academics with superior professional
reputations. Qualified professional consultants are in great demand and are
likely to remain a limited resource for the foreseeable future. We may not be
able to retain a substantial majority of our existing or future consultants for
the long term. In addition, many of our consultants are not subject to non-
competition or similar restrictions or are subject to such restrictions for
only a limited period of time. The loss of the services of, or the failure to
recruit, a significant number of consultants would adversely affect our ability
to secure and complete engagements and would have a material adverse effect on
our business.
3
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In addition to the employees discussed above, we supplement our consultants
on certain engagements with independent contractors, some of whom are former
employees. We believe that the practice of retaining independent contractors on
a per-engagement basis provides us with greater flexibility in adjusting
professional personnel levels in response to changes in demand for our
services.
Competition
We compete in the worldwide market for consulting services, although our
principal market is North America, which accounted for over 95% of our revenues
in 1999 and 1998. The market for consulting services is intensely competitive,
highly fragmented and subject to rapid change. The market includes a large
number of participants from a variety of market segments, including general
management, information technology, and marketing consulting firms, as well as
the consulting practices of national accounting firms, and other local,
regional, national and international firms. Many of these companies are
national and international in scope and have greater personnel, financial,
technical and marketing resources than we do. We believe that our experience,
reputation, industry focus and broad range of services will enable us to
compete effectively in the consulting marketplace.
Item 2. Properties
Our headquarters are currently located in a 15,000 square foot building in
Chicago, Illinois which we own. In addition to our headquarters, we have
approximately 100 operating leases for office facilities worldwide. Additional
space may be required as our business expands geographically, but we believe we
will be able to obtain suitable space as needed. We have principal offices in
the following cities:
<TABLE>
<S> <C> <C>
Austin, TX Westminster, CO Menlo Park, CA
Baltimore, MD Emeryville, CA New York City, NY
Boston, MA Ft. Lauderdale, FL Princeton, NJ
Burlington, MA Houston, TX Sacramento, CA
Chicago, IL London, England San Francisco, CA
Cleveland, OH Los Angeles,CA Washington, DC
Dallas, TX
</TABLE>
Item 3. Legal Proceedings
Numerous purported class action lawsuits have been filed against the Company
since November 1999 in the United States District Court for the Northern
District of Illinois. These actions name as defendants the Company and certain
former directors and former executive officers (one of whom, however, remains
an employee of the Company) of the Company and are purported to be on behalf of
persons who purchased shares of the Company's common stock during various
periods through November 1999. The complaints allege various violations of
federal securities law, including violations of Section 10(b) of the Securities
Exchange Act of 1934, and that the defendants made materially misleading
statements and/or material omissions which artificially inflated prices for the
Company's common stock. The plaintiffs seek a judgement awarding damages and
other relief. The Company believes it has meritorious defenses and intends to
vigorously defend these actions. The outcome of these lawsuits cannot be
predicted with certainty and a material adverse judgement against the Company
could have a material adverse effect on the Company.
Navigant International, Inc., a national travel agency headquartered in
Denver, Colorado, sued the Company in July 1999 in the United States District
Court for the District of Colorado claiming that the use of "Navigant" in our
name infringes on their use of and rights in such name. The complaint seeks
declaratory relief and an injunction against our use of "Navigant," attorneys'
fees and other related relief. The Company believes it has meritorious defenses
and intends to vigorously defend this action.
During the fourth quarter of 1999 the Company settled a previously disclosed
lawsuit initially brought by the Company against Deborah T. Kearns, Alan G.
Carnrite, the Estate of Laurel Dell Manning, and David R. Watkins, who were the
former shareholders of Sterling Consulting Group, Inc. Ms. Kearns and Mr.
Carnrite
4
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filed a counterclaim asserting various causes of action against the Company and
two of its officers. The lawsuit was settled by payment by the Company of $1.3
million to Ms. Kearns and $0.1 million to Mr. Carnrite, no payment by Ms.
Kearns or Mr. Carnrite and no admission of liability or wrongdoing by any party
in connection with any claims or causes of action in the lawsuit.
In addition, from time to time, we are party to various other lawsuits and
claims in the ordinary course of business. While the outcome of those lawsuits
or claims cannot be predicted with certainty, we do not believe that any of
those lawsuits or claims will have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Executive Officers of the Registrant
At February 1, 2000, the Registrant had the following executive officers:
Mitchell H. Saranow, 54, has served as Chairman of the Board and co-CEO of
the Company since November 1999. He has served as one of our directors since
1996. Mr. Saranow has served as Chairman of The Saranow Group L.L.C. and its
affiliated companies since October 1984. He founded Fluid Management, L.P. in
April 1987 and served as Chairman and Chief Executive Officer until January
1997. Mr. Saranow also serves on the boards of Lawson Products, Mid-Atlantic
CATV, ELF Machinery, L.L.C., and HyperLOCK Technologies.
John J. Reed, 45, has served as Vice-Chairman and co-CEO of the Company
since November 1999. He was appointed a director of the Company on November 21,
1999. Prior to being named Vice-Chairman and co-CEO, Mr. Reed was the Executive
Managing Director of the Company's Management Consulting practice. From 1988
until 1999, Mr. Reed was President of Reed Consulting Group, which the Company
acquired in August 1997.
Carl S. Spetzler, 58, has served as President and co-CEO of the Company
since November 1999. He was appointed a director of the Company on November 21,
1999. Prior to being named President and co-CEO, Dr. Spetzler was the Executive
Managing Director of the Company's Strategic Consulting practice. From 1986
until 1999, Dr. Spetzler was the President of Strategic Decisions Group, which
the Company acquired in February 1999.
James F. Hillman, 42, has served as the Chief Financial Officer and
Treasurer of the Company since December 1999. From May 1999 through November
1999, he was President of Azimuth Consulting LLC. Mr. Hillman had previously
served as the Company's Chief Financial Officer and Treasurer from June 1996
through April 1999. From 1988 until he joined the Company in 1996, he was with
the Ameritech Corporation, most recently as the Chief Financial Officer of
Ameritech Monitoring Services, Inc. Mr. Hillman is a certified public
accountant.
Philip P. Steptoe, 48, has served as the Company's Vice President, Secretary
and General Counsel since February 2000. Previously, Mr. Steptoe was a partner
with the national law firm of Sidley & Austin. During 1994-1995 he served for
four months as Acting General Counsel for Orange and Rockland Utilities, Inc.,
a New York electric and gas utility. Prior to joining Sidley & Austin in 1988,
he was an associate and later a partner in the Chicago law firm of Isham,
Lincoln & Beale.
5
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
The shares of Common Stock of the Company are traded on the New York Stock
Exchange (the "NYSE") under the symbol "NCI."
The following table sets forth, for the periods indicated, the high and low
sale prices per share. Sales prices for periods beginning July 27, 1999 are as
reported on the NYSE Composite Tape. Prior to July 27, 1999 the Company's
Common Stock was traded on the Nasdaq National Market under the symbol "METZ"
and prices for such periods are as as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1999
Fourth quarter................................................ $48.50 $ 8.69
Third quarter................................................. $54.25 $26.13
Second quarter................................................ $36.13 $22.81
First quarter................................................. $52.00 $28.44
1998
Fourth quarter................................................ $49.00 $28.88
Third quarter................................................. $37.75 $27.25
Second quarter................................................ $36.63 $24.25
First quarter................................................. $33.92 $24.00
</TABLE>
Holders
As of March 6, 2000, there were approximately 244 holders of record of
shares of common stock of the Company.
Distributions
The Company has not paid any cash dividends since its organization and does
not anticipate that it will make any such distributions in the foreseeable
future.
Sale of Unregistered Securities
Within the past three years, we have issued the following unregistered
securities:
<TABLE>
<CAPTION>
Type of Number Exemption
Date Securities of Shares Purchaser Consideration(1) Claimed
---- ---------- --------- --------- ---------------- ---------
<C> <C> <C> <C> <S> <C>
January 1, 1997 Common 63,272 Former All Outstanding Section
Stock Stockholders Shares of 4(2)
of L.E.Burgess L.E.Burgess
Consultants, Inc. Consultants, Inc.
July 31, 1997 Common 3,205,767 Former All Outstanding Section
Stock Stockholders Shares of Resource 4(2)
of Resource Management
Management International,
International, Inc.
Inc.
August 15, 1997 Common 777,600 Former All Outstanding Section
Stock Stockholders Shares of Reed 4(2)
of Reed Consulting Consulting Group,
Group, Inc. Inc.
</TABLE>
6
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<TABLE>
<CAPTION>
Type of Number Exemption
Date Securities of Shares Purchaser Consideration(1) Claimed
---- ---------- --------- --------- ---------------- ---------
<C> <C> <C> <C> <S> <C>
December 1, 1997 Common 578,727 Former All Outstanding Section
Stock Stockholders Shares of Sterling 4(2)
of Sterling Consulting Group,
Consulting Inc.
Group, Inc.
December 1, 1997 Common 45,000 Former Section
Stock Stockholders All Outstanding 4(2)
of Reed-Stowe & Shares of Reed-
Co., Inc. Stowe & Co., Inc.
April 3, 1998 Common 137,931 Former All Outstanding Section
Stock Stockholders Shares of AUC 4(2)
of AUC Management Management
Consultants, Inc. Consultants, Inc.
April 3, 1998 Common 51,562 Former All Outstanding Section
Stock Stockholders Shares of 4(2)
of Hydrologic Hydrologic
Consultants Inc. Consultants Inc.
of California. of California.
June 1, 1998 Common 9,200 Former Members of All Membership Section
Stock The VisionTrust Interest of The 4(2)
Marketing Group, VisionTrust
LLC Marketing Group,
LLC
August 31, 1998 Common 5,596,488 Former Members of All Outstanding Section
Stock Peterson Membership 4(2)
Consulting Interest of
LLC Peterson
Consulting LLC
August 31, 1998 Common 616,737 Former Section
Stock Stockholders All Outstanding 4(2)
of Saraswati Shares of
Systems Saraswati Systems
Corporation Corporation
August 31, 1998 Common 103,900 Former All Outstanding Section
Stock Stockholders Shares of Applied 4(2)
of Applied Health Health Outcomes,
Outcomes, Inc. Inc.
February 7, 1999 Common 2,437,223 Former All Outstanding Section
Stock Stockholders Shares of 4(2)
of Strategic Strategic
Decisions Group Decisions Group
March 31, 1999 Common 952,227 Former Section
Stock Stockholders All Outstanding 4(2)
of Triad Shares of Triad
International, International,
Inc. Inc.
March 31, 1999 Common 670,592 Former Section
Stock Stockholders All Outstanding 4(2)
of GeoData Shares of GeoData
Solutions, Inc. Solutions, Inc.
March 31, 1999 Common 234,109 Former All Outstanding Section
Stock Stockholders Shares of Dowling 4(2)
of Dowling Associates, Inc.
Associates, Inc.
</TABLE>
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(1) Does not take into account assumed debt or cash paid to dissenting
shareholders or for fractional shares.
7
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Item 6. Selected Financial Data.
The following financial and operating data should be read in conjunction
with the information set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and related notes thereto appearing elsewhere in this
report.
<TABLE>
<CAPTION>
Years Ended December 31, (1)
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues..................... $397,694 $287,626 $228,731 $181,375 $154,426
Cost of services............. 266,080 174,175 145,144 117,559 99,879
-------- -------- -------- -------- --------
Gross profit................. 131,614 113,451 83,587 63,816 54,547
General and administrative
expenses(2)................. 107,274 62,093 55,579 48,031 53,930
Amortization................. 24,300 -- -- -- --
Merger related
costs and restructuring
charges (benefit)........... (206) 12,778 1,312 -- --
Stock option compensation
expense..................... 3,850 -- -- -- --
-------- -------- -------- -------- --------
Operating income (loss)...... (3,604) 38,580 26,696 15,785 617
Other expense (income),
net(2)...................... 2,191 (2,638) (1,205) 332 (5,270)
-------- -------- -------- -------- --------
Income (loss) before income
tax expense................. (5,795) 41,218 27,901 15,453 5,887
Income tax expense(3)........ 8,827 25,637 9,237 97 480
-------- -------- -------- -------- --------
Net income(loss)............. $(14,622) $ 15,581 $ 18,664 $ 15,356 $ 5,407
======== ======== ======== ======== ========
Net income (loss) per basic
share....................... $ (.35) $ 0.43 $ 0.56 $ 0.47 $ 0.17
======== ======== ======== ======== ========
Net income (loss) per diluted
share....................... $ (.35) $ 0.41 $ 0.55 $ 0.47 $ 0.17
======== ======== ======== ======== ========
<CAPTION>
As of December 31, (1)
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.... $ 42,345 $119,704 $ 45,972 $ 33,859 $ 1,999
Working capital.............. 67,598 146,509 58,708 45,551 11,112
Total assets................. 414,676 230,517 125,827 94,542 52,280
Long-term debt, less current
portion..................... -- -- 319 1,561 1,202
Total stockholders' equity... $300,669 $164,904 $ 69,215 $ 50,686 $ 12,558
</TABLE>
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(1) The amounts above have been restated and reclassified as described in Note 3
of Notes to Consolidated Financial Statements. Certain billable expenses
which had previously been presented net of related revenues have been
reclassified. As a result, both revenue and cost of sales for the years
1998, 1997, 1996 and 1995 have increased by $13.9 million, $12.9 million,
$12.7 million and $13.9 million, respectively.
(2) For the year ended December 31, 1995, general and administrative expenses
include $4.3 million reported by Peterson Consulting LLC for a restructuring
charge related to the settlement of obligations under non-cancelable
operating leases and other moving and transition costs. Other income for the
year ended December 31, 1995 includes an extraordinary gain of $5.7 million
recorded by Peterson in connection with the extinguishment of certain other
debt obligations.
(3) During the periods presented, certain of our operating subsidiaries were
entities not subject to federal income taxation. The provision for income
taxes for the year ended December 31, 1998 reflects a one-time, non-cash
charge of $7.2 million resulting from the conversion of Peterson from the
modified cash basis to the accrual basis for tax purposes.
8
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PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and Results
of Operations relates to the Consolidated Financial Statements included in this
annual report on Form 10-K.
Overview
We are a nationwide provider of consulting services to electric and gas
utilities, insurance companies and pharmaceutical companies, as well as other
Fortune 100 companies. We derive substantially all of our revenues from fees
for professional services. Over the last three years, the substantial majority
of our revenues have been generated under standard hourly or daily rates billed
on a time-and-expenses basis. Our clients are typically invoiced on a monthly
basis with revenue recognized as the services are provided.
Our most significant expenses are project personnel costs, which consist of
consultant salaries and benefits, and travel-related direct project expenses.
We typically employ our project personnel on a full-time basis, although we
supplement our project personnel through the use of independent contractors. We
retain contractors for specific client engagements on a task-specific, per diem
basis during the period their expertise or skills are required. We believe that
retaining contractors on a per-engagement basis provides us with greater
flexibility in adjusting project personnel levels in response to changes in
demand for our services.
Acquisitions
As part of our growth strategy, we expect to continue to pursue
complementary acquisitions to expand our geographic reach, expand the breadth
and depth of our service offerings and enhance our consultant base. In
furtherance of this growth strategy, we acquired twenty-four consulting firms
since our initial public offering in October 1996.
During 1997, we acquired five companies: Resource Management International,
Inc. (RMI), Reed Consulting Group, Inc. (Reed), Sterling Consulting Group, Inc.
(Sterling), Reed-Stowe & Co., Inc. (RSC), and L.E. Burgess Consultants, Inc.
(Burgess). These transactions were accounted for as poolings of interests. The
Company's consolidated financial statements have been restated as if RMI, Reed,
Sterling and RSC had been combined for all periods presented. The stockholders'
equity and the operations of Burgess were not significant in relation to those
of the Company. As such, the Company recorded the Burgess transaction by
restating stockholders' equity as of the date of the acquisition without
restating prior period financial statements.
RMI. As of July 31, 1997, we acquired substantially all of the common stock
of RMI in exchange for 3.2 million shares of our common stock (valued at the
time of closing at approximately $75.3 million) and acquired the remaining
minority interest in exchange for cash. RMI, based in Sacramento, California,
is a provider of consulting services to gas, water, and electric utilities,
with operations in the western and eastern United States and international
marketplace. RMI's broad range of engineering, technical and economic
regulatory services complemented our management consulting and information
technology services.
Reed. As of August 15, 1997, we acquired substantially all of the common
stock of Reed in exchange for 0.8 million shares of our common stock (valued at
the time of closing at approximately $17.6 million) and acquired the remaining
minority interest in exchange for cash. Reed, based in the Boston,
Massachusetts area, provides strategic planning, operations management and
economic and regulatory services to electric and natural gas utilities. Reed's
operations expanded our services and client base in the northeast United States
and internationally.
Other 1997 Acquisitions. We acquired all of the common stock of Burgess as
of January 1, 1997, and all of the common stock of Sterling and of RSC as of
December 31, 1997. In the aggregate for these three transactions, we issued 0.7
million shares of our common stock (valued at the time of closing at
approximately $18.5 million). The consulting operations of these three
companies were complementary to our existing businesses and have been
integrated within the operations of other existing or acquired companies.
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During 1998, we acquired eight companies: LECG, Inc. (LECG), Peterson
Consulting, LLC (Peterson), Saraswati Systems Corporation (SSC), Applied Health
Outcomes, Inc. (AHO), AUC Management Consultants, Inc. (AUC), Hydrologic
Consultants, Inc. of California (HCI), American Corporate Resources, Inc.
(ACR), and The Vision Trust Marketing Group, LLC (VTM). These transactions were
accounted for as poolings of interests. The Company's consolidated financial
statements have been restated as if LECG, Peterson, SSC, AHO, AUC, and HCI had
been combined for all periods presented. The stockholders' equity and the
operations of ACR and VTM were not significant in relation to those of the
Company. As such, the Company recorded the ACR and VTM transactions by restating
stockholders' equity as of the dates of the acquisition without restating prior
period financial statements.
LECG. As of August 19, 1998, we acquired substantially all of the common
stock of LECG in exchange for 7.3 million shares of our common stock (valued at
the time of closing at approximately $228.9 million) and acquired the remaining
minority interest in exchange for cash. LECG, based in the San Francisco,
California area, is a provider of economic consulting and litigation support
services. LECG's operations further increased our economic and regulatory
expertise and expanded our presence in the telecommunications industry.
Peterson. As of August 31, 1998, we acquired substantially all of the common
stock of Peterson in exchange for 5.6 million shares of our common stock
(valued at the time of closing at approximately $156.7 million) and acquired
the remaining minority interest in exchange for cash. Peterson, based in the
Chicago area, is a provider of information management services. Peterson's
operations expanded our service offerings in claims management, litigation
support, and information management.
Other 1998 Acquisitions. We acquired all of the common stock of AUC, HCI,
ACR as of April 3, 1998 and all of the common stock of VTM as of June 1, 1998.
We acquired all of the common stock of SSC and AHO as of September 1, 1998. In
the aggregate for these six transactions, we issued 1.2 million shares of our
common stock (valued at the time of closing at approximately $35.3 million).
The consulting operations of all six companies were complementary to our
existing businesses and have been integrated within the operations of other
existing or acquired companies.
1999 Acquisitions. During 1999, the Company completed eleven acquisitions
(collectively, the "1999 Acquisitions"). The 1999 Acquisitions were accounted
for by the purchase method of accounting and, accordingly, the results of
operations have been included in the consolidated financial statements from the
respective dates of acquisition. On February 7, 1999, the Company issued 2.4
million shares of common stock (valued at the time of closing at approximately
$123.7 million) for substantially all of the outstanding common stock of
Strategic Decisions Group and acquired the remaining minority interest in
exchange for cash. On March 31, 1999, the Company completed the acquisitions of
all of the outstanding stock of Triad International, Inc., GeoData Solutions,
Inc., and Dowling Associates, Inc. in exchange for 1.8 million shares of the
Company's common stock (valued at the time of closing at approximately $57.3
million). On September 30, 1999, the Company completed its acquisition of the
business operations and certain assets of Penta Advisory Services LLC (Penta)
and the stock of Scope International, Inc. (Scope) for a total cash purchase
price of $15.1 million. The purchase agreements for Penta and Scope also
provide for additional payments, payable in cash or Company common stock, over
the next two to five years contingent on future revenue growth and gross margin
targets. The additional payments, if any, will be accounted for as additional
goodwill. On October 1, 1999, the Company completed the acquisition of the
stock of Brooks International AB, Brooks International Consulting OY, and
Brooks International SPRL for an aggregate cash purchase price of $3.3 million.
On November 1, 1999, the Company completed the acquisition of the stock of The
Barrington Consulting Group, Inc. (Barrington) in exchange for $14.4 million in
cash paid at closing and total deferred cash payments of $7.8 million, payable
in two equal annual installments. The purchase agreement for Barrington also
provides for additional cash payments of up to $7.8 million in the aggregate,
which are contingent on continued employment with the Company of certain
Barrington shareholders and are payable in cash in two annual installments. On
December 1, 1999, the Company completed the acquisition of all of the assets of
Glaze Creek Partners, LLC in exchange for $0.8 million in cash. There were no
pre-acquisition intercompany transactions between the Company and the 1999
Acquisitions.
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An inability to effectively integrate the acquisitions or any companies
acquired in the future may adversely affect our ability to bid successfully on
engagements and to grow our business. Performance problems or dissatisfied
clients at one company could have an adverse effect on our reputation as a
whole. If our reputation were damaged, for those or other reasons, this could
make it more difficult to market our services or to acquire additional
companies in the future. In addition, acquired companies may not operate
profitably.
Acquisitions also involve a number of additional risks, including, among
others, the following:
--Diversion of management's attention;
--Potential loss of key clients or personnel;
--Risks associated with unanticipated assumed liabilities and problems;
and
--Risks of managing businesses or entering markets in which we have
limited or no direct expertise.
We expect to continue to acquire companies as an element of our growth
strategy. Acquisitions involve certain risks that could cause our actual
growth to differ from our expectations. For example
--We may not be able to continue to identify suitable acquisition
candidates or to acquire additional consulting firms on favorable
terms.
--We compete with other companies to acquire consulting firms. We cannot
predict whether this competition will increase. If competition does
increase, there may be fewer suitable consulting firms available to be
acquired and the price for suitable acquisitions may increase.
--We may not be able to integrate the operations (accounting and billing
functions, for example) of businesses we acquire to realize the
economic, operational and other benefits we anticipate.
--We may not be able to successfully integrate acquired businesses in a
timely manner or we may incur substantial costs, delays or other
operational or financial problems during the integration process.
--It may be difficult to integrate a business with personnel who have
different business backgrounds and corporate cultures.
Results of Operations
The following table sets forth, for the periods indicated, selected
statement of operations data as a percentage of revenues:
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues.................................................. 100.0% 100.0% 100.0%
Cost of services........................................ 66.9 60.6 63.5
----- ----- -----
Gross profit.............................................. 33.1 39.4 36.5
General and administrative expenses..................... 26.9 21.6 24.3
Amortization expense.................................... 6.1 -- --
Merger-related costs.................................... (0.3) 4.4 0.5
Restructuring and other charges......................... 0.3 -- --
Stock option compensation expense....................... 1.0 -- --
----- ----- -----
Operating income.......................................... (0.9) 13.4 11.7
Other expense (income), net............................. 0.6 (0.9) (0.5)
----- ----- -----
Income before income tax expense.......................... (1.5) 14.3 12.2
Income tax expense...................................... 2.2 8.9 4.0
----- ----- -----
Net income (loss)......................................... (3.7)% 5.4% 8.2%
===== ===== =====
</TABLE>
11
<PAGE>
1999 Compared to 1998
Revenues. Revenues increased $110.1 million, or 38%, to $397.7 million in
the year ended December 31, 1999 from $287.6 million in 1998. The growth in
revenue was primarily due to acquisitions, expansion of services provided to
existing clients, engagements with new clients, and increased selling and
business development efforts. During 1999, the Company made acquisitions
consistent with its strategy of acquiring consulting companies that provide
complementary services or broaden the Company's geographic presence. The 1999
Acquisitions had pre-acquisition revenues for 1999 and 1998 of $39.4 million
and $115.0 million, respectively, which were not included in the Company's
consolidated results of operations. Pro forma revenues, adjusted for the effect
of the 1999 acquisitions, increased $34.4 million, or 9%, to $437.1 million in
the year ended December 31, 1999 from $402.7 million in 1998.
The Company's consolidated 1998 revenues included certain operations which
were not reflected in 1999. The 1998 reported and pro forma revenues include
revenues of $5.3 million related to certain principals who departed from
Peterson in July 1998 and $3.4 million of revenues related to Insurance Data
Resources, Inc., a subsidiary of Peterson, which was disposed of on September
1, 1998. Excluding the effects of the departed principals and the disposed
operations, the revenue increase in 1999 would have been $43.1 million, or 11%,
to $437.1 million from $394.0 million in the prior year. Consulting engagements
with new clients and an increase in the average size of client consulting
engagements contributed $34.6 million and $8.5 million, respectively, of the
$43.1 million of organic revenue growth in 1999.
Gross Profit. Gross profit consists of revenues less cost of services, which
includes consultant compensation and benefits and direct project-related
expenses. Gross profit increased $18.1 million, or 16%, to $131.6 million in
1999 from $113.5 million in 1998. Higher 1999 revenues would have resulted in a
$43.4 million increase in gross profit had 1999 gross profit margins as a
percentage of revenue been consistent with those in 1998. However, the gross
margin in 1999 declined to 33.1% of revenue from 39.4% in 1998. The decline in
gross margin in 1999 was primarily due to higher consultant compensation of
$23.1 million.
General and Administrative Expenses. General and administrative expenses
include facilities costs, salaries and benefits of management and support
personnel, allowances for uncollectible accounts receivable, depreciation
expense, outside professional fees, and all other corporate support costs.
General and administrative expenses for 1999 increased $45.2 million to $107.3
million from $62.1 million in 1998. The $45.2 million increase in general and
administrative expenses in 1999 is comprised of: $10.6 million in facilities
costs, $2.3 million in personnel related expenses, $12.8 million in allowances
for uncollectible accounts receivable, $8.8 million in depreciation expense,
$7.1 million in professional fees, and $3.6 million in other corporate support
costs. In total, general and administrative expenses as a percentage of revenue
increased to 27.0% in 1999 from 21.6% in 1998. This higher level of expenses as
a percentage of revenue in 1999 represents approximately $21.4 million of
growth in expenses in excess of the rate of growth in revenues. The incremental
$21.4 million of general and administrative expenses is the result of $0.9
million in higher facilities costs, $11.8 million in higher allowances for
uncollectible accounts receivable established in the fourth quarter of 1999,
$6.3 million in higher depreciation expense principally from impairments of
certain fixed assets, $5.7 million in higher professional fees primarily
related to litigation, partially offset by $3.3 million in lower personnel
related expenses.
Amortization Expense. The excess of cost over the net assets acquired for
the 1999 Acquisitions of approximately $226.4 million has been recorded as
intangible assets, including goodwill, and is being amortized on a straight-
line basis over 7 years, subject to completion of independent appraisals. The
$24.3 million non-cash expense recorded in 1999 represents the pro rata
amortization from the respective acquisition dates through December 31, 1999.
Amortization would have been approximately $32.4 million had the 1999
Acquisitions occurred as of January 1, 1999.
Merger Related Cost and Restructuring Charges (Benefit). In the third quarter
of 1998, the Company incurred merger-related costs of $12.8 million related to
the acquisitions of LECG and Peterson, which were accounted for as poolings of
12
<PAGE>
interests. These costs included legal, accounting and other transaction related
fees and expenses, as well as accruals to consolidate certain facilities. The
Company has reviewed the merger-related accruals and determined that certain
amounts previously accrued are no longer necessary given subsequent acquisition
activity and changes in the Company's organizational structure. The results of
operations for the year ended December 31, 1999 reflect a benefit of $1.4
million for the reversal of the previously accrued amounts. The Company
recognized $1.2 million of expense in 1999 for employee separations associated
with consolidation of certain accounting and human resources functions. In July
1999, the Company announced a restructuring initiative and offered involuntary
severance packages to 73 employees in the administrative, accounting and human
resources functions.
Stock Option Compensation Expense. The Company recorded $3.5 million for
stock option compensation expense in 1999 attributable to 0.3 million option
grants to a total of sixteen individuals which were issued at prices below fair
market value. The amount charged to expense was calculated using the instrinsic
value method for employees and the Black-Scholes option pricing model for non-
employees and approximates the aggregate dollar amount by which the grant prices
of the options differ from the market prices as of the dates for which the
Company has independent evidence to support the issuance of the options. The
Company recorded an additional $0.4 million of stock option compensation expense
to amortize the value of certain options retained by a former employee upon
separation from the Company.
Other Income (Expense), Net. Other income (expense), net includes interest
expense, interest income and other non-operating income and expenses. For 1999,
the Company incurred a net non-operating expense of $2.2 million, which
represented $4.8 million of net incremental expense from the $2.6 million other
income realized in 1998. The incremental expense was principally the result of
a $5.3 million charge to earnings in 1999 to reflect the likely impairment in
the value of certain loans receivable from shareholders. This incremental
expense was partially offset by higher interest income in 1999.
Income Tax Expense. Income tax expense decreased $16.8 million to $8.8
million for 1999 from $25.6 million in 1998. The Company's results of
operations in 1999 included $24.3 million of non-cash, non-deductible
amortization expenses resulting from the 1999 acquisitions and $3.9 million of
non-cash, non-deductible stock options compensation expense. Excluding the
effect of these non-deductible items, the effective tax rate for 1999 would have
been 39.5%. The Company's effective income tax rate for 1998 would have been
39.8% excluding the effect of the one-time, non-cash charge to income tax
expense of $7.2 million related to the conversion of Peterson from the modified
cash basis to the accrual basis of accounting for tax purposes and the effect of
certain merger-related costs resulting from the mergers completed during the
third quarter of 1998 that are not tax deductible.
Net Income (Loss). The Company's 1999 net loss of $14.6 million represents a
$30.2 million decline from the 1998 net income of $15.6 million. Higher 1999
revenues resulted in a $18.1 million increase in gross profits over the prior
year, which was more than offset by increases of $45.2 million in general and
administrative expense, $24.3 million in amortization expenses, $3.9 million in
stock option compensation expense and $4.8 million of other non-operating
expenses. These expense increases were partially offset by $16.8 million in
lower income tax expenses and $13.0 million in lower merger-related costs.
1998 Compared to 1997
Revenues. Revenues increased $58.9 million, or 26%, to $287.6 million in
1998 from $228.7 million in 1997 due to continued strong demand for management
consulting services, and increased selling and business development efforts.
Selling and business development efforts in support of the Company's strategy to
expand the client base and leverage existing client relationships resulted in
$57.2 million of the incremental $58.9 million 1998 revenues. Engagements with
new clients and an increase in the average size of client engagements
contributed $40.4 million and $16.8 million of that total, respectively.
13
<PAGE>
Gross Profit. Gross profit increased $29.9 million, or 36%, to $113.5
million in 1998 from $83.6 million in 1997. Higher 1998 revenues contributed
$21.5 million of the increase in gross profit. The remaining $8.4 million of
the increase in gross profit reflects an increase in gross profit as a
percentage of revenues to 39.4% in 1998 from 36.5% in 1997. The increase in the
1998 gross profit margin was the result of increased utilization of the
Company's professional consultants coupled with higher average billing rates
and a lower proportion of non-margin billable expenses to fee revenues.
General and Administrative Expenses. General and administrative expenses for
the year ended December 31, 1998 increased $6.5 million, or 12%, to $62.1
million, which represented 21.6% of revenues, compared to $55.6 million, or
24.3% of revenues, in the comparable 1997 period. The increase in general and
administrative costs was primarily due to a $3.3 million increase in facilities
expenses, a $1.8 million increase in administrative salaries, and a $1.3
million increase in incentive compensation. However, these expenses increased
at a slower rate than the Company's revenues and overall volume of business,
resulting in a 2.7% decrease in general and administrative expenses as a
percent of revenue. This improvement is attributable to increased efficiencies
in certain support functions (i.e., human resources, benefits administration
and accounting), improved economies of scale and the closing of certain
duplicate facilities at the beginning of 1998.
Merger-Related Cost and Restructuring Charges. Merger-related costs increased
$11.5 million to $12.8 million in 1998 from $1.3 million in 1997. During 1998,
the Company incurred merger-related costs of $12.8 million related to the
acquisitions of LECG and Peterson, which were accounted for as poolings of
interests. These costs include legal, accounting and other merger-related fees
and expenses, as well as accruals to consolidate certain facilities. In the
prior year period, the Company incurred legal, accounting and other merger-
related fees and expenses of $1.3 million related to the acquisitions of RMI and
Reed, which were accounted for as poolings of interests. The increased direct
merger-related costs in 1998 were the result of the greater size and complexity
of the 1998 transactions.
Other Income, Net. For the fiscal year ended December 31, 1998, other
income, net increased $1.4 million to $2.6 million from $1.2 million for 1997.
This increase was largely the result of higher interest income due to larger
average cash balances outstanding during the period. The larger average cash
balance in 1998 was largely the result of $86.4 million in net proceeds from
two offerings of the Company's common stock supplemented by $21.2 million of
operating cash flows and $10.6 million of cash inflow primarily from employee
stock option exercises. These sources of cash were partially offset by $13.6
million of capital spending, $18.9 million of cash used to acquire certain
minority interests in business combinations, $8.2 million of payments to retire
pre-existing short-term debt of acquired companies, and $6.1 million in
payments of pre-acquisition undistributed earnings of purchased companies.
Income Tax Expense. Income tax expense increased $16.4 million to $25.6
million in 1998 from $9.2 million in 1997. The Company's effective income tax
rate was 62.2% for the year ended December 31, 1998. The effective rate for
this period would have been 39.8%, excluding the effect of the one-time, non-
cash charge to income tax expense of $7.2 million related to the conversion of
Peterson from the modified cash basis to the accrual basis of accounting for
tax purposes and the effect of certain merger-related expenses resulting from
the acquisitions of LECG and Peterson that are not tax deductible. The
Company's effective income tax rate was 33.1% for the year ended December 31,
1997. The effective rate would have been 38.2%, including federal and certain
state income taxes that would have been required had all the Company's
subsidiaries been taxable entities during this period.
Net Income. Net Income decreased approximately $3.1 million to $15.6 million
in 1998 from $18.7 million in 1997. Higher 1998 revenues resulted in a $29.9
million increase in gross profits over the prior year. However, the higher
level of 1998 gross profits was offset by a $6.5 million increase in general
and administrative expenses, a $11.5 million increase in merger-related costs,
and a $16.4 million increase in income tax expense. An increase in other income
in 1998 of $1.4 million accounted for the remainder of the change in net income
between the periods.
14
<PAGE>
Unaudited Quarterly Results
The following table sets forth certain unaudited quarterly operating
information. These data have been prepared on the same basis as the audited
financial statements contained elsewhere in this Form 10-K and include all
normal recurring adjustments necessary for the fair presentation of the
information for the periods presented, when read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto. Results
for any previous fiscal quarter are not necessarily indicative of results for
the full year or for any future quarter.
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. Dec. 31,
1998 1998 1998 1998 1999 1999 30, 1999 1999
-------- -------- --------- -------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $66,134 $70,231 $73,967 $77,294 $84,388 $104,732 $107,452 $101,123
Cost of services........ 41,254 42,254 44,302 46,364 50,418 59,118 61,735 94,809
------- ------- ------- ------- ------- -------- -------- --------
Gross profit............ 24,880 27,977 29,665 30,930 33,970 45,614 45,717 6,314
General and
administrative
expenses............... 16,355 18,232 13,552 13,955 15,343 20,964 21,077 49,890
Amortization expense.... -- -- -- -- 2,800 6,830 6,830 7,840
Merger-related costs and
restructuring charges.. -- -- 12,778 -- -- -- (206) --
Stock option
compensation expense... -- -- -- -- 1,698 532 1,063 557
------- ------- ------- ------- ------- -------- -------- --------
Operating income
(loss)................. 8,525 9,745 3,335 16,975 14,129 17,288 16,953 (51,973)
Other (income) Expense,
net.................... (550) (791) (523) (773) (1,115) (1,037) (1,218) 5,561
------- ------- ------- ------- ------- -------- -------- --------
Income (loss) before
income tax expense..... 9,075 10,536 3,858 17,748 15,244 18,325 18,171 (57,534)
Income tax expense
(benefit).............. 3,773 4,215 10,680 6,968 8,020 10,186 10,310 (19,689)
------- ------- ------- ------- ------- -------- -------- --------
Net income (loss)....... $ 5,302 $ 6,321 $(6,822) $10,780 $ 7,224 $ 8,139 $ 7,861 $(37,845)
======= ======= ======= ======= ======= ======== ======== ========
Net income (loss), per
diluted share.......... $ 0.15 $ 0.17 $ (0.19) $ 0.28 $ 0.17 $ 0.19 $ 0.17 $ (0.91)
======= ======= ======= ======= ======= ======== ======== ========
Diluted shares.......... 36,477 37,752 36,610 39,093 41,786 43,508 45,357 41,798
======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
Revenues and operating results fluctuate from quarter to quarter as a result
of a number of factors, including the significance of client engagements
commenced and completed during a quarter, the number of business days in a
quarter and employee hiring and utilization rates. The timing of revenues
varies from quarter to quarter due to factors such as the Company's sales
cycle, the ability of clients to terminate engagements without penalty, the
size and scope of assignments and general economic conditions. Because a
significant percentage of the Company's expenses are relatively fixed, a
variation in the number of client assignments or the timing of the initiation
or the completion of client assignments can cause significant variations in
operating results from quarter to quarter. Furthermore, the Company has on
occasion experienced a seasonal pattern in its operating results, with a
smaller proportion of the Company's revenues and lower operating income
occurring in the fourth quarter of the year or a smaller sequential growth rate
than in other quarters.
During the quarter ended December 31, 1999, the Company incurred certain
pre-tax expenses which varied significantly from expense levels recorded in
prior interim periods during the year. The aggregate of these expenses amounted
to $62.6 million and consisted of the following: $28.5 million of additional
costs of sales, $28.2 million of incremental general and administrative
expenses, and $5.9 million of other incremental non-operating expenses. The
higher fourth quarter cost of sales was principally due to $26.3 million of
incremental compensation expense accruals to provide for competitive levels of
incentive compensation and promote employee retention. Fourth quarter general
and administrative expenses included the following significant incremental
expenses: $12.8 million of allowances for uncollectible accounts receivable;
$5.5 million of write-downs of certain fixed assets, $5.5 million of
professional fees and other costs related to settlement of certain then
outstanding litigation; $1.2 million of
15
<PAGE>
compensation expense to provide for competitive levels of incentive
compensation and promote employee retention; and $0.5 million of stock option
compensation expense. The increase in non-operating expenses for the fourth
quarter was primarily the result of a loss contingency accrued at December 31,
1999 in the amount of $5.3 million, related to the impairment of notes
receivable from certain former company officers.
The following table sets forth select unaudited quarterly information as
previously reported and as amended. The amended amounts have been restated to
retroactively reflect the results of operations for certain business
combinations completed in 1998 which were accounted for as poolings of
interests. At the respective dates of acquisition, the Company had determined
that the stockholders' equity and the results of operations of these businesses
were not material, individually or in the aggregate, in relation to those of
the Company. As such, the Company had recorded these combinations by restating
stockholders' equity as of the effective date of each acquisition without
restating prior period financial statements. However, based in part on comments
received from the Securities and Exchange Commission, the Company has restated
the financial statements for 1998 to reflect the results of operations of AUC,
HCI, SSC, and AHO.
The amended amounts also incorporate certain reclassifications to conform
the presentation of revenue and cost of sales for 1998 and previously issued
interim 1999 periods to the 1999 presentation. Certain billable expenses which
had previously been presented net of related revenues have been reclassified.
The amended amounts for the first three quarters of 1999 also reflect
adjustments to correct the application of certain accounting principles related
to stock option compensation expense. See also Note 13, "Long-Term Incentive
Plan".
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------------
Mar. June Sept. Dec. Mar.
31, 30, 30, 31, 31, June 30, Sept.
1998 1998 1998 1998 1999 1999 30, 1999
------- ------- ------- ------- ------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue as
previously reported.... $60,809 $64,863 $68,311 $72,894 $82,151 $103,623 $106,185
Retroactive effect of
pooling accounting..... 2,854 2,269 1,721 -- -- -- --
Reclassifications....... 2,471 3,099 3,935 4,400 2,237 1,109 1,267
------- ------- ------- ------- ------- -------- --------
Revenues, as amended.... $66,134 $70,231 $73,967 $77,294 $84,388 $104,732 $107,452
======= ======= ======= ======= ======= ======== ========
Gross profit, as
previously reported.... $24,786 $27,848 $28,991 $30,930
Retroactive effect of
pooling accounting..... 94 129 673 --
------- ------- ------- -------
Gross profit, as
amended................ $24,880 $27,977 $29,664 $30,930
======= ======= ======= =======
Operating income, as
previously reported.... $ 8,899 $10,101 $ 2,909 $16,975 $15,827 $ 17,820 $ 18,016
Retroactive effect of
pooling accounting..... (374) (356) 426 -- -- -- --
Stock option
Compensation expense... -- -- -- -- (1,698) (532) (1,063)
------- ------- ------- ------- ------- -------- --------
Operating income(loss),
as amended............. $ 8,525 $ 9,745 $ 3,335 $16,975 $14,129 $ 17,288 $ 16,953
======= ======= ======= ======= ======= ======== ========
Net income (loss)as
previously reported.... $ 5,658 $ 6,658 (6,973) $10,780 $ 8,922 $ 8,671 $ 8,924
Retroactive effect of
pooling accounting..... (356) (337) 151 -- -- -- --
Stock option
Compensation expense... -- -- -- -- (1,698) (532) (1,063)
------- ------- ------- ------- ------- -------- --------
Net income (loss), as
amended................ $ 5,302 $ 6,321 $(6,822) $10,780 $ 7,224 $ 8,139 $ 7,861
======= ======= ======= ======= ======= ======== ========
Net income (loss) per
share as previously
reported............... $ 0.16 $ 0.18 $ (0.19) $ 0.28 $ 0.21 $ 0.20 $ 0.20
Retroactive effect of
pooling accounting..... (0.01) (0.01) -- -- -- -- --
Stock option
Compensation expense... -- -- -- -- (0.04) (0.01) (0.03)
------- ------- ------- ------- ------- -------- --------
Net income (loss) per
diluted share, as
amended................ $ 0.15 $ 0.17 $ (0.19) $ 0.28 $ 0.17 $ 0.19 $ 0.17
======= ======= ======= ======= ======= ======== ========
Diluted shares, as
previously reported.... 35,566 37,031 36,129
Retroactive effect of
pooling accounting..... 911 721 481
------- ------- -------
Diluted shares, as
amended................ 36,477 37,752 36,610
======= ======= =======
</TABLE>
16
<PAGE>
Liquidity and Capital Resources
Net cash provided by operating activities was $17.4 million for the year
ended December 31, 1999. During the year, the primary sources of cash provided
by operating activities was net income adjusted for non-cash charges of
depreciation, amortization, stockholder notes impairment provision and stock
compensation expense. Net income adjusted for these non-cash charges was $32.5
million. Operating cash flow was also positively affected by increases in
accrued compensation and project costs of $10.6 million and other current
liabilities of $3.4 million. Operating cash flow was negatively affected by the
increase in accounts receivable of $19.5 million, the decrease in income taxes
payable of $13.0 million and the non-cash charge relating to deferred income
taxes of $11.0 million.
The Company used $18.6 million for capital spending to support growth in
personnel and services. These investments included leasehold improvements,
furniture and equipment for new leased facilities, additional computer and
related equipment for information management consulting services and the
purchase and implementation of enterprise financial and project software
system. The Company used $42.1 million in cash during 1999 in conjunction with
the 1999 Acquisitions.
Net cash used in financing activities was $32.5 million in 1999. During the
year, the Company received net cash and related tax benefits of $17.4 million
from transactions related to stock option exercises and employee stock
purchases. In addition, the Company received proceeds of $10.0 million from
borrowings on the line of credit facility. The Company used $40.0 million to
purchase treasury shares in 1999. Borrowing by stockholders used approximately
$17.0 million of funds during the year.
As of December 31, 1999, the Company had no significant commitments for
capital expenditures, except for those related to rental expense under
operating leases and related leasehold improvements. The total amount of
operating lease payments in 2000 is expected to be approximately $15.2 million.
The total amount of capital spending in the year 2000 related to leasehold
improvements is expected to be approximately $6.9 million.
The Company had approximately $42.3 million in cash and cash equivalents at
December 31, 1999, resulting principally from cash flows from operations and
the various public stock offerings during the previous three years. The company
believes that the current cash and cash equivalents, the future cash flows from
operations and the $50 million line of credit facility will provide adequate
cash to fund anticipated short-term and long-term cash needs from normal
operations. In the event the Company were to make significant cash expenditures
in the future for major acquisitions or other non-operating activities, the
Company would seek additional debt or equity financing, as appropriate. The
Company had no plans or intentions for such expenditures as of December 31,
1999.
Recently Issued Financial Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities in June 1998. This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities, It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for fiscal years
beginning after June 15, 1999. The Company does not currently have any
derivative instruments or complete any hedging activities. The adoption of this
standard is not expected to be significant.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
The Company's primary exposure to market risks relates to changes in
interest rates associated with its investment portfolio and its borrowings
under the line of credit. The Company's general investment policy is to limit
the risk of principal loss by limiting market and credit risks. As of December
31, 1999, the Company's investments were primarily limited to fully
collateralized, Double-A or Triple-A rated securities with maturity dates of 90
days or less. If interest rates average 25 basis points less in fiscal year
2000, than they did in 1999, the Company's interest income would be decreased
by $0.1 million. This amount is determined by considering
17
<PAGE>
the impact of this hypothetical interest rate on the Company's investment
portfolio at December 31, 1999. The Company does not expect any loss with
respect to its investment portfolio. The Company's market risk associated with
its line of credit relates to changes in interest rates. Borrowings under the
line of credit bear interest, at the Company's option, based on either the
London Interbank Offered Rate (LIBOR) or the prime rate. If interest rates
average 25 basis points higher in 2000, than they did in 1999, the Company's
interest expense would increase by less than $.1 million. This amount is
determined based on the amount of short-term debt at December 31, 1999. The
Company does not currently have any long-term debt, interest rate derivatives,
forward exchange agreements, firmly committed foreign currency sales
transactions, or derivative commodity instruments.
The Company operates in foreign countries which exposes it to market risk
associated with foreign currency exchange rate fluctuations; however, such risk
is immaterial at this time to the Company's consolidated financial statements.
Item 8. Consolidated Financial Statements and Supplemental Data
The Consolidated Financial Statements of the Company are annexed to the
report as pages F-1 through F-22. An index to such materials appears on page F-
1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
18
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant.
Information required in response to this Item is incorporated by reference
to the Company's definitive proxy statement for the Company's annual meeting of
stockholders scheduled to be held on May 30, 2000, which proxy statement will
be filed with the Commission pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year ended December 31, 1999.
Item 11. Executive Compensation.
Information required in response to this Item is incorporated by reference
to the Company's definitive proxy statement for the Company's annual meeting of
stockholders scheduled to be held on May 30, 2000, which proxy statement will
be filed with the Commission pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year ended December 31, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required in response to this Item is incorporated by reference
to the Company's definitive proxy statement for the Company's annual meeting of
stockholders scheduled to be held on May 30, 2000, which proxy statement will
be filed with the Commission pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year ended December 31, 1999.
Item 13. Certain Relationships and Related Transactions.
Information required in response to this Item is incorporated by reference
to the Company's definitive proxy statement for the Company's annual meeting of
stockholders scheduled to be held on May 30, 2000, which proxy statement will
be filed with the Commission pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year ended December 31, 1999.
19
<PAGE>
Part IV
Item 14 Exhibits, Financial Statements and Reports on Form 8-K
(a) The consolidated financial statements filed as part of this report are
listed in the accompanying Index to Consolidated Financial Statements. The
financial statement schedule filed as part of this report is listed below.
