<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1998
REGISTRATION NO. 333-46941
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
CHARLES RIVER ASSOCIATES INCORPORATED
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
MASSACHUSETTS 8748 04-2372210
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
(617) 425-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
JAMES C. BURROWS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHARLES RIVER ASSOCIATES INCORPORATED
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
(617) 425-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------------
Copies to:
<TABLE>
<S> <C>
PETER M. ROSENBLUM, ESQ. PATRICK J. RONDEAU, ESQ.
WILLIAM R. KOLB, ESQ. HALE AND DORR LLP
FOLEY, HOAG & ELIOT LLP 60 STATE STREET
ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109
BOSTON, MASSACHUSETTS 02109 (617) 526-6000
(617) 832-1000
</TABLE>
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 21, 1998
2,188,000 SHARES
[LOGO] CHARLES RIVER ASSOCIATES INCORPORATED
COMMON STOCK
Of the 2,188,000 shares of Common Stock offered hereby (the "Offering"),
1,562,500 shares are being sold by Charles River Associates Incorporated ("CRA"
or the "Company") and 625,500 shares are being sold by the Selling Stockholders.
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders."
Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
of the Common Stock will be between $15.00 and $17.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied to have the Common
Stock approved for quotation on the Nasdaq National Market under the symbol
"CRAI."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================
Proceeds to
Price Underwriting Proceeds to Selling
to Public Discount (1) Company (2) Stockholders
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Per Share.................... $ $ $ $
Total (3).................... $ $ $ $
==============================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $900,000.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 328,200 additional shares of Common Stock,
solely to cover over-allotments, if any. If the Underwriters exercise this
option in full, the Price to Public will total $ , the
Underwriting Discount will total $ , the Proceeds to Company will
total $ , and the Proceeds to Selling Stockholders will total
$ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them, and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities LLC on or about ,
1998.
----------------------------
NationsBanc Montgomery Securities LLC William Blair & Company
, 1998
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
Charles River Associates Incorporated, Charles River Associates, CRA and
the CRA logo are federally registered trademarks of the Company. All rights are
reserved. This Prospectus includes trademarks of companies other than the
Company.
<PAGE> 4
PROSPECTUS SUMMARY
This following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including "Risk Factors" and
the Consolidated Financial Statements and Notes thereto, appearing elsewhere in
this Prospectus. The terms "fiscal 1993," "fiscal 1994," "fiscal 1995," "fiscal
1997" and "fiscal 1998" refer to the 52-week periods ended November 27, 1993,
November 26, 1994, November 25, 1995, November 29, 1997 and November 28, 1998,
respectively, and the term "fiscal 1996" refers to the 53-week period ended
November 30, 1996. Unless otherwise indicated, all information in this
Prospectus (i) reflects the amendment and restatement of the Company's articles
of organization, (ii) reflects a 52-for-1 stock split to be effected in the form
of a dividend of 51 shares of Common Stock per share of Common Stock outstanding
before the closing of the Offering and (iii) assumes no exercise of the
Underwriters' over-allotment option. See "Underwriting."
THE COMPANY
Charles River Associates Incorporated ("CRA" or the "Company") is a leading
economic and business consulting firm that applies advanced analytic techniques
and in-depth industry knowledge to complex engagements for a broad range of
clients. Founded in 1965, the Company provides original and authoritative advice
for clients involved in many high-stakes matters, such as multi-billion dollar
mergers and acquisitions, new product introductions, major capital investment
decisions, and complex litigation, the outcome of which often has significant
implications or consequences for the parties involved. The Company offers two
types of services: legal and regulatory consulting and business consulting.
Through its legal and regulatory consulting practice, CRA provides law firms and
businesses involved in litigation and regulatory proceedings with expert advice
on highly technical issues such as the competitive effects of mergers and
acquisitions, damages calculations, measurement of market share and market
concentration, liability analysis in securities fraud cases, and the impact of
increased regulation. In addition, the Company uses its expertise in economics,
finance and business analysis to offer clients business consulting services for
strategic issues such as establishing pricing strategies, estimating market
demand, valuing intellectual property and other assets, assessing competitors'
actions, and analyzing new sources of supply. To complement its analytical
expertise in advanced economic and financial methods, the Company offers its
clients in-depth industry expertise in specific vertical markets, including
chemicals, electric power and other energies, healthcare, materials,
media/telecommunications, and transportation.
The Company's services are provided by its highly credentialed and
experienced staff of consultants. As of February 20, 1998, CRA employed 120
full-time professional consultants, including 47 consultants with Ph.D.s and 26
consultants with other advanced degrees, who have backgrounds in a wide range of
disciplines, including economics, business, corporate finance, materials
sciences and engineering. Since maintaining its reputation is paramount and its
engagements are typically complex, the Company is extremely selective in its
hiring of consultants, recruiting individuals from leading universities,
industry and government. Many of the Company's consultants are nationally
recognized as experts in their respective fields, having published scholarly
articles, lectured extensively and been quoted in the press. To enhance the
expertise it provides to its clients, CRA maintains close working relationships
with a select group of renowned academic and industry experts ("Outside
Experts").
Through its offices in Boston, Massachusetts, Washington, D.C. and Palo
Alto, California, CRA has completed more than 2,500 engagements for clients,
including major law firms, domestic and foreign corporations, federal, state and
local government agencies, governments of foreign countries, public and private
utilities, and national and international trade associations. While the Company
has particular expertise in certain vertical markets, the Company provides
services to a diverse group of clients in a broad range of industries. During
its last three fiscal years, the Company had over 1,200 engagements for clients
that included 59 of the 100 largest U.S. law firms (ranked by The American
Lawyer based on 1996 revenues) and 109 Fortune 500 companies (based on 1996
revenues). During that period, the Company's clients included Cravath, Swaine &
Moore; Ford Motor Company; Jones, Day, Reavis & Pogue; Procter & Gamble Company
3
<PAGE> 5
Inc.; Skadden, Arps, Slate, Meagher & Flom LLP; and Time Warner Inc. No single
client accounted for over 10% of the Company's revenues in fiscal 1997.
The environment in which businesses operate is becoming increasingly
complex due to the broader application of technology, the globalization of many
industries and increased competition. This increasing complexity and the
changing nature of the business environment are also forcing governments to
adjust their regulatory strategies, resulting in more frequent and more complex
litigation and increased interaction with government agencies. In response to
these trends, companies are increasingly relying on sophisticated economic and
financial analysis to solve complex problems and improve decision-making. As the
need for complex economic and financial analysis becomes more widespread, CRA
believes that companies will increasingly turn to outside consultants for access
to specialized expertise, experience and prestige that are not available to them
internally.
CRA intends to capitalize on these industry trends and enhance its position
as a leading economic and business consulting firm by pursuing a multi-pronged
growth strategy. Since its consultants are its most important asset, CRA will
continue to aggressively recruit and retain high quality consultants. In
addition, the Company will continue to expand its expertise by establishing
relationships with additional Outside Experts. The Company also intends to
expand its current client base by increasing marketing activities and expanding
its current service offerings. Finally, the Company plans to pursue strategic
acquisitions and alliances in order to gain access to additional consultants,
new service offerings, additional industry expertise, a broader client base or
an expanded geographic presence.
Officers and directors of the Company completed a management buy-out in
March 1995, resulting in a broad expansion of the Company's ownership
principally from its three founders to all of its officers and directors at that
time. In order to align each officer's interest with the overall interests and
profitability of CRA, the Company adopted, as part of the management buy-out, a
policy requiring that each of its officers have an equity interest in CRA. As of
the date of this Prospectus, the Company's stock is broadly held among over 30
officers and directors. In connection with the management buy-out, the Company
refocused its efforts on improving profitability and expanding its areas of
expertise and its client base. The Company's revenues and income from operations
have increased from $31.8 million and $2.5 million in fiscal 1995 to $44.8
million and $4.7 million in fiscal 1997, respectively, representing compound
annual growth rates of 18.6% and 37.8%, respectively.
The Company was incorporated in the Commonwealth of Massachusetts on
February 19, 1965. The Company's principal executive offices are located at 200
Clarendon Street, Boston, Massachusetts 02116 and its telephone number is (617)
425-3000.
THE OFFERING
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<S> <C>
Common Stock offered by the Company......................... 1,562,500 shares
Common Stock offered by the Selling Stockholders............ 625,500 shares
Common Stock to be outstanding after the Offering........... 8,081,740 shares (1)
Use of proceeds............................................. Payment of dividends and general
corporate purposes, including working
capital and possible acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol...................... CRAI
</TABLE>
- ---------------
(1) Excludes 970,000 shares of Common Stock reserved for issuance under the 1998
Incentive and Nonqualified Stock Option Plan and 243,000 shares of Common
Stock reserved for issuance under the 1998 Employee Stock Purchase Plan. At
the time of the Offering, there are outstanding under such Option Plan
options to purchase an aggregate of 345,000 shares of Common Stock at
exercise prices equal to the initial public offering price. See
"Management--Benefit Plans."
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------
NOVEMBER 27, NOVEMBER 26, NOVEMBER 25, NOVEMBER 30, NOVEMBER 29,
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
(53 WEEKS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues.................... $25,937 $26,249 $31,839 $37,367 $44,805
Costs of services........... 15,446 16,160 19,760 23,370 28,374
Supplemental compensation
(1)....................... -- -- 1,212 1,200 1,233
-------- -------- -------- -------- --------
Gross profit................ 10,491 10,089 10,867 12,797 15,198
Income from operations...... 2,002 1,885 2,470 3,737 4,689
Net income (2).............. $ 1,848 $ 1,545 $ 2,414 $ 3,588 $ 4,967
======== ======== ======== ======== ========
Basic and diluted net income
per share................. $0.23 $0.19 $0.40 $0.59 $0.78
====== ====== ====== ====== ======
Pro forma net income (3).... $3,134
=======
Pro forma net income per
share (3)................. $0.48
======
Weighted average number of
common shares outstanding
used in basic and diluted
net income per share...... 7,902,752 7,935,512 5,987,384 6,091,384 6,355,873
Weighted average number of
common shares outstanding
used in pro forma net
income per share (4)...... 6,505,873
<CAPTION>
QUARTER ENDED
---------------------------
FEBRUARY 21, FEBRUARY 20,
1997 1998
------------ ------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues.................... $9,648 $11,137
Costs of services........... 6,106 6,486
Supplemental compensation
(1)....................... 280 --
------- --------
Gross profit................ 3,262 4,651
Income from operations...... 1,128 1,897
Net income (2).............. $1,061 $ 1,875
======= ========
Basic and diluted net income
per share................. $0.17 $0.29
====== ======
Pro forma net income (3).... $1,181
=======
Pro forma net income per
share (3)................. $0.18
======
Weighted average number of
common shares outstanding
used in basic and diluted
net income per share...... 6,212,440 6,519,240
Weighted average number of
common shares outstanding
used in pro forma net
income per share (4)...... 6,669,240
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 20, 1998
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................ $ 9,558 $ 1,836 $22,700
Total assets........................................... 23,828 17,325 38,189
Total long-term debt................................... 773 773 773
Total stockholders' equity............................. 10,522 2,800 23,664
</TABLE>
- ---------------
(1) Represents discretionary payments of bonus compensation to officers and
certain Outside Experts under a bonus program that has been discontinued
after fiscal 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and Note 7 of Notes to
Consolidated Financial Statements.
(2) Since fiscal 1988, the Company has been taxed under subchapter S of the
Internal Revenue Code of 1986, as amended (the "Code"). As an S corporation,
the Company is not subject to federal and some state income taxes. The
Company's S corporation status will terminate on the closing of the
Offering. See "S Corporation Distributions and Termination of S Corporation
Status."
(3) Pro forma net income and pro forma net income per share for fiscal 1997 and
the quarter ended February 20, 1998 have been computed by adjusting net
income, as reported, to record income tax expense that would have been
recorded had the Company been a C corporation during those periods, assuming
effective tax rates for the year ended November 29, 1997 and the quarter
ended February 20, 1998 of 43% and 42%, respectively. See Note 11 of Notes
to Consolidated Financial Statements.
(4) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of the number of shares used in the per share
calculation.
(5) Pro forma balance sheet data has been adjusted to reflect (i) an increase in
the Company's net deferred income tax liability, which increase would have
been approximately $1.2 million as of February 20, 1998, that will be
recognized as a result of the termination of the Company's S corporation
status and (ii) the declaration and payment of the S Corporation
Distribution (as defined below), which would have been approximately $6.5
million as of February 20, 1998. The amounts of the increase in the net
deferred income tax liability and the S Corporation Distribution will be
revised based upon the results of operations and financial condition of the
Company between February 20, 1998 and the date of the closing of the
Offering and may be significantly larger or smaller than the foregoing
amounts. See "Use of Proceeds," "S Corporation Distributions and Termination
of S Corporation Status" and Note 11 of Notes to Consolidated Financial
Statements.
(6) Adjusted to reflect (i) the sale of the 1,562,500 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$16.00 per share, after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company, (ii) the declaration and
payment of the Dividend (as defined below) of $2.4 million and (iii) the
receipt of payments of $914,000 on notes receivable from stockholders. See
"Use of Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing any of the shares of Common Stock offered
hereby. Certain of the statements contained in this section and elsewhere in
this Prospectus that are not purely historical, such as statements regarding the
Company's expectations, beliefs, intentions, plans and strategies regarding the
future, are forward-looking statements that involve risks, uncertainties and
assumptions that could cause the Company's actual results to differ materially
from those expressed in the forward-looking statements. Important factors that
could cause or contribute to these differences include those discussed below, as
well as those discussed elsewhere in this Prospectus. All forward-looking
statements are based on information available to the Company on the date hereof
and the Company assumes no obligation to update any forward-looking statement.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus.
DEPENDENCE UPON KEY EMPLOYEES
The Company's business consists primarily of the delivery of professional
services and, accordingly, its future success is highly dependent upon the
efforts, abilities, business generation capabilities and project execution of
its consultants. The Company's success is also dependent upon the managerial,
operational and administrative skills of its officers, particularly James C.
Burrows, the Company's President and Chief Executive Officer. Engagements
generated primarily through the efforts of the Company's consultants accounted
for approximately 79% of the Company's revenues in fiscal 1997, with
approximately 33% of revenues generated primarily through the efforts of five of
the Company's consultants. The Company has no employment or non-competition
agreement with any consultant and, accordingly, each consultant may terminate
his or her relationship with the Company at will and without notice and
immediately begin to compete with the Company. The loss of the services of any
consultant or the failure of the Company's consultants to generate business or
otherwise perform at or above historical levels could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company intends to permit its key-person life insurance to lapse following
the closing of the Offering. See "Business--Human Resources--Consultants" and
"Management--Executive Officers and Directors."
NEED TO ATTRACT QUALIFIED CONSULTANTS
The Company's business involves the delivery of sophisticated economic and
other consulting services which only highly qualified, highly educated
consultants can provide. In order to meet its growth objectives, the Company
will need to hire increasing numbers of highly qualified, highly educated
consultants. The Company primarily hires as senior consultants individuals who
have obtained a Ph.D. or master's degree in economics or a related discipline
from a select group of universities. As a result, the number of potential
employees that meet the Company's hiring criteria is relatively small, and the
Company faces significant competition for these employees, from not only the
Company's direct competitors but also academic institutions, government
agencies, research firms, investment banking firms and other enterprises. Many
of these competing employers are able to offer potential employees significantly
greater compensation and benefits or more attractive lifestyle choices, career
paths or geographic locations than the Company. Moreover, increasing competition
for these consultants may also result in significant increases in the Company's
labor costs, which could have a material adverse effect on the Company's margins
and results of operations. The failure to recruit and retain a significant
number of qualified consultants could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Human Resources--Consultants."
MAINTENANCE OF PROFESSIONAL REPUTATION
The Company's ability to secure new engagements and hire qualified
consultants is highly dependent upon the Company's overall reputation as well as
the individual reputations of its consultants and principal Outside Experts.
Because the Company obtains a majority of its new engagements from existing
clients,
6
<PAGE> 8
including both businesses and law firms, or from referrals by those clients, the
dissatisfaction of any such client with the Company's performance on a single
matter could have a disproportionately large adverse impact on the Company's
ability to secure new engagements. Any factor that diminishes the reputation of
the Company or any of its personnel or Outside Experts, including poor
performance, could make it substantially more difficult for the Company to
compete successfully for both new engagements and qualified consultants and
could therefore have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Competitive
Strengths."
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company has experienced, and may continue to experience, significant
period-to-period fluctuations in revenues and results of operations. The
Company's results of operations in any quarter can fluctuate depending upon,
among other things, the number of weeks in the quarter, the number and scope of
ongoing client engagements, the commencement, postponement and termination of
engagements in the quarter, the mix of revenue, the extent of discounting or
cost overruns, employee hiring, the ability to reassign consultants efficiently
from one engagement to the next, severe weather conditions and other factors
affecting employee productivity. Because the Company generates substantially all
of its revenues from consulting services provided on an hourly-fee basis, the
Company's revenues in any period are directly related to the number of its
consultants, their billing rates and the number of billable hours worked during
that period. The Company's ability to increase any of these factors in the short
term is limited and, accordingly, the Company may be unable to compensate for
periods of underutilization during one part of a fiscal period by augmenting
revenues during another part of that period. In addition, the Company intends to
hire additional consultants who may not be fully utilized immediately,
particularly in the quarter in which the consultants are hired. Moreover, a
significant majority of the Company's operating expenses, primarily rent and the
base salaries of the Company's consultants, are fixed in the short term, and as
a result the failure of revenues to meet the Company's projections in any
quarter could have a disproportionate adverse effect on the Company's net
income. For these reasons, the Company believes that its historical results of
operations should not be relied upon as an indication of future performance. If
the Company's revenues or net income in a quarter fall below the expectations of
securities analysts or investors, the market price of the Common Stock could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and "--Quarterly
Results of Operations."
DEPENDENCE UPON OUTSIDE EXPERTS
The Company's future success depends upon the continuation of the Company's
existing relationships with four principal Outside Experts. Engagements
generated primarily through the efforts of these four Outside Experts accounted
for approximately 18% of the Company's revenues in fiscal 1997. The Company
believes that these Outside Experts are highly regarded in their respective
fields and that each offers a combination of knowledge, experience and expertise
that would be very difficult to replace. The Company's ability to compete
successfully for certain engagements in the past has derived in substantial part
from its ability to offer the services of these Outside Experts to potential
clients. In general, these Outside Experts may limit their relationships with
the Company at any time for any reason, including, among other things,
affiliations with universities whose policies prohibit accepting certain
engagements, the pursuit of other interests and retirement. Each of these
Outside Experts is a party to an agreement with the Company that restricts his
right to compete with the Company. The limitation or termination of any of their
relationships with the Company or competition from any of them following the
termination of their respective agreements with the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Human Resources."
In order to meet the Company's growth objectives, the Company believes that
it will be necessary to establish ongoing relationships with additional Outside
Experts having established reputations as leading experts in their fields. There
can be no assurance that the Company will be successful in establishing
relationships with any additional Outside Experts or that any such relationship
would enable the Company to meet its objectives or generate anticipated revenues
or earnings, if any.
7
<PAGE> 9
MANAGEMENT OF GROWTH
The Company has recently experienced and may continue to experience
significant growth in its revenues and employee base. This growth has resulted,
and any future growth would continue to result, in new and increased management,
consulting and training responsibilities for the Company's consultants as well
as increased demands on the Company's internal systems, procedures and controls,
and its managerial, administrative, financial, marketing and other resources.
These new responsibilities and demands may adversely affect the overall quality
of the Company's work. No member of the Company's management team has experience
in managing a public company. Moreover, the Company may open offices in new
geographic locations, which would entail certain start-up and maintenance costs
that could be substantial. The failure of the Company to continue to improve its
internal systems, procedures and controls, to attract, train, motivate,
supervise and retain additional professional, managerial, administrative,
financial, marketing and other personnel, or otherwise to manage growth
successfully could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Growth Strategy."
CONCENTRATION OF REVENUES; DEPENDENCE ON LIMITED NUMBER OF LARGE ENGAGEMENTS
As an economic and business consulting firm, the Company has derived, and
expects to continue to derive, a significant portion of its revenues from a
limited number of large engagements. The Company estimates that, in each of the
last three fiscal years, it has had an average of approximately 260 engagements
generating over $10,000 in revenues. The Company's 10 largest engagements
accounted for approximately 37%, 28% and 23% of the Company's revenues in fiscal
1995, fiscal 1996 and fiscal 1997, respectively, and the Company's 10 largest
clients accounted for approximately 46%, 42% and 29% of the Company's revenues
in those years, respectively. One client accounted for approximately 11% of the
Company's revenues in fiscal 1995. The volume of work performed for any
particular client is likely to vary from year to year and a major client in one
year may decide not to use the Company's services in any subsequent year.
Accordingly, the failure to obtain anticipated numbers of new large engagements
could have a material adverse effect on the Company's business, financial
condition and results of operations.
TERMINATION OF ENGAGEMENTS
Engagements generally depend upon the initiation and continuation of
disputes, proceedings or transactions involving the Company's clients, who may
at any time decide to seek to resolve the dispute or proceeding or abandon the
transaction. Engagements can therefore terminate suddenly and without prior
notice to the Company. Clients typically incur no penalty for terminating an
engagement. The unexpected termination of an engagement could result in the
underutilization of the consultants working on the engagement until they are
assigned to other projects. Accordingly, the termination or significant
reduction in the scope of a single large engagement could have a material
adverse effect on the Company's business, financial condition and results of
operations.
POTENTIAL CONFLICTS OF INTERESTS
The Company provides its services primarily in connection with significant
or complex transactions, disputes or other matters that are usually adversarial
or that involve sensitive client information. The Company's engagement by a
client frequently precludes the Company from accepting engagements with the
client's competitors or adversaries because of direct or indirect conflicts
between their interests or positions on disputed issues, clients' expectations
of loyalty or other reasons. Accordingly, the number of both potential clients
and potential engagements is limited. Moreover, in many of the industries in
which the Company provides consulting services, and in the telecommunications
industry in particular, there has been a continuing trend toward business
consolidations and strategic alliances. These consolidations and alliances
reduce the number of potential clients for the Company's services and increase
the likelihood that the Company will be unable to continue certain ongoing
engagements or accept certain new engagements as a result of conflicts of
interests. Any such result could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Clients"
and "--Marketing."
8
<PAGE> 10
DEPENDENCE UPON ANTITRUST AND MERGERS AND ACQUISITIONS CONSULTING BUSINESS
In fiscal 1995, fiscal 1996 and fiscal 1997, the Company derived
approximately 28%, 36% and 35%, respectively, of its revenues from engagements
in the Company's antitrust and mergers and acquisitions practice areas.
Substantially all of these revenues are derived from engagements relating to
enforcement of United States antitrust laws. Changes in the federal antitrust
laws, changes in judicial interpretations of these laws or less vigorous
enforcement of these laws by the United States Department of Justice (the "DOJ")
and the United States Federal Trade Commission (the "FTC") as a result of
changes in political appointments or priorities or for other reasons could
substantially reduce the number, duration or size of engagements available to
the Company in this area. In addition, adverse changes in general economic
conditions, particularly conditions influencing the merger and acquisition
activity of larger companies, could also have an impact on engagements in which
the Company assists clients in proceedings before the DOJ and the FTC in
connection with proposed mergers and acquisitions. Any substantial reduction in
the number of the Company's antitrust and mergers and acquisitions consulting
engagements could have a material adverse effect on its business, financial
condition and results of operations. See "Business--Areas of
Practice--Antitrust" and "--Mergers and Acquisitions."
INTENSE COMPETITION
The market for economic and business consulting services is intensely
competitive, highly fragmented and subject to rapid change. In general, the
barriers to entry into the Company's markets are few and the Company expects to
face additional competition from new entrants into the economic and business
consulting industries. Many of the Company's competitors have national and
international reputations as well as significantly greater personnel, financial,
managerial, technical and marketing resources than the Company. Certain of the
Company's competitors also have a significantly broader geographic presence than
the Company. There can be no assurance that the Company will compete
successfully with its existing competitors or with any new competitors. See
"Business--Competition."
RISKS RELATED TO POSSIBLE ACQUISITIONS
An element of the Company's strategy is to expand its operations through
the acquisition of complementary businesses or consulting practices. The Company
has never acquired another business, and there can be no assurance that the
Company will be able to identify, acquire, successfully integrate into the
Company or profitably manage any businesses without substantial expense, delay
or other operational or financial problems. Moreover, there is competition for
acquisition opportunities in the economic and business consulting industries,
which could result in an increase in the price of acquisition targets and a
decrease in the number of attractive companies available for acquisition. There
can be no assurance that the financial, operational and other anticipated
benefits of any acquisition will be achieved. Further, acquisitions may involve
a number of special risks, including adverse short-term effects on the Company's
results of operations, diversion of management's time, attention and resources,
failure to retain key acquired personnel, increased costs to improve or
coordinate managerial, operational, financial and administrative systems,
dilutive issuances of equity securities, the incurrence of debt, legal
liabilities, amortization of acquired intangible assets, difficulties in
integrating diverse corporate cultures, client dissatisfaction or performance
problems at the acquired business, additional conflicts of interests, and
unanticipated events or circumstances. The occurrence of any of these events
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not have any binding
agreement or other commitment to acquire any business at this time. See
"Business--Growth Strategy."
RISKS RELATED TO ENTRY INTO NEW LINES OF BUSINESS
An element of the Company's growth strategy is to continue to develop new
practice areas and complementary lines of business. For example, in June 1997,
the Company established and purchased a controlling interest in NeuCo LLC
("NeuCo"), which provides applications consulting services and a family of
neural network software solutions and complementary applications for
fossil-fired electric utilities. To date, NeuCo has not been profitable, and
there can be no assurance that it will become profitable. The development
9
<PAGE> 11
by the Company of new practice areas or lines of business outside its core
economic and business consulting services carries inherent risks, including
risks associated with inexperience and competition from mature participants in
those markets. The Company's inexperience may result in costly decisions that
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the
Company's attempts to develop NeuCo or any other new practice area or line of
business will be successful. See "Business--Growth Strategy" and "--New
Opportunities."
PROFESSIONAL LIABILITY
The Company's services typically involve difficult analytical assignments
and carry risks of professional and other liability. Many of the Company's
engagements involve matters that, if not successfully resolved in the client's
favor, could have a severe impact on the client's business, cause the client to
lose significant sums of money or prevent the client from pursuing desirable
business opportunities. Accordingly, the failure of the Company to perform to a
client's satisfaction could induce the client to commence or threaten litigation
in order to recover damages or to reduce or eliminate its obligation to pay the
Company's fees, or both. Litigation against the Company alleging that the
Company performed negligently or otherwise breached its obligations to the
client could expose the Company to significant liabilities and tarnish its
reputation, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $22.4 million (approximately $25.8 million if the Underwriters'
over-allotment option is exercised in full), assuming an initial public offering
price of $16.00 per share. The Company intends to use approximately $20.0
million, or 89.3%, of the total net proceeds from the Offering (approximately
$23.4 million, or 90.7%, if the Underwriters' over-allotment option is exercised
in full), for working capital and general corporate purposes, including
potential acquisitions. Accordingly, the Company will have broad discretion with
respect to the use of the net proceeds of the Offering. Purchasers of Common
Stock in the Offering will not have the opportunity to evaluate the economic,
financial or other information that the Company will use to determine the
application of such proceeds. See "Use of Proceeds."
DISTRIBUTIONS TO CURRENT STOCKHOLDERS; TERMINATION OF S CORPORATION STATUS
In connection with the termination of the Company's status as an S
corporation under the Internal Revenue Code of 1986, as amended (the "Code"),
the Company intends to pay a dividend equal to the amount of the Company's
aggregate undistributed taxable earnings up to the date of the closing of the
Offering (the "S Corporation Distribution"). As of February 20, 1998, the
Company's aggregate undistributed taxable earnings were approximately $6.5
million. The Company also intends to pay an additional dividend of $2.4 million
(the "Dividend") out of the proceeds of the Offering. Purchasers of Common Stock
in the Offering will not receive any portion of the S Corporation Distribution
or the Dividend. In addition, as a result of the termination of the Company's
status as an S corporation, the Company will recognize an increase in its net
deferred income tax liability, which increase would have been approximately $1.2
million as of February 20, 1998, that will reduce the Company's net income in
the period in which the Offering is consummated by an amount equal to the
increase in the net deferred income tax liability. The amounts of the S
Corporation Distribution and the increase in the net deferred income tax
liability will be revised based upon the results of operations and financial
condition of the Company between February 20, 1998 and the date of the closing
of the Offering and may be significantly larger or smaller than the foregoing
amounts. See "Use of Proceeds" and "S Corporation Distributions and Termination
of S Corporation Status."
POSSIBLE VOLATILITY OF STOCK PRICE
Many factors may cause the market price of the Common Stock to fluctuate
significantly, including factors such as variations in the Company's quarterly
results of operations, the hiring or departure of key personnel or Outside
Experts, changes in the professional reputation of the Company, the introduction
of new services of the Company, its competitors or third parties, acquisitions
or strategic alliances by the Company,
10
<PAGE> 12
its competitors or third parties, changes in accounting principles, changes in
estimates of the performance of the Company or recommendations by securities
analysts, and market conditions in the industry and the economy as a whole. In
addition, the stock market in general has recently experienced extreme price and
volume fluctuations, which are often unrelated to the operating performance of
particular companies. These broad market fluctuations may also adversely affect
the market price of the Common Stock offered hereby. Following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against the company. Any such
litigation against CRA could result in substantial costs and the diversion of
the time and attention of management and other resources, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE
Sales of a substantial number of shares of Common Stock in the public
market could materially adversely affect the market price of the Common Stock
and could impair the Company's ability to raise capital through a sale of its
equity securities. Following the closing of the Offering, there will be
8,081,740 shares of Common Stock outstanding, of which the 2,188,000 shares of
Common Stock offered hereby will generally be freely tradable in the public
market. Upon the expiration of "lock-up" agreements between the existing
stockholders of the Company and the Representatives of the Underwriters 180 days
after the date of this Prospectus (or earlier with the consent of NationsBanc
Montgomery Securities LLC in certain cases), approximately 3,081,630 of the
remaining shares of outstanding Common Stock will be eligible for immediate sale
in the public market under Rule 144(k) and approximately an additional 2,447,880
shares will be eligible for immediate sale subject to the volume and other
restrictions of Rule 144. In addition to the foregoing lock-up agreements, each
existing stockholder of the Company has agreed that he or she will not sell or
otherwise transfer any shares of Common Stock acquired by him or her prior to
the Offering without the consent of the Board of Directors for a period of two
years after the Offering, except in a public offering, and will transfer only
limited portions of such shares in subsequent years. The Board of Directors may
release any stockholder from the restrictions imposed by the Company at any
time. Immediately after the closing of the Offering, the Company intends to
register on Forms S-8 1,213,000 shares of Common Stock reserved for issuance
under the Company's stock option and stock purchase plans, which would permit
the immediate resale in the public market of any shares of Common Stock issued
pursuant to such plans. See "Management--Benefit Plans," "Certain
Transactions--Stock Restriction Agreement," "Shares Eligible for Future Sale"
and "Underwriting."
ANTI-TAKEOVER EFFECT OF CHARTER PROVISIONS, BY-LAWS AND MASSACHUSETTS LAW
The Company's Amended and Restated Articles of Organization, its Amended
and Restated By-Laws and Massachusetts law contain provisions that could be
deemed to have anti-takeover effects and that could discourage, delay or prevent
a change in control of the Company or an acquisition of the Company at a price
which many stockholders may find attractive. These provisions may also
discourage proxy contests and make it more difficult for stockholders of the
Company to effect certain corporate actions, including the election of
directors. The existence of these provisions could limit the price that
investors might be willing to pay in the future for shares of Common Stock. See
"Description of Capital Stock--Anti-Takeover Effects of the Company's Amended
and Restated Articles of Organization and Amended and Restated By-Laws and of
Massachusetts Law."
DILUTION
Purchasers in the Offering will experience immediate and substantial
dilution in the net tangible book value per share of the Common Stock. See
"Dilution."
NO DIVIDENDS
Other than the S Corporation Distribution and the Dividend, the Company
does not intend to declare or pay cash dividends on the Common Stock in the
foreseeable future. Following the closing of the Offering, the Company intends
to retain all earnings for the development of its business. See "Dividend
Policy."
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,562,500 shares of
Common Stock offered by the Company hereby, after deducting the estimated
underwriting discount and estimated offering expenses payable by the Company,
are estimated to be approximately $22.4 million (approximately $25.8 million if
the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $16.00 per share.
The Company intends to use a portion of its net proceeds from the Offering
to pay the Dividend in the amount of $2.4 million. The Company intends to use
its remaining net proceeds for general corporate purposes, including working
capital and possible acquisitions of and investments in complementary
businesses, and accordingly, the Company will have broad discretion in the
application of such net proceeds. The Company is not currently involved in
negotiations with respect to, and has no agreement or understanding regarding,
any such acquisition or investment. Pending these uses, the Company intends to
invest its net proceeds from the Offering in investment-grade, short-term,
interest-bearing instruments. The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Stockholders. See "Risk
Factors--Broad Management Discretion in Use of Proceeds."
S CORPORATION DISTRIBUTIONS AND TERMINATION OF S CORPORATION STATUS
Since fiscal 1988, the Company has been treated for federal and certain
state income tax purposes as an S corporation under the Code. As a result, the
Company's stockholders, rather than the Company, have been and are required to
pay federal and certain state income taxes based on the Company's taxable
earnings, whether or not these amounts have been distributed to the Company's
stockholders. The Company has made periodic distributions to its stockholders in
amounts equal to the stockholders' estimated aggregate tax liabilities
associated with the Company's taxable earnings, as well as other dividend
distributions. The Company made distributions to its stockholders of
approximately $1.5 million, $1.6 million and $1.8 million based on the Company's
results of operations in fiscal 1995, fiscal 1996 and fiscal 1997, respectively.
The Company has declared the S Corporation Distribution payable to its
stockholders of record as of the close of business on April 9, 1998 in an amount
equal to the Company's aggregate undistributed taxable earnings up to the date
of the closing of the Offering. The S Corporation Distribution will be paid
before and after the closing of the Offering from available cash balances.
Purchasers of Common Stock in the Offering will not receive any portion of the S
Corporation Distribution.
Following the closing of the Offering, the Company will be subject to
corporate income taxation as a C corporation under the Code and will be required
to change its method of accounting for tax purposes from the cash method to the
accrual method. In accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," the termination of the Company's S
corporation status will increase its net deferred income tax liability for
financial reporting purposes, which increase would have been approximately $1.2
million as of February 20, 1998. The amount of the increase in the net deferred
income tax liability will be revised based upon the results of operations and
financial condition of the Company between February 20, 1998 and the date of the
closing of the Offering and may be significantly larger or smaller than the
foregoing amount. This increase in the net deferred income tax liability will be
in addition to income tax expense otherwise incurred in the quarter in which
such termination occurs. See Note 11 of Notes to Consolidated Financial
Statements.