(b) The Registrant filed the following Current Reports on Form 8-K during
the quarter ended December 31, 1999:
(1) A Form 8-K dated November 22, 1999 reporting under Item 5 of Form 8-
K certain changes to the Board of Directors and management of the
Registrant.
(2) A Form 8-K dated December 15, 1999 reporting under Item 5 of Form 8-
K the adoption of a Stockholder Rights Plan and the addition of two
directors to the Board of Directors of the Registrant.
(c) The exhibits filed as part of this report are listed below:
a. Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1* Plan and Agreement of Merger, dated as of February 7, 1999, by and
among the Metzler Group, Inc., MGI Acquistion III, Inc., Strategic
Decisions Group (SDG), and certain SDG Executives
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (1)
3.2 Amendment No. 1 to Amended and Restated Certificate of
Incorporation of the Registrant (2)
3.3 Amendment No. 2 to Amended and Restated Certificate of
Incorporation of the Registrant (3)
3.4 Amended and Restated By-Laws of the Registrant (4)
4.2 Form of Registration Agreement (6)
4.3 Rights Agreement dated as of December 15, 1999 between the
Registrant and American Stock Transfer & Trust Company, as Rights
Agent, (which includes the form of Certificate of Designations
setting forth the terms of the Series A Junior Participating
Preferred Stock as Exhibit A, the form of Rights Certificate as
Exhibit B and the Summary of Rights to Purchase Preferred Stock as
Exhibit C)(7)
10.1+ Form of Indemnification Agreement (5)
10.2*+ The Metzler Group, Inc. Long-Term Incentive Plan
10.3+ The Metzler Group, Inc. Employee Stock Purchase Plan (8)
10.4+ Amendment No. 1 to The Metzler Group, Inc. Employee Stock Purchase
Plan (6)
10.5+ Amendment No. 2 to The Metzler Group, Inc. Employee Stock Purchase
Plan (6)
10.6*+ Amendment No. 3 to The Metzler Group, Inc. Employee Stock Purchase
Plan
10.7*+ Amendment No. 4 to The Metzler Group, Inc. Employee Stock Purchase
Plan
10.8*+ Employment Agreement dated as of November 12, 1999 between the
Registrant and Mitchell H. Saranow
10.9*+ Employment Agreement dated as of November 12, 1999 between the
Registrant and John J. Reed
10.10*+ Employment Agreement dated as of November 12, 1999 between the
Registrant and Carl S. Spetzler
10.11*+ Letter agreement dated February 1, 2000 between the Registrant and
Philip P. Steptoe
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.12*+ Consulting Agreement and General Release dated as of November 21,
1999 between the Registrant and Robert P. Maher
10.13*+ Letter agreement dated February 27, 2000 between the Registrant
and Barry S. Cain
21.1* Significant Subsidiaries of the Registrant.
23.1* Consent of KPMG LLP
23.2 Consent of Arthur Andersen LLP and Report of Independent
Accountants
23.3 Consent of PricewaterhouseCoopers LLP and Report of Independent
Accountants
23.4 Consent of Crowe, Chizek and Company LLP and Report of Independent
Accountants
27.1* Financial Data Schedule--for the period ended December 31, 1999
</TABLE>
- --------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Registration No. 333-9019) filed with the SEC on July 26, 1996
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (Registration No. 333-40489) filed with the SEC on November 18,
1997.
(3) Incorporated by reference from the Registrant's Form 8-A12B filed with the
SEC on July 20, 1999.
(4) Incorporated by reference from the Registrant's Amendment No. 1 to
Registration Statement on Form S-3 (Registration No. 333-40489) filed with
the SEC on February 12, 1998
(5) Incorporated by reference from the Registrant's Amendment No. 2 to
Registration Statement on Form S-1 (Registration No. 333-9019) filed with
the SEC on September 20, 1996.
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.
(7) Incorporated by reference from the Registrant's Current Report on Form 8-K
dated December 15, 1999.
(8) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 (Registration No. 333-30265) filed with the SEC on June 27, 1997.
* Indicates filed herewith.
+ Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K.
b. Financial Statement Schedule:
Report of Independent Auditors
Schedule II: Valuation and Qualifying Accounts
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Navigant Consulting, Inc.
Date: March 28, 2000
By: _________________________________
Mitchell H. Saranow
Chairman and Co-Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman, and Co-Chief March 28, 2000
______________________________________ Executive Officer and
Mitchell H. Saranow Director (Principal
Executive Officer)
Vice Chairman and Co-Chief March 28, 2000
______________________________________ Executive Officer and
John J. Reed Director (Principal
Executive Officer)
Vice Chairman and March 28, 2000
______________________________________ President and Director
Carl S. Spetzler (Principal Executive
Officer)
Chief Financial Officer March 28, 2000
______________________________________ (Principal Financial and
James F. Hillman Accounting Officer)
Director March 28, 2000
______________________________________
William M. Goodyear
Director March 28, 2000
______________________________________
Peter B. Pond
Director March 28, 2000
______________________________________
Samuel K. Skinner
Director March 28, 2000
______________________________________
James R. Thompson
</TABLE>
22
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
Audited Consolidated Financial Statements as of December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999
<TABLE>
<S> <C>
Independent Auditors' Report................................................ 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
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Navigant Consulting, Inc.:
We have audited the accompanying consolidated balance sheets of Navigant
Consulting, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Navigant
Consulting, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The 1998 and 1997 consolidated financial statements have been restated as
discussed in Notes 3 and 4 to the consolidated financial statements. We
previously audited and reported on the consolidated statements of operations,
stockholders' equity and cash flows of Navigant Consulting, Inc. and
subsidiaries for the year ended December 31, 1997, prior to their restatement
for the 1998 poolings of interests, which report was based in part on reliance
of other auditors. The contribution of the Company to combined restated revenues
represented 37 percent; and to combined restated net income represented 52
percent for the year ended December 31, 1997. Separate financial statements of
the other companies included in the 1997 consolidated statements of operations,
stockholders' equity and cash flows were audited and reported on separately by
other auditors. We also audited the combination of the consolidated statements
of operations, stockholders' equity and cash flows for the year ended December
31, 1997, after restatement for the 1998 poolings of interests; in our opinion,
such consolidated statements have been properly combined on the basis described
in Notes 3 and 4 to the consolidated financial statements.
/s/ KPMG LLP
Chicago, Illinois
March 28, 2000
F-2
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.............................. $ 42,345 $119,704
Accounts receivable, net............................... 116,100 80,163
Prepaid and other current assets....................... 7,364 6,979
Income tax receivable.................................. 8,211 --
Deferred income taxes.................................. 2,385 --
-------- --------
Total current assets................................. 176,405 206,846
Property and equipment, net.............................. 33,763 22,197
Intangible assets, net................................... 202,096 --
Other assets............................................. 2,412 1,474
-------- --------
Total assets......................................... $414,676 $230,517
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term debt........................................ $ 10,000 $ --
Accounts payable and accrued liabilities............... 20,709 17,955
Accrued compensation and project costs................. 58,425 28,142
Income taxes payable................................... -- 2,942
Deferred income taxes.................................. -- 2,171
Other current liabilities.............................. 19,673 9,127
-------- --------
Total current liabilities............................ 108,807 60,337
Deferred income taxes.................................... 725 5,276
Other non-current liabilities............................ 4,475 --
-------- --------
Total liabilities.................................... 114,007 65,613
-------- --------
Stockholders' equity:
Preferred stock, $.001 par value; 3,000 shares
authorized; no shares issued or outstanding........... -- --
Common stock, $.001 par value; 75,000 shares
authorized; 43,129 and 38,004 shares issued and
outstanding in 1999 and 1998, respectively............ 43 38
Additional paid-in capital............................. 340,528 134,624
Treasury stock 2,086 shares at December 31, 1999....... (52,811) --
Notes receivable from stockholders..................... (2,583) --
Accumulated other comprehensive income................. (158) (30)
Retained earnings...................................... 15,650 30,272
-------- --------
Total stockholders' equity........................... 300,669 164,904
-------- --------
Total liabilities and stockholders' equity........... $414,676 $230,517
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-3
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues.......................................... $397,694 $287,626 $228,731
Cost of services.................................. 266,080 174,175 145,144
-------- -------- --------
Gross profit.................................... 131,614 113,451 83,587
General and administrative expenses............... 107,274 62,093 55,579
Amortization...................................... 24,300 -- --
Merger related cost and restructuring
charges (benefit)............................... (206) 12,778 1,312
Stock option compensation expense................. 3,850 -- --
-------- -------- --------
Operating income (loss)......................... (3,604) 38,580 26,696
-------- -------- --------
Other expense (income):
Interest income................................. (3,857) (3,063) (1,184)
Interest expense................................ 376 688 446
Other, net...................................... 5,672 (263) (467)
-------- -------- --------
Total other expense (income)................... 2,191 (2,638) (1,205)
-------- -------- --------
Income (loss) before income tax expense........... (5,795) 41,218 27,901
Income tax expense.............................. 8,827 25,637 9,237
-------- -------- --------
Net Income (loss)................................. $(14,622) $ 15,581 $ 18,664
======== ======== ========
Earnings (loss) per share:
Basic........................................... $ (0.35) $ 0.43 $ 0.56
Diluted......................................... $ (0.35) $ 0.41 $ 0.55
Weighted average shares outstanding:
Basic........................................... 41,601 36,476 33,289
Diluted......................................... 41,601 37,707 33,798
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-4
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Notes Accumulated
Stock Common Stock Additional Receivable Other Treasury Stock Total
------------- -------------- Paid-In From Comprehensive Retained ---------------- Stockholders'
Shares Amount Shares Amount Capital Stockholders Income Earnings Shares Amount Equity
------ ------ ------ ------ ---------- ------------ ------------- -------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ -- -- 33,446 $ 34 $ 41,313 $ (3,045) $ 6 $ 12,378 -- $ -- $ 50,686
Comprehensive
income.......... -- -- -- -- -- -- (63) 18,664 -- -- 18,601
Issuance of
common stock.... -- -- 2,043 2 25,412 (87) -- 780 -- -- 26,107
Purchase of
common stock.... -- -- (535) (1) (10,340) 44 -- (228) -- -- (10,525)
Distributions... -- -- -- -- -- (351) -- (16,182) -- -- (16,533)
Interest on
notes receivable
from
stockholders.... -- -- -- -- 195 (195) -- -- -- -- --
Collection of
notes receivable
from
stockholders.... -- -- -- -- -- 879 -- -- -- -- 879
--- --- ------ ---- -------- -------- ----- -------- ------ -------- --------
Balance at
December 31,
1997............ -- -- 34,954 35 56,580 (2,755) (57) 15,412 -- -- 69,215
Comprehensive
income.......... -- -- -- -- -- -- 27 15,581 -- -- 15,608
Issuance of
common stock.... -- -- 3,645 4 96,965 -- -- -- -- -- 96,969
Purchase of
common stock.... -- -- (595) (1) (18,921) -- -- -- -- -- (18,922)
Distributions... -- -- -- -- -- -- -- (721) -- -- (721)
Collection of
notes receivable
from
stockholders.... -- -- -- -- -- 2,755 -- -- -- -- 2,755
--- --- ------ ---- -------- -------- ----- -------- ------ -------- --------
Balance at
December 31,
1998............ -- -- 38,004 38 134,624 -- (30) 30,272 -- -- 164,904
Comprehensive
income (loss)... -- -- -- -- -- -- (128) (14,622) -- -- (14,750)
Issuance of
common stock.... -- -- 5,387 5 215,160 -- -- -- -- -- 215,165
Purchase of
common stock.... -- -- (263) -- (13,335) -- -- -- (2,086) (52,811) (66,146)
Stock option
compensation
expense......... -- -- -- -- 3,850 -- -- -- -- -- 3,850
Issuance of
notes receivable
from
stockholders.... -- -- -- -- -- (20,550) -- -- -- -- (20,550)
Interest on
notes receivable
from
stockholders.... -- -- -- -- 229 (229) -- -- -- -- --
Collection of
notes receivable
from
stockholders.... -- -- -- -- -- 12,929 -- -- 12,929
Impairment of
notes receivable
from
stockholders.... -- -- -- -- -- 5,267 -- -- -- -- 5,267
--- --- ------ ---- -------- -------- ----- -------- ------ -------- --------
Balance at
December 31,
1999............ -- -- 43,129 $ 43 $340,528 $ (2,583) $(158) $ 15,650 (2,086) $(52,811) $300,669
=== === ====== ==== ======== ======== ===== ======== ====== ======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-5
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For The Years Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ (14,622) $ 15,581 $ 18,664
Adjustments to reconcile net income to net
cash providedby operating activities:
Depreciation............................ 13,460 4,876 3,337
Amortization............................ 24,300 -- --
Impairment of stockholder notes......... 5,267 -- --
Stock option compensation expense....... 3,850 -- --
Provision for bad debts................. 14,900 1,094 172
Deferred income taxes................... (10,970) 1,777 2,499
Other non-cash items, net............... 404 (107) (728)
Changes in assets and liabilities, net
of acquisitions:
Accounts receivable................... (19,543) (20,917) (12,339)
Prepaid expenses and other current
assets............................... 1,478 (3,467) (1,292)
Accounts payable and accrued
liabilities.......................... (2,069) 7,291 2,099
Accrued compensation and project
costs................................ 10,591 11,029 134
Income taxes payable.................. (13,023) (858) 2,923
Other current liabilities............. 3,426 4,907 1,353
---------- ---------- ----------
Net cash provided by operating
activities......................... 17,449 21,206 16,822
---------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment...... (18,641) (13,340) (7,871)
Acquisition of businesses, net of cash
acquired............................... (42,055) -- --
Other, net.............................. (1,582) (296) 54
---------- ---------- ----------
Net cash used in investing
activities......................... (62,278) (13,636) (7,817)
---------- ---------- ----------
Cash flows from financing activities:
Issuance of common stock................ 17,387 96,969 26,107
Purchase of common stock................ (40,011) (18,922) (10,525)
Repayment of long-term debt............. (322) (319) (1,550)
Proceeds from long-term debt............ -- -- 3,300
Net repayments of short-term debt....... (2,584) (8,242) (3,007)
Proceeds from short-term debt........... 10,000 -- --
Issuance of notes receivable from
stockholders........................... (17,000) -- --
Payments of pre-acquisition
undistributed income to former
stockholders........................... -- (6,079) (10,121)
Other, net.............................. -- 2,755 (1,096)
---------- ---------- ----------
Net cash (used in )provided by financing
activities............................... (32,530) 66,162 3,108
---------- ---------- ----------
Net (decrease) increase in cash and cash
equivalents.............................. (77,359) 73,732 12,113
Cash and cash equivalents at beginning of
year..................................... 119,704 45,972 33,859
---------- ---------- ----------
Cash and cash equivalents at end of year.. $ 42,345 $ 119,704 $ 45,972
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Navigant Consulting, Inc. (the "Company") is a provider of consulting
services to electric and gas utilities, insurance companies, and pharmaceutical
companies, as well as other Fortune 100 companies. The Company's services
include: management consulting, strategic consulting, financial and claims
services, and economics and policy consulting. The Company is headquartered in
Chicago, Illinois and has regional offices in various cities within the United
States, and several international offices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents are comprised of highly liquid instruments with original
maturities of 90 days or less. The carrying amount of these financial
instruments approximates fair value because of the short maturities.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, ranging from
three to forty years, of the various classes of property and equipment.
Amortization of leasehold improvements is computed over the shorter of the
lease term or the estimated useful life of the asset.
Intangible Assets
Intangible assets consist of identifiable intangibles and goodwill.
Identifiable intangibles include customer lists, workforce in place, knowledge
capital, and non-compete agreements. Intangible assets are being amortized on
the straight-line method over 7 years.
Fair Value of Financial Instruments
The Company considers the recorded value of its financial assets and
liabilities, which consist primarily of cash and cash equivalents, accounts
receivable and accounts payable, to approximate the fair value of the
respective assets and liabilities at December 31, 1999 and 1998.
F-7
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
The Company recognizes revenues as the related services are provided.
Certain contracts are accounted for on the percentage of completion method
whereby revenues are recognized based upon costs incurred in relation to total
estimated costs at completion. Provision is made for the entire amount of
estimated losses, if any, at the time when they are known.
Stock Based Compensation
The Company utilizes the intrinsic value-based method of accounting for its
stock-based compensation arrangements with employees. The Company utilizes the
fair value method of accounting for its stock-based compensation arrangements
with non-employee consultants, advisors, and independent contractors.
Income Taxes
Income taxes are accounted for in accordance with the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Prior to December 18, 1997, one of the Company's subsidiaries, LECG, Inc.
(LECG), had elected to be taxed under Subchapter S of the Internal Revenue Code
for income tax purposes. During such period, federal income taxes were the
responsibility of LECG's stockholders as were certain state income taxes.
Therefore, the financial statements do not include a provision for federal (and
some state) income taxes prior to LECG's initial public offering on December
18, 1997. LECG's S-corporation status terminated on December 18, 1997, thereby
subjecting LECG's income to federal and certain other state income taxes at the
corporate level. Accordingly, LECG applied the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
for the period ended December 31, 1997. In addition, LECG converted from a cash
basis to accrual basis for tax purposes in conjunction with its conversion to a
C-corporation. Due to temporary differences in recognition of revenue and
expenses, income for financial reporting purposes exceeded income for income
tax purposes. The conversion to accrual basis along with these temporary
differences resulted in the recognition of a net deferred tax liability (and a
corresponding one-time charge to expense) of $2.7 million as of December 31,
1997.
Prior to August 14, 1998, another of the Company's subsidiaries, Peterson
Consulting, L.L.C. d/b/a Peterson Worldwide LLC (Peterson) was a limited
liability company, which, for income tax purposes, was treated as a
partnership. Accordingly, the income of Peterson was reported on the individual
income tax returns of its members and federal income taxes, as well as certain
state income taxes, were the responsibility of its members. Subsequent to
August 14, 1998, and based on events unrelated to its acquisition by the
Company, Peterson elected C-corporation status, thereby subjecting its income
to federal and certain state income taxes at the corporate level. As a result
of its acquisition of Peterson, the Company has applied the provisions of SFAS
No. 109, and has converted Peterson from the modified cash basis to the accrual
basis for tax purposes. Due to temporary differences in recognition of revenue
and expense, income for financial reporting purposes has exceeded income for
tax reporting purposes. The conversion to accrual basis, along with these
temporary differences, resulted in the recognition of a one-time, non-cash
charge of $7.2 million to be recorded during the period in which the merger
occurred.
F-8
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings Per Share
The following table set forth the components of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1999 1998 1997
-------- ------- -------
(amounts in thousands)
<S> <C> <C> <C>
Numerator:
Net income (loss)............................... $(14,622) $15,581 $18,664
======== ======= =======
Denominator:
Weighted average shares outstanding............. 41,601 36,476 33,289
Effect of dilutive securities:
Employee stock options.......................... -- 1,231 509
-------- ------- -------
Denominator for diluted earnings per share........ 41,601 37,707 33,798
======== ======= =======
</TABLE>
For the year ended December 31, 1999, the weighted-average effect of
employee stock options was 1.68 million shares. However, the Company incurred a
loss for the period and the effect of these options was anti-dilutive.
Foreign Currency Translation
The balance sheets of the Company's foreign subsidiaries are translated into
U.S. dollars using the year-end exchange rate, and sales and expenses are
translated using the average exchange rate for the year. The resulting
translation gains or losses are recorded as a separate component of
stockholders' equity as other comprehensive income.
F-9
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. RECONCILIATION TO PREVIOUSLY REPORTED AMOUNTS
The following table sets forth select operating information as previously
reported and as amended. The amended amounts have been restated to
retroactively reflect the results of operations for certain business
combinations completed in 1998 and 1997 which were accounted for as poolings of
interests. At the respective dates of acquisition, the Company had determined
that the stockholders' equity and the results of operations of these businesses
were not material, individually or in the aggregate, in relation to those of
the Company. As such, the Company had recorded these combinations by restating
stockholders' equity as of the effective date of each acquisition without
restating prior period financial statements. The Company has restated
the financial statements for 1998 and 1997 to reflect the results of operations
of Sterling Consulting Group, Inc., Reed-Stowe & Co., Inc., AUC Management
Consultants, Inc., Hydrologic Consultants, Inc. of California, Saraswati
Systems Corporation and Applied Health Outcomes, Inc.
The amended amounts also incorporate certain reclassifications to conform
the presentation of revenue and cost of sales for 1998 and 1997 to the 1999
presentation. Certain billable expenses which had previously been presented net
of related revenues have been reclassified.
<TABLE>
<CAPTION>
Years ended
December 31,
------------------
1998 1997
-------- --------
(amounts in
thousands, except
per share amounts)
<S> <C> <C>
Total revenue, as previously reported.................... $266,877 $196,780
Retroactive effect of pooling accounting................. 6,844 19,079
Reclassifications........................................ 13,905 12,872
-------- --------
Total revenue, as amended................................ $287,626 $228,731
======== ========
Gross profit, as previously reported..................... $112,555 $ 81,658
Retroactive effect of pooling accounting................. 896 1,929
Reclassifications........................................ -- --
-------- --------
Gross profit, as amended................................. $113,451 $ 83,587
======== ========
Operating income, as previously reported................. $ 38,884 $ 26,195
Retroactive effect of pooling accounting................. (304) 501
-------- --------
Operating income, as amended............................. $ 38,580 $ 26,696
======== ========
Net Income, as previously reported....................... $ 16,123 $ 18,419
Retroactive effect of pooling accounting................. (542) 245
-------- --------
Net Income, as amended................................... $ 15,581 $ 18,664
======== ========
Earnings per diluted share as previously reported........ $ 0.43 $ 0.57
Retroactive effect of pooling accounting................. (0.02) (0.02)
-------- --------
Earnings per diluted share, as amended................... $ 0.41 $ 0.55
======== ========
Dilutive shares as previously reported................... 37,179 32,288
Retroactive effect of pooling accounting................. 528 1,510
-------- --------
Dilutive shares, as amended.............................. 37,707 33,798
======== ========
</TABLE>
F-10
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. BUSINESS COMBINATIONS
On July 31, 1997, the Company issued 3.2 million shares of common stock for
substantially all the outstanding common stock of Resource Management
International, Inc. (RMI). In connection with the acquisition of RMI, the
Company acquired assets and assumed liabilities with book values of $13.9
million and $11.1 million, respectively. On August 15, 1997, the Company issued
0.8 million shares of common stock for substantially all of the outstanding
common stock of Reed Consulting Group, Inc. (Reed). In connection with the
acquisition of Reed, the Company acquired assets and assumed liabilities with
book values of $2.5 million and $2.5 million, respectively. Additionally, the
Company completed the acquisition of all of the common stock of L.E. Burgess
Consultants, Inc. (Burgess) as of January 1, 1997 and Sterling Consulting
Group, Inc. (Sterling) and Reed-Stowe & Co., Inc. (RSC), as of December 1,
1997. In the aggregate for the Burgess, Sterling and RSC transactions, the
Company issued 0.7 million shares of common stock. In connection with the
acquisitions of Burgess, Sterling and RSC, the Company acquired assets and
assumed liabilities with book values of $0.6 million and $0.9 million,
respectively. All of the 1997 transactions were accounted for as poolings of
interests. There were no pre-acquisition intercompany transactions or
investments among the Company, RMI, Reed, Burgess, Sterling, and RSC. The
Company's consolidated financial statements have been restated as if RMI, Reed,
Sterling and RSC had been combined for all periods presented. The Company's
consolidated statement of operations for the year ended December 31, 1997
includes revenues and net income from RMI, Reed, Sterling and RSC totaling
$35.3 million and $1.5 million, respectively, through the dates of acquisition.
The stockholders' equity and the operations of Burgess were not significant in
relation to those of the Company. As such, the Company recorded the Burgess
transaction by restating stockholders' equity as of the date of the acquisition
without restating prior period financial statements.
On August 19, 1998, the Company issued 7.3 million shares of common stock
for substantially all the outstanding common stock of LECG. In connection with
the acquisition of LECG, the Company acquired assets and assumed liabilities
with book values of $49.8 million and $17.4 million, respectively. On August
31, 1998, the Company issued 5.6 million shares of common stock for
substantially all of the outstanding common stock of Peterson. In connection
with the acquisition of Peterson, the Company acquired assets and assumed
liabilities with book values of $34.8 million and $24.7 million, respectively.
Additionally, the Company completed the acquisitions all of the common stock of
American Corporate Resources, Inc. (ACR), AUC Management Consultants, Inc.
(AUC), and Hydrologic Consultants, Inc. of California (HCI) as of April 3,
1998; The Vision Trust Marketing Group, LLC (VTM) as of June 1, 1998; and
Saraswati Systems Corporation (SSC) and Applied Health Outcomes, Inc. (AHO) as
of September 1, 1998. In the aggregate for the ACR, AUC, HCI, VTM, SSC, and AHO
transactions, the Company issued 1.2 million shares of common stock. In
connection with the acquisitions of ACR, AUC, HCI, VTM, SSC, and AHO, the
Company acquired assets and assumed liabilities with book values of $1.9
million and $1.4 million, respectively. All of the 1998 transactions were
accounted for as poolings of interests. The Company's consolidated financial
statements have been restated as if LECG, Peterson, AUC, HCI, SSC, and AHO had
been combined for all periods presented. The Company's consolidated statement
of operations for the year ended December 31, 1998 and 1997 includes revenues
totaling $104.8 million and $125.7 million, respectively, and net income
totaling $5.5 million and $9.0 million, respectively, from LECG, Peterson, AUC,
HCI, SSC, and AHO, through the dates of acquisition. The stockholders' equity
and the operations of ACR and VTM were not significant in relation to those of
the Company. As such, the Company recorded the ACR and VTM transactions by
restating stockholders' equity as of the date of the acquisition without
restating prior period financial statements.
The Company incurred significant costs and expenses in connection with these
acquisitions, including legal and accounting, and other various expenses. These
costs and expenses were recorded in the consolidated statements of operations
during the third quarter in each of the years 1998 and 1997.
F-11
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1999, the Company completed eleven acquisitions (collectively, the
"1999 Acquisitions") in exchange for Company stock and cash having an aggregate
value of $235.7 million. On February 7, 1999, the Company issued 2.4 million
shares of common stock (valued at the time of closing at approximately $123.7
million) for substantially all of the outstanding common stock of Strategic
Decisions Group, Inc. and acquired the remaining minority interest in exchange
for $13.3 million in cash. On March 31, 1999, the Company completed the
acquisitions of all of the outstanding stock of Triad International, Inc.,
GeoData Solutions, Inc., and Dowling Associates, Inc. in exchange for 1.8
million shares of the Company's common stock (valued at the time of closing at
approximately $57.3 million). On September 30, 1999, the Company completed its
acquisition of the business operations and certain assets of Penta Advisory
Services LLC (Penta) and the stock of Scope International, Inc. (Scope) for a
total cash purchase price of $15.1 million. The purchase agreements for Penta
and Scope also provide for additional payments, payable in cash or Company
common stock, over the next two to five years contingent on future revenue
growth and gross margin targets. The additional payments, if any, will be
accounted for as additional goodwill. On October 1, 1999, the Company completed
the acquisition of the stock of Brooks International AB, Brooks International
Consulting OY, and Brooks International SPRL for an aggregate cash purchase
price of $3.3 million. On November 1, 1999, the Company completed the
acquisition of the stock of The Barrington Consulting Group, Inc. (Barrington)
in exchange for $14.4 million in cash paid at closing and total deferred cash
payments of $7.8 million, payable in two equal annual installments. The
liability related to the deferred cash payments is reflected in the consolidated
balance sheet as of December 31, 1999 as $3.9 million of other current
liabilities and $3.9 million of other non-current liabilities. The purchase
agreement for Barrington also provides for additional cash payments of up to
$7.7 million in the aggregate, which are contingent on continued employment by
the Company of certain Barrington shareholders and are payable in cash in two
annual installments. The contingent payments will be charged to expense ratably
over the period of employment. On December 1, 1999, the Company completed the
acquisition of all of the assets of Glaze Creek Partners, LLC in exchange for
$0.8 million in cash. There were no pre-acquisition intercompany transactions
between the Company and the 1999 Acquisitions.
The 1999 Acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the results of operations have been included in
the accompanying consolidated financial statements from the date of
acquisition. Certain assets acquired of $46.2 million and liabilities assumed
of $36.9 million have been recorded at their estimated fair values. The excess
of cost over the net assets acquired of approximately $226.4 million has been
recorded as intangible assets, including goodwill. The allocation of the excess
cost over the net assets acquired to identifiable intangible assets and goodwill
was based upon independent appraisals, as were the estimated useful lives. The
estimated lives range from between one and 20 years, and approximate, on a
straight-line basis, an average life of 7 years.
The following unaudited pro forma financial information presents the
combined results of operations as if the 1999 Acquisitions had occurred as of
January 1, 1998, after giving effect to certain adjustments. The adjustments
include the amortization of goodwill and other intangibles, a reduction in
interest income and related income tax effects, and an increase in the weighted
average common shares outstanding. The pro forma information is for
informational purposes only. The information presented does not necessarily
reflect the results of operations that would have occurred had the acquisitions
been completed as of January 1, 1998, nor are they indicative of future
results.
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Revenue, in thousands................................... $437,095 $402,664
Net loss, in thousands.................................. (23,600) (17,995)
Net loss per diluted Share.............................. $ (0.52) $ (0.44)
</TABLE>
F-12
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. STOCKHOLDERS' EQUITY
Initial Public Offering
On December 18, 1997, LECG completed an initial public offering, resulting
in net proceeds of approximately $24.4 million, net of issuance costs.
Secondary Public Offering
On March 2, 1998, the Company completed a secondary offering of its common
stock in which an additional 1.5 million shares were sold by the Company,
resulting in net proceeds of approximately $36 million. On November 19, 1998,
the Company completed a secondary offering of its common stock in which an
additional 1.5 million shares were sold by the Company, resulting in net
proceeds of approximately $51 million.
Employee Stock Purchase Plan
During 1996, the Company implemented a plan which permits employees to
purchase shares of the Company's common stock each quarter at 85% of the market
value. The market value for this purpose is determined to be the lower of the
closing market price on the first and last day of each calendar quarter. There
are 450,000 shares authorized for issuance under the plan. The Company had
issued 159,000 shares under the plan through December 31, 1999. As of December
31, 1999, the Company held $0.8 million of withholdings from employees which
were used to purchase approximately 84,000 additional shares under the plan in
January 2000.
Treasury Stock Repurchases
On August 9, 1999, the Company announced that the Board of Directors had
authorized the repurchase of up to 3.0 million shares of the Company's common
stock in open market or in privately negotiated transactions. In August and
September of 1999, the Company repurchased a total of 0.5 million shares for
$18.9 million in privately negotiated transactions. In November 1999, the
Company repurchased 1.0 million shares for $20.8 million in open market
transactions. Also in November 1999, the Company accepted 0.6 million shares
with a then market value of $12.9 million as payment for the principal amount
of certain notes plus accrued interest related to borrowings by Mr. Maher, the
Company's Chairman and Chief Executive Officer at that time. See also Note 17,
"Related Party Transactions".
Shareholder Notes Receivable
At December 31, 1999, the Company held notes receivable from three former
Company officers with an aggregate principal balance of $7.9 million. See also
Note 17, "Related Party Transactions". The notes receivable arose from
transactions whereby these individuals borrowed money from the Company to
purchase a total of 200,000 shares of the Company's common stock from third
parties and 37,500 shares of common stock from the Company. The notes
receivable are shown on the balance sheet as a reduction in stockholders'
equity. The notes receivable were accompanied by pledge agreements which pledge
the shares as collateral security for repayment of the notes, which shares are
currently held by the Company. At the closing market price for the Company's
common stock on December 31, 1999 of $10 7/8 per share, the value of the shares
held as collateral for the notes receivable was approximately $2.6 million.
Although the notes receivable are full recourse, are not due until the year
2002 and there has been no event of default, the Company is not certain that it
will be able to collect the full amount due. In March 2000, the borrowers have
either challenged the
F-13
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
enforceability or declined to confirm their intention to comply with the terms
of the notes and each have refused to provide the Company with personal
financial information that would support their ability to pay the full amounts
due. The Company has accrued a loss contingency at December 31, 1999 in the
amount of $5.3 million, representing the difference between the principal amount
of the notes receivable and the value of the shares held by the Company as
collateral. The $5.3 million was included as a non-operating charge within other
expense in the consolidated statement of operations. The Company intends to take
all appropriate legal steps to enforce the notes in accordance with their terms.
Shareholder Rights Plan
On December 15, 1999, the Company's Board of Directors adopted a
Stockholders Rights Plan (the "Rights Plan") and declared a dividend
distribution of one Right (a "Right") for each outstanding share of common
stock, to stockholders of record at the close of business on December 27, 1999.
Each Right will entitle its holder, under certain circumstances described in
the Rights Agreement, to purchase from the Company one one-thousandth of a
share of its Series A Junior Participating Preferred Stock, $.001 par value,
(the "Series A Preferred Stock"), at an exercise price of $75 per Right,
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between the Company and American
Stock Transfer & Trust Company, as Rights Agent.
Until the Distribution Date under the Rights Agreement, the surrender for
transfer of any shares of common stock outstanding will also constitute the
transfer of the Rights associated with such shares. The Rights are not
exercisable until the Distribution Date and will expire at the close of
business on December 15, 2009, unless earlier redeemed or exchanged by the
Company. The Company may redeem the Rights in whole, but not in part, at a
price of $.01 per Right (subject to adjustment and payable in cash, common
stock or other consideration deemed appropriate by the Company's Board of
Directors) at any time until ten days following the Stock Acquisition Date
under the Rights Agreement. Immediately upon the action of the Company's Board
of Directors authorizing any redemption, the Rights will terminate and the only
right of the holders of Rights will be to receive the redemption price. Until a
Right is exercised, its holder, as such, will have no rights as a stockholder
of the Company, including, without limitation, the right to vote or to receive
dividends.
6. ACCOUNTS RECEIVABLE
The components of accounts receivable as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- -------
(in thousands)
<S> <C> <C>
Billed amounts ........................................... $ 86,849 $60,730
Engagements in process.................................... 45,581 27,559
Allowance for uncollectible accounts...................... (16,330) (8,126)
-------- -------
$116,100 $80,163
======== =======
</TABLE>
Engagements in process represent balances accrued by the Company for
services that have been performed but have not been billed to the customer.
Billings are generally done on a monthly basis for the prior month's services.
F-14
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. PROPERTY AND EQUIPMENT
Property and equipment, at cost, as of December 31 consisted of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Land and buildings....................................... $ 3,421 $ 2,878
Furniture, fixtures and equipment........................ 40,444 27,877
Software................................................. 10,241 5,338
Leasehold improvements................................... 5,714 4,736
-------- --------
59,820 40,829
Less: accumulated depreciation and amortization.......... (26,057) (18,632)
-------- --------
$ 33,763 $ 22,197
======== ========
</TABLE>
In December 1999, the Company made a decision to dispose of its corporate
headquarters land and building and is actively seeking a buyer. At such time,
the Company re-evaluated the carrying amount of the asset and estimated the net
realizable value through an independent appraisal. The Company has recorded
additional depreciation expense of $1.1 million to reflect the impairment in
value.
Based upon a comprehensive review of the Company's long-lived assets, the
Company recorded a non-cash charge to depreciation expense of $3.8 million in
1999. This charge reflects the write-down of a portion of the recorded asset
values of certain computer equipment and software. No additional assets were
deemed to be impaired.
8. INTANGIBLE ASSETS
The excess of the cost of the 1999 Acquisitions over the net assets acquired
of approximately $226.4 million has been recorded as intangible assets,
including goodwill, and is being amortized over the estimated useful lives. The
allocation of the excess of the cost over the net assets acquired to
identifiable intangible assets and goodwill was based upon independent
appraisals, as were the related estimated useful lives. Goodwill and other
intangible assets consisted of the following as of December 31, 1999:(in
thousands)
<TABLE>
<S> <C>
Goodwill........................................................... $ 96,906
Customer lists..................................................... 49,565
Employee workforce................................................. 33,455
Non-compete agreements............................................. 25,570
Other.............................................................. 20,900
--------
226,396
Less: accumulated amortization..................................... (24,300)
--------
Goodwill and intangibles, net...................................... $202,096
========
</TABLE>
The Company periodically examines the carrying value of its goodwill and
other intangible assets to determine whether there are any impairment losses.
If indicators of impairment were present, and future cash flows were not
expected to be sufficient to recover the assets' carrying amount, an impairment
loss would be charged to expense in the period identified. No event has been
identified that would indicate an impairment of the value of the goodwill and
other intangible assets as of December 31, 1999.
F-15
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. SHORT-TERM AND LONG-TERM DEBT
The Company maintains a line of credit agreement in the amount of $50.0
million which expires May 31, 2001. Under the agreement, the Company may borrow
a maximum amount of up to 80% of eligible accounts receivable. The agreement
contains certain covenants, the most restrictive of which require the Company
to maintain a minimum level of earnings before interest, taxes, depreciation
and amortization. The balance outstanding under the line of credit was $10
million at December 31, 1999. At December 31, 1999, the Company had letters of
credit of $2.2 million outstanding. The letters of credit expire at various
dates through July 2003.
At December 31, 1998, The Company had no outstanding short-term debt. The
Company had no long-term debt outstanding as of December 31, 1999 or 1998.
10. MERGER-RELATED COSTS AND RESTRUCTURING CHARGES
The Company recognized $1.2 million of expense in 1999 for employee
separations associated with consolidation of certain accounting and human
resources functions. In July 1999, the Company announced a restructuring
initiative and offered involuntary severance packages to 73 employees in the
administrative, accounting and human resources functions. In 1998, the Company
incurred restructuring charges and merger-related costs of $12.8 million related
to the acquisitions of LECG and Peterson, which were accounted for as poolings
of interests. These costs included legal, accounting and other transaction
related fees and expenses, as well as accruals to consolidate certain
facilities. At December 31, 1999, the Company reviewed the merger-related
accruals and determined that certain amounts previously accrued were no longer
necessary given subsequent acquisition activity and changes in the Company's
organizational structure. The results of operations for 1999 reflect a benefit
of $1.4 million for the reversal of the previously accrued amounts. In 1997, the
Company incurred legal, accounting and other transaction related fees and
expenses of $1.3 million related to the acquisitions of RMI and Reed, which were
accounted for as poolings of interests. During 1999, the Company increased the
accrual for restructuring charges and merger-related costs by $3.0 million
related to the 1999 Acquisitions, which were accounted for under the purchase
method of accounting. These costs were reflected as purchase price adjustments
and, as such, increased the amount of goodwill.
The restructuring charges and merger-related costs were determined based on
formal plans approved by the Company's management using the best information
available at the time. The amounts the Company may ultimately incur may change
as the balance of the Company's initiative to integrate acquired companies is
executed. The activity affecting the accrual for restructuring charges and
merger-related costs during 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Direct
Transaction Facilities Workforce Other
Costs Closings Reductions Costs Total
----- -------- ---------- ----- -----
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Charges to operations 706 -- 330 276 1,312
Utilized (706) -- (330) (276) (1,312)
Year ended December 31, 1998
Charges to operations 7,638 3,600 -- 1,540 12,778
Utilized (4,434) (239) -- (1,655) (6,328)
Year ended December 31, 1999
Charges to operations -- -- 1,160 -- 1,160
Purchase price adjustments 2,425 350 255 -- 3,030
Utilized (4,803) (232) (879) -- (5,914)
Changes in estimates (826) (655) -- 115 (1,366)
--------------------------------------------------------
Balance at December 31, 1999 -- 2,824 536 -- 3,360
========================================================
</TABLE>
11. LEASE COMMITMENTS
The Company leases its office facilities and certain equipment under
operating lease arrangements which expire at various dates through 2012. The
Company leases office facilities under noncancelable operating leases which
include fixed or minimum payments plus, in some cases, scheduled base rent
increases over the term of the lease and additional rents based on the Consumer
Price Index. Certain leases provide for monthly payments of real estate taxes,
insurance and other operating expenses applicable to the property. In addition,
the Company leases equipment under noncancelable operating leases.
Future minimum annual lease payments, for the years subsequent to 1999 and
in the aggregate, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ --------------
(in thousands)
<S> <C>
2000........................................................ $ 15,241
2001........................................................ 16,312
2002........................................................ 13,965
2003........................................................ 11,539
2004........................................................ 8,710
Thereafter.................................................. 39,439
--------
$105,206
========
</TABLE>
Rent expense for operating leases entered into by the Company and charged to
operations amounted to $15.8 million for 1999, $10.0 million for 1998, and $9.8
million for 1997.
F-16
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. INCOME TAX EXPENSE
Income tax expense consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998 1997
------- ------- ------
(in thousands)
<S> <C> <C> <C>
Federal:
Current........................................ $14,186 $20,180 $5,264
Deferred....................................... (7,391) 1,600 2,648
------- ------- ------
Total........................................ 6,795 21,780 7,912
------- ------- ------
State:
Current........................................ 3,272 3,461 1,392
Deferred....................................... (1,716) 396 (67)
------- ------- ------
Total........................................ 1,556 3,857 1,325
------- ------- ------
Foreign.......................................... 476 -- --
------- ------- ------
Total federal, state and foreign income tax
expense..................................... $8,827 $25,637 $9,237
======= ======= ======
Income tax expense differs from the amounts estimated by applying the
statutory income tax rates to income before income tax expense as follows:
<CAPTION>
December 31,
------------------------
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Federal tax at statutory rate.................... 35.0% 35.0% 35.0%
State tax at statutory rate, net of federal tax
benefits........................................ (17.8) 7.3 4.6
Foreign taxes.................................... (8.2) -- --
Effect of nontaxable interest and dividends...... 12.5 (1.7) (0.9)
Effect of nontaxable entity status............... -- -- (5.2)
Effect of non-deductible merger-related costs.... (1.0) 4.0 --
Effect of non-deductible amortization............ (139.2) -- --
Effect of non-deductible stock compensation
expense......................................... (23.3) -- --
Effect of conversion from cash to accrual method
of accounting for acquired company.............. -- 14.7 --
Effect of other non-deductible expenses.......... (10.4) 2.9 (0.4)
------- ------- ------
(152.4)% 62.2% 33.1%
======= ======= ======
</TABLE>
The tax benefits associated with nonqualified stock options and
disqualifying dispositions of incentive stock options reduced taxes payable by
$4.9 million in 1999 and $3.3 million in 1998. Such benefits were recorded as
an increase to additional paid-in capital in each year.
F-17
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes result from temporary differences between years in the
recognition of certain expense items for income tax and financial reporting
purposes. The source and income tax effect of these differences are as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------ -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
State income taxes.......................................... $ (121) $ 479
Allowance for uncollectible receivables..................... 4,379 194
Merger-related costs........................................ -- 1,427
Stockholders' notes......................................... 2,239 --
Insurance related costs..................................... 865 --
Other....................................................... 202 315
------ -------
Total deferred tax assets..................................... 7,564 2,415
------ -------
Deferred tax liabilities:
Adjustment resulting from changes in the method of
accounting used for tax purposes........................... 6,435 9,136
Other....................................................... (531) 726
------ -------
Deferred tax liabilities...................................... 5,904 9,862
------ -------
Net deferred tax assets (liabilities)......................... $1,660 $(7,447)
====== =======
</TABLE>
The Company has not recorded a valuation allowance as it believes it is more
likely than not that the net deferred tax asset is recoverable.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Total interest paid during the years ended December 31, 1999, 1998 and 1997
were $0.4 million, $0.7 million, and $0.3 million, respectively. Total income
taxes paid during the years ended December 31, 1999, 1998 and 1997 were $27.6
million, $17.7 million, and $3.5 million, respectively.
During the first quarter of 1999, the Company issued 4.2 million shares of
common stock (valued at the time at approximately $181.0 million) for
substantially all of the outstanding common stock of four companies acquired in
transactions accounted for by the purchase method of accounting. In addition to
the $42.1 million of cash used to acquire certain businesses during 1999, the
Company entered into commitments for deferred cash payments of $7.8 million,
payable in two equal annual installments. See also Note 4, "Business
Combinations".
In April 1999, certain of the Company's then officers borrowed $3.5 million
from the Company to exercise certain then-vested options. In November 1999, the
Company received 605,684 shares of the Company's common stock, with a then
market value of $12.9 million, in lieu of cash as payment for the principal
amount of certain loans plus accrued interest. See also Note 17, "Related Party
Transactions".
14. LONG-TERM INCENTIVE PLAN
On June 30, 1996, the Company adopted a Long-Term Incentive Plan which
provides for common stock, common stock-based, and other performance incentives
to employees, consultants, directors, advisors, and independent contractors of
the Company. The Long-Term Incentive Plan, as amended, was re-approved by a
vote of the Company's shareholders in July 1999. As of December 31, 1999, the
Company had 8.2 million options outstanding at a weighted average exercise
price of $29.15 per share. As of December 31, 1999, 0.7 million options were
exercisable.
F-18
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In general, options issued under the Long Term Incentive Plan were issued at
the fair market value at the dates of grant, have a ten-year term and become
vested and thus exercisable in annual installments over a four year period
following the date of grant. However, the plan permits the Compensation
Committee, or the chief executive officer as its delegate, to vary such terms
and conditions, including granting nonqualified options at prices below fair
market value at the date of grant. The Company has determined, based in part on
the absence of contemporaneous documentation, that 0.3 million nonqualified
options issued to a total of sixteen individuals were issued at prices below
fair market value. Accordingly, the Company has recorded an expense in 1999 of
$3.5 million for stock option compensation expense attributable to such options.
The amount charged to expense represents the aggregate dollar amount by which
the grant prices of the options differ from the market prices as of the dates
for which the Company has independent evidence to support the issuance of the
options. The amount charged to expense has been amortized over the relevant
vesting periods. See also Note 17, "Related Party Transactions."
The Company applies APB Opinion 25, Accounting for Stock Issued to
employees, and related Interpretations in accounting for its plan. Accordingly,
no compensation cost has been recognized for those option grants where the
exercise price is equal to the fair market value at the date of grant. Had
compensation cost for the plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the method of SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's compensation
expense for the years ended December 31, 1999, 1998 and 1997 would have been
increased by $18.3 million, $4.6 million, and $1.1 million, respectively, net of
related income taxes. As a result, the Company's pro forma net earnings
available to common stockholders and earnings per common and common equivalent
shares would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Earnings, as reported:
Net income (loss) ........... $(14,622) $15,581 $18,664
Net income (loss) per basic
share....................... $ (0.35) $ 0.43 $ 0.56
Net income (loss) per
dilutive share.............. $ (0.35) $ 0.41 $ 0.55
Earnings, fair value method:
Net income (loss), with
compensation expense from
fair value options.......... $(32,941) $10,990 $17,526
Fair value method net income
(loss) per basic share...... $ (0.79) $ 0.30 $ 0.53
Fair value method net income
(loss) per dilutive share... $ (0.79) $ 0.29 $ 0.52
</TABLE>
The weighted average fair value of options granted in 1999, 198O and 1997
was $12.04, $5.68, and $4.46, respectively. For purposes of calculating
compensation cost under SFAS No. 123, the fair value of each option grant is
estimated as of the date of grant using the Black-Scholes option pricing model.