12
<PAGE> 14
DIVIDEND POLICY
Since fiscal 1988, the Company has made periodic distributions to its
stockholders in amounts equal to the stockholders' aggregate tax liabilities
associated with the Company's taxable earnings attributable to them, as well as
other dividend distributions. Except with respect to the S Corporation
Distribution and the Dividend, the Company currently intends to retain any
future earnings to finance operations and therefore does not anticipate paying
any cash dividends in the foreseeable future. In addition, the terms of the
Company's bank line of credit place certain restrictions on the Company's
ability to pay cash dividends on its Common Stock.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 20, 1998: (i) on an actual basis; (ii) on a pro forma basis, giving
effect to the declaration and payment of a dividend of $6.5 million (the amount
the S Corporation Distribution would have been as of February 20, 1998), and an
increase of $1.2 million in the Company's net deferred income tax liability
resulting from the termination of the Company's S corporation status (the amount
by which the Company's net deferred income tax liability would have increased
had the Company terminated its S corporation status on February 20, 1998); and
(iii) on a pro forma basis, as adjusted to reflect the sale of the 1,562,500
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $16.00 per share, after deducting the estimated
underwriting discount of $1,750,000 and estimated offering expenses payable by
the Company of $900,000, the declaration and payment of the Dividend of $2.4
million and the receipt of payments of $914,000 on notes receivable from
stockholders. See "Use of Proceeds," "S Corporation Distributions and
Termination of S Corporation Status" and "Description of Capital Stock." This
information should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 20, 1998
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portions of notes payable to former stockholders
and capital lease obligations(1).......................... $ 323 $ 323 $ 323
======= ======= =======
Notes payable to former stockholders and capital lease
obligations, net of current portions(1)................... $ 773 $ 773 $ 773
Stockholders' equity:
Preferred Stock, without par value; none authorized or
outstanding, actual; 1,000,000 shares authorized and
none outstanding, pro forma and pro forma as
adjusted............................................... -- -- --
Common Stock, without par value; 25,000,000 shares
authorized and 6,519,240 shares outstanding, actual and
pro forma; 25,000,000 shares authorized and 8,081,740
shares outstanding, pro forma as adjusted(2)........... 1,977 1,977 23,850
Retained earnings......................................... 9,645 1,923 --
Less:
Notes receivable from stockholders(3).................. (1,100) (1,100) (186)
------- ------- -------
Total stockholders' equity........................... 10,522 2,800 23,664
------- ------- -------
Total capitalization.............................. $11,295 $ 3,573 $24,437
======= ======= =======
</TABLE>
- ---------------
(1) See Notes 4 and 8 of Notes to Consolidated Financial Statements.
(2) Excludes 970,000 shares of Common Stock reserved for issuance under the 1998
Incentive and Nonqualified Stock Option Plan and 243,000 shares of Common
Stock reserved for issuance under the 1998 Employee Stock Purchase Plan. At
the time of the Offering, there are outstanding under such Option Plan
options to purchase an aggregate of 345,000 shares of Common Stock at
exercise prices equal to the initial public offering price. See
"Management--Benefit Plans."
(3) See Note 9 of Notes to Consolidated Financial Statements.
14
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company as of February 20,
1998, was $2,741,000, or $0.42 per share of Common Stock. Pro forma net tangible
book value per share represents the amount of the Company's total tangible
assets less its total liabilities, after giving effect to the declaration and
payment of the estimated S Corporation Distribution and the estimated increase
in its net deferred income tax liability resulting from the termination of the
Company's S corporation status, divided by the total number of shares of Common
Stock outstanding. After giving effect to (i) the sale of the 1,562,500 shares
of Common Stock offered by the Company hereby at an assumed initial public
offering price of $16.00 per share and after deducting the estimated
underwriting discount and estimated offering expenses payable by the Company,
(ii) the declaration and payment of the Dividend and (iii) the receipt of
payments of $914,000 on notes receivable from stockholders, the adjusted pro
forma net tangible book value of the Company as of February 20, 1998 would have
been $23,605,000, or $2.92 per share of Common Stock. This represents an
immediate increase in pro forma net tangible book value of $2.50 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $13.08 per share to purchasers of Common Stock in the Offering. The
following table illustrates the dilution in pro forma net tangible book value
per share to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $16.00
Pro forma net tangible book value per share as of February $0.42
20, 1998...............................................
Increase per share attributable to new investors.......... 2.50
-----
Adjusted pro forma net tangible book value per share after 2.92
the Offering..............................................
------
Dilution per share to new investors......................... $13.08
======
</TABLE>
The following table summarizes, on a pro forma basis as of February 20,
1998, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and new investors, assuming an initial public offering price of $16.00 per
share, before deducting the estimated underwriting discount and estimated
offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 6,519,240 80.7% $ 1,977,000(1) 7.3% $ 0.30
New investors............................ 1,562,500 19.3 25,000,000 92.7 $16.00
--------- ----- ----------- -----
Total............................... 8,081,740 100.0% $26,977,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Includes notes receivable from stockholders in the amount of $1.2 million,
of which $914,000 will be paid in connection with the closing of the
Offering. See Note 9 of Notes to Consolidated Financial Statements.
The net effect of sales by the Selling Stockholders in the Offering will be
to reduce the number of shares held by existing stockholders to 5,893,740 or
72.9% of the total number of shares Common Stock to be outstanding after the
Offering (5,799,915 or 69.7% if the Underwriters' over-allotment option is
exercised in full) and to increase the number of shares held by new investors to
2,188,000 or 27.1% of the total number of shares of Common Stock to be
outstanding after the Offering (2,516,200 or 30.3% if the Underwriters'
overallotment option is exercised in full). See "Principal and Selling
Stockholders."
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The following selected consolidated financial data of the Company as of
November 30, 1996 and November 29, 1997 and for each of the fiscal years in the
three-year period ended November 29, 1997 have been derived from the
consolidated financial statements of the Company included elsewhere in this
Prospectus, which have been audited by Ernst & Young LLP, independent auditors.
The following selected consolidated financial data of the Company as of November
27, 1993, November 26, 1994 and November 25, 1995 and for the fiscal years ended
November 27, 1993 and November 26, 1994 have been derived from consolidated
financial statements of the Company not included in this Prospectus, which have
also been audited by Ernst & Young LLP. The selected consolidated financial data
as of February 20, 1998 and for the quarters ended February 20, 1998 and
February 21, 1997 have been derived from the unaudited consolidated financial
statements of the Company. The unaudited consolidated financial statements have
been prepared on the same basis as the audited financial statements and, in the
opinion of management of the Company, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
information set forth therein. The results of operations for the quarter ended
February 20, 1998 are not necessarily indicative of future operating results.
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED QUARTER ENDED
---------------------------------------------------------- ---------------------
NOV. 27, NOV. 26, NOV. 25, NOV. 30, NOV. 29, FEB. 21, FEB. 20,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- ---------- --------- --------- ---------
(53 WEEKS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues................................. $25,937 $26,249 $31,839 $37,367 $44,805 $9,648 $11,137
Costs of services........................ 15,446 16,160 19,760 23,370 28,374 6,106 6,486
Supplemental compensation(1)............. -- -- 1,212 1,200 1,233 280 --
------- ------- ------- ------- ------- ------ -------
Gross profit............................. 10,491 10,089 10,867 12,797 15,198 3,262 4,651
General and administrative............... 8,489 8,204 8,397 9,060 10,509 2,134 2,754
------- ------- ------- ------- ------- ------ -------
Income from operations................... 2,002 1,885 2,470 3,737 4,689 1,128 1,897
Interest income, net..................... 16 106 118 124 302 9 46
------- ------- ------- ------- ------- ------ -------
Income before provision for income taxes
and minority interest.................. 2,018 1,991 2,588 3,861 4,991 1,137 1,943
Provision for income taxes(2)............ (170) (446) (174) (273) (306) (76) (120)
------- ------- ------- ------- ------- ------ -------
Net income before minority interest...... 1,848 1,545 2,414 3,588 4,685 1,061 1,823
Minority interest........................ -- -- -- -- 282 -- 52
------- ------- ------- ------- ------- ------ -------
Net income(2)............................ $ 1,848 $ 1,545 $ 2,414 $ 3,588 $ 4,967 $1,061 $1,875
======= ======= ======= ======= ======= ====== ======
Basic and diluted net income per share... $0.23 $0.19 $0.40 $0.59 $0.78 $0.17 $0.29
===== ===== ===== ===== ===== ===== =====
Weighted average number of common shares
outstanding used in basic and diluted
net income per share................... 7,902,752 7,935,512 5,987,384 6,091,384 6,355,873 6,212,440 6,519,240
Pro forma net income(3).................. $3,134 $1,181
====== ======
Pro forma net income per share(3)........ $0.48 $0.18
===== =====
Weighted average number of common shares
outstanding used in pro forma net
income per share(4).................... 6,505,873 6,669,240
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
NOV. 27, NOV. 26, NOV. 25, NOV. 30, NOV. 29, FEB. 20,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Working capital........................................ $ 4,673 $ 2,908 $ 4,782 $ 6,554 $ 7,732 $ 9,558
Total assets........................................... 11,601 10,057 12,307 15,468 20,435 23,828
Total long-term debt................................... 304 222 324 550 781 773
Total stockholders' equity............................. 5,138 2,697 4,282 6,202 8,536 10,522
</TABLE>
- ---------------
(1) Represents discretionary payments of bonus compensation to officers and
certain Outside Experts under a bonus program that will be discontinued
after fiscal 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and Note 7 of Notes to
Consolidated Financial Statements.
(2) Since fiscal 1988, the Company has been taxed under subchapter S of the
Code. As an S corporation, the Company is not subject to federal and some
state income taxes. The Company's S corporation status will terminate on the
closing of the Offering. See "S Corporation Distributions and Termination of
S Corporation Status."
(3) Pro forma net income and pro forma net income per share for fiscal 1997 and
the first quarter of fiscal 1998 have been computed by adjusting net income,
as reported, to record income tax expense that would have been recorded had
the Company been a C corporation during those periods, assuming effective
tax rates for the year ended November 29, 1997 and the quarter ended
February 20, 1998 of 43% and 42%, respectively. See Note 11 of Notes to
Consolidated Financial Statements.
(4) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of the number of shares used in the per share
calculation.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading economic and business consulting firm that applies
advanced analytic techniques and in-depth industry knowledge to complex
engagements for a broad range of clients. Founded in 1965, the Company provides
original and authoritative advice for clients involved in many high-stakes
matters, such as multi-billion dollar mergers and acquisitions, new product
introductions, major capital investment decisions and complex litigation, the
outcome of which often has significant implications or consequences for the
parties involved. The Company offers two types of services: legal and regulatory
consulting and business consulting. The Company estimates that it derived
approximately two-thirds of its revenues in fiscal 1997 from legal and
regulatory consulting and approximately one-third from business consulting.
The Company derives revenues principally from professional services
rendered by its consultants. In most instances, clients are charged on a
time-and-materials basis and revenues are recognized in the period when services
are provided. Consultants' time is charged at hourly rates, which vary from
consultant to consultant depending on a consultant's position, experience and
expertise, and other factors. Outside Experts typically bill clients directly
for their services. As a result, substantially all of the Company's professional
services fees are generated from the work of its own full-time consultants.
Factors that affect the Company's professional services fees include the number
and scope of client engagements, the number of consultants employed by the
Company, the consultants' billing rates, and the number of hours worked by the
consultants. In addition to professional services fees, a portion of the
Company's revenues represents expenses billed to clients, such as travel and
other out-of-pocket expenses, charges for support staff and outside contractors,
and other reimbursable expenses.
The Company's costs of services include the salaries, bonuses and benefits
of the Company's consultants. Consultants are compensated on a salary and bonus
basis. The Company currently has one bonus program. This program awards
discretionary bonuses based on the Company's revenues and profitability and
individual performance. Amounts paid under this bonus program to consultants are
included in costs of services, and the Company expects to continue this bonus
program after the Offering. During fiscal 1995, fiscal 1996 and fiscal 1997, the
Company also had another bonus program, which consisted of discretionary
payments to officers and certain Outside Experts based primarily on the
Company's cash flows. These bonus payments are shown as "supplemental
compensation" in the Company's statements of income, and the Company does not
intend to make additional payments under this bonus program after fiscal 1997.
Costs of services also include out-of-pocket and other expenses that are billed
to clients, and the salaries, bonuses and benefits of certain support staff
whose time is billed directly to clients, such as librarians, editors and
computer programmers. The Company's gross profit, which equals revenues less
costs of services and supplemental compensation, is affected by changes in the
mix of revenues. The Company experiences significantly higher gross margins on
revenues from professional services fees than revenues from expenses billed to
clients. General and administrative expenses include salaries, bonuses and
benefits of the Company's administrative and support staff, performance payments
to Outside Experts for generating new business, rent, and marketing and certain
other costs.
Since fiscal 1988, the Company has been treated for federal and certain
state income tax purposes as an S corporation under the Code. As a result, the
Company's stockholders, rather than the Company, have been and are required to
pay federal and certain state income taxes based on the Company's taxable
earnings. The state income taxes that the Company does pay are shown as
"provision for income taxes" in the Company's statements of income. Upon the
closing of the Offering, the Company's status an S corporation will cease and,
thereafter, it will be subject to corporate taxation as a C corporation under
the Code.
The Company will recognize an increase in its net deferred income tax
liability resulting from the termination of the Company's S corporation status,
which will result in a significant non-cash charge against earnings during the
quarter in which the Offering is completed. Based upon the Company's audited
results of operations and financial information as of and for the year ended
November 29, 1997 and its unaudited results
18
<PAGE> 20
of operations and financial information as of and for the quarter ended February
20, 1998, the net charge to earnings would have been approximately $1.2 million.
The actual net charge to earnings may be larger or smaller than the foregoing
amount, depending on the Company's results of operations and financial condition
from February 20, 1998 through the closing of the Offering. See "S Corporation
Distributions and Termination of S Corporation Status" and Note 11 of Notes to
Consolidated Financial Statements.
Officers and directors of the Company completed a management buy-out in
March 1995, resulting in a broad expansion of the Company's ownership
principally from its three founders to all of its officers and directors at that
time. In order to align each officer's interest with the overall interests and
profitability of CRA, the Company adopted, as part of the management buy-out, a
policy requiring that each of its officers have an equity interest in CRA. As of
the date of this Prospectus, the Company's stock is widely held among over 30
officers and directors.
In June 1997, the Company invested approximately $650,000 for a majority
interest in NeuCo. NeuCo was established by the Company and an affiliate of
Commonwealth Energy Systems as a start-up entity to develop and market a family
of neural network software tools and complementary applications consulting
services for electric utilities. The Company's financial statements are
consolidated with the financial statements of NeuCo. For the period from
inception (June 19, 1997) to November 29, 1997 and for the first quarter of
fiscal 1998, NeuCo sustained a net loss after taxes of $564,000 and $104,000,
respectively. There can be no assurance that NeuCo will become profitable. The
portion of this loss allocable to NeuCo's minority owners is shown as "minority
interest" in the Company's statements of income, and that amount, together with
the capital contributions to NeuCo of its minority owners, is shown as "minority
interest" in the Company's balance sheets. See "Business--New
Opportunities--NeuCo," "Risk Factors--Risks Related to Entry into New Lines of
Business," and Note 1 of Notes to Consolidated Financial Statements.
The Company's fiscal year ends on the last Saturday in November and,
accordingly, the Company's fiscal year will periodically contain 53 weeks rather
than 52 weeks. For example, fiscal 1996 contains 53 weeks. This additional week
of operations in the fiscal year will affect the comparability of results of
operations of these 53-week fiscal years with other fiscal years. Historically,
the Company has managed its business based on a four-week billing cycle to
clients and, consequently, has established quarters that are divisible by
four-week periods. As a result, the first, second and fourth quarters of each
fiscal year are 12-week periods and the third quarter of each fiscal year is a
16-week period. However, the fourth quarter in 53-week fiscal years is 13 weeks
long. Accordingly, quarter to quarter comparisons of the Company's results of
operations are not necessarily meaningful if the quarters being compared are of
different lengths.
19
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth certain operating information as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED QUARTER ENDED
-------------------------------- --------------------
NOV. 25, NOV. 30, NOV. 29, FEB. 21, FEB. 20,
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(53 WEEKS)
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of services........................... 62.1 62.6 63.3 63.3 58.2
Supplemental compensation................... 3.8 3.2 2.8 2.9 --
----- ----- ----- ----- -----
Gross profit................................ 34.1 34.2 33.9 33.8 41.8
General and administrative.................. 26.4 24.2 23.5 22.1 24.7
----- ----- ----- ----- -----
Income from operations...................... 7.7 10.0 10.4 11.7 17.1
Interest income, net........................ 0.4 0.3 0.7 0.1 0.4
----- ----- ----- ----- -----
Income before provision for income taxes and
minority interest......................... 8.1 10.3 11.1 11.8 17.5
Provision for income taxes.................. 0.5 0.7 0.7 0.8 1.1
----- ----- ----- ----- -----
Net income before minority interest......... 7.6 9.6 10.4 11.0 16.4
Minority interest........................... -- -- 0.6 -- 0.4
----- ----- ----- ----- -----
Net income.................................. 7.6% 9.6% 11.0% 11.0% 16.8%
===== ===== ===== ===== =====
</TABLE>
FIRST QUARTER FISCAL 1998 COMPARED TO FIRST QUARTER FISCAL 1997
Revenues. Revenues increased $1.5 million, or 15.4%, from $9.6 million for
the first quarter of fiscal 1997 to $11.1 million for the first quarter of
fiscal 1998. The increase in revenues was due primarily to increased consulting
services performed for new and existing clients during the period and higher
billing rates. The Company experienced revenue increases during the first
quarter of fiscal 1998 in both its legal and regulatory consulting services and
business consulting services, and in particular generated significant revenue
increases in its antitrust and mergers and acquisitions practices.
Costs of Services. Costs of services increased by $380,000, or 6.2%, from
$6.1 million in the first quarter of fiscal 1997 to $6.5 million in the first
quarter of fiscal 1998. As a percentage of revenues, costs of services decreased
from 63.3% in the first quarter of fiscal 1997 to 58.2% in the first quarter of
fiscal 1998. The decrease as a percentage of revenues was due primarily to
discretionary cash compensation to consultants not increasing at as fast a rate
as the rate of increase of revenues during the first quarter of fiscal 1998.
This is in anticipation of the Company granting stock options from time to time
to certain of its consultants pursuant to its stock option plan.
Supplemental Compensation. The Company does not intend to pay supplemental
compensation after fiscal 1997, and consequently, did not have supplemental
compensation in the first quarter of fiscal 1998. Supplemental compensation was
$280,000 in the first quarter of fiscal 1997.
General and Administrative. General and administrative expenses increased
by $620,000, or 29.1%, from $2.1 million in the first quarter of fiscal 1997 to
$2.8 million in the first quarter of fiscal 1998. As a percentage of revenues,
general and administrative expenses increased from 22.1% in the first quarter of
fiscal 1997 to 24.7% in the first quarter of fiscal 1998. The increase as a
percentage of revenues was due primarily to increased rent expense resulting
from the Company's expansion of each of its three offices in Boston,
Massachusetts, Washington, D.C. and Palo Alto, California.
Interest Income, Net. Net interest income increased from $9,000 in the
first quarter of fiscal 1997 to $46,000 in the first quarter of fiscal 1998.
This increase was due primarily to the Company maintaining higher cash balances
during the first quarter of fiscal 1998 as compared to the first quarter of
fiscal 1997.
20
<PAGE> 22
Minority Interest. Minority interest was $52,000 in the first quarter of
fiscal 1998, and represents the portion of NeuCo's net loss after taxes
allocable to its minority owners.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues. Revenues increased by $7.4 million, or 19.9%, from $37.4 million
for fiscal 1996 to $44.8 million for fiscal 1997. The increase in revenues was
due primarily to increased consulting services performed for new and existing
clients during the period. In fiscal 1997, the Company experienced revenue
increases in both its legal and regulatory consulting services and its business
consulting services, and in particular generated significant revenue increases
in its mergers and acquisitions, finance, and auctions practices. During fiscal
1997, the Company increased the number of its consultants from 112 to 121. The
increase in revenues during fiscal 1997 was also due in part to increased
billing rates of the Company's consultants.
Costs of Services. Costs of services increased by $5.0 million, or 21.4%,
from $23.4 million in fiscal 1996 to $28.4 million in fiscal 1997. As a
percentage of revenues, costs of services increased from 62.6% in fiscal 1996 to
63.3% in fiscal 1997. The increase as a percentage of revenues was due primarily
to slightly lower utilization rates for the Company's consultants during fiscal
1997, which resulted in part from certain consultants of the Company spending
time developing new practice areas that are complementary to the Company's core
practice areas.
Supplemental Compensation. Supplemental compensation was $1.2 million for
each of fiscal 1996 and fiscal 1997. As a percentage of revenues, supplemental
compensation decreased from 3.2% in fiscal 1996 to 2.8% in fiscal 1997. The
Company has paid supplemental compensation of $1.2 million in each of its last
three fiscal years and intends to discontinue these payments after fiscal 1997.
General and Administrative. General and administrative expenses increased
by $1.4 million, or 16.0%, from $9.1 million in fiscal 1996 to $10.5 million in
fiscal 1997. As a percentage of revenues, general and administrative expenses
decreased from 24.2% in fiscal 1996 to 23.5% in fiscal 1997. General and
administrative expenses decreased as a percentage of revenues primarily because
the Company increased its administrative and support staff at a lower rate than
the rate of increase of its consultants.
Interest Income, Net. Net interest income increased from $124,000 for
fiscal 1996 to $302,000 for fiscal 1997. This increase was due primarily to the
Company generating more cash from operations during fiscal 1997, which resulted
in the Company maintaining higher cash balances during the year.
Minority Interest. Minority interest was $282,000 for fiscal 1997, and
represents the portion of NeuCo's net loss after taxes allocable to its minority
owners.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues. Revenues increased by $5.5 million, or 17.4%, from $31.8 million
for fiscal 1995 to $37.4 million for fiscal 1996. The increase in revenues was
due primarily to increased consulting services performed for new and existing
clients during the period. In fiscal 1996, the Company experienced revenue
increases in both its legal and regulatory consulting services and its business
consulting services, and in particular, generated increased revenues in its
antitrust and mergers and acquisitions practices. As part of its growth strategy
following the management buy-out, and to service additional client engagements,
the Company increased the number of its consultants from 90 at the end of fiscal
1995 to 112 at the end of fiscal 1996. Increases in consultants' billing rates
during fiscal 1996 also contributed to increased revenues for the period.
Costs of Services. Costs of services increased by $3.6 million, or 18.3%,
from $19.8 million for fiscal 1995 to $23.4 million for fiscal 1996. As a
percentage of revenues, costs of services increased slightly from 62.1% in
fiscal 1995 to 62.6% in fiscal 1996. The increase as a percentage of revenues
was due primarily to a higher percentage of reimbursable expenses in fiscal 1996
as compared to fiscal 1995, which have lower gross margins than professional
services fees.
21
<PAGE> 23
Supplemental Compensation. Supplemental compensation was $1.2 million in
each of fiscal 1996 and fiscal 1995. As a percentage of revenues, supplemental
compensation decreased from 3.8% in fiscal 1995 to 3.2% in fiscal 1996.
General and Administrative. General and administrative expenses increased
by $663,000, or 7.9%, from $8.4 million in fiscal 1995 to $9.1 million in fiscal
1996. As a percentage of revenues, general and administrative expenses decreased
from 26.4% for fiscal 1995 to 24.2% for fiscal 1996. The decrease as a
percentage of revenues was primarily a result of the Company's strategy after
the management buy-out to improve the productivity and efficiency of its
administrative and support staff, which resulted in the Company reducing its
hiring of administrative and support staff during fiscal 1996.
Interest Income, Net. Net interest income was $124,000 in fiscal 1996 as
compared to $118,000 in fiscal 1995.
UNAUDITED QUARTERLY RESULTS
The following table presents certain unaudited quarterly statements of
income information for each of the quarters in fiscal 1996 and fiscal 1997 and
the first quarter of fiscal 1998. This information is derived from and is
qualified by reference to the audited and unaudited consolidated financial
statements included elsewhere in this Prospectus and, in the opinion of
management of the Company, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of that information.
The first, second and fourth quarters of each fiscal year are 12-week periods
and the third quarter of each fiscal year is a 16-week period. However, the
fourth quarter in 53-week fiscal years is 13 weeks long. Accordingly, quarter to
quarter comparisons of the Company's results of operations are not necessarily
meaningful if the quarters being compared are of different lengths. The results
of operations for any quarter are not necessarily indicative of the results to
be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------------
FEB. 16, MAY 10, AUG. 30, NOV. 30, FEB. 21, MAY 16, SEPT. 5, NOV. 29, FEB. 20,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- ------- ---------- ---------- -------- ------- ---------- -------- --------
(16 WEEKS) (13 WEEKS) (16 WEEKS)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $6,990 $8,334 $11,356 $10,687 $9,648 $9,171 $14,498 $11,488 $11,137
Costs of services.......... 4,386 5,021 6,888 7,075 6,106 5,912 9,135 7,221 6,486
Supplemental
compensation............. 280 280 373 267 280 280 373 300 --
------ ------ ------- ------- ------ ------ ------- ------- -------
Gross profit............... 2,324 3,033 4,095 3,345 3,262 2,979 4,990 3,967 4,651
General and
administrative........... 1,811 2,087 2,890 2,272 2,134 2,162 3,361 2,852 2,754
------ ------ ------- ------- ------ ------ ------- ------- -------
Income from operations..... 513 946 1,205 1,073 1,128 817 1,629 1,115 1,897
Interest income, net....... 19 34 21 50 9 84 41 168 46
------ ------ ------- ------- ------ ------ ------- ------- -------
Income before provision for
income taxes and minority
interest................. 532 980 1,226 1,123 1,137 901 1,670 1,283 1,943
Provision for income
taxes.................... (37) (69) (86) (81) (76) (60) (112) (58) (120)
------ ------ ------- ------- ------ ------ ------- ------- -------
Net income before minority
interest................. 495 911 1,140 1,042 1,061 841 1,558 1,225 1,823
Minority interest.......... -- -- -- -- -- -- 198 84 52
------ ------ ------- ------- ------ ------ ------- ------- -------
Net income................. $ 495 $ 911 $ 1,140 $ 1,042 $1,061 $ 841 $ 1,756 $ 1,309 $ 1,875
====== ====== ======= ======= ====== ====== ======= ======= =======
</TABLE>
The Company has experienced, and may continue to experience, significant
period-to-period fluctuations in revenues and results of operations. The
Company's results of operations in any quarter can fluctuate depending upon,
among other things, the number of weeks in the quarter, the number and scope of
ongoing client engagements, the commencement, postponement and termination of
engagements in the quarter, the mix of revenue, the extent of discounting or
cost overruns, employee hiring, the ability to reassign consultants efficiently
from one engagement to the next, severe weather conditions, and other factors
affecting employee productivity. Because the Company generates substantially all
of its revenues from consulting services
22
<PAGE> 24
provided on an hourly-fee basis, the Company's revenues in any period are
directly related to the number of its consultants, their billing rates and the
number of billable hours worked during that period. The Company's ability to
increase any of these factors in the short term is limited and, accordingly, the
Company may be unable to compensate for periods of underutilization during one
part of a fiscal period by augmenting revenues during another part of that
period. In addition, the Company intends to hire additional consultants who may
not be fully utilized immediately, particularly in the quarter in which such
consultants are hired. Moreover, a significant majority of the Company's
operating expenses, primarily rent and the base salaries of the Company's
consultants, are fixed in the short term, and as a result the failure of
revenues to meet the Company's projections in any quarter could have a
disproportionate adverse effect on the Company's net income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $1.4 million, $2.2
million and $3.6 million in fiscal 1995, fiscal 1996 and fiscal 1997,
respectively. In each of these years, the cash from operating activities was
generated primarily from net income earned for the period, which increased from
$2.4 million in fiscal 1995 to $3.6 million in fiscal 1996 to $4.9 million in
fiscal 1997. Cash generated from operating activities was partially offset by
increases in unbilled services and accounts receivable, reflecting increased
services performed by the Company in each of fiscal 1995, fiscal 1996 and fiscal
1997.
Cash used in investing activities during fiscal 1995, fiscal 1996 and
fiscal 1997 was $698,000, $476,000 and $2.3 million, respectively, and was
primarily attributable to purchases by the Company of property and equipment and
leasehold improvements. The increased use of cash for investing activities in
fiscal 1997 was due primarily to the Company's expansion of its three offices
during that year.
The Company's financing activities used cash of $251,000, $1.3 million and
$708,000 in fiscal 1995, fiscal 1996 and fiscal 1997, respectively. A principal
use of cash for financing activities in each year was payment of dividends,
which totaled $245,000, $1.5 million and $1.6 million in fiscal 1995, fiscal
1996 and fiscal 1997, respectively. In fiscal 1997, the Company's use of cash
for financing activities was partially offset by collection of notes receivable
from stockholders, the sale of Common Stock to officers of the Company and the
investment in NeuCo by minority interest owners.
In the first quarter of fiscal 1998, the Company's operating activities
provided cash of $6.6 million consisting primarily of a decrease in accounts
receivable and increases in accounts payable and accrued expenses. Cash used in
investing activities for the purchase of property and equipment during the first
quarter of fiscal 1998 was $243,000. The Company's financing activities used
cash of $1.4 million in the first quarter of fiscal 1998, which consisted
primarily of the 1997 Distribution.
As of February 20, 1998, the Company had cash and cash equivalents of $7.0
million and working capital of $9.6 million. The Company presently has available
a $2.0 million revolving line of credit with BankBoston Corporation
("BankBoston"), which is secured by the Company's accounts receivable. This line
of credit automatically renews each year on June 30 unless earlier terminated by
either the Company or BankBoston. No borrowings were outstanding under this line
of credit as of February 20, 1998 or as of the date hereof. The Company had
outstanding standby letters of credit under this line of credit as of February
20, 1998 amounting to $76,000, which expire between March and June 1998.
The Company believes that the net proceeds of the Offering, together with
funds generated by operating activities, existing cash balances and credit
available under its bank line of credit, will be sufficient to meet the
Company's working capital and capital expenditure requirements for at least the
next 12 months.
The Company is currently assessing the potential impact of the Year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems and on products sold by the Company. While there can be no
assurance that all issues arising from the Year 2000 will be identified and
resolved satisfactorily, the Company presently believes that Year 2000 issues
will not pose significant operational problems for the Company or have a
material adverse effect on the Company's business, financial condition or
results of operations.
To date, inflation has not had a material impact on the Company's financial
results. There can be no assurance, however, that inflation may not adversely
affect the Company's financial results in the future.
23
<PAGE> 25
BUSINESS
INTRODUCTION
The Company is a leading economic and business consulting firm that applies
advanced analytic techniques and in-depth industry knowledge to complex
engagements for a broad range of clients. Founded in 1965, the Company provides
original and authoritative advice for clients involved in many high-stakes
matters, such as multi-billion dollar mergers and acquisitions, new product
introductions, major capital investment decisions, and complex litigation, the
outcome of which often has significant implications or consequences for the
parties involved. The Company offers two types of services: legal and regulatory
consulting and business consulting. Through its legal and regulatory consulting
practice, CRA provides law firms and businesses involved in litigation and
regulatory proceedings with expert advice on highly technical issues such as the
competitive effects of mergers and acquisitions, damages calculations,
measurement of market share and market concentration, liability analysis in
securities fraud cases, and the impact of increased regulation. In addition, the
Company uses its expertise in economics, finance and business analysis to offer
clients business consulting services for strategic issues such as establishing
pricing strategies, estimating market demand, valuing intellectual property and
other assets, assessing competitors' actions, and analyzing new sources of
supply. To complement its analytical expertise in advanced economic and
financial methods, the Company offers its clients in-depth industry expertise in
specific vertical markets, including chemicals, electric power and other
energies, healthcare, materials, media/telecommunications, and transportation.
The Company's services are provided by its highly credentialed and
experienced staff of consultants. As of February 20, 1998, CRA employed 120
full-time professional consultants, including 47 consultants with Ph.D.s and 26
consultants with other advanced degrees, who have backgrounds in a wide range of
disciplines, including economics, business, corporate finance, materials
sciences and engineering. Since maintaining its reputation is paramount and its
engagements are typically complex, the Company is extremely selective in its
hiring of consultants, recruiting individuals from leading universities,
industry and government. Many of the Company's consultants are nationally
recognized as experts in their respective fields, having published scholarly
articles, lectured extensively and been quoted in the press. To enhance the
expertise it provides to its clients, CRA maintains close working relationships
with a select group of Outside Experts.
Through its offices in Boston, Massachusetts, Washington, D.C. and Palo
Alto, California, CRA has completed more than 2,500 engagements for clients,
including major law firms, domestic and foreign corporations, federal, state and
local government agencies, governments of foreign countries, public and private
utilities, and national and international trade associations. While the Company
has particular expertise in certain vertical markets, the Company provides
services to a diverse group of clients in a broad range of industries. During
its last three fiscal years, the Company had over 1,200 engagements for clients
that included 59 of the 100 largest U.S. law firms (ranked by The American
Lawyer based on 1996 revenues) and 109 Fortune 500 companies (based on 1996
revenues). During that period, the Company's clients included Cravath, Swaine &
Moore; Ford Motor Company; Jones, Day, Reavis & Pogue; Procter & Gamble Company
Inc.; Skadden, Arps, Slate, Meagher & Flom LLP; and Time Warner Inc. No single
client accounted for over 10% of the Company's revenues in fiscal 1997.
Officers and directors of the Company completed a management buy-out in
March 1995, resulting in a broad expansion of the Company's ownership
principally from its three founders to all of its officers and directors at that
time. In order to align each officer's interest with the overall interests and
profitability of CRA, the Company adopted, as part of the management buy-out, a
policy requiring that each of its officers have an equity interest in CRA. As of
the date of this Prospectus, the Company's stock is broadly held among over 30
officers and directors. In connection with the management buy-out, the Company
refocused its efforts on improving profitability and expanding its areas of
expertise and its client base. The Company's revenues and income from operations
have increased from $31.8 million and $2.5 million in fiscal 1995 to $44.8
million and $4.7 million in fiscal 1997, respectively, representing compound
annual growth rates of 18.6% and 37.8%, respectively.
24
<PAGE> 26
INDUSTRY OVERVIEW
The environment in which businesses operate is becoming increasingly
complex. Expanding access to powerful computers and software is providing
companies with almost instantaneous access to a wide range of internal
information, such as supply costs, inventory values, and sales and pricing data,
as well as external information such as market demand forecasts and customer
buying patterns. At the same time, markets are becoming increasingly global,
offering companies the opportunity to expand their presences throughout the
world and exposing them to increased competition and the uncertainties of
foreign operations. Many industries are rapidly consolidating as companies are
pursuing mergers and acquisitions in response to increased competitive pressures
and to expand their market opportunities. In addition, companies are relying to
a greater extent on technological and business innovations to improve
efficiency, thus increasing the importance of strategically analyzing their
businesses and developing and protecting new technology. As a result of this
increasingly competitive and complex business environment, companies are
required to constantly gather, analyze and utilize available information to
enhance their business strategies and operational efficiencies.
The increasing complexity and changing nature of the business environment
is also forcing governments to adjust their regulatory strategies. For example,
certain industries such as healthcare are subject to frequently changing
regulations while other industries such as telecommunications and electric power
are experiencing trends toward deregulation. These constant changes in the
regulatory environment are leading to frequent litigation and interaction with
government agencies as companies attempt to interpret and react to the
implications of this changing environment. Furthermore, as the general business
and regulatory environment becomes more complex, litigation has also become more
complicated, protracted, expensive and important to the parties involved.
As business, legal and regulatory environments undergo rapid change and
become more complex, companies are increasingly relying on sophisticated
economic and financial analysis to solve complex problems and improve
decision-making. Economics and finance provide the tools necessary to analyze a
variety of issues confronting businesses, such as interpretation of sales data,
effects of price changes, valuation of assets, assessment of competitors'
activities, evaluation of new products and analysis of supply limitations.
Governments are also relying to an increasing extent on economic and finance
theory to measure the effects of anti-competitive activity, evaluate mergers and
acquisitions, change regulations, implement auctions to allocate resources, and
establish transfer pricing rules. Finally, litigants and law firms are using
economic and finance theory to help determine liability and to calculate damages
amounts in complex and high-stakes litigation. As this need for complex economic
and financial analysis becomes more widespread, CRA believes that companies will
increasingly turn to outside consultants for access to specialized expertise,
experience and prestige that are not available to them internally.
COMPETITIVE STRENGTHS
Since 1965, the Company has been committed to providing sophisticated
consulting services to its clients. The Company believes that the following
factors have been critical to its success:
Strong Reputation for High Quality Consulting. For over 30 years, the
Company has been a leader in providing sophisticated economic analysis and
original, authoritative studies for clients involved in complex litigation and
regulatory proceedings. As a result, the Company believes that it has
established a strong reputation among leading law firm and business clients as a
preferred source of expertise in economics and finance, as evidenced by the
Company's high level of repeat business and significant referrals from existing
clients. Approximately 60% of the Company's revenues from new engagements in
fiscal 1997 were derived from engagements for existing clients. In addition, the
Company believes that its significant name recognition, developed as a result of
its work on many high profile litigation and regulatory engagements, has
enhanced the development of its business consulting practice. While reputation
for high quality consulting and name recognition are critical in attracting new
clients, CRA believes that these factors are equally important to its ability to
recruit and retain both consultants and renowned Outside Experts.