The following weighted average assumptions were used in the model for grants
made in 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected volatility........................................ 75% 45% 45%
Risk free interest rate.................................... 5.5% 5.0% 5.7%
Dividend yield............................................. 0% 0% 0%
Contractual or Expected lives (years)...................... 8.5 2.8 2.5
</TABLE>
F-19
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional information on the shares subject to options is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
Number Weighted- Number Weighted- Number Weighted-
of Average of Average of Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
------ --------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year...... 5,510 $24.19 2,623 $16.53 689 $10.37
Granted................. 4,481 32.68 3,849 28.47 2,173 18.35
Exercised............... (696) 17.98 (361) 13.07 (3) 8.00
Forfeited............... (1,082) 25.24 (601) 24.90 (236) 16.35
------ ------ ----- ------ ----- ------
Options outstanding at
end of year............ 8,213 $29.15 5,510 $24.19 2,623 $16.53
====== ===== =====
Options exercisable at
year end............... 676 $19.31 138 $14.41 14 $18.45
====== ===== =====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
Weighted-Average Weighted-Average
-------------------------- --------------------------
Shares Exercise Remaining Shares Exercise Remaining
Range of Exercise Price (000's) Price Life (000's) Price Life
- ----------------------- ------- -------- --------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 0 to $15................ 790 $12.17 4.6 1,025 $12.46 0.7 years
$16 to $25................ 737 21.23 6.0 1,277 20.99 2.5 years
$26 to $35................ 5,656 29.03 8.8 3,174 29.06 3.6 years
$36 to $45................ 307 43.71 9.5 34 39.30 3.8 years
$46 to $55................ 723 50.53 9.1 -- -- --
----- -----
8,213 $29.15 8.2 5,510 $24.19 2.8 years
===== =====
</TABLE>
15. EMPLOYEE BENEFIT PLANS
The Company maintained profit sharing and savings plans for several
operating subsidiaries through December 31, 1999. Eligible employees may
contribute a portion of their compensation to their respective operating
subsidiary's plan. The Company matches a percentage of employees' current
contributions on some operating subsidiaries' plans and has discretion to match
contributions on other plans. The Company may also make an annual profit
sharing contribution at its discretion. The Company, as sponsor of the plans,
uses independent third parties to provide administrative services to the plans.
The Company has the right to terminate the plans at any time. The Company
contributions to the various plans which were charged to operations were $1.9
million, $1.0 million, and $1.0 million in the years ended December 31, 1999,
1998, and 1997, respectively.
Effective February 2000, the Company amended the profit sharing and savings
plans of all operating subsidiaries to provide an employer matching
contribution for all participants in an amount equal to 100% of the employees'
current contributions, up to a maximum of 3% of the employees' total eligible
compensation.
16. SEGMENT INFORMATION
The Company has applied the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. This statement establishes
standards for reporting information regarding operating segments, products and
services, geographic areas and major customers. The Company's operations
represent a
F-20
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
single reportable segment under the provisions of SFAS No. 131. The Company's
operations have a high degree of similarity in their economic and operational
characteristics, including the nature of the services provided, the type or
class of customers for those services, and the methods used for delivering such
services. While the Company has retained certain brand identities associated
with its principal operating subsidiaries, these distinctions have not been a
critical factor for management in making operating decisions or in assessing
performance. In addition, the structure of the Company's internal organization
has changed from time to time as a result of acquisition activity and in
response to customer, project, personnel or geographic requirements and, as
such, discrete financial information is not available on a consistent basis at
the operating subsidiary level.
The Company derives substantially all of its revenues from operations in the
United States. In each of the three years ended December 31, 1999, more than
95% of the Company's consolidated revenues and operating income were derived
from domestic operations. Substantially all of the Company's identifiable
assets are located in the United States.
17. RELATED PARTY TRANSACTIONS
In April 1999, Mr. Maher, the Company's Chairman and Chief Executive Officer
at that time, borrowed $2.7 million from the Company so that he could exercise
his then-vested options. Mr. Maher exercised all 112,500 of his then-vested
options at an exercise price of $24.00 per share. In August 1999, Mr. Maher
borrowed an additional $10 million from the Company. The applicable interest
rate for this loan was 5.75%, payable annually. In November 1999, the Company
received from Mr. Maher 605,684 shares of the Company's common stock with a
then market value of $12.9 million as payment for the principal amount of the
loans plus accrued interest.
Five non-employees related by blood or marriage to Mr. Maher received stock
option grants. Mr. Maher has informed the Company that each of these persons
provided services to the Company from time to time and received no other
compensation for those services. In addition, one other individual not employed
by the Company, but who was an employee of an unrelated company owned or
controlled by Mr. Maher, received stock option grants. Mr. Maher has informed
the Company that this individual provided certain services to the Company from
time to time. These persons are among sixteen as to whom the Company has
determined that their options were issued at prices below fair market value. See
also Note 14, "Long Term Incentive Plan". The Company has recorded an expense in
1999 of $3.5 million for stock option compensation expense attributable to such
options issued to the sixteen individuals. Of the total stock option
compensation expense of $3.5 million, $0.6 million is attributable to the six
persons described above.
In April 1999, Mr. Cain and Mr. Demirjian, respectively the Company's Chief
Administrative Officer and the Company's General Counsel at that time, each
borrowed $425,063 from the Company to exercise all 18,750 of their then-vested
options at an exercise price of $22.67 per share. The notes which evidence
these borrowings are full recourse, are due on or before the third anniversary
date and bear interest at a rate equal to 5.75%, payable annually. The notes
were accompanied by pledge agreements which pledge the exercised option shares
as collateral security for repayment of the notes, which shares are currently
held by the Company.
In late August, Mr. Cain, Mr. Demirjian and Mr. Kingsbury (the Company's
Chief Financial Officer at that time) borrowed $2.625 million, $2.625 million
and $1.75 million, respectively, from the Company, related to their purchases
of 75,000, 75,000 and 50,000 shares, respectively, of the Company's common
stock from third parties at $35 per share. The notes which evidence these
borrowings are full recourse, are due on or before the third anniversary date
and bear interest at a rate equal to 5.75%, payable annually. These notes were
F-21
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accompanied by pledge agreements which pledge the shares as collateral security
for repayment of the notes, which shares are currently held by the Company.
As a result of recent developments, the Company has accrued a loss
contingency at December 31, 1999 in the amount of $5.3 million, related to the
notes receivable from Mssrs. Cain, Demirjian and Kingsbury. See also Note 5,
"Stockholders Equity". The Company has discontinued the accrual of interest on
these notes.
In November 1999, the Company entered into an agreement with Mr. Maher,
pursuant to which, among other things, Mr. Maher agreed to provide certain
consulting services to the Company over a two year period, including providing
information about past transactions or other matters as to which he may be
familiar, and the Company agreed to pay Mr. Maher twenty-four monthly payments
of $25,000.
18. LITIGATION
Numerous purported class action lawsuits have been filed against the Company
since November 1999 in the United States District Court for the Northern
District of Illinois. These actions name as defendants the Company and certain
former directors and former executive officers (one of whom, however, remains
an employee of the Company) of the Company and are purported to be on behalf of
persons who purchased shares of the Company's common stock during various
periods through November 1999. The complaints allege various violations of
federal securities law, including violations of Section 10(b) of the Securities
Exchange Act of 1934, and that the defendants made materially misleading
statements and/or material omissions which artificially inflated prices for the
Company's common stock. The plaintiffs seek a judgement awarding damages and
other relief. The Company believes it has meritorious defenses and intends to
vigorously defend these actions. The outcome of these lawsuits cannot be
predicted with certainty and a material adverse judgment against the Company
could have a material adverse effect on the Company.
Navigant International, Inc., a national travel agency headquartered in
Denver, Colorado, sued the Company in July 1999 in the United States District
Court for the District of Colorado claiming that the use of "Navigant" in our
name infringes on their use of and rights in such name. The complaint seeks
declaratory relief and an injunction against our use of "Navigant," attorneys'
fees and other related relief. The Company believes it has meritorious defenses
and intends to vigorously defend this action.
In addition, from time to time, we are party to various other lawsuits and
claims in the ordinary course of business. While the outcome of those lawsuits
or claims cannot be predicted with certainty, we do not believe that any of
those lawsuits or claims will have a material adverse effect on the Company.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Navigant Consulting, Inc.:
Under date of March 28, 2000 we reported on the consolidated balance sheets
of Navigant Consulting, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1999, which report was based in part on reliance of other auditors, as contained
in the annual report on Form 10-K for the year 1999. The 1998 and 1997 financial
statements have been restated as discussed in notes 3 and 4 to the consolidated
financial statements. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule of valuation and qualifying accounts. The
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statement schedule based on our audits.
In our opinion, the consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
Chicago, Illinois
March 28, 2000
S-1
<PAGE>
SCHEDULE II
NAVIGANT CONSULTING, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
(amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged Balance
Beginning to at End
Description of Year Expenses Deductions(1) of Year
- ----------- ---------- -------- ------------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999
Allowance for doubtful accounts...... 8,126 14,900 (6,696) 16,330
Year Ended December 31, 1998
Allowance for doubtful accounts...... 7,592 2,058 (1,524) 8,126
Year Ended December 31, 1997
Allowance for doubtful accounts...... 10,569 1,975 (4,952) 7,592
</TABLE>
- --------
(1) Represent write-offs of bad debts.
S-2
<PAGE>
Exhibit 2.1
-----------
PLAN AND AGREEMENT OF MERGER
----------------------------
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement") is made and entered
into as of February 7, 1999 by and among The Metzler Group, Inc., a Delaware
corporation ("Metzler"), MGI Acquisition III, Inc., a Delaware corporation and
wholly-owned, direct subsidiary of Metzler ("Acquisition Sub"), Strategic
Decisions Group, a California corporation (the "Company"), and the members of
the Company's Executive Officers whose names are set forth on the signature
pages attached hereto (individually a "Company Executive" and collectively, the
"Company Executives"). Metzler, Acquisition Sub, the Company and the Company
Executives are sometimes referred to herein individually as a "Party" and
collectively as the "Parties."
RECITALS
A. The members of the board of directors of Acquisition Sub and the
Company Executives have approved the transactions contemplated hereby and have
determined that it is advisable and in their respective best interests to
consummate the merger described in Article 2 hereof (the "Acquisition").
B. As a result of the Acquisition, Acquisition Sub will be merged with and
into the Company, all of the outstanding capital stock of the Company will be
converted into common stock of Metzler, and the Company will be the surviving
corporation, all on the terms and subject to the conditions set forth in this
Agreement.
C. For Federal income tax purposes, the Parties intend that the
Acquisition shall qualify as a reorganization within the meaning of Section
368(a) of the Code (as defined herein).
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, and the mutual
promises herein made, and in consideration of the representations, warranties
and covenants herein contained, the Parties hereby agree as follows:
1. DEFINITIONS
-----------
1.1 Definitions. The following terms, when used herein and unless the
context clearly requires otherwise, shall have the following meanings:
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, costs of defense,
judgments, orders, decrees, stipulations, injunctions, damages (including
diminution in value), dues, penalties, fines, costs, amounts paid in settlement,
Liabilities, Taxes, Liens, losses, expenses, and fees, including all attorneys'
fees and court costs, net of any related tax benefits, insurance payments or
recoveries from third parties.
<PAGE>
"Affiliate" means, with respect to any particular Person, any Person
controlling, controlled by or under common control with such Person from time to
time, whether by ownership or control of voting securities, by contract or
otherwise. Affiliates of Metzler include the Surviving Corporation (as defined
in Section 2.3(a)) and its Subsidiaries.
"Affiliated Group" means any affiliated group within the meaning of Section
1504 of the Code.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could reasonably form the basis for
any specified consequence.
"CGCL" means the California General Corporation Law, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any successor
agency.
"Company Stock" means the common stock, no par value, of the Company.
"Confidential Information" means any and all technical, financial,
commercial, and other information concerning the businesses and affairs of a
Party other than any such information that (i) is generally available to or
known by the public immediately prior to the time of disclosure (except through
the actions or inaction of the Person to whom disclosure has been made by or on
behalf of such Party) or (ii) has been acquired or developed independent from
such Party.
"DGCL" means the Delaware General Corporation Law, as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any corporation or other business entity that is
included in a controlled group of corporations within which the Company is also
included, as provided in Section 414(b) of the Code; or which is a trade or
business under common control with the Company, as provided in Section 414(c) of
the Code; or which constitutes a member of an affiliated service group within
which the Company is also included, as provided in Section 414(m) of the Code;
or which is required to be aggregated with the Company pursuant to regulations
issued under Section 414(o) of the Code.
"Escrow Agreement" means that certain Escrow Agreement, a form of which is
attached hereto as Exhibit C.
"Escrow Agent" means the Person acting as the escrow agent under the Escrow
Agreement.
2
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Company Documents" means, collectively, all agreements between
the Company and any Shareholder and all options, warrants, and other agreements
or documents relating to the issuance or possible issuance of Company Stock,
each as in existence as of the date hereof.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied on a consistent basis.
"HSR Act" means the Hart Scott Rodino Antitrust Improvements Act of 1976,
as amended.
"Indebtedness" of any Person means all obligations of such Person which in
accordance with GAAP should be classified upon a balance sheet of such Person as
liabilities of such entity; and in any event, regardless of how classified in
accordance with GAAP, shall include (i) all obligations of such Person for
borrowed money or obligations of such Person evidenced by notes or similar
instruments which have been incurred in consideration for the acquisition of
property or assets, (ii) obligations secured by any Security Interest upon
property or assets owned by such Person, even though such Person has not assumed
or become liable for the payment of such obligations, (iii) obligations created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person, notwithstanding the fact that the
rights and remedies of the seller, lender or lessor under such agreement in the
event of default are limited to repossession or sale of the property, and (iv)
capitalized lease obligations.
"Information Statement" means the information statement used by the Company
to solicit the approval of its Shareholders by written consent to the
Acquisition and the terms of this Agreement.
"Intellectual Property" means any and all of the following which is owned
by, licensed by, licensed to, used or held for use by the Company and/or any of
its Subsidiaries (including all copies and embodiments thereof, in electronic,
written or other media): (i) all registered and unregistered trademarks, trade
dress, service marks, logos, trade names, internet domain names, corporate names
(including the names "Strategic Decisions Group" and all derivations thereof)
and all applications to register the same (the "Trademarks"); (ii) all issued
U.S. and foreign patents and pending patent applications, patent disclosures and
improvements thereto (the "Patents"); (iii) all registered and unregistered
copyrights, mask work rights and all applications to register the same (the
"Copyrights"); (iv) all computer software and databases owned or used (excluding
software and databases licensed to the Company under standard, non-exclusive
software licenses granted to end-user customers by third parties in the ordinary
course of such third parties' business) by the Company or under development for
the Company by third parties (the "Software"); (v) all categories of trade
secrets, know-how, inventions (whether or not patentable and whether or not
reduced to practice), processes, procedures, drawings, specifications, designs,
plans, proposals, technical data, copyrightable works, financial, marketing, and
business data, pricing and cost information, business and marketing plans,
client and supplier lists and information and other confidential and proprietary
information
3
<PAGE>
("Proprietary Rights"); (vi) all licenses and agreements pursuant to which the
Company has acquired rights in or to any of the Trademarks, Patents, Copyrights,
Software or Proprietary Rights (excluding software and databases licensed to the
Company under standard, non-exclusive software licenses granted to end-user
customers by third parties in the ordinary course of such third parties'
business) ("Licenses-In"); and (vii) all licenses and agreements pursuant to
which the Company has licensed or transferred any rights to any of the
Trademarks, Patents, Copyrights, Software or Proprietary Rights ("Licenses-
Out").
"Interim Balance Sheet" means the balance sheet of the Company dated
January 2, 1999, agreed to by and between Metzler and the Company.
"Knowledge" means (i) in the case of any individual, the knowledge of such
person after reasonable inquiry and (ii) in the case of a corporation, limited
liability company or other entity, the knowledge of the directors and officers
or managers of such corporation, limited liability company or other entity, as
appropriate, after reasonable inquiry.
"Liability" means any liability (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated, and whether due or to become
due), obligation or Indebtedness, including without limitation, any liability
for Taxes.
"Material Adverse Effect" means a material adverse effect or impact upon
the assets, financial condition, results of operations, prospects or business of
the Company and its Subsidiaries (taken as a single enterprise), or on the
ability of the Parties to consummate the transactions contemplated hereby.
"Metzler Common" means the Common Stock, par value $0.001 per share, of
Metzler.
"Metzler Value" means the per share closing price of Metzler Common for
the trading day immediately preceding the Merger Date (as defined in Section 2
below).
"Ordinary Course of Business" means the ordinary course of business of the
Company and its Subsidiaries consistent with past custom and practice of the
Company and its Subsidiaries, respectively, as the context herein may require
(including with respect to quantity and frequency).
"Person" means any individual, trust, corporation, partnership, limited
partnership, limited liability company or other business association or entity,
court, governmental body or governmental agency.
"Plans" means: (i) all employee benefit plans as defined in Section 3(3) of
ERISA; (ii) all other severance pay, deferred compensation, excess or
supplemental benefit, vacation, stock, stock option, and incentive plans, or
contracts, and schemes, programs, funds, commitments, or arrangements of any
kind; and (iii) all other plans, or contracts, and schemes, programs, funds,
commitments, or arrangements providing money, services, property, or other
benefits, whether written or oral, qualified or nonqualified, funded or
unfunded, and including any that have been frozen or terminated, which pertain
to any employee, former employee, director, officer,
4
<PAGE>
consultant, or independent contractor of the Company or any ERISA Affiliate of
the Company and (a) to which the Company or any ERISA Affiliate of the Company
is or within the last six years has been a party or by which any of them is or
within the last six years has been bound or (b) with respect to which the
Company or any ERISA Affiliate of the Company has made any payments or
contributions since December 31, 1991 or (c) to which the Company or any ERISA
Affiliate of the Company may otherwise currently have any liability (including
any such plan or arrangement formerly maintained by the Company or any ERISA
Affiliate of the Company).
"Pro Rata Percentage" means, with respect to each Shareholder, the
percentage set forth opposite such Shareholder's name on Section 3.1(d) of the
Disclosure Schedule.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, security interest, lien or
other similar encumbrance or right of any third party.
"Shareholder(s)" means each shareholder or collectively, the shareholders
of the Company whose names are set forth on Schedule 2.6 hereto.
"Subsidiary" means any corporation, limited liability company, limited
partnership, partnership, trust or other entity with respect to which another
Person has the power, directly or indirectly through one or more intermediaries,
to vote or direct the voting of sufficient securities or interests to elect a
majority of the directors or management committee or similar governing body.
"Tax" or "Taxes" means all taxes, however denominated, including any
interest, penalties or other additions to tax that may become payable in respect
thereof, imposed by any federal, territorial, state, local or foreign government
or any agency or political subdivision of any such government, which taxes shall
include, but not be limited to, any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Sec. 59A), customs duties, capital stock, franchise, profits, withholding
(employment, backup, foreign, or otherwise), social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
other tax of any kind whatsoever, or other obligations of the same or of a
similar nature to any of the foregoing, which are required to be paid, withheld,
or collected and whether disputed or not.
"Tax Proceeding" means, with respect to Taxes, any proceeding, judicial or
administrative, civil or criminal, including, without limitation, any audit or
investigation.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
5
<PAGE>
"Total Merger Consideration" means 2,700,000 shares of Metzler Common;
provided, however, that the Total Merger Consideration shall be adjusted as set
forth in Section 2.6 herein.
1.2 Principles of Construction.
(a) In this Agreement, unless otherwise stated or the context
otherwise requires, the following usage apply: (i) unless otherwise provided
herein, actions permitted, but not required, under this Agreement may be taken
at any time and from time to time in the actor's sole discretion; (ii) in
computing periods from a specified date to a later specified date, the words
"from" and "commencing on" (and the like) mean "from and including," and the
words "to," "until" and "ending on" (and the like) mean "to, but excluding";
(iii) the captions and headings of articles, sections, schedules and exhibits
appearing in or attached to this Agreement have been inserted for convenience of
reference only and are not a part of, nor shall they affect any construction or
interpretation of this Agreement or any of its provisions; (iv) unless otherwise
specified, indications of time of day mean Chicago, Illinois time; (v) all
references to articles, sections, schedules and exhibits are to articles,
sections, schedules and exhibits in or to this Agreement unless otherwise
specified; (vi) references to a statute shall refer to the statute as amended
from time to time and any successor statute, and to all rules and regulations
promulgated under or implementing the statute or successor, as in effect at the
relevant time; (vii) references to a governmental or quasi-governmental agency,
authority or instrumentality shall also refer to a regulatory body that succeeds
to the functions of the agency, authority or instrumentality; (viii) "including"
means "including, but not limited to"; (ix) unless the context requires
otherwise, all words used in this Agreement in the singular number shall extend
to and include the plural, all words in the plural number shall extend to and
include the singular and all words in any gender shall extend to and include all
genders; and (x) any reference to a document or set of documents in this
Agreement, and the rights and obligations of the parties under any such
documents, shall mean such document or documents as amended or otherwise
modified from time to time, and any and all extensions, renewals, substitutions
or replacements thereof.
(b) Except as otherwise expressly provided in this Agreement, all
accounting not specifically defined herein shall be construed in accordance with
United States GAAP applied on a consistent basis.
2. THE MERGER
----------
In connection with the Acquisition, the respective boards of directors and
shareholders of Acquisition Sub and the Company have, by resolutions duly
adopted, approved the following provisions of this Article 2 as the Plan of
Reorganization within the meaning of Code Section 368(a), as a "Merger
Agreement" within the meaning of Section 1101 of the CGCL and as an "Agreement
of Merger" within the meaning of Section 252 of the DGCL:
2.1 Plan of Merger. Subject to the provisions of this Agreement, an
Agreement of Merger as required by Section 1101 of the CGCL, together with an
officer's certificate of each of Acquisition Sub and the Company (collectively,
the "California Merger Agreement") in the form attached hereto as Exhibit D
shall be duly prepared, executed and acknowledged by the Company, Acquisition
Sub and such other parties as may be appropriate, and thereafter the
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California Merger Agreement shall be delivered to the Secretary of State of the
State of California (the "California Department") for filing. Simultaneously
with filing in the State of California and subject to the provisions of this
Agreement, an Agreement of Merger as required by Section 252 of the DGCL,
together with an officer's certificate of each of Acquisition Sub, Metzler and
the Company (collectively, the "Delaware Certificate of Merger") shall be duly
prepared, executed and acknowledged by the Company, Acquisition Sub and such
other parties as may be appropriate, and thereafter the Delaware Certificate of
Merger shall be delivered to the Department of State of the State of Delaware
(the "Delaware Department") for filing. The Acquisition shall become effective
for corporate law issues on at 5:00 p.m. Eastern Time on the date such filings
occur (the "Merger Time"). The date on which the Merger Time occurs is referred
to herein as the "Merger Date".
2.2 Closing. The closing of the transactions contemplated hereby (the
"Closing") will take place at the offices of Barack Ferrazzano Kirschbaum
Perlman & Nagelberg, 333 West Wacker Drive, Suite 2700, Chicago, Illinois 60606,
on February 7, 1999, to the extent that the conditions set forth in Sections 4.5
and 4.6 have been satisfied or waived (where permissible), unless another time
or place is agreed to by the Parties. The effective date of this transaction
will be the date of Closing (the "Effective Date"). At the Closing, the Parties
shall make delivery of those materials set forth, respectively, in Sections 4.5
and 4.6 hereof.
2.3 Effects of the Merger.
(a) At the Merger Time, the separate legal existence of Acquisition Sub
shall cease and Acquisition Sub shall be merged with and into the Company and
the Company, as the surviving corporation in the Acquisition (the "Surviving
Corporation"), shall continue its legal existence under the laws of the State of
California under the name "Strategic Decisions Group".
(b) At and after the Merger Time, the Acquisition will have the effects
set forth in Chapter 11 of the CGCL and in Subchapter IX of Title 8 of the DGCL.
2.4 Articles of Incorporation and By-laws. The Articles of Incorporation
and By-laws of the Company, each as in effect immediately prior to the Merger
Time, as amended, shall respectively become the Articles of Incorporation and
By-laws of the Surviving Corporation immediately after the Merger Time and shall
thereafter continue to be its Articles of Incorporation and Bylaws until amended
as provided therein and under the CGCL.
2.5 Directors and Officers. The directors of Acquisition Sub holding
office immediately prior to the Merger Time shall be the directors of the
Surviving Corporation immediately after the Merger Time. The officers of
Acquisition Sub holding office immediately prior to the Merger Time shall be the
officers of the Surviving Corporation immediately after the Merger Time, with
additional officers from the Company being appointed by the directors of the
Surviving Corporation.
2.6 Conversion of Securities. At the Merger Time, by virtue of the
Acquisition and without any action on the part of Acquisition Sub, the Company
or the Shareholders, (x) each share of outstanding common stock of Acquisition
Sub held by Metzler immediately prior to the
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Merger Time shall be converted into one share of common stock of the Surviving
Corporation, and (y) each share of Company Stock which is issued and outstanding
immediately prior to the Merger Time (other than treasury shares) shall be
canceled and extinguished and converted into the number of shares of Metzler
Common equal to the Total Merger Consideration divided by the number of shares
of Company Stock outstanding at the Closing; provided, however, that shares of
Company Stock held by a holder who has exercised and perfected appraisal rights
shall not be converted into shares of Metzler Common, but the holder of such
shares shall only be entitled to such rights as are provided by California Law
and the shares of the Metzler Common otherwise allocable to all such holders
exercising and perfecting appraisal rights shall not be issued by Metzler; and
provided, further, however, that if as the result of the conversion of any
Shareholder's Company Stock upon consummation of the Acquisition, a fractional
interest in a share of Metzler Common would be deliverable under this Section
2.6, in lieu of a fractional share being delivered therefor, such fractional
interest shall automatically be converted into the right to receive an amount in
cash (without interest) equal to the product of the Metzler Common Value
multiplied by the amount of such fractional interest. No such holder will be
entitled to dividends, voting rights or any other rights as a shareholder of
Metzler in respect of any fractional share. For all purposes of this Agreement
(including all computations pursuant to Schedule 2.6), the Total Merger
Consideration shall be adjusted in accordance with the following provisions:
(a) Closing Balance Sheet. As soon as practicable but no later than
45 days following the Closing Date, the Company shall deliver to Metzler a
balance sheet (the "Closing Balance Sheet") for the Company dated as of the
close of business the day prior to the date of Closing (the "Closing Balance
Sheet Date"), which Closing Balance Sheet shall be prepared by the Company and
reviewed by the Company's certified public accountants (the "Company
Accountants") and shall set forth the assets and liabilities of the Company as
of the close of business on the Closing Balance Sheet Date. The Closing Balance
Sheet shall present fairly the financial position of the Company as of the
Closing Balance Sheet Date, in accordance with GAAP and on a basis consistent
with the presentation of the Interim Balance Sheet (the "Interim Financial
Statement Standards").
(i) If Metzler determines to dispute in good faith that the
Closing Balance sheet has not been prepared in accordance with the Interim
Financial Statement Standards, Metzler shall notify the Shareholder's
Representative in writing thereof (the "Metzler Notice") within 14 days after
delivery to the Metzler of the Closing Balance Sheet (the "Notice Period"). The
Metzler Notice shall set forth in reasonable detail the alleged non-conformance
and the amount(s) being disputed. If Metzler does not deliver the Metzler Notice
within the Notice Period, the Closing Balance Sheet shall become final and
binding upon all parties.
(ii) If the Metzler Notice is delivered within the Notice
Period, the Shareholders' Representative and Metzler shall attempt in good faith
to resolve all dispute(s). If Metzler and the Shareholders are unable to resolve
any disputed item within 14 days after receipt of the Metzler Notice, such
disputed item(s), together with each party's calculation of the Company's
Working Capital, Total Assets and Net Shareholders' Capital (in each case, as
defined below) as of the Closing Balance Sheet Date, shall be submitted to a
nationally recognized "Big Five" accounting firm or its successor (other than
the Company's or Metzler's
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regular auditors or their successors) chosen by lot, which accounting firm shall
be instructed to arbitrate such disputed item(s) and determine the Company's
Working Capital, Total Assets and Net Shareholders' Capital as of the Closing
Balance Sheet Date. The resolution of disputes by the accounting firm so
selected shall be set forth in writing and shall be conclusive and binding upon
all parties and adjustment may be entered thereon by any court having
jurisdiction over the parties. The costs of such resolution by such accounting
firm multiplied by the percentage (not to exceed 100%) calculated as the amount
of the actual adjustment divided by the amount disputed by Metzler shall be
borne by the Shareholders, in proportion to their respective Pro Rata
Percentages, on the one hand, and the balance, if any, by Metzler, on the other
hand.
(A) The term "Working Capital" means the excess of the
Company's current assets over its current liabilities as of the Closing Balance
Sheet Date, calculated in accordance with the Interim Financial Statement
Standards, all as finally determined in accordance with this Section 2.6(a);
provided, however, that the calculation of the amount of Working Capital shall
not include or otherwise account for (i) the expenses and fees of the Company
incurred or accrued in connection with the Acquisition pursuant to the
provisions of Section 6.11 hereof, which expenses and fees are to remain a post-
closing obligation of the Company or (ii) any reclassification of a liability
described as a Deferred Compensation Payable from a Long-Term Liability to a
Current Liabilty and any related assets from Other Assets to Current Assets (as
each such term is set forth on the Interim Balance Sheet).
(B) The term "Net Shareholders' Capital" means the excess
of the Company's total assets over its total liabilities as of the Closing
Balance Sheet Date, calculated in accordance with the Interim Financial
Statement Standards, all as finally determined in accordance with this Section
2.6(a); provided, however, that the calculation of Net Shareholders' Capital
shall not include or otherwise account for (i) the expenses and fees of the
Company incurred or accrued in connection with the Acquisition pursuant to the
provisions of Section 6.11 hereof, which expenses and fees are to remain a post-
closing obligation of the Company or (ii) any reclassification of a liability
described as a Deferred Compensation Payable from a Long-Term Liability to a
Current Liabilty and any related assets from Other Assets to Current Assets (as
each such term is set forth on the Interim Balance Sheet).
(b) Adjustment. The Total Merger Consideration shall be adjusted
downward in accordance with this paragraph (b) to account for the negative
differential (the "Target Differential"), if any, between Target Working
Capital, Target Total Assets, and Target Net Shareholders' Capital (as each such
term is hereafter defined) and each of, respectively, Working Capital, Total
Assets, and Net Shareholders' Capital. In the event that a Target Differential
exists as of the Merger Date, the Total Merger Consideration shall be reduced by
the number of shares of Metzler Common equal to the quotient of the Target
Differential divided by the Metzler Common Value. For purposes hereof, the
Target Differential shall be the greater of the respective differentials between
(a) Target Working Capital and Working Capital, (b) Target Total Assets and
Total Assets, and (c) Target Net Shareholders' Capital and Net Shareholders'
Capital. Target Working Capital shall be $3,190,000, and Target Net
Shareholders' Capital shall be $3,350,000. As of the Merger Date, an amount of
shares of Metzler Common equal to 10% of the number of shares of Metzler Common
issued pursuant to the Acquisition shall be deposited with the Escrow Agent and
held in a segregated escrow account (the "Adjustment Escrow") in
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accordance with the terms of the Escrow Agreement. Within ten days following the
determination of the Target Differential, if any, the Escrow Agent shall return
to Metzler the number of shares valued at the Metzler Common Value equal to the
Target Differential and shall promptly distribute to the Shareholders the
remaining shares held in the Adjustment Escrow to the Shareholders, pro rata in
respect of their respective Pro Rata Percentages.
2.7 Closing of Company Transfer Books. As of the Closing, no transfer of
Company Stock shall thereafter be made or recognized.
2.8 Exchange of Certificates. Each holder of a certificate or certificates
representing shares of Company Stock issued and outstanding immediately prior to
the Merger Time shall at or as soon as practicable following the Closing,
surrender to Metzler (or at Metzler's direction, Metzler's stock transfer agent)
for exchange a certificate or certificates representing the number of shares of
Company Stock held by such holder, together with a duly executed letter of
transmittal. In exchange therefor, Metzler shall issue or pay, as applicable, to
such holder of Company Stock and deliver as provided herein a certificate or
certificates representing the shares of Metzler Common to be issued to such
holder pursuant to Section 2.6 to be delivered to such holder and, in the case
of payment for any fractional interest in Metzler Common, a check payable to the
holder. Such issuance and payment shall be made promptly upon receipt of Company
Stock accompanied by a duly executed letter of transmittal and in any case
within five days after receipt by Metzler. Surrendered certificates shall
forthwith be canceled. Metzler shall not be obligated to deliver the
consideration to which any former holder of Company Stock is entitled as a
result of the Acquisition until such holder surrenders such holder's certificate
or certificates representing shares of Company Stock for exchange as provided in
this Section 2.8; provided, however, that procedures allowing for payment
against receipt of customary and appropriate certifications and indemnities
shall be provided with respect to lost or destroyed certificates. Until so
surrendered and exchanged, each such certificate shall represent solely the
right to receive the shares of Metzler Common to be issued pursuant to Section
2.6 in exchange for the shares of Company stock represented by such surrendered
certificate and the right to receive the fractional share payment to be paid
pursuant to Section 2.6, without interest.
2.9 Rights of the Shareholders. From and after the Merger Time, the
Shareholders shall have no rights with respect to their shares of Company Stock
other than to surrender the certificate or certificates representing such shares
pursuant to Section 2.8.
2.10 Dissenting Company Shares. Company Stock that has not been voted for
approval of this Agreement and with respect to which a demand for payment and
appraisal shall have been properly made in accordance with Chapter 13 of the
CGCL ("Dissenting SDG Shares") shall not be converted into Metzler Common at or
after the Merger Time but shall be converted into such consideration as may be
determined to be due with respect to such Dissenting SDG Shares pursuant to the
CGCL. If a holder of Dissenting SDG Shares ("Dissenting Shareholder") shall
withdraw his or her demand for such payment and appraisal or shall become
ineligible for such payment and appraisal, then, as of the time of the
occurrence of such event of withdrawal or ineligibility, whichever last occurs,
such holder's Dissenting SDG Shares shall cease to be Dissenting SDG Shares and
shall be converted into the Metzler Common into which such Dissenting SDG Shares
would have been converted pursuant to Section 2.6
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hereof. The Company shall give Metzler prompt notice of any demand received by
the Company from a holder of Dissenting SDG Shares for appraisal of Company
Stock, and Metzler shall have the right to participate in all negotiations and
proceedings with respect to such demand. The Company agrees that, except with
the prior written consent of Metzler, or as required under the CGCL, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for appraisal. Each Dissenting Shareholder who, pursuant to the
provisions of Chapter 13 of the CGCL, becomes entitled to payment of the value
of shares of Company Stock shall receive payment therefor (but only after the
value therefor shall have been agreed upon or finally determined pursuant to
such provisions). Any Metzler Common which would have been issuable with respect
to Dissenting SDG Shares shall be retained by Metzler.
2.11 Taking of Necessary Action; Further Action. Metzler and Acquisition
Sub on the one hand, and the Company and the Shareholders, on the other hand,
shall use reasonable efforts to take all such action (including action to cause
the satisfaction of the conditions precedent to the Acquisition) as may be
necessary or appropriate in order to effectuate the Acquisition as promptly as
possible. If, at any time after the Merger Time, any further action is necessary
or desirable to vest the Surviving Corporation with full possession of all the
rights, privileges, immunities and franchises of the Company and Acquisition
Sub, the officers of the Surviving Corporation are fully authorized in the name
of either the Company or Acquisition Sub or otherwise to take, and shall take,
all such action.
3. REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 Representations and Warranties Concerning the Company. As a material
inducement to Metzler and Acquisition Sub to enter into this Agreement and
consummate the transactions contemplated hereby, the Company and the Company
Executives hereby jointly and severally represent and warrant to Metzler and
Acquisition Sub that all of the statements contained in this Section 3.1 are
correct and complete as of the date of this Agreement, and hereby covenant that
said statements will be correct and complete as of the Merger Date (as though
made as of the Merger Date and as though the Merger Date were substituted for
the date of this Agreement throughout such statements provided that the
representations and warranties made as of a specified date will be true and
correct as of such date), except, in each case, as set forth in the schedule
delivered concurrently with this Agreement setting forth exceptions to the
representations and warranties set forth herein (the "Disclosure Schedule"). The
Disclosure Schedule is arranged in sections corresponding to the numbered and
lettered sections contained in this Section 3.1, and no matter disclosed with
respect to one section shall be deemed to be an exception to another section
unless the applicability of such item to such other section is reasonably
apparent. Notwithstanding anything herein to the contrary, the disclosure of any
contract agreement, arrangement or understanding herein shall not affect or
qualify any representation with respect to the effectiveness or enforceability
of such contract, agreement, arrangement or understanding or the absence of
breaches or defaults thereunder, unless otherwise specifically disclosed.
(a) Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. Each Subsidiary of the Company, as identified in
Section 3.1(a) of the Disclosure
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Schedule, is duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, as identified in Section 3.1(a) of
the Disclosure Schedule. Each of the Company and its Subsidiaries has all
requisite corporate power and authority to carry on the business in which it is
engaged and to own and use the properties owned and used by it. True and correct
copies of the Company's Articles of Incorporation and By-laws, in each case as
amended to date, have been delivered to Metzler. Each of the Company and its
Subsidiaries is qualified to conduct business and is in good standing under the
laws of each jurisdiction wherein the nature of its business or its ownership of
property requires it to be so qualified, except where the failure to be so
qualified, would not individually or in the aggregate, have a Material Adverse
Effect. Section 3.1(a) of the Disclosure Schedule lists all jurisdictions in
which the Company and each of its Subsidiaries is qualified to do business.
(b) Authorization of Transaction. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. Without limiting the generality of the prior
sentence, the Board of Directors and the Shareholders of the Company have duly
authorized the execution, delivery and performance of this Agreement and the
consummation of the Acquisition. This Agreement constitutes the valid and
legally binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to the rights and remedies of creditors generally
or (ii) rules of law governing specific performance, injunctive relief or other
general principles of equity.
(c) Noncontravention. Subject to compliance with the HSR Act and
except as set forth on Section 3.1(c) of the Disclosure Schedule, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (i) violate any applicable statute,
regulation, law, rule or common law doctrine, (ii) violate any judgment, order,
decree, stipulation, injunction, or other restriction of any governmental body,
governmental agency or court to which the Company is subject, (iii) breach any
provision of the Articles of Incorporation or By-laws of the Company, or (iv)
conflict with, result in a breach of, constitute a default under (with or
without notice or lapse of time, or both), result in the acceleration of, create
in any party the right to accelerate, terminate, modify or cancel, or require
any notice under, or result in the creation of any Security Interest upon any of
the Company's (or any of its Subsidiaries') assets pursuant to the terms of, any
contract, agreement, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement for borrowed money, instrument of indebtedness, Security
Interest or other binding arrangement to which the Company (or any of its
Subsidiaries) is a party or by which it is bound or to which any of its assets
are subject, except, in the case of clauses (i) and (iv) above, for those
violations or breaches which would not, individually or in the aggregate, have a
Material Adverse Effect. Except pursuant to the HSR Act and as set forth on
Section 3.1(c) of the Disclosure Schedule, the Company is not required to give
any notice to, make any material filing with, or obtain any authorization,
consent, or approval of any government, governmental agency or court, or any
other Person in order for the parties to consummate the Acquisition and the
transactions contemplated by this Agreement or in order that the Acquisition and
such transactions not constitute a breach or violation of, or result in a right
of termination or acceleration or any encumbrance on any of the Company's (or
any of its Subsidiaries') assets, pursuant to the provisions of any material
agreement, arrangement or
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understanding or any material license, franchise or permit except as would not
have a Material Adverse Effect.
(d) Capitalization. The authorized capital stock of the Company
consists solely of 1,000,000 shares of voting common stock, no par value and
1,000,000 shares of non-voting common stock, no par value per share, of which
20,670 shares and 189 shares, respectively, are issued and outstanding on the
date hereof and all of which are owned by the Shareholders. Set forth on Section
3.1(d) of the Disclosure Schedule is a true and correct description of (i) the
full legal names and current address of each Shareholder, (ii) the Pro Rata
Percentage of each Shareholder, and (iii) all of the current directors and
officers of the Company. The Company has never authorized, offered, sold or
issued any securities other than Company Stock. All offerings, sales and
issuances by the Company of any Company Stock have been conducted in compliance
with and in accordance with or in reliance upon exemptions from all applicable
Federal and state securities laws and all other applicable state laws. Except as
set forth on Section 3.1(d) of the Disclosure Schedule, there are no currently
outstanding or authorized options, warrants, rights, contracts, rights of first
refusal or first offer, calls, puts, rights to subscribe, conversion rights, or
other agreements or commitments to which the Company is a party or which are
binding upon the Company or Company upon any of the Shareholders providing for
the issuance, disposition, or acquisition of any Company Stock or securities
convertible into or exchangeable for Company Stock. There are no voting trusts,
proxies, or any other agreements, restrictions or understandings with respect to
the voting of any shares of Company Stock, except for those agreements expressly
contemplated hereby.
(e) No Subsidiaries. Except as set forth in Section 3.1(e) of the
Disclosure Schedule, the Company does not own or control any direct or indirect
equity interest or equity participation in any corporation, partnership, limited
liability company, trust, or other business association or Subsidiary.
(f) Financial Statements; Books and Records.
(i) The Company has provided Metzler with the following
financial statements, correct and complete copies of which are set forth on
Section 3.1(f) of the Disclosure Schedule (collectively the "Financial
Statements"): (A) consolidated and consolidating balance sheet and related
statements of income and changes in shareholders' equity for the Company as of
and for the forty (40) week period ended January 3, 1998, the fiscal year ended
March 29, 1997 and the fiscal year ended March 31, 1996 (January 3, 1998 being
the "Most Recent Fiscal Year End"), each audited by the Company Accountants, and
(B) unaudited consolidated and consolidating balance sheet and related
statements of income for the Company as of and for the eleven months ended
November 7, 1998 and year to date (the "Latest Financials"). The Financial
Statements are correct and complete in all material respects and have been
prepared in accordance with GAAP, except, in the case of the Latest Financials,
for the absence of footnotes and normal year-end adjustments. The Financial
Statements fairly present, on such basis, the consolidated financial condition
and results of operations of the Company and its Subsidiaries as of the times
and for the periods referred to therein.
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(ii) The Company's and its Subsidiaries' books and records are
and have been properly prepared and maintained in form and substance adequate
for preparing audited financial statements in accordance with GAAP, and fairly
and accurately reflect in accordance with GAAP all of the assets and Liabilities
of the Company and its Subsidiaries and all contracts and transactions to which
the Company or any of its Subsidiaries is or was a party or by which the Company
or any of its Subsidiaries or any of their respective business or assets is or
was affected. The minute books and related records of the Company and its
Subsidiaries, correct and complete copies of which have been made available to
Metzler, correctly reflect all resolutions adopted and all other material
corporate actions taken at all meetings or through consents of the directors
(including committees thereof) and the shareholders.
(g) Recent Events. Except as set forth in Section 3.1(g) of the
Disclosure Schedule, since the date of the Interim Balance Sheet, neither the
Company nor any of its Subsidiaries has experienced or suffered any Material
Adverse Effect. Without limiting the generality of the foregoing, except as set
forth on the Latest Financials or Section 3.1(g) of the Disclosure Schedule,
since the date of the Interim Balance Sheet, neither the Company nor any of its
Subsidiaries:
(i) sold, leased, transferred or assigned any of its assets,
tangible or intangible, with an aggregate value greater than $75,000, other than
in the Ordinary Course of Business;
(ii) accelerated, terminated, modified, canceled or committed
any breach of any contract, lease, sublease, license, or sublicense (or series
of related contracts, leases, subleases, licenses, and sublicenses) either
involving more than $50,000 individually or in the aggregate or otherwise
outside of the Ordinary Course of Business;
(iii) canceled, compromised, waived, or released any right or
claim (or series of related rights and claims) either involving more than
$50,000 individually or in the aggregate or outside of the Ordinary Course of
Business;
(iv) experienced any damage, destruction, or loss to its
property in excess of $50,000 (whether or not covered by insurance) individually
or in the aggregate;
(v) created or suffered to exist any Security Interest upon any
of its assets, tangible or intangible, outside the Ordinary Course of Business
or securing any Liabilities in the aggregate in excess of $75,000;
(vi) issued, sold, or otherwise disposed of any Company Stock or
other equity securities, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion or exercise) any interest in the
Company or any of its equity securities, or any securities convertible or
exchangeable into Company Stock or other equity securities;
(vii) declared, set aside, or paid any dividend or distribution
with respect to the Company Stock or any of its equity securities (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any Company Stock
or any of its equity securities;
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(viii) entered into any transaction, arrangement or contract
with, or distributed or transferred any property or other assets to, any
officer, director, Shareholder or other insider or Affiliate of the Company or
any of its Subsidiaries (other than salaries and employee benefits in the
Ordinary Course of Business);
(ix) made or committed to make any capital expenditures or
entered into any other material transaction outside the Ordinary Course of
Business involving an expenditure in excess of $50,000 individually or in the
aggregate;
(x) amended or modified in any material respect any Plan (beyond
any amendments and modifications reflected in true and complete copies of such
Plans delivered to Metzler);
(xi) entered into any employment agreement for a base salary in
excess of $125,000 or collective bargaining agreement or granted any increase in
excess of $25,000 in the salary of any officer or management employee of the
Company (or increase in excess of $15,000 in the case of any non-management
employee) or paid or committed to pay any bonus to any officer or employee;
(xii) changed in any material respect the manner in which the
business has been conducted, including, without limitation, billing of clients
or collection of accounts receivable, purchases of goods and services or payment
of accounts payable;
(xiii) changed the accounting principles, methods or practices
or any change in the depreciation or amortization policies or rates, except in
each case as required by GAAP;
(xiv) changed the relationships with any client, contractor or
supplier which might reasonably be expected to result in a Material Adverse
Effect; or
(xv) entered into any binding commitment (orally or in writing)
to do any of the foregoing.
(h) Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any Liability (and there is no Basis for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against the Company or any of its Subsidiaries giving rise to any
Liability), except for (i) Liabilities set forth on the face of the Latest
Financials, (ii) Liabilities incurred since the date of the Interim Balance
Sheet in the Ordinary Course of Business (none of which relates to any breach of
contract, breach of warranty, tort, infringement, or violation of law or arose
out of any charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand), (iii) Liabilities in an aggregate amount of less than
$50,000, and (iv) Liabilities otherwise expressly disclosed in this Agreement or
on the Disclosure Schedule (it being understood that except as set forth in
Section 3.1(f) no representation or warranty is being made regarding the
revenues or results of operations of the Company).
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(i) Tax Matters.
(i) The Company, each of the Subsidiaries and their respective
predecessors in interest (by merger, liquidation, or otherwise) (each such
person referred to as a "Taxpayer" and collectively, as the "Taxpayers") has
filed or caused to be filed in a timely manner (within any applicable extension
periods) all Tax Returns required to be filed by the Code or by applicable
state, local, or foreign tax laws, such Tax Returns have been timely filed on
behalf of the Taxpayers, such Tax Returns are true, correct and complete in all
respects, and all Taxes due (including all Taxes due in respect of any former
Subsidiary of each of the Taxpayers (whether due in respect of a separate
company, unitary, or consolidated federal income Tax Return or otherwise), and
Taxes due in respect of any person for which any of the Taxpayers had an
obligation to withhold and/or otherwise pay over Taxes) have been timely paid in
full or will be timely paid in full by the due date thereof (and whether or not
shown on a Tax Return).
(ii) With respect to any taxable year for which a statute of
limitations (or similar provision) has not yet run, none of the Tax Returns of
any of the Taxpayers has been audited by a government or taxing authority, nor
is any such audit or other Tax Proceeding in process, pending, threatened
(either in writing or verbally, formally or informally) or are expected to be
asserted with respect to Taxes (or the collection of Taxes) of any of the
Taxpayers, and no Taxpayer, officer, director or employee of a Taxpayer has
received notice (either in writing or verbally, formally or informally) or
expects to receive notice that a Taxpayer has not filed a Tax Return or not paid
Taxes required to be filed, withheld, or paid by it. Each of the Taxpayers has
disclosed on its federal income tax returns all positions taken therein that
could rise to a substantial understatement penalty within the meaning of Code
Section 6662. No Taxpayer currently is the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an authority
in a jurisdiction where any of the Taxpayers does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction.
(iii) The Company and each Subsidiary has delivered to Metzler
correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by any of
the Taxpayers since December 31, 1996.
(iv) Neither the Company nor any of its Subsidiaries has filed a
consent under Section 341(f) of the Code concerning collapsible corporations.
Neither the Company nor any of its Subsidiaries has made any material payments,
is obligated to make any material payments, or is a party to any agreement that
would obligate it to make any material payments that will not be deductible
under Section 280G of the Code. Neither the Company nor any of its Subsidiaries
has been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(A)(ii) of the Code. Neither the Company nor any of its Subsidiaries is a
party to any tax allocation or sharing agreement. Neither the Company nor any of
its Subsidiaries has been a member of an Affiliated Group which filed federal
income tax returns, other than a group of which the Company was the common
parent. Neither the Company nor any of its Subsidiaries has any Liability for
Taxes owed by any Person (other than the Company), including without limitation,
(A) as a transferee, assignee or other successor, (B) pursuant to a Tax sharing
agreement or other
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contract, or (C) pursuant to Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign law).