Highly Educated, Experienced and Versatile Consulting Staff. The Company
believes that its most important asset is its base of full-time consultants,
particularly its senior consultants. Of the Company's
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120 consultants as of February 20, 1998, 69 are either officers, principals or
senior associates, substantially all of whom have a Ph.D. or a master's degree.
Many of these senior consultants are nationally recognized as experts in their
respective fields, having published scholarly articles, lectured extensively and
been quoted in the press. In addition to their expertise in a particular field,
most of the Company's consultants are able to apply their skills across numerous
practice areas. This flexibility in staffing engagements is critical to the
Company's ability to apply its resources as needed to meet the demands of its
clients. As a result, the Company seeks to hire consultants who not only have
strong analytical skills but also are creative, intellectually curious and
driven to develop expertise in new practice areas and industries.
Vertical Market Expertise. By maintaining expertise in certain industries,
the Company is able to offer clients creative and pragmatic advice tailored to
their specific markets. This vertical market expertise, developed by CRA over
decades of providing sophisticated consulting services to a diverse group of
clients in industries such as chemicals, electric power and other energies,
healthcare, materials, media/telecommunications, and transportation,
differentiates the Company from many of its competitors. CRA believes that it
has developed a strong reputation and substantial name recognition within these
specific industries, which leads to repeat business and new engagements from
clients in those markets.
Broad Range of Services. By offering clients both legal and regulatory
consulting services and business consulting services, CRA is able to satisfy a
broad array of client needs, ranging from expert testimony for complex lawsuits
to designing global business strategies. This broad range of expertise enables
the Company to take an interdisciplinary approach to certain engagements,
combining economists and experts in one area with specialists in another
discipline. The Company emphasizes its diverse capabilities to clients and
regularly cross-markets across its service areas. For example, it is not unusual
for a client that the Company assists in a litigation matter to later retain the
Company for a business consulting matter. In addition, the Company believes that
consultants and Outside Experts are attracted by the opportunity to work on a
diverse array of matters.
Access to Leading Academic and Industry Experts. To enhance the expertise
it provides to its clients, CRA maintains close working relationships with a
select group of Outside Experts. Depending on client needs, the Company uses
Outside Experts for their specialized expertise, assistance in conceptual
problem-solving and expert witness testimony. CRA works regularly with renowned
professors at Harvard University, the Massachusetts Institute of Technology,
Georgetown University, The University of California, Stanford University, The
University of Virginia and other leading universities. Outside Experts also
generate business for CRA and provide the Company access to other leading
academic and industry experts. By establishing affiliations with prestigious
Outside Experts, the Company further enhances its reputation as a leading source
of sophisticated economic and financial analysis.
GROWTH STRATEGY
CRA intends to enhance its position as a leading economic and business
consulting firm by pursuing the following growth strategy:
Attract and Retain High Quality Consultants. Since its consultants are its
most important asset, the Company's ability to attract and retain highly
credentialed and experienced consultants both to work on engagements and to
generate new business is crucial to the Company's success. In order to attract
highly qualified consultants, the Company offers competitive compensation and
benefits and has developed a career enhancement program that offers consultants
career enrichment opportunities and access to individualized training. While
competitive compensation and benefits are important, CRA believes that
consultants are attracted to CRA because of its strong reputation, the
credentials, experience and reputation of its consultants, the opportunity to
work on a diverse array of matters, the opportunity to work with renowned
Outside Experts, and the collegial atmosphere of the Company. The Company
believes that its attractiveness as an employer is reflected in its low turnover
rate among employees and that its status as a public company will further
enhance its ability to recruit and retain employees. The Company intends to
grant stock options to certain employees as part of its efforts to attract and
retain consultants.
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Increase Marketing Activities. Historically, the Company has primarily
relied on its reputation and client referrals for new business. As a result, the
Company believes there is an opportunity to expand significantly its marketing
activities in order to attract new clients and increase the overall exposure of
its consultants. For example, the Company intends to increase its presence at
selected conferences, seminars and public speaking engagements to increase
client referrals and lead generation. The Company also intends to increase
circulation of its client publications, which highlight emerging trends and
noteworthy CRA engagements, as well as to encourage its consultants to publish
articles more frequently in the trade press and academic journals.
Expand Services. While the Company currently offers a broad range of
services, CRA believes there are opportunities to expand the services and
expertise it provides to its clients. For example, applying the expertise of
several of its consultants in game theory, the Company recently began offering
consulting services in auction design and implementation. Similarly, the Company
believes that it can expand into other related areas of business with its
existing consultants, most of whom have experience in a wide variety of fields.
To encourage the development of new ideas and expertise, the Company fosters an
environment that rewards creativity and innovation.
Establish Relationships with Additional Outside Experts. The Company
intends to establish relationships with additional leading academic and industry
experts. In addition to helping the Company serve its clients better, Outside
Experts often provide the Company with new sources of business and expand the
Company's network of academic affiliations. Moreover, the Company believes that
affiliations with additional, prestigious Outside Experts will further enhance
its reputation and aid in its recruiting of consultants. The Company may grant
stock options to attract additional Outside Experts.
Pursue Strategic Acquisitions and Alliances. The Company will seek to
expand its operations through the acquisition of complementary businesses and by
establishing strategic alliances. Given the highly fragmented nature of the
consulting industry, CRA believes that there are numerous opportunities to
acquire small consulting firms. The Company believes the acquisition of
complementary businesses and the establishment of strategic alliances, such as
it has done for its auctions consulting practice, will provide it with
additional consultants, new service offerings, additional industry expertise, a
broader client base or an expanded geographic presence. As of the date of this
Prospectus, the Company has no agreement or understanding regarding any
acquisitions.
Open New Offices. The Company may expand its geographic presence by
opening one or more additional offices, particularly in major metropolitan areas
that have leading universities. The Company believes this strategy will help to
attract consultants and Outside Experts and provide it with additional marketing
opportunities for clients located in those regions.
There can be no assurance that the Company will be successful in any of the
elements of its growth strategy.
SERVICES
The Company offers services in two broad areas: legal and regulatory
consulting and business consulting. In its legal and regulatory practice, the
Company usually works closely with law firms on behalf of one or more companies
involved in litigation or regulatory proceedings. Many of the lawsuits and
regulatory proceedings in which the Company is involved are high-stakes matters,
such as obtaining regulatory approval of a pending merger or analyzing possible
damages awards in a securities fraud case, the outcome of which often has
significant implications or consequences for the parties involved. In the
business consulting practice, CRA typically provides services directly to
companies seeking assistance with strategic issues that require expert economic
or financial analysis. Many of these matters involve "mission-critical"
decisions for the client, such as positioning and pricing a new product or
developing a new technological process. Engagements in the Company's two service
areas often involve similar areas of expertise and address related issues, and
it is common for CRA's consultants to work on engagements in both service areas.
The Company estimates that it derived approximately two-thirds of its revenues
in fiscal 1997 from legal and regulatory consulting and approximately one-third
from business consulting.
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LEGAL AND REGULATORY CONSULTING. The ability to formulate and effectively
communicate powerful economic and financial arguments to courts and regulatory
agencies is often critical to a successful outcome in litigation and regulatory
proceedings. Through its highly educated and experienced consulting staff, the
Company applies advanced analytic techniques in economics and finance to complex
engagements for a diverse group of clients. The Company offers its clients a
wide range of legal and regulatory consulting services, including the following:
Antitrust. CRA has expertise in a variety of issues arising in antitrust
litigation, including collusion, price signaling, monopolization, tying,
exclusionary conduct, resale price maintenance, predatory pricing and price
discrimination. Expert testimony and analysis by economists play an increasingly
important role in antitrust litigation. For the past three decades, the Company
has provided expert assistance to law firms in a wide variety of antitrust
lawsuits, including supporting IBM in landmark antitrust litigation brought by
the DOJ and others.
Mergers and Acquisitions. The Company assists clients involved in mergers
and acquisitions in their interactions with domestic and foreign antitrust
regulatory authorities. By applying economic methods and tools, CRA helps
clients simulate the effects of mergers on prices, estimate demand elasticities,
design and administer customer and consumer surveys, and study the efficiencies
that motivate or result from acquisitions. In addition, the Company regularly
assists clients in proceedings before the FTC and DOJ, including helping them
obtain termination of the waiting period imposed by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
Finance. The Company offers clients a variety of financial advisory
services, including valuations, securities fraud analysis, and risk assessments
for options, futures, swaps and other derivatives. For clients involved in
litigation and regulatory proceedings, CRA values businesses, products,
contracts and securities, and provides expert testimony on a variety of
valuation issues. The financial analysis performed by the Company encompasses
cash-flow estimates, "but-for" analyses of revenues, complex analytical models
and estimates of appropriate discount rates. The Company also assists clients in
securities fraud cases by estimating damages computations and analyzing
potential liability.
Intellectual Property. The Company provides expert consulting and
testimony on a broad array of issues arising from intellectual property rights
and valuations of intellectual property, cost-sharing arrangements, royalty
rates, and determinations of fair market value of intellectual property
transferred between related parties. For example, CRA estimates damages and
provides expert testimony in patent, trademark, copyright, trade secret and
unfair competition disputes. Its services include estimating lost profits,
reasonable royalties, unjust enrichment and prejudgment interest.
Transfer Pricing. CRA provides transfer pricing advice for companies that
are establishing foreign operations and for companies with existing foreign
operations seeking to improve their tax positions. The Company helps clients to
analyze their affiliates' functions and risks, the value of tangible and
intangible assets, precedents set by comparable industry transactions, and the
specifics of the tax laws in the relevant countries. In addition, CRA assists
clients in preparing for Internal Revenue Service and foreign tax authority
audits and provides expert testimony and litigation support in lawsuits related
to transfer pricing disputes.
Environment. CRA regularly assists clients involved in environmental
disputes both in litigation proceedings and before government agencies. For
example, the Company helps clients determine responsibility for environmental
cleanups, including Superfund sites, and advises clients on damages calculations
resulting from oil spills, hazardous waste disposal and other environmental
torts. As part of its work in this area, the Company's consultants and Outside
Experts have assisted clients in developing innovative techniques for
environmental regulatory compliance, such as emissions trading and regulatory
cost-benefit analysis and risk assessment.
BUSINESS CONSULTING. The business consulting practice of CRA applies a
highly analytical, quantitative approach to help companies analyze and respond
to market forces and competitive pressures that affect their businesses. The
Company advises its clients in many of the same areas in which it provides legal
and regulatory consulting, such as finance and mergers and acquisitions.
Applying its in-depth knowledge of
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specific vertical markets, the Company is able to provide insightful,
value-added advice to its clients. CRA offers clients practical and creative
advice by challenging conventional approaches and generally avoiding
predetermined solutions or methodologies. Recognizing the importance that
clients place in maintaining confidentiality, CRA does not disclose the identity
of its clients unless the Company's engagement with the client is already
publicly disclosed. CRA's business consulting services can be grouped into three
broad areas, as follows:
Business Strategy. CRA offers a broad range of strategy-related consulting
services designed to help companies evaluate strategic opportunities and
increase shareholder value. For example, CRA helps clients to identify
investment opportunities, implement cost reduction programs, execute turnaround
strategies, improve risk management, make capital investment decisions, complete
due diligence, value intellectual property rights and other assets, and
establish pricing strategies. The Company also assists clients with acquisitions
by assessing the strategic and financial fit of an acquisition candidate. As it
does in its legal and regulatory consulting practice, CRA advises clients on the
competitive advantages and efficiencies, if any, resulting from acquisitions, as
well as any potential antitrust concerns.
Market Analysis. CRA uses its vertical market expertise and analytical
skills to assist its clients in identifying, understanding and reacting to
market trends, including measuring market size, estimating supply and demand
balances, evaluating growth opportunities, and analyzing procurement strategies.
This type of analysis is particularly useful for companies that are launching a
new product, repositioning an existing product or operating in an industry
undergoing significant change. CRA uses complex computer models to predict the
market impact of certain potential actions by the client or third parties. This
information is then used to advise the client on product positioning, pricing
strategies, competitive threats and probable market reactions. Using its
regulatory and legal consulting expertise, CRA assists clients in evaluating the
market impact of existing and proposed government policies.
Technology Management. CRA assists clients in managing their industrial
technologies, including analyzing the processes used to develop their products
and services. The Company helps clients with their technology needs from
assessment through implementation. For example, CRA completes competitive
analyses for clients by analyzing competitors' technology and processes through
statistical comparisons of raw material costs, sales, productivity measurements
and other factors. In addition, CRA helps clients to assess commercialization of
new technology by quantifying the costs and benefits of obtaining and
implementing new technology, including evaluation of engineering and employee
training costs. Finally, the Company assists clients in implementing technology,
including helping to coordinate the efforts of research and development
organizations and conducting pre-feasibility studies.
VERTICAL MARKET EXPERTISE
The Company believes its ability to combine expertise in advanced economic
and financial methods with in-depth knowledge of particular vertical markets is
one of its key competitive strengths. By maintaining expertise in certain
industries, the Company provides clients practical advice in both legal and
regulatory consulting and business consulting that is tailored to their specific
markets. This vertical market expertise, developed by CRA over decades of
providing sophisticated consulting services to a diverse group of clients in
leading industries, differentiates the Company from many of its competitors. CRA
believes that it has developed a strong reputation and substantial name
recognition within specific industries, which leads to repeat business and new
engagements from clients in those markets. While the Company provides services
to clients in a wide variety of industries, it has particular expertise in the
following vertical markets:
Chemicals. The Company has a long history of providing consulting services
to chemical companies. For example, CRA has assisted leading chemical companies
in improving their research and development capabilities, investing in new
businesses, assessing acquisition possibilities, and restructuring their
facilities. CRA's industry experience enables it to offer advice to clients
regarding pricing and profitability relative to supply, demand and competition
within the chemicals industry.
Electric Power and Other Energies. CRA is a leading provider of economic
testimony and analysis of the competitive impacts of electric utility, natural
gas, and petroleum mergers and acquisitions. In addition,
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the Company offers advice to energy clients about the effects of deregulation in
the electric power and natural gas industries. In order to help energy clients
address frequent regulatory changes, CRA represents them in proceedings before
the Federal Energy Regulatory Commission, the Interstate Commerce Commission,
state public regulatory commissions, and other international, federal and state
administrative agencies. The Company has recently published a comprehensive
study analyzing trading in electricity futures contracts.
Healthcare. CRA advises hospitals, pharmaceutical and medical product
companies, and other healthcare clients by combining its in-depth knowledge of
the unique and rapidly changing features of healthcare markets with its
expertise in antitrust assessment, merger evaluations, measurement of damages
and valuation of intellectual property. The Company assists its clients in
responding to current competitive pricing trends and incentives created for
vertical and horizontal consolidation. For pharmaceutical and medical product
companies, CRA helps develop research, development, marketing and reimbursement
strategies that highlight the clinical and economic advantages of their
pharmaceuticals and medical technologies.
Materials. Led by a group of consultants with extensive experience and
academic backgrounds in the materials and manufactured parts industries, CRA
offers advice on a broad array of issues confronting clients selling and using
materials such as minerals, metals and polymers. For example, CRA helps
companies to analyze potential strategic acquisitions, evaluate capital
investment opportunities, define and segment markets, assess new technology,
respond to changing regulations, gauge competitors' actions and design business
strategies. CRA also has expertise and experience in guiding materials and
manufactured parts companies through antidumping proceedings before government
agencies.
Media/Telecommunications. By providing a wide range of consulting services
to a diverse group of media and telecommunications clients, the Company has
developed a strong reputation as a leading source of expert economic and
financial advice for media and telecommunications companies. CRA has been
retained by clients involved in some of the largest media/telecommunications
mergers, including the acquisitions of Turner Broadcasting System Inc. by Time
Warner Inc. and Capital Cities/ABC Inc. by Walt Disney Company. Applying its
expertise in the media/telecommunications industry, CRA has helped clients
address the dramatic developments in their industry resulting from rapid
technological change, deregulation and the globalization of their markets.
Transportation. The Company assists transportation industry clients by
providing services in travel demand forecasting, market assessment, public
policy analysis and business strategy. Through the use of sophisticated models
for estimating travel demand developed by the Company, CRA helps transportation
clients assess the feasibility of entering new markets and consults with
governments considering infrastructure improvements. In addition, the Company
has advised airline clients on the effects of deregulation and has consulted
with automotive companies on the effects of increased government regulation.
NEW OPPORTUNITIES
An element of the Company's growth strategy is to expand into new practice
areas that are complementary to its core practice areas. The Company intends to
continue to encourage its consultants to develop expertise in new areas. Two
examples of new areas of business that the Company recently developed are
described below.
Auction Consulting. Several of CRA's consultants used their expertise in
game theory to develop an auctions consulting practice. CRA is collaborating
with Market Design, Inc. ("MDI"), a corporation owned and operated by a group of
leading academic experts in the field of auction theory, to provide consulting
services for the design and implementation of complex auctions, such as
simultaneous ascending-bid auctions in which multiple objects are available for
bid at the same time. Using jointly developed, sophisticated software, the
Company and MDI help businesses and governments formulate rules for auctions,
run auctions and track auction results. In addition, CRA and MDI provide bidder
support services prior to and during an auction, including competitive
evaluations, optimal bidding strategies and assessments of the competition's
behavior. CRA typically charges clients a license fee for its auction software
(a portion of which is shared with MDI) in addition to charging for its
consulting services.
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The Company's auction consulting work began in 1995 and was initially
focused primarily on auctions of telecommunications spectrum licenses. For
example, CRA and MDI were hired by Mexico's Comision Federal de
Telecomunicaciones to design and help implement auctions for paging spectrum,
microwave bands and personal communication services. While still focusing on
telecommunications auctions, the Company has also provided auction consulting
services to electric utilities, and intends to expand its auction consulting
work into other industries, such as minerals and chemicals, that are beginning
to use auctions more frequently to allocate resources and property rights.
NeuCo. In June 1997, the Company invested approximately $650,000 for a
majority interest in NeuCo. NeuCo was established by the Company and an
affiliate of Commonwealth Energy Systems as a start-up entity to develop and
market a family of neural network software tools and complementary applications
consulting services for electric utilities. NeuCo's products and services are
designed to help utilities improve their power plants by improving heat rate,
reducing emissions, overcoming operating constraints and increasing output
capability. NeuCo was established in connection with the Company's consulting
engagement with Commonwealth Energy.
While NeuCo is currently operating at a loss, and there can be no assurance
that it will become profitable, the Company believes that demand exists for
NeuCo's products and services. As of the date of this Prospectus, NeuCo has
implemented its software and services solution at one of Commonwealth Energy's
electric utility plants, and it is providing consulting services to another
client. Although NeuCo's initial products and services are designed for electric
utilities, the Company believes that NeuCo's neural network software tools can
be adapted and combined with consulting services to form a solutions package to
meet the efficiency needs of companies outside the electric power industry,
particularly for gas and other combustion companies. The software engine that
NeuCo utilizes to build its software applications is licensed by the Company
from a third party and sublicensed to NeuCo. In addition to the sublicense, the
Company provides NeuCo with general, administrative and other services for
agreed-upon fees.
CLIENTS
The Company has completed more than 2,500 engagements for clients including
major law firms, domestic and foreign corporations, federal, state and local
government agencies, governments of foreign countries, public and private
utilities, and national and international trade associations. While the Company
has particular expertise in certain vertical markets, the Company provides
services to a diverse group of clients in a broad range of industries. During
its last three fiscal years, CRA worked with 59 of the 100 largest U.S. law
firms (ranked by The American Lawyer based on 1996 revenues) and 109 Fortune 500
companies (based on 1996 revenues). No single client accounted for over 10% of
the Company's revenues in fiscal 1997. CRA's policy is to keep the identities of
its clients confidential unless the Company's work for the client is already
publicly disclosed.
The following are examples of the Company's engagements:
Legal and Regulatory Consulting
- The Company assisted Procter & Gamble Company Inc. ("P&G") and its
counsel in assessing the antitrust implications of P&G's acquisition of
Tambrands Inc. The DOJ was concerned that the proposed merger might
reduce competition and lead to price increases for feminine protection
products. CRA reviewed P&G's and Tambrands' internal planning documents,
which indicated that the two companies' products did not compete directly
against each other. CRA confirmed this by applying sophisticated
econometric techniques to consumer purchase data. CRA presented its
findings, together with its extensive supporting data, to the DOJ's
investigative staff to demonstrate that the two companies' products were
either in distinct markets, or if in the same market, not substitutes for
each other. After considering CRA's analysis and data, the DOJ allowed
the acquisition to proceed.
- CRA assisted Polaroid Corporation in its instant-camera patent
infringement lawsuit against Eastman Kodak Company. Working closely with
two Outside Experts, CRA developed estimates of reasonable royalties and
the value of lost profits on the basis of lost sales and price erosion
resulting from Eastman
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Kodak's infringement. CRA formulated its damages calculations using a
non-linear model of consumer demand for a durable good. This model,
developed by two Outside Experts working in conjunction with CRA
consultants, analyzed consumer buying patterns, price movements and other
factors in the context of a new product introduction. CRA assisted the
Outside Experts with their trial testimony and worked closely with
Polaroid's lawyers in preparing witnesses and critiquing the opposing
parties' experts. CRA's analysis contributed to Polaroid obtaining a
significant damages award.
- Exxon Company, USA retained CRA to assist in preparing for litigation
related to the oil spill from the tanker Exxon Valdez. CRA examined a
number of theoretical and empirical issues regarding the reliability of
measures of natural resource damages. Working with a team of survey
researchers, economists, psychologists, and statisticians, CRA developed
and conducted a number of experiments after gathering and interpreting
data from questionnaires administered to several thousand respondents
throughout the United States. The studies specifically addressed the
reliability and sensitivity of contingent valuation methods in measuring
damages to environmental resources. CRA's study results indicated that
slight variations in survey techniques and methodologies could lead to
dramatically different results. For example, by isolating the "budget
context" bias that arises in one traditional method of measuring natural
resource damages, CRA's research demonstrated that the traditional method
tended to overstate damages by a factor of almost 300 as compared to a
survey method that CRA designed to mitigate the bias. Exxon used CRA's
analysis to prepare for settlement negotiations.
- When several major oil companies were accused of conspiring to depress
the prices of North Sea or Brent crude oil, they hired CRA to perform a
number of sophisticated statistical tests to determine whether Brent
prices had been affected by their purchases and sales. CRA's statistical
tests demonstrated that there was no pattern of trading by the clients at
below-market prices. Rather, the prices of a majority of the clients'
trades fell within the range of non-defendants' prices prevailing for the
corresponding delivery month and transaction day; the remaining trades
were evenly distributed above and below the non-defendants' reported
price range. Furthermore, statistical tests revealed no relationship
between the relative level of the clients' prices and the direction of
change in non-defendants' prices, contrary to what would be expected if
the clients' trading activities were designed to drive market prices
down. CRA's tests also showed that the volume of trading by its clients
was not related to movements in market price and that changes in Brent
prices did not lead to changes in prices of other crude oils. CRA's
analysis was used by the clients to help settle the matter.
Business Consulting
- CRA evaluated the prospects and mechanisms of privatization for a major
international oil and gas company. The Company developed a matrix of
privatization efforts of companies around the world and determined the
factors that contributed to their success or failure. CRA identified and
evaluated financial, competitive and shareholder value concerns, and
determined key management tradeoffs. In particular, the Company developed
recommendations for the preliminary steps necessary for the client to
achieve its privatization objectives and assisted with the implementation
of the privatization, including the formation of four new operating
companies. In addition, CRA advised the client on dividing the
enterprise's assets among the four operating companies and establishing
transfer prices.
- CRA developed a turnaround strategy for a nonferrous alloy manufacturing
division of a large mining company that was losing money and having
production problems. The strategy was based on an analysis of its
production problems, costs, competitive positioning, product portfolio
and customer mix. The Company identified the inherent potential of the
division and explained to the client's board of directors the reasons not
to divest the business. The client implemented the turnaround strategy
developed by CRA, and the division has since become profitable and is
growing.
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HUMAN RESOURCES
Consultants
On February 20, 1998, the Company had 120 full-time consultants, consisting
of 28 officers, 15 principals, 26 senior associates, 36 associates and 15
research assistants, and had over 55 full-time administrative \staff members.
Officers and principals generally work closely with clients, supervise junior
consultants, provide expert testimony on occasion and seek to generate business
for the Company. Senior associates and associates typically serve as project
managers and handle complex research assignments. Research assistants gather and
analyze data sets and complete statistical programming and library research.
Most of the Company's revenues are derived directly from the services
provided by its full-time consultants. The Company's consultants have
backgrounds in many disciplines, including economics, business, corporate
finance, materials sciences and engineering. Substantially all of CRA's senior
consultants, consisting of officers, principals and senior associates, have
either a Ph.D. or a master's degree in addition to substantial management,
technical or industry expertise. Of the Company's total senior consulting staff
of 69 as of February 20, 1998, 41 have Ph.D.s in economics, six have Ph.D.s in
other disciplines and 18 have other advanced degrees. The Company believes that
its financial results, reputation and growth are directly related to the number
and quality of its consultants.
The Company is highly selective in its hiring of consultants, recruiting
primarily from leading universities, industry and government. CRA carefully
screens candidates and usually arranges for candidates seeking a senior
consulting position to interview in at least two of CRA's offices. Prior to
hiring a candidate for a senior consulting position, CRA requires that the
candidate make a technical presentation to a group of CRA consultants. The
Company believes that consultants choose to work at CRA and that turnover is low
because of its strong reputation, the credentials, experience and reputation of
its consultants, the opportunity to work on a diverse array of matters, the
opportunity to work with renowned Outside Experts, and the collegial atmosphere
of the Company. The Company believes that its attractiveness as an employer is
reflected in its low turnover rate among employees and that its status as a
public company will further enhance its ability to recruit and retain employees.
CRA's training and career development program for its consultants focuses
on three areas: supervision, seminars and scheduled courses. This program is
designed to complement on-the-job experience and an employee's pursuit of his or
her own career development. New consultants participate in a structured program
in which they are partnered with an assigned mentor. Through CRA's ongoing
seminar program, outside speakers make presentations and conduct discussions
with the consultants on various topics. In addition, consultants are expected to
present papers, discuss significant cases, or outline new analytical techniques
or marketing opportunities periodically at in-house seminars. CRA also provides
scheduled courses designed to improve an employee's professional skills, such as
presentation and sales and marketing techniques. Consultants are also encouraged
to pursue their academic interests by authoring articles for economic and other
journals.
Each of CRA's senior consultants has signed a non-solicitation agreement
which generally prohibits the employee from soliciting clients of CRA for a
period of six months following termination of the person's employment with the
Company and from soliciting CRA's employees for a period of two years after
termination of the person's employment. Each of the Company's current
stockholders, including each of CRA's officers, has entered into an agreement
with CRA (the "Stock Restriction Agreement"), pursuant to which each stockholder
has agreed, among other things, not to sell or otherwise transfer any shares of
Common Stock of the Company owned by the stockholder prior to the Offering
without the consent of the Board of Directors of the Company for a period of two
years following the closing of the Offering. For more information regarding the
Stock Restriction Agreement, see "Certain Transactions--Stock Restriction
Agreement."
Outside Experts
The Company works closely with a select group of Outside Experts from
leading universities and industry, who supplement the work of the Company's
consultants and generate business for the Company. The Company believes that
Outside Experts choose to work with the Company on engagements because of the
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interesting and challenging nature of the work involved, the opportunity to work
with CRA's highly educated consultants and the financially rewarding nature of
the work. Four Outside Experts, each of whom is a stockholder of the Company
(see "Principal and Selling Stockholders") and a party to the Stock Restriction
Agreement, have entered into agreements with the Company that restrict their
right to compete with the Company.
MARKETING
The Company relies to a significant extent on the efforts of its
consultants, particularly its officers and principals, to market the Company's
services. Consultants are encouraged to generate new business from both existing
and new clients, and are rewarded with increased compensation and promotions for
obtaining new business. In pursuing new business, the Company's consultants
emphasize CRA's institutional reputation and experience, while also promoting
the expertise of the particular employees who will work on the matter. Many of
the Company's consultants have published articles in industry, business,
economic, legal and scientific journals and have made speeches and presentations
at industry conferences and seminars, which serve as a means of attracting new
business and enhancing their reputations. Consultants on occasion work with one
or more Outside Experts to market the Company's services.
The personal marketing efforts of the Company's consultants are
supplemented by firm-wide initiatives. Historically, the Company has primarily
relied on its reputation and client referrals for new business. Since the
management buy-out in 1995, the Company has increased its marketing activities
and intends to continue to expand its current marketing programs. CRA regularly
organizes seminars for existing and potential clients featuring panel members
that include the Company's consultants, Outside Experts and leading government
officials. The Company has an extensive set of brochures organized around CRA's
service areas, which outline the Company's experience and capabilities. In
addition, the Company periodically distributes publications to existing and
potential clients highlighting emerging trends and noteworthy CRA engagements.
Because existing clients are an important source of repeat business and
referrals, the Company communicates regularly with its existing clients to keep
them informed of developments that affect their markets and industries.
In its legal and regulatory consulting practice, much of the Company's new
business is derived from referrals by existing clients. The Company has worked
with leading law firms across the country and believes it has developed a
reputation among law firms as a preferred source of sophisticated economic
advice for litigation and regulatory work. For its business consulting practice,
the Company also relies on referrals from existing clients, but supplements
referrals with a significant amount of direct marketing to new clients through
conferences, publications, presentations and direct solicitations.
It is important to the Company that it conduct business ethically and in
accordance with industry standards and the Company's own rigorous professional
standards. The pursuit of specific markets, clients and bids on specific
requests for proposals are carefully considered. Before a new client or matter
is accepted, the Company determines whether a conflict of interests exists by
circulating a client development report among its officers and by checking the
Company's internal client database.
COMPETITION
The market for economic and business consulting services is intensely
competitive, highly fragmented and subject to rapid change. In general, the
barriers to entry into the Company's markets are few, and the Company expects to
face additional competition from new entrants into the economic and business
consulting industries. In the legal and regulatory consulting market, the
Company competes primarily with other economic consulting firms and individual
academics. The Company believes that the principal competitive factors in this
market are reputation, analytical ability, industry expertise and service. In
the business consulting market, the Company competes primarily with other
business and management consulting firms, specialized or industry-specific
consulting firms, the consulting practices of large accounting firms, and the
internal professional resources of existing and potential clients. The Company
believes that the principal competitive factors in this market are reputation,
industry expertise, analytical ability, service and price. Many of the Company's
competitors have national and international reputations as well as significantly
greater
34
<PAGE> 36
personnel, financial, managerial, technical and marketing resources than the
Company. Certain of the Company's competitors also have a significantly broader
geographic presence than the Company. There can be no assurance that the Company
will compete successfully with its existing competitors or with any new
competitors.
FACILITIES
The Company's headquarters is located in Boston, Massachusetts in a leased
facility consisting of approximately 41,000 square feet, under a 15-year lease
that expires in 2008. The Company also occupies leased office space in
Washington, D.C. and Palo Alto, California. The Company believes that its
existing facilities are adequate to meet its current requirements and that
suitable space will be available as needed.
LEGAL PROCEEDINGS
As of the date of this Prospectus, the Company is not a party to any legal
proceedings the outcome of which, in the opinion of management of the Company,
would have a material adverse effect on the Company's business, financial
condition or results of operations.
35
<PAGE> 37
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ----------------------------------------------------
<S> <C> <C>
Franklin M. Fisher (1)(2)................. 63 Chairman of the Board
Rowland T. Moriarty (1)(2)(3)............. 51 Vice Chairman of the Board
James C. Burrows.......................... 54 President, Chief Executive Officer and Director
Laurel E. Morrison........................ 47 Chief Financial Officer, Vice President,
Finance and Administration, and Treasurer
Firoze E. Katrak (3)...................... 46 Vice President, Director
William B. Burnett (2).................... 49 Vice President, Director
Carl Kaysen (1)(3)........................ 78 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Governance Committee
(3) Member of the Audit Committee
FRANKLIN M. FISHER has served as an Outside Expert and a director of the
Company since 1967. Since April 1997, Dr. Fisher has served as Chairman of the
Board of Directors. Dr. Fisher has been a professor of economics at the
Massachusetts Institute of Technology since 1965, and the president and sole
employee of FMF, Inc., an economic consulting firm, since 1980. Dr. Fisher is
also a director of the National Bureau of Economic Research and a member of the
Steering Committee of the Institute for Social and Economic Policy in the Middle
East at Harvard University's John F. Kennedy School of Government. He received
his Ph.D. in economics in 1960 from Harvard University.
ROWLAND T. MORIARTY has served as a director of the Company since 1986 and
as Vice Chairman of the Board since December 1992. Dr. Moriarty is also Chairman
of the Board of Managers and a member of NeuCo. Dr. Moriarty has served as
Chairman and Chief Executive Officer of Cubex Inc., an international marketing
consulting firm, since 1992. Dr. Moriarty was a professor at the Harvard
Business School from 1981 to 1992, where he received his D.B.A. in Marketing in
1980. He is a director of Staples, Inc. and Trammel Crow Corporation.
JAMES C. BURROWS joined the Company in 1967 and has served as its President
and Chief Executive Officer since March 1995 and as a director since April 1993.
Since December 1992, Dr. Burrows has directed the Company's legal and regulatory
consulting practice. From 1971 to March 1995, Dr. Burrows served as a Vice
President of the Company and from June 1987 to December 1992 also directed the
Company's economic litigation program. Dr. Burrows received his Ph.D. in
economics from the Massachusetts Institute of Technology in 1970.
LAUREL E. MORRISON has served as Chief Financial Officer, Vice President of
Finance and Administration, and Treasurer of the Company since December 1996.
Ms. Morrison served as Controller of the Company from May 1993 until December
1996. Ms. Morrison previously served as Controller of MicroMentor, Inc., a
software company, from November 1992 to May 1993. Ms. Morrison is a certified
public accountant.
FIROZE E. KATRAK has served as Vice President of the Company since 1986 and
as a director of the Company since April 1993. Since June 1987, he has served as
head of the Company's materials and manufacturing consulting practice. Dr.
Katrak received his Ph.D. in materials engineering from the Massachusetts
Institute of Technology in 1978 and has been an employee of the Company since
that time.
WILLIAM B. BURNETT joined the Company as Vice President in 1988 and has
served as a director since June 1994. From 1982 to 1988, Mr. Burnett served as a
Vice President of Glassman-Oliver Economic Consultants, Inc., a consulting firm.
Prior to joining the Company, Mr. Burnett served in the Bureau of Economics at
the FTC from 1976 to 1982. Mr. Burnett received his M.A. in economics from
Cornell University in 1975.
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<PAGE> 38
CARL KAYSEN has served as a director of the Company since 1986. From
December 1992 until April 1997, Dr. Kaysen served as Chairman of the Board of
Directors. Since 1990, Dr. Kaysen has been professor emeritus of political
economy in the School of Humanities and Social Science at the Massachusetts
Institute of Technology. Dr. Kaysen received his Ph.D. in economics from Harvard
University in 1954.
The Board of Directors is divided into three classes, one class of which is
elected each year at the annual meeting of stockholders to hold office for a
term of three years. Dr. Moriarty and Mr. Burnett serve as Class I directors;
their terms of office expire in 1999. Drs. Katrak and Kaysen serve as Class II
directors; their terms of office expire in 2000. Drs. Fisher and Burrows serve
as Class III directors; their terms of office expire in 2001. Each director also
continues to serve as a director until his successor is duly elected and
qualified. Executive officers of the Company are elected by and serve at the
discretion of the Board of Directors.
The Board of Directors has a Compensation Committee, which provides
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company. The Board of Directors also has an Audit
Committee, which reviews the scope and results of the audit and other services
provided by the Company's independent auditors. The Board of Directors also has
a Governance Committee, which nominates persons to serve as directors of the
Company.
There are no family relationships among the directors and executive
officers of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Drs. Fisher, Kaysen and
Moriarty. Dr. Moriarty is Chairman of the Board of Managers and a member of
NeuCo, a subsidiary of the Company. For information concerning a stock
restriction agreement to which Drs. Fisher, Kaysen and Moriarty are parties as
well as certain payments by the Company to Drs. Fisher and Moriarty, see
"Certain Transactions."