(v) The Company has made available to Metzler information
regarding the Taxpayer's basis in its assets, its current and accumulated
earnings and profits, its net operating loss and tax credit carryovers, excess
loss accounts with respect to Subsidiary stock, tax elections made by any of the
Taxpayers affecting any other of the Taxpayers, and deferred intercompany
transactions. None of the Taxpayers has net operating losses or other tax
attributes presently subject to limitations under Code Sections 382, 383, 384,
the federal consolidated return regulations, or other similar provisions under
state, local or foreign law.
(vi) The Taxpayers have filed all reports and have created
and/or retained all records required under Code Section 6038A with respect to
their respective ownership by and transactions with related parties. Each
related foreign person required to maintain records under Code Section 6038A
with respect to transactions between any of the Taxpayers and related foreign
person(s) have maintained such records. All documents that are required to be
created and/or preserved by the related foreign person(s) with respect to
transactions with any of the Taxpayers are either maintained in the United
States or the Taxpayer was or is exempt from the record maintenance requirements
of Code Section 6038A pursuant to Treasury Regulation Section 1.6038A-1. None of
the Taxpayers is a party to any record maintenance agreement with the Internal
Revenue Service with respect to Code Section 6038A. Each related foreign person
that has engaged in transactions with any of the Taxpayers has authorized such
Taxpayer to act as its limited agent solely for purposes of Code Sections 7602,
7603, and 7604 with respect to any request by the Internal Revenue Service to
examine records or produce testimony related to any transaction with any of the
Taxpayers, and each such authorization remains in full force and effect.
(j) Title and Condition of Properties.
(i) Neither the Company nor any of its Subsidiaries owns any
real property.
(ii) The leases described in Section 3.1(j) of the Disclosure
Schedule (the "Property Leases") cover all of the real estate leased, used or
occupied by the Company or any of its Subsidiaries. Each of the Property Leases
is in full force and effect and the Company or one of its Subsidiaries holds a
valid and existing leasehold or subleasehold interest under each of such
Property Leases. The Company has delivered to Metzler complete and accurate
copies of each of the Property Leases and none of such Property Leases has been
modified in any respect, except to the extent that such modifications are
disclosed by the copies delivered to Metzler. Neither the Company nor any of its
Subsidiaries is in default, and to the Knowledge of the Company no circumstances
exist which would result in such default (including upon the giving of notice or
the passage of time, or both), under any of such Property Leases, and no other
party thereto has the right to terminate, accelerate performance under or
otherwise modify any of such leases. To the Knowledge of the Company, no lessor
under any such lease is in default under any of such leases in its duties to the
lessee. Except as set forth in Section 3.1(j) of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has assigned, transferred,
conveyed,
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subjected to a Security Interest, or otherwise encumbered any interest in any of
the Property Leases.
(iii) The Company or one of its Subsidiaries owns good and
marketable title, free and clear of all Security Interests, to all of the
personal property and assets reflected on the Latest Financials or acquired
after the date of the Interim Balance Sheet, except for (A) assets with an
aggregate original purchase price of less than $100,000 which have been disposed
of to non-affiliated third parties since the date of the Interim Balance Sheet,
in the Ordinary Course of Business, (B) Security Interests securing liabilities
reflected on the Latest Financials and (C) Security Interests for current Taxes
not yet due and payable.
(iv) The Company's computer hardware, equipment and other
tangible personal property and assets are in good condition and repair, except
for ordinary wear and tear not caused by neglect, and are useable for their
respective intended purposes in the Ordinary Course of Business. The personal
property and assets shown on the Latest Financials or acquired after the date of
the Interim Balance Sheet, the lease rights under the Property Leases and leases
of personal property and the Intellectual Property owned or used by the Company
or any of its Subsidiaries under valid license, collectively include all assets
necessary to the conduct of the Company's and its Subsidiaries business as
presently conducted. None of the Shareholders, other employees or independent
contractors of the Company or their respective Affiliates owns any rights, other
than as would exist upon liquidation or distribution of the Company, in any
material assets, real or personal, which are used by the Company or any of its
Subsidiaries in its business.
(k) Intellectual Property.
(i) Section 3.1(k) of the Disclosure Schedule contains a
complete list and an accurate functional description by category and indication
of status (completed or in process) of all Patents, Trademarks, Copyright
registrations, Software, Licenses-In, Licenses-Out and other material items of
Intellectual Property which are owned, licensed by, licensed to, used or held
for use in and are necessary for the conduct of the business of the Company or
any of its Subsidiaries as such business is currently conducted and presently
contemplated to be conducted, or as to which the Company or any of its
Subsidiaries has a contractual right to an assignment.
(ii) No Person has any Security Interest (other than the right
to use Software under license) in th e Company's or any of its Subsidiaries'
interest in any Intellectual Property owned by the Company or any of its
Subsidiaries. The Company and each of its Subsidiaries has all rights to use the
Intellectual Property owned or used by it in the manner in which such
Intellectual Property is currently being used, except where failure to do so
would not have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is under any obligation to pay any royalty or other compensation to
any third party or to obtain any approval for use of any of the Intellectual
Property. To the Knowledge of the Company, none of the Intellectual Property is
subject to any outstanding judgment, order, decree, stipulation, injunction or
charge; no charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand is pending or, threatened, which challenges the legality,
validity, enforceability, use or ownership of any of the Intellectual Property.
Neither the Company nor any of its Subsidiaries
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has ever agreed to indemnify any Person for or against interference,
infringement, misappropriation, or other conflict with respect to Intellectual
Property.
(iii) No breach or default (or event which with notice or lapse
of time or both would result in a breach or default) by the Company or any of
its Subsidiaries exists or has occurred under any License-In or other agreement
pursuant to which the Company or any of its Subsidiaries uses any Intellectual
Property, and the consummation of the transactions contemplated by this
Agreement will not violate or conflict with or constitute a breach or default
(or an event which, with notice or lapse of time or both, would constitute a
breach or default) or result in a forfeiture under, or constitute a Basis for
termination of, any such License-In or such other agreement or impair the
Company's or any of its Subsidiaries' ability after consummation of the
Acquisition to use the Software in the same manner as such Software is currently
used by the Company or such Subsidiary, except where such breaches, defaults,
violations, conflicts or other events which would not, individually or in the
aggregate, result in a Material Adverse Effect.
(iv) Each of the Company and its Subsidiaries owns or has the
right to use all the Intellectual Property necessary to provide, produce, sell
and license the services and products currently provided, produced, sold and
licensed by the Company or any of its Subsidiaries, and to conduct the Company's
or any of its Subsidiaries' business as presently conducted, and the
consummation of the transactions contemplated hereby will not alter or impair
any such rights. The Intellectual Property includes all patents, trademarks,
trade names, service marks, copyrights, mask work rights and trade secrets, and
the Software includes all software, which are necessary to operate the business
of the Company and each of its Subsidiaries as it is presently conducted and to
satisfy and perform the contracts, commitments, arrangements and understandings
with customers of the Company and each of its Subsidiaries. The Company has no
Knowledge of any reason the Company and each of its Subsidiaries will not be
able to continue to own, possess or have access to, and to use, license and sub-
license as applicable, on reasonable terms, all Intellectual Property and other
proprietary rights necessary for the lawful conduct of its business as presently
conducted and currently contemplated to be conducted, without any infringement
or conflict with the rights of others.
(v) No Intellectual Property owned by the Company or any of its
Subsidiaries, and no product or service practiced, offered, licensed or sold by
the Company or any of its Subsidiaries, to the Knowledge of the Company,
infringes or is being infringed by any trademark, trade name, copyright, trade
secret, patent, right of publicity, right of privacy or other proprietary right
of any Person or would give rise to an obligation to render an accounting to any
Person as a result of co-authorship, co-invention or an express or implied
contract for any use or transfer. Neither the Company nor any of its
Subsidiaries has received notice of any adversely held patent, invention,
trademark, copyright, service mark, trade name or trade secret of any other
Person alleging or threatening to assert that the Company's or any of its
Subsidiaries' use of any of the Intellectual Property infringes upon or is in
conflict with any intellectual property or proprietary rights of any third
party. The Company, has no Knowledge of any Basis for any claim, threatened
claim or any suit or action asserting any such infringement or conflict or
asserting that the Company or any of its Subsidiaries does not have the legal
right to own, enforce, sell, license, sublicense, lease or otherwise use any
such Intellectual Property, process,
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product or service, except for such instances of defenses such as "fair use" and
the Company has no Knowledge of any facts which should give such Person reason
to believe that there exists any Basis for such claim, threatened claim or suit
or that any such claim, threatened claim or suit may be asserted or instituted
in the future.
(vi) Neither the Company nor any of its Subsidiaries has sent or
otherwise communicated to any other Person any notice, charge, claim or
assertion of, and the Company has no Knowledge of any present, impending or
threatened infringement by any other Person of any Intellectual Property owned
by the Company or any of its Subsidiaries.
(vii) Except as disclosed in Section 3.1(k) of the Disclosure
Schedule, all the Company's and each of its Subsidiaries' Patents, Trademarks
and Copyrights listed in Section 3.1(k) of the Disclosure Schedule as having
been issued by, registered with or filed with the United States Patent and
Trademark Office or Register of Copyrights or the corresponding offices of other
countries identified in Section 3.1(k) of the Schedule have been so duly
registered, filed in or issued, as the case may be, and have been properly
maintained and renewed in accordance with all applicable provisions of law and
administrative regulations in the United States and each such other country. The
Company and each of its Subsidiaries has used reasonable efforts to protect its
rights in the Intellectual Property. The Company or one of its Subsidiaries owns
all right, title and interest in and to the Intellectual Property, other than
the Software listed on Exhibit 2 to Section 3.1(k) Disclosure Schedule, as to
which the Company has a valid license. No current licenses for the use of the
Intellectual Property requires the Company or any of its Subsidiaries to apply
for or enforce appropriate legal protection of such licensed Intellectual
Property.
(viii) Each of the Company's and each of its Subsidiaries'
current or former employees and those current or former independent contractors
retained by the Company or any of its Subsidiaries who, either alone or in
concert with others, created or creates, developed or develops, invented or
invents, discovered or discovers, derived or derives, programmed or programs or
designed or designs any of the Intellectual Property, has entered into a written
agreement with the Company or any of its Subsidiaries, copies of which have
heretofore been furnished to Metzler. All copyrightable property is "Work Made
For Hire" or has been duly assigned to the Company. No former employees or
independent contractors of the Company or any of its Subsidiaries have any
claims or rights to any of the Intellectual Property necessary for the conduct
of the Company's or any of its Subsidiaries' business as now conducted. To the
Knowledge of the Company, no employee of the Company or any of its Subsidiaries
is a party to or otherwise bound by any agreement with or obligated to any other
Person (including, any former employer) which in any respect conflicts with any
obligation, commitment or job responsibility of such employee to the Company or
one of its Subsidiaries under any agreement to which currently he or she is a
party or otherwise.
(ix) Exhibit 3 to Section 3.1(k) of the Disclosure Schedule
identifies each Person to whom the Company or any of its Subsidiaries has sold,
licensed, leased or otherwise transferred or granted any interest or rights to
any Intellectual Property, other than Intellectual Property licensed to end
users pursuant to standard, non-exclusive "shrink wrap" license agreements in
the Ordinary Course of Business, none of which is a license of any source
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code ("Shrink Wrap Licenses"). The Company has previously delivered to Metzler
complete and accurate copies of all agreements relating to each such sale,
license, lease or other transfer or grant. The Company has delivered to Metzler
copies of all copyright and trademark registration certificates and all letters
patent.
(x) To the Knowledge of the Company and the Shareholders, all of
the data used in the Software was obtained from public sources and is not
subject to any confidentiality obligation imposed on the Company.
(xi) To its Knowledge, neither the Company nor any of its
Subsidiaries has taken any actions under the law of any applicable foreign
jurisdictions where the Company or any of its Subsidiaries has marketed or
licensed Software that would restrict or limit the ability of the Company or any
of its Subsidiaries to protect, or prevent it from protecting, its ownership
interests in, confidentiality rights of, and rights to market, license, modify
or enhance the Software.
(xii) Neither the Company nor any of its Subsidiaries has
granted any third party the right to market the Company's or any of its
Subsidiaries' Software.
(l) Contracts. Except as set forth on Schedule 3.1(l), with respect
to each written agreement that would be material to the Company and its
Subsidiaries as a whole (a "Material Contract"): (A) the Material Contract is in
full force and effect; (B) the Material Contract will continue to be in full
force and effect on identical terms immediately after the Merger Date; (C)
neither the Company nor any of its Subsidiaries (nor, to the Knowledge of the
Company, any other party) is in material breach or default (including, with
respect to any express or implied warranty), and no event has occurred which
with notice or lapse of time or both would constitute a material breach or
default or permit termination, modification, or acceleration, under any Material
Contract, except for any breaches, defaults, terminations, modifications or
accelerations which have been cured or waived; and (D) to the Knowledge of the
Company, no party has repudiated any material provision of any such Material
Contract. To the Knowledge of the Company, neither the Company nor any of its
Subsidiaries is a party to any verbal contract, agreement, or other arrangement
which, if reduced to written form, would be a Material Contract. Correct and
complete copies of the general forms of client engagement and services used by
the Company and each of its Subsidiaries have been made available to Metzler.
Except for those Material Contracts set forth on Section 3.1(l) of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party
to any fixed fee or capped price contracts or engagement arrangements (the
"Fixed Rate Engagements"), nor does the Company nor any of its Subsidiaries have
any outstanding offers, bids or proposals to perform any services on a fixed fee
or capped basis in an amount in excess of $500,000 per year. With respect to the
Company's Fixed Rate Engagements, the ratio of the amount of revenues recognized
to date (in the aggregate) by the Company compared to the amount of revenues
payable thereunder is reasonably proportionate to the ratio of the amount of
work completed under such Fixed Rate Engagements to the work required to be
completed thereunder.
(m) Notes and Accounts Receivable. All notes and accounts receivable
of the Company and each of its Subsidiaries are reflected properly on its books
and records, such
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receivables are valid receivables subject to no set-offs or counterclaims, are
current and collectible in the aggregate amount shown, and will be collected in
accordance with their terms at their aggregate recorded amounts, subject only to
the reserve for bad debts set forth on the face of the Latest Financials, as
adjusted for operations and transactions through the Merger Date in accordance
with GAAP and the past custom and practice of the Company and its Subsidiaries.
Since the date of the Latest Financials, there has not been an adverse change of
more than 10% in the aggregate amount of the accounts receivable of the Company
or any of its Subsidiaries or an increase of the average age of such receivables
of 15 days.
(n) Work in Process. Except as set forth on Section 3.1(n) of the
Disclosure Schedule, the amount of unbilled receivables and other work-in-
process of the Company and its Subsidiaries has been properly reflected on the
books and records of the Company and its Subsidiaries, such that amounts set
forth therein, when billed, will represent valid receivables subject to no set-
offs or counterclaims and be collectible in the aggregate recorded amounts,
subject only to a reserve for bad debts calculated on a basis consistent with
the reserve for bad debts set forth on the face of the Latest Financials, as
adjusted for operations and transactions through the Merger Date in accordance
with GAAP and the past custom and practice of the Company and its Subsidiaries.
Since the date of the Latest Financials, there has not been an adverse change of
more than 10% in the aggregate amount of the unbilled receivables or other work-
in-process of the Company or any of its Subsidiaries or an increase of the
average age of such amounts of 15 days.
(o) Litigation. Section 3.1(o) of the Disclosure Schedule sets forth
each instance in which the Company or any of its Subsidiaries (i) is subject to
any unsatisfied judgment, order, decree, stipulation or injunction or (ii) is a
party to or, to the Knowledge of the Company, is threatened to be made a party
to, any complaint, action, suit, proceeding, hearing, or investigation of or in
any court or quasi-judicial or administrative agency of any Federal, state,
local, or foreign jurisdiction or before any arbitrator for an amount in
controversy in excess of $100,000 individually or $200,000 in the aggregate.
None of the complaints, actions, suits, proceedings, hearings, and
investigations set forth in Section 3.1(o) of the Disclosure Schedule could
reasonably be expected to result in any Material Adverse Effect. To the
Knowledge of the Company, there does not exist a Basis on which any such
complaint, action, suit, proceeding, hearing, or investigation may be brought or
threatened against the Company or any of its Subsidiaries that could have a
Material Adverse Effect on the Company.
(p) Employees; Employment Matters.
(i) Except as set forth in Section 3.1(p) of the Disclosure
Schedule, to the Knowledge of the Company, no employee or group of employees of
the Company or any of its Subsidiaries who have in the last twelve months
generated more than $500,000 in revenues of the Company and its Subsidiaries has
notified the Company that they intend to terminate their employment with the
Company or any of its Subsidiaries generally or as a result of the transactions
contemplated hereby or otherwise. Neither the Company nor any of its
Subsidiaries is a party to or bound by any collective bargaining agreement, and
neither the Company nor any of its Subsidiaries has experienced any strikes,
grievances, other collective bargaining disputes or, to the Knowledge of the
Company, claims of unfair labor practices. The Company has no
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<PAGE>
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of the Company or any of
its Subsidiaries.
(ii) Section 3.1(p) of the Disclosure Schedule contains a true,
correct and complete list setting forth the names and current salaries or rates
of compensation of all employees of the Company and each of the Subsidiaries
with an annual base salary of at least $50,000 and independent contractors who
render services to the Company or any of its Subsidiaries on more than a single
occasion who are expected to be paid at least $50,000 in 1999. Except as
disclosed on Section 3.1(p) of the Disclosure Schedule, neither the Company nor
any of its Subsidiaries has any unsatisfied Liability to any previously
terminated employee or independent contractor. The Company has made available
all written (and summarized all oral) employee handbooks, policies, programs and
arrangements to Metzler.
(iii) Except as set forth in Section 3.1(p) of the Disclosure
Schedule, all Persons employed by the Company and each of its Subsidiaries are
employees at will. Except as set forth in Section 3.1(p) of the Disclosure
Schedule, none of the employees of the Company or any of its Subsidiaries are
subject to noncompete/nonsolicitation covenants in favor of the Company.
(iv) The Company and each of its Subsidiaries has materially
complied with all applicable laws relating to labor, including, without
limitation, any provisions thereof relating to wages, termination pay, vacation
pay, fringe benefits, collective bargaining and the payment and/or accrual of
the same and all Taxes, insurance and all other costs and expenses applicable
thereto, and neither the Company nor any of its Subsidiaries is liable for any
material arrearage, or any Taxes, costs or penalties for failure to comply with
any of the foregoing. Without limiting the generality of the foregoing, neither
the Company nor any of its Subsidiaries has in any material respect violated any
of the health care continuation provisions of Part 6 of Subtitle B of Title I of
ERISA ("COBRA") or other applicable state insurance continuation law. No
material COBRA or other state insurance continuation law violation exists or
will exist with respect to any employees of the Company or any of its
Subsidiaries prior to the Merger Date.
(v) Each Person whom the Company or any of its Subsidiaries
currently retains as an independent contractor or previously retained as an
independent contractor qualifies, or at all times while performing services for
the Company or any of its Subsidiaries qualified, as an independent contractor
and not as an employee of the Company or any of its Subsidiaries, under the Code
and all applicable state laws. Neither the execution of this Agreement nor the
consummation of the Acquisition shall cause the Company or any of its
Subsidiaries to be in breach of any agreement with any employee, contractor or
consultant or cause the Company or any of its Subsidiaries to be liable to pay
any severance or other amount to any of its employees, contractors or
consultants.
(q) Employee Benefit Plans.
(i) All Plans of the Company and each of its Subsidiaries which
are "employee benefit plans" within the meaning of Section 3(3) of ERISA are
listed in Section 3.1(q) of the Disclosure Schedule. Each Plan is in material
compliance with its terms
23
<PAGE>
and with ERISA and other applicable laws (including, without limitation,
compliance with the health care continuation requirements of COBRA and any
proposed regulations promulgated thereunder), and all agreements and instruments
applicable to any Plan. Section 3.1(q) of the Disclosure Schedule sets forth
each former employee of the Company or any of its Subsidiaries entitled to COBRA
benefits and the remaining period of such benefits. The Company has either
received a favorable determination letter or notification letter (a
"Determination Letter") from the applicable Internal Revenue Service District
Director as to the qualification under the Code of each Plan which is a pension
plan, as defined in Section 3(2) of ERISA ("Pension Plan") or has remaining a
period of time under applicable Treasury regulations or Internal Revenue Service
pronouncements in which to apply for such a Determination Letter and make any
amendments necessary to obtain a favorable determination as to the qualified
status of each Pension Plan, and, to the Company's Knowledge, there have been no
amendments or, to the Company's Knowledge, other developments since the date of
such Determination Letter which would cause the loss of such qualified status.
Each Plan which has not received a favorable Determination Letter but which has
remaining a period of time under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for a Determination Letter is
reflected on Section 3,1(q) of the Disclosure Schedule. No material violation of
ERISA has occurred within the last 6 years in connection with the administration
of any of the Plans, and there are no actions, suits, or claims (other than
routine, non-contested claims for benefits) pending or, to the Knowledge of the
Company threatened against the Plans, or any administrator or fiduciary thereof,
which could result in any material Liability.
(ii) With respect to all present Plans, the Company has
heretofore made available to Metzler true and complete copies of each of the
following to the extent such documents exist or are applicable:
(A) the Plan documents (and any applicable trust agreement
or insurance contract and including descriptions of vacation, severance pay,
sickness, and separation policies);
(B) the most recent Internal Revenue Service determination
or notification letter request relating to each of the Pension Plans;
(C) the summary plan description (as currently in effect)
and any summary of material modification for each of the Plans;
(D) the most recent Annual Report (Form 5500 Series), and
accompanying schedules, filed for each of the Plans, and the most recent summary
annual report furnished for each of the Plans;
(E) the most recent actuarial valuations, and latest
financial statements for each of the Plans; and
(F) all documents filed with the Internal Revenue Service,
Department of Labor or Pension Benefit Guaranty Corporation since January 1,
1992.
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There is and has been no material violation of ERISA known to the Company
with respect to the filing of applicable reports, documents, and notices
regarding such past or present Plans with the Secretary of Labor or the
Secretary of the Treasury or the furnishing of such documents to the
participants or beneficiaries of such Plans.
(iii) Except as disclosed in Section 3.1(g) of the Disclosure
Schedule, each Plan maintained by the Company is maintained under a plan
document which does not provide for other participating employers except for the
Company or any ERISA Affiliate of the Company and no Plan provides or has
provided credit with respect to service other than with the Company or any ERISA
Affiliate of the Company.
(iv) Neither the Company nor any ERISA Affiliate of the Company
nor any of their employees, shareholders, or directors has engaged in any
transaction in connection with which any of them would be subject either to a
civil penalty assessed pursuant to Section 502 of ERISA or a tax imposed by
Section 4975 of the Code, other than transactions which would not, individually
or in the aggregate, have a Material Adverse Effect on the Company. The
execution and performance of this Agreement will not involve any prohibited
transaction within the meaning of Section 406 of ERISA, other than prohibited
transactions which would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
(v) None of the assets of any of the Plans is or has been
invested in any property constituting employer real property or any employer
security within the meaning of Section 407(d) of ERISA.
(vi) Intentionally Deleted.
(vii) Full payment as of the Merger Date will have been made of
all amounts which the Company and any ERISA Affiliate of the Company are
required, under the terms of all Plans, to have paid as contributions to such
Plans as of the last day of the most recent fiscal year prior to the Merger
Date.
(viii) The execution and performance of this Agreement will not
constitute a stated triggering event under any Plan or employment agreement that
will result in any material payment (whether of severance pay or otherwise)
becoming due to any employee of the Company or ERISA Affiliate of the Company.
(ix) Neither the Company nor any ERISA Affiliate of the Company
provides, nor have they at any time provided, coverage under any welfare plan (a
Welfare Plan (as defined in Section 3(l) of ERISA) (including, but not limited
to, life insurance, disability, medical, dental, prescription drugs, or
accidental death or dismemberment) to any of their retirees, other than any
continuation or conversion coverage which any such retiree may have purchased at
his own expense except as may be required by COBRA or other applicable statute.
(x) The financial statements of each Pension Plan as of the end
of the most recent plan year for which such statements are available, and the
list of the investments of
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such Pension Plan as of the most recent plan year end for which such statements
are available, accurately reflect the financial conditions of the Pension Plans
as of the date of such statements, and there have been no material changes in
such investments between such date and the Merger Date.
(xi) To the Company's Knowledge, there have been no statements,
either written or oral, or communications made or materials provided to any
employee or former employee of the Company or any ERISA Affiliate of the Company
by any officer, director, employee, agent or representative of the Company that
provide for or could be construed as a contract or promise by the Company or any
ERISA Affiliate of the Company to provide for any pension, welfare, or other
insurance-type benefits to such employee or former employee, whether before or
after retirement, other than benefits under the Plans.
(xii) Neither the Company nor any ERISA Affiliate of the Company
currently maintains or contributes, or at any time in the past has maintained or
contributed to a defined benefit plan (as defined in Section 3(35) of ERISA),
including, but not limited to, each multi-employer plan, as defined in Section
3(37) of ERISA.
(r) Licenses, Permits and Approvals. Section 3.1(r) of the Disclosure
Schedule lists all material governmental and regulatory licenses, permits and
approvals necessary to the conduct of the Company's and each of its
Subsidiaries' business. All such licenses, permits and approvals are in full
force and effect. There are no violations by the Company or any of its
Subsidiaries of, or any claims or proceedings, pending or, to the Knowledge of
the Company, threatened, challenging the validity of or seeking to discontinue,
any such licenses, permits or approvals, except for such violations, claims or
proceedings which would not, individually or in the aggregate, have a Material
Adverse Effect.
(s) Unlawful Payments. No payments of either cash or other
consideration have been made to any Person by the Company, any of its
Subsidiaries or the Shareholders or, to the Knowledge of the Company, on behalf
of the Company by any agent, employee, officer, director, shareholders or other
Person, that were unlawful under the laws of the United States or any state or
any other foreign or municipal government authority having appropriate
jurisdiction over the Company.
(t) Compliance with Laws. The Company and each of its Subsidiaries
and each of their respective facilities are in compliance in all material
respects with and have not in the past violated any applicable law, rule or
regulation of any Federal, state, local or foreign government or agency thereof,
including without limitation, environmental laws and laws relating to labor and
employment, and no notice, claim, complaint, action, suit, proceeding,
investigation or hearing has been received by the Company or any of its
Subsidiaries or filed, commenced or, to the Knowledge of the Company threatened
against the Company or any of its Subsidiaries alleging any such violation,
except in each instance for such failures to comply and such notices, claims,
complaints, actions, suits, proceedings, investigations or hearings which would
not, individually or in the aggregate, have a Material Adverse Effect.
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(u) Suppliers and Clients. During the past twelve months, no material
licensor, vendor, supplier or licensee, or any client of the Company or any of
its Subsidiaries accounting for more than 1% of the Company's or any of its
Subsidiaries' revenues during such period, has canceled or otherwise materially
adversely modified its relationship with the Company or any of its Subsidiaries
and, to the Knowledge of the Company, no such Person has any intention to do so,
and, to the Knowledge of the Company, there are no disputes or notices of
dissatisfaction with or from any such client of the Company or any of its
Subsidiaries, which is reasonably likely to result in a cancellation,
termination or materially adverse modification of any such relationship and, to
the Knowledge of the Company, the consummation of the transactions contemplated
hereby shall not adversely affect any relationships with such clients.
(v) Insurance.
(i) Except as set forth in Section 3.1(q) of the Disclosure
Schedule, attached as Schedule 3.1(v) is a list of each insurance policy
(including policies providing property, casualty, Liability, and workers'
compensation coverage and bond and surety arrangements) currently carried by the
Company or any of its Subsidiaries and the current annual premium for each such
policy.
(ii) With respect to each such insurance policy: (A) the
consummation of the Acquisition will not cause a default or require any consent
under any such policy; (B) to the Knowledge of the Company, all such insurance
is in full force and effect, and the Company and the Companies' Subsidiaries are
in compliance with all requirements and provisions thereof. The Company has not
suffered any adverse loss experience which could reasonably be expected to cause
its insurance coverage not to be renewed upon the expiration thereof at premiums
substantially equivalent to those currently being paid or otherwise at
commercially reasonable rates.
(w) Warranty. All services previously rendered by the Company and
each of its Subsidiaries have been in material conformity with all applicable
contractual commitments and all express and implied warranties, and the Company
and each of its Subsidiaries has no Liability (and the Company has no Knowledge
of any Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand giving rise to any Liability)
for damages in connection therewith, subject only to the reserve for customer
claims set forth on the face of the Latest Financials as adjusted for the
passage of time through the Merger Date in accordance with the past custom and
practice of the Company and its Subsidiaries. No services provided by the
Company or any of its Subsidiaries are subject to any contractual guaranty,
warranty, or other indemnity beyond the Company's or any of its Subsidiaries'
applicable standard terms and conditions of engagement. Neither the Company nor
any of its Subsidiaries is obligated to perform services or client work for
which it will not be paid in order to correct work previously performed that was
incorrect or deficient, complete work in excess of the fixed rate limit with
respect to a particular project or otherwise, other than reasonable and
customary efforts to maintain client satisfaction consistent with the size and
scope of a particular project and consistent with maintaining the reasonable
profitability of such project.
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(x) Transaction-Related Accounting Matters. Neither the Company nor
any of its Subsidiaries has taken or agreed to take any action that it knows or
has been advised would prevent the transactions contemplated hereby from being
accounted for as a pooling of interests in accordance with GAAP.
(y) Brokers' Fees. The Company has no Liability or obligation to pay
any fees or commissions to any broker or finder with respect to the transactions
contemplated by this Agreement for which Metzler could become liable or
otherwise obligated.
(z) Potential Conflicts of Interest. Except as set forth on Schedule
3.1(z) hereof, no officer, director or shareholder of the Company or any of its
Subsidiaries: (i) owns, directly or indirectly, any interest in (excepting not
more than 5% stock holdings for investment purposes in securities of publicly
held and traded companies) or is a shareholder, officer, director, employee or
consultant of any Person which is a competitor, lessor, lessee, customer or
supplier of the Company or any of its Subsidiaries; (ii) owns, directly or
indirectly, in whole or in part, any interest in Intellectual Property which the
Company or any of its Subsidiaries is using or the use of which is necessary for
the business of the Company or any of its Subsidiaries; (iii) has any loan
outstanding to or, to the Knowledge of the Company, any cause of action or other
claim whatsoever against the Company or any of its Subsidiaries, except for
claims in the Ordinary Course of Business, such as for accrued salary, bonus,
vacation pay and benefits under Benefit Plans and similar matters and agreements
existing on the date hereof; (iv) has made, on behalf of the Company or any of
its Subsidiaries, any payment or commitment to pay any commission, fee or other
amount to, or purchase or obtain or otherwise contract to purchase or obtain any
goods or services from, any corporation or other Person of which any officer,
manager or director of the Company or any of its Subsidiaries, or, a relative of
any of the foregoing, is a partner or shareholder (except stock holdings solely
for investment purposes in securities of publicly held and traded companies). No
Affiliate of any Shareholder has any claim against the Company, other than for
wages for services performed and related business expenses incurred in the
Ordinary Course of Business.
(aa) Disclosure. None of the representations and warranties of the
Company contained in this Agreement or the Disclosure Schedule contains any
untrue statement of a material fact or omits a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they were made, not misleading. There is no material fact which has not
been disclosed to Metzler which results in, or could reasonably be anticipated
to result in, a Material Adverse Effect on the Company (it being understood that
except as set forth in Section 3.1(f) no representation or warranty is being
made regarding the revenues or results of operations of the Company).
3.2 Representations and Warranties of Metzler and Acquisition Sub. As a
material inducement to the Company to enter into this Agreement and consummate
the transactions contemplated hereby, Metzler and Acquisition Sub hereby jointly
and severally represent and warrant to the Company and to the Shareholders that
all of the statements contained in this Section 3.2 are correct and complete as
of the date of this Agreement and Metzler and Acquisition Sub covenant that said
statements will be correct and complete as of the Merger Date
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(as though made as of the Merger Date and as though the Merger Date were
substituted for the date of this Agreement throughout this Section 3.2).
(a) Organization. Metzler and Acquisition Sub are corporations duly
incorporated, validly existing, and in good standing under the laws of the State
of Delaware. Metzler is qualified to do business in and is in good standing
under the laws of each jurisdiction wherein the nature of its business or its
ownership of property requires it to be so qualified, except where the failure
to be so qualified would not, in the aggregate, have a material adverse effect
or impact upon the assets, business, financial condition or results of
operations of Metzler and its Subsidiaries, taken as a whole (a "Metzler Adverse
Effect").
(b) Authorization of Transaction. Metzler and Acquisition Sub have
all requisite corporate power and authority to execute and deliver this
Agreement and to perform their respective obligations hereunder. The Board of
Directors of Metzler and Acquisition Sub have duly authorized the execution,
delivery and performance of this Agreement by Metzler and Acquisition Sub,
subject to the conditions set forth herein. This Agreement constitutes the valid
and legally binding obligation of Metzler and Acquisition Sub, enforceable
against them in accordance with its terms, except as enforceability may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to the rights and remedies of
creditors generally or (ii) general principles of equity.
(c) Noncontravention. Subject to compliance with the HSR Act, neither
the execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (i) violate or conflict in any way with
any statute, regulation, law, rule or common law doctrine, (ii) violate or
conflict in any way with any judgment, order, decree, stipulation, injunction or
other restriction of any government, governmental agency or court, to which
Metzler or Acquisition Sub is subject (iii) breach any provision of the
Certificate of Incorporation or By-Laws of Metzler or the Certificate of
Incorporation or By-laws of Acquisition Sub or (iv) conflict with, result in a
breach of, constitute a default under (with or without notice or lapse of time,
or both), result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under, or result
in the creation of any Security Interest upon any of Metzler's or Acquisition
Sub's assets pursuant to the terms of, any contract, agreement, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement for borrowed money,
instrument of indebtedness, Security Interest or other arrangement to which
Metzler or Acquisition Sub is a party or by which it is bound or to which any of
its assets are subject, except where such violations, conflicts, breaches,
defaults or other events would not, individually or in the aggregate, result in
a Metzler Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated hereby. Except pursuant to the HSR Act, neither
Metzler nor Acquisition Sub is required to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government,
governmental agency or court, or any other Person in order for the parties to
consummate the transactions contemplated by this Agreement and in order that the
Acquisition and such transactions shall not constitute a breach or violation of,
or result in a right of termination or acceleration or any encumbrance on any of
Metzler's or Acquisition Sub's assets pursuant to the provisions of, any
agreement, arrangement or understanding or any license, franchise or permit.
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(d) Metzler Common. Metzler has taken all actions necessary to
authorize and approve the issuance of the Metzler Common, and as of the Merger
Date the Metzler Common will, when issued in accordance herewith, be duly
authorized, validly issued, fully paid and nonassessable. There are no statutory
or contractual shareholders' preemptive rights or rights of refusal with respect
to the issuance of the Metzler Common upon consummation of the Acquisition.
(e) Brokers' Fees. Subject to Section 3.1(y) hereof, neither Metzler
nor Acquisition Sub has any Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Shareholder is or could become
liable or obligated, except for the fees and expenses payable to Donaldson,
Lufkin & Jenrette Securities Corporation.
(f) Capital Structure.
(i) The authorized capital stock of Metzler consists of
75,000,000 shares of Metzler Common and 3,000,000 shares of preferred stock, par
value $0.001 per share ("Metzler Preferred Stock"). As of December 31, 1998,
approximately 38,010,000 shares of Metzler Common and no shares of Metzler
Preferred Stock were issued and outstanding. All outstanding shares of Metzler's
outstanding capital stock are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights.
(ii) Except for options granted in the normal course pursuant to
Metzler's stock option plans and employee stock purchase plan, as described in
Metzler SEC Reports (as defined below), and except as contemplated herein, there
are no options, warrants, calls, rights, commitments or agreements of any
character to which Metzler or any Subsidiary of Metzler is a party or by which
any of them is bound obligating Metzler or any Subsidiary of Metzler or any
securities or rights convertible into or exchangeable for any such capital
stock.
(g) Commission Filings. Metzler has timely filed all forms, reports
and documents required to be filed by Metzler with the Commission under the
Exchange Act and the Securities Act since October 4, 1996 (collectively, the
"Metzler SEC Reports"). The Metzler SEC Reports (i) at the time filed, complied
in all material respects with the applicable requirements of the Exchange Act,
or Securities Act, as applicable, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated in such Metzler SEC
Reports or necessary in order to make the statements in such Metzler SEC
Reports, in the light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of Metzler
included in the Metzler SEC Reports (the "Metzler Financial Statements")
complied when filed as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, and were, when filed, in accordance with the books and
records of Metzler, complete and accurate in all material respects, and
presented fairly the consolidated financial position and the consolidated
results of operations, changes in stockholders' equity and cash flows of Metzler
and its Subsidiaries as of the dates and for the periods indicated, in
accordance with GAAP, consistently applied, subject in the case of interim
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financial statements to normal year-end adjustments and the absence of certain
footnote information.
(h) No Material Adverse Changes. Since November 5, 1998, to the
Knowledge of Metzler, no event has occurred which has had a Metzler Adverse
Effect and no action, suit, claim or proceeding has been filed, or threatened in
writing, which if adversely determined, would result in a Metzler Adverse
Effect.
(i) Transaction-Related Tax Matters. Metzler has not taken or agreed
to take any action that would prevent the transactions contemplated hereby from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(j) Disclosure. None of the representations or warranties of Metzler
and Acquisition Sub contained herein contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, as of the Merger Date.
(k) Information Statement Materials. None of the Metzler SEC Reports
contained in Exhibits __ attached to the Information Statement at the time of
mailing of the Information Statement to the Shareholders contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
4. CLOSING DELIVERIES
------------------
4.1 Company Closing Deliveries. The Company shall deliver to Metzler each
of the following:
(a) a certificate of the Secretary of the Company and a certificate
of the Secretary of each of its Subsidiaries dated the Merger Date certifying
(i) a copy of the text of the resolutions by which the action on the part of the
Company or such Subsidiary, as the case may be, necessary to approve this
Agreement and the Acquisition were taken, (ii) incumbency of each officer
executing this Agreement or any other agreement, certificate or other instrument
executed pursuant hereto, (iii) the Articles of Incorporation and By-laws or
other governing document of the Company or such Subsidiary, as the case may be,
and (iv) a list of Shareholders or other equity holders, as the case may be, as
of the Merger Date;
(b) a copy of the Company's Articles of Incorporation, as amended to
date, certified as of a recent date prior to the Merger Date by the State
Secretary of the State of California;
(c) Good standing certificates for the Company issued by the State
Secretary of the State of California and each jurisdiction in which the Company
is qualified to do business, and for each Subsidiary issued by the applicable
secretary of state (or other state agency) of the state of organization of such
Subsidiary (or other jurisdiction in which such Subsidiary is qualified to do
business), in each case dated as of a recent date prior to the Merger Date;
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(d) (i) from each of the Shareholders (other than Shareholders who
are exercising dissenters' rights with respect to the Acquisition [the
"Departing Shareholders"]), executed counterparts to the Registration Agreement
substantially in the form of Exhibit A hereto (the "Registration Agreement"),
(ii) from the Company, each of the Shareholders and the "Shareholders'
Representative" (as such term is defined thereunder), executed counterparts of
that certain Consent, Indemnification and Noncompete Agreement between the
foregoing parties, Metzler and Acquisition Sub in the form attached hereto as
Exhibit B (the "Consent, Indemnification and Noncompete Agreement"), (iii) from
the Shareholders' Representative and the Escrow Agent, executed counterparts of
the Escrow Agreement, and (iv) from the Dissenters, executed counterparts of
that certain Departing Shareholders' Noncompete Agreement in the form attached
hereto as Exhibit C (the "Departing Shareholders' Noncompete Agreement");
(e) evidence that no court or other governmental entity having
jurisdiction over the Company or Metzler, or any of their respective
Subsidiaries, shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making the Acquisition or any of the transactions contemplated
hereby illegal;
(f) evidence that 90% or more of the outstanding shares of Company
Stock shall have consented to the Acquisition; and
(g) evidence that the Existing Company Documents shall have been
terminated.
4.2 Metzler Closing Deliveries. Metzler shall deliver to the Company (or,
in the case of subsection (b), the Shareholders) each of the following:
(a) Metzler shall deliver to the Company a certificate of the
Secretary or any Assistant Secretary of Metzler and the Acquisition Sub dated
the Merger Date certifying (i) a copy of the text of the director resolutions by
which the corporate action on the part of Metzler and the Acquisition Sub
necessary to approve this Agreement and the Acquisition were taken; and (ii)
incumbency of each officer executing this Agreement or any other agreement,
certificate or other instrument executed pursuant hereto;
(b) the Registration Agreement, the Escrow Agreement, the Consent,
Indemnification and Noncompete Agreement, and the Dissenters' Noncompete
Agreement;
(c) evidence that no court or other governmental entity having
jurisdiction over the Company or Metzler, or any of their respective
Subsidiaries, shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making the Acquisition or any of the transactions contemplated
hereby illegal;
(d) evidence that the applicable waiting period, if any, under the
HSR Act shall have expired or been terminated; and
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(e) evidence that the shares of Metzler Common issuable pursuant to
the Acquisition shall have been authorized for listing on the Nasdaq Stock
Market, subject to notice of issuance.
5. ADDITIONAL AGREEMENTS
---------------------
5.1 Post-Acquisition Covenants. The Parties agree as follows with respect
to the period following the Merger Date:
(a) General. In case at any time after the Merger Date any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents, and in the case of Metzler,
using its reasonable efforts to cause the listing of the shares of Metzler
Common issuable in the Acquisition on Nasdaq) as any other Party reasonably may
request, at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification with respect to such matter
under Consent, Indemnification and Noncompete Agreement.
(b) Tax Matters. Metzler and the Company Executives shall cooperate
fully, as and to the extent reasonably requested by the other Party, in
connection with the filing of Tax Returns of the Company and its Subsidiaries
and any audit, litigation or other proceeding with respect to any Taxes of the
Company or any of its Subsidiaries or any Taxes incurred in connection with any
of the transactions contemplated by this Agreement. Neither Metzler, Acquisition
Sub nor any direct or indirect Subsidiary of Metzler shall take any action or
agree to take any action that prohibits the treatment of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
(c) Indemnification of Directors and Officers. The Surviving
Corporation shall indemnify, defend, hold harmless and advance expenses to the
individuals who are the Company Executives and officers of the Company as of the
date of this Agreement to the same extent, if any, that such directors and
officers are indemnified under the terms of the Articles of Incorporation or By-
laws or otherwise in respect of any claims brought after the date of this
Agreement relating to events occurring on or prior to the date of this
Agreement. In the event the Surviving Corporation or its successors or assigns
(i) consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger or
(ii) transfers all or substantially all its properties and assets to any Person,
then, and in each case, proper provision shall be made so that the successors
and assigns of the Surviving Corporation, as the case may be, honor the
indemnification obligations set forth in this Section (it being understood that
the amount of such indemnification and expenses shall constitute Metzler
Indemnifiable Losses as such term is defined under the Consent, Indemnification
and Noncompete Agreement to the extent they relate to a breach of a
representation or warranty by the Company).
(d) Employee Benefits. Employees of the Surviving Corporation
immediately following the Effective Date who, immediately prior to the Effective
Date, were employees of the Company, any Affiliate, or ERISA Affiliate, shall be
given credit for purposes of eligibility,
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vesting, and determination of level of benefits under each employee benefit
plan, program, policy or arrangement of Metzler, or an Affiliate of Metzler,
including, but not limited to the Surviving Corporation, in which such employees
participate subsequent to the Effective Date for all service with the Company,
any Affiliate, or ERISA Affiliate, prior to the Effective Date.
(e) Deferred Compensation Pay-out. Within thirty (30) days of the
Merger, Metzler shall cause the Company to pay to certain employees of the
Company cash or other immediately available funds equal to the difference
between (i) amounts actually accrued to such employees pursuant to that certain
Deferred Compensation Agreement, dated April 1, 1990, as thereafter amended (the
"Deferred Compensation Agreement"), entered into by and among the Company and
the employees of the Company who are party thereto, and (ii) the aggregate
amount of fees and expenses incurred or accrued by and payable by the Company as
a post-closing obligation and specified in Section 6.11 hereof; provided,
however, that the aggregate amounts payable pursuant to such Deferred
Compensation Agreement shall not exceed the difference between (i) $8,000,000
and (ii) the aggregate amount of fees and expenses incurred or accrued by and
payable by the Company as a post-closing obligation and specified in Section
6.11 hereof.
6. MISCELLANEOUS
-------------
6.1 Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement without
the prior written approval of the other Party (for purposes hereof, Metzler and
the Acquisition Sub shall be deemed one party and the Company and the
Shareholders collectively shall be deemed another Party); provided, however,
that any Party may make any public disclosure it believes in good faith is
required by law or regulation, including, without limitation, any disclosures
made necessary by Metzler's status as a public company (in which case the
disclosing Party will advise the other Party prior to making the disclosure).
6.2 No Third Party Beneficiaries. Except for Section 5.1(c), this
Agreement shall not confer any rights or remedies upon any Person other than the
Parties and their respective successors and permitted assigns.
6.3 Entire Agreement. This Agreement (including the other documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, that may have related in any way to the
subject matter hereof.
6.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign this Agreement or any of such Party's
rights, interests, or obligations hereunder without the prior written approval
of the other Parties. Notwithstanding the foregoing, Metzler may (i) cause the
stock of the Company to be acquired by a wholly owned subsidiary of Metzler
and/or (ii) merge the Company with or into a wholly-owned direct or indirect
subsidiary of Metzler, in either case without affecting its rights or
obligations hereunder.
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6.5 Survival. All of the representations and warranties of the Company and
the Company Executives contained in Section 3.1 hereof (the "Company
Representations"), shall survive the consummation of the Acquisition (regardless
of any Knowledge or investigation of Metzler, Acquisition Sub or the Surviving
Corporation) and shall continue in full force and effect for a period of one
year following the Merger Date (the "Survival Period"). All of the
representations and warranties of Metzler contained in Section 3.2 (the "Metzler
Representations") shall survive the consummation of the Acquisition (regardless
of any Knowledge or investigation of the Shareholders or the Company) and shall
continue in full force and effect until the expiration of the Survival Period.
All covenants (as opposed to representations and warranties) of the Parties in
this Agreement shall survive the consummation of the Acquisition and shall
continue in full force notwithstanding the expiration of the Survival Period.
6.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
6.7 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given (i) three (3)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, (ii) one day after receipt is electronically
confirmed, if sent by fax (provided that a hard copy shall be promptly sent by
first class mail), or (iii) one (1) business day following deposit with a
recognized national overnight courier service for next day delivery, charges
prepaid, and addressed to the intended recipient as set forth below or in the
case of the Shareholder on the signature pages hereto:
If to the Company: With a Copy To:
------------------ ---------------
Strategic Decisions Group Gray Cary Ware & Freidenrich LLP
2440 Sand Hill Road 400 Hamilton Avenue
Menlo Park, CA 94025-6900 Palo Alto, CA 94301-1825
Attn: Carl Spetzler Attn: Peter Astiz, Esq.
Fax: (650) 233-6022 Fax: (650) 327 - 3699
If to Metzler or Acquisition Sub: With a copy to:
--------------------------------- ---------------
The Metzler Group, Inc. Barack Ferrazzano Kirschbaum
615 North Wabash Avenue Perlman & Nagelberg
Chicago, Illinois 60015 333 West Wacker Drive, Suite 2700
Attn: General Counsel Chicago, Illinois 60606
Fax: (312) 573-5676 Attn: Michael J. Legamaro, Esq.