DIRECTOR COMPENSATION
The Company pays its non-employee directors an annual fee of $13,000 for
their services as directors, plus $2,000 for each regular Board meeting attended
and $1,000 for each special Board meeting attended. Directors who are also
employees of the Company do not receive separate fees for their services as
directors. See "Certain Transactions" for information concerning consulting fees
paid by the Company to certain directors for their services as Outside Experts
to the Company.
Under the 1998 Incentive and Nonqualified Stock Option Plan (the "Option
Plan"), each Outside Director (as defined below) who shall be re-elected as a
director of the Company or whose term shall continue after the annual meeting of
stockholders will on the date of the annual meeting receive a Nonqualified
Option (as defined below) to purchase 5,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on that date.
Each such option will have a term of five years and will vest in full on the
first anniversary of the date of grant. Each person who shall be first elected
an Outside Director of the Company after the adoption of the Plan will receive
on the date of his or her election as a director a Nonqualified Option to
purchase 10,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on that date. Each such option will have a term
of five years and will vest in three equal annual installments, commencing on
the first anniversary of the date of grant. Under the terms of the Option Plan,
an "Outside Director" is a director who (i) is not an employee of the Company or
any parent or subsidiary of the Company and (ii) is not a consultant who
provides economic consulting services to or in conjunction with the Company or
any parent or subsidiary of the Company. Currently, the Outside Directors of the
Company are Drs. Moriarty and Kaysen. In accordance with the terms of the Option
Plan, in April 1998 in connection with the Company's annual meeting of
stockholders, each of Drs. Moriarty and Kaysen was granted a stock option to
purchase 5,000 shares of Common Stock at an exercise price equal to the initial
public offering price.
37
<PAGE> 39
EXECUTIVE COMPENSATION
Compensation Summary. The following table sets forth certain information
concerning the compensation earned by the Company's Chief Executive Officer and
other executive officers for services rendered in all capacities to the Company
for the fiscal year ended November 29, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($)(2) COMPENSATION($)(3)
--------------------------- --------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
James C. Burrows...................... $285,000 $615,000 -- $22,371
President and Chief Executive
Officer
Laurel E. Morrison.................... 100,000 55,000 -- 20,418
Chief Financial Officer, Vice
President, Finance and
Administration, and Treasurer
Firoze E. Katrak...................... 220,000 300,000 -- 21,331
Vice President
William B. Burnett.................... 220,000 490,000 -- 22,776
Vice President
</TABLE>
- ---------------
(1) Includes supplemental compensation bonuses of $115,000, $5,000, $100,000 and
$65,000 for Dr. Burrows, Ms. Morrison, Dr. Katrak and Mr. Burnett,
respectively.
(2) Other annual compensation in the form of perquisites and other personal
benefits has been omitted because the aggregate amount of such perquisites
and other personal benefits was less than $50,000 and constituted less than
10% of the executive officers' respective total annual salary and bonus.
(3) Represents contributions by the Company on behalf of the executive officer
to the Company's Savings & Retirement Plan and Trust and premiums paid by
the Company for term life insurance for the benefit of the executive
officer.
BENEFIT PLANS
1998 Incentive and Nonqualified Stock Option Plan
The Company has adopted the 1998 Incentive and Nonqualified Stock Option
Plan. A total of 970,000 shares of Common Stock are reserved for issuance under
the Option Plan. At the time of the Offering, there are outstanding under the
Option Plan options to purchase an aggregate of 345,000 shares of Common Stock
at exercise prices equal to the initial public offering price. The Option Plan
authorizes (i) the grant of options to purchase Common Stock intended to qualify
as incentive stock options ("Incentive Options"), as defined in Section 422 of
the Code and (ii) the grant of options that do not so qualify ("Nonqualified
Options"). The exercise price of Incentive Options granted under the Option Plan
must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant. The exercise price of Incentive Options granted to
an optionee who owns stock possessing more than 10% of the voting power of the
Company's outstanding capital stock must be at least equal to 110% of the fair
market value of the Common Stock on the date of grant. The exercise price of
Nonqualified Options granted under the Option Plan must be at least equal to 85%
of the fair market value of the Common Stock on the date of grant.
The Option Plan may be administered by the Board of Directors or the
Compensation Committee. Except in the case of certain formula grants to Outside
Directors described above under "Director Compensation," the Board or the
Compensation Committee selects the individuals to whom options will be granted
and determines the option exercise price and other terms of each award, subject
to the provisions of the Option Plan. Incentive Options may be granted under the
Option Plan to employees, including officers and
38
<PAGE> 40
directors who are also employees. Nonqualified Options may be granted under the
Option Plan to officers and other employees and to directors and other
individuals providing services to the Company, whether or not they are employees
of the Company. No participant in the Option Plan may be granted options to
purchase more than 150,000 shares of Common Stock in any calendar year.
1998 Employee Stock Purchase Plan
The Company has adopted the 1998 Employee Stock Purchase Plan (the "Stock
Purchase Plan"). The Stock Purchase Plan authorizes the issuance of up to an
aggregate of 243,000 shares of Common Stock to participating employees. The
Stock Purchase Plan may be administered by the Board of Directors or the
Compensation Committee.
Under the terms of the Stock Purchase Plan, all employees of the Company
(other than seasonal employees) who have completed one year of employment with
the Company and whose customary employment is more than part-time (i.e., more
than 20 hours per week and more than five months in the calendar year) are
eligible to participate in the Stock Purchase Plan. Employees who own five
percent or more of the outstanding Common Stock of the Company and directors who
are not employees are not eligible to participate in the Stock Purchase Plan.
The right to purchase Common Stock under the Stock Purchase Plan will be
made available through a series of one year offerings (each, an "Offering
Period"). On the first day of an Offering Period, the Company will grant to each
eligible employee who has elected in writing to participate in the Stock
Purchase Plan an option to purchase shares of Common Stock. The employee will be
required to authorize an amount (between one and ten percent of the employee's
base compensation) to be deducted by the Company from the employee's pay during
the Offering Period. On the last day of the Offering Period, the employee will
be deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Stock Purchase
Plan, the option exercise price is an amount equal to 85% of the fair market
value of one share of Common Stock on either the first or last day of the
Offering Period, whichever is lower.
No employee may be granted an option that would permit the employee's
rights to purchase Common Stock to accrue at a rate in excess of $25,000 of the
fair market value of the Common Stock, determined as of the date the option is
granted, in any calendar year.
The Company has made no determination as to when the first Offering Period
under the Stock Purchase Plan will commence.
Bonus Program
The Company maintains a discretionary bonus program, pursuant to which the
Company grants performance-based bonuses to its officers and other employees.
The Compensation Committee, in its discretion, determines the bonuses to be
granted to the Company's officers, and the Company's Chief Executive Officer, in
his discretion, determines the bonuses to be granted to the Company's other
employees, based upon recommendations of the various committees of officers
supervising the employees' work.
The Charles River Associates Savings & Retirement Plan and Trust
The Company maintains the Charles River Associates Savings & Retirement
Plan and Trust (the "Savings & Retirement Plan"), qualified under Section 401(a)
of the Code. All employees of the Company who are 21 years of age are eligible
to make salary reduction contributions pursuant to the Savings & Retirement
Plan, and those who have also completed at least one year of service (consisting
of at least 1,000 hours of service) are eligible to receive profit-sharing
contributions from the Company. A participant may contribute a maximum of 20% of
his or her pre-tax salary, commissions and bonuses through payroll deductions
(up to the statutorily prescribed annual limit of $10,000 in 1998) to the
Savings & Retirement Plan. The percentage elected by more highly compensated
participants may be required to be lower. The Company may make discretionary
matching contributions under the Savings & Retirement Plan on behalf of
participants whose annual rate of pay does not exceed $44,500 in an amount up to
a maximum of 4% of the
39
<PAGE> 41
participant's pre-tax salary, commissions and bonuses. The Company may also make
discretionary profit-sharing contributions on behalf of eligible participants
who have completed at least 1,000 hours of service during the fiscal year and
are employed by the Company on the last day of the fiscal year. Any
profit-sharing contribution is allocated to eligible participants as a
percentage of their total compensation (up to the statutorily prescribed maximum
of $160,000 in 1998) with a larger percentage allocated to compensation in
excess of the Social Security wage base in accordance with rules set forth in
the Code. The Company determines the level of the discretionary contributions on
an annual basis. In fiscal 1997, the Company made aggregate matching and
profit-sharing contributions of approximately $1.2 million.
40
<PAGE> 42
CERTAIN TRANSACTIONS
STOCK RESTRICTION AGREEMENT
Each person who is a stockholder of the Company before the closing of the
Offering (a "Pre-Offering Stockholder") is subject to a Stock Restriction
Agreement with the Company. The Stock Restriction Agreement prohibits each
Pre-Offering Stockholder from selling or otherwise transferring shares of Common
Stock held immediately before the Offering (collectively, "Pre-Offering Stock")
as follows: (i) in the first two years after the Offering, no Pre-Offering
Stockholder may sell any of his or her Pre-Offering Stock except in a public
offering; (ii) in the third, fourth and fifth years after the Offering, each
Pre-Offering Stockholder will be able to sell up to an aggregate of 50% of his
or her Pre-Offering Stock, less any shares previously sold in public offerings;
(iii) in the sixth and seventh years after the Offering, each Pre-Offering
Stockholder will be able to sell up to an aggregate of an additional 20% of his
or her Pre-Offering Stock; and (iv) thereafter, each Pre-Offering Stockholder
will be able to sell, in any 12-month period, an amount equal to the greater of
(A) 10% of his or her Pre-Offering Stock or (B) one-third of the Pre-Offering
Stock held by him or her at the end of the seventh year after the Offering. Upon
the death or retirement for disability of any Pre-Offering Stockholder in
accordance with the Company's policies, the foregoing restrictions will
terminate with respect to his or her Pre-Offering Stock. The Board of Directors
will have the discretion to waive any of the restrictions imposed by the Stock
Restriction Agreement.
Under the terms of the Stock Restriction Agreement, if any Pre-Offering
Stockholder shall leave the Company (other than for death or retirement for
disability in accordance with the Company's policies), the Company (i) will have
the right until the second anniversary of the Offering to repurchase up to 85%
of his or her Pre-Offering Stock, (ii) will have the right after the second
anniversary of the Offering until the fifth anniversary of the Offering to
repurchase up to 50% of his or her Pre-Offering Stock, and (iii) will have the
right after the fifth anniversary of the Offering to repurchase all of the
Pre-Offering Stock that the Pre-Offering Stockholder shall not have already
become entitled to sell. The purchase price will be equal to 70% of the fair
market value of the repurchased stock (95% in the case of Pre-Offering
Stockholders who retire after the fifth anniversary of the Offering), or, if the
Pre-Offering Stockholder shall compete with the Company, 40% of such fair market
value. The purchase price will be payable in three equal annual installments.
The Stock Restriction Agreement will terminate ten years after the Offering or
earlier with the approval of the Board of Directors of the Company.
PAYMENTS TO AFFILIATED PARTIES
The Company has made payments to Dr. Fisher, a director of the Company, and
Steven C. Salop, a former director of the Company, for their services as Outside
Experts, including for consulting services to clients and for the generation of
engagements for the Company. Each of Drs. Fisher and Salop also holds more than
five percent of the Common Stock of the Company outstanding before the Offering.
In fiscal 1995, fiscal 1996 and fiscal 1997, the Company paid Dr. Fisher an
aggregate of $459,673, $202,107 and $167,357, respectively. In fiscal 1995,
fiscal 1996 and fiscal 1997, the Company paid Dr. Salop an aggregate of
$545,658, $806,855 and $766,114, respectively. The foregoing amounts include
payments made to companies wholly owned by the respective Outside Experts.
In fiscal 1997, the Company paid Dr. Moriarty, a director and five percent
stockholder of the Company, an aggregate of $60,000 for consulting services. In
addition, the Company has made certain office space and support services
available to Cubex Inc., a company wholly owned by Dr. Moriarty. The portion of
the Company's expenses, including rent, labor costs and insurance, allocable to
the resources made available to Cubex Inc., net of reimbursements, was $22,436,
$55,275 and $69,310 in fiscal 1995, fiscal 1996 and fiscal 1997, respectively.
SALE OF STOCK
In August 1997, the Company sold 26,000 shares of Common Stock to Laurel E.
Morrison, the Chief Financial Officer, Vice President, Finance and
Administration, and Treasurer of the Company, at a purchase
41
<PAGE> 43
price of approximately $2.71 per share, which represented the fair market value
per share at that time, as determined by the Company's Board of Directors. Ms.
Morrison paid $24,000 at the time of purchase and the remainder of the purchase
price is payable in five annual installments as set forth in the stock purchase
agreement.
REPURCHASE OF STOCK
In May 1995, the Company repurchased 59,800 shares of Common Stock from
each of Dr. Fisher and Alan R. Willens, a former director of the Company, in
each case for a purchase price equal to the sum of (i) $33,695, payable in three
equal annual installments, (ii) an amount, payable in five annual installments,
equal to his pro rata portion of 25% of the Company's earnings before bonuses,
supplemental compensation and amortization of goodwill for each of fiscal 1995,
fiscal 1996, fiscal 1997, fiscal 1998 and fiscal 1999, of which the Company had
paid $36,797 as of February 20, 1998, and (iii) $2,020, paid in April 1996.
SUPPLEMENTAL COMPENSATION PROGRAM
Pursuant to the Company's supplemental compensation bonus program, the
Company paid each of Drs. Fisher and Salop $100,000 in each of fiscal 1995,
fiscal 1996 and fiscal 1997 and paid Dr. Moriarty $50,000 in each of those
years. Payments under this bonus program were discretionary and were based
primarily on the Company's cash flows. The Company does not intend to make
additional payments under this bonus program after fiscal 1997.
42
<PAGE> 44
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 20, 1998, and
as adjusted to reflect the sale by the Company and the Selling Stockholders of
the shares of Common Stock offered by this Prospectus by (i) each person known
by the Company to be the beneficial owner of more than five percent of the
Common Stock, (ii) each of the Company's directors, (iii) each of the Company's
executive officers, (iv) all directors and executive officers of the Company as
a group and (v) each Selling Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES TO BE BENEFICIALLY
PRIOR TO OFFERING(1) NUMBER OF OWNED AFTER OFFERING(1)
------------------------- SHARES TO --------------------------
NAME NUMBER PERCENT(2) BE OFFERED NUMBER PERCENT(3)
---- ---------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS, DIRECTORS AND
EXECUTIVE OFFICERS:
Franklin M. Fisher(4)(5)................. 653,588 10.0% 72,248 581,340 7.2%
James C. Burrows(4)...................... 620,256 9.5 -- 620,256 7.7
Steven C. Salop(4)(6).................... 585,000 9.0 52,000 533,000 6.6
Firoze E. Katrak(4)(7)................... 438,100 6.7 48,427 389,673 4.8
Rowland T. Moriarty(4)(8)................ 410,800 6.3 41,080 369,720 4.6
William B. Burnett(9).................... 312,000 4.8 34,488 277,512 3.4
Carl Kaysen(10).......................... 67,600 1.0 7,473 60,127 *
Laurel E. Morrison....................... 26,000 * -- 26,000 *
All directors and executive officers as a
group (7 persons)(11).................. 2,528,344 38.8% 203,716 2,324,628 28.8%
OTHER SELLING STOCKHOLDERS(12):
Richard S. Ruback........................ 312,000 4.8% 31,200 280,800 3.5%
Jagdish C. Agarwal....................... 208,000 3.2 22,993 185,007 2.3
Thomas R. Overstreet..................... 208,000 3.2 22,993 185,007 2.3
Alan R. Willens.......................... 188,188 2.9 20,803 167,385 2.1
Stanley M. Besen......................... 182,000 2.8 20,119 161,881 2.0
Michael A. Kemp.......................... 182,000 2.8 20,119 161,881 2.0
Bridger M. Mitchell...................... 182,000 2.8 20,119 161,881 2.0
Deloris R. Wright........................ 182,000 2.8 20,119 161,881 2.0
Raju Patel(13)........................... 130,000 2.0 14,370 115,630 1.4
Daniel Brand............................. 119,600 1.8 13,221 106,379 1.3
Steven R. Brenner........................ 119,600 1.8 13,221 106,379 1.3
George C. Eads........................... 119,600 1.8 13,221 106,379 1.3
W. David Montgomery...................... 119,600 1.8 13,221 106,379 1.3
Gary L. Roberts.......................... 119,600 1.8 13,221 106,379 1.3
Louis L. Wilde........................... 119,600 1.8 13,221 106,379 1.3
Stephen H. Kalos......................... 104,000 1.6 11,496 92,504 1.1
Arnold J. Lowenstein..................... 104,000 1.6 11,496 92,504 1.1
C. Christopher Maxwell................... 104,000 1.6 11,496 92,504 1.1
Robert M. Spann.......................... 104,000 1.6 11,496 92,504 1.1
John R. Woodbury......................... 104,000 1.6 11,496 92,504 1.1
Monica G. Noether........................ 98,800 1.5 10,921 87,879 1.1
Robert J. Larner and Anne M. Larner...... 89,700 1.4 9,916 79,784 *
Joen E. Greenwood........................ 88,608 1.4 9,795 78,813 *
William R. Hughes........................ 78,000 1.2 8,622 69,378 *
Gregory K. Bell.......................... 65,000 * 7,185 57,815 *
Paul R. Milgrom.......................... 52,000 * 5,200 46,800 *
Douglas R. Bohi.......................... 26,000 * 2,874 23,126 *
</TABLE>
- ---------------
* Less than one percent.
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<PAGE> 45
(1) The persons named in this table have sole voting and investment power with
respect to the shares listed, except as otherwise indicated. The inclusion
of shares listed as beneficially owned does not constitute an admission of
beneficial ownership. The description of shares owned after the Offering
assumes none of the listed stockholders will purchase additional shares in
the Offering.
(2) The total number of shares of Common Stock outstanding as of February 20,
1998 was 6,519,240.
(3) The number of shares of Common Stock deemed outstanding after the Offering
includes the additional 1,562,500 shares being offered by the Company
hereby.
(4) The address for Drs. Fisher, Burrows, Katrak and Moriarty is in care of the
Company, 200 Clarendon Street, Boston, Massachusetts 02116, and the address
for Dr. Salop is in care of the Company, Suite 700, 600 13th Street, N.W.,
Washington, D.C. 20005.
(5) Dr. Fisher is Chairman of the Board of Directors of the Company.
(6) Dr. Salop is an Outside Expert.
(7) Includes 130,000 shares of Common Stock held by Raju Patel, as to which Ms.
Patel has sole investment power and Dr. Katrak has sole voting power. Dr.
Katrak is a Vice President and director of the Company. The number of
shares to be offered by Dr. Katrak consists of 34,057 shares to be offered
by Dr. Katrak and 14,370 shares to be offered by Raju Patel.
(8) Dr. Moriarty is Vice Chairman of the Board of Directors of the Company and
Chairman of the Board of Managers and a member of NeuCo.
(9) Mr. Burnett is a Vice President and director of the Company.
(10) Dr. Kaysen is a director of the Company.
(11) See notes 5, 6 and 8 through 12.
(12) With the following exceptions, the persons listed under "Other Selling
Stockholders" are employees of the Company: Richard S. Ruback and Paul R.
Milgrom are Outside Experts; Alan R. Willens is a former director of the
Company; and Raju Patel is not an employee of the Company.
(13) Represents shares of Common Stock as to which Ms. Patel has sole investment
power and Dr. Katrak has sole voting power.
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of common stock, without par value (the "Common Stock"), and 1,000,000 shares of
preferred stock, without par value (the "Preferred Stock"). As of February 20,
1998, there were 6,519,240 shares of Common Stock outstanding and held of record
by 36 stockholders, and no shares of Preferred Stock outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to the holders of outstanding Preferred
Stock, if any, the holders of Common Stock are entitled to receive such lawful
dividends as may be declared by the Board of Directors. In the event of a
liquidation, dissolution or winding up of the affairs of the Company, whether
voluntary or involuntary, and subject to the rights of the holders of
outstanding Preferred Stock, if any, the holders of Common Stock will be
entitled to receive pro rata all of the remaining assets of the Company
available for distribution to its stockholders. The Common Stock has no
preemptive, redemption, conversion or subscription rights. All outstanding
shares of Common Stock are fully paid and non-assessable, except for certain
installments not yet due and payable by certain stockholders of the Company. As
of February 20, 1998, the aggregate amount of future installments receivable by
the Company was $1.1 million. The shares of Common Stock to be issued by the
Company in the Offering will be fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by Massachusetts law, to provide for the issuance of Preferred Stock in one or
more series, to establish from time to time the number of shares to be included
in each series and to fix the preferences, voting powers, qualifications, and
special or relative rights or privileges thereof. The Board of Directors is
authorized to issue Preferred Stock with voting, conversion, and other rights
and preferences that could adversely affect the voting power or other rights of
the holders of Common Stock. Although the Company has no current plans to issue
any Preferred Stock, the issuance of Preferred Stock or of rights to purchase
Preferred Stock could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire, a
majority of the outstanding voting stock of the Company.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S AMENDED AND RESTATED
ARTICLES OF ORGANIZATION AND AMENDED AND RESTATED BY-LAWS AND OF MASSACHUSETTS
LAW
The Company's Amended and Restated Articles of Organization (the
"Articles") and Amended and Restated By-Laws (the "By-Laws") and Massachusetts
law contain certain provisions that could be deemed to have anti-takeover
effects and that could discourage, delay or prevent a change in control of the
Company or an acquisition of the Company at a price which many stockholders may
find attractive. These provisions may also discourage proxy contests and make it
more difficult for stockholders of the Company to effect certain corporate
actions, including the election of directors. The existence of these provisions
could limit the price that investors might be willing to pay in the future for
shares of Common Stock.
Articles and By-Laws
The By-Laws provide that nominations for directors may not be made by
stockholders at any annual or special meeting thereof unless the stockholder
intending to make a nomination notifies the Company of the nomination a
specified number of days in advance of the meeting and furnishes to the Company
certain information regarding such stockholder and the intended nominee. The
By-Laws also require advance notice of any proposal to be brought by a
stockholder before any annual or special meeting of stockholders and the
provision of certain information to the Company regarding such stockholder and
others known to support the proposal and any material interest they may have in
the proposal.
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<PAGE> 47
The By-Laws require the Company to call a special meeting of stockholders
only at the request of stockholders holding at least 40% of the voting power of
the Company. The provisions in the By-Laws pertaining to stockholders and
directors (including the provisions described above pertaining to nominations
and the presentation of business before a meeting of the stockholders) may not
be amended and no provision inconsistent therewith may be adopted without the
approval of either the Board of Directors or the holders of at least 80% of the
voting power of the Company.
The Articles provide that certain transactions, such as the sale, lease or
exchange of all or substantially all of the Company's property and assets and
the merger or consolidation of the Company into or with any other corporation,
may be authorized by the approval of the holders of a majority of the shares of
each class of stock entitled to vote thereon, rather than by two-thirds as
otherwise provided by statute, provided that the transaction has been authorized
by a majority of the members of the Board of Directors and the requirements of
any other applicable provisions of the Articles have been met.
The Articles contain a "fair price" provision (the "Fair Price Provision")
that provides that certain Business Combinations with any Interested Stockholder
(as each such term is defined in the Fair Price Provision) may not be
consummated without the approval of the holders of at least 80% of the voting
power of the Company, unless approved by at least a majority of the
Disinterested Directors (as defined in the Fair Price Provision) or unless
certain minimum price and procedural requirements are met. A significant purpose
of the Fair Price Provision is to deter a purchaser from using two-tiered
pricing and similar unfair or discriminatory tactics in an attempt to acquire
control of the Company. The affirmative vote of the holders of 80% of the voting
power of the Company is required to amend or repeal the Fair Price Provision or
adopt any provision inconsistent with it.
Massachusetts Law
Following the Offering, the Company expects that it will have more than 200
stockholders, as a result of which it will be subject to the provisions of
Chapter 110F of the Massachusetts General Laws, an anti-takeover law. In
general, this statute prohibits a publicly held Massachusetts corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless either (i) prior to that date, the
Board of Directors approved either the business combination or the transaction
in which the person became an interested stockholder, (ii) the interested
stockholder acquires 90% of the outstanding voting stock of the corporation
(excluding shares held by certain affiliates of the corporation) at the time it
becomes an interested stockholder or (iii) the business combination is approved
by the Board of Directors and by the holders of two-thirds of the outstanding
voting stock of the corporation (excluding shares held by the interested
stockholder) voting at a meeting. In general, an "interested stockholder" is a
person who owns 5% (15% in the case of a person eligible to file a Schedule 13G
under the Securities Act with respect to the Common Stock) or more of the
outstanding voting stock of the corporation or who is an affiliate or associate
of the corporation and was the owner of 5% (15% in the case of a person eligible
to file a Schedule 13G under the Securities Act with respect to the Common
Stock) or more of the outstanding voting stock within the prior three years. A
"business combination" includes mergers, consolidations, stock and asset sales,
and other transactions with the interested stockholder resulting in a financial
benefit (except proportionately as a stockholder of the corporation) to the
interested stockholder. The Company may at any time amend its Articles or
By-Laws to elect not to be governed by Chapter 110F by a vote of the holders of
a majority of its voting stock. Such an amendment would not be effective for
twelve months and would not apply to a business combination with any person who
became an interested stockholder prior to the date of the amendment.
Upon the closing of the Offering, the Company will be subject to Section
50A of Chapter 156B of the Massachusetts General Laws, which requires that any
publicly held Massachusetts corporation have a classified (staggered) Board of
Directors unless the corporation opts out of the statute's coverage. The Company
has elected not to opt out of the statute's coverage. Section 50A requires that
the classified board consist of three classes as nearly equal in size as
possible and provides that directors may be removed only for cause, as defined
in the statute. See "Management--Executive Officers and Directors."
46
<PAGE> 48
The By-Laws include a provision that excludes the Company from the
applicability of Chapter 110D of the Massachusetts General Laws, entitled
"Regulation of Control Share Acquisitions." In general, this statute provides
that any stockholder who acquires 20% or more of the outstanding voting stock of
a corporation subject to this statute may not vote that stock unless the
disinterested stockholders of the corporation so authorize. In addition, Chapter
110D permits a corporation to provide in its articles of organization or by-laws
that the corporation may redeem (for fair value) all of the shares acquired in a
control share acquisition if the interested stockholder does not deliver a
control share acquisition statement or if the interested stockholder delivers a
control share acquisition statement but the stockholders of the corporation do
not authorize voting rights for those shares. The Board of Directors may amend
the By-Laws at any time to subject the Company to this statute prospectively.
Under Section 43 of Chapter 156B of the Massachusetts General Laws, any
action taken by written consent of the stockholders requires the unanimous
written consent of the stockholders entitled to vote on the matter.
LIMITATION OF LIABILITY
The Company's Articles provide that no director of the Company shall be
personally liable to the Company or to its stockholders for monetary damages for
breach of fiduciary duty as a director, except that the limitation shall not
eliminate or limit liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 61 or 62 of Chapter 156B of the Massachusetts General
Laws, dealing with liability for unauthorized distributions and loans to
insiders, respectively, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Company's Articles and By-Laws further provide for the indemnification
of the Company's directors and officers to the fullest extent permitted by
Section 67 of Chapter 156B of the Massachusetts General Laws, including
circumstances in which indemnification is otherwise discretionary.
A principal effect of these provisions is to limit or eliminate the
potential liability of the Company's directors for monetary damages arising from
breaches of their duty of care, unless the breach involves one of the four
exceptions described in (i) through (iv) above. These provisions may also shield
directors from liability under federal and state securities laws.
STOCK TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Boston EquiServe,
L.P.
47
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have 8,081,740 shares of
Common Stock outstanding. Of these shares, the 2,188,000 shares of Common Stock
sold in the Offering will be freely tradeable in the public market without
restriction under the Securities Act, unless they are purchased by an
"affiliate" of the Company (as that term is defined in Rule 144 under the
Securities Act ("Rule 144")), who would generally be able to sell such shares
only in accordance with Rule 144. The remaining 5,893,740 shares will be
"restricted securities" as defined in Rule 144 (the "Restricted Shares").
Restricted securities generally may be sold in the public market only if they
are registered under the Securities Act or sold in compliance with Rule 144. The
Restricted Shares are subject to lock-up agreements pursuant to which they may
not be sold or transferred without the prior written consent of NationsBanc
Montgomery Securities LLC for a period of 180 days after the date of this
Prospectus. See "Underwriting." The Restricted Shares are also subject to the
Stock Restriction Agreement, which prohibits the sale or other transfer of
Restricted Shares without the consent of the Board of Directors for a period of
two years after the Offering and imposes other restrictions on sale in
subsequent years. See "Certain Transactions--Stock Restriction Agreement."
SALES OF RESTRICTED SHARES
All of the Restricted Shares are subject to the lock-up agreements
described below and, following the expiration of the lock-up period (or earlier
with the consent of the Representatives in certain cases), approximately
3,081,630 shares will be eligible for sale under Rule 144(k) and approximately
an additional 2,447,880 shares will be eligible for sale subject to the
restrictions of Rule 144.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), who has beneficially owned Restricted Shares for
at least one year is entitled to sell, within any three-month period, a number
of Restricted Shares that does not exceed the greater of (i) 1% of the
then-outstanding number of shares of Common Stock (approximately 80,800 shares,
based on the number of shares to be outstanding after the Offering) or (ii) the
average weekly trading volume of the Common Stock in the public market during
the four calendar weeks preceding the filing of the seller's Form 144, provided
that certain requirements concerning the availability of public information
concerning the Company, manner of sale and notice of sale are satisfied. A
person who is not an affiliate of the Company, has not been an affiliate within
three months prior to the sale and has beneficially owned the Restricted Shares
for at least two years is entitled to sell those Restricted Shares under Rule
144(k) without regard to the limitations described above. Rule 144 also provides
that affiliates of the Company who are selling shares of Common Stock that are
not Restricted Shares must nonetheless comply with the same restrictions
applicable to Restricted Shares with the exception of the holding-period
requirement. The one-year and two-year holding periods described above do not
begin to run until the full purchase price or other consideration is paid by the
person acquiring the Restricted Shares from the Company or an affiliate of the
Company and, in certain cases, may include the holding period of a prior owner.
Rule 144A under the Securities Act permits current holders of Restricted
Shares to sell, subject to certain conditions, all or a portion of their shares
to certain "qualified institutional buyers," as defined in Rule 144A.
OPTIONS
Any employee or director of or consultant to the Company who, prior to the
effective date of the registration statement of which this Prospectus forms a
part, was granted options to purchase shares of Common Stock pursuant to Rule
701 will be entitled to rely on the resale provision of Rule 701 with respect to
shares of Common Stock acquired upon exercise of such options ("Rule 701
Shares"). This resale provision permits non-affiliates to sell Rule 701 Shares
without having to comply with the public information, holding-period,
volume-limitation or notice requirements of Rule 144 and permits affiliates to
sell Rule 701 Shares without having to comply with the holding-period
requirement of Rule 144, in each case commencing 90 days after such effective
date.
48
<PAGE> 50
As soon as practicable after the date of this Prospectus, the Company
intends to file registration statements on Form S-8 under the Securities Act to
register all shares of Common Stock issuable under the Option Plan and the Stock
Purchase Plan. See "Management--Benefit Plans." The Company expects that those
registration statements will become effective immediately upon filing. Shares
covered by either registration statement will be eligible for sale in the public
market after the effective date of the applicable registration statement,
subject to Rule 144 limitations applicable to affiliates and to the lock-up
agreements described below, if applicable.
LOCK-UP AGREEMENTS; STOCK RESTRICTION AGREEMENT
The directors and executive officers of the Company and the holders of the
Restricted Shares have agreed that, subject to certain exceptions, for a period
of 180 days after the date of this Prospectus, they will not, without the prior
written consent of NationsBanc Montgomery Securities LLC, directly or
indirectly, sell, offer, contract or grant any option to sell, pledge, transfer,
establish an open put equivalent position or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable or exercisable for or convertible into shares of Common
Stock. See "Underwriting." In addition to the foregoing lock-up agreements, each
existing stockholder of the Company has agreed that he or she will not sell or
otherwise transfer any Restricted Shares without the consent of the Board of
Directors for a period of two years after the Offering except in a public
offering. In subsequent years, holders of Restricted Shares will be entitled to
sell limited portions of their Restricted Shares as described in "Certain
Transactions--Stock Restriction Agreement." The Board of Directors may consent
to the sale or transfer of any or all of the Restricted Shares at any time,
subject to the restrictions of the lock-up agreements.
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Common Stock
of the Company. No prediction can be made as to the effect, if any, that sales
of shares of Common Stock in the public market, or the perception that such
sales could occur, will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial numbers of shares of Common Stock in the
public market could materially adversely affect the market price of the Common
Stock and could impair the Company's ability to raise capital through a sale of
its equity securities. See "Risk Factors--Shares Eligible for Future Sale;
Possible Adverse Effect on Market Price."
49
<PAGE> 51
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC and William Blair & Company, L.L.C. (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the aggregate number of shares of Common Stock indicated
below opposite their respective names at the initial public offering price less
the underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
NationsBanc Montgomery Securities LLC.......................
William Blair & Company, L.L.C..............................
---------
Total............................................. 2,188,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the Common Stock to the public
on the terms set forth on the cover page of this Prospectus. The Underwriters
may allow selected dealers a concession of not more than $ per share;
and the Underwriters may allow, and such dealers may reallow, a concession of
not more than $ per share to certain other dealers. After the Offering,
the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.
The Company and the Selling Stockholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 328,200 additional shares of Common
Stock in the aggregate to cover over-allotments, if any, at the same price per
share as the initial shares to be purchased by the Underwriters. To the extent
the Underwriters exercise this option, each of the Underwriters will be
committed, subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the Offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
At the request of the Company, the Underwriters have reserved for sale to
certain employees of the Company and certain other persons, at the initial
public offering price, up to 109,400 of the shares of Common Stock offered
hereby. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as the other shares offered hereby.
All of the Company's stockholders have agreed that, subject to certain
exceptions, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of NationsBanc Montgomery Securities
LLC, directly or indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer, establish an open put equivalent position or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable or exercisable for or convertible into shares
of Common Stock. In addition, subject to certain exceptions, the Company has
agreed that, for a period of 180 days after the date of this Prospectus, it will
not, without the prior written consent of NationsBanc Montgomery Securities LLC,
directly or indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer, establish an open put equivalent position or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock, or securities exchangeable or exercisable for or convertible into shares
of Common Stock.
50
<PAGE> 52
The Underwriters are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock. If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above. In addition, the
Representatives may impose "penalty bids" under contractual arrangements with
the Underwriters whereby they may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to the Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market.
In general, purchases of Common Stock for the purpose of stabilization or
to reduce a short position could cause the price of the Common Stock to be
higher than it might be in the absence of such purchases. None of the Company,
the Selling Stockholders and the Underwriters makes any representation or
predictions as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, none of
the Company, the Selling Stockholders and the Underwriters makes any
representation that the Representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Representatives have informed the Company and the Selling Stockholders
that the Underwriters do not expect to make sales of Common Stock offered by
this Prospectus to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in such negotiations will be
the history of, and the prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, its past and present
earnings and the trend of such earnings, the prospects for future earnings of
the Company, the present state of the Company's business, the general condition
of the securities markets at the time of the Offering and the market prices of
publicly traded stock of comparable companies in recent periods.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Foley, Hoag & Eliot LLP,
Boston, Massachusetts. Certain legal matters will be passed upon for the
Underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company at November 30, 1996
and November 29, 1997, and for each of the fiscal years in the three-year period
ended November 29, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing herein and in the Registration Statement and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
CHANGE IN INDEPENDENT AUDITORS
On January 29, 1998, the Board of Directors, upon the recommendation of the
Audit Committee, authorized the Company to retain Ernst & Young LLP as its
independent auditors and dismissed the Company's former independent auditors.
The consolidated financial statements of the Company at November 30, 1996 and
November 29, 1997, and for each of the fiscal years in the three-year period
ended November 29, 1997, appearing elsewhere in this Prospectus, were audited by
Ernst & Young LLP and its
51
<PAGE> 53
report is included herein. The report of the Company's former independent
auditors on the financial statements of the Company at November 30, 1996 and for
each of the fiscal years in the two-year period ended November 30, 1996
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or application of accounting principles.