Fax: (312) 984-3193
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy,
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telex, ordinary mail, or electronic mail), but no such notice, request, demand,
claim, or other communication shall be deemed to have been duly given unless and
until it actually is delivered to the individual for whom it is intended. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
6.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois, any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Illinois. Each party hereto
(a) agrees that any suit, action or other legal proceeding relating hereto may
be brought in state court sitting in the County of Clark, Nevada or the United
States District Court for the District of Nevada, as applicable; and (b)
consents to the jurisdiction of each such court in any such suit, action or
proceeding; and (c) waives any objection said party may have to the laying of
venue in any such suit, action or proceeding in either such court; and (d)
consents to service of process by U.S. mail.
6.9 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Metzler, the Company, and the Executive Officers; provided, that the
Shareholders' Representative may, on behalf of the Company and the Executive
Officers (and, indirectly, the Shareholders), consent to any amendment of or
waive any provision of this Agreement, the Consent, Indemnification and
Noncompete Agreement, the Registration Agreement, or the Escrow Agreement, so
long as such amendment or waiver is not more favorable to one Shareholder or
group of Shareholders than any other. No waiver by any Party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent occurrence of
such kind.
6.10 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the invalid or unenforceable term or provision in
any other situation or in any other jurisdiction. If a final judgment of a court
of competent jurisdiction declares that any term or provision hereof is invalid
or unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
6.11 Expenses. Subject to the following two sentences, each of Metzler and
the Company will bear its own direct and indirect costs and expenses (including
fees and expenses of legal counsel, accountants or other representatives or
consultants) incurred in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the
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transactions contemplated hereby, whether or not such transactions are
consummated. If the Acquisition is consummated, then expenses paid, incurred, or
accrued by the Company to effect the Acquisition shall be paid by the Company;
except that the following expenses relating to the Acquisition will be accrued
by the Company and become post-closing obligations of the Company, but shall not
be considered in determining Working Capital, Total Assets or Net Shareholders
Capital for purposes of Section 2.6 hereof: (i) the reasonable accounting fees
and expenses of the Company and (ii) the legal fees incurred by the Company in
connection with the Acquisition and Merger (up to $75,000). Metzler shall pay
any and all investment banking fees due and owing Donaldson, Lufkin & Jenrette
Securities Corporation.
6.12 Obligations of Company Executives. The parties hereby agree and
acknowledge that notwithstanding the fact that the Company Executives have given
representations and warranties under this Agreement and are parties to this
Agreement, the Company Executives shall not thereby be liable for
indemnification or otherwise beyond the indemnification provided for pursuant to
the terms of the Consent, Indemnification and Non-compete Agreement.
6.13 Construction. The Parties have jointly participated in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumptions or burdens of proof
shall arise favoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any Federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
Parties intend that each representation, warranty and covenant contained herein
shall have independent significance. If any Party has breached any
representation, warranty or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
6.14 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
6.15 Directly or Indirectly. Where any provision in this Agreement refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person.
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IN WITNESS WHEREOF, the Parties hereto have executed this Plan and
Agreement of Merger as of the date first above written.
METZLER: THE COMPANY:
- -------- ------------
THE METZLER GROUP, INC., STRATEGIC DECISION GROUP
a Delaware corporation a California corporation
By: /s/ Robert P. Maher By: /s/ Carl Spetzler
Robert P. Maher, President and Carl Spetzler, Chief Executive
Chief Executive Officer Officer
By: /s/ Charles A. Demirjian By: /s/ Laurie Mandel
Charles A. Demirjian, Secretary Laurie Mandel, Secretary
ACQUISITION SUB:
- ----------------
MGI ACQUISITION III, Inc.,
a Delaware corporation
By: /s/ Robert P. Maher
Robert P. Maher, President
and Chairman
By: /s/ Charles A. Demirjian
Charles A. Demirjian, Secretary
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Company Executives' Signatures
==============================
COMPANY EXECUTIVES:
/s/
----------------------------
----------------------------
----------------------------
----------------------------
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List of Exhibits and Schedules
------------------------------
Exhibit A - Form of Registration Agreement
Exhibit B - Consent, Indemnification and Noncompete Agreement
Exhibit C - Departing Shareholder's Noncompete Agreement
Exhibit D - California Merger Agreement
Schedule 2.5 - Additional Officers of Surviving Corporation
Schedule 2.6 - Conversion of Securities
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Exhibit 10.2
THE METZLER GROUP, INC.
LONG-TERM INCENTIVE PLAN
As Amended Through June 1, 1999
I. Purpose
The Metzler Group, Inc. Long-Term Incentive Plan is adopted June 30, 1996.
The Plan is designed to attract and retain selected Key Employees and Key Non-
Employees of the Company and its Affiliates, and reward them for making major
contributions to the success of the Company and its Affiliates. These
objectives are accomplished by making long-term incentive awards under the Plan
that will offer Participants an opportunity to have a greater proprietary
interest in, and closer identity with, the Company and its Affiliates and their
financial success.
The Awards may consist of:
(i) Incentive Options;
(ii) Nonstatutory Options;
(iii) Formula Options;
(iv) Restricted Stock;
(v) Rights;
(vi) Performance Awards; or
(vii) Cash Awards
or any combination of the foregoing, as the Committee may determine.
The Plan is intended to qualify certain compensation awarded under the Plan
for tax deductibility under Section 162(m) of the Code to the extent deemed
appropriate by the Committee. The Plan and the grant of Awards hereunder are
expressly conditioned upon the Plan's approval by the stockholders of the
Company. If such approval is not obtained, then this Plan and all Awards
hereunder shall be null and void ab initio.
II. Definitions
A. Affiliate means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated association or other entity (other
than the Company) that, for purposes of Section 422 of the Code, is a parent or
subsidiary of the Company, direct or indirect.
B. Award means the grant to any Key Employee or Key Non-Employee of any form
of Option, Restricted Stock, Right, Performance Award, or Cash Award, whether
granted singly, in combination, or in tandem, and pursuant to such terms,
conditions, and limitations as the Committee may establish in order to fulfill
the objectives of the Plan.
C. Award Agreement means an agreement entered into between the Company and a
Participant under which an Award is granted and which sets forth the terms,
conditions, and limitations applicable to the Award.
D. Board means the Board of Directors of the Company.
E. Cash Award means an Award of cash, subject to the requirements of Article
XII and such other restrictions as the Committee deems appropriate or
desirable.
F. Code means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute thereto.
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G. Committee means the committee to which the Board delegates the power to
act under or pursuant to the provisions of the Plan, or the Board if no
committee is selected. If the Board delegates powers to a committee, and if
the Company is or becomes subject to Section 16 of the Exchange Act, then, if
necessary for compliance therewith, such committee shall consist initially of
not less than two (2) members of the Board, each member of which must be a
"non-employee director," within the meaning of the applicable rules
promulgated pursuant to the Exchange Act. If the Company is or becomes subject
to Section 16 of the Exchange Act, no member of the Committee shall receive
any Award pursuant to the Plan or any similar plan of the Company or any
Affiliate while serving on the Committee, unless the Board determines that the
grant of such an Award satisfies the then current Rule 16b-3 requirements
under the Exchange Act. Notwithstanding anything herein to the contrary, and
insofar as it is necessary in order for compensation recognized by
Participants pursuant to the Plan to be fully deductible to the Company for
federal income tax purposes, each member of the Committee also shall be an
"outside director" (as defined in regulations or other guidance issued by the
Internal Revenue Service under Code Section 162(m)).
H. Common Stock means the common stock of the Company.
I. Company means, on the date the Plan is adopted, Metzler & Associates,
Inc., an Illinois corporation, provided, however, that The Metzler Group, Inc.
shall become the Company upon, or as soon as practicable after, the effective
date of the reorganization of the Company (pursuant to which reorganization
Metzler & Associates, Inc. shall become a one hundred percent (100%)
subsidiary of The Metzler Group, Inc.). For all purposes hereunder, Company
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed, or consolidated; any corporation for whose
securities the securities of the Company shall be exchanged; and any assignee
of or successor to substantially all of the assets of the Company.
J. Disability or Disabled means a permanent and total disability as defined
in Section 22(e)(3) of the Code.
K. Exchange Act means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute thereto.
L. Fair Market Value means, if the Shares are listed on any national
securities exchange, the closing sales price, if any, on the largest such
exchange on the valuation date, or, if none, on the most recent trade date
immediately prior to the valuation date provided such trade date is no more
than thirty (30) days prior to the valuation date. If the Shares are not then
listed on any such exchange, the fair market value of such Shares shall be the
closing sales price if such is reported, or otherwise the mean between the
closing "Bid" and the closing "Ask" prices, if any, as reported in the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") for the valuation date, or if none, on the most recent trade date
immediately prior to the valuation date provided such trade date is no more
than thirty (30) days prior to the valuation date. If the Shares are not then
either listed on any such exchange or quoted in NASDAQ, or there has been no
trade date within such thirty (30) day period, the fair market value shall be
the mean between the average of the "Bid" and the average of the "Ask" prices,
if any, as reported in the National Daily Quotation System for the valuation
date, or, if none, for the most recent trade immediately prior to the
valuation date provided such trade date is no more than thirty (30) days prior
to the valuation date. If the fair market value cannot be determined under the
preceding three sentences, it shall be determined in good faith by the
Committee.
M. Formula Option means a Nonstatutory Option granted automatically to a
Non-Employee Board Member upon his or her initial election, and any subsequent
re-election, as a Non-Employee Board Member.
N. Incentive Option means an Option that, when granted, is intended to be
an "incentive stock option," as defined in Section 422 of the Code.
O. Key Employee means an employee of the Company or of an Affiliate who is
designated by the Committee as being eligible to be granted one or more Awards
under the Plan.
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P. Key Non-Employee means a Non-Employee Board Member, consultant, advisor
or independent contractor of the Company or of an Affiliate who is designated
by the Committee as being eligible to be granted one or more Awards under the
Plan.
Q. Non-Employee Board Member means a director of the Company who is not an
employee of the Company or any of its Affiliates.
R. Nonstatutory Option means an Option that, when granted, is not intended
to be an "incentive stock option," as defined in Section 422 of the Code.
S. Option means a right or option to purchase Common Stock, including
Restricted Stock if the Committee so determines.
T. Participant means a Key Employee or Key Non-Employee to whom one or more
Awards are granted under the Plan.
U. Performance Award means an Award subject to the requirements of Article
XI, and such performance conditions as the Committee deems appropriate or
desirable.
V. Plan means The Metzler Group, Inc. Long-Term Incentive Plan, as amended
from time to time.
W. Restricted Stock means an Award made in Common Stock or denominated in
units of Common Stock and delivered under the Plan, subject to the requirements
of Article IX, such other restrictions as the Committee deems appropriate or
desirable, and as awarded in accordance with the terms of the Plan.
X. Right means a stock appreciation right delivered under the Plan, subject
to the requirements of Article X and as awarded in accordance with the terms of
the Plan.
Y. Shares means the following shares of the capital stock of the Company as
to which Options or Restricted Stock have been or may be granted under the Plan
and upon which Rights or units of Restricted Stock may be based: treasury or
authorized but unissued Common Stock, no par value, of the Company (or,
following the reorganization of the Company, treasury or authorized but
unissued Common Stock, $.01 par value, of the Company), or any shares of
capital stock into which the Shares are changed or for which they are exchanged
within the provisions of Article XVIII of the Plan.
III. Shares Subject to the Plan
The aggregate number of Shares as to which Awards may be granted from time
to time shall be 25% of the issued and outstanding shares of capital stock of
the Company from time to time outstanding; provided that no change in the
issued and outstanding capital stock shall cause the number of Shares as to
which Awards may be granted to decrease; provided, further, that no more than
5,500,000 Shares (as adjusted for stock splits, stock dividends and other
similar events) shall be available for the grant of Incentive Options
hereunder.
In accordance with Code Section 162(m), if applicable, the aggregate number
of Shares as to which Awards may be granted in any one calendar year to any one
Key Employee shall not exceed three hundred thousand (300,000) Shares (subject
to adjustment for stock splits, stock dividends, and other adjustments
described in Article XVIII hereof).
From time to time, the Committee and appropriate officers of the Company
shall take whatever actions are necessary to file required documents with
governmental authorities and stock exchanges so as to make Shares available for
issuance pursuant to the Plan. Shares subject to Awards that are exercised, are
forfeited, terminated, expired unexercised, canceled by agreement of the
Company and the Participant, settled in cash in lieu of Common Stock or in such
manner that all or some of the Shares covered by such Awards are not issued
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to a Participant, or are exchanged for Awards that do not involve Common
Stock, shall immediately become available for Awards. Awards payable in cash
shall not reduce the number of Shares available for Awards under the Plan.
Except as otherwise set forth herein, the aggregate number of Shares as to
which Awards may be granted shall be subject to change only by means of an
amendment of the Plan duly adopted by the Company and approved by the
stockholders of the Company within one year before or after the date of the
adoption of the amendment.
IV. Administration of the Plan
The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum at any meeting thereof (including by
telephone conference) and the acts of a majority of the members present, or
acts approved in writing by a majority of the entire Committee without a
meeting, shall be the acts of the Committee for purposes of this Plan. The
Committee may authorize one or more of its members or an officer of the
Company to execute and deliver documents on behalf of the Committee. A member
of the Committee shall not exercise any discretion respecting himself or
herself under the Plan. The Board shall have the authority to remove, replace
or fill any vacancy of any member of the Committee upon notice to the
Committee and the affected member. Any member of the Committee may resign upon
notice to the Board. The Committee may allocate among one or more of its
members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines. Subject to the provisions of the Plan, the
Committee is authorized to:
A. Interpret the provisions of the Plan and any Award or Award
Agreement, and make all rules and determinations that it deems necessary or
advisable to the administration of the Plan;
B. Determine which employees of the Company or an Affiliate shall be
designated as Key Employees and which of the Key Employees shall be granted
Awards;
C. Determine the Key Non-Employees to whom Awards, other than Incentive
Options and Performance Awards for which Key Non-Employees shall not be
eligible, shall be granted;
D. Determine whether an Option to be granted shall be an Incentive
Option or Nonstatutory Option;
E. Determine the number of Shares for which an Option or Restricted
Stock shall be granted;
F. Determine the number of Rights, the Cash Award or the Performance
Award to be granted;
G. Provide for the acceleration of the right to exercise any Award,
other than an Award for Formula Options, which may not be accelerated; and
H. Specify the terms, conditions, and limitations upon which Awards may
be granted;
provided, however, that with respect to Incentive Options, all such
interpretations, rules, determinations, terms, and conditions shall be made
and prescribed in the context of preserving the tax status of the Incentive
Options as incentive stock options within the meaning of Section 422 of the
Code.
The Committee may delegate to the chief executive officer and to other
senior officers of the Company or its Affiliates its duties under the Plan
pursuant to such conditions or limitations as the Committee may establish,
except that only the Committee may select, and grant Awards to, Participants
who are subject to Section 16 of the Exchange Act. All determinations of the
Committee shall be made by a majority of its members. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Award.
The Committee shall have the authority at any time to cancel Awards for
reasonable cause and to provide for the conditions and circumstances under
which Awards shall be forfeited.
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Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of the Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the Company
and the Participants. No determination shall be subject to de novo review if
challenged in court.
V. Eligibility for Participation
Awards may be granted under this Plan only to Key Employees and Key Non-
Employees of the Company or its Affiliates. The foregoing notwithstanding, each
Participant receiving an Incentive Option must be a Key Employee of the Company
or of an Affiliate at the time the Incentive Option is granted.
The Committee may at any time and from time to time grant one or more Awards
to one or more Key Employees or Key Non-Employees and may designate the number
of Shares, if applicable, to be subject to each Award so granted, provided,
however that no Incentive Option shall be granted after the expiration of ten
(10) years from the earlier of the date of the adoption of the Plan by the
Company or the approval of the Plan by the stockholders of the Company, and
provided further, that the Fair Market Value of the Shares (determined at the
time the Option is granted) as to which Incentive Options are exercisable for
the first time by any Key Employee during any single calendar year (under the
Plan and under any other incentive stock option plan of the Company or an
Affiliate) shall not exceed One Hundred Thousand Dollars ($100,000). To the
extent that the Fair Market Value of such Shares exceeds One Hundred Thousand
Dollars ($100,000), the Shares subject to Option in excess of One Hundred
Thousand Dollars ($100,000) shall, without further action by the Committee,
automatically be converted to Nonstatutory Options.
Notwithstanding any of the foregoing provisions, the Committee may authorize
the grant of an Award to a person not then in the employ of, or engaged by, the
Company or of an Affiliate, conditioned upon such person becoming eligible to
be granted an Award at or prior to the execution of the Award Agreement
evidencing the actual grant of such Award.
VI. Awards Under this Plan
As the Committee may determine, the following types of Awards may be granted
under the Plan on a stand alone, combination, or tandem basis:
A. Incentive Option
An Award in the form of an Option that shall comply with the requirements of
Section 422 of the Code. Subject to adjustments in accordance with the
provisions of Article XVIII, the aggregate number of Shares that may be subject
to Incentive Options under the Plan shall not exceed one million three hundred
thousand (1,300,000).
B. Nonstatutory Option
An Award in the form of an Option that shall not be intended to comply with
the requirements of Section 422 of the Code.
C. Formula Option
An Award in the form of an Option granted to a Non-Employee Board Member at
the time of his or her initial election to the Board, or any subsequent re-
election.
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D. Restricted Stock
An Award made to a Participant in Common Stock or denominated in units of
Common Stock, subject to future service and such other restrictions and
conditions as may be established by the Committee, and as set forth in the
Award Agreement, including but not limited to continuous service with the
Company or its Affiliates, achievement of specific business objectives,
increases in specified indices, attaining growth rates, and other measurements
of Company or Affiliate performance.
E. Stock Appreciation Right
An Award in the form of a Right to receive the excess of the Fair Market
Value of a Share on the date the Right is exercised over the Fair Market Value
of a Share on the date the Right was granted.
F. Performance Awards
An Award made to a Participant that is subject to performance conditions
specified by the Committee, including but not limited to continuous service
with the Company or its Affiliates, achievement of specific business
objectives, increases in specified indices, attaining growth rates, and other
measurements of Company or Affiliate performance.
G. Cash Awards
An Award made to a Participant and denominated in cash, with the eventual
payment subject to future service and such other restrictions and conditions
as may be established by the Committee, and as set forth in the Award
Agreement.
Each Award under the Plan shall be evidenced by an Award Agreement. Delivery
of an Award Agreement to each Participant shall constitute an agreement
between the Company and the Participant as to the terms and conditions of the
Award.
VII. Terms and Conditions of Incentive Options and Nonstatutory Options
Each Option shall be set forth in an Award Agreement, duly executed on
behalf of the Company and by the Participant to whom such Option is granted.
Except for the setting of the Option price under Paragraph A, no Option shall
be granted and no purported grant of any Option shall be effective until such
Award Agreement shall have been duly executed on behalf of the Company and by
the Participant. Each such Award Agreement shall be subject to at least the
following terms and conditions:
A. Option Price
The purchase price of the Shares covered by each Option granted under the
Plan shall be determined by the Committee. The Option price per share of the
Shares covered by each Nonstatutory Option shall be at such amount as may be
determined by the Committee in its sole discretion on the date of the grant of
the Option. In the case of an Incentive Option, if the Participant owns
directly or by reason of the applicable attribution rules ten percent (10%) or
less of the total combined voting power of all classes of share capital of the
Company, the Option price per share of the Shares covered by each Incentive
Option shall be not less than the Fair Market Value of the Shares on the date
of the grant of the Incentive Option. In all other cases of Incentive Options,
the Option price shall be not less than one hundred ten percent (110%) of the
Fair Market Value on the date of grant.
B. Number of Shares
Each Option shall state the number of Shares to which it pertains.
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C. Term of Option
Each Incentive Option shall terminate not more than ten (10) years from the
date of the grant thereof, or at such earlier time as the Award Agreement may
provide, and shall be subject to earlier termination as herein provided, except
that if the Option price is required under Paragraph A of this Article VII to
be at least one hundred ten percent (110%) of Fair Market Value, each such
Incentive Option shall terminate not more than five (5) years from the date of
the grant thereof, and shall be subject to earlier termination as herein
provided. The Committee shall determine the time at which a Nonstatutory Option
shall terminate.
D. Date of Exercise
Upon the authorization of the grant of an Option, or at any time thereafter,
the Committee may, subject to the provisions of Paragraph C of this Article
VII, prescribe the date or dates on which the Option becomes exercisable, and
may provide that the Option become exercisable in installments over a period of
years, or upon the attainment of stated goals.
E. Medium of Payment
The Option price shall be payable upon the exercise of the Option, as set
forth in Paragraph I. It shall be payable in such form (permitted by Section
422 of the Code in the case of Incentive Options) as the Committee shall,
either by rules promulgated pursuant to the provisions of Article IV of the
Plan, or in the particular Award Agreement, provide.
F. Termination of Employment
1. A Participant who ceases to be an employee or Key Non-Employee of the
Company or of an Affiliate for any reason other than death, Disability, or
termination "for cause," as defined in subparagraph (2) below, may exercise
any Option granted to such Participant, to the extent that the right to
purchase Shares thereunder has become exercisable on the date of such
termination, but only within three (3) months after such date, or, if
earlier, within the originally prescribed term of the Option. A
Participant's employment shall not be deemed terminated by reason of a
transfer to another employer that is the Company or an Affiliate.
2. A Participant who ceases to be an employee or Key Non-Employee of the
Company or of an Affiliate "for cause" shall, upon such termination, cease
to have any right to exercise any Option. For purposes of this Plan, cause
shall mean (i) a Participant's theft or embezzlement, or attempted theft or
embezzlement, of money or property of the Company, a Participant's
perpetration or attempted perpetration of fraud, or a Participant's
participation in a fraud or attempted fraud, the Company or a Participant's
unauthorized appropriation of, or a Participant's attempt to
misappropriate, any tangible or intangible assets or property of the
Company; (ii) any act or acts of disloyalty, dishonesty, misconduct, moral
turpitude, or any other act or acts by a Participant injurious to the
interest, property, operations, business or reputation of the Company;
(iii) a Participant's commission of a felony or any other crime the
commission of which results in injury to the Company; or (iv) any violation
of any restriction on the disclosure or use of confidential information of
the Company or on competition with the Company or any of its businesses as
then conducted. The determination of the Committee as to the existence of
cause shall be conclusive and binding upon the Participant and the Company.
3. A Participant who is absent from work with the Company or an
Affiliate because of temporary disability (any disability other than a
Disability), or who is on leave of absence for any purpose permitted by any
authoritative interpretation (i.e., regulation, ruling, case law, etc.) of
Section 422 of the Code, shall not, during the period of any such absence,
be deemed, by virtue of such absence alone, to have terminated his or her
employment or relationship with the Company or with an Affiliate, except as
the Committee may otherwise expressly provide or determine.
4. Paragraph F(1) shall control and fix the rights of a Participant
who ceases to be an employee or Key Non-Employee of the Company or of an
Affiliate for any reason other than Disability, death, or
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termination "for cause," and who subsequently becomes Disabled or dies.
Nothing in Paragraphs G and H of this Article VII shall be applicable in
any such case except that, in the event of such a subsequent Disability or
death within the three (3) month period after the termination of employment
or, if earlier, within the originally prescribed term of the Option, the
Participant or the Participant's estate or personal representative may
exercise the Option permitted by this Paragraph F within twelve (12) months
after the date of Disability or death of such Participant, but in no event
beyond the originally prescribed term of the Option.
G. Total and Permanent Disability
A Participant who ceases to be an employee or Key Non-Employee of the
Company or of an Affiliate by reason of Disability may exercise any Option
granted to such Participant (i) to the extent that the right to purchase Shares
thereunder has become exercisable on or before the date such Participant
becomes Disabled as determined by the Committee, and (ii) if the Option becomes
exercisable periodically, to the extent of any additional rights that would
have become exercisable had the Participant not become so Disabled until after
the close of business on the next periodic exercise date.
A Disabled Participant shall exercise such rights, if at all, only within a
period of not more than twelve (12) months after the date that the Participant
became Disabled as determined by the Committee (notwithstanding that the
Participant might have been able to exercise the Option as to some or all of
the Shares on a later date if the Participant had not become Disabled) or, if
earlier, within the originally prescribed term of the Option.
H. Death
In the event that a Participant to whom an Option has been granted ceases to
be an employee or Key Non-Employee of the Company or of an Affiliate by reason
of such Participant's death, such Option, to the extent that the right is
exercisable but not exercised on the date of death, may be exercised by the
Participant's estate or personal representative within twelve (12) months after
the date of death of such Participant or, if earlier, within the originally
prescribed term of the Option, notwithstanding that the decedent might have
been able to exercise the Option as to some or all of the Shares on a later
date if the Participant were alive and had continued to be an employee or Key
Non-Employee of the Company or of an Affiliate.
I. Exercise of Option and Issuance of Stock
Options shall be exercised by giving written notice to the Company. Such
written notice shall: (i) be signed by the person exercising the Option, (ii)
state the number of Shares with respect to which the Option is being exercised,
(iii) contain the warranty required by paragraph M of this Article VII, if
applicable, and (iv) specify a date (other than a Saturday, Sunday or legal
holiday) not less than five (5) nor more than ten (10) days after the date of
such written notice, as the date on which the Shares will be purchased. Such
tender and conveyance shall take place at the principal office of the Company
during ordinary business hours, or at such other hour and place agreed upon by
the Company and the person or persons exercising the Option. On the date
specified in such written notice (which date may be extended by the Company in
order to comply with any law or regulation that requires the Company to take
any action with respect to the Option Shares prior to the issuance thereof),
the Company shall accept payment for the Option Shares in cash, by bank or
certified check, by wire transfer, or by such other means as may be approved by
the Committee and shall deliver to the person or persons exercising the Option
in exchange therefor an appropriate certificate or certificates for fully paid
nonassessable Shares or undertake to deliver certificates within a reasonable
period of time. In the event of any failure to take up and pay for the number
of Shares specified in such written notice on the date set forth therein (or on
the extended date as above provided), the right to exercise the Option shall
terminate with respect to such number of Shares, but shall continue with
respect to the remaining Shares covered by the Option and not yet acquired
pursuant thereto.
If approved in advance by the Committee, payment in full or in part also may
be made (i) by delivering Shares already owned by the Participant having a
total Fair Market Value on the date of such delivery equal to
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the Option price; (ii) by the execution and delivery of a note or other
evidence of indebtedness (and any security agreement thereunder) satisfactory
to the Committee; (iii) by authorizing the Company to retain Shares that
otherwise would be issuable upon exercise of the Option having a total Fair
Market Value on the date of delivery equal to the Option price; (iv) by the
delivery of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise or otherwise indicated an intent
to exercise an Option (in accordance with part 220, Chapter II, Title 12 of the
Code of Federal Regulations, a so-called "cashless" exercise); or (v) by any
combination of the foregoing.
J. Rights as a Stockholder
No Participant to whom an Option has been granted shall have rights as a
stockholder with respect to any Shares covered by such Option except as to such
Shares as have been registered in the Company's share register in the name of
such Participant upon the due exercise of the Option and tender of the full
Option price.
K. Assignability and Transferability of Option
Unless otherwise permitted by the Code and by Rule 16b-3 of the Exchange
Act, if applicable, and approved in advance by the Committee, an Option granted
to a Participant shall not be transferable by the Participant and shall be
exercisable, during the Participant's lifetime, only by such Participant or, in
the event of the Participant's incapacity, his guardian or legal
representative. Except as otherwise permitted herein, such Option shall not be
assigned, pledged, or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment, or similar
process and any attempted transfer, assignment, pledge, hypothecation or other
disposition of any Option or of any rights granted thereunder contrary to the
provisions of this Paragraph K, or the levy of any attachment or similar
process upon an Option or such rights, shall be null and void.
L. Other Provisions
The Award Agreement for an Incentive Option shall contain such limitations
and restrictions upon the exercise of the Option as shall be necessary in order
that such Option can be an "incentive stock option" within the meaning of
Section 422 of the Code. Further, the Award Agreements authorized under the
Plan shall be subject to such other terms and conditions including, without
limitation, restrictions upon the exercise of the Option, as the Committee
shall deem advisable and which, in the case of Incentive Options, are not
inconsistent with the requirements of Section 422 of the Code.
M. Purchase for Investment
If Shares to be issued upon the particular exercise of an Option shall not
have been effectively registered under the Securities Act of 1933, as now in
force or hereafter amended, the Company shall be under no obligation to issue
the Shares covered by such exercise unless and until the following conditions
have been fulfilled. The person who exercises such Option shall warrant to the
Company that, at the time of such exercise, such person is acquiring his or her
Option Shares for investment and not with a view to, or for sale in connection
with, the distribution of any such Shares, and shall make such other
representations, warranties, acknowledgements, and affirmations, if any, as the
Committee may require. In such event, the person acquiring such Shares shall be
bound by the provisions of the following legend (or similar legend) which shall
be endorsed upon the certificate(s) evidencing his or her Option Shares issued
pursuant to such exercise.
"The shares represented by this certificate have been acquired for
investment and they may not be sold or otherwise transferred by any person,
including a pledgee, in the absence of an effective registration statement
for the shares under the Securities Act of 1933 or an opinion of counsel
satisfactory to the Company that an exemption from registration is then
available."
"The shares of stock represented by this certificate are subject to all
of the terms and conditions of a certain Stockholders' Agreement dated as
of , 199 , among the Company and certain of its
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stockholders. A copy of the Agreement is on file in the office of the
Secretary of the Company. The Agreement provides, among other things, for
restrictions upon the holder's right to transfer the shares represented
hereby, and for certain prior rights to purchase and certain obligations to
sell the shares of common stock evidenced by this certificate at a
designated purchase price determined in accordance with certain procedures.
Any attempted transfer of these shares other than in compliance with the
Agreement shall be void and of no effect. By accepting the shares of stock
evidenced by this certificate, any permitted transferee agrees to be bound
by all of the terms and conditions of said Agreement."
Without limiting the generality of the foregoing, the Company may delay
issuance of the Shares until completion of any action or obtaining any consent
that the Company deems necessary under any applicable law (including without
limitation state securities or "blue sky" laws).
VIII. Formula Options
A. Each Non-Employee Board Member shall be granted automatically a Formula
Option to purchase nine thousand (9,000) Shares upon his or her initial
election and qualification for a three (3) year term as a Non-Employee Board
Member, and, thereafter, shall be granted automatically a Formula Option to
purchase nine thousand (9,000) Shares upon each re-election and qualification
as a Non-Employee Board Member. The foregoing notwithstanding, and in lieu
thereof, each Non-Employee Board Member whose election is for a term of less
than three (3) years shall be granted automatically a Formula Option to
purchase three thousand (3,000) Shares for each year of his or her term.
B. The purchase price of the Shares subject to the Formula Option shall be
equal to one hundred percent (100%) of the Fair Market Value as of the date of
grant.
C. The Shares subject to the Formula Option granted to a Non-Employee Board
Member shall become exercisable cumulatively, in accordance with the following
schedule:
<TABLE>
<CAPTION>
Cumulative Number of Shares
for Which Formula Option
Years Elapsed Since Date of Grant May be Exercised
--------------------------------- ---------------------------
<S> <C>
Less than 1................................... 0
1............................................. 3,000
2............................................. 6,000
3 or more..................................... 9,000
</TABLE>
The foregoing schedule notwithstanding, if a Non-Employee Board Member shall
cease to be a director of the Company because of death or Disability, all
Shares for which a Formula Option has been granted shall become immediately
exercisable and shall be exercisable in accordance with Paragraphs G and H of
Article VII. If a Non-Employee Board Member ceases to be a director of the
Company for any reason other than death or Disability, his or her right to
exercise the Formula Option, and the timing of such exercise, shall be governed
by the applicable provisions of Paragraph F of Article VII.
D. Formula Options shall be evidenced by an Award Agreement which shall
conform to the requirements of the Plan, and may contain such other provisions
not inconsistent therewith, as the Committee shall deem advisable. The
provisions of Article VII governing Nonstatutory Options, and the exercise and
issuance thereof, shall apply to Formula Options to the extent such provisions
are not inconsistent with this Article VIII.
IX. Required Terms and Conditions of Restricted Stock
A. The Committee may from time to time grant an Award in Shares of Common
Stock or grant an Award denominated in units of Common Stock, for such
consideration, if any, as the Committee deems appropriate (which amount may be
less than the Fair Market Value of the Common Stock on the date of the Award),
and subject to such restrictions and conditions and other terms as the
Committee may determine at the time of the
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Award (including, but not limited to, continuous service with the Company or
its Affiliates, achievement of specific business objectives, increases in
specified indices, attaining growth rates, and other measurements of Company or
Affiliate performance), and subject further to the general provisions of the
Plan, the applicable Award Agreement, and the following specific rules.
B. If Shares of Restricted Stock are awarded, such Shares cannot be
assigned, sold, transferred, pledged, or hypothecated prior to the lapse of the
restrictions applicable thereto, and, in no event, prior to six (6) months from
the date of the Award. The Company shall issue, in the name of the Participant,
stock certificates representing the total number of Shares of Restricted Stock
awarded to the Participant, as soon as may be reasonably practicable after the
grant of the Award, which certificates shall be held by the Secretary of the
Company as provided in Paragraph G.
C. Restricted Stock issued to a Participant under the Plan shall be governed
by an Award Agreement that shall specify whether Shares of Common Stock are
awarded to the Participant, or whether the Award shall be one not of Shares of
Common Stock but one denominated in units of Common Stock, any consideration
required thereto, and such other provisions as the Committee shall determine.
D. Subject to the provisions of Paragraphs B and E hereof and the
restrictions set forth in the related Award Agreement, the Participant
receiving an Award of Shares of Restricted Stock shall thereupon be a
stockholder with respect to all of the Shares represented by such certificate
or certificates and shall have the rights of a stockholder with respect to such
Shares, including the right to vote such Shares and to receive dividends and
other distributions made with respect to such Shares. All Common Stock received
by a Participant as the result of any dividend on the Shares of Restricted
Stock, or as the result of any stock split, stock distribution, or combination
of the Shares affecting Restricted Stock, shall be subject to the restrictions
set forth in the related Award Agreement.
E. Restricted Stock awarded to a Participant pursuant to the Plan will be
forfeited, and any Shares of Restricted Stock or units of Restricted Stock sold
to a Participant pursuant to the Plan may, at the Company's option, be resold
to the Company for an amount equal to the price paid therefor, and in either
case, such Restricted Stock shall revert to the Company, if the Company so
determines in accordance with Article XIV or any other condition set forth in
the Award Agreement, or, alternatively, if the Participant's employment with
the Company or its Affiliates terminates, other than for reasons set forth in
Article XIII, prior to the expiration of the forfeiture or restriction
provisions set forth in the Award Agreement.
F. The Committee, in its discretion, shall have the power to accelerate the
date on which the restrictions contained in the Award Agreement shall lapse
with respect to any or all Restricted Stock awarded under the Plan.
G. The Secretary of the Company shall hold the certificate or certificates
representing Shares of Restricted Stock issued under the Plan, properly
endorsed for transfer, on behalf of each Participant who holds such Shares,
until such time as the Shares of Restricted Stock are forfeited, resold to the
Company, or the restrictions lapse. Any Restricted Stock denominated in units
of Common Stock, if not previously forfeited, shall be payable in accordance
with Article XV as soon as practicable after the restrictions lapse.
H. The Committee may prescribe such other restrictions, conditions, and
terms applicable to Restricted Stock issued to a Participant under the Plan
that are neither inconsistent with nor prohibited by the Plan or the Award
Agreement, including, without limitation, terms providing for a lapse of the
restrictions of this Article or any Award Agreement in installments.
X. Required Terms and Conditions of Stock Appreciation Rights
If deemed by the Committee to be in the best interests of the Company, a
Participant may be granted a Right. Each Right shall be granted subject to such
restrictions and conditions and other terms as the Committee
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may specify in the Award Agreement at the time the Right is granted, subject
to the general provisions of the Plan, and the following specific rules.
A. Rights may be granted, if at all, either singly, in combination with
another Award, or in tandem with another Award. At the time of grant of a
Right, the Committee shall specify the base price of Common Stock to be used
in connection with the calculation described in Paragraph B below, provided
that the base price shall not be less than one hundred percent (100%) of the
Fair Market Value of a Share of Common Stock on the date of grant, unless
approved by the Board.
B. Upon exercise of a Right, which shall be not less than six (6) months
from the date of the grant, the Participant shall be entitled to receive in
accordance with Article XV, and as soon as practicable, the excess of the Fair
Market Value of one Share of Common Stock on the date of exercise over the
base price specified in such Right, multiplied by the number of Shares of
Common Stock then subject to the Right, or the portion thereof being
exercised.
C. Notwithstanding anything herein to the contrary, if the Award granted to
a Participant allows him or her to elect to cancel all or any portion of an
unexercised Option by exercising an additional or tandem Right, then the
Option price per Share of Common Stock shall be used as the base price
specified in Paragraph A to determine the value of the Right upon such
exercise and, in the event of the exercise of such Right, the Company's
obligation with respect to such Option or portion thereof shall be discharged
by payment of the Right so exercised. In the event of such a cancellation, the
number of Shares as to which such Option was canceled shall become available
for use under the Plan, less the number of Shares, if any, received by the
Participant upon such cancellation in accordance with Article XV.
D. A Right may be exercised only by the Participant (or, if applicable
under Article XIII, by a legatee or legatees of such Right, or by the
Participant's executors, personal representatives, or distributees).
XI. Performance Awards
A. A Participant may be granted an Award that is subject to performance
conditions specified by the Committee. The Committee may use business criteria
and other measures of performance it deems appropriate in establishing any
performance conditions (including, but not limited to, continuous service with
the Company or its Affiliates, achievement of specific business objectives,
increases in specified indices, attaining growth rates, and other measurements
of Company or Affiliate performance), and may exercise its discretion to
reduce or increase the amounts payable under any Award subject to performance
conditions, except as otherwise limited under Paragraphs C and D, below, in
the case of a Performance Award intended to qualify under Code Section 162(m).
B. Any Performance Award will be forfeited if the Company so determines in
accordance with Article XIV or any other condition set forth in the Award
Agreement, or, alternatively, if the Participant's employment with the Company
or its Affiliates terminates, other than for reasons set forth in Article
XIII, prior to the expiration of the time period over which the performance
conditions are to be measured.
C. If the Committee determines that a Performance Award to be granted to a
Key Employee should qualify as "performance-based compensation" for purposes
of Code Section 162(m), the grant and/or settlement of such Performance Award
shall be contingent upon achievement of preestablished performance goals and
other terms set forth in this Paragraph C.
1. Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to such criteria, as
specified by the Committee consistent with this Paragraph C. Performance
goals shall be objective and shall otherwise meet the requirements of Code
Section 162(m), including the requirement that the level or levels of
performance targeted by the Committee result in the performance goals being
"substantially uncertain." The Committee may determine that more than one
performance goal must be achieved as a
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condition to settlement of such Performance Awards. Performance goals may
differ for Performance Awards granted to any one Participant or to
different Participants.
2. Business Criteria. One or more of the following business criteria for
the Company, on a consolidated basis, and/or for specified Affiliates or
business units of the Company (except with respect to the total stockholder
return and earnings per share criteria), shall be used exclusively by the
Committee in establishing performance goals for such Performance Awards:
(1) total stockholder return; (2) such total stockholder return as compared
to the total return (on a comparable basis) of a publicly available index
such as, but not limited to, the Standard & Poor's 500 or the Nasdaq-U.S.
Index; (3) net income; (4) pre-tax earnings; (5) EBITDA; (6) pre-tax
operating earnings after interest expense and before bonuses, service fees,
and extraordinary or special items; (7) operating margin; (8) earnings per
share; (9) return on equity; (10) return on capital; (11) return on
investment; (12) operating income, excluding the effect of charges for
acquired in-process technology and before payment of executive bonuses;
(13) earnings per share, excluding the effect of charges for acquired in-
process technology and before payment of executive bonuses; (14) working
capital; and (15) total revenues. The foregoing business criteria also may
be used in establishing performance goals for Cash Awards granted under
Article XII hereof.
3. Compensation Limitation. No Key Employee may receive a Performance
Award in excess of $2,400,000 for any three (3) year period.
D. Achievement of performance goals in respect of such Performance Awards
shall be measured over such periods as may be specified by the Committee.
Performance goals shall be established on or before the dates that are required
or permitted for "performance-based compensation" under Code Section 162(m).
E. Settlement of Performance Awards may be in cash or Shares, or other
property, in the discretion of the Committee. The Committee may, in its
discretion, reduce the amount of a settlement otherwise to be made in
connection with such Performance Awards, but may not exercise discretion to
increase any such amount payable in respect of a Performance Award subject to
Code Section 162(m).
XII. Required Terms and Conditions of Cash Awards
A. The Committee may from time to time authorize the award of cash payments
under the Plan to Participants, subject to such restrictions and conditions and
other terms as the Committee may determine at the time of authorization
(including, but not limited to, continuous service with the Company or its
Affiliates, achievement of specific business objectives, increases in specified
indices, attaining growth rates, and other measurements of Company or Affiliate
performance), and subject to the general provisions of the Plan, the applicable
Award Agreement, and the following specific rules.
B. Any Cash Award will be forfeited if Company so determines in accordance
with Article XIV or any other condition set forth in the Award Agreement, or,
alternatively, if the Participant's employment with the Company or its
Affiliates terminates, other than for reasons set forth in Article XIII, prior
to the attainment of any goals set forth in the Award Agreement or prior to the
expiration of the forfeiture or restriction provisions set forth in the Award
Agreement, whichever is applicable.
C. The Committee, in its discretion, shall have the power to change the date
on which the restrictions contained in the Award Agreement shall lapse, or the
date on which goals are to be measured, with respect to any Cash Award.
D. Any Cash Award, if not previously forfeited, shall be payable in
accordance with Article XV as soon as practicable after the restrictions lapse
or the goals are attained.
E. The Committee may prescribe such other restrictions, conditions, and
terms applicable to the Cash Awards issued to a Participant under the Plan that
are neither inconsistent with nor prohibited by the Plan or the Award
Agreement, including, without limitation, terms providing for a lapse of the
restrictions, or a measurement of the goals, in installments.
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XIII. Termination of Employment
Except as may otherwise be (i) provided in Article VII for Options, (ii)
provided for under the Award Agreement, or (iii) permitted pursuant to
Paragraphs A through C of this Article XIII (subject to the limitations under
the Code for Incentive Options), if the employment of a Participant terminates,
all unexpired, unpaid, unexercised, or deferred Awards shall be canceled
immediately.
A. Retirement under a Company or Affiliate Retirement Plan. When a
Participant's employment terminates as a result of retirement as defined under
a Company or Affiliate retirement plan, the Committee may permit Awards to
continue in effect beyond the date of retirement in accordance with the
applicable Award Agreement, and/or the exercisability and vesting of any Award
may be accelerated.
B. Resignation in the Best Interests of the Company or an Affiliate. When a
Participant resigns from the Company or an Affiliate and, in the judgment of
the chief executive officer or other senior officer designated by the
Committee, the acceleration and/or continuation of outstanding Awards would be
in the best interests of the Company, the Committee may (i) authorize, where
appropriate, the acceleration and/or continuation of all or any part of Awards
granted prior to such termination and (ii) permit the exercise, vesting, and
payment of such Awards for such period as may be set forth in the applicable
Award Agreement, subject to earlier cancellation pursuant to Article XIV or at
such time as the Committee shall deem the continuation of all or any part of
the Participant's Awards are not in the Company's or its Affiliate's best
interests.
C. Death or Disability of a Participant
1. In the event of a Participant's death, the Participant's estate or
beneficiaries shall have a period up to the earlier of (i) the expiration
date specified in the Award Agreement, or (ii) the expiration date
specified in Paragraph H of Article VII, within which to receive or
exercise any outstanding Awards held by the Participant under such terms as
may be specified in the applicable Award Agreement. Rights to any such
outstanding Awards shall pass by will or the laws of descent and
distribution in the following order: (a) to beneficiaries so designated by
the Participant; (b) to a legal representative of the Participant; or (c)
to the persons entitled thereto as determined by a court of competent
jurisdiction. Awards so passing shall be made at such times and in such
manner as if the Participant were living.
2. In the event a Participant is determined by the Company to be
Disabled, and subject to the limitations of Paragraph G of Article VII,
Awards may be paid to, or exercised by, the Participant, if legally
competent, or by a legally designated guardian or other representative if
the Participant is legally incompetent by virtue of such Disability.
3. After the death or Disability of a Participant, the Committee may in
its sole discretion at any time (i) terminate restrictions in Award
Agreements; (ii) accelerate any or all installments and rights; and/or
(iii) instruct the Company to pay the total of any accelerated payments in
a lump sum to the Participant, the Participant's estate, beneficiaries or
representative, notwithstanding that, in the absence of such termination of
restrictions or acceleration of payments, any or all of the payments due
under the Awards ultimately might have become payable to other
beneficiaries.
XIV. Cancellation and Rescission of Awards
Unless the Award Agreement specifies otherwise, the Committee may cancel any
unexpired, unpaid, unexercised, or deferred Awards at any time if the
Participant is not in compliance with the applicable provisions of the Award
Agreement, the Plan, or with the following conditions:
A. A Participant shall not breach any protective agreement entered into
between him or her and the Company or any Affiliates, or render services for
any organization or engage directly or indirectly in any business which, in the
judgment of the chief executive officer of the Company or other senior officer
designated by the Committee, is or becomes competitive with the Company, or
which organization or business, or the rendering of services to such
organization or business, is or becomes otherwise prejudicial to or in conflict
with the interests of the Company. For a Participant whose employment has
terminated, the judgment of the chief
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executive officer shall be based on terms of the protective agreement, if
applicable, or on the Participant's position and responsibilities while
employed by the Company or its Affiliates, the Participant's post-employment
responsibilities and position with the other organization or business, the
extent of past, current, and potential competition or conflict between the
Company and other organization or business, the effect of the Participant's
assuming the post-employment position on the Company's or its Affiliate's
customers, suppliers, investors, and competitors, and such other considerations
as are deemed relevant given the applicable facts and circumstances. A
Participant may, however, purchase as an investment or otherwise, stock or
other securities of any organization or business so long as they are listed
upon a recognized securities exchange or traded over-the-counter, and such
investment does not represent a substantial investment to the Participant or a
greater than one percent (1%) equity interest in the organization or business.
B. A Participant shall not, without prior written authorization from the
Company, disclose to anyone outside the Company or its Affiliates, or use in
other than the Company's or Affiliate's business, any confidential information
or materials relating to the business of the Company or its Affiliates,
acquired by the Participant either during or after employment with the Company
or its Affiliates.
C. A Participant shall disclose promptly and assign to the Company all
right, title, and interest in any invention or idea, patentable or not, made or
conceived by the Participant during employment with the Company or an
Affiliate, relating in any manner to the actual or anticipated business,
research, or development work of the Company or its Affiliates, and shall do
anything reasonably necessary to enable the Company or its Affiliates to secure
a patent, trademark, copyright, or other protectable interest where appropriate
in the United States and in foreign countries.
Upon exercise, payment, or delivery pursuant to an Award, the Participant shall
certify on a form acceptable to the Committee that he or she is in compliance
with the terms and conditions of the Plan, including the provisions of
Paragraphs A, B or C of this Article XIV. Failure to comply with the provisions
of Paragraphs A, B or C of this Article XIV prior to, or during the one (1)
year period after, any exercise, payment, or delivery pursuant to an Award
shall cause such exercise, payment, or delivery to be rescinded. The Company
shall notify the Participant in writing of any such rescission within two (2)
years after such exercise, payment, or delivery. Within ten (10) days after
receiving such a notice from the Company, the Participant shall pay to the
Company the amount of any gain realized or payment received as a result of the
rescinded exercise, payment, or delivery pursuant to the Award. Such payment
shall be made either in cash or by returning to the Company the number of
Shares of Common Stock that the Participant received in connection with the
rescinded exercise, payment, or delivery.
XV. Payment of Restricted Stock, Rights, Performance Awards and Cash Awards
Payment of Restricted Stock, Rights, Performance Awards and Cash Awards may
be made, as the Committee shall specify, in the form of cash, Shares of Common
Stock, or combinations thereof; provided, however, that a fractional Share of
Common Stock shall be paid in cash equal to the Fair Market Value of the
fractional Share of Common Stock at the time of payment.