During the fiscal years in the three-year period ended November 29, 1997 and the
subsequent interim period up to and including the date of dismissal, the Company
had no disagreements with its former independent auditors on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure related to the financial statements on which the former
independent auditors reported, which, if not resolved to the satisfaction of the
former independent auditors, would have caused it to make reference to the
subject matter of the disagreement in connection with its report. The Company
did not consult with Ernst & Young LLP during fiscal 1996, fiscal 1997 or any
subsequent period prior to retaining Ernst & Young LLP regarding the application
of accounting principles to any transaction or the type of audit opinion that
might be rendered on the Company's financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (including all amendments
thereto, the "Registration Statement") under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules filed as a part thereof. Statements contained in this Prospectus
as to the contents of any contract or any other document referred to contain the
information required to be disclosed in this Prospectus pursuant to the
Securities Act and the rules and regulations thereunder, and, in each instance,
if the contract or document is filed as an exhibit, reference is made to the
copy of the contract or document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by reference to the
exhibit. The Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Regional Offices of the Commission at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade
Center, Thirteenth Floor, New York, New York 10048. Copies may also be obtained
from the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. The
Commission also maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants, such as the Company, that make electronic filings with the
Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and a report thereon provided by
independent certified public accountants, and to make available to its
stockholders quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
52
<PAGE> 54
CHARLES RIVER ASSOCIATES INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended November 29, 1997,
November 30, 1996 and November 25, 1995
Quarters ended February 20, 1998
and February 21, 1997 (Unaudited)
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... 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> 55
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CHARLES RIVER ASSOCIATES INCORPORATED
We have audited the accompanying consolidated balance sheets of Charles River
Associates Incorporated (the "Company") as of November 29, 1997 and November 30,
1996, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended November 29,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Charles River
Associates Incorporated as of November 29, 1997 and November 30, 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended November 29, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 25, 1998
F-2
<PAGE> 56
CHARLES RIVER ASSOCIATES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NOVEMBER 30, NOVEMBER 29, FEBRUARY 20, FEBRUARY 20,
1996 1997 1998 1998
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 1,434 $ 2,054 $ 6,988 $ 485
Accounts receivable, net of allowances of
$578 in 1996 and $394 in 1997 and $430
in 1998 for doubtful accounts.......... 7,361 10,140 7,653 7,653
Unbilled services......................... 4,856 4,731 5,216 5,216
Prepaid expenses.......................... 224 280 476 476
------- ------- ------- -------
Total current assets........................ 13,875 17,205 20,333 13,830
Property and equipment, net................. 1,321 2,890 2,897 2,897
Other assets................................ 272 340 598 598
------- ------- ------- -------
Total assets................................ $15,468 $20,435 $23,828 $17,325
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 925 $ 902 $ 1,244 $ 1,244
Accrued expenses.......................... 4,265 5,729 8,495 8,495
Deferred revenue.......................... 636 225 250 250
Current portions of notes payable to
former stockholders and capital lease
obligations............................ 262 325 323 323
Dividends payable......................... 800 1,764 260 260
Deferred income taxes..................... 433 528 203 1,422
------- ------- ------- -------
Total current liabilities................... 7,321 9,473 10,775 11,994
Notes payable to former stockholders, net of
current portion........................... 428 707 707 707
Capital lease obligations, net of current
portion................................... 122 74 66 66
Deferred rent............................... 1,395 1,302 1,467 1,467
Minority interest........................... -- 343 291 291
Commitments and contingencies
Stockholders' equity:
Common Stock (voting); no par value;
25,000,000 shares authorized; 6,228,040
shares in 1996 and 6,519,240 shares in
1997 and 1998 issued................... 902 1,977 1,977 1,977
Retained earnings......................... 5,989 7,770 9,645 1,923
------- ------- ------- -------
6,891 9,747 11,622 3,900
Notes receivable from stockholders.......... (660) (1,211) (1,100) (1,100)
Treasury stock (15,600 shares in 1996, at
cost)..................................... (29) -- -- --
------- ------- ------- -------
Total stockholders' equity.................. 6,202 8,536 10,522 2,800
------- ------- ------- -------
Total liabilities and stockholders'
equity.................................... $15,468 $20,435 $23,328 $17,325
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 57
CHARLES RIVER ASSOCIATES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED QUARTER ENDED
------------------------------------------ ---------------------------
NOVEMBER 25, NOVEMBER 30, NOVEMBER 29, FEBRUARY 21, FEBRUARY 20,
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(53 WEEKS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................ $31,839 $37,367 $44,805 $ 9,648 $11,137
Costs of services................... 19,760 23,370 28,374 6,106 6,486
Supplemental compensation........... 1,212 1,200 1,233 280 --
------- ------- ------- ------- -------
Gross profit........................ 10,867 12,797 15,198 3,262 4,651
General and administrative.......... 8,397 9,060 10,509 2,134 2,754
------- ------- ------- ------- -------
Income from operations.............. 2,470 3,737 4,689 1,128 1,897
Interest income, net................ 118 124 302 9 46
------- ------- ------- ------- -------
Income before provision for income
taxes and minority interest....... 2,588 3,861 4,991 1,137 1,943
Provision for income taxes.......... (174) (273) (306) (76) (120)
------- ------- ------- ------- -------
Net income before minority
interest.......................... 2,414 3,588 4,685 1,061 1,823
Minority interest................... -- -- 282 -- 52
------- ------- ------- ------- -------
Net income.......................... $ 2,414 $ 3,588 $ 4,967 $ 1,061 $ 1,875
======= ======= ======= ======= =======
Basic and diluted net income per
share............................. $0.40 $0.59 $0.78 $0.17 $0.29
======= ======= ======= ======= =======
Weighted average number of common
shares............................ 5,987,384 6,091,384 6,355,873 6,212,440 6,519,240
========= ========= ========= ========= =========
Pro forma income data (unaudited):
Net income as reported............ $ 4,967 $1,875
Pro forma adjustment.............. (1,833) (694)
------- ------
Pro forma net income.............. $ 3,134 $1,181
======= ======
Pro forma net income per share.... $0.48 $0.18
===== =====
Weighted average number of common
shares......................... 6,505,873 6,669,240
========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 58
CHARLES RIVER ASSOCIATES INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------------------------
CLASS A CLASS B SINGLE CLASS
------------------- ----------------- ------------------ ADDITIONAL
SHARES SHARES SHARES PAID-IN RETAINED
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT CAPITAL EARNINGS
---------- ------ -------- ------ --------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 26, 1994........... 5,598,840 $325 490,360 $46 -- -- $ 82 $2,280
Net income............................ 2,414
Issuance of Class A Common Stock...... 36,400 51
Purchase of treasury stock............
Sale of treasury stock................ (14)
Retirement of treasury stock.......... (128,960) (12) (24)
Conversion to single class of common
stock............................... (5,635,240) (376) (361,400) (34) 5,996,640 $ 410
Distributions to stockholders......... (778)
Collection on notes receivable........
---------- ---- -------- --- --------- ------ ---- ------
BALANCE AT NOVEMBER 25, 1995........... -- -- -- -- 5,996,640 410 44 3,916
Net income (53 weeks)................. 3,588
Issuance of Common Stock.............. 257,400 495
Purchase of treasury stock............ (22)
Sale of treasury stock................ 87
Adjustments to purchase price of
treasury stock...................... (93) (19)
Retirement of treasury stock.......... (26,000) (3) (16)
Distributions to stockholders......... (1,496)
Collection on notes receivable........
---------- ---- -------- --- --------- ------ ---- ------
BALANCE AT NOVEMBER 30, 1996........... -- -- -- -- 6,228,040 902 -- 5,989
Net income............................ 4,967
Issuance of Common Stock.............. 400,400 1,085
Distributions to stockholders......... (2,600)
Collection on notes receivable from
stockholders........................
Purchase of treasury stock............
Adjustment to purchase price of
treasury stock...................... (220)
Sale of treasury stock................
Retirement of treasury stock.......... (109,200) (10) (366)
Accrued interest on notes receivable
from stockholders...................
---------- ---- -------- --- --------- ------ ---- ------
BALANCE AT NOVEMBER 29, 1997........... -- -- -- -- 6,519,240 1,977 -- 7,770
Net income............................ 1,875
Collection on notes receivable from
stockholders........................
---------- ---- -------- --- --------- ------ ---- ------
BALANCE AT FEBRUARY 20, 1998
(UNAUDITED)........................... -- -- -- -- 6,519,240 $1,977 -- $9,645
========== ==== ======== === ========= ====== ==== ======
<CAPTION>
TREASURY STOCK
------------------------------------------------------------
CLASS A CLASS B SINGLE CLASS
------------------ ------------------ ------------------ TOTAL
NOTES STOCKHOLDERS'
RECEIVABLE SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EQUITY
---------- -------- ------- -------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 26, 1994........... -- -- -- (128,960) $(36) -- -- $ 2,697
Net income............................ 2,414
Issuance of Class A Common Stock...... 51
Purchase of treasury stock............ (119,600) $(182) (182)
Sale of treasury stock................ $ (110) 119,600 182 58
Retirement of treasury stock.......... 128,960 36 --
Conversion to single class of common
stock............................... --
Distributions to stockholders......... (778)
Collection on notes receivable........ 22 22
------- -------- ----- -------- ---- -------- ----- -------
BALANCE AT NOVEMBER 25, 1995........... (88) -- -- -- -- -- -- 4,282
Net income (53 weeks)................. 3,588
Issuance of Common Stock.............. (254) 241
Purchase of treasury stock............ (228,800) $(390) (412)
Sale of treasury stock................ (322) 187,200 342 107
Adjustments to purchase price of
treasury stock...................... (112)
Retirement of treasury stock.......... 26,000 19 --
Distributions to stockholders......... (1,496)
Collection on notes receivable........ 4 4
------- -------- ----- -------- ---- -------- ----- -------
BALANCE AT NOVEMBER 30, 1996........... (660) -- -- -- -- (15,600) (29) 6,202
Net income............................ 4,967
Issuance of Common Stock.............. (715) 370
Distributions to stockholders......... (2,600)
Collection on notes receivable from
stockholders........................ 264 264
Purchase of treasury stock............ (119,600) (444) (444)
Adjustment to purchase price of
treasury stock...................... (220)
Sale of treasury stock................ (58) 26,000 97 39
Retirement of treasury stock.......... 109,200 376 --
Accrued interest on notes receivable
from stockholders................... (42) (42)
------- -------- ----- -------- ---- -------- ----- -------
BALANCE AT NOVEMBER 29, 1997........... (1,211) -- -- -- -- -- -- 8,536
Net income............................ 1,875
Collection on notes receivable from
stockholders........................ 111 111
------- -------- ----- -------- ---- -------- ----- -------
BALANCE AT FEBRUARY 20, 1998
(UNAUDITED)........................... $(1,100) -- -- -- -- -- -- $10,522
======= ======== ===== ======== ==== ======== ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 59
CHARLES RIVER ASSOCIATES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED QUARTER ENDED
------------------------------------------ ---------------------------
NOVEMBER 25, NOVEMBER 30, NOVEMBER 29, FEBRUARY 21, FEBRUARY 20,
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(53 WEEKS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income......................... $2,414 $3,588 $4,967 $1,061 $1,875
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization.... 440 486 727 122 240
Deferred rent.................... 209 7 (93) (144) 165
Deferred income taxes............ 56 127 95 61 (325)
Stock bonuses.................... 51 68 -- -- --
Minority interest................ -- -- (282) -- (52)
Changes in operating assets and
liabilities:
Accounts receivable.............. (485) (1,121) (2,779) 193 2,487
Unbilled services................ (976) (1,491) 125 903 (485)
Prepaid expenses and other....... (41) (122) (172) (239) (458)
Accounts payable and accrued
expenses....................... (229) 676 1,030 1,750 3,133
------ ------ ------ ------ ------
Net cash provided by operating
activities......................... 1,439 2,218 3,618 3,707 6,580
Investing activities:
Purchases of property and
equipment........................ (400) (774) (2,290) (279) (243)
Sale (purchase) of short-term
investments...................... (298) 298 -- -- --
------ ------ ------ ------ ------
Net cash used in investing
activities......................... (698) (476) (2,290) (279) (243)
Financing activities:
Payments on notes payable to former
shareholders and capital lease
obligations...................... (86) (96) (370) (15) (10)
Purchase of treasury stock......... -- (19) -- -- --
Issuance of common stock........... -- 172 370 -- --
Sale of treasury stock............. 58 107 39 -- --
Collection of notes receivable from
stockholders..................... 22 4 264 54 111
Dividends paid..................... (245) (1,474) (1,636) (588) (1,504)
Proceeds from minority interest.... -- -- 625 -- --
------ ------ ------ ------ ------
Net cash used in financing
activities......................... (251) (1,306) (708) (549) (1,403)
Net increase in cash and cash
equivalents........................ 490 436 620 2,879 4,934
Cash and cash equivalents at
beginning of year.................. 508 998 1,434 1,434 2,054
------ ------ ------ ------ ------
Cash and cash equivalents at end of
year............................... $ 998 $1,434 $2,054 $4,313 $6,988
====== ====== ====== ====== ======
Supplemental cash flow information:
Cash paid for income taxes......... $29 $120 $275 -- $18
=== ==== ==== ===
Notes receivable in exchange for
common stock....................... $110 $576 $773 -- --
==== ==== ====
Notes payable in exchange for
treasury stock..................... $182 $412 $444 -- --
==== ==== ====
</TABLE>
See accompanying notes.
F-6
<PAGE> 60
CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Charles River Associates Incorporated (the "Company") is an economic and
business consulting firm that applies advanced analytical techniques and
in-depth industry knowledge to complex engagements for a broad range of
clients. The Company offers two types of services: legal and regulatory
consulting and business consulting.
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.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of February 20, 1998 and the consolidated
statements of income, stockholders' equity and cash flows for the quarters
ended February 20, 1998 and February 21, 1997 are unaudited and in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Company's
consolidated financial position, results of operations and cash flows.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday in November. The fiscal
year ended November 30, 1996 consisted of 53 weeks; the fiscal years ended
November 25, 1995 and November 29, 1997 consisted of 52 weeks.
REVENUE RECOGNITION
Revenues from most engagements are recognized as services are provided
based upon hours worked and contractually agreed-upon hourly rates. The
Company's revenues also include expenses billed to clients, which include
travel and other out-of-pocket expenses, charges for support staff and
outside contractors and other reimbursable expenses. An allowance is
provided for any amounts considered uncollectible.
Unbilled services represent balances accrued by the Company for services
performed but not yet billed to the client.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist principally of money-market funds, commercial
paper, bankers' acceptances and certificates of deposit with maturities
when purchased of 90 days or less. Short-term investments consist of
commercial paper and certificates of deposit with maturities when purchased
of more than 90 days but less than one year.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The Company provides for
depreciation of equipment using the straight-line method over its estimated
useful life, generally three to five years. Amortization of
F-7
<PAGE> 61
CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
leasehold improvements is provided using the straight-line method over the
shorter of the lease term or the estimated useful life of the leasehold
improvements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and NeuCo LLC, a limited liability company founded by the Company and an
affiliate of Commonwealth Energy Systems in June 1997. The Company has a
50.1% interest in NeuCo LLC. The portion of the results of operations of
NeuCo LLC allocable to its minority owners is shown as "minority interest"
in the Company's statement of income for fiscal 1997 and that amount along
with the capital contributions to NeuCo LLC of its minority interest owners
is shown as "minority interest" on the Company's balance sheet as of
November 29, 1997. All significant intercompany accounts have been
eliminated.
CONCENTRATION OF CREDIT RISK
The Company's accounts receivable base consists of a broad range of clients
in a variety of industries located throughout the United States and in
certain other countries The Company performs a credit evaluation of each of
its clients to minimize its collectibility risk. Historically, the Company
has not experienced significant write-offs. In fiscal 1995, one client
accounted for approximately 11% of the Company's revenues.
The Company provides an allowance for doubtful accounts to provide for
potentially uncollectible amounts. Activity in the accounts is as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------ QUARTER ENDED
NOVEMBER 25, NOVEMBER 30, NOVEMBER 29, FEBRUARY 20,
1995 1996 1997 1998
------------ ------------ ------------ -------------
(53 WEEKS) (UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of period $370 $207 $578 $394
Charge to cost and expenses 13 412 -- 36
Amounts written off (176) (41) (184) --
---- ---- ---- ----
Balance at end of period $207 $578 $394 $430
==== ==== ==== ====
</TABLE>
DEFERRED REVENUE
Deferred revenue represents amounts paid to the Company in advance of
services rendered.
INCOME TAXES
Since fiscal 1988, the Company has been treated for federal and state
income tax purposes as an S corporation under the Internal Revenue Code of
1986, as amended (the "Code"). As a result, the Company's stockholders,
rather than the Company, have been and are required to pay federal and
certain state income taxes based on the Company's taxable earnings. The
Company files its returns using the cash method of accounting. Upon closing
of the proposed initial public offering of common stock, the Company's
status as an S corporation will terminate and thereafter, it will be
subject to corporate taxation as a C corporation under the Code.
Concurrently with the termination of the Company's status as an S
corporation, the Company will adopt the accrual method of accounting. A pro
forma provision for income taxes has been presented as if the Company had
been taxed as a C corporation for the fiscal year ended November 29, 1997
and the quarter ended February 20, 1998. For that period, Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109) was used to calculate
F-8
<PAGE> 62
CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
pro forma income taxes and the pro forma effect of the termination of the
Company's S corporation status on deferred income taxes.
Under the asset and liability method of Statement 109, the Company must
recognize deferred tax assets and liabilities to reflect the future tax
consequences attributable to differences between the consolidated 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 of a change in tax rates on deferred tax assets and liabilities
is recognized in income in the period that includes the date on which the
change in the tax rate occurs.
At the time of the termination of the Company's status as an S corporation,
the Company will record a net deferred income tax liability and a one-time
additional provision for income taxes. The amounts to be recorded will
depend upon differences between the financial reporting and tax bases of
the Company's assets and liabilities at the time. If the Company's S
corporation status had been terminated as of February 20, 1998, the net
deferred income tax liability would have increased by approximately $1.2
million to approximately $1.4 million. (See Note 11)
IMPAIRMENT OF LONG-LIVED ASSETS
In the first quarter of 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which
establishes criteria for the recognition and measurement of impairment
losses associated with long-lived assets. The adoption of this standard had
no impact on the Company's consolidated financial statements.
NET INCOME PER SHARE AND PRO FORMA NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. Pursuant to the previous requirements of the
Securities and Exchange Commission (SEC), common shares and common share
equivalents issued by the Company during the twelve-month period prior to
the initial public offering of the Company's common stock would have been
included in the calculations as if they were outstanding for all periods
prior to the offering whether or not they were anti-dilutive. In February
1998, the SEC issued Staff Accounting Bulletin 98 which, among other
things, conformed prior SEC requirements to Statement 128 and eliminated
inclusion of such shares in the computation of earnings per share.
Pro forma net income per share is computed using pro forma net income and
the pro forma weighted average number of shares of common stock. The
weighted average number of shares of common stock for the purpose of
computing pro forma net income per share has been increased by the number
of shares that would be required to pay a dividend in the amount of $2.4
million (assuming an initial public offering price of $16.00 per share)
that is expected to be paid upon the completion of the initial public
offering.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." Both SFAS No. 130 and SFAS No. 131 are effective for
fiscal years beginning after December 15, 1997. The
F-9
<PAGE> 63
CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company believes that the adoption of these new accounting standards will
not have a material impact on the Company's consolidated financial
statements.
In December 1997, The Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued a Statement of
Position (SOP), "Reporting on the Costs of Start-up Activities," which will
require companies upon adoption to expense start-up costs, including
organization costs, as incurred. In addition, the SOP will require
companies upon adoption to write off as a cumulative change in accounting
principle any previously recorded start-up or organization costs. The SOP
is effective for fiscal years beginning after December 15, 1998. At
February 20, 1998, the Company had deferred start-up costs of $59,000. The
Company believes that the adoption of this SOP will not have a material
impact on the Company's consolidated financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, NOVEMBER 29, FEBRUARY 20,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment......................... $3,508 $4,731 $4,793
Leasehold improvements.......................... 316 1,311 1,193
------ ------ ------
3,824 6,042 5,986
Accumulated depreciation and amortization....... 2,503 3,152 3,089
------ ------ ------
$1,321 $2,890 $2,897
====== ====== ======
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, NOVEMBER 29, FEBRUARY 20,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Compensation and related expenses $4,059 $5,410 $7,547
Other 206 319 948
------ ------ ------
$4,265 $5,729 $8,495
====== ====== ======
</TABLE>
4. NOTES PAYABLE TO FORMER STOCKHOLDERS
Notes payable to former stockholders represent amounts owed by the Company
to former stockholders in connection with the Company's repurchase of
shares of common stock from such stockholders upon their separation from
the Company pursuant to an Exit Agreement.
Under the Exit Agreement, the Company repurchased shares of common stock
from certain stockholders at a purchase price based upon a formula that
uses the book value of the Company at the date the stockholder separates
from the Company (the "Fixed Amount") and an amount (the "Contingent
Pay-Out Amount") equal to the stockholder's pro rata portion of 25% of the
Company's earnings before bonuses, supplemental compensation and
amortization of goodwill, if any, for each of the five fiscal years
commencing with the fiscal year in which the repurchase was made. The Fixed
Amount is payable in three equal installments and the Contingent Pay-Out
Amount is payable in five equal annual install-
F-10
<PAGE> 64
CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE TO FORMER STOCKHOLDERS (CONTINUED)
ments. The Fixed Amount bears interest at an average prime rate (8.5% at
February 20, 1998) determined in accordance with the terms of the Exit
Agreement.
For financial reporting purposes, the Company initially estimates the
Contingent Pay-Out Amount owed to each former stockholder for the full five
year payment period based on the actual amount of the contingent payment
for the first year. In subsequent years, the Company adjusts the estimate
annually based on actual amounts of the contingent payment for all
preceding years. The related adjustments are made to treasury stock and
additional paid in capital and to the extent additional paid in capital is
not available, retained earnings. Annual principal payments to former
stockholders are estimated as of November 29, 1997 to be $280,000 in fiscal
1998; $279,000 in fiscal 1999; $246,000 in fiscal 2000; $114,000 in fiscal
2001; and $68,000 in fiscal 2002. The Company believes the recorded value
of the notes payable to former stockholders approximates fair market value.
5. FINANCING ARRANGEMENTS
The Company has a line of credit which permits borrowings of up to $2.0
million with interest at the bank's base rate (8.5% at November 29, 1997)
and is secured by the Company's accounts receivable. The terms of the line
of credit includes certain operating and financial covenants. No borrowings
were outstanding as of November 29, 1997. The Company had outstanding
standby letters of credit at February 20, 1998 amounting to $76,000, which
expire between March and June 1998.
6. EMPLOYEE BENEFIT PLANS
The Company maintains a profit-sharing retirement plan that covers
substantially all full-time employees. Contributions are made at the
discretion of the Company and its subsidiary and cannot exceed the maximum
amount deductible under applicable provisions of the Code. Contributions
were approximately $1.1 million in each of fiscal 1995 and 1996,
approximately $1.2 million in fiscal 1997 and $269,000 and $227,000 for the
quarters ended February 21, 1997 and February 20, 1998, respectively.
7. SUPPLEMENTAL COMPENSATION
The Company currently has one bonus program. This program awards
discretionary bonuses based on the Company's revenues and profitability and
individual performance. Amounts paid under this bonus program are included
in costs of services and the Company expects to continue this bonus program
after the proposed initial public offering. During fiscal 1995, fiscal 1996
and fiscal 1997, the Company also had another bonus program, which
consisted of discretionary payments to officers and certain Outside Experts
based primarily on the Company's cash flows. These bonus payments are shown
as supplemental compensation in the Company's statements of income. The
Company does not intend to make additional payments under this bonus
program after fiscal 1997.
F-11
<PAGE> 65
CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LEASES
The Company leases its facilities under operating lease arrangements and
certain equipment under capital lease agreements. Assets held under capital
lease agreements amounted to $418,000 at November 30, 1996 and November 29,
1997. Accumulated amortization amounted to $259,000 at November 30, 1996
and $304,000 at November 29, 1997. At November 29, 1997, the minimum rental
commitments under all noncancellable operating and capital leases with
initial or recurring terms of more than one year were as follows (in
thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
----------- --------- -------
<S> <C> <C>
1998........................................................ $ 1,687 $ 52
1999........................................................ 1,907 48
2000........................................................ 1,925 33
2001........................................................ 1,941
2002........................................................ 1,821
Thereafter.................................................. 8,011
------- ----
$17,292 133
=======
Less amount representing interest........................... 14
----
Present value of net minimum lease payments................. 119
Less current portion of obligations under capital leases.... 45
----
Long-term obligations under capital leases.................. $ 74
====
</TABLE>
Rent expense amounted to $1.5 million for each of fiscal 1995 and 1996 and
$1.8 million for fiscal 1997 and $314,000 and $487,000 for the quarters
ended February 21, 1997 and February 20, 1998, respectively.
9. NOTES RECEIVABLE FROM STOCKHOLDERS
In 1995, in an effort to align each officer's interest with the overall
interests of the Company, the Company adopted a policy requiring that each
of its officers have an equity interest in the Company. The Company sold
shares of common stock to new or existing members of the management team at
the fair market value of the common stock on the date of purchase as
determined by the Company's Board of Directors. A portion of the purchase
price is payable at the time of purchase and the remainder is payable in
installments over a period of five years. The portion of the purchase price
not paid at the time of purchase bears interest at an average prime rate
described in the stock purchase agreement (8.5% at February 20, 1998).
10. STOCKHOLDERS' EQUITY
In February 1995, the Company converted all outstanding shares of Class A
and Class B common stock to a single class of common stock. In addition,
the Company terminated its Stock Distribution and Redemption Plan, and
established a new agreement with its stockholders called the Exit
Agreement, which defines the rights of the Company and its stockholders if
any stockholder ceases for any reason to be an employee, director, officer,
consultant or independent contractor of the Company. Under the Exit
Agreement, subject to certain restrictions, the Company has the right to
repurchase all of the shares of an inactive stockholder and, the inactive
stockholder has the right to cause the Company to purchase his or her
shares of stock, at a formula price which is subject to annual adjustment
(see note 4).
F-12
<PAGE> 66
CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma adjustments have been made to the historical
consolidated balance sheet as of February 20, 1998 and to the consolidated
statement of income for the year then ended:
a) The pro forma consolidated statements of income for the year ended
November 29, 1997 and the quarter ended February 20, 1998 reflect the
provision for income taxes that would have been recorded had the Company
and NeuCo LLC been C corporations during those periods, assuming
effective tax rates for the year ended November 29, 1997 and the quarter
ended February 20, 1998 of 43% and 42%, respectively.
b) Prior to the consummation of the proposed initial public offering, the
Company expects to declare an S corporation distribution to its existing
stockholders in an amount representing all undistributed cash earnings
through the termination of the Company's S corporation status but not to
exceed the cash available as of that date. At February 20, 1998, the S
corporation distribution is estimated to be approximately $6.5 million.
The declaration and payment of this distribution is reflected on the
February 20, 1998 pro forma consolidated balance sheet. The amount of
this distribution will be higher or lower than the foregoing amount
based upon actual cash-basis earnings between February 20, 1998 and the
closing date of the initial public offering.
At the time of the termination of the Company's status as an S
corporation, the Company will record a net deferred income tax liability
and a one-time additional provision for income taxes. The amounts to be
recorded will depend upon differences between the financial reporting
and tax bases of the Company's assets and liabilities at the time. If
the Company's S corporation status had been terminated as of February
20, 1998, the net deferred income tax liability would have been $1.4
million, resulting from differing methods of accounting for financial
reporting and tax purposes for the following items (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities:
Cash to accrual adjustment.......................... $ 843
Profit sharing...................................... 93
Deferred rent....................................... 605
Other............................................... 111
------
1,652
Deferred tax assets:
Allowance for doubtful accounts..................... (176)
Excess tax over book depreciation and
amortization...................................... (54)
------
(230)
------
$1,422
======
</TABLE>
A reconciliation of the Company's pro forma tax rate with the federal
statutory rates is as follows:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
NOVEMBER 29, FEBRUARY 20,
1997 1998
------------ -------------
<S> <C> <C>
Federal statutory rate...................................... 34.0% 34.0%
State income taxes, net of federal income tax benefit....... 6.2 6.2
Other....................................................... 2.8 1.7
---- ----
43.0% 41.9%
==== ====
</TABLE>
F-13
<PAGE> 67
CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. RELATED PARTY TRANSACTIONS
The Company made payments to stockholders of the Company who performed
consulting services for the Company in the amounts of $1.7 million in
fiscal 1995, $1.6 million in fiscal 1996 and $1.8 million in fiscal 1997
and $506,000 and $645,000 for the quarters ended February 21, 1997 and
February 20, 1998, respectively.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
FEBRUARY 16, MAY 10, AUGUST 30, NOVEMBER 30,
1996 1996 1996 1996
------------ ---------- ------------- ------------
(12 WEEKS) (12 WEEKS) (16 WEEKS) (13 WEEKS)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................... $6,990 $8,334 $11,356 $10,687
Gross profit................................ 2,324 3,033 4,095 3,345
Income from operations...................... 513 946 1,205 1,073
Income before provision for income taxes.... 532 980 1,226 1,123
Net income.................................. 495 911 1,140 1,042
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
FEBRUARY 21, MAY 16, SEPTEMBER 5, NOVEMBER 29,
1997 1997 1997 1997
------------ ---------- ------------- ------------
(12 WEEKS) (12 WEEKS) (16 WEEKS) (12 WEEKS)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................... $9,648 $9,171 $14,498 $11,488
Gross profit................................ 3,262 2,979 4,990 3,967
Income from operations...................... 1,128 817 1,629 1,115
Income before provision for income taxes and
minority interest......................... 1,137 901 1,670 1,283
Minority interest........................... -- -- 198 84
Net income.................................. 1,061 841 1,756 1,309
</TABLE>
14. SUBSEQUENT EVENTS
STOCK SPLIT
Subsequent to November 29, 1997, the Company's Board of Directors
authorized (i) the declaration of a 52-for-1 stock split to be effected in
the form of a dividend of 51 shares of Common Stock per share of Common
Stock outstanding before the closing of the Offering and (ii) an increase
in the number of shares of authorized Common Stock to 25,000,000. These
actions are subject to approval by the Company's stockholders. The
accompanying consolidated financial statements have been adjusted
retroactively to give effect to these actions.
F-14
<PAGE> 68
CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS (CONTINUED)
STOCK RESTRICTION AGREEMENT
On February 20, 1998, the Company's Board of Directors authorized the
Company to amend and restate the Exit Agreement (as so amended and
restated, the "Stock Restriction Agreement"). The Stock Restriction
Agreement is subject to approval by the Company's stockholders and, if
approved, will take effect upon the closing of the Offering. The Stock
Restriction Agreement will prohibit each person who is a stockholder of the
Company before the closing of the Offering from selling or otherwise
transferring shares of Common Stock held immediately before the Offering
without the consent of the Board of Directors of the Company for two years
after the Offering. In addition, the Stock Restriction Agreement will allow
the Company to repurchase a portion of such stockholder's shares of Common
Stock at a percentage of market value should the stockholder leave the
Company (other than for death or retirement for disability).
F-15
<PAGE> 69
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any of the Selling Stockholders or any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the shares of Common
Stock to which it relates or an offer to, or a solicitation of, any person in
any jurisdiction where such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company or that the information contained herein is correct as of
any time subsequent to the date hereof.
--------------------------------
TABLE OF CONTENTS
--------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................. 3
Risk Factors....................... 6
Use of Proceeds.................... 12
S Corporation Distributions and
Termination of S Corporation
Status........................... 12
Dividend Policy.................... 13
Capitalization..................... 14
Dilution........................... 15
Selected Consolidated Financial
Data............................. 16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 18
Business........................... 24
Management......................... 36
Certain Transactions............... 41
Principal and Selling
Stockholders..................... 43
Description of Capital Stock....... 45
Shares Eligible for Future Sale.... 48
Underwriting....................... 50
Legal Matters...................... 51
Experts............................ 51
Change in Independent Auditors..... 51
Additional Information............. 52
Index to Consolidated Financial
Statements....................... F-1
</TABLE>
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
2,188,000 SHARES
[CHARLES RIVER LOGO]
CHARLES RIVER ASSOCIATES INCORPORATED
COMMON STOCK
------------------------
PROSPECTUS
------------------------
NationsBanc Montgomery
Securities LLC
William Blair & Company
, 1998
================================================================================
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered, other than the
underwriting discount. All amounts shown are estimates except the Securities and
Exchange Commission registration fee, the National Association of Securities
Dealers, Inc. filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
PAYABLE
BY THE
COMPANY
--------
<S> <C>
Securities and Exchange Commission registration fee......... $ 12,619
National Association of Securities Dealers, Inc. filing
fee....................................................... 4,778
Nasdaq National Market listing fee.......................... 72,875
Printing and engraving expenses............................. 75,000
Transfer agent fees......................................... 5,000
Accounting fees and expenses................................ 225,000
Legal fees and expenses..................................... 300,000
Blue Sky fees and expenses (including related legal fees)... 11,800
Indemnity insurance expense................................. 150,000
Miscellaneous............................................... 42,928
--------
Total..................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VI.C. of the Company's Amended and Restated Articles of
Organization provides that a director shall not have personal liability to the
Company or its stockholders for monetary damages arising out of the director's
breach of fiduciary duty as a director of the Company, to the maximum extent
permitted by Massachusetts law. Section 13(b)(1 1/2) of Chapter 156B of the
Massachusetts General Laws provides that the articles of organization of a
corporation may state a provision eliminating or limiting the personal liability
of a director to a corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided, however, that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under sections 61 or 62 of Chapter 156B of the
Massachusetts General Laws, which relate to liability for unauthorized
distributions and loans to insiders, respectively, or (iv) for any transaction
from which the director derived an improper personal benefit.
Article VI.D. of the Company's Amended and Restated Articles of
Organization further provides that the Company shall, to the fullest extent
authorized by Chapter 156B of the Massachusetts General Laws, indemnify each
person who is, or shall have been, a director or officer of the Company or who
is or was a director or employee of the Company and is serving, or shall have
served, at the request of the Company, as a director or officer of another
organization or in any capacity with respect to any employee benefit plan of the
Company, against all liabilities and expenses (including judgments, fines,
penalties, amounts paid or to be paid in settlement, and reasonable attorneys'
fees) imposed upon or incurred by any such person in connection with, or arising
out of, the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, in which they may be involved by reason of being or
having been such a director or officer or as a result of service with respect to
any such employee benefit plan. Section 67 of Chapter 156B of the Massachusetts
General Laws authorizes a corporation to indemnify its directors, officers,
employees and other agents unless such person shall have been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that such
action was in the best interests of the corporation or, to the extent such
matter
II-1
<PAGE> 71
related to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit plan.
The effect of these provisions would be to permit indemnification by the
Company for, among other liabilities, liabilities arising out of the Securities
Act of 1933, as amended (the "Securities Act").
Section 67 of Chapter 156B of the Massachusetts General Laws also affords a
Massachusetts corporation the power to obtain insurance on behalf of its
directors and officers against liabilities incurred by them in those capacities.
The Company has procured a directors and officers liability and company
reimbursement liability insurance policy that (i) insures directors and officers
of the Company against losses (above a deductible amount) arising from certain
claims made against them by reason of certain acts or omissions of such
directors or officers in their capacity as directors or officers and (ii)
insures the Company against losses (above a deductible amount) arising from any
such claims, but only if the Company is required or permitted to indemnify such
directors or officers for such losses under statutory or common law or under
provisions of the Company's Amended and Restated Articles of Organization or
Amended and Restated By-Laws.
Reference is hereby made to Section 8 of the Underwriting Agreement among
the Company, the Selling Stockholders and the Underwriters, filed as Exhibit 1.1
to this Registration Statement, for a description of indemnification
arrangements among the Company, the Selling Stockholders and the Underwriters.
Reference is hereby made to the Indemnity Agreement between the Company and
the Selling Stockholders, filed as Exhibit 10.11 to this Registration Statement,
for a description of indemnification arrangements by the Company for the benefit
of the Selling Stockholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information is furnished with regard to all securities sold
by the Company within the past three years which were not registered under the
Securities Act. The share numbers set forth below have been adjusted to reflect
the Stock Split.
(a) On May 1, 1995, the Company sold 119,600 shares of Common Stock to an
employee of the Company at a purchase price of approximately $1.40 per share,
$57,500 of which was paid at the time of purchase and the remainder of which was
payable in installments as set forth in the stock purchase agreement. In
September 1996, the Company repurchased all of the shares sold to the employee
and in June 1997 paid the employee an amount equal to the repurchase price less
the amount payable by the employee under the stock purchase agreement.
(b) On April 1, 1996, the Company sold 91,000 shares of Common Stock to
employees of the Company at a purchase price of approximately $1.88 per share,
$54,478 of which was paid at the time of purchase and the remainder of which was
payable in installments as set forth in the stock purchase agreements. As of
February 15, 1998, the Company had received $23,348 in installment payments.
(c) On April 15, 1996, the Company issued 36,400 shares of Common Stock to
a consultant to the Company as bonus compensation for services rendered by the
consultant.
(d) On May 28, 1996, the Company sold 88,400 shares of Common Stock to
employees of the Company at a purchase price of approximately $1.88 per share,
$86,276 of which was paid at the time of purchase and the remainder of which was
paid on or before February 15, 1998.
(e) On May 30, 1996, the Company sold 15,600 shares of Common Stock to an
employee of the Company at a purchase price of approximately $1.88 per share,
$9,339 of which was paid at the time of purchase and the remainder of which was
payable in installments as set forth in the stock purchase agreement. As of
February 15, 1998, the Company had received $8,005 in installment payments.
(f) On July 22, 1996, the Company sold 26,000 shares of Common Stock to a
consultant to the Company at a purchase price of approximately $2.29 per share,
$22,475 of which was paid at the time of purchase and the remainder of which was
payable in installments as set forth in the stock purchase agreement. As of
February 15, 1998, the Company had received $7,435 in installment payments.
II-2
<PAGE> 72
(g) On November 22, 1996, the Company sold 124,800 shares of Common Stock
to employees of the Company at a purchase price of approximately $2.29 per
share, $107,880 of which was paid at the time of purchase and the remainder of
which was payable in installments as set forth in the stock purchase agreements.
As of February 15, 1998, the Company had received $53,532 in installment
payments.
(h) On November 27, 1996, the Company sold 62,400 shares of Common Stock to
an employee of the Company at a purchase price of approximately $2.29 per share,
$53,940 of which was paid at the time of purchase and the remainder of which was
payable in installments as set forth in the stock purchase agreement. As of
February 15, 1998, the Company had received $17,844 in installment payments.
(i) On June 9, 1997, the Company sold 228,800 shares of Common Stock to
employees of and a consultant to the Company at a purchase price of
approximately $2.71 per share, $158,400 of which was paid at the time of
purchase, $52,800 of which was paid in November 1997 and the remainder of which
was payable in installments after February 15, 1998 as set forth in the stock
purchase agreements.
(j) On August 29, 1997, the Company sold 52,000 shares of Common Stock to
employees of the Company at a purchase price of approximately $2.71 per share,
$48,000 of which was paid at the time of purchase and the remainder of which was
payable in installments after February 15, 1998 as set forth in the stock
purchase agreements.
(k) On October 10, 1997, the Company sold 119,600 shares of Common Stock to
an employee of the Company at a purchase price of approximately $2.71 per share,
$50,400 of which was paid at the time of purchase, $60,000 of which was paid in
November 1997 and the remainder of which was payable in installments after
February 15, 1998 as set forth in the stock purchase agreement.
(l) On November 21, 1997, the Company sold 26,000 shares of Common Stock to
an employee of the Company at a purchase price of approximately $3.71 per share,
$38,500 of which was paid in November 1997 and the remainder of which was
payable in installments after February 15, 1998 as set forth in the stock
purchase agreement.
The issuances described in this Item 15 were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. None of the
foregoing transactions involved a distribution or public offering. No
underwriters were engaged in connection with the foregoing issuances of
securities, and no underwriting discounts or commissions were paid.
II-3
<PAGE> 73
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
1.1 Underwriting Agreement
+3.1 Restated Articles of Organization of the Company
+3.2 Proposed form of Amended and Restated Articles of
Organization of the Company [to become effective immediately
before the Offering]
+3.3 By-Laws of the Company
3.4 Proposed form of Amended and Restated By-Laws of the Company
[to become effective immediately before the Offering]
+4.1 Specimen certificate for the Common Stock of the Company
5.1 Opinion of Foley, Hoag & Eliot LLP
+10.1 1998 Incentive and Nonqualified Stock Option Plan
+10.2 1998 Employee Stock Purchase Plan
+10.3 Amended and Restated Loan Agreement dated as of November 18,
1994 between the Company and The First National Bank of
Boston, as amended
+10.4 Amended and Restated Security Agreement dated as of November
18, 1994 between the Company and The First National Bank of
Boston
+10.5 Revolving Credit Note of the Company dated as of November
18, 1994 in the principal amount of $2,000,000 payable to
The First National Bank of Boston
+10.6 Office Lease Agreement between the Company and John Hancock
Mutual Life Insurance Company dated March 1, 1978, as
amended
+10.7 Office Lease Agreement between the Company and Deutsche
Immobilien Fonds Aktiengesellschaft dated March 6, 1997
+10.8 Form of Consulting Agreement with Outside Experts
10.9 Stock Restriction Agreement between the Company and its
pre-offering stockholders
+10.10 Form of Selling Stockholder's Irrevocable Power of Attorney
(including proposed form of Custody Agreement)
10.11 Form of Indemnity Agreement between the Company and the
Selling Stockholders
+16.1 Letter of Parent, McLaughlin & Nangle Certified Public
Accountants, Inc.
+21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
+24.1 Power of Attorney (contained on the signature page of this
Registration Statement)
+27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in the Company's Consolidated Financial Statements or Notes
thereto.
II-4
<PAGE> 74
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 75
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON,
MASSACHUSETTS, ON THE 21ST DAY OF APRIL, 1998.
CHARLES RIVER ASSOCIATES INCORPORATED
By: /s/ LAUREL E. MORRISON
--------------------------------------
Laurel E. Morrison
Chief Financial Officer, Vice President,
Finance and Administration, and Treasurer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board April 21, 1998
- ---------------------------------------------
Franklin M. Fisher
* President, Chief Executive Officer April 21, 1998
- --------------------------------------------- and Director (principal executive
James C. Burrows officer)
/s/ LAUREL E. MORRISON Chief Financial Officer, Vice April 21, 1998
- --------------------------------------------- President, Finance and
Laurel E. Morrison Administration, and Treasurer
(principal financial and accounting
officer)
* Vice President and Director April 21, 1998
- ---------------------------------------------
Firoze E. Katrak
* Vice President and Director April 21, 1998
- ---------------------------------------------
William B. Burnett
* Director April 21, 1998
- ---------------------------------------------
Carl Kaysen
* Director April 21, 1998
- ---------------------------------------------
Rowland T. Moriarty
*By /s/ LAUREL E. MORRISON
----------------------------------------
Laurel E. Morrison,
as Attorney-in-Fact
</TABLE>
II-6
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Underwriting Agreement
+3.1 Restated Articles of Organization of the Company
+3.2 Proposed form of Amended and Restated Articles of
Organization of the Company [to become effective immediately
before the Offering]
+3.3 By-Laws of the Company
3.4 Proposed form of Amended and Restated By-Laws of the Company
[to become effective immediately before the Offering]
+4.1 Specimen certificate for the Common Stock of the Company
5.1 Opinion of Foley, Hoag & Eliot LLP
+10.1 1998 Incentive and Nonqualified Stock Option Plan
+10.2 1998 Employee Stock Purchase Plan
+10.3 Amended and Restated Loan Agreement dated as of November 18,
1994 between the Company and The First National Bank of
Boston, as amended
+10.4 Amended and Restated Security Agreement dated as of November
18, 1994 between the Company and The First National Bank of
Boston
+10.5 Revolving Credit Note of the Company dated as of November
18, 1994 in the principal amount of $2,000,000 payable to
The First National Bank of Boston
+10.6 Office Lease Agreement between the Company and John Hancock
Mutual Life Insurance Company dated March 1, 1978, as
amended
+10.7 Office Lease Agreement between the Company and Deutsche
Immobilien Fonds Aktiengesellschaft dated March 6, 1997
+10.8 Form of Consulting Agreement with Outside Experts
10.9 Stock Restriction Agreement between the Company and its
pre-offering stockholders
+10.10 Form of Selling Stockholder's Irrevocable Power of Attorney
(including proposed form of custody agreement)
10.11 Form of Indemnity Agreement between the Company and the
Selling Stockholders
+16.1 Letter of Parent, McLaughlin & Nangle Certified Public
Accountants, Inc.
+21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
+24.1 Power of Attorney (contained on the signature page of this
Registration Statement)
+27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
H&D Draft 3/30/98
2,188,000 SHARES
CHARLES RIVER ASSOCIATES INCORPORATED
COMMON STOCK
UNDERWRITING AGREEMENT
DATED APRIL __, 1998
<PAGE> 2
Table of Contents
<TABLE>
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES..................................................................2
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................2
(a) Compliance with Registration Requirements..............................................2
(b) Offering Materials Furnished to Underwriters...........................................3
(c) Distribution of Offering Material By the Company.......................................3
(d) The Underwriting Agreement.............................................................3
(e) Authorization of the Common Shares.....................................................4
(f) No Applicable Registration or Other Similar Rights.....................................4
(g) No Material Adverse Change.............................................................4
(h) Independent Accountants................................................................4
(i) Preparation of the Financial Statements................................................4
(j) Incorporation and Good Standing of the Company
and the Subsidiary.....................................................................5
(k) Capitalization and Other Capital Stock Matters.........................................5
(l) Nasdaq National Market Listing.........................................................6
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required...................................................6
(n) No Material Actions or Proceedings.....................................................7
(o) Intellectual Property Rights...........................................................7
(p) All Necessary Permits, etc.............................................................7
(q) Title to Properties....................................................................8
(r) Tax Law Compliance.....................................................................8
(s) Company Not an "Investment Company."...................................................8
(t) Insurance..............................................................................8
(u) No Price Stabilization or Manipulation.................................................9
(v) Related Party Transactions.............................................................9
(w) No Unlawful Contributions or Other Payments............................................9
(x) ERISA Compliance.......................................................................9
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS.....................................10
(a) The Underwriting Agreement............................................................10
(b) The Custody Agreement and Power of Attorney...........................................10
(c) Title to Common Shares to be Sold; All Authorizations Obtained........................10
(d) Delivery of the Common Shares to be Sold..............................................11
(e) Non-Contravention; No Further Authorizations
or Approvals Required.................................................................11
(f) No Registration or Other Similar Rights...............................................11
(g) No Further Consents, etc..............................................................11
(h) Disclosure Made by Such Selling Stockholder in the Prospectus.........................12
(i) No Price Stabilization or Manipulation................................................12
</TABLE>
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<TABLE>
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(j) Registration Statement and Prospectus.................................................12
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES...............................................13
The Firm Common Shares..................................................................................13
The First Closing Date..................................................................................13
The Optional Common Shares; the Second Closing Date.....................................................13
Public Offering of the Common Shares....................................................................14
Payment for the Common Shares...........................................................................14
Delivery of the Common Shares...........................................................................15
Delivery of Prospectus to the Underwriters..............................................................15
SECTION 3. ADDITIONAL COVENANTS...........................................................................16
A. Covenants of the Company.......................................................................16
(a) Representatives' Review of Proposed Amendments
and Supplements.......................................................................16
(b) Securities Act Compliance.............................................................16
(c) Amendments and Supplements to the Prospectus
and Other Securities Act Matters......................................................17
(d) Copies of any Amendments and Supplements to the Prospectus............................17
(e) Blue Sky Compliance...................................................................17
(f) Use of Proceeds.......................................................................17
(g) Transfer Agent........................................................................18
(h) Earnings Statement....................................................................18
(i) Periodic Reporting Obligations........................................................18
(j) Agreement Not To Offer or Sell Additional Securities..................................18
(k) Future Reports to the Representatives.................................................19
B. COVENANTS OF THE SELLING STOCKHOLDERS..........................................................19
(a) Agreement Not to Offer or Sell Additional Securities..................................19
(b) Delivery of Forms W-8 and W-9.........................................................20
SECTION 4. PAYMENT OF EXPENSES............................................................................20
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS..............................................21
(a) Accountants' Comfort Letter...........................................................21
(b) Compliance with Registration Requirements;
No Stop Order; No Objection from NASD.................................................21
(c) No Material Adverse Change............................................................22
(d) Opinion of Counsel for the Company....................................................22
(e) Opinion of Counsel for the Underwriters...............................................22
(f) Officers' Certificate.................................................................23
(g) Bring-down Comfort Letter.............................................................23
(h) Opinion of Counsel for the Selling Stockholders.......................................23
</TABLE>
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<TABLE>
<S> <C>
(i) Selling Stockholders' Certificate.....................................................24
(j) Selling Stockholders' Documents.......................................................24
(k) Lock-Up Agreement from Certain Stockholders of the Company Other Than
Selling Stockholders................................................................24
(l) Additional Documents..................................................................24
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES........................................................25
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT................................................................25
SECTION 8. INDEMNIFICATION................................................................................25
(a) Indemnification of the Underwriters...................................................25
(b) Indemnification of the Company, its Directors and Officers............................27
(c) Notifications and Other Indemnification Procedures....................................28
(d) Settlements...........................................................................29
SECTION 9. CONTRIBUTION...................................................................................30
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.............................................32
SECTION 11. TERMINATION OF THIS AGREEMENT..................................................................32
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY............................................33
SECTION 13. NOTICES........................................................................................33
SECTION 14. SUCCESSORS.....................................................................................34
SECTION 15. PARTIAL UNENFORCEABILITY.......................................................................35
SECTION 16. GOVERNING LAW PROVISIONS.......................................................................35
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER COMMON SHARES...........35
SECTION 18. GENERAL PROVISIONS.............................................................................35
</TABLE>
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<PAGE> 5
UNDERWRITING AGREEMENT
April __, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
WILLIAM BLAIR & COMPANY, L.L.C.
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Charles River Associates Incorporated, a Massachusetts
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in Schedule A (the "Underwriters") an aggregate of 1,562,500
shares of its Common Stock, no par value (the "Common Stock"); and the
stockholders of the Company named in Schedule B (collectively, the "Selling
Stockholders") severally propose to sell to the Underwriters an aggregate of
625,500 shares of Common Stock. The 1,562,500 shares of Common Stock to be sold
by the Company and the 625,500 shares of Common Stock to be sold by the Selling
Stockholders are collectively called the "Firm Common Shares." In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional 234,375 shares of Common Stock and the Selling Stockholders propose
severally to grant to the Underwriters an option to purchase up to an additional
93,825 shares of Common Stock, each Selling Stockholder selling up to the amount
set forth opposite such Selling Stockholder's name in Schedule B, all as
provided in Section 2. The additional 234,375 shares to be sold by the Company
and the additional 93,825 shares to be sold by the Selling Stockholders pursuant
to such option are collectively called the "Optional Common Shares." The Firm
Common Shares and, if and to the extent such option is exercised, the Optional
Common Shares are collectively called the "Common Shares." NationsBanc
Montgomery Securities LLC ("NMS") and William Blair & Company L.L.C. have agreed
to act as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File
No. 333-46941), which contains a form of prospectus to be used in connection
with the public offering and sale of the Common Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933
<PAGE> 6
and the rules and regulations promulgated thereunder (collectively,
the "Securities Act"), including any information deemed to be a part thereof at
the time of effectiveness pursuant to Rule 430A or Rule 434 under the Securities
Act, is called the "Registration Statement." Any registration statement filed by
the Company pursuant to Rule 462(b) under the Securities Act is called the "Rule
462(b) Registration Statement," and from and after the date and time of filing
of the Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. Such prospectus, in the
form first used by the Underwriters to confirm sales of the Common Shares, is
called the "Prospectus"; provided, however, if the Company has, with the consent
of NMS, elected to rely upon Rule 434 under the Securities Act, the term
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated __________, 1998 (such preliminary prospectus is
called the "Rule 434 preliminary prospectus"), together with the applicable term
sheet (the "Term Sheet") prepared and filed by the Company with the Commission
under Rules 434 and 424(b) under the Securities Act and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall include
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR").
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The
Registration Statement and any Rule 462(b) Registration Statement have
been declared effective by the Commission under the Securities Act. The
Company has complied to the Commission's satisfaction with all requests
of the Commission for additional or supplemental information. No stop
order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for
such purpose have been instituted or are pending or, to the best
knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed
by electronic transmission pursuant to EDGAR (except as may be
permitted by Regulation S-T
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under the Securities Act), was identical to the copy thereof delivered
to the Underwriters for use in connection with the offer and sale of
the Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the
time it became effective and at all subsequent times, complied and will
comply in all material respects with the Securities Act and did not and
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus, as amended
or supplemented, as of its date and at all subsequent times, did not
and will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. The representations and warranties set forth in the two
immediately preceding sentences do not apply to statements in or
omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment thereto, or the Prospectus,
or any amendments or supplements thereto, made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by the Representatives expressly for use
therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the
Registration Statement which have not been described or filed as
required.
(b) Offering Materials Furnished to Underwriters. The Company
has delivered to each Representative one complete manually signed copy
of the Registration Statement and of each consent and certificate of
experts filed as a part thereof, and conformed copies of the
Registration Statement (without exhibits) and preliminary prospectuses
and the Prospectus, as amended or supplemented, in such quantities and
at such places as the Representatives have reasonably requested for
each of the Underwriters.
(c) Distribution of Offering Material By the Company. The
Company has not distributed and will not distribute, prior to the later
of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material
in connection with the offering and sale of the Common Shares other
than a preliminary prospectus, the Prospectus or the Registration
Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification or contribution hereunder may be
limited by applicable law and except as the enforcement hereof may be
limited by bankruptcy, insolvency,
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<PAGE> 8
reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(e) Authorization of the Common Shares. The Common Shares to
be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement, will be
validly issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There
are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by this Agreement,
except for such rights as have been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects,
whether or not arising from transactions in the ordinary course of
business, of the Company and NeuCo LLC (the "Subsidiary"), considered
as one entity (any such change is called a "Material Adverse Change");
(ii) the Company and the Subsidiary, considered as one entity, have not
incurred any material liability or obligation, indirect, direct or
contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of
business; and (iii) there has been no dividend or distribution of any
kind declared, paid or made by the Company or, except for dividends
paid to the Company, by the Subsidiary on any class of capital stock or
repurchase or redemption by the Company or the Subsidiary of any class
of capital stock.
(h) Independent Accountants. Ernst & Young LLP, who have
expressed their opinion with respect to the financial statements (which
term as used in this Agreement includes the related notes thereto) and
supporting schedules filed with the Commission as a part of the
Registration Statement and included in the Prospectus, are independent
public or certified public accountants as required by the Securities
Act.
(i) Preparation of the Financial Statements. The financial
statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the
consolidated financial position of the Company and
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<PAGE> 9
the Subsidiary as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. The
supporting schedules, if any, included in the Registration Statement
present fairly the information required to be stated therein. Such
financial statements and supporting schedules have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Consolidated Financial
Data," "Selected Consolidated Financial Data" and "Capitalization"
fairly present the information set forth therein on a basis consistent
with that of the audited financial statements contained in the
Registration Statement.
(j) Incorporation and Good Standing of the Company and the
Subsidiary. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Massachusetts and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under this Agreement. The Subsidiary has been duly
organized and is validly existing as a limited liability company in
good standing under the laws of the Commonwealth of Massachusetts and
has power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus. Each of the
Company and the Subsidiary is duly qualified to transact business and
is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change. The Company
is the legal and beneficial owner of its membership interest in the
Subsidiary, as described in the Prospectus. The Company owns its
membership interest in the Subsidiary free and clear of any security
interest, mortgage, pledge, lien, encumbrance or claim. Except as
described in the Prospectus, the Company has no obligation to
contribute capital to the Subsidiary pursuant to the operating
agreement or certificate of formation of the Subsidiary or any
contractual arrangement with any third party. The Company does not own
or control, directly or indirectly, any corporation, association or
other entity other than the Subsidiary.
(k) Capitalization and Other Capital Stock Matters. The
authorized, issued and outstanding capital stock of the Company as of
November 29, 1997 was as set forth in the Prospectus under the caption
"Capitalization." The
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<PAGE> 10
Common Stock (including the Common Shares) conforms in all material
respects to the description thereof contained in the Prospectus. All of
the issued and outstanding shares of Common Stock (including the shares
of Common Stock owned by Selling Stockholders) have been duly
authorized and validly issued, are (except, in the case of shares
purchased by officers of the Company under agreements which provide for
the purchase price to be paid in installments, to the extent of the
installments which are not yet due and payable) fully paid and
nonassessable and have been issued in compliance with federal and state
securities laws. None of the outstanding shares of Common Stock were
issued in violation of any preemptive rights, rights of first refusal
or other similar rights to subscribe for or purchase securities of the
Company. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase,
or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company or the Subsidiary
other than those accurately described in the Prospectus. The
description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted
thereunder, set forth in the Prospectus is an accurate and fair
description in all material respects of such plans, arrangements,
options and rights.
(l) Nasdaq National Market Listing. The Common Shares have
been approved for inclusion on the Nasdaq National Market, subject only
to official notice of issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor the
Subsidiary is in violation of its charter or by-laws or is in default
(or, with the giving of notice or lapse of time, would be in default)
("Default") under any indenture, mortgage, loan or credit agreement,
note, contract, franchise, lease or other instrument to which the
Company or the Subsidiary is a party or by which it or any of them may
be bound or to which any of the property or assets of the Company or
the Subsidiary is subject (each, an "Existing Instrument"), except for
such Defaults as would not, individually or in the aggregate, result in
a Material Adverse Change. The Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus (i) have been duly authorized
by all necessary corporate action and will not result in any violation
of the provisions of the charter or by-laws of the Company or the
Subsidiary, (ii) will not conflict with or constitute a breach of, or
Default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or the
Subsidiary pursuant to, or require the consent of any other part to,
any Existing Instrument, except for such conflicts, breaches, Defaults,
liens, charges or encumbrances (i) as to which the
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<PAGE> 11
Company has obtained prior to the date hereof a valid waiver or
consent, a copy of which has been delivered to counsel for the
Underwriters, or (ii) as would not, individually or in the aggregate,
result in a Material Adverse Change and (iii) will not result in any
violation of any law, administrative regulation or administrative or
court decree applicable to the Company or the Subsidiary. No consent,
approval, authorization or other order of, or registration or filing
with, any court or other governmental or regulatory authority or
agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full force and effect under
the Securities Act, Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), applicable state securities or
blue sky laws and from the National Association of Securities Dealers,
Inc. (the "NASD").
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of
the Company's knowledge, threatened (i) against the Company or the
Subsidiary, (ii) which has as the subject thereof any officer or
director of, or property owned or leased by, the Company or the
Subsidiary or (iii) relating to environmental or discrimination
matters, where in any such case (A) there is a reasonable possibility
that such action, suit or proceeding might be determined adversely to
the Company or the Subsidiary and (B) any such action, suit or
proceeding, if so determined adversely, would reasonably be expected to
result in a Material Adverse Change or adversely affect the
consummation of the transactions contemplated by this Agreement. No
material labor dispute with the employees of the Company or the
Subsidiary exists or, to the best of the Company's knowledge, is
threatened or imminent.
(o) Intellectual Property Rights. The Company and the
Subsidiary own or possess sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals, trade secrets and other
similar rights (collectively, "Intellectual Property Rights")
reasonably necessary to conduct their businesses as now conducted; and
the expected expiration of any of such Intellectual Property Rights
would not result in a Material Adverse Change. Neither the Company nor
the Subsidiary has received any notice of infringement or conflict with
asserted Intellectual Property Rights of others, which infringement or
conflict, if the subject of an unfavorable decision, would result in a
Material Adverse Change.
(p) All Necessary Permits, etc. The Company and the Subsidiary
possess such valid and current certificates, authorizations or permits
issued by the appropriate state, federal or foreign regulatory agencies
or bodies necessary to
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<PAGE> 12
conduct their respective businesses, except where any failure to
possess the same, individually or in the aggregate, would not result in
a Material Adverse Change, and neither the Company nor the Subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate,
authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could result in
a Material Adverse Change.
(q) Title to Properties. The Company and the Subsidiary have
good and marketable title to all the properties and assets reflected as
owned in the financial statements referred to in Section 1(A)(i) above
(or elsewhere in the Prospectus), in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims
and other defects, except such as are disclosed in the Prospectus or as
do not materially and adversely affect the value of such property and
do not materially interfere with the use made or proposed to be made of
such property by the Company or the Subsidiary. The real property,
improvements, equipment and personal property held under lease by the
Company or the Subsidiary are held under valid and enforceable leases,
with such exceptions as are not material and do not materially
interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company
or the Subsidiary.
(r) Tax Law Compliance. The Company and the Subsidiary have
filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes due and payable by any of them and, if
due and payable, any related or similar assessment, fine or penalty
levied against any of them, except as may be being contested in good
faith and by appropriate proceedings. The Company has made adequate
charges, accruals and reserves in the applicable financial statements
referred to in Section 1(A)(i) above in respect of all federal, state
and foreign income and franchise taxes for all periods as to which the
tax liability of the Company or the Subsidiary has not been finally
determined.
(s) Company Not an "Investment Company." The Company has been
advised of the rules and requirements under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Company is not,
and after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of Investment Company Act and
will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(t) Insurance. Each of the Company and the Subsidiary are
insured by recognized, financially sound and reputable institutions
with policies in such
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<PAGE> 13
amounts and with such deductibles and covering such risks as are
generally deemed adequate and customary for their businesses including,
but not limited to, policies covering real and personal property owned
or leased by the Company and the Subsidiary against theft, damage,
destruction, acts of vandalism and earthquakes. The Company has no
reason to believe that it or the Subsidiary will not be able (i) to
renew its existing insurance coverage as and when such policies expire
or (ii) to obtain comparable coverage from similar institutions as may
be necessary or appropriate to conduct its business as now conducted
and at a cost that would not result in a Material Adverse Change. Since
November 29, 1992, neither of the Company nor the Subsidiary has been
denied any insurance coverage which it has sought or for which it has
applied.
(u) No Price Stabilization or Manipulation. The Company has
not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(v) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company or
the Subsidiary or any other person required to be described in the
Prospectus which have not been described as required.
(w) No Unlawful Contributions or Other Payments. Neither the
Company nor the Subsidiary nor, to the best of the Company's knowledge,
any employee or agent of the Company or the Subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(x) ERISA Compliance. The Company and the Subsidiary and any
"employee benefit plan" (as defined under the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and
published interpretations thereunder (collectively, "ERISA"))
established or maintained by the Company, the Subsidiary or their
"ERISA Affiliates" (as defined below) are in compliance in all material
respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or the Subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue
Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or the
Subsidiary is a member. No "reportable event" (as defined under ERISA)
has occurred or is reasonably expected to occur with respect to any
"employee benefit plan" established or
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<PAGE> 14
maintained by the Company, the Subsidiary or any of their ERISA
Affiliates. No "employee benefit plan" established or maintained by the
Company, the Subsidiary or any of their ERISA Affiliates, if such
"employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under ERISA). Neither the
Company, the Subsidiary nor any of their ERISA Affiliates has incurred
or reasonably expects to incur any liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "employee
benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code.
Each "employee benefit plan" established or maintained by the Company,
the Subsidiary or any of their ERISA Affiliates that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing
has occurred, whether by action or failure to act, which would cause
the loss of such qualification.
Any certificate signed by an officer of the Company and
delivered to the Representatives or to counsel for the Underwriters on the First
Closing Date or the Second Closing Date shall be deemed to be a representation
and warranty by the Company to each Underwriter as to the matters set forth
therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder, severally and not jointly, hereby represents, warrants and
covenants to each Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly
executed and delivered by or on behalf of such Selling Stockholder and
is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms, except as rights to
indemnification or contribution hereunder may be limited by applicable
law and except as the enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting the rights and remedies of creditors or by general
equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the
(i) Custody Agreement signed by such Selling Stockholder and Boston
EquiServe, L.P., as custodian (the "Custodian"), relating to the
deposit of the Common Shares to be sold by such Selling Stockholder
(the "Custody Agreement") and (ii) Power of Attorney appointing certain
individuals named therein as such Selling Stockholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth
therein relating to the transactions contemplated hereby and by the
Prospectus (the "Power of Attorney"), of such Selling Stockholder has
been duly executed and delivered by such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification or
contribution
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<PAGE> 15
thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(c) Title to Common Shares to be Sold; All Authorizations
Obtained. Such Selling Stockholder has, and on the First Closing Date
and the Second Closing Date (as defined below) will have, good and
valid title to all of the Common Shares which may be sold by such
Selling Stockholder pursuant to this Agreement on such date and the
legal right and power, and all authorizations and approvals required by
law to enter into this Agreement and its Custody Agreement and Power of
Attorney, to sell, transfer and deliver all of the Common Shares which
may be sold by such Selling Stockholder pursuant to this Agreement and
to comply with its other obligations hereunder and thereunder.
(d) Delivery of the Common Shares to be Sold. Delivery of the
Common Shares which are sold by such Selling Stockholder pursuant to
this Agreement will pass good and valid title to such Common Shares,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance or other claim (other than any arising out of an action
taken by an Underwriter).
(e) Non-Contravention; No Further Authorizations or Approvals
Required. The execution and delivery by such Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations
under, this Agreement, the Custody Agreement and the Power of Attorney
will not contravene or conflict with, result in a breach of, or
constitute a Default under, or require the consent of any other party
to, any agreement or instrument to which such Selling Stockholder is a
party or by which it is bound or under which it is entitled to any
right or benefit, any provision of applicable law or any judgment,
order, decree or regulation applicable to such Selling Stockholder of
any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Stockholder, except
for any such contravention, conflict, breach or Default as to which the
Company has obtained prior to the date hereof a valid waiver (a copy of
which has been delivered to counsel for the Underwriters) and any such
consent as has been obtained by the Company prior to the date hereof (a
copy of which has been delivered to counsel for the Underwriters). No
consent, approval, authorization or other order of, or registration or
filing with, any court or other governmental authority or agency, is
required for the consummation by such Selling Stockholder of the
transactions contemplated in this Agreement, except such as have been
obtained or made and are in full force and effect under the Securities
Act, Section 12(g) of the Exchange Act, applicable state securities or
blue sky laws and from the NASD.
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<PAGE> 16
(f) No Registration or Other Similar Rights. Such Selling
Stockholder does not have any registration or other similar rights to
have any equity or debt securities registered for sale by the Company
under the Registration Statement or included in the offering
contemplated by this Agreement.
(g) No Further Consents, etc. No consent, approval or waiver
is required under any instrument or agreement to which such Selling
Stockholder is a party or by which it is bound or under which it is
entitled to any right or benefit, in connection with the offering, sale
or purchase by the Underwriters of any of the Common Shares which may
be sold by such Selling Stockholder under this Agreement or the
consummation by such Selling Stockholder of any of the other
transactions contemplated hereby, except any such consent, approval or
waiver as has been obtained by such Selling Stockholder prior to the
date hereof, a copy of which has been delivered to counsel for the
Underwriters.
(h) Disclosure Made by Such Selling Stockholder in the
Prospectus. All information furnished by or on behalf of such Selling
Stockholder in writing expressly for use in the Registration Statement
and Prospectus is, and on the First Closing Date and the Second Closing
Date will be, true, correct, and complete in all material respects, and
does not, and on the First Closing Date and the Second Closing Date
will not, contain any untrue statement of a material fact or omit to
state any material fact necessary to make such information not
misleading. Such Selling Stockholder confirms as accurate the number of
shares of Common Stock set forth opposite such Selling Stockholder's
name in the Prospectus under the caption "Principal and Selling
Stockholders" (both prior to and after giving effect to the sale of the
Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling
Stockholder has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or
result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Common Shares.
(j) Registration Statement and Prospectus. Such Selling
Stockholder has reviewed the Registration Statement and the Prospectus
and, to the knowledge of such Selling Stockholder, neither the
Registration Statement nor the Prospectus contains any untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading. Such Selling Stockholder has no knowledge of any material
fact, condition or information not disclosed in the Registration
Statement or the Prospectus which has had or may have a Material
Adverse
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<PAGE> 17
Effect and is not prompted to sell shares of Common Stock by any
information concerning the Company which is not set forth in the
Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling
Stockholder and delivered to the Representatives or to counsel for the
Underwriters on the First Closing Date or the Second Closing Date shall be
deemed to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
1,562,500 Firm Common Shares and (ii) the Selling Stockholders agree, severally
and not jointly, to sell to the several Underwriters an aggregate of 625,500
Firm Common Shares, each Selling Stockholder selling the number of Firm Common
Shares set forth opposite such Selling Stockholder's name on Schedule B. On the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase from the Company and the Selling
Stockholders the respective number of Firm Common Shares set forth opposite
their names on Schedule A. The purchase price per Firm Common Share to be paid
by the several Underwriters to the Company and the Selling Stockholders shall be
$___ per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of NMS, 600 Montgomery Street, San Francisco, California (or such
other place as may be agreed to by the Company and the Representatives) at
6:00 a.m. San Francisco time, on _____________, 1998 [the fourth full business
day after the date of this Agreement, unless the pricing occurs at a time
earlier than 4:30 p.m., East Coast time, in which case insert the third full
business day after the date of this Agreement], or such other time and date not
later than 10:30 a.m. San Francisco time, on ____________, 1998 [ten business
days following the original contemplated First Closing Date] as the
Representatives shall designate by notice to the Company (the time and date of
such closing are called the "First Closing Date"). The Company and the Selling
Stockholders hereby acknowledge that circumstances under which the
Representatives may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any determination by
the Company or the Representatives to recirculate to the public copies of an
amended or supplemented Prospectus or a delay as contemplated by the provisions
of Section 10.
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms
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<PAGE> 18
but subject to the conditions herein set forth, the Company and the Selling
Stockholders hereby grant, severally and not jointly, an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
328,200 Optional Common Shares from the Company and the Selling Stockholders at
the purchase price per share to be paid by the Underwriters for the Firm Common
Shares. The option granted hereunder is for use by the Underwriters solely in
covering any over-allotments in connection with the sale and distribution of the
Firm Common Shares. The option granted hereunder may be exercised at any time
(but not more than once) upon notice by the Representatives to the Company and
the Selling Stockholders, which notice may be given at any time within 30 days
from the date of this Agreement. Such notice shall set forth (i) the aggregate
number of Optional Common Shares as to which the Underwriters are exercising the
option, (ii) the names and denominations in which the certificates for the
Optional Common Shares are to be registered and (iii) the time, date and place
at which such certificates are to be delivered (which time and date may be
simultaneous with, but not earlier than, the First Closing Date; and in such
case the term "First Closing Date" shall refer to the time and date of delivery
of certificates for the Firm Common Shares and the Optional Common Shares). Such
time and date of delivery, if subsequent to the First Closing Date, is called
the "Second Closing Date" and shall be determined by the Representatives and
shall not be earlier than three nor later than five full business days after
delivery of such notice of exercise. If any Optional Common Shares are to be
purchased, (a) each Underwriter agrees, severally and not jointly, to purchase
the number of Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Optional Common Shares to be purchased as the
number of Firm Common Shares set forth on Schedule A opposite the name of such
Underwriter bears to the total number of Firm Common Shares and (b) the Company
and each Selling Stockholder agree, severally and not jointly, to sell the
number of Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Optional Common Shares to be sold as the
number of Optional Common Shares set forth in Schedule B opposite the name of
such Selling Stockholder (or, in the case of the Company, as the number of
Optional Common Shares to be sold by the Company as set forth in the paragraph
"Introductory" of this Agreement) bears to the total number of Optional Common
Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company and the
Selling Stockholders.
Public Offering of the Common Shares. The Representatives hereby advise
the Company and the Selling Stockholders that the Underwriters intend to offer
for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed and
the Registration Statement
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<PAGE> 19
has been declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares to be sold
by the Company shall be made at the First Closing Date (and, if applicable, at
the Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Common Shares to be sold by the Selling
Stockholders shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Custodian.