XVI. Withholding
Except as otherwise provided by the Committee,
A. The Company shall have the power and right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state, and local taxes required by law to be withheld with respect to
any grant, exercise, or payment made under or as a result of this Plan; and
B. In the case of payments of Awards, or upon any other taxable event
hereunder, a Participant may elect, subject to the approval in advance by the
Committee, to satisfy the withholding requirement, if any, in whole or in part,
by having the Company withhold Shares of Common Stock that would otherwise be
transferred to the
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Participant having a Fair Market Value, on the date the tax is to be
determined, equal to the minimum marginal tax that could be imposed on the
transaction. All elections shall be made in writing and signed by the
Participant.
XVII. Savings Clause
This Plan is intended to comply in all respects with applicable law and
regulations, including, (i) with respect to those Participants who are officers
or directors for purposes of Section 16 of the Exchange Act, Rule 16b-3 of the
Securities and Exchange Commission, if applicable, and (ii) with respect to
executive officers, Code Section 162(m). In case any one or more provisions of
this Plan shall be held invalid, illegal, or unenforceable in any respect under
applicable law and regulation (including Rule 16b-3 and Code Section 162(m)),
the validity, legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby and the invalid, illegal, or
unenforceable provision shall be deemed null and void; however, to the extent
permitted by law, any provision that could be deemed null and void shall first
be construed, interpreted, or revised retroactively to permit this Plan to be
construed in compliance with all applicable law (including Rule 16b-3 and Code
Section 162(m)) so as to foster the intent of this Plan. Notwithstanding
anything herein to the contrary, with respect to Participants who are officers
and directors for purposes of Section 16 of the Exchange Act, if applicable,
and if required to comply with rules promulgated thereunder, no grant of, or
Option to purchase, Shares shall permit unrestricted ownership of Shares by the
Participant for at least six (6) months from the date of grant or Option,
unless the Board determines that the grant of, or Option to purchase, Shares
otherwise satisfies the then current Rule 16b-3 requirements.
XVIII. Adjustments upon Changes in Capitalization; Corporate Transactions
In the event that the outstanding Shares of the Company are changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, change in par value, stock
split-up, combination of shares or dividends payable in capital stock, or the
like, appropriate adjustments to prevent dilution or enlargement of the Awards
granted to, or available for, Participants shall be made in the manner and kind
of Shares for the purchase of which Awards may be granted under the Plan, and,
in addition, appropriate adjustment shall be made in the number and kind of
Shares and in the Option price per share subject to outstanding Options. The
foregoing notwithstanding, no such adjustment shall be made in an Incentive
Option which shall, within the meaning of Section 424 of the Code, constitute
such a modification, extension, or renewal of an Option as to cause it to be
considered as the grant of a new Option.
Notwithstanding anything herein to the contrary, the Company may, in its
sole discretion, accelerate the timing of the exercise provisions of any Award
in the event of a tender offer for the Company's Shares, the adoption of a plan
of merger or consolidation under which a majority of the Shares of the Company
would be eliminated, or a sale of all or any portion of the Company's assets or
capital stock. Alternatively, the Company may, in its sole discretion, cancel
any or all Awards upon any of the foregoing events and provide for the payment
to Participants in cash of an amount equal to the value or appreciated value,
whichever is applicable, of the Award, as determined in good faith by the
Committee, at the close of business on the date of such event. The preceding
two sentences of this Article XVIII notwithstanding, the Company shall be
required to accelerate the timing of the exercise provisions of any Award if
(i) any such business combination is to be accounted for as a pooling-of-
interests under APB Opinion 16 and (ii) the timing of such acceleration does
not prevent such pooling-of-interests treatment.
Upon a business combination by the Company or any of its Affiliates with any
corporation or other entity through the adoption of a plan of merger or
consolidation or a share exchange or through the purchase of all or
substantially all of the capital stock or assets of such other corporation or
entity, the Board or the Committee may, in its sole discretion, grant Options
pursuant hereto to all or any persons who, on the effective date of such
transaction, hold outstanding options to purchase securities of such other
corporation or entity and who, on and after the effective date of such
transaction, will become employees or directors of, or consultants or
A-16
<PAGE>
advisors to, the Company or its Affiliates. The number of Shares subject to
such substitute Options shall be determined in accordance with the terms of the
transaction by which the business combination is effected. Notwithstanding the
other provisions of this Plan, the other terms of such substitute Options shall
be substantially the same as or economically equivalent to the terms of the
options for which such Options are substituted, all as determined by the Board
or by the Committee, as the case may be. Upon the grant of substitute Options
pursuant hereto, the options to purchase securities of such other corporation
or entity for which such Options are substituted shall be cancelled
immediately.
XIX. Dissolution or Liquidation of the Company
Upon the dissolution or liquidation of the Company other than in connection
with a transaction to which Article XVIII is applicable, all Awards granted
hereunder shall terminate and become null and void; provided, however, that if
the rights of a Participant under the applicable Award have not otherwise
terminated and expired, the Participant may, if the Committee, in its sole
discretion, so permits, have the right immediately prior to such dissolution or
liquidation to exercise any Award granted hereunder to the extent that the
right thereunder has become exercisable as of the date immediately prior to
such dissolution or liquidation.
XX. Termination of the Plan
The Plan shall terminate (10) years from the earlier of the date of its
adoption by the Board or the date of its approval by the stockholders. The Plan
may be terminated at an earlier date by vote of the stockholders or the Board;
provided, however, that any such earlier termination shall not affect any Award
Agreements executed prior to the effective date of such termination.
Notwithstanding anything in this Plan to the contrary, any Options granted
prior to the effective date of the Plan's termination may be exercised until
the earlier of (i) the date set forth in the Award Agreement, or (ii) in the
case of an Incentive Option, ten (10) years from the date the Option is
granted; and the provisions of the Plan with respect to the full and final
authority of the Committee under the Plan shall continue to control.
XXI. Amendment of the Plan
The Plan may be amended by the Board and such amendment shall become
effective upon adoption by the Board; provided, however, that any amendment
that (i) increases the numbers of Shares that may be granted under this Plan,
other than as provided by Article XVIII, (ii) materially modifies the
requirements as to eligibility to participate in the Plan, (iii) materially
increases the benefits to Participants, (iv) extends the period during which
Incentive Options may be granted or exercised, or (v) changes the designation
of the class of employees eligible to receive Incentive Options, or otherwise
causes the Incentive Options to no longer qualify as "incentive stock options"
as defined in Section 422 of the Code, also shall be subject to the approval of
the stockholders of the Company within one (1) year either before or after such
adoption by the Board, subject to the requirements of Article XVII of the Plan.
XXII. Employment Relationship
Nothing herein contained shall be deemed to prevent the Company or an
Affiliate from terminating the employment of a Participant, nor to prevent a
Participant from terminating the Participant's employment with the Company or
an Affiliate.
XXIII. Indemnification of Committee
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and reasonably incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken by them as directors or members of the Committee and against all amounts
A-17
<PAGE>
paid by them in settlement thereof (provided such settlement is approved by
the Board) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that the director or Committee
member is liable for gross negligence or willful misconduct in the performance
of his or her duties. To receive such indemnification, a director or Committee
member must first offer in writing to the Company the opportunity, at its own
expense, to defend any such action, suit or proceeding.
XXIV. Unfunded Plan
Insofar as it provides for payments in cash in accordance with Article XV,
or otherwise, the Plan shall be unfunded. Although bookkeeping accounts may be
established with respect to Participants who are entitled to cash, Common
Stock, or rights thereto under the Plan, any such accounts shall be used
merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common
Stock, or rights thereto, nor shall the Plan be construed as providing for
such segregation, nor shall the Company, the Board, or the Committee be deemed
to be a trustee of any cash, Common Stock, or rights thereto to be granted
under the Plan. Any liability of the Company to any Participant with respect
to a grant of cash, Common Stock, or rights thereto under the Plan shall be
based solely upon any contractual obligations that may be created by the Plan
and any Award Agreement; no such obligation of the Company shall be deemed to
be secured by any pledge or other encumbrance on any property of the Company.
Neither the Company nor the Board nor the Committee shall be required to give
any security or bond for the performance of any obligation that may be created
by the Plan.
XXV. Mitigation of Excise Tax
If any payment or right accruing to a Participant under this Plan (without
the application of this Article XXV), either alone or together with other
payments or rights accruing to the Participant from the Company or an
Affiliate, would constitute a "parachute payment" (as defined in Section 280G
of the Code and regulations thereunder), such payment or right shall be
reduced to the largest amount or greatest right that will result in no portion
of the amount payable or right accruing under the Plan being subject to an
excise tax under Section 4999 of the Code or being disallowed as a deduction
under Section 280G of the Code. The determination of whether any reduction in
the rights or payments under this Plan is to apply shall be made by the
Company. The Participant shall cooperate in good faith with the Company in
making such determination and providing any necessary information for this
purpose.
XXVI. Effective Date
This Plan shall become effective upon adoption by the Board, provided that
the Plan is approved by the stockholders of the Company before or at the
Company's next annual meeting, but in no event shall stockholder approval be
sought more than one (1) year after such adoption by the Board.
XXVII. Governing Law
This Plan shall be governed by the laws of the State of Illinois and
construed in accordance therewith.
Adopted this 30th day of June, 1996.
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<PAGE>
EX-10.6
AMENDMENT #3 TO THE EMPLOYEE STOCK PURCHASE PLAN
EX-10.6
THIRD AMENDMENT TO
THE METZLER GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
The Metzler Group, Inc. Employee Stock Purchase Plan ("Plan") is hereby
amended, effective September 15, 1998, as follows:
1. Section 3 ("Eligibility") shall be amended to read as follows:
"All Employees, except those individuals listed on Exhibit A, Section 16
Individuals, of the Insider Trader and Tipping Policy of The Metzler Group,
Inc., shall be eligible to participate in the Plan on the Effective Date.
Subject to the enrollment limitations of Section 6, each other Employee of
the Company and/or an Affiliate shall be eligible to participate on the
Offering Date coincident with or next following the Employee's first date
of employment."
2. Section 6(a) ("Participation") shall be amended to read as follows:
"Each Employee may become a Participant in the Plan by authorizing a
payroll deduction on a form provided by the Committee. Such authorization
shall become effective on the next Offering Date following the delivery of
the authorization form to the Committee; provided (i) that the Employee is
eligible under Section 3 to participate in the Plan on such day and (ii)
that if the authorization form is delivered to the Committee less than
fifteen (15) days prior to the Offering Date, it shall become effective on
the next Offering Date that is fifteen (15) or more days following delivery
of the authorization form to the Committee. The Committee may, in its
discretion, waive such fifteen (15) day delivery period for Employees of
newly-acquired Affiliates."
3. Section 7(b) ("Purchase of Shares") shall be amended to read as
follows:
"The purchase price for the shares of Common Stock to be purchased with
payroll deductions from the Participant shall be equal to eighty-five
percent (85%) of the lesser of (i) the "fair market value" of a share of
Common Stock on the Offering Date (or, if later, on the date the
Participant's authorization form becomes effective, as set forth in Section
6), or (ii) the "fair market value" of a share on the Purchase Date. Fair
market value shall be defined as the closing sales price of the Common
Stock on the largest national securities exchange on which such Common
Stock is listed at the time the Common Stock is to be valued. If the Common
Stock is not then listed on any such exchange, the fair market value shall
be the closing sales price if such is reported or otherwise the mean
between the closing "Bid" and the closing "Ask" prices, if any, as reported
in the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") for the date of valuation, or if none, on the most recent
trade date thirty (30) days or less prior to the date of valuation for
which such quotations are reported. If the Common Stock is not then listed
on any such exchange or quoted in NASDAQ, the fair market value shall be
the mean between the average of the "Bid" and the average of the "Ask"
prices, if any, as reported in the National Daily Quotation Service for the
date of valuation, or, if none, for the most recent trade date thirty (30)
days or less prior to the date of valuation for which such quotations are
reported. If the fair market value cannot be determined under the
proceeding three sentences, it shall be determined in good faith by the
Committee."
<PAGE>
4. Section 9 ("Cessation of Participation") shall be amended to read as
follows:
"A Participant may cease participation in the Plan at any time by notifying
the Committee in writing of his intent to cease his participation. If such
notice is received by the Committee, the Company shall distribute to the
Participant all of his accumulated payroll deductions, without interest. If
any Participant ceases participation in the Plan, no further Compensation
deductions shall be made on his behalf after the effective date of his
cessation, except in accordance with a new authorization form filed with
the Committee as provided in Section 6. Notwithstanding anything herein
contained to the contrary, if a Participant ceases participation in the
Plan, as required under Section 8 hereof, he shall not be eligible to again
participate in the Plan until the next Offering Date that is coincident
with or next follows the expiration of two (2) full Offering Periods
following the date such participation ceased."
IN WITNESS WHEREOF, The Metzler Group, Inc. has caused this Amendment to be
executed by its officer hereto duly authorized this 10th day of September, 1998.
The Metzler Group, Inc.,
a Delaware Corporation
By: Barry Cain
Its: Vice President
<PAGE>
EX-10.7
Amendment No. 4 to The Navigant Consulting, Inc. Stock Purchase Plan
Exhibit 10.7
FOURTH AMENDMENT TO
THE NAVIGANT CONSULTING, INC.
EMPLOYEE STOCK PURCHASE PLAN
The Navigant Consulting, Inc. Employee Stock Purchase Plan ("Plan") is
hereby amended, effective February 15, 2000, as follows:
1. Section 6(a) ("Participation") shall be amended to read as follows:
"Each Employee may become a Participant in the Plan by authorizing a
payroll deduction on a form provided by the Committee. Such authorization
shall become effective on the next Offering Date following the delivery of
the authorization form to the Committee; provided (i) that the Employee is
eligible under Section 3 to participate in the Plan on such day and (ii)
that if the authorization form is delivered to the Committee less than
fifteen (15) days prior to the Offering Date, it shall become effective on
the next Offering Date that is fifteen (15) or more days following delivery
of the authorization form to the Committee. Notwithstanding the foregoing,
the Committee may allow an Employee's authorization of such payroll
deduction pursuant to this Section 6(a) to become effective at a selected
time or times during an Offering Period, provided such allowance is applied
uniformly to all Employees."
2. Section 6(b) ("Participation") shall be amended to read as follows:
"At the time an Employee files his authorization for a payroll deduction,
he shall elect to have deductions made from each paycheck that he receives,
such deductions to continue until the Participant withdraws from the Plan
or otherwise becomes ineligible to participate in the Plan. Authorized
payroll deductions shall be for a minimum of one percent (1%) and a maximum
of fifteen percent (15%) of the Participant's Compensation. The deduction
rate so authorized shall continue in effect through the Offering Period and
each succeeding Offering Period, except to the extent such rate is changed
in accordance with the following guidelines:
(i) The Participant may, at any time during any Offering Period,
reduce his rate of payroll deduction by filing an authorization form
with the Company; and
(ii) The Participant may, at any time during any Offering Period,
increase the rate of his payroll deduction by filing an authorization
form with the Committee.
New deduction rates shall become effective as soon as practicable after the
authorization form is filed with the Committee."
IN WITNESS WHEREOF, Navigant Consulting, Inc. has caused this Amendment to
be executed by its officer hereto duly authorized this 22nd day of February,
2000.
<PAGE>
Navigant Consulting, Inc.
By: Mitchell S. Saranow
-------------------
Its: co-Chief Executive Officer
--------------------------
<PAGE>
EX-10.8
Employment Agreement dated as of November 12, 1999 between the
Registrant and John J. Reed
Exhibit 10.8
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), signed on ________, ____, and
effective as of November 12, 1999 (the "Effective Date"), is between Navigant
Consulting, Inc., a Delaware corporation (the "Company"), and John Reed (the
"Executive").
RECITALS
A. The Executive possesses knowledge, skill and experience advantageous
to the Company.
B. The Company desires to employ the Executive as its Co-Chief Executive
Officer, and the Executive desires to accept such employment, on the terms and
conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement, the
Company agrees to employ the Executive, and the Executive agrees to be employed
by the Company, for the period stated in Paragraph 2 hereof.
2. Employment Term. The term of the Executive's employment by the Company
under this Agreement will begin as of November 12, 1999, and will continue,
subject to earlier termination as provided in Section 7 hereof, for a three-year
period ending November 12, 2002, or it will continue to a later date pursuant to
an extension or modification of this Agreement by mutual agreement of the
parties hereto from time to time (the "Employment Term").
3. Position and Responsibilities. During the period of his employment
hereunder, the Executive agrees to serve the Company, and the Company shall
employ the Executive, as one of its three Co-Chief Executive Officers. During
the Employment Term, the Executive shall possess such broad powers and perform
such duties and functions as are normally incident to the position of Co-Chief
Executive Officer with an entity of an equivalent size and nature as the
Company, and the Executive will share the powers and duties of Co-Chief
Executive Officer with the other two Co-Chief Executive Officers appointed by
the Company's Board of Directors (the "Board") in a manner which is mutually
agreed upon from time to time between the Executive, the other Co-Chief
Executive Officers and the Board.
4. Performance of Duties; Commitment of Time. During the Employment Term the
Executive shall discharge the following obligations:
(a) During the period of his employment hereunder and except for illness,
reasonable vacation periods, and reasonable leaves of absence, the Executive
shall devote his best efforts and full-time attention and skill to the business
and affairs of the Company and its subsidiaries, affiliates and divisions, as
such business and affairs now exist and as they may be hereafter changed or
added to.
<PAGE>
(b) The Executive shall report directly and exclusively to the Board, and
he shall perform all of his duties in accordance with such reasonable
directions, requests, rules and regulations as are specified by the Board in
connection with his employment.
(c) Nothing herein shall preclude the Executive from devoting such
reasonable time as required to serve, or to continue to serve, on the boards of
directors of, or to hold any other offices or positions in or with respect to,
other companies, organizations or entities, provided that (i) the Executive
gives prior notice to the Company of such other activities, (ii) such other
activities do not violate Paragraph 6 hereof, and (iii) such other activities
have no material effect on the time the Executive is required to spend in
connection with the services required of him hereunder.
5. Compensation and Benefits.
(a) Base Salary. During the Employment Term, the Executive will receive
an annual salary, payable in monthly or more frequent installments, of $500,000
subject to authorized withholding and other deductions. The annual salary will
be reviewed annually and, if appropriate, increased by the Company in the sole
discretion of the Compensation Committee of its Board. Such annual salary, as so
increased, is hereinafter referred to as the "Base Salary." In no event shall
the Executive's Base Salary be reduced below $500,000. A retroactive payment of
Base Salary may be due to the Executive for his services to the Company
beginning on November 12, 1999, and extending through the business day preceding
the date this Agreement is signed, to the extent that actual salary paid by the
Company to the Executive for this time period was insufficient. The retroactive
payment, if necessary, shall be made in one lump sum within 15 days of the date
this Agreement is signed.
(b) Annual Bonus. During the Employment Term, the Executive will be eligible
to receive an annual cash bonus based upon the Executive's and/or the Company's
achievement of performance goals or objectives. The bonus goals and objectives
shall be established by mutual agreement of the Compensation Committee of the
Board and the Executive. The Executive shall have a maximum bonus opportunity of
100% of Base Salary and a target payment of 65% of Base Salary. The Compensation
Committee shall have the sole discretion to determine whether the bonus goals
and objectives have been met. Notwithstanding the foregoing, the Executive shall
be entitled to receive a bonus for the 1999 calendar year in accordance with the
terms and conditions previously established by the Company, for his services
rendered prior to November 12, 1999. In addition thereto, the Executive shall be
entitled to receive a prorated bonus payment of $35,000 for the period ending
December 31, 1999, which shall be paid to the Executive by the Company within 15
days of the date this Agreement is signed.
(c) Long-Term Incentive Compensation. (i) The Company has granted the
Executive an option (the "Option") to purchase 300,000 shares of the Company's
common stock, par value $0.001 per share (the "Common Stock"). The purchase
price per share is the closing price of the Common Stock on the date of grant
(the "Exercise Price"). The Option has been granted in accordance with the
Company's Long-Term Incentive Plan and is subject to the terms and conditions
contained in the Stock Award Agreement to be entered into between the Company
and the Executive, which terms shall include: (i) the Option shall have a term
equal to the lesser of ten years measured from the date of grant or the longest
period permitted by the Company's Long-Term Incentive Plan after the date of the
termination of the Executive's employment with the Company; (ii) the greatest
portion of the Option shares allowable under the Company's Long-Term Incentive
Plan shall be issued as incentive stock options; (iii) the Option shares shall
vest and become exercisable 50% as of the date of grant, an additional 25% on
the date 6 months after the date of grant, and an additional 25% on the date 18
months after the date of grant; and (iv) in the event of a Change of Control
prior to the Executive's termination of employment, or the termination of
Executive's employment by the Company without Cause (as hereinafter defined) or
by the Executive for Good Reason (as hereinafter defined) the Executive shall
immediately become fully vested in his entire Option.
(d) Employee Benefits. During the Employment Term, the Executive will be
entitled to receive all benefits of employment generally available to other
members of the Company's senior executive management, upon his satisfaction of
the eligibility or participation criteria therefor.
(e) Entitlement to Perquisites. For each fiscal year of the Company, or
portion thereof, occurring during the Employment Term, the Executive shall be
entitled to receive those perquisites from the Company which are generally
available to other members of the Company's senior executive management and they
shall specifically
2
<PAGE>
include, without limitation, reasonable hotel expenses while in Chicago, an
automobile allowance of $850 per month and downtown parking fees, and
reimbursement of dues and expenses associated with one downtown luncheon club.
(f) Reimbursement of Travel and Entertainment Expenses. The Company shall
pay or reimburse the Executive, in accordance with its normal policies and
practices, for all reasonable hotel, travel and other expenses incurred by the
Executive in connection with the performance of his obligations hereunder. The
Company further agrees to furnish the Executive with such accommodations as
shall be suitable to the character of the Executive's position with the Company
and adequate for the performance of his duties hereunder (including those
reasonable hotel and entertainment costs he incurs while staying in Chicago on
Company business).
(g) Legal Fees. The Company shall pay, or reimburse the Executive for, the
legal fees and expenses of counsel to the Executive in connection with the
preparation, negotiation, execution and delivery of this Agreement.
(h) Withholding Taxes. There shall be deducted and withheld from the Base
Salary and all other compensation payable to the Executive during or for the
Employment Term any and all amounts required to be deducted or withheld under
the provisions of any statute, regulation, ordinance or order.
6. Obligations of the Executive During and After Employment.
(a) The Executive acknowledges and agrees that solely by virtue of his
employment by, and relationship with, the Company, he will acquire "Confidential
Information," as defined in subparagraph (vii) below, as well as special
knowledge of the Company's relationships with its clients, and that, but for his
association with the Company, the Executive will not have had access to said
Confidential Information or knowledge of said relationships. The Executive
further acknowledges and agrees (1) that the Company has long term relationships
with its clients, and that those relationships were developed at great expense
and difficulty to the Company over several years of close and continuing
involvement; (2) that the Company's relationships with its clients are and will
continue to be valuable, special and unique assets of the Company and (3) that
the Company has the following protectable interests that are critical to its
competitive advantage in the industry and would be of demonstrable value in the
hands of a competitor: software designs and application; plans, modeling
products and tools (including, but not limited to, COMPPASS 2000); processes,
distribution networks, and protocols; research bases, systems, and industry
benchmarks; and concepts, ideas, marketing strategies, and other matters not
generally known to the public. In return for the consideration described in this
Agreement, and as a condition precedent both to the grant of the Option under
the Stock Award Agreement and the Company employing the Executive, and as an
inducement to the Company to do so, the Executive hereby represents, warrants
and covenants as follows:
(i) The Executive has executed and delivered this Agreement as his
free and voluntary act, after having determined that the provisions contained
herein are of a material benefit to him, and that the duties and obligations
imposed on him hereunder are fair and reasonable and will not prevent him from
earning a comparable livelihood following the termination of his employment with
the Company;
(ii) The Executive has read and fully understands the terms and
conditions set forth herein, has had time to reflect on and consider the
benefits and consequences of entering into this Agreement, and has had the
opportunity to review the terms hereof with an attorney or other representative
if he so chooses;
(iii) The execution and delivery of this Agreement by the Executive
does not conflict with, or result in a breach of or constitute a default under,
any agreement or contract, whether oral or written, to which the Executive is a
party or by which the Executive may be bound;
(iv) The Executive agrees that, during the time of his employment with
the Company and for a period of one year after termination of the Executive's
employment hereunder for any reason whatsoever or for no reason, whether
voluntary or involuntary, the Executive will not, except on behalf of the
Company, anywhere in North America or in any other place or venue where the
Company or any affiliate, subsidiary or division thereof now conducts or
operates, or may conduct or operate, its business prior to the date of the
Executive's termination of employment;
3
<PAGE>
(A) directly or indirectly, contact, solicit or direct any
person, firm, corporation, association, or other entity to contact or solicit,
any of the Employer's clients or prospective clients (as they are hereinafter
defined) for the purpose of selling or distributing or attempting to sell or
distribute, any products and/or services in competition with the Company to its
clients during the term hereof. In addition, the Executive will not disclose the
identity of any such clients or prospective clients, or any part thereof, to any
person, firm, corporation, association, or other entity for any reason or
purpose whatsoever, except to the extent (1) required by any law, regulation or
order of any court or regulatory commission, department or agency, provided that
the Executive gives prompt notice of such requirement to the Company to enable
the Company to seek an appropriate protective order, or (2) such disclosure is
necessary to perform properly the Executive's duties under this Agreement;
(B) solicit on his own behalf or on behalf of any other person,
the services of any person who is an employee of the Company, nor solicit any of
the Company's employees to terminate employment with the Company;
(C) become directly or indirectly, an investor, owner or
stockholder (excluding investments representing less than 2% of the common stock
of a public company), lender, director, consultant, employee, agent or
salesperson, whether part-time or full-time, of any business which competes with
the Company in the marketing of products or services developed, marketed or
provided by the Company; and
(D) act as a consultant, advisor, officer, manager, agent,
director, partner, independent contractor, owner, or employee for or on behalf
of any of the Company's clients or prospective clients (as hereinafter defined),
with respect to any other business activities in which the Company engages
during the term hereof;
(v) The scope described above is necessary and reasonable in order to
protect the Company in the conduct of its business and that, if the Executive
becomes employed by another employer, he shall be required to disclose the
existence of this paragraph 6 to such employer and the Executive hereby consents
to and the Company is hereby given permission to disclose the existence of this
paragraph 6 to such employer.
(vi) For purposes of this Paragraph 6, "client" shall be defined as
any person, firm, corporation, association, or entity that purchased any type of
product and/or service from the Company or is or was doing business with the
Company within the 12-month period immediately preceding termination of the
Executive's employment. For purposes of this Paragraph 6, "prospective client"
shall be defined as any person, firm, corporation, association, or entity
contacted or solicited in writing by the Company or who contacted the Company
within the 12-month period immediately preceding the termination of the
Executive's employment for the purpose of having such persons, firms,
corporations, associations, or entities become a client of the Company;
(vii) Both during his employment and thereafter he will not, for any
reason whatsoever, use for himself or disclose to any person not employed by the
Company any "Confidential Information" of the Company acquired by the Executive
during his relationship with the Company, except to the extent that such
Confidential Information (a) becomes a matter of public record or is published
in a newspaper, magazine or other periodical, or in other media, available to
the general public, other than as a result of any act or omission of the
Executive, (b) is required to be disclosed by law, regulation or order of any
court or regulatory commission, department or agency, provided that the
Executive gives prompt notice of such requirement to the Company to enable the
Company to seek an appropriate protective order, or (c) is required to be
disclosed in order to perform properly the Executive's duties under this
Agreement. The Executive further agrees to use Confidential Information solely
for the purpose of performing duties with the Company and further agrees not to
use Confidential Information for his own private use or commercial purposes. The
Executive agrees that "Confidential Information" includes but is not limited to:
(1) any financial, engineering, business, planning, operations, services,
potential services, products, potential products, technical information and/or
know-how, organization charts, formulas, business plans, production, purchasing,
marketing, pricing, sales, profit, personnel, customer, broker, supplier, or
other lists or information of the Company; (2) any papers, data, records,
processes, methods, techniques, systems, models, samples, devices, equipment,
compilations, invoices, client lists, or documents of the Company; (3) any
confidential information or trade secrets of any third party provided to the
Company in confidence or subject to other use or disclosure restrictions or
limitations; and (4) any other information, written, oral, or electronic,
whether existing now or at some time in the
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future, and whether pertaining to current or future developments, which pertains
to the Company's affairs or interests or with whom or how the Company does
business. The Company acknowledges and agrees that Confidential Information does
not include information properly in the public domain;
(viii) During and after the term of employment hereunder, the
Executive will not remove from the Company's premises any documents, records,
files, notebooks, correspondence, reports, video or audio recordings, computer
printouts, computer programs, computer software, price lists, microfilm,
drawings, or other similar documents containing Confidential Information,
including copies thereof, whether prepared by him or others, except as his
duties under this Agreement shall require, and in such cases, will promptly
return such items to the Company. Upon termination of his employment with the
Company, all such items including summaries or copies thereof, then in the
Executive's possession, shall be returned to the Company immediately;
(ix) All ideas, inventions, designs, processes, discoveries,
enhancements, plans, writings, and other developments or improvements (the
"Inventions") conceived by the Executive, alone or with others, during the term
of his employment, whether or not during working hours, that are within the
scope of the Executive's business operations or that relate to any of the
Company's work or projects (including any and all inventions based wholly or in
part upon ideas conceived during the Executive's employment with the Company),
are the sole and exclusive property of the Company. The Executive further agrees
that (1) he will promptly disclose all Inventions to the Company and hereby
assigns to the Company all present and future rights he has or may have in those
Inventions, including without limitation those relating to patent, copyright,
trademark or trade secrets; and (2) all of the Inventions eligible under the
copyright laws are "work made for hire." At the request of and without charge to
the Company, the Executive will do all things deemed by the Company to be
reasonably necessary to perfect title to the Inventions in the Company and to
assist in obtaining for the Company such patents, copyrights or other protection
as may be provided under law and desired by the Company, including but not
limited to executing and signing any and all relevant applications, assignments
or other instruments. Notwithstanding the foregoing, pursuant to the Employee
Patent Act, Illinois Public Act 83-493, the Company hereby notifies the
Executive that the provisions of this subparagraph (ix) shall not apply to any
Inventions for which no equipment, supplies, facility or trade secret
information of the Company was used and which were developed entirely on the
Executive's own time, unless (1) the Invention relates (i) to the business of
the Company, or (ii) to actual or demonstrably anticipated research or
development of the Company, or (2) the Invention results from any work performed
by the Executive for the Company;
(x) All client lists, supplier lists, and client and supplier
information are and shall remain the exclusive property of the Company,
regardless of whether such information was developed, purchased, acquired, or
otherwise obtained by the Company or the Executive. The Executive also agrees to
furnish to the Company on demand at any time during his employment, and upon the
termination of his employment, any records, notes, computer printouts, computer
programs, computer software, price lists, microfilm, or any other documents
related to the Company's business, including originals and copies thereof; and
(xi) The Executive may become aware of "material" nonpublic
information relating to clients whose stock is publicly traded. The Executive
acknowledges that he is prohibited by law as well as by Company policy from
trading in the shares of such clients while in possession of such information or
directly or indirectly disclosing such information to any other persons so that
they may trade in these shares. For purposes of this subparagraph (xi),
"material" information may include any information, positive or negative, which
might be of significance to an investor in determining whether to purchase, sell
or hold the stock of publicly traded clients. Information may be significant for
this purpose even if it would not alone determine the investor's decision.
Examples include a potential business acquisition, internal financial
information that departs in any way from what the market would expect, the
acquisition or loss of a major contract, or an important financing transaction.
(b) Remedy for Breach. The Executive agrees that in the event of a
material breach or threatened material breach of any of the covenants contained
in this Paragraph 6, the Company will have the right and remedy to have such
covenants specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that any material breach of any of the covenants will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company.
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(c) Blue-Penciling. The Executive acknowledges and agrees that the
noncompetition and nonsolicitation provisions contained herein are reasonable
and valid in geographic, temporal and subject matter scope and in all other
respects, and do not impose limitations greater than are necessary to protect
the goodwill, Confidential Information and other business interests of the
Company. Nevertheless, if any court determines that any of said noncompetition
and other restrictive covenants and agreements, or any part thereof, is
unenforceable because of the duration or geographic scope of such provision,
such court will have the power to reduce the duration or scope of such
provision, as the case may be, and, in its reduced form, such provision will
then be enforceable to the maximum extent permitted by applicable law.
7. Termination of Employment.
(a) Termination as a Result of Death or Disability. The Executive's
employment with the Company shall terminate automatically upon the Executive's
death during the Employment Term. If the Disability of the Executive has
occurred during the Employment Term (pursuant to the definition of "Disability"
set forth below), the Company may give to the Executive written notice of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Company (the "Disability Effective
Date"), provided that, within the 30 days after receipt of notice, the Executive
shall not have returned to substantial performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company for 120 consecutive days,
or a total of 180 days in any 12-month period, as a result of incapacity due to
mental or physical illness which is determined to be total and permanent by a
physician jointly selected by the Company and the Executive or the Executive's
legal representative, or if the parties cannot agree on the selection of such
physician then each shall choose a physician and the two physicians shall
jointly select a physician to make such binding determination.
(b) Termination by the Company for Cause. The Company may terminate the
Executive's employment during the Employment Term for Cause at any time upon
written notice from the Board specifying such Cause and the expiration of the
cure period specified below, and thereafter, the Company's obligations hereunder
(other than the obligation to pay any accrued salary or benefit) shall cease and
terminate; provided, however, that such written notice shall not be delivered
until after the Board shall have given the Executive written notice specifying
the conduct alleged to have constituted such Cause. The Executive shall have 30
days to cure the matters specified in the notice delivered by the Board (to the
extent that such matters are curable). For purposes of this Agreement, "Cause"
shall mean the Executive's willful misconduct, dishonesty or other willful
actions (or willful failures to act) which are materially and demonstrably
injurious to the Company, or a material breach by the Executive of one or more
terms of this Agreement, which shall include the Executive's habitual neglect of
the material duties required of him under this Agreement. For purposes of this
Section, no act or failure to act, on the part of the Executive, shall be
considered "willful" unless it is done, or omitted to be done, by the Executive
in bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in the
best interests of the Company. The cessation of employment of the Executive
shall not be deemed to be for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the Board by
the vote of a majority of the entire Board at a meeting of the Board duly called
and held for such purpose, at which the Executive shall have an opportunity to
be present and to be heard, finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described above, and specifying
the particulars thereof in detail.
(c) Termination by the Executive for Good Reason. The Executive's
employment with the Company may be terminated by the Executive for Good Reason.
For purposes of this Agreement, "Good Reason" shall mean any of the following
actions, if taken without the express written consent of the Executive: (1) any
material change by the Company in the Executive's title, functions, duties, or
responsibilities, which changes would cause the Executive's position with the
Company to become of significantly less responsibility, importance or scope as
compared to the position and attributes that applied to the Executive as of the
Effective Date; (2) any material failure by the Company to comply with any of
the provisions of the Agreement; or (3) the requirement made by the Company that
the Executive change his manner of performing his responsibilities so as to
require a change in his residence.
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(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (1) indicates the specific termination provision in
this Agreement relied upon, (2) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(3) if the Date of Termination (as defined in Section (e) hereof) is other than
the date of receipt of such notice, specifies the termination date (which date
shall be not more than 30 days after the giving of such notice). The failure by
the Executive or the Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (1) if the Executive's
employment is terminated by the Company for Cause, the expiration of the cure
period specified in Paragraph 7(b) hereof, (2) if the Executive's employment is
terminated by the Executive for Good Reason, the date of receipt of the Notice
of Termination or any later date specified therein, as the case may be, (3) if
the Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case may
be, and (4) if the Executive's employment is terminated by the Company other
than for Cause or Disability, or by the Executive without Good Reason, 30 days
after the date of receipt by the non-terminating party of a written notice of
termination or such shorter time as the Board thereafter specifies in a written
notice to the Executive.
(f) Change of Control of the Company. For the purpose of this
Agreement, a "Change of Control" shall have been deemed to have occurred if at
any time during the Employment Term:
(i) the Company sells or otherwise disposes in an arms length
transaction assets of the Company having a fair market value of at least
60% of the total assets of the Company and its subsidiaries on a
consolidated basis, or the Company sells or otherwise disposes of a
majority of the equity ownership or voting control of any member of any
corporation or other entity holding substantially all of the assets of the
Company, in a single transaction or series of related transactions, or
(ii) acquisition by (A) any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
or (B) two or more Persons of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either
(1) the shares of Common Stock outstanding immediately after such
acquisition (the "Company Common Stock") or (2) the combined voting power
of the voting securities of the Company entitled to vote generally in the
election of directors outstanding immediately after such acquisition (the
"Company Voting Securities"); provided, however, that for purposes of this
subsection (i) the following acquisitions of securities shall not
constitute or be included when determining whether there has been a Change
of Control: (1) any acquisition by the Company, or (2) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or
(iii) consummation of a reorganization, merger or consolidation or the
sale or other disposition of all or substantially all of the assets of the
Company, or the acquisition of the assets of another corporation by the
Company (in each case, a "Business Combination"), unless, following any
such Business Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Company
Common Stock and Company Voting Securities outstanding immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of common stock or
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the Company Common Stock and Company Voting Securities
outstanding, as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan or
related trust of the Company or
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any corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 50% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (C) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Board at the
time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination.
8. Obligations of the Company upon Termination of Employment.
(a) Termination by the Company Other Than for Cause, Death or Disability or
by the Executive for Good Reason or for any Reason Following a Change of
Control. If during the Employment Term (i) the Company terminates the
Executive's employment other than for Cause, death or Disability, (ii) the
Executive terminates his employment for Good Reason, or (iii) following a Change
of Control, the Executive terminates his employment for any reason, then in any
such case the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination (or, in the event any amounts due cannot be
determined within this period, as soon thereafter as is practicable) an amount
equal to (A) two times the Executive's then current Base Salary plus (B) two
times the annual bonus most recently paid to the Executive. The Company shall
have no further obligation to the Executive other than the obligation to pay to
him any compensation and benefits due to the Executive in accordance with this
Agreement, in each case to the extent theretofore unpaid. The provisions of this
Subparagraph 8(a) shall not affect any rights of the Executive under the
Company's benefit plans or programs.
(b) Termination as a Result of the Executive's Disability or Death. If
during the Employment Term the Executive's employment is terminated by reason of
the Executive's Disability or death, then the Company shall pay to the Executive
or the Executive's legal representatives in a lump sum in cash within 30 days
after the Date of Termination (or, in the event any amounts due cannot be
determined within this period, as soon thereafter as is practicable) an amount
equal to one times (A) the Executive's then current Base Salary plus (B) the
annual bonus most recently paid to the Executive. The Company shall have no
further obligation to the Executive other than the obligation to pay to him any
compensation and benefits due to the Executive in accordance with this
Agreement, in each case to the extent theretofore unpaid. The provisions of this
Subparagraph 8(b) shall not affect any rights of the Executive's heirs,
administrators, executors, legatees, beneficiaries or assigns under the
Company's benefit plans or programs.
(c) Termination by the Company for Cause or by the Executive other than
for Good Reason. If during the Employment Term either (i) the Executive's
employment is terminated by the Company for Cause or (ii) the Executive
voluntarily terminates his employment prior to a Change of Control, excluding
termination by him for Good Reason, then the Company shall have no further
obligation to the Executive other than the obligation to pay to the Executive
(A) his Base Salary through the Date of Termination and (B) any other
compensation and benefits due to the Executive in accordance with this
Agreement, in each case to the extent theretofore unpaid.
9. Golden Parachute Provision.
In the event that in the opinion of tax counsel selected by the Executive
and compensated by the Company ("Executive's Tax Counsel"), a payment or benefit
received or to be received by the Executive (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company or
any of its subsidiaries, affiliates or divisions) (collectively, with the
payments provided for in the foregoing provisions of Section 8, the "Post
Termination Payments") would be subject to excise tax (in whole or in part) as a
result of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), and as a result of such excise tax, the net amount of Post Termination
Payments retained by the Executive (taking into account federal and state income
taxes and such excise tax) would be less than the net amount of Post Termination
Payments retained by the Executive (taking into account federal and state income
taxes) if the Post Termination Payments were reduced or eliminated as described
in this Section 9, then the Post Termination Payments shall be reduced or
eliminated until no portion of the Post Termination Payments is subject to
excise tax, or the Post Termination Payments are reduced to zero. For purposes
of this limitation (i) no portion of the Post Termination Payments the receipt
or enjoyment of
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which the Executive shall have waived in writing prior to the date of payment
following termination of the Post Termination Payments shall be taken into
account, (ii) no portion of the Post Termination Payments shall be taken into
account which in the opinion of Executive's Tax Counsel does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code, (iii)
the Post Termination Payments shall be reduced only to the extent necessary so
that the Post Termination Payments (other than those referred to in clauses (i)
and (ii)) in their entirety constitute reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Code or are
otherwise not subject to excise tax, in the opinion of Executive's Tax Counsel,
and (iv) the value of any non-cash benefit and all deferred payments and
benefits included in the Post Termination Payments shall be determined by the
mutual agreement of the Company and the Executive in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
10. Governing Law; Arbitration; Jurisdiction; Attorneys' Fees.
This Agreement is made and entered into and will be governed by and
interpreted in accordance with the laws of the State of Illinois. The Company
and the Executive agree that any dispute regarding this Agreement, that cannot
be resolved amicably by the parties, will be submitted to arbitration within 60
days of the date the dispute arose and will be resolved in accordance with the
rules of the American Arbitration Association for expedited cases then in
effect. The arbitrator will be mutually selected by the parties or in the event
the parties cannot mutually agree, then appointed by the American Arbitration
Association. Any arbitration will be held in Chicago, Illinois and the
arbitrator will apply Illinois law. Judgment upon any award rendered by the
arbitrator will be final and binding and may be entered in any court of
competent jurisdiction. The arbitrator will not be empowered to award damages in
excess of compensatory damages and each party hereby irrevocably waives any
damages in excess of compensatory damages. Notwithstanding the foregoing, the
Company will have the absolute right to seek equitable remedies in any state
court of competent jurisdiction in the State of Illinois, County of Cook, or in
a United States District Court in the State of Illinois pursuant to Paragraph
6(b) hereof. By Executive's execution and delivery of this Agreement, the
Executive irrevocably submits to and accepts the exclusive jurisdiction of each
of such courts and waives any objection (including any objection to venue or any
objection based upon the grounds of forum non conveniens) which might be
asserted against the bringing of any such action, suit or other legal proceeding
in such courts. The parties shall be responsible for their own costs and
expenses under this Section 10.
11. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes any and all previous agreements, written or oral, including
restrictive covenants, regarding the subject matter hereof between the parties
hereto. This Agreement shall not be modified or amended, except by a written
agreement signed by the parties hereto.
(b) Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been given if delivered by hand, sent by
generally recognized overnight courier service, telex or telecopy with
confirmation of receipt, or mail:
(i) to the Company:
Navigant Consulting, Inc.
Attn: General Counsel
615 N. Wabash
Chicago, Illinois 60611
with a copy to:
Winston & Strawn
Attention: Gov. James R. Thompson
35 West Wacker Drive
Chicago, IL 60601
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(ii) to the Executive:
John Reed
---------------------
---------------------
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications will be effective when
actually received by the addressee.
(c) Successors.
This Agreement is personal to the Executive and without the prior written
consent of the Company it shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This Agreement will inure
to the benefit of and be enforceable against the Executive's legal
representatives. This Agreement will inure to the benefit of and be binding upon
the Company and its successors and assigns. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation, share
exchange or otherwise) to all or substantially all of the business and/or assets
of the Company to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. For purposes of this Agreement, the
term "Company" means the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(d) Severability. If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision will thereupon be deemed modified only to
the extent necessary to render such provision valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require, and
this Agreement will be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be. Should this Agreement, or any one or more of the
provisions hereof, be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, the Agreement or any such
provision or provisions will not as a consequence thereof be deemed to be
invalid, illegal or unenforceable in any other governmental jurisdiction or
subdivision thereof.
(e) Waiver. The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, will not be deemed to be
a waiver of such provision or right or any other provision or right of this
Agreement.
(f) Counterparts. This Agreement may be executed in two counterparts, each
of which will be deemed an original and both of which taken together will
constitute a single instrument.
(signature page follows)
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
------------------------------------
John Reed
Navigant Consulting, Inc.
By __________________________________
Its _________________________________
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EX-10.9
Employment Agreement dated as of November 12, 1999 between the
Registrant and Mitchell H. Saranow
Exhibit 10.9
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), signed on ________, ____,
and effective as of November 12, 1999 (the "Effective Date"), is between
Navigant Consulting, Inc., a Delaware corporation (the "Company"), and Mitchell
H. Saranow (the "Executive").
RECITALS
A. The Executive has served as an independent director of the Company for
three years and possesses knowledge, skill and experience advantageous to the
Company.
B. The Company desires to employ the Executive as its Chairman of the
Board of Directors and Co-Chief Executive Officer, and the Executive desires to
accept such employment, on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement, the
Company agrees to employ the Executive, and the Executive agrees to be employed
by the Company, for the period stated in Paragraph 2 hereof.
2. Employment Term. The term of the Executive's employment by the Company
under this Agreement will begin as of November 12, 1999, and will continue,
subject to earlier termination as provided in Section 7 hereof, for a three-year
period ending November 12, 2002, or it will continue to a later date pursuant to
an extension or modification of this Agreement by mutual agreement of the
parties hereto from time to time (the "Employment Term").
3. Position and Responsibilities. During the period of his employment
hereunder, the Executive agrees to serve the Company, and the Company shall
employ the Executive, as one of its three Co-Chief Executive Officers. The
Executive also shall serve as Chairman of the Company's Board of Directors (the
"Board") until the annual meeting of stockholders of the Company to be held in
2000. The Company agrees that the Executive shall be nominated to serve as a
director of the Company at the annual meeting of stockholders of the Company to
be held in 2000 and, following the election of the Executive as a director at
such annual meeting, the Executive shall be elected to the office of Chairman of
the Board. During the Employment Term, the Executive shall possess such broad
powers and perform such duties and functions as are normally incident to the
position of Chairman of the Board and Co-Chief Executive Officer with an entity
of an equivalent size and nature as the Company, and the Executive will share
the powers and duties of Co-Chief Executive Officer with the other two Co-Chief
Executive Officers appointed by the Board in a manner which is mutually agreed
upon from time to time between the Executive, the other Co-Chief Executive
Officers and the Board.
4. Performance of Duties; Commitment of Time. During the Employment Term the
Executive shall discharge the following obligations:
(a) During the period of his employment hereunder and except for illness,
reasonable vacation periods, and reasonable leaves of absence, the Executive
shall, subject to Paragraph 4(c) hereof, devote his best efforts and a
<PAGE>
reasonable amount of his business time (which shall be less than full-time),
attention, skill and efforts to the business and affairs of the Company and its
subsidiaries, affiliates and divisions, as such business and affairs now exist
and as they may be hereafter changed or added to.
(b) The Executive shall report directly and exclusively to the Board, and
he shall perform all of his duties in accordance with such reasonable
directions, requests, rules and regulations as are specified by the Board in
connection with his employment.
(c) Nothing herein shall preclude the Executive from devoting such
reasonable time as required to serve, or to continue to serve, on the boards of
directors of, or to hold any other offices or positions in or with respect to,
other companies, organizations or entities, provided that (i) the Executive
gives prior notice to the Company of such other activities, (ii) that such other
activities do not violate Paragraph 6 hereof, and (iii) such other activities
have no material effect on the time the Executive is required to spend in
connection with the services required of him hereunder. The Company acknowledges
that the Executive is currently involved with several businesses. The Executive
represents and warrants that such involvement will not affect the performance of
the Executive's duties as specified in this Paragraph 4.