It is understood that the Representatives have been
authorized, for their own account and the accounts of the several Underwriters,
to accept delivery of and receipt for, and make payment of the purchase price
for, the Firm Common Shares and any Optional Common Shares the Underwriters have
agreed to purchase. NMS, individually and not as a Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
Each Selling Stockholder hereby agrees that (i) it will pay
all stock transfer taxes, stamp duties and other similar taxes, if any, payable
upon the sale or delivery of the Common Shares to be sold by such Selling
Stockholder to the several Underwriters, or otherwise in connection with the
performance of such Selling Stockholder's obligations hereunder and (ii) the
Custodian is authorized to deduct for such payment any such amounts from the
proceeds to such Selling Stockholder hereunder and to hold such amounts for the
account of such Selling Stockholder with the Custodian under the Custody
Agreement.
Delivery of the Common Shares. The Company and the Selling Stockholders
shall, severally and not jointly deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters certificates for
the Firm Common Shares to be sold by them at the First Closing Date, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The Company and the Selling Stockholders
shall, severally and not jointly, also deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters, certificates for
the Optional Common Shares the Underwriters have agreed to purchase from them at
the First Closing Date or the Second Closing Date, as the case may be, against
the irrevocable release of a wire transfer of immediately available funds for
the amount of the purchase price therefor. The certificates for the Common
Shares shall be in definitive form and registered in such names and
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<PAGE> 20
denominations as the Representatives shall have requested at least two full
business days prior to the First Closing Date (or the Second Closing Date, as
the case may be) and shall be made available for inspection on the business day
preceding the First Closing Date (or the Second Closing Date, as the case may
be) at a location in New York City as the Representatives may designate. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
San Francisco time on the second business day following the date the Common
Shares are released by the Underwriters for sale to the public, the Company
shall deliver or cause to be delivered copies of the Prospectus in such
quantities and at such places as the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending
on the later of the First Closing Date or such date, as in the opinion
of counsel for the Underwriters, the Prospectus is no longer required
by law to be delivered in connection with sales by an Underwriter or
dealer (the "Prospectus Delivery Period"), prior to amending or
supplementing the Registration Statement (including any registration
statement filed under Rule 462(b) under the Securities Act) or the
Prospectus, the Company shall furnish to the Representatives for review
a copy of each such proposed amendment or supplement, and the Company
shall not file any such proposed amendment or supplement to which a
Representative reasonably objects.
(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Representatives in
writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission relating to
the Registration Statement, (ii) of the time and date of any filing of
any post-effective amendment to the Registration Statement or any
amendment or supplement to any preliminary prospectus or the
Prospectus, (iii) of the time and date that any post-effective
amendment to the Registration Statement becomes effective and (iv) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereto or of any order preventing or suspending the use of
any preliminary prospectus or the Prospectus, or of any
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<PAGE> 21
proceedings to remove, suspend or terminate from listing or quotation
the Common Stock from any securities exchange upon which it is listed
for trading or included or designated for quotation, or of the
threatening or initiation of any proceedings for any of such purposes.
If the Commission shall enter any such stop order at any time, the
Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. Additionally, the Company agrees that
it shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable
efforts to confirm that any filings made by the Company under such Rule
424(b) were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any
event shall occur or condition shall exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if in the
reasonable opinion of the Representatives or counsel for the
Underwriters it is otherwise necessary to amend or supplement the
Prospectus to comply with law, the Company agrees to promptly prepare
(subject to Section 3(A)(a) hereof), file with the Commission and
furnish at its own expense to the Underwriters and to dealers,
amendments or supplements to the Prospectus so that the statements in
the Prospectus as so amended or supplemented will not, in the light of
the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) Copies of any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Representatives, without
charge, during the Prospectus Delivery Period, as many copies of the
Prospectus and any amendments and supplements thereto as the
Representatives may reasonably request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register
the Common Shares for sale under (or obtain exemptions from the
application of) the Blue Sky or state securities laws or Canadian
provincial securities laws of those jurisdictions designated by the
Representatives, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as
required for the distribution of the Common Shares. The Company shall
not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a
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<PAGE> 22
foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or
any such exemption relating to) the Common Shares for offering, sale or
trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof at
the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described
under the caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company
will make generally available to its security holders and to the
Representatives an earnings statement (which need not be audited)
covering the twelve-month period ending May __, 1999 [the end of the
Company's first quarter ending after one year following the effective
date of the Registration Statement] that satisfies the provisions of
Section 11(a) of the Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market all reports and documents
required to be filed under the Exchange Act.
(j) Agreement Not To Offer or Sell Additional Securities.
During the period of 180 days following the date of the Prospectus, the
Company will not, without the prior written consent of NMS (which
consent may be withheld at the sole discretion of NMS), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge,
transfer or establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of or transfer, or announce the offering of, or file any registration
statement under the Securities Act in respect of, any shares of Common
Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares
of Common Stock (other than as contemplated by this Agreement with
respect to the Common Shares); provided, however, that the Company may:
(i) issue shares of its Common Stock or options to purchase its Common
Stock, or Common Stock upon exercise of options, pursuant to any stock
option, stock bonus or other stock plan or arrangement described in the
Prospectus, but only if the holders of such shares,
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<PAGE> 23
options, or shares issued upon exercise of such options, agree in
writing with NMS not to sell, offer, dispose of or otherwise transfer
any such shares or options during such 180 day period without the prior
written consent of NMS (which consent may be withheld at the sole
discretion of NMS) or, in the case of stock options, such options may
not be exercised during such 180 day period; (ii) file one or more
registration statements on Form S-8 covering shares of Common Stock
issuable pursuant to any stock option or stock purchase plan described
in the Prospectus; (iii) issues shares of Common Stock to officers of
the Company, provided such officers agree in writing with NMS not to
sell, offer, dispose of or otherwise transfer any such shares during
such 180 day period without the prior written consent of NMS (which
consent may be withheld at the sole discretion of NMS); or (iv) issue
shares of Common Stock, or securities exchangeable or exercisable for
or convertible into shares of Common Stock, as payment for all or part
of the purchase price of an acquisition by the Company of another
company or business, provided the total number of shares of Common
Stock issuable in connection with such acquisition (including shares
issuable upon exchange, exercise or conversion of any other securities
of the Company issued in connection with such acquisition) does not
exceed 5% of the number of shares of Common Stock outstanding
immediately prior to such acquisition, and provided further that each
person or entity receiving any such shares or securities in connection
with such acquisition agrees in writing with NMS not to sell, offer,
dispose of or otherwise transfer any such shares or securities during
such 180 day period without the prior written consent of NMS (which
consent may be withheld at the sole discretion of NMS).
(k) Future Reports to the Representatives. During the period
of five years hereafter the Company will furnish to each Representative
(with the copy to NMS to be sent to 600 Montgomery Street, San
Francisco, CA 94111 Attention: Lisa M. Westley): (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of
the close of such fiscal year and statements of income, stockholders'
equity and cash flows for the year then ended and the opinion thereon
of the Company's independent public or certified public accountants;
(ii) as soon as practicable after the filing thereof, copies of each
proxy statement, Annual Report on Form 10-K, Quarterly Report on Form
10- Q, Current Report on Form 8-K or other report filed by the Company
with the Commission, the NASD or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company
mailed generally to holders of its capital stock.
B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
further covenants and agrees, severally and not jointly, with each Underwriter:
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<PAGE> 24
(a) Agreement Not to Offer or Sell Additional Securities. Such
Selling Stockholder will not, without the prior written consent of NMS
(which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell
(including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act, or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares
of Common Stock currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under the Exchange, except that
a 180-day period shall be used rather than the 60-day period set forth
therein by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the
date hereof and continuing through the close of trading on the date 180
days after the date of the Prospectus; provided, however, that such
Selling Stockholder may sell or otherwise transfer any such shares or
securities (i) to the Company and (ii) to an officer of the Company,
provided such officer agrees in writing with NMS not to sell, offer,
dispose of or otherwise transfer any such shares or securities during
such 180-day period without the prior written consent of NMS (which
consent may be withheld at the sole discretion of NMS).
(b) Delivery of Forms W-8 and W-9. Such Selling Stockholder
will deliver to the Representatives prior to the First Closing Date a
properly completed and executed United States Treasury Department Form
W-8 (if the Selling Stockholder is a non-United States person) or Form
W-9 (if the Selling Stockholder is a United States Person).
NMS, on behalf of the several Underwriters, may, in its sole
discretion, waive in writing the performance by the Company or any Selling
Stockholder of any one or more of the foregoing covenants or extend the time for
their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares sold by it (including all printing and engraving costs), (ii) all
fees and expenses of the registrar and transfer agent of the Common Stock, (iii)
all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel, independent public or certified public
accountants and other advisors, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement (including financial statements, exhibits, schedules,
consents and
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<PAGE> 25
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the Blue Sky laws and the Canadian provincial securities laws,
and, if requested by the Representatives, preparing and printing a "Blue Sky
Survey" or memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with listing the Common Shares
on the Nasdaq National Market, and (ix) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
The Selling Stockholders further agree, severally and not
jointly, with each Underwriter to pay (directly or by reimbursement) all fees
and expenses incident to the performance of their respective obligations under
this Agreement which are not otherwise specifically provided for herein,
including but not limited to (i) fees and expenses of counsel and other advisors
for such Selling Stockholders, (ii) fees and expenses of the Custodian and (iii)
expenses and taxes incident to the sale and delivery of the Common Shares to be
sold by such Selling Stockholders to the Underwriters hereunder (which taxes, if
any, may be deducted by the Custodian under the provisions of Section 2 of this
Agreement). This Section 4 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Stockholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares (if not purchased on the First Closing Date), the Second
Closing Date, shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders set forth in
Sections 1(A) and 1(B) hereof as of the date hereof and as of the First Closing
Date as though then made and, with respect to the Optional Common Shares (if not
purchased on the First Closing Date), as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Stockholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
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<PAGE> 26
(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Ernst & Young LLP, independent
public or certified public accountants for the Company, a letter dated
the date hereof addressed to the Underwriters, in form and substance
satisfactory to the Representatives, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters, delivered according to Statement of Auditing
Standards No. 72 (or any successor bulletin), with respect to the
audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus
(and each Representative shall have received an additional conformed
copy of such accountants' letter).
(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD. For the period from and after effectiveness of
this Agreement and prior to the First Closing Date and, with respect to
the Optional Common Shares (if not purchased on the First Closing
Date), the Second Closing Date:
(i) the Company shall have filed the Prospectus with
the Commission (including the information required by Rule
430A under the Securities Act) in the manner and within the
time period required by Rule 424(b) under the Securities Act;
or the Company shall have filed a post-effective amendment to
the Registration Statement containing the information required
by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon
Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed
a Term Sheet with the Commission in the manner and within the
time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of
the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment to the Registration
Statement, shall be in effect and no proceedings for such
purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and
arrangements.
(c) No Material Adverse Change. For the period from and after
the date of this Agreement and prior to the First Closing Date and,
with respect to the Optional Common Shares (if not purchased on the
First Closing Date), the
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Second Closing Date, in the judgment of the Representatives there shall
not have occurred any Material Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First
Closing Date and, with respect to the Optional Common Shares (if not
purchased on the First Closing Date), the Second Closing Date the
Representatives shall have received the opinion of Foley, Hoag & Eliot
LLP, counsel for the Company, dated as of such Closing Date, the form
of which is attached as Exhibit A (and each Representative shall have
received an additional conformed copy of such counsel's legal opinion).
(e) Opinion of Counsel for the Underwriters. On each of the
First Closing Date and, with respect to the Optional Common Shares (if
not purchased on the First Closing Date), the Second Closing Date the
Representatives shall have received the opinion of Hale and Dorr LLP,
counsel for the Underwriters, dated as of such Closing Date, with
respect to such matters as may be reasonably requested by the
Representatives (and each Representative shall have received an
additional conformed copy of such counsel's legal opinion).
(f) Officers' Certificate. On each of the First Closing Date
and, with respect to the Optional Common Shares (if not purchased on
the First Closing Date), the Second Closing Date the Representatives
shall have received a written certificate executed by the Chairman of
the Board, Chief Executive Officer or President of the Company and the
Chief Financial Officer or Chief Accounting Officer of the Company,
dated as of such Closing Date, to the effect set forth in subsection
(b)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not
occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of
the Company set forth in Section 1(A) of this Agreement are
true and correct with the same force and effect as though
expressly made on and as of such Closing Date; and
(iii) the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing
Date and, with respect to the Optional Common Shares (if not purchased
on the First
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Closing Date), the Second Closing Date the Representatives shall have
received from Ernst & Young LLP, independent public or certified public
accountants for the Company, a letter dated such date, in form and
substance satisfactory to the Representatives, to the effect that they
reaffirm the statements made in the letter furnished by them pursuant
to subsection (a) of this Section 5, except that the specified date
referred to therein for the carrying out of procedures shall be no more
than three business days prior to the First Closing Date or Second
Closing Date, as the case may be (and each Representative shall have
received an additional conformed copy of such accountants' letter).
(h) Opinion of Counsel for the Selling Stockholders. On each
of the First Closing Date and, with respect to the Optional Common
Shares (if not purchased on the First Closing Date), the Second Closing
Date the Representatives shall have received the opinion of Foley, Hoag
& Eliot LLP, special counsel for the Selling Stockholders, dated as of
such Closing Date, the form of which is attached as Exhibit B (and each
Representative shall have received an additional conformed copy of such
counsel's legal opinion).
(i) Selling Stockholders' Certificate. On each of the First
Closing Date and, with respect to the Optional Common Shares (if not
purchased on the First Closing Date), the Second Closing Date the
Representatives shall have received a written certificate executed by
an Attorney-in-Fact of each Selling Stockholder, dated as of such
Closing Date, to the effect that:
(i) the representations, warranties and covenants of
such Selling Stockholder set forth in Section 1(B) of this
Agreement are true and correct with the same force and effect
as though expressly made by such Selling Stockholder on and as
of such Closing Date; and
(ii) such Selling Stockholder has complied with all
the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to such Closing Date.
(j) Selling Stockholders' Documents. On the date hereof, the
Company and the Selling Stockholders shall have furnished for review by
the Representatives copies of the Powers of Attorney and Custody
Agreements executed by each of the Selling Stockholders and such
further information, certificates and documents as the Representatives
may reasonably request.
(k) Lock-Up Agreement from Certain Stockholders of the Company
Other Than Selling Stockholders. On the date hereof, the Company shall
have furnished to the Representatives an agreement in the form of
Exhibit C hereto from each
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director, officer and each beneficial owner of Common Stock (as defined
and determined according to Rule 13d-3 under the Exchange Act, except
that a 180-day period shall be used rather than the 60-day period set
forth therein), other than the Selling Stockholders, and such agreement
shall be in full force and effect on each of the First Closing Date and
the Second Closing Date.
(l) Additional Documents. On or before each of the First
Closing Date and, with respect to the Optional Common Shares (if not
purchased on the First Closing Date), the Second Closing Date, the
Representatives and counsel for the Underwriters shall have received
such other information and documents as they may reasonably require for
the purposes of enabling them to pass upon the issuance and sale of the
Common Shares as contemplated herein, or in order to evidence the
accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and an Attorney-in-Fact at any time on
or prior to the First Closing Date and, with respect to the Optional Common
Shares (if not purchased on the First Closing Date), at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that this paragraph, Section 4, Section 6,
Section 8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 5, clauses (i), (v) or
(vi) of Section 11 or Section 17, or if the sale to the Underwriters of the
Common Shares on the First Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company or a Selling
Stockholder to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Representatives and the other Underwriters
in connection with the proposed purchase and the offering and sale of the Common
Shares, including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of
(i) the execution of this Agreement by the parties hereto and (ii) notification
by the Commission to the Company of the effectiveness of the Registration
Statement under
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the Securities Act, and the notification by the Company to the Representatives
of the receipt of such notification by the Commission.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company or the
Selling Stockholders to any Underwriter, except that the Company shall be
obligated to reimburse the expenses of the Representatives and the Underwriters
pursuant to Section 4 hereof, (b) of any Underwriter to the Company or any
Selling Stockholder, or (c) of any party hereto to any other party, except that
the provisions of this paragraph, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company and each
of the Selling Stockholders, jointly and severally, agree to indemnify
and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of
the Securities Act and the Exchange Act against any loss, claim,
damage, liability or expense, as incurred, to which such Underwriter or
such controlling person may become subject, under the Securities Act,
the Exchange Act or other federal or state statutory law or regulation,
or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of
the Company), insofar as such loss, claim, damage, liability or expense
(or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, or any amendment
thereto, including any information deemed to be a part thereof pursuant
to Rule 430A or Rule 434 under the Securities Act, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading; or
(ii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; or (iii) in whole or in part upon any
inaccuracy in the representations and warranties of the Company or the
Selling Stockholders contained herein; or (iv) in whole or in part upon
any failure of the Company or the Selling Stockholders to perform their
respective obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter
in connection with, or relating in any manner to, the offering
contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage,
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liability or action arising out of or based upon any matter covered by
clause (i) or (ii) above; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the
reasonable fees and disbursements of counsel chosen by NMS) as such
expenses are reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage,
liability, expense or action. Notwithstanding the foregoing: (A)
neither the Company nor any Selling Stockholder shall be liable under
clause (v) of the preceding sentence to the extent that a court of
competent jurisdiction shall have determined by a final judgment that
such loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be taken by
such Underwriter through its bad faith, negligence or willful
misconduct; (B) the indemnity and reimbursement agreements in the
preceding sentence shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity
with written information furnished to the Company by the
Representatives expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto); (C) with respect to any preliminary prospectus,
the indemnity and reimbursement agreements in the preceding sentence
shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased
Common Shares, or any person controlling such Underwriter, if copies of
the Prospectus were timely delivered to the Underwriter pursuant to
Section 2 and a copy of the Prospectus (as then amended or supplemented
if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to
such person, if required by law so to have been delivered, at or prior
to the written confirmation of the sale of the Common Shares to such
person, and if the Prospectus (as so amended or supplemented) would
have cured the defect giving rise to such loss, claim, damage,
liability or expense; (D) the indemnity and reimbursement agreements of
a Selling Stockholder set forth in clauses (iii) and (iv) of the
preceding sentence shall not apply to any inaccuracy in the
representations and warranties of the Company or any other Selling
Stockholder or to any failure of the Company or any other Selling
Stockholder to perform their respective obligations hereunder or under
law; (E) the liability of each Selling Stockholder under the indemnity
and reimbursement agreements in the preceding sentence, or otherwise
for a breach of such Selling Stockholder's representations or
warranties set forth in this Agreement, shall be limited to an amount
equal to the initial public offering price of the Common Shares sold by
such Selling Stockholder, less the underwriting discount, as set forth
on the front cover page of the Prospectus; and (F) the
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Company and the Selling Stockholders may agree, as among themselves and
without limiting the rights of the Underwriters under this Agreement,
as to the respective amounts of such liability for which they each
shall be responsible. The indemnity and reimbursement agreements set
forth in this Section 8(a) shall be in addition to any liabilities that
the Company and the Selling Stockholders may otherwise have.
(b) Indemnification of the Company, its Directors and
Officers. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement, the Selling
Stockholders and each person, if any, who controls the Company or any
Selling Stockholder within the meaning of the Securities Act or the
Exchange Act, against any loss, claim, damage, liability or expense, as
incurred, to which the Company, or any such director, officer, Selling
Stockholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon (i) upon any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule
434 under the Securities Act, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading; or (ii) upon any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
in each case under clause (i) above and this clause (ii) to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment
or supplement thereto), in reliance upon and in conformity with written
information furnished to the Company by a Representative expressly for
use therein; or (iii) in whole or in part upon any failure of the
Company or the Selling Stockholders to perform their respective
obligations hereunder or under law; and to reimburse the Company, and
each such director, officer, Selling Stockholder and controlling person
for any legal and other expense reasonably incurred by the Company, or
any such director, officer, Selling Stockholder or controlling person
in connection with investigating, defending, settling, compromising or
paying any such loss,
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claim, damage, liability, expense or action. The Company and each of
the Selling Stockholders hereby acknowledge that the only information
that the Underwriters have furnished to the Company expressly for use
in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) are the statements
set forth (A) as the paragraph on the inside front cover page of each
preliminary prospectus the Prospectus concerning stabilization by the
Underwriters and (B) in the table in the first paragraph and as the
second, seventh, eighth and ninth paragraphs under the caption
"Underwriting" in the Prospectus; and the Underwriters confirm that
such statements are correct. The indemnity and reimbursement agreements
set forth in this Section 8(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying
party under this Section 8, notify the indemnifying party in writing of
the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it
is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that a conflict may arise between
the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party
of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by
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such indemnified party in connection with the defense thereof unless
(i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable
for the fees and expenses of more than one separate counsel (together
with local counsel), approved by the indemnifying party (NMS in the
case of Section 8(b) and Section 9), representing the indemnified
parties who are parties to such action) or (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after
notice of commencement of the action, in each of which cases the
reasonable fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) Settlements. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request,
(ii) such indemnifying party shall have received notice of the specific
terms of such settlement at least 15 days prior to such settlement
being effected, and (iii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior
to the date of such settlement. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any
pending or threatened action, suit or proceeding in respect of which
any indemnified party is or could have been a party and indemnity was
or could have been sought hereunder by such indemnified party, unless
such settlement, compromise or consent includes an unconditional
release of such indemnified party from all liability on claims that are
the subject matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for in
Section 8 is for any reason held to be unavailable to or otherwise insufficient
to hold harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion
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as is appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders, on the one hand, and the Underwriters, on the other
hand, from the offering of the Common Shares pursuant to this Agreement or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Stockholders, on the one hand, and the Underwriters, on
the other hand, in connection with the statements in or omissions from any
preliminary prospectus, the Prospectus or the Registration Statement (or any
amendment or supplement to any of the foregoing) or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders, on the one hand, and the Underwriters, on the other hand, in
connection with the offering of the Common Shares pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Common Shares pursuant to this Agreement
(before deducting expenses) received by the Company and the Selling
Stockholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company and the Selling
Stockholders, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company or the
Selling Stockholders, on the one hand, or the Underwriters, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating, defending, settling or compromising any action or claim. The
provisions set forth in Section 8(c) with respect to notice of commencement of
any action shall apply if a claim for contribution is to be made under this
Section 9; provided, however, that no additional notice shall be required with
respect to any action for which notice has been given under Section 8(c) for
purposes of indemnification.
The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the Underwriters were
treated as one entity
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for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public nor shall any
Selling Stockholder be required to contribute any amount in excess of the
initial public offering price of the Common Shares sold by such Selling
Stockholder, less the underwriting discount, as set forth on the front cover
page of the Prospectus. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several, and not joint, in proportion to their respective
underwriting commitments as set forth opposite their names in Schedule A. For
purposes of this Section 9, each officer and employee of an Underwriter and each
person, if any, who controls an Underwriter within the meaning of the Securities
Act and the Exchange Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Securities Act and the Exchange Act shall have
the same rights to contribution as the Company, and each person, if any, who
controls a Selling Stockholder within the meaning of the Securities Act and the
Exchange Act shall have the same rights to contribution as such Selling
Stockholder.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the
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purchase of such Common Shares are not made within 48 hours after such default,
this Agreement shall terminate without liability of any non-defaulting party to
any other party except that the provisions of this sentence, Section 4,
Section 8 and Section 9 shall at all times be effective and shall survive such
termination. In any such case either the Representatives or the Company shall
have the right to postpone the First Closing Date or the Second Closing Date, as
the case may be, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement may be terminated by the Representatives by notice given to
the Company and the Custodian if at any time (i) trading or quotation in any of
the Company's securities shall have been suspended or limited by the Commission
or by the Nasdaq Stock Market; (ii) trading in securities generally on either
the Nasdaq Stock Market or the New York Stock Exchange shall have been suspended
or limited, or minimum or maximum prices shall have been generally established
on any of such stock exchanges by the Commission or the NASD; (iii) a general
banking moratorium shall have been declared by any of federal, New York or
California authorities; (iv) there shall have occurred any outbreak or
escalation of national or international hostilities or any crisis or calamity,
or any change in the United States or international financial markets, or any
substantial change or development involving a prospective substantial change in
United States' or international political, financial or economic conditions, as
in the judgment of the Representatives is material and adverse and makes it
impracticable to market the Common Shares in the manner and on the terms
described in the Prospectus or to enforce contracts for the sale of securities;
(v) in the judgment of the Representatives there shall have occurred any
Material Adverse Change; or (vi) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Representatives may interfere materially with the conduct
of the business and operations of the Company regardless of whether or not such
loss shall have been insured. Any termination pursuant to this Section 11 shall
be without liability on the part of (a) the Company or the Selling Stockholders
to any Underwriter, except that the Company and the Selling Stockholders shall
be obligated to reimburse the expenses of the Representatives and the other
Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the
Company or any Selling Stockholder, or (c) of any party hereto to any other
party except that the provisions of this sentence, Section 8 and Section 9 shall
at all times be effective and shall survive such termination.
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SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Charles River Associates Incorporated
200 Clarendon Street
Boston, Massachusetts 02116
Facsimile: (617) 425-3132
Attention: President
-34-
<PAGE> 39
With a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 832-7000
Attention: Peter M. Rosenblum, Esq.
If to the Selling Stockholders:
Boston EquiServe, L.P.
150 Royall Street
Canton, MA 02021
Facsimile: (781) 575-2549
Attention: Carole McHugh
With a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 832-7000
Attention: Peter M. Rosenblum, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. No assignment shall
relieve any party of its obligations hereunder. The term "successors" shall not
include any purchaser of the Common Shares as such from any of the Underwriters
merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
-35-
<PAGE> 40
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL
AND DELIVER COMMON SHARES. If one or more of the Selling Stockholders shall fail
to sell and deliver to the Underwriters the Common Shares to be sold and
delivered by such Selling Stockholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representatives to the Company and the Custodian, either (i) terminate
this Agreement without any liability on the part of any Underwriter or, except
as provided in Sections 4, 6, 8 and 9 hereof, the Company or the Selling
Stockholders (other than such defaulting Selling Stockholders), or (ii) purchase
the shares which the Company and the other Selling Stockholders have agreed to
sell and deliver in accordance with the terms hereof. If one or more of the
Selling Stockholders shall fail to sell and deliver to the Underwriters the
Common Shares to be sold and delivered by such Selling Stockholders pursuant to
this Agreement at the First Closing Date or the Second Closing Date, then the
Underwriters shall have the right, by written notice from the Representatives to
the Company and the Custodian, to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section and paragraph headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of
-36-
<PAGE> 41
Sections 8 and 9 hereto fairly allocate the risks in light of the ability of the
parties to investigate the Company, its affairs and its business in order to
assure that adequate disclosure has been made in the Registration Statement, any
preliminary prospectus and the Prospectus (and any amendments and supplements
thereto), as required by the Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company and the Custodian the
enclosed copies hereof, whereupon this instrument, along with all counterparts
hereof, shall become a binding agreement in accordance with its terms.
Very truly yours,
CHARLES RIVER ASSOCIATES
INCORPORATED
By: ____________________________________
President
EACH OF THE SELLING STOCKHOLDERS
By: ____________________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives in San Francisco, California as of the date
first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
WILLIAM BLAIR & COMPANY, L.L.C.
Acting as Representatives of the several Underwriters named in the attached
Schedule A.
By NATIONSBANC MONTGOMERY SECURITIES LLC
-37-
<PAGE> 42
By:_________________________________
-38-
<PAGE> 43
SCHEDULE A
NUMBER OF
FIRM COMMON SHARES
UNDERWRITERS TO BE PURCHASED
------------ ---------------
NationsBanc Montgomery Securities LLC......................
William Blair & Company, L.L.C.............................
...........................................................
...........................................................
...........................................................
----------------
Total......................................................
================
<PAGE> 44
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF FIRM MAXIMUM NUMBER OF
COMMON SHARES OPTIONAL COMMON
SELLING STOCKHOLDER TO BE SOLD SHARES TO BE SOLD
---------- -----------------
<S> <C> <C>
Franklin M. Fisher......................... 72,248 10,838
Steven C. Salop............................ 52,000 7,800
Firoze E. Katrak........................... 34,057 5,110
Rowland T. Moriarty........................ 41,080 6,162
William B. Burnett......................... 34,488 5,174
Carl Kaysen................................ 7,473 1,121
Richard S. Ruback.......................... 31,200 4,680
Jagdish C. Agarwal......................... 22,993 3,449
Thomas R. Overstreet....................... 22,993 3,449
Alan R. Willens............................ 20,803 3,120
Stanley M. Besen........................... 20,119 3,018
Michael A. Kemp............................ 20,119 3,018
Bridger M. Mitchell........................ 20,119 3,018
Deloris R. Wright.......................... 20,119 3,018
Raju Patel................................. 14,370 2,156
Daniel Brand............................... 13,221 1,983
Steven R. Brenner.......................... 13,221 1,983
George C. Eads............................. 13,221 1,983
W. David Montgomery........................ 13,221 1,983
Gary L. Roberts............................ 13,221 1,983
Louis L. Wilde............................. 13,221 1,983
Stephen H. Kalos........................... 11,496 1,724
Arnold J. Lowenstein....................... 11,496 1,724
C. Christopher Maxwell..................... 11,496 1,724
Robert M. Spann............................ 11,496 1,724
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C>
John R. Woodbury........................................ 11,496 1,724
Monica G. Noether....................................... 10,921 1,638
Robert J. Larner and
Anne M. Larner.......................................... 9,916 1,487
Joen E. Greenwood....................................... 9,795 1,469
William R. Hughes....................................... 8,622 1,293
Gregory K. Bell......................................... 7,185 1,078
Paul R. Milgrom......................................... 5,200 780
Douglas R. Bohi......................................... 2,874 431
------- ------
Total:......................................... 625,500 93,825
======= ======
</TABLE>
<PAGE> 46
EXHIBIT A
[The final opinion in draft form should be attached as Exhibit A at the time
this Agreement is executed.]
Opinion of Counsel for the Company
References to the Prospectus in this Exhibit A include any
supplements thereto at the Closing Date. References to the Registration
Statement include any Rule 462(b) Registration Statement.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of The Commonwealth of
Massachusetts.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(iv) The Subsidiary has been duly organized and is validly
existing as a limited liability company in good standing under the laws of the
Commonwealth of Massachusetts, has the power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and, to the best knowledge of such counsel, is duly qualified to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(v) The Company is the legal and beneficial owner of its
membership interest in the Subsidiary, as described in the Prospectus.
(vi) Immediately prior to the issue and sale of Common Shares
pursuant to the Agreement on the date hereof, the authorized capital stock of
the Company was comprised of 25,000,000 shares of Common Stock, without par
value, _____ of which were outstanding of record, and 1,000,000 shares of
Preferred Stock,
<PAGE> 47
without par value, none of which were outstanding of record. The capital stock
of the Company (including the Common Stock) conforms to the descriptions thereof
set forth in the Prospectus under the heading "Description of Capital Stock".
All of the outstanding shares of Common Stock (including the shares of Common
Stock owned by Selling Stockholders) have been duly authorized and validly
issued, are (except, in the case of shares purchased by officers of the Company
under agreements which provide for the purchase price to be paid in
installments, to the extent of the installments which are not yet due and
payable) fully paid and nonassessable and, to the best of such counsel's
knowledge, have been issued in compliance with the registration and
qualification requirements of federal and state securities laws. The form of
certificate used to evidence the Common Stock is in due and proper form and
complies with all applicable requirements of the charter and by-laws of the
Company and the Business Corporation Law of The Commonwealth of Massachusetts.
The description of the Company's stock option and stock purchase plans, and the
options or other rights granted and exercised thereunder, set forth in the
Prospectus is an accurate and fair description in all material respects of such
plans, arrangements, options and rights.
(vii) No stockholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to subscribe
for or purchase securities of the Company arising (i) by operation of the
charter or by-laws of the Company or the Business Corporation Law of The
Commonwealth of Massachusetts or (ii) to the best knowledge of such counsel,
otherwise.
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.
(ix) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant to
the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable.
(x) Based solely on the oral advice of the staff of the
Commission, the Registration Statement has been declared effective by the
Commission under the Securities Act. To the best knowledge of such counsel, no
stop order suspending the effectiveness of either of the Registration Statement
or the Rule 462(b) Registration Statement, if any, has been issued under the
Securities Act and, to the best knowledge of such counsel, no proceedings for
such purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus under Rule
424(b) under the Securities Act has been made in the manner and within the time
period required by such Rule 424(b).
(xi) The Registration Statement, the Prospectus and each
amendment or supplement to the Registration Statement and the Prospectus, as of
their respective effective or issue dates (other than the financial statements
and supporting schedules
<PAGE> 48
included therein, as to which no opinion need be rendered), comply as to form in
all material respects with the applicable requirements of the Securities Act.
Such counsel may state that it is rendering no opinion as to the accuracy of any
financial or accounting data contained therein.
(xii) Based solely on a letter dated _________, 1998 from, and
subsequent conversations with members of the staff of, the Nasdaq Stock Market,
the Common Shares have been approved for listing on the Nasdaq National Market.
(xiii) The statements (i) in the Prospectus under the captions
"Description of Capital Stock," "Management's Discussion and Analysis and
Results of Operations--Liquidity and Capital Resources," "Business--Legal
Proceedings," "Certain Transactions,"and "Shares Eligible for Future Sale," and
(ii) in Item 14 and Item 15 of the Registration Statement, insofar as such
statements constitute matters of law, summaries of legal matters, the Company's
charter or by-law provisions, documents or legal proceedings, or legal
conclusions, has been reviewed by such counsel and fairly present and summarize,
in all material respects, the matters referred to therein.
(xiv) To the best knowledge of such counsel, there are no
legal or governmental actions, suits or proceedings pending or threatened which
are required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the best knowledge of such counsel, there are no
Existing Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto;
and the descriptions thereof and references thereto are correct in all material
respects.
(xvi) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental authority or
agency, is required for the execution, delivery and performance of the
Underwriting Agreement by the Company and consummation by the Company of the
transactions contemplated thereby and by the Prospectus, except as required
under the Securities Act, Section 12(g) of the Exchange Act, applicable state
securities or blue sky laws and from the NASD.
(xvii) The execution and delivery of the Underwriting
Agreement by the Company and the performance by the Company of its obligations
thereunder (other than performance by the Company of its obligations under the
indemnification and contribution sections of the Underwriting Agreement, as to
which no opinion need be rendered) (i) have been duly authorized by all
necessary corporate action on the part of the Company; (ii) will not result in
any violation of the provisions of the charter, by-laws or other organizational
documents of the Company or the Subsidiary; (iii) will not
<PAGE> 49
constitute a breach of, or Default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or the Subsidiary pursuant to, (A) the Company's revolving line of
credit with BankBoston Corporation, or (B) to the best knowledge of such
counsel, any other material Existing Instrument; or (iv) to the best knowledge
of such counsel, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company or the
Subsidiary.
(xviii) The Company is not, and after receipt of payment for
the Common Shares sold by it will not be, an "investment company" within the
meaning of the Investment Company Act.
(xix) To the best knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by the Underwriting Agreement, except for such rights
as have been duly waived.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of
the Company, representatives of the independent public or certified
public accountants for the Company and with representatives of the
Underwriters at which the contents of the Registration Statement and
the Prospectus, and any supplements or amendments thereto, and related
matters were discussed and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement
or the Prospectus (other than as specified above), and any supplements
or amendments thereto, and (except as specifically set forth in this
opinion) have not made any independent confirmation or verification
thereof, on the basis of the foregoing (and relying, as to materiality,
upon the statements of officers and other representatives of the
Company), nothing has come to their attention which would lead them to
believe either that the Registration Statement or any amendments
thereto, at the time the Registration Statement or such amendments
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second
Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading (it being understood that such
counsel need express no belief as to the financial statements or
schedules or other financial or statistical data derived therefrom,
included in the Registration Statement or the Prospectus or any
amendments or supplements thereto).
<PAGE> 50
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than those
of The Commonwealth of Massachusetts, the General Corporation Law of the State
of Delaware and the federal law of the United States, to the extent they deem
proper and specified in such opinion, upon the opinion (which shall be dated the
First Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Representatives) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials.