5. Compensation and Benefits.
(a) Base Salary. During the Employment Term, the Executive will receive an
annual salary, payable in monthly or more frequent installments, of $500,000
subject to authorized withholding and other deductions. The annual salary will
be reviewed annually and, if appropriate, increased by the Company in the sole
discretion of the Compensation Committee of its Board. Such annual salary, as so
increased, is hereinafter referred to as the "Base Salary." In no event shall
the Executive's Base Salary be reduced below $500,000. Payments of Base Salary
have been made to The Saranow Group for the Executive's services to the Company
beginning on November 12, 1999, and extending through December 31, 1999.
(b) Annual Bonus. During the Employment Term, the Executive will be
eligible to receive an annual cash bonus based upon the Executive's and/or the
Company's achievement of performance goals or objectives. The bonus goals and
objectives shall be established by mutual agreement of the Compensation
Committee of the Board and the Executive. The Executive shall have a maximum
bonus opportunity of 100% of Base Salary and a target payment of 65% of Base
Salary. The Compensation Committee shall have the sole discretion to determine
whether the bonus goals and objectives have been met. A prorated bonus payment
of $35,000 for the period ending December 31, 1999, shall be paid to the
Executive by the Company within 15 days of the date this Agreement is signed.
(c) Long-Term Incentive Compensation. (i) The Company has granted the
Executive an option (the "Option") to purchase 300,000 shares of the Company's
common stock, par value $0.001 per share (the "Common Stock"). The purchase
price per share is the closing price of the Common Stock on the date of grant
(the "Exercise Price"). The Option has been granted in accordance with the
Company's Long-Term Incentive Plan and is subject to the terms and conditions
contained in the Stock Award Agreement to be entered into between the Company
and the Executive, which terms shall include: (i) the Option shall have a term
equal to the lesser of ten years measured from the date of grant or the longest
period permitted by the Company's Long-Term Incentive Plan after the date of the
termination of the Executive's employment with the Company; (ii) the greatest
portion of the Option shares allowable under the Company's Long-Term Incentive
Plan shall be issued as incentive stock options; (iii) the Option shares shall
vest and become exercisable 50% as of the date of grant, an additional 25% on
the date 6 months after the date of grant, and an additional 25% on the date 18
months after the date of grant; and (iv) in the event of a Change of Control
prior to the Executive's termination of employment, or the termination of
Executive's employment by the Company without Cause (as hereinafter defined) or
by the Executive for Good Reason (as hereinafter defined) the Executive shall
immediately become fully vested in his entire Option.
(d) Employee Benefits. During the Employment Term, the Executive will be
entitled to receive all benefits of employment generally available to other
members of the Company's senior executive management, upon his satisfaction of
the eligibility or participation criteria therefor.
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(e) Entitlement to Perquisites. For each fiscal year of the Company, or
portion thereof, occurring during the Employment Term, the Executive shall be
entitled to receive those perquisites from the Company which are generally
available to other members of the Company's senior executive management and they
shall specifically include, without limitation, reasonable hotel expenses while
in Chicago, an automobile allowance of $850 per month and downtown parking fees,
and reimbursement of dues and expenses associated with one downtown luncheon
club.
(f) Reimbursement of Travel and Entertainment Expenses. The Company shall
pay or reimburse the Executive, in accordance with its normal policies and
practices, for all reasonable hotel, travel and other expenses incurred by the
Executive in connection with the performance of his obligations hereunder. The
Company further agrees to furnish the Executive with such accommodations as
shall be suitable to the character of the Executive's position with the Company
and adequate for the performance of his duties hereunder (including those
reasonable hotel and entertainment costs he incurs while staying in Chicago on
Company business).
(g) Legal Fees. The Company shall pay, or reimburse the Executive for,
the legal fees and expenses of counsel to the Executive in connection with the
preparation, negotiation, execution and delivery of this Agreement.
(h) Withholding Taxes. There shall be deducted and withheld from the Base
Salary and all other compensation payable to the Executive during or for the
Employment Term any and all amounts required to be deducted or withheld under
the provisions of any statute, regulation, ordinance or order.
6. Obligations of the Executive During and After Employment.
(a) The Executive acknowledges and agrees that solely by virtue of his
employment by, and relationship with, the Company, he will acquire "Confidential
Information," as defined in subparagraph (vii) below, as well as special
knowledge of the Company's relationships with its clients, and that, but for his
association with the Company, the Executive will not have had access to said
Confidential Information or knowledge of said relationships. The Executive
further acknowledges and agrees (1) that the Company has long term relationships
with its clients, and that those relationships were developed at great expense
and difficulty to the Company over several years of close and continuing
involvement; (2) that the Company's relationships with its clients are and will
continue to be valuable, special and unique assets of the Company and (3) that
the Company has the following protectable interests that are critical to its
competitive advantage in the industry and would be of demonstrable value in the
hands of a competitor: software designs and application; plans, modeling
products and tools (including, but not limited to, COMPPASS 2000); processes,
distribution networks, and protocols; research bases, systems, and industry
benchmarks; and concepts, ideas, marketing strategies, and other matters not
generally known to the public. In return for the consideration described in this
Agreement, and as a condition precedent both to the grant of the Option under
the Stock Award Agreement and the Company employing the Executive, and as an
inducement to the Company to do so, the Executive hereby represents, warrants
and covenants as follows:
(i) The Executive has executed and delivered this Agreement as his
free and voluntary act, after having determined that the provisions contained
herein are of a material benefit to him, and that the duties and obligations
imposed on him hereunder are fair and reasonable and will not prevent him from
earning a comparable livelihood following the termination of his employment with
the Company;
(ii) The Executive has read and fully understands the terms and
conditions set forth herein, has had time to reflect on and consider the
benefits and consequences of entering into this Agreement, and has had the
opportunity to review the terms hereof with an attorney or other representative
if he so chooses;
(iii) The execution and delivery of this Agreement by the Executive
does not conflict with, or result in a breach of or constitute a default under,
any agreement or contract, whether oral or written, to which the Executive is a
party or by which the Executive may be bound;
(iv) The Executive agrees that, during the time of his employment with
the Company and for a period of one year after termination of the Executive's
employment hereunder for any reason whatsoever or for no reason, whether
voluntary or involuntary, the Executive will not, except on behalf of the
Company, anywhere in
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North America or in any other place or venue where the Company or any affiliate,
subsidiary or division thereof now conducts or operates, or may conduct or
operate, its business prior to the date of the Executive's termination of
employment;
(A) directly or indirectly, contact, solicit or direct any
person, firm, corporation, association, or other entity to contact or solicit,
any of the Employer's clients or prospective clients (as they are hereinafter
defined) for the purpose of selling or distributing or attempting to sell or
distribute, any products and/or services in competition with the Company to its
clients during the term hereof. In addition, the Executive will not disclose the
identity of any such clients or prospective clients, or any part thereof, to any
person, firm, corporation, association, or other entity for any reason or
purpose whatsoever, except to the extent (1) required by any law, regulation or
order of any court or regulatory commission, department or agency, provided that
the Executive gives prompt notice of such requirement to the Company to enable
the Company to seek an appropriate protective order, or (2) such disclosure is
necessary to perform properly the Executive's duties under this Agreement;
(B) solicit on his own behalf or on behalf of any other person,
the services of any person who is an employee of the Company, nor solicit any of
the Company's employees to terminate employment with the Company;
(C) become directly or indirectly, an investor, owner or
stockholder (excluding investments representing less than 2% of the common stock
of a public company), lender, director, consultant, employee, agent or
salesperson, whether part-time or full-time, of any business which competes with
the Company in the marketing of products or services developed, marketed or
provided by the Company; and
(D) act as a consultant, advisor, officer, manager, agent,
director, partner, independent contractor, owner, or employee for or on behalf
of any of the Company's clients or prospective clients (as hereinafter defined),
with respect to any other business activities in which the Company engages
during the term hereof;
(v) The scope described above is necessary and reasonable in order to
protect the Company in the conduct of its business and that, if the Executive
becomes employed by another employer, he shall be required to disclose the
existence of this paragraph 6 to such employer and the Executive hereby consents
to and the Company is hereby given permission to disclose the existence of this
paragraph 6 to such employer.
(vi) For purposes of this Paragraph 6, "client" shall be defined as
any person, firm, corporation, association, or entity that purchased any type of
product and/or service from the Company or is or was doing business with the
Company within the 12-month period immediately preceding termination of the
Executive's employment. For purposes of this Paragraph 6, "prospective client"
shall be defined as any person, firm, corporation, association, or entity
contacted or solicited in writing by the Company or who contacted the Company
within the 12-month period immediately preceding the termination of the
Executive's employment for the purpose of having such persons, firms,
corporations, associations, or entities become a client of the Company;
(vii) Both during his employment and thereafter he will not, for any
reason whatsoever, use for himself or disclose to any person not employed by the
Company any "Confidential Information" of the Company acquired by the Executive
during his relationship with the Company, except to the extent that such
Confidential Information (a) becomes a matter of public record or is published
in a newspaper, magazine or other periodical, or in other media, available to
the general public, other than as a result of any act or omission of the
Executive, (b) is required to be disclosed by law, regulation or order of any
court or regulatory commission, department or agency, provided that the
Executive gives prompt notice of such requirement to the Company to enable the
Company to seek an appropriate protective order, or (c) is required to be
disclosed in order to perform properly the Executive's duties under this
Agreement. The Executive further agrees to use Confidential Information solely
for the purpose of performing duties with the Company and further agrees not to
use Confidential Information for his own private use or commercial purposes. The
Executive agrees that "Confidential Information" includes but is not limited to:
(1) any financial, engineering, business, planning, operations, services,
potential services, products, potential products, technical information and/or
know-how, organization charts, formulas, business plans, production, purchasing,
marketing, pricing, sales, profit, personnel, customer, broker, supplier, or
other lists or information of the Company; (2) any papers, data, records,
processes, methods, techniques, systems, models, samples, devices, equipment,
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compilations, invoices, client lists, or documents of the Company; (3) any
confidential information or trade secrets of any third party provided to the
Company in confidence or subject to other use or disclosure restrictions or
limitations; and (4) any other information, written, oral, or electronic,
whether existing now or at some time in the future, and whether pertaining to
current or future developments, which pertains to the Company's affairs or
interests or with whom or how the Company does business. The Company
acknowledges and agrees that Confidential Information does not include
information properly in the public domain;
(viii) During and after the term of employment hereunder, the
Executive will not remove from the Company's premises any documents, records,
files, notebooks, correspondence, reports, video or audio recordings, computer
printouts, computer programs, computer software, price lists, microfilm,
drawings, or other similar documents containing Confidential Information,
including copies thereof, whether prepared by him or others, except as his
duties under this Agreement shall require, and in such cases, will promptly
return such items to the Company. Upon termination of his employment with the
Company, all such items including summaries or copies thereof, then in the
Executive's possession, shall be returned to the Company immediately;
(ix) All ideas, inventions, designs, processes, discoveries,
enhancements, plans, writings, and other developments or improvements (the
"Inventions") conceived by the Executive, alone or with others, during the term
of his employment, whether or not during working hours, that are within the
scope of the Executive's business operations or that relate to any of the
Company's work or projects (including any and all inventions based wholly or in
part upon ideas conceived during the Executive's employment with the Company),
are the sole and exclusive property of the Company. The Executive further agrees
that (1) he will promptly disclose all Inventions to the Company and hereby
assigns to the Company all present and future rights he has or may have in those
Inventions, including without limitation those relating to patent, copyright,
trademark or trade secrets; and (2) all of the Inventions eligible under the
copyright laws are "work made for hire." At the request of and without charge to
the Company, the Executive will do all things deemed by the Company to be
reasonably necessary to perfect title to the Inventions in the Company and to
assist in obtaining for the Company such patents, copyrights or other protection
as may be provided under law and desired by the Company, including but not
limited to executing and signing any and all relevant applications, assignments
or other instruments. Notwithstanding the foregoing, pursuant to the Employee
Patent Act, Illinois Public Act 83-493, the Company hereby notifies the
Executive that the provisions of this subparagraph (ix) shall not apply to any
Inventions for which no equipment, supplies, facility or trade secret
information of the Company was used and which were developed entirely on the
Executive's own time, unless (1) the Invention relates (i) to the business of
the Company, or (ii) to actual or demonstrably anticipated research or
development of the Company, or (2) the Invention results from any work performed
by the Executive for the Company;
(x) All client lists, supplier lists, and client and supplier
information are and shall remain the exclusive property of the Company,
regardless of whether such information was developed, purchased, acquired, or
otherwise obtained by the Company or the Executive. The Executive also agrees to
furnish to the Company on demand at any time during his employment, and upon the
termination of his employment, any records, notes, computer printouts, computer
programs, computer software, price lists, microfilm, or any other documents
related to the Company's business, including originals and copies thereof; and
(xi) The Executive may become aware of "material" nonpublic
information relating to clients whose stock is publicly traded. The Executive
acknowledges that he is prohibited by law as well as by Company policy from
trading in the shares of such clients while in possession of such information or
directly or indirectly disclosing such information to any other persons so that
they may trade in these shares. For purposes of this subparagraph (xi),
"material" information may include any information, positive or negative, which
might be of significance to an investor in determining whether to purchase, sell
or hold the stock of publicly traded clients. Information may be significant for
this purpose even if it would not alone determine the investor's decision.
Examples include a potential business acquisition, internal financial
information that departs in any way from what the market would expect, the
acquisition or loss of a major contract, or an important financing transaction.
(b) Remedy for Breach. The Executive agrees that in the event of a
material breach or threatened material breach of any of the covenants contained
in this Paragraph 6, the Company will have the right and remedy to have such
covenants specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that
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any material breach of any of the covenants will cause irreparable injury to the
Company and that money damages will not provide an adequate remedy to the
Company.
(c) Blue-Penciling. The Executive acknowledges and agrees that the
noncompetition and nonsolicitation provisions contained herein are reasonable
and valid in geographic, temporal and subject matter scope and in all other
respects, and do not impose limitations greater than are necessary to protect
the goodwill, Confidential Information and other business interests of the
Company. Nevertheless, if any court determines that any of said noncompetition
and other restrictive covenants and agreements, or any part thereof, is
unenforceable because of the duration or geographic scope of such provision,
such court will have the power to reduce the duration or scope of such
provision, as the case may be, and, in its reduced form, such provision will
then be enforceable to the maximum extent permitted by applicable law.
7. Termination of Employment.
(a) Termination as a Result of Death or Disability. The Executive's
employment with the Company shall terminate automatically upon the Executive's
death during the Employment Term. If the Disability of the Executive has
occurred during the Employment Term (pursuant to the definition of "Disability"
set forth below), the Company may give to the Executive written notice of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Company (the "Disability Effective
Date"), provided that, within the 30 days after receipt of notice, the Executive
shall not have returned to substantial performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company for 120 consecutive days,
or a total of 180 days in any 12-month period, as a result of incapacity due to
mental or physical illness which is determined to be total and permanent by a
physician jointly selected by the Company and the Executive or the Executive's
legal representative, or, if the parties cannot agree on the selection of such
physician then each shall choose a physician and the two physicians shall
jointly select a physician to make such binding determination.
(b) Termination by the Company for Cause. The Company may terminate the
Executive's employment during the Employment Term for Cause at any time upon
written notice from the Board specifying such Cause and the expiration of the
cure period specified below, and thereafter, the Company's obligations hereunder
(other than the obligation to pay any accrued salary or benefit) shall cease and
terminate; provided, however, that such written notice shall not be delivered
until after the Board shall have given the Executive written notice specifying
the conduct alleged to have constituted such Cause. The Executive shall have 30
days to cure the matters specified in the notice delivered by the Board (to the
extent that such matters are curable). For purposes of this Agreement, "Cause"
shall mean the Executive's willful misconduct, dishonesty or other willful
actions (or willful failures to act) which are materially and demonstrably
injurious to the Company, or a material breach by the Executive of one or more
terms of this Agreement, which shall include the Executive's habitual neglect of
the material duties required of him under this Agreement. For purposes of this
Section, no act or failure to act, on the part of the Executive, shall be
considered "willful" unless it is done, or omitted to be done, by the Executive
in bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in the
best interests of the Company. The cessation of employment of the Executive
shall not be deemed to be for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the Board by
the vote of a majority of the entire Board at a meeting of the Board duly called
and held for such purpose, at which the Executive shall have an opportunity to
be present and to be heard, finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described above, and specifying
the particulars thereof in detail.
(c) Termination by the Executive for Good Reason. The Executive's
employment with the Company may be terminated by the Executive for Good Reason.
For purposes of this Agreement, "Good Reason" shall mean any of the following
actions, if taken without the express written consent of the Executive: (1) any
material change by the Company in the Executive's title, functions, duties, or
responsibilities, which changes would cause the Executive's position with the
Company to become of significantly less responsibility, importance or scope as
compared to the position and attributes that applied to the Executive as of the
Effective Date; (2) any material failure
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by the Company to comply with any of the provisions of the Agreement; or (3) the
requirement made by the Company that the Executive change his manner of
performing his responsibilities so as to require a change in his residence.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (1) indicates the specific termination provision in
this Agreement relied upon, (2) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(3) if the Date of Termination (as defined in Section (e) hereof) is other than
the date of receipt of such notice, specifies the termination date (which date
shall be not more than 30 days after the giving of such notice). The failure by
the Executive or the Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (1) if the Executive's
employment is terminated by the Company for Cause, the expiration of the cure
period specified in Paragraph 7(b) hereof, (2) if the Executive's employment is
terminated by the Executive for Good Reason, the date of receipt of the Notice
of Termination or any later date specified therein, as the case may be, (3) if
the Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case may
be, and (4) if the Executive's employment is terminated by the Company other
than for Cause or Disability, or by the Executive without Good Reason, 30 days
after the date of receipt by the non-terminating party of a written notice of
termination or such shorter time as the Board thereafter specifies in a written
notice to the Executive.
(f) Change of Control of the Company. For the purpose of this Agreement, a
"Change of Control" shall have been deemed to have occurred if at any time
during the Employment Term:
(i) the Company sells or otherwise disposes in an arms length
transaction assets of the Company having a fair market value of at least
60% of the total assets of the Company and its subsidiaries on a
consolidated basis, or the Company sells or otherwise disposes of a
majority of the equity ownership or voting control of any member of any
corporation or other entity holding substantially all of the assets of the
Company, in a single transaction or series of related transactions, or
(ii) acquisition by (A) any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
or (B) two or more Persons of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either
(1) the shares of Common Stock outstanding immediately after such
acquisition (the "Company Common Stock") or (2) the combined voting power
of the voting securities of the Company entitled to vote generally in the
election of directors outstanding immediately after such acquisition (the
"Company Voting Securities"); provided, however, that for purposes of this
subsection (i) the following acquisitions of securities shall not
constitute or be included when determining whether there has been a Change
of Control: (1) any acquisition by the Company, or (2) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or
(iii) consummation of a reorganization, merger or consolidation or the
sale or other disposition of all or substantially all of the assets of the
Company, or the acquisition of the assets of another corporation by the
Company (in each case, a "Business Combination"), unless, following any
such Business Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Company
Common Stock and Company Voting Securities outstanding immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of common stock or
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their
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ownership, immediately prior to such Business Combination, of the Company
Common Stock and Company Voting Securities outstanding, as the case may be,
(B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan or related trust of the Company or
any corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 50% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (C) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Board at the
time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination.
8. Obligations of the Company upon Termination of Employment.
(a) Termination by the Company Other Than for Cause, Death or Disability or
by the Executive for Good Reason or for any Reason Following a Change of
Control. If during the Employment Term (i) the Company terminates the
Executive's employment other than for Cause, death or Disability, (ii) the
Executive terminates his employment for Good Reason, or (iii) following a Change
of Control, the Executive terminates his employment for any reason, then in any
such case the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination (or, in the event any amounts due cannot be
determined within this period, as soon thereafter as is practicable) an amount
equal to (A) two times the Executive's then current Base Salary plus (B) two
times the annual bonus most recently paid to the Executive. The provisions of
this Subparagraph 8(a) shall not affect any rights of the Executive under the
Company's benefit plans or programs.
(b) Termination as a Result of the Executive's Disability or Death. If
during the Employment Term the Executive's employment is terminated by reason of
the Executive's Disability or death, then the Company shall pay to the Executive
or the Executive's legal representatives in a lump sum in cash within 30 days
after the Date of Termination (or, in the event any amounts due cannot be
determined within this period, as soon thereafter as is practicable) an amount
equal to one times (A) the Executive's then current Base Salary plus (B) the
annual bonus most recently paid to the Executive. The provisions of this
Subparagraph 8(b) shall not affect any rights of the Executive's heirs,
administrators, executors, legatees, beneficiaries or assigns under the
Company's benefit plans or programs.
(c) Termination by the Company for Cause or by the Executive other than
for Good Reason. If during the Employment Term either (i) the Executive's
employment is terminated by the Company for Cause or (ii) the Executive
voluntarily terminates his employment prior to a Change of Control, excluding
termination by him for Good Reason, then the Company shall have no further
obligation to the Executive other than the obligation to pay to the Executive
(A) his Base Salary through the Date of Termination and (B) any other
compensation and benefits due to the Executive in accordance with this
Agreement, in each case to the extent theretofore unpaid.
9. Golden Parachute Provision.
In the event that in the opinion of tax counsel selected by the Executive
and compensated by the Company ("Executive's Tax Counsel"), a payment or benefit
received or to be received by the Executive following his termination of
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company or any of its subsidiaries, affiliates
or divisions) (collectively, with the payments provided for in the foregoing
provisions of Section 8, the "Post Termination Payments") would be subject to
excise tax (in whole or in part) as a result of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), and as a result of such excise
tax, the net amount of Post Termination Payments retained by the Executive
(taking into account federal and state income taxes and such excise tax) would
be less than the net amount of Post Termination Payments retained by the
Executive (taking into account federal and state income taxes) if the Post
Termination Payments were reduced or eliminated as described in this Section 9,
then the Post Termination Payments shall be reduced or eliminated until no
portion of the Post Termination Payments is subject to excise tax, or the Post
Termination Payments are reduced to zero. For purposes of this limitation (i) no
portion of the Post Termination Payments the receipt or enjoyment of which the
Executive shall have waived in writing prior to the date
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of payment following termination of the Post Termination Payments shall be taken
into account, (ii) no portion of the Post Termination Payments shall be taken
into account which in the opinion of Executive's Tax Counsel does not constitute
a "parachute payment" within the meaning of Section 280G(b)(2) of the Code,
(iii) the Post Termination Payments shall be reduced only to the extent
necessary so that the Post Termination Payments (other than those referred to in
clauses (i) and (ii)) in their entirety constitute reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the Code
or are otherwise not subject to excise tax, in the opinion of Executive's Tax
Counsel, and (iv) the value of any non-cash benefit and all deferred payments
and benefits included in the Post Termination Payments shall be determined by
the mutual agreement of the Company and the Executive in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
10. Governing Law; Arbitration; Jurisdiction; Attorneys' Fees.
This Agreement is made and entered into and will be governed by and
interpreted in accordance with the laws of the State of Illinois. The Company
and the Executive agree that any dispute regarding this Agreement, that cannot
be resolved amicably by the parties, will be submitted to arbitration within 60
days of the date the dispute arose and will be resolved in accordance with the
rules of the American Arbitration Association for expedited cases then in
effect. The arbitrator will be mutually selected by the parties or in the event
the parties cannot mutually agree, then appointed by the American Arbitration
Association. Any arbitration will be held in Chicago, Illinois and the
arbitrator will apply Illinois law. Judgment upon any award rendered by the
arbitrator will be final and binding and may be entered in any court of
competent jurisdiction. The arbitrator will not be empowered to award damages in
excess of compensatory damages and each party hereby irrevocably waives any
damages in excess of compensatory damages. Notwithstanding the foregoing, the
Company will have the absolute right to seek equitable remedies in any state
court of competent jurisdiction in the State of Illinois, County of Cook, or in
a United States District Court in the State of Illinois pursuant to Paragraph
6(b) hereof. By Executive's execution and delivery of this Agreement, the
Executive irrevocably submits to and accepts the exclusive jurisdiction of each
of such courts and waives any objection (including any objection to venue or any
objection based upon the grounds of forum non conveniens) which might be
asserted against the bringing of any such action, suit or other legal proceeding
in such courts. The parties shall be responsible for their own costs and
expenses under this Section 10.
11. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes any and all previous agreements, written or oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
modified or amended, except by a written agreement signed by the parties hereto.
(b) Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been given if delivered by hand, sent by
generally recognized overnight courier service, telex or telecopy with
confirmation of receipt, or mail:
(i) to the Company:
Navigant Consulting, Inc.
Attn: General Counsel
615 N. Wabash
Chicago, Illinois 60611
with a copy to:
Winston & Strawn
Attention: Gov. James R. Thompson
35 West Wacker Drive
Chicago, IL 60601
(ii) to the Executive:
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Mitchell H. Saranow
860 Auburn Road
Winnetka, IL 60093
with a copy to:
Sidley & Austin
Attention: Steven Sutherland
Bank One Plaza
10 South Dearborn
Chicago, IL 60603
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications will be effective when
actually received by the addressee.
(c) Successors.
This Agreement is personal to the Executive and without the prior written
consent of the Company it shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This Agreement will inure
to the benefit of and be enforceable against the Executive's legal
representatives. This Agreement will inure to the benefit of and be binding upon
the Company and its successors and assigns. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation, share
exchange or otherwise) to all or substantially all of the business and/or assets
of the Company to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. For purposes of this Agreement, the
term "Company" means the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(d) Severability. If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision will thereupon be deemed modified only to
the extent necessary to render such provision valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require, and
this Agreement will be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be. Should this Agreement, or any one or more of the
provisions hereof, be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, the Agreement or any such
provision or provisions will not as a consequence thereof be deemed to be
invalid, illegal or unenforceable in any other governmental jurisdiction or
subdivision thereof.
(e) Waiver. The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, will not be deemed to be
a waiver of such provision or right or any other provision or right of this
Agreement.
(f) Counterparts. This Agreement may be executed in two counterparts, each
of which will be deemed an original and both of which taken together will
constitute a single instrument.
(signature page follows)
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
------------------------------------
Mitchell H. Saranow
Navigant Consulting, Inc.
By __________________________________
Its _________________________________
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EX-10.10
Employment Agreement dated as of November 12, 1999 between the
Registrant and Carl S. Spetzler
Exhibit 10.10
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), signed on ________, ____,
and effective as of November 12, 1999 (the "Effective Date"), is between
Navigant Consulting, Inc., a Delaware corporation (the "Company"), and Carl
Spetzler (the "Executive").
RECITALS
A. The Executive possesses knowledge, skill and experience advantageous
to the Company.
B. The Company desires to employ the Executive as its Co-Chief Executive
Officer, and the Executive desires to accept such employment, on the terms and
conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement, the
Company agrees to employ the Executive, and the Executive agrees to be employed
by the Company, for the period stated in Paragraph 2 hereof.
2. Employment Term. The term of the Executive's employment by the Company
under this Agreement will begin as of November 12, 1999, and will continue,
subject to earlier termination as provided in Section 7 hereof, for a three-year
period ending November 12, 2002, or it will continue to a later date pursuant to
an extension or modification of this Agreement by mutual agreement of the
parties hereto from time to time (the "Employment Term").
3. Position and Responsibilities. During the period of his employment
hereunder, the Executive agrees to serve the Company, and the Company shall
employ the Executive, as one of its three Co-Chief Executive Officers. During
the Employment Term, the Executive shall possess such broad powers and perform
such duties and functions as are normally incident to the position of Co-Chief
Executive Officer with an entity of an equivalent size and nature as the
Company, and the Executive will share the powers and duties of Co-Chief
Executive Officer with the other two Co-Chief Executive Officers appointed by
the Company's Board of Directors (the "Board") in a manner which is mutually
agreed upon from time to time between the Executive, the other Co-Chief
Executive Officers and the Board.
4. Performance of Duties; Commitment of Time. During the Employment Term
the Executive shall discharge the following obligations:
(a) During the period of his employment hereunder and except for illness,
reasonable vacation periods, and reasonable leaves of absence, the Executive
shall devote his best efforts and full-time attention and skill to the business
and affairs of the Company and its subsidiaries, affiliates and divisions, as
such business and affairs now exist and as they may be hereafter changed or
added to.
(b) The Executive shall report directly and exclusively to the Board, and
he shall perform all of his duties in accordance with such reasonable
directions, requests, rules and regulations as are specified by the Board in
connection with his employment.
<PAGE>
(c) Nothing herein shall preclude the Executive from devoting such
reasonable time as required to serve, or to continue to serve, on the boards of
directors of, or to hold any other offices or positions in or with respect to,
other companies, organizations or entities, provided that (i) the Executive
gives prior notice to the Company of such other activities, (ii) such other
activities do not violate Paragraph 6 hereof, and (iii) such other activities
have no material effect on the time the Executive is required to spend in
connection with the services required of him hereunder.
5. Compensation and Benefits.
(a) Base Salary. During the Employment Term, the Executive will receive an
annual salary, payable in monthly or more frequent installments, of $500,000
subject to authorized withholding and other deductions. The annual salary will
be reviewed annually and, if appropriate, increased by the Company in the sole
discretion of the Compensation Committee of its Board. Such annual salary, as so
increased, is hereinafter referred to as the "Base Salary." In no event shall
the Executive's Base Salary be reduced below $500,000. A retroactive payment of
Base Salary may be due to the Executive for his services to the Company
beginning on November 12, 1999, and extending through the business day preceding
the date this Agreement is signed, to the extent that actual salary paid by the
Company to the Executive for this time period was insufficient. The retroactive
payment, if necessary, shall be made in one lump sum within 15 days of the date
this Agreement is signed.
(b) Annual Bonus. During the Employment Term, the Executive will be
eligible to receive an annual cash bonus based upon the Executive's and/or the
Company's achievement of performance goals or objectives. The bonus goals and
objectives shall be established by mutual agreement of the Compensation
Committee of the Board and the Executive. The Executive shall have a maximum
bonus opportunity of 100% of Base Salary and a target payment of 65% of Base
Salary. The Compensation Committee shall have the sole discretion to determine
whether the bonus goals and objectives have been met. Notwithstanding the
foregoing, the Executive shall be entitled to receive a bonus for the 1999
calendar year in accordance with the terms and conditions previously established
by the Company, for his services rendered prior to November 12, 1999. In
addition thereto, the Executive shall be entitled to receive a prorated bonus
payment of $35,000 for the period ending December 31, 1999, which shall be paid
to the Executive by the Company within 15 days of the date this Agreement is
signed.
(c) Long-Term Incentive Compensation. (i) The Company has granted the
Executive an option (the "Option") to purchase 300,000 shares of the Company's
common stock, par value $0.001 per share (the "Common Stock"). The purchase
price per share is the closing price of the Common Stock on the date of grant
(the "Exercise Price"). The Option has been granted in accordance with the
Company's Long-Term Incentive Plan and is subject to the terms and conditions
contained in the Stock Award Agreement to be entered into between the Company
and the Executive, which terms shall include: (i) the Option shall have a term
equal to the lesser of ten years measured from the date of grant or the longest
period permitted by the Company's Long-Term Incentive Plan after the date of the
termination of the Executive's employment with the Company; (ii) the greatest
portion of the Option shares allowable under the Company's Long-Term Incentive
Plan shall be issued as incentive stock options; (iii) the Option shares shall
vest and become exercisable 50% as of the date of grant, an additional 25% on
the date 6 months after the date of grant, and an additional 25% on the date 18
months after the date of grant; and (iv) in the event of a Change of Control
prior to the Executive's termination of employment, or the termination of
Executive's employment by the Company without Cause (as hereinafter defined) or
by the Executive for Good Reason (as hereinafter defined) the Executive shall
immediately become fully vested in his entire Option.
(d) Employee Benefits. During the Employment Term, the Executive will be
entitled to receive all benefits of employment generally available to other
members of the Company's senior executive management, upon his satisfaction of
the eligibility or participation criteria therefor.
(e) Entitlement to Perquisites. For each fiscal year of the Company, or
portion thereof, occurring during the Employment Term, the Executive shall be
entitled to receive those perquisites from the Company which are generally
available to other members of the Company's senior executive management and they
shall specifically include, without limitation, reasonable hotel expenses while
in Chicago, an automobile allowance of $850 per month and downtown parking fees,
and reimbursement of dues and expenses associated with one downtown luncheon
club.
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(f) Reimbursement of Travel and Entertainment Expenses. The Company shall
pay or reimburse the Executive, in accordance with its normal policies and
practices, for all reasonable hotel, travel and other expenses incurred by the
Executive in connection with the performance of his obligations hereunder. The
Company further agrees to furnish the Executive with such accommodations as
shall be suitable to the character of the Executive's position with the Company
and adequate for the performance of his duties hereunder (including those
reasonable hotel and entertainment costs he incurs while staying in Chicago on
Company business).
(g) Legal Fees. The Company shall pay, or reimburse the Executive for, the
legal fees and expenses of counsel to the Executive in connection with the
preparation, negotiation, execution and delivery of this Agreement.
(h) Withholding Taxes. There shall be deducted and withheld from the Base
Salary and all other compensation payable to the Executive during or for the
Employment Term any and all amounts required to be deducted or withheld under
the provisions of any statute, regulation, ordinance or order.
6. Obligations of the Executive During and After Employment.
(a) The Executive acknowledges and agrees that solely by virtue of his
employment by, and relationship with, the Company, he will acquire "Confidential
Information," as defined in subparagraph (vii) below, as well as special
knowledge of the Company's relationships with its clients, and that, but for his
association with the Company, the Executive will not have had access to said
Confidential Information or knowledge of said relationships. The Executive
further acknowledges and agrees (1) that the Company has long term relationships
with its clients, and that those relationships were developed at great expense
and difficulty to the Company over several years of close and continuing
involvement; (2) that the Company's relationships with its clients are and will
continue to be valuable, special and unique assets of the Company and (3) that
the Company has the following protectable interests that are critical to its
competitive advantage in the industry and would be of demonstrable value in the
hands of a competitor: software designs and application; plans, modeling
products and tools (including, but not limited to, COMPPASS 2000); processes,
distribution networks, and protocols; research bases, systems, and industry
benchmarks; and concepts, ideas, marketing strategies, and other matters not
generally known to the public. In return for the consideration described in this
Agreement, and as a condition precedent both to the grant of the Option under
the Stock Award Agreement and the Company employing the Executive, and as an
inducement to the Company to do so, the Executive hereby represents, warrants
and covenants as follows:
(i) The Executive has executed and delivered this Agreement as his
free and voluntary act, after having determined that the provisions contained
herein are of a material benefit to him, and that the duties and obligations
imposed on him hereunder are fair and reasonable and will not prevent him from
earning a comparable livelihood following the termination of his employment with
the Company;
(ii) The Executive has read and fully understands the terms and
conditions set forth herein, has had time to reflect on and consider the
benefits and consequences of entering into this Agreement, and has had the
opportunity to review the terms hereof with an attorney or other representative
if he so chooses;
(iii) The execution and delivery of this Agreement by the Executive
does not conflict with, or result in a breach of or constitute a default under,
any agreement or contract, whether oral or written, to which the Executive is a
party or by which the Executive may be bound;
(iv) The Executive agrees that, during the time of his employment with
the Company and for a period of one year after termination of the Executive's
employment hereunder for any reason whatsoever or for no reason, whether
voluntary or involuntary, the Executive will not, except on behalf of the
Company, anywhere in North America or in any other place or venue where the
Company or any affiliate, subsidiary or division thereof now conducts or
operates, or may conduct or operate, its business prior to the date of the
Executive's termination of employment;
(A) directly or indirectly, contact, solicit or direct any
person, firm, corporation, association, or other entity to contact or solicit,
any of the Employer's clients or prospective clients (as they are
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hereinafter defined) for the purpose of selling or distributing or attempting to
sell or distribute, any products and/or services in competition with the Company
to its clients during the term hereof. In addition, the Executive will not
disclose the identity of any such clients or prospective clients, or any part
thereof, to any person, firm, corporation, association, or other entity for any
reason or purpose whatsoever, except to the extent (1) required by any law,
regulation or order of any court or regulatory commission, department or agency,
provided that the Executive gives prompt notice of such requirement to the
Company to enable the Company to seek an appropriate protective order, or (2)
such disclosure is necessary to perform properly the Executive's duties under
this Agreement;
(B) solicit on his own behalf or on behalf of any other person,
the services of any person who is an employee of the Company, nor solicit any of
the Company's employees to terminate employment with the Company;
(C) become directly or indirectly, an investor, owner or
stockholder (excluding investments representing less than 2% of the common stock
of a public company), lender, director, consultant, employee, agent or
salesperson, whether part-time or full-time, of any business which competes with
the Company in the marketing of products or services developed, marketed or
provided by the Company; and
(D) act as a consultant, advisor, officer, manager, agent,
director, partner, independent contractor, owner, or employee for or on behalf
of any of the Company's clients or prospective clients (as hereinafter defined),
with respect to any other business activities in which the Company engages
during the term hereof;
(v) The scope described above is necessary and reasonable in order to
protect the Company in the conduct of its business and that, if the Executive
becomes employed by another employer, he shall be required to disclose the
existence of this paragraph 6 to such employer and the Executive hereby consents
to and the Company is hereby given permission to disclose the existence of this
paragraph 6 to such employer.
(vi) For purposes of this Paragraph 6, "client" shall be defined as
any person, firm, corporation, association, or entity that purchased any type of
product and/or service from the Company or is or was doing business with the
Company within the 12-month period immediately preceding termination of the
Executive's employment. For purposes of this Paragraph 6, "prospective client"
shall be defined as any person, firm, corporation, association, or entity
contacted or solicited in writing by the Company or who contacted the Company
within the 12-month period immediately preceding the termination of the
Executive's employment for the purpose of having such persons, firms,
corporations, associations, or entities become a client of the Company;
(vii) Both during his employment and thereafter he will not, for any
reason whatsoever, use for himself or disclose to any person not employed by the
Company any "Confidential Information" of the Company acquired by the Executive
during his relationship with the Company, except to the extent that such
Confidential Information (a) becomes a matter of public record or is published
in a newspaper, magazine or other periodical, or in other media, available to
the general public, other than as a result of any act or omission of the
Executive, (b) is required to be disclosed by law, regulation or order of any
court or regulatory commission, department or agency, provided that the
Executive gives prompt notice of such requirement to the Company to enable the
Company to seek an appropriate protective order, or (c) is required to be
disclosed in order to perform properly the Executive's duties under this
Agreement. The Executive further agrees to use Confidential Information solely
for the purpose of performing duties with the Company and further agrees not to
use Confidential Information for his own private use or commercial purposes. The
Executive agrees that "Confidential Information" includes but is not limited to:
(1) any financial, engineering, business, planning, operations, services,
potential services, products, potential products, technical information and/or
know-how, organization charts, formulas, business plans, production, purchasing,
marketing, pricing, sales, profit, personnel, customer, broker, supplier, or
other lists or information of the Company; (2) any papers, data, records,
processes, methods, techniques, systems, models, samples, devices, equipment,
compilations, invoices, client lists, or documents of the Company; (3) any
confidential information or trade secrets of any third party provided to the
Company in confidence or subject to other use or disclosure restrictions or
limitations; and (4) any other information, written, oral, or electronic,
whether existing now or at some time in the future, and whether pertaining to
current or future developments, which pertains to the Company's affairs or
interests or with whom or how the Company does business. The Company
acknowledges and agrees that Confidential Information does not include
information properly in the public domain;
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(viii) During and after the term of employment hereunder, the
Executive will not remove from the Company's premises any documents, records,
files, notebooks, correspondence, reports, video or audio recordings, computer
printouts, computer programs, computer software, price lists, microfilm,
drawings, or other similar documents containing Confidential Information,
including copies thereof, whether prepared by him or others, except as his
duties under this Agreement shall require, and in such cases, will promptly
return such items to the Company. Upon termination of his employment with the
Company, all such items including summaries or copies thereof, then in the
Executive's possession, shall be returned to the Company immediately;
(ix) All ideas, inventions, designs, processes, discoveries,
enhancements, plans, writings, and other developments or improvements (the
"Inventions") conceived by the Executive, alone or with others, during the term
of his employment, whether or not during working hours, that are within the
scope of the Executive's business operations or that relate to any of the
Company's work or projects (including any and all inventions based wholly or in
part upon ideas conceived during the Executive's employment with the Company),
are the sole and exclusive property of the Company. The Executive further agrees
that (1) he will promptly disclose all Inventions to the Company and hereby
assigns to the Company all present and future rights he has or may have in those
Inventions, including without limitation those relating to patent, copyright,
trademark or trade secrets; and (2) all of the Inventions eligible under the
copyright laws are "work made for hire." At the request of and without charge to
the Company, the Executive will do all things deemed by the Company to be
reasonably necessary to perfect title to the Inventions in the Company and to
assist in obtaining for the Company such patents, copyrights or other protection
as may be provided under law and desired by the Company, including but not
limited to executing and signing any and all relevant applications, assignments
or other instruments. Notwithstanding the foregoing, pursuant to the Employee
Patent Act, Illinois Public Act 83-493, the Company hereby notifies the
Executive that the provisions of this subparagraph (ix) shall not apply to any
Inventions for which no equipment, supplies, facility or trade secret
information of the Company was used and which were developed entirely on the
Executive's own time, unless (1) the Invention relates (i) to the business of
the Company, or (ii) to actual or demonstrably anticipated research or
development of the Company, or (2) the Invention results from any work performed
by the Executive for the Company;
(x) All client lists, supplier lists, and client and supplier
information are and shall remain the exclusive property of the Company,
regardless of whether such information was developed, purchased, acquired, or
otherwise obtained by the Company or the Executive. The Executive also agrees to
furnish to the Company on demand at any time during his employment, and upon the
termination of his employment, any records, notes, computer printouts, computer
programs, computer software, price lists, microfilm, or any other documents
related to the Company's business, including originals and copies thereof; and
(xi) The Executive may become aware of "material" nonpublic
information relating to clients whose stock is publicly traded. The Executive
acknowledges that he is prohibited by law as well as by Company policy from
trading in the shares of such clients while in possession of such information or
directly or indirectly disclosing such information to any other persons so that
they may trade in these shares. For purposes of this subparagraph (xi),
"material" information may include any information, positive or negative, which
might be of significance to an investor in determining whether to purchase, sell
or hold the stock of publicly traded clients. Information may be significant for
this purpose even if it would not alone determine the investor's decision.
Examples include a potential business acquisition, internal financial
information that departs in any way from what the market would expect, the
acquisition or loss of a major contract, or an important financing transaction.
(b) Remedy for Breach. The Executive agrees that in the event of a
material breach or threatened material breach of any of the covenants contained
in this Paragraph 6, the Company will have the right and remedy to have such
covenants specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that any material breach of any of the covenants will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company.
(c) Blue-Penciling. The Executive acknowledges and agrees that the
noncompetition and nonsolicitation provisions contained herein are reasonable
and valid in geographic, temporal and subject matter scope and in all other
respects, and do not impose limitations greater than are necessary to protect
the goodwill, Confidential Information and other business interests of the
Company. Nevertheless, if any court determines that
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any of said noncompetition and other restrictive covenants and agreements, or
any part thereof, is unenforceable because of the duration or geographic scope
of such provision, such court will have the power to reduce the duration or
scope of such provision, as the case may be, and, in its reduced form, such
provision will then be enforceable to the maximum extent permitted by applicable
law.
7. Termination of Employment.
(a) Termination as a Result of Death or Disability. The Executive's
employment with the Company shall terminate automatically upon the Executive's
death during the Employment Term. If the Disability of the Executive has
occurred during the Employment Term (pursuant to the definition of "Disability"
set forth below), the Company may give to the Executive written notice of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Company (the "Disability Effective
Date"), provided that, within the 30 days after receipt of notice, the Executive
shall not have returned to substantial performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company for 120 consecutive days,
or a total of 180 days in any 12-month period, as a result of incapacity due to
mental or physical illness which is determined to be total and permanent by a
physician jointly selected by the Company and the Executive or the Executive's
legal representative, or if the parties cannot agree on the selection of such
physician then each shall choose a physician and the two physicians shall
jointly select a physician to make such binding determination.
(b) Termination by the Company for Cause. The Company may terminate the
Executive's employment during the Employment Term for Cause at any time upon
written notice from the Board specifying such Cause and the expiration of the
cure period specified below, and thereafter, the Company's obligations hereunder
(other than the obligation to pay any accrued salary or benefit) shall cease and
terminate; provided, however, that such written notice shall not be delivered
until after the Board shall have given the Executive written notice specifying
the conduct alleged to have constituted such Cause. The Executive shall have 30
days to cure the matters specified in the notice delivered by the Board (to the
extent that such matters are curable). For purposes of this Agreement, "Cause"
shall mean the Executive's willful misconduct, dishonesty or other willful
actions (or willful failures to act) which are materially and demonstrably
injurious to the Company, or a material breach by the Executive of one or more
terms of this Agreement, which shall include the Executive's habitual neglect of
the material duties required of him under this Agreement. For purposes of this
Section, no act or failure to act, on the part of the Executive, shall be
considered "willful" unless it is done, or omitted to be done, by the Executive
in bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in the
best interests of the Company. The cessation of employment of the Executive
shall not be deemed to be for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the Board by
the vote of a majority of the entire Board at a meeting of the Board duly called
and held for such purpose, at which the Executive shall have an opportunity to
be present and to be heard, finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described above, and specifying
the particulars thereof in detail.
(c) Termination by the Executive for Good Reason. The Executive's
employment with the Company may be terminated by the Executive for Good Reason.
For purposes of this Agreement, "Good Reason" shall mean any of the following
actions, if taken without the express written consent of the Executive: (1) any
material change by the Company in the Executive's title, functions, duties, or
responsibilities, which changes would cause the Executive's position with the
Company to become of significantly less responsibility, importance or scope as
compared to the position and attributes that applied to the Executive as of the
Effective Date; (2) any material failure by the Company to comply with any of
the provisions of the Agreement; or (3) the requirement made by the Company that
the Executive change his manner of performing his responsibilities so as to
require a change in his residence.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (1) indicates the specific termination provision in
this
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Agreement relied upon, (2) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (3) if the Date
of Termination (as defined in Section (e) hereof) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than 30 days after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (1) if the Executive's
employment is terminated by the Company for Cause, the expiration of the cure
period specified in Paragraph 7(b) hereof, (2) if the Executive's employment is
terminated by the Executive for Good Reason, the date of receipt of the Notice
of Termination or any later date specified therein, as the case may be, (3) if
the Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case may
be, and (4) if the Executive's employment is terminated by the Company other
than for Cause or Disability, or by the Executive without Good Reason, 30 days
after the date of receipt by the non-terminating party of a written notice of
termination or such shorter time as the Board thereafter specifies in a written
notice to the Executive.
(f) Change of Control of the Company. For the purpose of this Agreement, a
"Change of Control" shall have been deemed to have occurred if at any time
during the Employment Term:
(i) the Company sells or otherwise disposes in an arms length
transaction assets of the Company having a fair market value of at least
60% of the total assets of the Company and its subsidiaries on a
consolidated basis, or the Company sells or otherwise disposes of a
majority of the equity ownership or voting control of any member of any
corporation or other entity holding substantially all of the assets of the
Company, in a single transaction or series of related transactions, or
(ii) acquisition by (A) any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
or (B) two or more Persons of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either
(1) the shares of Common Stock outstanding immediately after such
acquisition (the "Company Common Stock") or (2) the combined voting power
of the voting securities of the Company entitled to vote generally in the
election of directors outstanding immediately after such acquisition (the
"Company Voting Securities"); provided, however, that for purposes of this
subsection (i) the following acquisitions of securities shall not
constitute or be included when determining whether there has been a Change
of Control: (1) any acquisition by the Company, or (2) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or
(iii) consummation of a reorganization, merger or consolidation or the
sale or other disposition of all or substantially all of the assets of the
Company, or the acquisition of the assets of another corporation by the
Company (in each case, a "Business Combination"), unless, following any
such Business Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Company
Common Stock and Company Voting Securities outstanding immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of common stock or
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the Company Common Stock and Company Voting Securities
outstanding, as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan or
related trust of the Company or any corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 50% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the Business Combination
and (C) at
7
<PAGE>
least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination.
8. Obligations of the Company upon Termination of Employment.
(a) Termination by the Company Other Than for Cause, Death or Disability or
by the Executive for Good Reason or for any Reason Following a Change of
Control. If during the Employment Term (i) the Company terminates the
Executive's employment other than for Cause, death or Disability, (ii) the
Executive terminates his employment for Good Reason, or (iii) following a Change
of Control, the Executive terminates his employment for any reason, then in any
such case the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination (or, in the event any amounts due cannot be
determined within this period, as soon thereafter as is practicable) an amount
equal to (A) two times the Executive's then current Base Salary plus (B) two
times the annual bonus most recently paid to the Executive. The Company shall
have no further obligation to the Executive other than the obligation to pay to
him any other compensation and benefits due to the Executive in accordance with
this Agreement, in each case to the extent theretofore unpaid. The provisions of
this Subparagraph 8(a) shall not affect any rights of the Executive under the
Company's benefit plans or programs.
(b) Termination as a result of the Executive's Disability or Death. If
during the Employment Term the Executive's employment is terminated by reason of
the Executive's Disability or death, then the Company shall pay to the Executive
or the Executive's legal representatives in a lump sum in cash within 30 days
after the Date of Termination (or, in the event any amounts due cannot be
determined within this period, as soon thereafter as is practicable) an amount
equal to one times (A) the Executive's then current Base Salary plus (B) the
annual bonus most recently paid to the Executive. The Company shall have no
further obligation to the Executive other than the obligation to pay to him any
other compensation and benefits due to the Executive in accordance with this
Agreement, in each case to the extent theretofore unpaid. The provisions of this
Subparagraph 8(b) shall not affect any rights of the Executive's heirs,
administrators, executors, legatees, beneficiaries or assigns under the
Company's benefit plans or programs.
(c) Termination by the Company for Cause or by the Executive other than
for Good Reason. If during the Employment Term either (i) the Executive's
employment is terminated by the Company for Cause or (ii) the Executive
voluntarily terminates his employment prior to a Change of Control, excluding
termination by him for Good Reason, then the Company shall have no further
obligation to the Executive other than the obligation to pay to the Executive
(A) his Base Salary through the Date of Termination and (B) any other
compensation and benefits due to the Executive in accordance with this
Agreement, in each case to the extent theretofore unpaid.
9. Golden Parachute Provision.
In the event that in the opinion of tax counsel selected by the Executive
and compensated by the Company ("Executive's Tax Counsel"), a payment or benefit
received or to be received by the Executive (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company or
any of its subsidiaries, affiliates or divisions) (collectively, with the
payments provided for in the foregoing provisions of Section 8, the "Post
Termination Payments") would be subject to excise tax (in whole or in part) as a
result of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), and as a result of such excise tax, the net amount of Post Termination
Payments retained by the Executive (taking into account federal and state income
taxes and such excise tax) would be less than the net amount of Post Termination
Payments retained by the Executive (taking into account federal and state income
taxes) if the Post Termination Payments were reduced or eliminated as described
in this Section 9, then the Post Termination Payments shall be reduced or
eliminated until no portion of the Post Termination Payments is subject to
excise tax, or the Post Termination Payments are reduced to zero. For purposes
of this limitation (i) no portion of the Post Termination Payments the receipt
or enjoyment of which the Executive shall have waived in writing prior to the
date of payment following termination of the Post Termination Payments shall be
taken into account, (ii) no portion of the Post Termination Payments shall be
taken into account which in the opinion of Executive's Tax Counsel does not
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code, (iii) the Post Termination Payments shall be reduced only to the extent
8
<PAGE>
necessary so that the Post Termination Payments (other than those referred to in
clauses (i) and (ii)) in their entirety constitute reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the Code
or are otherwise not subject to excise tax, in the opinion of Executive's Tax
Counsel, and (iv) the value of any non-cash benefit and all deferred payments
and benefits included in the Post Termination Payments shall be determined by
the mutual agreement of the Company and the Executive in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
10. Governing Law; Arbitration; Jurisdiction; Attorneys' Fees.
This Agreement is made and entered into and will be governed by and
interpreted in accordance with the laws of the State of Illinois. The Company
and the Executive agree that any dispute regarding this Agreement, that cannot
be resolved amicably by the parties, will be submitted to arbitration within 60
days of the date the dispute arose and will be resolved in accordance with the
rules of the American Arbitration Association for expedited cases then in
effect. The arbitrator will be mutually selected by the parties or in the event
the parties cannot mutually agree, then appointed by the American Arbitration
Association. Any arbitration will be held in Chicago, Illinois and the
arbitrator will apply Illinois law. Judgment upon any award rendered by the
arbitrator will be final and binding and may be entered in any court of
competent jurisdiction. The arbitrator will not be empowered to award damages in
excess of compensatory damages and each party hereby irrevocably waives any
damages in excess of compensatory damages. Notwithstanding the foregoing, the
Company will have the absolute right to seek equitable remedies in any state
court of competent jurisdiction in the State of Illinois, County of Cook, or in
a United States District Court in the State of Illinois pursuant to Paragraph
6(b) hereof. By Executive's execution and delivery of this Agreement, the
Executive irrevocably submits to and accepts the exclusive jurisdiction of each
of such courts and waives any objection (including any objection to venue or any
objection based upon the grounds of forum non conveniens) which might be
asserted against the bringing of any such action, suit or other legal proceeding
in such courts. The parties shall be responsible for their own costs and
expenses under this Section 10.
11. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes any and all previous agreements, whether written or oral, including
restrictive covenants, regarding the subject matter hereof between the parties
hereto. This Agreement shall not be modified or amended, except by a written
agreement signed by the parties hereto.
(b) Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been given if delivered by hand, sent by
generally recognized overnight courier service, telex or telecopy with
confirmation of receipt, or mail:
(i) to the Company:
Navigant Consulting, Inc.
Attn: General Counsel
615 N. Wabash
Chicago, Illinois 60611
with a copy to:
Winston & Strawn
Attention: Gov. James R. Thompson
35 West Wacker Drive
Chicago, IL 60601
(ii) to the Executive:
Carl Spetzler
9
<PAGE>
---------------
---------------
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications will be effective when
actually received by the addressee.
(c) Successors.
This Agreement is personal to the Executive and without the prior written
consent of the Company it shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This Agreement will inure
to the benefit of and be enforceable against the Executive's legal
representatives. This Agreement will inure to the benefit of and be binding upon
the Company and its successors and assigns. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation, share
exchange or otherwise) to all or substantially all of the business and/or assets
of the Company to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. For purposes of this Agreement, the
term "Company" means the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(d) Severability. If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision will thereupon be deemed modified only to
the extent necessary to render such provision valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require, and
this Agreement will be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be. Should this Agreement, or any one or more of the
provisions hereof, be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, the Agreement or any such
provision or provisions will not as a consequence thereof be deemed to be
invalid, illegal or unenforceable in any other governmental jurisdiction or
subdivision thereof.
(e) Waiver. The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, will not be deemed to be
a waiver of such provision or right or any other provision or right of this
Agreement.
(f) Counterparts. This Agreement may be executed in two counterparts, each
of which will be deemed an original and both of which taken together will
constitute a single instrument.
(signature page follows)
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
------------------------------------
Carl Spetzler
Navigant Consulting, Inc.
By __________________________________
Its _________________________________
11
<PAGE>
EX-10.11
Letter Agreement dated February 1, 2000 between the Registrant and
Philip P. Steptoe
Exhibit 10.11
February 1, 2000
Mr. Philip P. Steptoe
1024 Central Avenue
Wilmette, IL 60091
Dear Phil:
I am very pleased you have decided to join our Senior Management Team. The
purpose of this letter is to confirm our several conversations as well as the
terms of your employment with us. Key points are as follows:
Position and Duties: You will be elected Vice President, General Counsel and
Secretary of Navigant Consulting. Inc. (the "Company") effective February 1,
2000. You will have the duties customarily associated with the position of a
Vice President, General Counsel and Secretary which duties will include, but not
be limited to, the oversight of the legal affairs of the Company. You will
report to me, in my capacity as Chairman of the Board of Directors.
Salary: Your annual salary will be $250,000, payable in accordance with the
Company's payroll policy from time to time in effect.
Options: You will receive a non-qualified option to purchase 100,000 shares of
the common stock of the Company, with the purchase price being the fair market
value of the Company's common stock on the day of grant. The option will vest
over two years, with a first installment of 25,000 of the shares becoming vested
after six months from the day of grant and 25,000 becoming vested every six
months thereafter. All shares will be vested in event of a "change in control"
as defined below: The Option shall have a term equal to the lesser of ten years
measured from the date of grant or the longest period permitted by the Company's
Long-Term Incentive Plan after the date of the termination of the Executive's
employment with the Company, the greatest portion of the Option shares allowable
under the Company's Long-Term Incentive Plan shall be issued as incentive stock
options.
The terms of your option grants will be governed by the Navigant, Inc. Long-Term
Incentive Plan which requires, as a condition of the grant, that you enter into
a Stock Option Agreement.
Bonus: If both the Company and you achieve certain goals (both the levels and
the goals to be agreed upon), you will be eligible for a bonus of up to 50% of
your annual salary, provided you are actively employed by the Company on the
date the bonus is to be paid.
Benefits: You will be entitled to whatever benefits are available from time to
time to senior executives of the Company, including but not limited to, life
insurance, medical insurance, vacation and participation in a Section 401(k)
plan.
Start Date: Your first day of employment with the Company will be February 1,
2000.
Severance Pay: If the Company terminates your employment at any time, without
"cause," the Company agrees to continue your base salary for a period of six
months, in accordance with the Company's payroll policy then in effect. For
purposes of this letter agreement, you will be considered terminated for "cause"
<PAGE>
if your employment terminates after (i) you have committed any felony or a crime
involving fraud, theft, misappropriation, dishonesty or embezzlement; (ii) you
have committed acts with the intent to materially impair the goodwill or
business of the Company or cause material damage to its property, goodwill or
business; or (iii) you refuse to, or willfully fail to, perform the material
duties of your position, provided that you will been given written notice of
such refusal or willful failure and given a cure period of 30 days.
Protective Covenant: As a condition of your employment, you agree that, during
the period of your employment with the Company and for a period of one year
thereafter, you will not (a) solicit any of the clients or prospective clients
of the Company or its subsidiaries and affiliates, (b) engage in any activities
of employment with any business involved in providing the type of consulting
services then provided by the Company or its subsidiaries and affiliates, and
(c) solicit or hire any employee of the Company (or any individual who was an
employee of the Company or its subsidiaries and affiliates during the year
preceding such solicitation or hire). In addition, you agree at all times, both
during the term of your employment and at any time thereafter, not to disclose
to any person not employed by the Company or its subsidiaries and affiliates any
confidential or proprietary business information, except as may be required by
your duties as Vice President, General Counsel and Secretary. Moreover, if
requested by the Company, you agree to sign its standard Protective Covenant
encompassing the foregoing agreements.
Employment Relationship: It is understood that you and the Company are free to
terminate your employment relationship at any time.
A. Termination as a Result of Death or Disability. Your employment with
the Company shall terminate automatically upon the your death during
the Employment Term. If your Disability has occurred during the
Employment Term (pursuant to the definition of "Disability" set forth
below), the Company may give to you written notice of its intention to
terminate the your employment. In such event, your employment with the
Company shall terminate effective on the 30th day after receipt of
such notice by the Company (the "Disability Effective Date"), provided
that, within the 30 days after receipt of notice, you shall not have
returned to substantial performance of your duties. For purposes of
this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company for 120 consecutive days,
or a total of 180 days in any 12-month period, as a result of
incapacity due to mental or physical illness which is determined to be
total and permanent by a physician jointly selected by the Company and
you or your legal representative, or, if the parties cannot agree on
the selection of such physician and the two physicians shall jointly
select a physician to make such binding termination.
B. Termination by the Company for Cause. The Company may terminate your
employment during the Employment Term for "Cause" (as defined above)
at any time, subject to the expiration of applicable cure period
specified above, and thereafter, the Company's obligations hereunder
(other than the obligation to pay any accrued salary or benefit) shall
cease and terminate.
C. Change of Control of the Company. For the purpose of this Agreement,
a "Change of Control" shall have been deemed to have occurred if at
any time during the Employment Term:
1. the Company sells or otherwise disposes in an arms length
transaction assets of the Company having a fair market value
of at least 60% of the total assets of the Company and its
subsidiaries on a consolidated basis, or the Company sells
or otherwise disposes of a majority of the equity ownership
or voting control of any member of any corporation or other
entity holding substantially all of the assets of the
Company, in a single transaction or series of related
transactions, or
2. acquisition by (A) any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act (a "Person") or (B) two or more Persons of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) or more than 50% of either (1) the
shares of Common Stock
<PAGE>
outstanding immediately after such acquisition (the "Company
Common Stock") or (2) the combined voting power of the
voting securities of the Company entitled to vote generally
in the election of directors outstanding immediately after
such acquisition (the "Company Voting Securities");
provided, however, that for purposes of this subsection (1)
the following acquisitions of securities shall not
constitute or be included when determining whether there has
been a Change of Control: (1) any acquisition by the
Company, or (2) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company; or
3. consummation of a reorganization, merger or consolidation or
the sale or other disposition of all or substantially all of
the assets of the Company, or the acquisition of the assets
of another corporation by the Company (in each case, a
"Business Combination"), unless, following any such Business
Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively,
of the Company Common Stock and Company Voting Securities
outstanding immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares or common stock or
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without
limitation, a corporation which as a result of such
transaction owns the Company or all of substantially all of
the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combinations,
of the Company Common Stock and Company Voting Securities
outstanding, as the case may be, (B) no Person (excluding
any corporation resulting from such Business Combination or
any employee benefit plan or related trust of the Company or
an corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 50% or more of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting
securities or such corporation except to the extent that
such ownership existed prior to the Business Combination and
(C) at least a majority of the members of the board of
directors of the corporation resulting from such Business
Combination were members of the Board at the time of the
execution of the initial agreement, or of the action of the
Board providing for such Business Combination.
Assignment: While you may not assign any of your rights or delegate any of your
duties or obligations, the rights and obligations of the Company will inure to
the benefit of and will be binding upon its successors and assigns.
Indemnification: You shall be entitled to indemnification as may be provided for
under the Company's Certificate of Incorporation which provides indemnification
to the fullest extent permitted by Delaware law. The Company further agrees that
nothing in this Agreement shall be deemed to impair any rights to
indemnification that you may have relating to, or arising of, your employment
with the Company and its subsidiaries or affiliates.
Governing Law: This offer letter will be governed by, and construed in
accordance with, the laws of the State of Illinois. Any and all disputes arising
under this letter, other than a dispute arising under the Protective Covenant,
initially will be referred by the parties to non-binding mediation for
resolution (through mediation administered by the American Arbitration
Association under the National Rules for Resolution of Employment Disputes,
Employment Mediation Rules). If mediation is unsuccessful in resolving the
dispute (or in the context of a dispute under the Protective Covenant), any
court action to enforce this Agreement will have as its sole and exclusive venue
Cook County, Illinois.
<PAGE>
No Other Understandings: This letter sets forth our entire agreement and
understanding and supersedes any and all other agreements, either oral or in
writing, between the Company and you. No change to this letter will be valid
unless in writing and signed by the Company and you.
-----------------------------------
Mitchell H. Saranow
Chairman, Navigant Consulting, Inc.
Accepted this ______ day of
______________, 2000.
- -----------------------
Philip P. Steptoe
<PAGE>
EX-10.12
Consulting Agreement and General Release dated as of November 21, 1999 between
the Registrant and Robert P. Maher
Exhibit 10.12
CONSULTING AGREEMENT AND GENERAL RELEASE
THIS CONSULTING AGREEMENT AND GENERAL RELEASE (the "Agreement") is made
and entered into as of the 21st day of November, 1999, by and between Navigant
Consulting, Inc., a Delaware corporation (the "Company"), and Robert P. Maher
("Maher").
RECITALS
A. Maher has been employed by the Company as President and Chief
Executive Officer and Chairman of the Board of Directors (the "Board").
B. Maher desires voluntarily to resign his employment with the Company
and resign all positions he holds.
C. The Company and Maher agree that he will be engaged as a consultant
to the Company, subject to the terms and limitations of this Agreement.
NOW, THEREFORE, in consideration of the above premises and the following
mutual covenants and conditions, the parties agree as follows:
1. Resignation of Employment. The Company and Maher agree that
immediately upon the signing of this Agreement by both parties (the "Effective
Time"), Maher resigns his employment with the Company and its subsidiaries and
affiliates and the Company accepts such resignation. At the Effective Time, the
Company and Maher also agree that he resigns as Chairman of, and as a member of,
the Board, and as a Member of the Board of Directors and as an officer of any
subsidiaries or affiliates of the Company and the Company accepts such
resignations. Additionally, Maher agrees to return to the Company all Company
property in his possession on or prior to November 22, 1999. Maher's termination
of each of his positions shall be deemed to have occurred by virtue of his
voluntary resignation. Maher agrees and acknowledges that he will make no
announcement about his resignation or about the affairs of the Company to
employees of the Company or its subsidiaries or affiliates, which is in any
manner inconsistent with the terms of this Agreement, and further agrees and
acknowledges that any press or other written or oral public releases or
statements concerning his resignation or about the affairs of the Company or its
subsidiaries or affiliates shall be issued by the Company only. In addition to
the foregoing, Maher agrees and covenants that he will not make or authorize the
making of any statements, whether oral or written, to any third party
disparaging the Company or its subsidiaries or affiliates, its or their
business, employees, officers or directors. Further, Maher will refrain from
making any disparaging or misleading statements to financial analysts or others
in the financial
<PAGE>
services industry about the Company, its subsidiaries or affiliates or their
business (or about or relating to any officer, director, employee or other
person acting on the Company's or its subsidiaries' or affiliates' behalf). At
all times, Maher shall be free to respond to false or disparaging statements
directed at his conduct with factually accurate statements.
2. Consulting Agreement. Subject to the terms of this Agreement, from
November 21, 1999 through November 20, 2001 (the "Consulting Period"), Maher
shall be engaged as a consultant to the Company. Maher agrees that (i) he will
not hereinafter seek re-employment with the Company, (ii) the Company may
terminate the Consulting Period at any time and for any reason, provided the
Company provides Maher with two (2) days prior written notice of such
termination, and (iii) the Company may terminate the Consulting Period at any
time, and without notice, for Cause, as defined below. For purposes of this
Agreement, the Company may terminate this Agreement for Cause if Maher shall
have breached in any material respect the terms of this Agreement ("Cause"). The
Company shall provide notice of any termination for cause as provided in
Paragraph 18. The termination of the Consulting Period shall not constitute a
termination of this Agreement.
3. Duties. Through November 20, 2001 (or such earlier time as may be
provided for under Paragraph 2), Maher shall be available to perform projects to
be assigned to him by the Chief Executive Officer of the Company, such projects
to be performed at the direction of such Chief Executive Officer or his
designee. Maher shall diligently, competently, and faithfully perform all such
assigned projects. Maher shall perform the duties provided for in this Agreement
as an independent contractor without the power to bind, represent, or speak for
the Company for any purpose whatsoever without the prior written approval of the
Board. Maher acknowledges his separate responsibility for all federal and state
taxes applicable on payments received pursuant to Paragraph 4. Except with
respect to services expressly and directly requested by the Company's Chief
Executive Officer, Maher shall not become involved in the operations or
management of the Company or its subsidiaries or affiliates, or directly or
indirectly attempt to influence the management, policies or affairs of the
Company and its subsidiaries or affiliates, except with respect to any rights he
may have as a shareholder of the Company.
4. Compensation and Release Payments.
A. As compensation for his consulting services, and as consideration
for this Agreement, the Company shall pay Maher the sum of $25,000 per
month, payable at the end of each month during the Consulting Period,
subject to any deductions as may be required to be made pursuant to law,
government order, or by agreement with, or consent of, Maher.
B. If, prior to November 20, 2001, the Company terminates the
Consulting Period, other than for Cause, the Company shall pay Maher at the
time of such termination an amount equal to the difference between $600,000
and the sum total of the monthly consulting fees theretofore paid to Maher
under this Agreement and the Company shall thereby be relieved of any other
payment obligations under Paragraph 4A of this Agreement.
2
<PAGE>
C. Notwithstanding anything else in this Agreement, if, prior to
November 20, 2001, the Company terminates the Consulting Period for Cause,
Maher shall be entitled to no further payments under this Agreement.
D. The Company and Maher acknowledge that, as of the Effective Time,
Maher has a loan outstanding to the Company made in or about April 1999 in
the amount of $2,700,000. The Company hereby agrees to release any claims
the Company may have against him concerning such loan, including the
repayment of any principal or interest thereon, in consideration of Maher's
agreement to sell back to the Company, within two (2) business days of the
Effective Time, 112,500 shares of Company stock at $24.00 per share. In
addition to the foregoing, the Company and Maher acknowledge that Maher has
tendered to the Company approximately 493,000 shares of Company stock at
$20.50 per share, as accord and satisfaction for a $10,000,000 loan, and
accrued interest thereon that had been made to him on or about August 24,
1999 by the Company. The Company agrees to release any claims that it may
have had against Maher concerning this additional $10,000,000 loan.
E. Maher is a party to stock option agreements with the Company
entered into as of May 21, 1997, January 16, 1998, October 8, 1998 and July
1, 1999, respectively (the "Option Agreements"). In consideration of the
payments under this Agreement, Maher hereby surrenders and relinquishes all
rights under the option agreement dated October 8, 1998 and, under the
option agreement dated July 1, 1999, Maher surrenders and relinquishes all
rights to all but the option to purchase 37,500 shares thereunder. Maher
shall retain the right and option to exercise all 150,000 shares under the
option agreement dated May 21, 1997 and all 112,500 shares under the option
agreement dated January 16, 1998, subject to the following revised terms
for the option agreements dated May 21, 1997, January 16, 1998 and July 1,
1999.
The options to purchase the 300,000 shares remaining under said option
agreements shall be exercisable as follows:
Exercise Period
------------------------------------
Number of Shares Exercise Price Commencement Date Expiration Date
---------------- -------------- ----------------- -----------------
75,000 $13.33 November 21, 1999 February 20, 2002
75,000 $13.33 November 21, 2000 February 20, 2002
37,500 $24.00 November 21, 2000 February 20, 2002
75,000 $24.00 November 21, 2001 February 20, 2002
37,500 $26.5625 November 21, 2001 February 20, 2002
Except as set forth in this Paragraph 4E, the terms of the Option
Agreements shall be null and void and the exercise provisions shall
hereinafter be governed solely by the terms of this Agreement and the
Navigant Consulting, Inc. Long-Term Incentive Plan. For these purposes, the
Company and the Plan Committee shall be deemed to have approved the use of
any of the methods of exercise permitted under the Plan. The foregoing
provisions of
3
<PAGE>
this Paragraph 4E notwithstanding, (i) if the Company terminates the
Consulting Period, other than for Cause or upon Maher's death, the options
set forth in the table above shall become immediately exercisable and
remain exercisable through the Expiration Date set forth in the table
above, and (ii) if the Company terminates the Consulting Period for Cause,
any options provided for hereunder shall expire immediately and shall, in
accordance with the terms of the Long-Term Incentive Plan, cease to be
exercisable.
F. The payments made by the Company hereunder shall be in
consideration of the duties described above in Paragraph 3, the release of
all other claims described below in Paragraph 5, and the Protective
Agreement described in Paragraph 7.
G. Maher agrees that he has heretofore been paid for all earned but
unused vacation pay and shall be paid for all salary accrued through
November 20, 1999 in accordance with the Company's payroll policy. Except
as set forth in this Agreement, no other sums (contingent or otherwise)
shall be paid to Maher in respect of his employment, or consulting
relationship, with the Company, and any such sums (whether or not owed) are
hereby expressly waived by Maher, provided, however, that Maher (i) may
elect to continue his health insurance coverage, as mandated by COBRA,
which may continue to the extent required by applicable law (and for which
the Company shall pay all premiums during the term of the COBRA
continuation period); (ii) shall be entitled to receive his account
balance, if any, under the Company's 401(k) Plan in accordance with the
terms of such Plan; (iii) may submit on or before December 31, 1999 any
claims for reasonable expense reimbursements incurred on or before November
20, 1999, which claims, if any, shall be reimbursed in accordance with the
Company's expense reimbursement policy; and (iv) may submit for
reimbursement reasonable expenses for consulting services under this
Agreement and approved in advance by the Company.
5. General Release. As a material inducement to the Company to enter into
this Agreement and in consideration of the payments to be made by the Company to
Maher in Paragraph 4 above, Maher, with full understanding of the contents and
legal effect of this Agreement, and having the right and opportunity to consult
with his counsel, releases and discharges the Company, its parent, divisions,
subsidiaries and affiliates, and its and their respective predecessors,
successors, stockholders, officers, directors, supervisors, managers, employees,
agents, and representatives and each of their respective heirs, executors,
administrators and assigns (collectively, the "COMPANY RELEASED PARTIES") from
any and all claims, actions, causes of action, grievances, suits, charges, or
complaints of any kind or nature whatsoever relating to his employment with, or
the business of, the Company that he ever had or now has, whether fixed or
contingent, liquidated or unliquidated, known or unknown, suspected or
unsuspected, and whether arising in tort, contract, statute, or equity, before
any federal, state, local, or private court, agency, arbitrator, mediator, or
other entity, regardless of the relief or remedy. Without limiting the
generality of the foregoing, it being the intention of the parties to make this
Agreement as broad and as general as the law permits, this Agreement
specifically includes any and all claims arising from any alleged violation by
the Company Released Parties under the Age Discrimination in Employment Act of
1967, as amended; Title VII of the Civil Rights Act of 1964, as amended; the
Civil Rights Act of 1866, as amended by the Civil Rights Act of 1991 (42 U.S.C.
(S) 1981); the
4
<PAGE>
Rehabilitation Act of 1973, as amended; the Employee Retirement Income Security
Act of 1974, as amended; the Illinois Wage Payment and Collection Act; the
Illinois Human Rights Act, the Chicago Human Rights Ordinance, the Cook County
Human Rights Ordinance, and other similar state or local laws; the Americans
with Disabilities Act; the Family and Medical Leave Act; the Equal Pay Act;
Executive Order 11246; Executive Order 11141; and any other statutory claim,
employment or other contract claim or implied contract claim (including, but not
limited to, any claims under the Option Agreements), or common law claim for
wrongful discharge, defamation, or invasion of privacy arising out of or
involving his employment or engagement with the Company, the termination of his
employment or engagement with the Company, or involving any continuing effects
of his employment or engagement with the Company or termination of his
employment or engagement with the Company. Maher further acknowledges that he is
aware that statutes exist that render null and void releases and discharges of
any claims, rights, demands, liabilities, action and causes of action which are
unknown to the releasing or discharging party at the time of execution of the
release and discharge. Maher hereby expressly waives, surrenders and agrees to
forego any protection to which he otherwise would be entitled by virtue of the
existence of any such statute in any jurisdiction including, but not limited to,
the State of Illinois. The foregoing notwithstanding, this Paragraph 5 does not
release the Company Released Parties from any claims Maher may have with respect
to the enforcement of the terms of this Agreement nor does it release the
Company Released Parties from any claims that may arise for events which first
occur following the execution of this Agreement by Maher.
6. Covenant Not to Sue. Maher, for himself, his heirs, executors,
administrators, successors and assigns covenants and agrees not to bring, file,
charge, claim, sue or cause, assist, or permit to be brought, filed, charged or
claimed any action, cause of action, or proceeding based upon any of the claims
released under Paragraph 5 hereof, and further covenants and agrees that this
Agreement is, will constitute and may be pleaded as, a bar to any such claim,
action, cause of action or proceeding. If any government agency or court assumes
jurisdiction of any charge, complaint, or cause of action released by this
Agreement, Maher will not seek and will not accept any personal equitable or
monetary relief in connection with such investigation, civil action, suit or
legal proceeding.
7. Protective Agreement. Maher acknowledges and agrees that solely by
virtue of his employment by, and relationship with, the Company, he has acquired
"Confidential Information", as defined below, as well as special knowledge of
the Company's relationships with its clients, and that, but for his association
with the Company, Maher will not have had access to said Confidential
Information or knowledge of said relationships. In return for the consideration
described in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Maher hereby
represents, warrants, and covenants as follows:
A. Maher has executed and delivered this Agreement as his free and
voluntary act, after having determined that the provisions contained herein
are of a material benefit to him, and that the duties and obligations
imposed on him hereunder are fair and reasonable.
B. Maher has read and fully understands the terms and conditions set
forth herein, and has had time to reflect on and consider the benefits and
consequences of
5
<PAGE>
entering into this Agreement. Maher further understands that for purposes
of this Paragraph 7, Company refers to Navigant Consulting, Inc. and its
subsidiaries, affiliates, and divisions.
C. Maher agrees that he will not, through November 20, 2001, except
on behalf of the Company, anywhere in the United States or in any other
place or venue where the Company or any affiliate, subsidiary or division
thereof now conducts or operates, or may conduct or operate its business,
directly or indirectly, whether as an investor (excluding investments
representing less than one percent (1%) of the common stock of a public
company), lender, owner, stockholder, officer, director, consultant,
employee, agent, salesperson or in any other capacity, whether part-time or
full-time, become associated with or engaged by a client or prospective
client (as hereinafter defined) of the Company and Maher shall take
reasonable efforts to ascertain with the Company who falls within such
categories.
D. Maher agrees that, through November 20, 2001, he will not, except
on behalf of the Company, anywhere in the United States or in any other
place or venue where the Company or any affiliate, subsidiary or division
thereof now conducts or operates, or may conduct or operate its business:
(1) directly or indirectly, contact, solicit or direct any
person, firm, corporation, association, or other entity to contact or
solicit, any of the Company's clients or prospective clients (as
hereinafter defined) for the purpose of providing any consulting
services that are the same as or similar to the consulting services
provided by the Company to its clients during the term hereof. In
addition, Maher will not disclose the identity of any such clients or
prospective clients, or any part thereof, to any person, firm,
corporation, association, or other entity for any reason or purpose
whatsoever; or
(2) solicit or accept if offered to him, with or without
solicitation, on his own behalf or on behalf of any other person, the
services of any person who is a current employee of the Company (or
was an employee of the Company during the year preceding such
solicitation), nor solicit any of the Company's current employees (or
any individual who was an employee of the Company during the year
preceding such solicitation) to terminate employment with the Company,
nor agree to hire any current employee of the Company into employment
with himself or any company, individual or other entity; or
(3) act as a consultant, advisor, officer, manager, agent,
director, partner, independent contractor, owner, or employee for or
on behalf of any of the Company's clients or prospective clients (as
hereinafter defined), with respect to or in any way with regard to any
aspect of the Company's business and/or any other business activities
in which the Company engages during the term hereof.
E. Maher acknowledges and agrees that the scope described above is
necessary and reasonable in order to protect the Company in the conduct of
its business and that, if Maher becomes employed by, or engaged by, another
entity, he shall be required to disclose
6
<PAGE>
the existence of this Paragraph 7 to such entity and Maher hereby consents
to and the Company is hereby given permission to disclose the existence of
this Paragraph 7 to such entity.
F. For purposes of this Paragraph 7, "client" shall be defined as
any person, firm, corporation, association, or entity that engaged the
Company or is or was doing business with the Company or Maher within the
twelve (12) month period immediately preceding termination of Maher's
employment with the Company, or during the Consulting Period. For purposes
of this Paragraph 7, "prospective client" shall be defined as any person,
firm, corporation, association, or entity for which the Company or Maher
(whether directly or indirectly) presented a written proposal for
consulting services within the twelve (12) month period immediately
preceding termination of Maher's employment with the Company, or during the
Consulting Period, for the purpose of having such persons, firms,
corporations, associations, or entities become a client of the Company.
G. Maher agrees that during his engagement and thereafter Maher will
not, for any reason whatsoever, use for himself or disclose to any person
not employed by the Company any "Confidential Information" of the Company
acquired by Maher during his relationship with the Company. Maher further
agrees to use Confidential Information solely for the purpose of performing
duties with the Company and further agrees not to use Confidential
Information for his own private use or commercial purposes or in any way
detrimental to the Company. Maher agrees that "Confidential Information"
includes but is not limited to: (i) any non-public financial, engineering,
business, planning, operations, services, potential services, products,
potential products, technical information and/or know-how, organization
charts, formulas, business plans, production, purchasing, marketing,
pricing, sales, profit, personnel, client, broker, supplier, or other lists
or information of the Company; (ii) any non-public papers, data, records,
processes, methods, techniques, systems, models, samples, devices,
equipment, compilations, invoices, client lists, or documents of the
Company; (iii) any confidential information or trade secrets of any third
party provided to the Company in confidence or subject to other use or
disclosure restrictions or limitations; and (iv) any other non-public
information, written, oral, or electronic, whether existing now or at some
time in the future, and whether pertaining to current or future
developments, which pertains to the Company's affairs or interests or with
whom or how the Company does business. The Company acknowledges and agrees
that Confidential Information does not include (a) information properly in
the public domain, or (b) information in Maher's possession prior to the
date of his original employment with the Company.
H. Maher acknowledges and agrees that all client lists, supplier
lists, and client and supplier information, including, without limitation,
addresses and telephone numbers, are and shall remain the exclusive
property of the Company, regardless of whether such information was
developed, purchased, acquired, or otherwise obtained by the Company or
Maher. Maher agrees to furnish to the Company on demand his complete list
of the correct names and places of business and telephone numbers of all of
its clients served by him,
7
<PAGE>
including all copies thereof wherever located. Maher also agrees to return
immediately to the Company all records, notes, computer printouts, computer
programs, computer software, price lists, microfilm, or any other documents
related to the Company's business, including originals and copies thereof.
I. It is agreed that any breach or anticipated or threatened breach
of any of Maher's covenants contained in this Paragraph 7 will result in
irreparable harm and continuing damages to the Company and its business and
that the Company's remedy at law for any such breach or anticipated or
threatened breach will be inadequate and, accordingly, in addition to any
and all other remedies that may be available to the Company at law or in
equity in such event, any court of competent jurisdiction may issue a
decree of specific performance or issue a temporary and permanent
injunction, without the necessity of the Company posting bond or furnishing
other security and without proving special damages or irreparable injury,
enjoining and restricting the breach, or threatened breach, of any such
covenant, including, but not limited to, any injunction restraining Maher
from disclosing, in whole or part, any Confidential Information. Maher
acknowledges the truthfulness of all factual statements in this Agreement
and agrees that he is estopped from and will not make any factual statement
in any proceeding that is contrary to this Agreement or any part thereof.
8. Severability. If any provision of this Agreement shall be found by a
court to be invalid or unenforceable, in whole or in part, then such provision
shall be construed and/or modified or restricted to the extent and in the manner
necessary to render the same valid and enforceable, or shall be deemed excised
from this Agreement, as the case may require, and this Agreement shall be
construed and enforced to the maximum extent permitted by law, as if such
provision had been originally incorporated herein as so modified or restricted,
or as if such provision had not been originally incorporated herein, as the case
may be. The parties further agree to seek a lawful substitute for any provision
found to be unlawful; provided, that, if the parties are unable to agree upon a
lawful substitute, the parties desire and request that a court or other
authority called upon to decide the enforceability of this Agreement modify the
Agreement so that, once modified, the Agreement will be enforceable to the
maximum extent permitted by the law in existence at the time of the requested
enforcement.
9. Waiver. A waiver by either party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver or
estoppel of any subsequent breach. No waiver shall be valid unless in writing
and signed by an authorized officer of the Company (if a Company waiver) or by
Maher (if a Maher waiver).
10. Miscellaneous Provisions and Representations.
A. Both parties agree they will keep the terms, contents, and
amounts set forth in this Agreement completely confidential and, other than
as required by statute, regulation, a court of competent jurisdiction, or
the rules of any governmental agency, will not disclose any information
concerning this Agreement's terms and amounts to any person other than
8
<PAGE>
each party's attorney, accountants, tax advisors, or (if disclosed by
Maher) Maher's immediate family.
B. Maher represents and certifies that he has carefully read and
fully understands all of the provisions and effects of this Agreement, has
knowingly and voluntarily entered into this Agreement freely and without
coercion, and acknowledges that on November 19, 1999, the Company advised
him to consult with an attorney prior to executing this Agreement. Maher is
voluntarily entering into this Agreement and neither the Company nor its
agents, representatives, or attorneys made any representations concerning
the terms or effects of this Agreement other than those contained in the
Agreement itself.
C. Nothing in this Agreement impacts Maher's right, if any, to
indemnification as may be provided for under the Company's By-Laws. The
Company further agrees that nothing in this Agreement shall be deemed to
impair any rights to indemnification that Maher may have relating to, or
arising out of, his employment with the Company and its subsidiaries or
affiliates, or his service as a director of the Company and its
subsidiaries or affiliates, or any of its or their predecessors.
11. Complete Agreement. This Agreement sets forth the entire agreement
between the parties, and fully supersedes any and all prior agreements or
understandings between the parties pertaining to the subject matter of this
Agreement.
12. Amendment. This Agreement may not be altered, amended, or modified
except in writing signed by both Maher and the Company.
13. Future Cooperation. During the Consulting Period, in connection with
any and all claims, disputes, negotiations, investigations, lawsuits,
administrative proceedings or other requests by the Company for information
about past transactions or other matters as to which Maher may be familiar,
Maher agrees to make himself available, upon reasonable notice from the Company,
to provide information or documents, provide declarations or statements to the
Company, meet with attorneys or other representatives of the Company, prepare
for and give depositions or testimony, and/or otherwise cooperate in the
investigation, defense or prosecution of any or all such matters. In addition,
unless required to do so under applicable law, Maher shall not provide
information or otherwise assist any person or entity in asserting or threatening
to assert any claim against any of the Company Released Parties.
14. Joint Participation. The parties hereto participated jointly in the
negotiation and preparation of this Agreement, and each party has had the
opportunity to obtain the advice of legal counsel and to review and comment upon
the Agreement. Accordingly, it is agreed that no rule of construction shall
apply against any party or in favor of any party. This Agreement shall be
construed as if the parties jointly prepared this Agreement, and any uncertainty
or ambiguity shall not be interpreted against one party and in favor of the
other.
9
<PAGE>
15. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered a construction of the provisions hereof.
16. Execution of Agreement. This Agreement may be executed in several
counterparts, each of which shall be considered an original, but which when
taken together, shall constitute one Agreement.
17. Board Approval. This Agreement shall be subject to the approval of the
Board within five (5) days of its execution.
18. Notices. Any notice to be given hereunder shall be in writing and
shall be deemed given when mailed by certified mail, return receipt requested,
addressed as follows to:
Maher: Robert P. Maher
33 East Bellevue
Chicago, Illinois 60611
with a copy to: Robert T. Markowski
Jenner & Block
One IBM Plaza, Suite 4400
Chicago, Illinois 60611
Company: Navigant Consulting, Inc.
615 N. Wabash
Chicago, Illinois 60611
Attn: Board of Directors
with a copy to: Jeffrey L. London
Sachnoff & Weaver, Ltd.
30 South Wacker Drive, Suite 2900
Chicago, Illinois 60606
19. Arbitration. Any controversy or claim arising out of or relating to
the termination of the Consulting Period shall be resolved by arbitration in
accordance with the National Rules for the Resolution of Employment Disputes
("Rules") of the American Arbitration Association through a single arbitrator
selected in accordance with the Rules. The decision of the arbitrator shall be
rendered within thirty (30) days of the close of the arbitration hearing and
shall include written findings of fact and conclusions of law reflecting the
appropriate substantive law. Judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof in the State of
Illinois. In reaching his or her decision, the arbitrator shall have no
authority (a) to authorize or require the parties to engage in discovery
(provided, however, that the arbitrator may schedule the time by which the
parties must exchange copies of the exhibits that, and the names of the
witnesses whom, the parties intend to present at the hearing), (b) to interpret
or enforce Paragraph 7 of the Agreement (for which Paragraph 21 shall provide
the exclusive venue), (c) to change or modify any provision of this Agreement,
(d) to
10
<PAGE>
base any part of his or her decision on the common law principle of constructive
termination, or (e) to award punitive damages or any other damages not measured
by the prevailing party's actual damages and may not make any ruling, finding or
award that does not conform to this Agreement. Each party shall bear one-half
(1/2) of the costs of the arbitrator.
20. Recitals. The recitals to this Agreement are an integral part hereof
and shall be considered as substantive and not precatory language.
Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois, and, subject to Paragraph
19, any court action commenced to enforce this Release shall have as its sole
and exclusive venue the County of Cook, Illinois.
PLEASE READ THIS AGREEMENT AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS
BEFORE SIGNING IT. THIS AGREEMENT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN
CLAIMS AND OTHER FEDERAL, STATE AND LOCAL LAWS PROHIBITING DISCRIMINATION IN
EMPLOYMENT.
IN WITNESS WHEREOF, the parties have set their signatures on the date
first written above.
NAVIGANT CONSULTING, INC. ROBERT P. MAHER
By:__________________________________ ____________________________________
Its:_________________________________
11
<PAGE>
EX-10.13
Letter Agreement dated February 27, 2000 between the Registrant and Barry
S. Cain
Exhibit 10.13
February 27, 2000
Mr. Barry S. Cain
755 Smoke Tree Road
Deerfield, IL 60015
Dear Barry:
This letter will confirm our recent conversation regarding the terms of your
resignation from Navigant Consulting.
. We agreed that your last day of work was February 18, 2000, that you have
resigned effective August 18, 2000 (the interim period being the "Notice
Period") and that during such Notice Period your sole responsibility will
be to endeavor to secure employment outside the Company.
. During the Notice Period, the Company has agreed to continue to pay you
your regular salary, payable per our normal executive payroll cycle;
provided, however, that the last three months' take-home salary (i.e., net
of withholding for taxes, benefits etc.) will not be paid directly to you
but instead will be applied as a credit to reduce the interest on your
loans from the Company. No severance pay shall be due you at the end of the
Notice Period.
. During the Notice Period, all regular executive employee benefits in which
you are eligible to participate (e.g., life, disability, medical and dental
insurance; 401(k)) will continue, but there shall be no further vacation
accrual. Eligibility for COBRA benefits will commence at the end of the
Notice Period.
The above terms are contingent upon your agreement to full and complete
cooperation with the Company's outside counsel in relation to outstanding
litigation matters. To avoid any possible misunderstanding, "full and complete
cooperation" means that no later than March 3, 2000, you will submit yourself to
an interview by the Company's outside counsel, you will be candid and
forthcoming, you provide to them all requested documents in your possession, and
you will thereafter make yourself available during the Notice Period to the
Company or its representatives, upon reasonable notice, and
<PAGE>
cooperatively provide requested information or documents. Regardless of whether
such interviews take place before or after your last day of work, the Company
will treat the contents of the interview as a privileged Company communication
between an employee and counsel representing the Company for purposes of
defending the pending class actions. You shall be entitled at all times to
advice and counsel from your own attorney.
We have also agreed on the following
. As soon as reasonably possible, the Company shall -
- pay you for your 7 weeks' of accrued unpaid vacation pay, and
- provide you with a mutually agreeable letter of recommendation.
. During the Notice Period, office voice mail will continue to be available
at the same extension to the extent possible, together with telephone
answering as necessary.
. You may retain your computer, but you must allow us to create a backup copy
of all business-related files on your computer as soon as mutually
convenient.
As an interim matter, I asked Phil Steptoe to assume your various
responsibilities following February 18, 2000. Please cooperate with him to the
extent he reasonably requires your knowledge of past matters.
If you agree that this letter accurately reflects the agreement between you and
the Company, please countersign this letter and return it to me.
Best regards,
M.H. Saranow
Chairman
Agreed and Accepted:
--------------------
Barry S. Cain
Dated:
--------------------
<PAGE>
EX-21.1
SIGNIFICANT SUBSIDIARIS OF THE REGISTRANT
EXHIBIT 21.1
SIGNIFICANT SUBSIDIARIES OF NAVIGANT CONSULTING, INC.
Name State of Incorporation Doing Business As
- ---- ---------------------- -----------------
LECG, Inc. California Peterson Worldwide LLC
Peterson Consulting LLC Illinois Navigant Consulting LLC
Strategic Decisions Group California Navigant Consulting, Inc.
<PAGE>
Ex-23.1
Consent of KPMG LLP
Exhibit 23.1
Consent of KPMG LLP
The Board of Directors
Navigant Consulting, Inc.
We consent to incorporation by reference in the registration statement (No.
333-30267) on Form S-8 of Navigant Consulting, Inc. of our reports dated March
20, 2000, relating to the consolidated balance sheets of Navigant Consulting,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1999, and the
related schedule, which reports appear in the December 31, 1999 annual report on
Form 10-K of Navigant Consulting, Inc.
/s/ KPMG LLP
Chicago, Illinois
March 28, 2000
<PAGE>
EXHIBIT 23.2
ARTHUR ANDERSEN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K into the Company's previously filed Form
S-8 Registration Statement No. 333-30267.
/s/ Arthur Andersen LLP
San Francisco, California
March 23, 2000
<PAGE>
Exhibit 23.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of LECG, Inc.
We have audited the statements of income, shareholders' equity and cash flows of
LECG, Inc. (a California corporation) and subsidiaries for the year ended
December 31, 1997, which were audited prior to the restatement (and, therefore,
are not presented herein) for the pooling-of-interest as described in Note 3 to
the restated financial statements included on pages F-1 - F-14.
We have audited the statements of income, shareholders'equity and cash flows of
LECG, Inc. (a California corporation) and subsidiaries as of December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of their operations and their cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen & Co.
San Francisco, California
January 30, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-30267) of Navigant Consulting, Inc. of our
report dated February 11, 1998, relating to the consolidated financial
statements of Resource Management International, Inc. and Subsidiaries as of
December 31, 1997, which appears in this December 31, 1999 Form 10-K.
/s/ Pricewaterhouse Coopers LLP
Sacramento, California
March 28, 2000
<PAGE>
Exhibit 23.3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Resources Management International, Inc.
Rancho Cordova, California
We have audited the accompanying consolidated balance sheet of Resource
Management International, Inc. and Subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Companies' management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Resource
Management International, Inc. and Subsidiaries at December 31, 1997, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Sacramento, California
February 11, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to incorporation by reference in the registration statement No.
333-30267 on Form S-8 of Navigant Consulting, Inc. of our report dated March
17, 1998 relating to the consolidated statements of operations, members'
equity, and cash flows for the year ended December 31, 1997 of Peterson
Consulting L.L.C. which report appears in the December 31, 1999 annual report
on Form 10-K of Navigant Consulting, Inc.
/s/ Crowe, Chizek and Company LLP
Oak Brook, Illinois
March 27, 2000
<PAGE>
Exhibit 23.4
REPORT OF INDEPENDENT AUDITORS
To the Members
Peterson Consulting L.L.C.
We have audited the consolidated statements of operations, members' equity, and
cash flows for the year ended December 31, 1997 (not included herein) of
Peterson Consulting L.L.C. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flow for
the year ended December 31, 1997 of Peterson Consulting L.L.C. in conformity
with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
March 17, 1998
<TABLE> <S> <C>
<PAGE>
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<S> <C> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 42,345 119,704 45,972
<SECURITIES> 0 0 0
<RECEIVABLES> 116,100 80,163 6,341
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 176,405 206,846 3,511
<PP&E> 59,820 40,829 33,506
<DEPRECIATION> 26,057 18,632 19,576
<TOTAL-ASSETS> 414,676 230,517 125,827
<CURRENT-LIABILITIES> 108,807 60,337 51,116
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 43 38 34
<OTHER-SE> 300,626 164,866 69,180
<TOTAL-LIABILITY-AND-EQUITY> 414,676 230,517 125,827
<SALES> 397,694 287,626 228,731
<TOTAL-REVENUES> 397,694 287,626 228,731
<CGS> 266,080 174,175 145,144
<TOTAL-COSTS> 401,298 249,046 202,035
<OTHER-EXPENSES> 2,191 (2,638) (1,205)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 376 688 446
<INCOME-PRETAX> (5,795) 41,218 27,901
<INCOME-TAX> 8,827 25,637 9,237
<INCOME-CONTINUING> (14,622) 15,581 18,664
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (14,622) 15,581 18,664
<EPS-BASIC> (0.35) 0.43 0.56
<EPS-DILUTED> (0.35) 0.41 0.55
</TABLE>