<PAGE> 51
EXHIBIT B
[The final opinion in draft form should be attached as Exhibit B at the time
this Agreement is executed.]
Opinion of Counsel for the Selling Stockholders
[FH&E to add introductory language]
The opinion shall be rendered to the Representatives at the request of
the Company and shall so state therein. References to the Prospectus in this
Exhibit B include any supplements thereto at the Closing Date.
(i) The Underwriting Agreement has been duly executed and
delivered by or on behalf of, and is a valid and binding agreement of, each
Selling Stockholder, enforceable in accordance with its terms, except as rights
to indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(ii) The execution and delivery by each Selling Stockholder
of, and the performance by such Selling Stockholder of his or her obligations
under, the Underwriting Agreement and his or her Custody Agreement and his or
her Power of Attorney will not, to the best of such counsel's knowledge, violate
or contravene any provision of applicable law or regulation, or violate, result
in a breach of or constitute a default under the terms of any agreement or
instrument to which such Selling Stockholder is a party or by which he or she is
bound, or any judgment, order or decree applicable to such Selling Stockholder
of any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Stockholder.
(iii) Each Selling Stockholder is the sole record owner of all
of the Common Shares which may be sold by such Selling Stockholder under the
Underwriting Agreement and has the legal right and power to enter into the
Underwriting Agreement and his or her Custody Agreement and his or her Power of
Attorney, to sell, transfer and deliver all of the Common Shares which may sold
by such Selling Stockholder under the Underwriting Agreement and to comply with
his or her other obligations under the Underwriting Agreement, his or her
Custody Agreement and his or her Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of
each Selling Stockholder has been duly executed and delivered by such Selling
Stockholder and is a valid and binding agreement of such Selling Stockholder,
enforceable in
<PAGE> 52
accordance with its terms, except as rights to indemnification thereunder may be
limited by applicable law and except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles.
(v) Assuming that the Underwriters purchase the Common Shares
which are sold by such Selling Stockholder pursuant to the Underwriting
Agreement for value and without notice of any adverse claim (within the meaning
of Section 8-303 of Chapter 106 of the Massachusetts General Laws) to the
Common Shares, the delivery of such Common Shares pursuant to the Underwriting
Agreement will pass good and valid title to such Common Shares, free and clear
of any such adverse claim.
(vi) To the best of such counsel's knowledge, no consent,
approval, authorization or other order of, or registration or filing with, any
court or governmental authority or agency, is required for the consummation by
such Selling Stockholder of the transactions contemplated in the Underwriting
Agreement, except as required under the Securities Act, Section 12(g) of the
Exchange Act, applicable state securities or blue sky laws, and from the NASD.
<PAGE> 53
EXHIBIT C
<PAGE> 1
Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
of
CHARLES RIVER ASSOCIATES INCORPORATED
ARTICLE I
Articles of Organization
------------------------
The name and purposes of the Corporation shall be as set forth in the
Articles of Organization. These By-Laws, the powers of the Corporation and its
Directors and Stockholders, and all matters concerning the conduct and
regulation of the business of the Corporation, shall be subject to such
provisions in regard thereto, if any, as are set forth in the Articles of
Organization. All references in these By-Laws to the Articles of Organization
shall be construed to mean the Articles of Organization of the Corporation as
from time to time amended or restated.
ARTICLE II
Fiscal Year
-----------
Except as from time to time otherwise determined by the Directors, the
fiscal year of the Corporation shall end on the last Saturday of November in
each year.
ARTICLE III
Meetings of Stockholders
------------------------
SECTION 3.1. ANNUAL MEETINGS.
The annual meeting of Stockholders shall be held on the third Friday in
April of each year (or if that be a legal holiday in the place where the meeting
is to be held, on the next succeeding full business day) at 10:00 a.m. unless a
different hour is fixed by the Board of Directors or the President. The purposes
for which the annual meeting is to be held, in addition to those prescribed by
law, by the Articles of Organization or by these By-Laws, may be specified by
the Board of Directors or the President. If no annual meeting has been held on
the date fixed above, or by adjournment therefrom, a special meeting in lieu
thereof may be held and any action taken at such special meeting shall have the
same force and effect as if taken at the annual meeting.
Notwithstanding any other provision in these By-Laws, the Board of
Directors may change the date, time and place of any annual or special meeting
of the Stockholders (other than a special meeting called upon the written
application of Stockholders (a "Meeting Requested by Stockholders")) prior to
the time for such meeting, including, without limitation, by postponing or
deferring the date of any such annual or special meeting (other than a Meeting
Requested by Stockholders) previously called or by canceling any special meeting
previously called (other than a Meeting Requested by Stockholders).
<PAGE> 2
SECTION 3.2. SPECIAL MEETINGS.
(a) Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of the Stockholders
entitled to vote may be called by the Board of Directors, the Chairman of the
Board of Directors or the President.
(b) If the Corporation shall not have a class of voting stock
registered under the Securities Exchange Act of 1934, as amended (including any
successor statute, the "Exchange Act"), special meetings of the Stockholders
entitled to vote shall be called by the Clerk, or in case of the death, absence,
incapacity or refusal of the Clerk, by any other officer, upon written
application of one or more Stockholders who are entitled to vote and who hold at
least ten percent (10%) in interest of the capital stock entitled to vote at the
meeting.
(c) If the Corporation shall have a class of voting stock registered
under the Exchange Act, special meetings of the Stockholders entitled to vote
shall be called by the Clerk, or in case of the death, absence, incapacity or
refusal of the Clerk, by any other officer, upon written application of one or
more Stockholders who are entitled to vote and who hold at least forty percent
(40%) in interest of the capital stock entitled to vote at the meeting.
SECTION 3.3. PLACE OF MEETINGS.
All meetings of the Stockholders shall be held at the principal office
of the Corporation in Massachusetts, unless a different place within
Massachusetts or, to the extent permitted by the Articles of Organization,
elsewhere within the United States is designated by the President or by the
Board of Directors. Any adjourned session of any meeting of the Stockholders
shall be held at such place within Massachusetts or, if permitted by the
Articles of Organization, elsewhere within the United States as is designated in
the vote of adjournment.
SECTION 3.4. NOTICE OF MEETINGS.
A written notice of the place, date and hour of all meetings of
Stockholders stating the purposes of the meeting shall be given at least ten
(10) days before the meeting to each Stockholder entitled to vote thereat and to
each Stockholder who is otherwise entitled by law, by the Articles of
Organization or by these By-Laws to such notice, by leaving such notice with him
or at his residence or usual place of business, or by mailing it, postage
prepaid, and addressed to such Stockholder at his address as it appears in the
records of the Corporation. Such notice shall be given by the Clerk, or in case
of the death, absence, incapacity, or refusal of the Clerk, by any other officer
or by a person designated either by the Clerk, by the person or persons calling
the meeting or by the Board of Directors. If notice is given by mail, such
notice shall be deemed given when dispatched. If notice is not given by mail and
is given by leaving such notice at the Stockholder's residence or usual place of
business, it shall be deemed given when so left. Whenever notice of a meeting is
required to be given to a Stockholder under any provision of law, of the
Articles of Organization or of these By-laws, a written waiver thereof, executed
before or after the meeting by such Stockholder or his attorney thereunto
authorized, and filed with the records of the meeting, shall be deemed
equivalent to such notice. Every Stockholder who is present at a meeting
(whether in person or by proxy) shall
2
<PAGE> 3
be deemed to have waived notice thereof. A waiver of notice of any meeting need
not specify the purposes of such meeting.
SECTION 3.5. NOTICE OF STOCKHOLDER BUSINESS AT A MEETING OF THE
STOCKHOLDERS.
The following provisions of this Section 3.5 shall apply to the conduct
of business at any meeting of the Stockholders. As used in this Section 3.5, the
term annual meeting shall include a special meeting in lieu of an annual
meeting.
(a) At any meeting of the Stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any Stockholder of the Corporation who is a Stockholder of
record at the time of giving of the notice provided for in paragraph (b) of this
Section 3.5, who is entitled to vote at such meeting and who complies with the
notice procedures set forth in paragraph (b) of this Section 3.5.
(b) For business to be properly brought before any meeting of the
Stockholders by a Stockholder pursuant to clause (iii) of paragraph (a) of this
Section 3.5, the Stockholder must have given timely notice thereof in writing to
the Clerk of the Corporation. To be timely, a Stockholder's notice must be
delivered to or mailed to and received at the principal executive offices of the
Corporation (i) in the case of an annual meeting, not less than sixty (60) days
nor more than ninety (90) days prior to the date specified in Section 3.1 above
for such annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if a
special meeting in lieu of an annual meeting of Stockholders is to be held on a
date prior to the date specified in Section 3.1 above, and if less than seventy
(70) days' notice or prior public disclosure of the date of such special meeting
in lieu of an annual meeting is given or made, notice by the Stockholder to be
timely must be so delivered or received not later than the close of business on
the tenth (10th) day following the earlier of the day on which notice of the
date of such special meeting in lieu of an annual meeting was mailed or the day
on which public disclosure was made of the date of such special meeting in lieu
of an annual meeting; and (ii) in the case of a special meeting (other than a
special meeting in lieu of an annual meeting), not later than the tenth (10th)
day following the earlier of the day on which notice of the date of the
scheduled meeting was mailed or the day on which public disclosure was made of
the date of the scheduled meeting. A Stockholder's notice to the Clerk shall set
forth as to each matter the Stockholder proposes to bring before the meeting (w)
a brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (x) the name and
address, as they appear on the Corporation's books, of the Stockholder proposing
such business, the name and address of the beneficial owner, if any, on whose
behalf the proposal is made, and the name and address of any other Stockholders
or beneficial owners known by such Stockholder to be supporting such proposal,
(y) the class and number of shares of the capital stock of the Corporation which
are owned beneficially and of record by such Stockholder of record, by the
beneficial owner, if any, on whose behalf the proposal is made and by any other
Stockholders or beneficial owners known by such Stockholder to be supporting
such proposal, and (z) any material interest of such Stockholder of record
and/or of the beneficial owner, if any, on whose behalf the proposal is made, in
such proposed business and any material interest of any other Stockholders or
beneficial owners known by such
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Stockholder to be supporting such proposal in such proposed business, to the
extent known by such Stockholder.
(c) Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at a meeting except in accordance with the
procedures set forth in this Section 3.5. The person presiding at the meeting
shall, if the facts warrant, determine that business was not properly brought
before the meeting and in accordance with the procedures prescribed by these
By-Laws, and if he should so determine, he shall so declare at the meeting and
any such business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Section 3.5, a
Stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 3.5.
(d) This Section 3.5 shall not prevent the consideration and approval
or disapproval at the meeting of reports of officers, Directors and committees
of the Board of Directors, but, in connection with such reports, no new business
shall be acted upon at such meeting unless properly brought before the meeting
as provided in these By-Laws.
SECTION 3.6. QUORUM.
At any meeting of the Stockholders, a quorum shall consist of a
majority in interest of all stock issued, outstanding and entitled to vote at
the meeting; except that if two or more classes or series of stock are
outstanding and entitled to vote on any matter as separate classes or series,
then in the case of each such class or series a quorum for that matter shall
consist of a majority in interest of all stock of that class or series issued,
outstanding and entitled to vote, except when a larger quorum is required by
law, by the Articles of Organization or by these By-Laws. Any meeting of the
Stockholders may be adjourned from time to time to any other time and to any
other place by a majority of the votes properly cast upon the question, whether
or not a quorum is present, and the meeting may be held as adjourned without
further notice. Any business which could have been transacted at any meeting of
the Stockholders as originally called may be transacted at any adjournment
thereof.
SECTION 3.7. ACTION BY VOTE.
When a quorum is present at any meeting, a plurality of the votes
properly cast for election to any office shall elect to such office, and a
majority of the votes properly cast (or if there are two or more classes or
series of stock entitled to vote as separate classes or series, then in the case
of each such class or series, a majority of the stock of that class or series
present or represented and entitled to vote and voting) upon any question other
than an election to an office shall decide the question, except when a larger
vote is required by law, by the Articles of Organization or by these By-Laws. No
ballot shall be required for any election unless requested by a Stockholder
present or represented at the meeting and entitled to vote in the election.
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SECTION 3.8. VOTING.
Stockholders entitled to vote shall have one vote for each share of
stock entitled to vote held by them of record according to the records of the
Corporation and a proportionate vote for a fractional share, unless otherwise
provided or required by law, by the Articles of Organization or by these
By-Laws. The vote for each share of stock held in the name of two or more
persons shall be cast in accordance with the decision of any one of them unless
at or prior to the time the vote is cast the Corporation receives a specific
written notice to the contrary from any one of them (which notice to the
contrary need not be in writing if given in person at the meeting at which the
vote is to be cast), in which case the vote for each share of stock held in the
name of such persons shall be cast in accordance with the decision of a majority
of such persons. The Corporation shall not, directly or indirectly, vote any
share of its own stock. Nothing in these By-Laws shall be construed to limit the
right of the Corporation to vote any shares of stock held directly or indirectly
by it in a fiduciary capacity.
SECTION 3.9. ACTION BY WRITTEN CONSENT OF STOCKHOLDERS.
Any action required or permitted to be taken at any meeting of the
Stockholders may be taken without a meeting if all Stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of Stockholders. Such consents shall be
treated for all purposes as a vote at a meeting.
SECTION 3.10. PROXIES.
Any Stockholder entitled to vote may vote either in person or by a
written proxy dated not more than six (6) months before the meeting named
therein, which proxy shall be filed with the Clerk or other person responsible
to record the proceedings of the meeting before being voted. Unless otherwise
specifically limited by their terms, such proxies shall entitle the holders
thereof to vote at any adjournment of such meeting but shall not be valid after
the final adjournment of such meeting. Proxies need not be sealed or attested.
Notwithstanding the foregoing, a proxy coupled with an interest sufficient in
law to support an irrevocable power, including, without limitation, an interest
in the stock or in the Corporation generally, may be made irrevocable if it so
provides, need not specify the meeting to which it relates, and shall be valid
and enforceable until the interest terminates, or for such shorter period as may
be specified in the proxy. A proxy with respect to stock held in the name of two
or more persons shall be valid if executed by any one of them unless at or prior
to exercise of the proxy the Corporation receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Stockholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the challenger.
SECTION 3.11. CONDUCT OF BUSINESS.
The President or his designee, or, if the office of President shall be
vacant, then a person appointed by the Board of Directors, shall preside at any
meeting of Stockholders as the chairman of the meeting. In addition to his
powers pursuant to Section 3.5(c), the person presiding at any
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meeting of Stockholders shall determine the order of business and the procedures
at the meeting, including such regulation of the manner of voting and the
conduct of discussion as seem to him in order.
ARTICLE IV
Directors
---------
SECTION 4.1. POWERS.
The business of the Corporation shall be managed by a Board of
Directors who shall have and may exercise all the powers of the Corporation
except as otherwise reserved to the Stockholders by law, by the Articles of
Organization or by these By-Laws. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled. Without
limiting the generality of the foregoing, the Board of Directors shall have the
power, unless otherwise provided by law, to purchase and to lease, pledge,
mortgage and sell all property of the Corporation (including to issue or sell
the stock of the Corporation) and to make such contracts and agreements as they
deem advantageous, to fix the price to be paid for or in connection with any
property or rights purchased, sold, or otherwise dealt with by the Corporation,
to borrow money, issue bonds, notes and other obligations of the Corporation,
and to secure payment thereof by mortgage or pledge of all or any part of the
property of the Corporation. The Board of Directors may determine the
compensation to be paid to Directors for their service as Directors. The Board
of Directors, or such officer or committee as the Board of Directors may
designate, may determine the compensation and duties, in addition to those
prescribed by these By-Laws, of all officers, agents and employees of the
Corporation.
SECTION 4.2. ENUMERATION, ELECTION, AND TERM OF OFFICE.
The Board of Directors, which shall be not less than three Directors,
shall be composed of such number as shall be fixed from time to time by a vote
of a majority of the entire Board of Directors; provided, however, that no
decrease in the number comprising the entire Board of Directors made pursuant to
this Section 4.2 shall shorten the term of any incumbent Director. The Board of
Directors shall be divided into three classes, as nearly equal in number as
possible. The Directors need not be Stockholders. At each annual meeting of
Stockholders, the successors to the class of Directors whose term expires at
that meeting shall be elected to hold office for a term continuing until the
annual meeting held in the third year following the year of their election and
until their successors are duly elected and qualified or until their earlier
resignation, death or removal; provided, that in the event of failure to hold
such an annual meeting or to hold such election at such meeting, the election of
Directors may be held at any special meeting of the Stockholders called for that
purpose. Directors, except those appointed by the Board of Directors to fill
vacancies, shall be elected by a plurality vote of the Stockholders, voting by
ballot either in person or by proxy. As used in these By-Laws, the expression
"entire Board of Directors" means the number of Directors in office at a
particular time.
SECTION 4.3. NOMINATION OF DIRECTORS.
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The following provisions of this Section 4.3 shall apply to the
nomination of persons for election to the Board of Directors.
(a) Nominations of persons for election to the Board of Directors of
the Corporation may be made (i) by or at the direction of the Board of Directors
or (ii) by any Stockholder of the Corporation who is a Stockholder of record at
the time of giving of the notice provided for in paragraph (b) of this Section
4.3, who is entitled to vote for the election of Directors at the meeting and
who complies with the notice procedures set forth in paragraph (b) of this
Section 4.3.
(b) Nominations by Stockholders shall be made pursuant to timely notice
in writing to the Clerk of the Corporation. To be timely, a Stockholder's notice
shall be delivered to or mailed to and received at the principal executive
offices of the Corporation, not less than sixty (60) days nor more than ninety
(90) days prior to the date specified in Section 3.1 above for the annual
meeting, regardless of any postponements, deferrals or adjournments of that
meeting to a later date; provided, however, that if a special meeting in lieu of
an annual meeting of Stockholders is to be held on a date prior to the date
specified in Section 3.1 above, and if less than seventy (70) days' notice or
prior public disclosure of the date of such special meeting in lieu of an annual
meeting is given or made, notice by the Stockholder to be timely must be so
delivered or received not later than the close of business on the tenth (10th)
day following the earlier of the day on which notice of the date of such special
meeting in lieu of an annual meeting was mailed or the day on which public
disclosure was made of the date of such special meeting in lieu of an annual
meeting. A Stockholder's notice to the Clerk shall set forth (x) as to each
person whom the Stockholder proposes to nominate for election or reelection as a
Director all information relating to such person that is required to be
disclosed in solicitations of proxies for the election of directors, or is
otherwise required, pursuant to Regulation 14A under the Exchange Act or
pursuant to any other then existing statute, rule or regulation applicable
thereto (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); (y) as to the
Stockholder giving the notice (1) the name and address, as they appear on the
Corporation's books, of such Stockholder and (2) the class and number of shares
of the capital stock of the Corporation which are beneficially owned by such
Stockholder and also which are owned of record by such Stockholder; and (z) as
to the beneficial owner, if any, on whose behalf the nomination is made, (1) the
name and address of such person and (2) the class and number of shares of the
capital stock of the Corporation which are beneficially owned by such person.
The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee as a Director. At the request of the Board
of Directors, any person nominated by the Board of Directors for election as a
Director shall furnish to the Clerk of the Corporation that information required
to be set forth in a Stockholder's notice of nomination which pertains to the
nominee.
(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 4.3. The person presiding at the meeting shall, if the facts warrant,
determine that a nomination was not made in accordance with the procedures
prescribed by these By-Laws, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section 4.3, a Stockholder
shall also comply with all applicable requirements of
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the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 4.3.
SECTION 4.4. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD.
The Board of Directors shall annually elect a Chairman and may annually
elect a Vice Chairman of the Board, each of whom shall have such powers as the
directors may from time to time designate. Unless the Board of Directors
otherwise provides, the Chairman of the Board shall preside, when present, at
all meetings of the Board of Directors and of any committee of the Board of
Directors to which he shall have been elected.
SECTION 4.5. REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held at such times
and places within or without The Commonwealth of Massachusetts as the Board of
Directors may fix from time to time and, when so fixed, no notice thereof need
by given, provided that any Director who is absent when such times and places
are fixed shall be given notice of the fixing of such times and places. The
first meeting of the Board of Directors following the annual meeting of the
Stockholders, or special meeting in lieu thereof, may be held without notice
immediately after and at the same place as the annual meeting of the
Stockholders or the special meeting in lieu thereof, as the case may be. If in
any year a meeting of the Board of Directors is not held at such time and place,
any action to be taken may be taken at any later meeting of the Board of
Directors with the same force and effect as if held or transacted at such
meeting.
SECTION 4.6. SPECIAL MEETINGS.
Special meetings of the Directors may be held at any time and at any
place designated in the call of the meeting and may be called by the President,
the Treasurer or one or more Directors. Reasonable notice thereof shall be given
to each Director by the Clerk or an Assistant Clerk, or by the officer or one of
the Directors calling the meeting.
SECTION 4.7. NOTICE.
It shall be reasonable and sufficient notice to a Director to send
notice by mail at least forty-eight (48) hours or by telegram, facsimile
transmission or electronic mail at least twenty-four (24) hours before the
meeting addressed to him at his usual or last known business or residence
address or to give notice to him in person or by telephone at least twenty-four
(24) hours before the meeting. Notice of a meeting need not be given to any
Director if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any Director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. Neither notice of a meeting nor a waiver of a notice need
specify the purposes of the meeting.
SECTION 4.8. QUORUM; ACTION AT A MEETING.
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At any meeting of the Directors, a quorum for any election or for the
consideration of any question shall consist of a majority of the Directors then
in office. Whether or not a quorum is present, any meeting may be adjourned from
time to time by a majority of the votes properly cast upon the question, and the
meeting may be held as adjourned without further notice. When a quorum is
present at any meeting, the votes of a majority of the Directors present shall
be requisite and sufficient for election to any office and shall decide any
question brought before such meeting, except in any case where a larger vote is
required by law, by the Articles of Organization or by these By-Laws.
SECTION 4.9. ACTION BY CONSENT.
Any action required or permitted to be taken at any meeting of the
Directors may be taken without a meeting if all the Directors consent to the
action in writing and the written consents are filed with the records of the
meetings of the Directors. Such consent shall be treated for all purposes as a
vote of the Directors at a meeting.
SECTION 4.10. COMMITTEES.
The Board of Directors, by vote of a majority of the Directors then in
office, may elect from its number an Executive Committee or other committees,
composed of such number of its members as it may from time to time determine
(but in any event not less than two), and may delegate thereto some or all of
its powers except those which by law, by the Articles of Organization, or by
these By-Laws may not be delegated. Except as the Board of Directors may
otherwise determine, any such committee may make rules for the conduct of its
business, but unless otherwise provided by the Board of Directors or in such
rules, its business shall be conducted so far as possible in the same manner as
is provided by these By-Laws for the Board of Directors. All members of such
committees shall hold such offices at the pleasure of the Board of Directors.
The Board of Directors may abolish any such committee at any time. Any committee
to which the Board of Directors delegates any of its powers or duties shall keep
records of its meetings and shall upon request report its action to the Board of
Directors.
SECTION 4.11. TELEPHONE CONFERENCE MEETINGS.
Any member of the Board of Directors or any committee thereof may
participate in a meeting of such Board of Directors or committee thereof by
means of a conference telephone (or similar communications equipment) by means
of which all persons participating in the meeting can hear each other at the
same time, and participation by such means shall constitute presence in person
at a meeting.
ARTICLE V
Officers and Agents
-------------------
SECTION 5.1. ENUMERATION; QUALIFICATION.
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The officers of the Corporation shall be a Chief Executive Officer, a
President, a Treasurer, a Clerk and such other officers, if any, as the
incorporators at their initial meeting, or the Directors from time to time, may
in their discretion elect or appoint. The Corporation may also have such agents,
if any, as the incorporators at their initial meeting, or the Directors from
time to time, may in their discretion appoint. None of the officers of the
Corporation need be a resident of Massachusetts if the Corporation has a
resident agent appointed for the purpose of service of process. Any two or more
offices may be held by the same person. Any officer may be required by the
Directors to give bond for the faithful performance of his duties to the
Corporation in such amount and with such sureties as the Directors may
determine. The premiums for such bonds may be paid by the Corporation.
SECTION 5.2. POWERS.
Subject to law, to the Articles of Organization and to the other
provisions of these By-Laws, each officer shall have, in addition to the duties
and powers herein set forth, such duties and powers as are commonly incident to
his office and such duties and powers as the Directors may from time to time
designate.
SECTION 5.3. ELECTION.
The President, the Treasurer and the Clerk shall be elected annually by
the Directors at their first meeting following the annual meeting of the
Stockholders or special meeting in lieu thereof. Other officers, if any, may be
elected or appointed by the Board of Directors at such meeting or at any other
time.
SECTION 5.4. TENURE.
Except as otherwise provided by law, by the Articles of Organization or
by these By-Laws, the President, the Treasurer and the Clerk shall hold office
until the first meeting of the Directors following the next annual meeting of
the Stockholders or special meeting in lieu thereof and until their respective
successors are chosen and qualified, and each other officer shall hold office
until the first meeting of the Directors following the next annual meeting of
the Stockholders and until their respective successors are chosen and qualified,
unless a different period shall have been specified by the terms of his election
or appointment, or in each case until he sooner dies, resigns, is removed, or
becomes disqualified. Each agent shall retain his authority at the pleasure of
the Directors.
SECTION 5.5. CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall, subject to the direction of the
Board of Directors, have general supervision and control of the Corporation's
business.
SECTION 5.6. PRESIDENT AND VICE PRESIDENT.
The President shall serve as the Chief Executive Officer of the
Corporation and shall have such powers and shall perform such other duties as
the Board of Directors may from time to time
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designate. Unless otherwise provided by the Board of Directors, when present,
the President shall preside at all meetings of the Stockholders. In addition,
unless otherwise provided by the Board of Directors, when present, the President
shall preside at meetings of the Board of Directors if a Chairman and Vice
Chairman of the Board have not been elected or if the Chairman and Vice Chairman
of the Board do not attend such meetings and have not designated any person to
preside at such meetings.
Any Vice President shall have such powers and shall perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 5.7. TREASURER AND ASSISTANT TREASURER.
The Treasurer shall, subject to the direction of the Board of
Directors, have general charge of the financial affairs of the Corporation and
shall cause to be kept accurate books of account. He shall have custody of all
funds, securities and valuable documents of the Corporation, except as the Board
of Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 5.8. CLERK AND ASSISTANT CLERKS.
The Clerk shall keep a record of the meetings of Stockholders. In the
event there is no Secretary or he is absent, the Clerk or an Assistant Clerk
shall keep a record of the meetings of the Board of Directors. In the absence of
the Clerk from any meeting of Stockholders, an Assistant Clerk if one be elected
or appointed, otherwise a temporary Clerk designated by the person presiding at
the meeting, shall perform the duties of the Clerk.
SECTION 5.9. SECRETARY.
The Secretary, if one be elected or appointed, shall keep a record of
the meetings of the Board of Directors. In the absence of the Secretary, the
Clerk and any Assistant Clerk, a temporary Secretary shall be designated by the
person presiding at such meeting to perform the duties of the Secretary.
ARTICLE VI
Resignations, Removals and Vacancies
------------------------------------
SECTION 6.1. RESIGNATIONS.
Any Director or officer may resign at any time by delivering his
resignation in writing to the President or the Clerk or to a meeting of the
Directors. Such resignation shall take effect at such time as is specified
therein, or if no such time is so specified then upon delivery thereof.
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SECTION 6.2. REMOVALS.
(a) Except as otherwise provided by law, any Director may be removed
from office (i) with or without cause at any meeting of the Stockholders called
for the purpose by the vote of a majority of the shares issued, outstanding and
entitled to vote in the election of Directors or (ii) for cause at any meeting
of the Board of Directors by vote of a majority of the Directors then in office.
A Director may be removed for cause only after a reasonable notice and
opportunity to be heard before the body proposing to remove him.
(b) The Directors may remove any officer from office with or without
assignment of cause by vote of a majority of the Directors then in office. If
cause is assigned for removal of any officer, such officer may be removed only
after a reasonable notice and opportunity to be heard before the body proposing
to remove him. The Directors may terminate or modify the authority of any agent
or employee.
(c) Except as the Directors may otherwise determine, no Director or
officer who resigns or is removed shall have any right to any compensation as
such Director or officer for any period following his resignation or removal, or
any right to damages on account of such removal whether his compensation be by
the month or by the year or otherwise; provided, however, that the foregoing
provision shall not prevent such Director or officer from obtaining damages from
breach of any contract of employment legally binding upon the Corporation.
SECTION 6.3. VACANCIES.
Subject to law and to the Articles of Organization, any vacancy in the
Board of Directors, including a vacancy resulting from an enlargement of the
Board, may be filled by vote of a majority of the Directors then in office or,
in the absence of such election by the Directors, by the Stockholders at a
meeting called for the purpose; provided, however, that any vacancy resulting
from action by the Stockholders may be filled by the Stockholders at the same
meeting at which such action was taken by them.
If the office of any officer becomes vacant, the Directors may elect or
appoint a successor by vote of a majority of the Directors present at the
meeting at which such election or appointment is made.
Each such successor shall hold office for the unexpired term of his
predecessor and until his successor shall be elected or appointed and qualified,
or until he sooner dies, resigns, is removed or becomes disqualified.
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ARTICLE VII
Stock
-----
SECTION 7.1. ISSUE OF AUTHORIZED AND UNISSUED CAPITAL STOCK.
Any unissued capital stock from time to time authorized under the
Articles of Organization may be issued by vote of the Directors. No such stock
shall be issued unless the cash, so far as due, or the property, services or
expenses for which it was authorized to be issued, has been actually received or
incurred by, or conveyed or rendered to, the Corporation, or is in its
possession as surplus.
SECTION 7.2. CERTIFICATES OF STOCK.
Each Stockholder shall be entitled to a certificate in a form selected
by the Board of Directors stating the number and the class and the designation
of the series, if any, of the shares held by him, except that the Board of
Directors may provide by resolution that some or all of any or all classes and
series of shares of the capital stock of the Corporation shall be uncertificated
shares, to the extent permitted by law. Such certificate shall be signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer.
Such signatures may be facsimiles if the certificate is signed by a transfer
agent, or by a registrar, other than a Director, officer or employee of the
Corporation. In case any officer who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer at the time of its issue.
Every certificate for shares of stock subject to any restriction on
transfer pursuant to the Articles of Organization, these By-Laws, or any
agreement to which the Corporation is a party shall have the restriction noted
conspicuously on the certificate and shall also set forth on the face or back
either the full text of the restriction or a statement of the existence of such
restriction and a statement that the Corporation will furnish a copy thereof to
the holder of such certificate upon written request and without charge. Every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall set forth on its face or back either the full
text of the preferences, voting powers, qualifications and special and relative
rights of the shares of each class and series, if any, authorized to be issued
as set forth in the Articles of Organization or a statement of the existence of
such preferences, powers, qualifications and rights and a statement that the
Corporation will furnish a copy thereof to the holder of such certificate upon
written request and without charge.
SECTION 7.3. TRANSFERS.
Subject to the restrictions, if any, imposed by the Articles of
Organization, these By-Laws or any agreement to which the Corporation is a
party, shares of stock shall be transferred on the books of the Corporation only
by the surrender to the Corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment of such shares or by a written power of attorney to sell, assign or
transfer such shares, properly executed, with necessary transfer stamps affixed,
and with such proof that the endorsement, assignment or power of attorney is
genuine and effective as the Corporation or its transfer agent may
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reasonably require. Except as may be otherwise required by law, the Corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect thereto, regardless of any transfer, pledge or
other disposition of such stock, until the shares have been transferred on the
books of the Corporation in accordance with the requirements of these By-Laws.
It shall be the duty of each Stockholder to notify the Corporation of his post
office address.
SECTION 7.4. LOST, MUTILATED OR DESTROYED CERTIFICATES.
Except as otherwise provided by law, the Directors may determine the
conditions upon which a new certificate of stock may be issued in place of any
certificate alleged to have been lost, mutilated, or destroyed. They may, in
their discretion, require the owner of a lost, mutilated or destroyed
certificate, or his legal representative, to give a bond, sufficient in their
opinion, with or without surety, to indemnify the Corporation against any loss
or claim which may arise by reason of the issue of a certificate in place of
such lost, mutilated, or destroyed stock certificate.
SECTION 7.5. TRANSFER AGENT AND REGISTRAR.
The Board of Directors may appoint a transfer agent or a registrar or
both for its capital stock of any class or series thereof and require all
certificates for such stock to bear the signature or facsimile thereof of any
such transfer agent or registrar.
SECTION 7.6. SETTING RECORD DATE AND CLOSING TRANSFER RECORDS.
The Board of Directors may fix in advance a time not more than sixty
(60) days before: (i) the date of any meeting of the Stockholders; or (ii) the
date for the payment of any dividend or the making of any distribution to
Stockholders; or (iii) the last day on which the consent or dissent of
Stockholders may be effectively expressed for any purpose, as the record date
for determining the Stockholders having the right to notice and to vote at such
meeting or any adjournment thereof, or the right to receive such dividend or
distribution, or the right to give such consent or dissent. If a record date is
set, only Stockholders of record on the record date shall have such right,
notwithstanding any transfer of stock on the books of the Corporation after the
record date. Without fixing such record date, the Board of Directors may close
the transfer records of the Corporation for all or any part of such sixty (60)
day period.
If no record date is fixed and the transfer books are not closed, then
the record date for determining Stockholders having the right to notice of or to
vote at a meeting of Stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and the record date for
determining Stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
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<PAGE> 15
ARTICLE XIII
Miscellaneous Provisions
------------------------
SECTION 8.1. EXECUTION OF PAPERS.
All deeds, leases, transfers, contracts, bonds, notes, releases,
checks, drafts and other obligations authorized to be executed on behalf of the
Corporation shall be signed by the Chief Executive Officer, President or the
Treasurer except as the Directors may generally or in particular cases otherwise
determine.
SECTION 8.2. VOTING OF SECURITIES.
Except as the Directors may generally or in particular cases otherwise
specify, the Chief Executive Officer, President or the Treasurer may on behalf
of the Corporation vote or take any other action with respect to shares of stock
or beneficial interest of any other corporation, or of any association, trust or
firm, of which any securities are held by this Corporation, and may appoint any
person or persons to act as proxy or attorney-in-fact for the Corporation, with
or without power of substitution, at any meeting thereof.
SECTION 8.3. CORPORATE SEAL.
The seal of the Corporation shall be a circular die with the name of
the Corporation, the word "Massachusetts" and the year of its incorporation cut
or engraved thereon, or shall be in such other form as the Board of Directors
may from time to time determine.
SECTION 8.4. CORPORATE RECORDS.
The original, or attested copies, of the Articles of Organization,
By-Laws and records of all meetings of the incorporators and Stockholders, and
the stock and transfer records, which shall contain the names of all
Stockholders and the record address and the amount of stock held by each, shall
be kept in Massachusetts at the principal office of the Corporation, or at an
office of its transfer agent or of its Clerk or of its Resident Agent. Such
copies and records need not all be kept in the same office. They shall be
available at all reasonable times to the inspection of any Stockholder for any
proper purpose but not to secure a list of Stockholders or other information for
the purpose of selling such list or information or copies thereof or of using
the same for a purpose other than in the interest of the applicant, as a
Stockholder, relative to the affairs of the Corporation.
SECTION 8.5. EVIDENCE OF AUTHORITY.
A certificate by the Clerk, the Secretary, or any Assistant or
temporary Clerk or Secretary as to any matter relative to the Articles of
Organization, By-Laws, records of the proceedings of the
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<PAGE> 16
incorporators, Stockholders, Board of Directors, or any committee of the Board
of Directors, or stock and transfer records or as to any action taken by any
person or persons as an officer or agent of the Corporation, shall as to all
persons who rely thereon in good faith be conclusive evidence of the matters so
certified.
SECTION 8.6. RIGHT TO REPURCHASE.
Except as otherwise provided by law, by the Articles of Organization or
by these By-Laws (including any amendments thereto), the Corporation, through
its Board of Directors, shall have the right and power to repurchase any of its
outstanding shares at such price and upon such terms as may be agreed upon
between the Corporation and the selling Stockholder(s), or the predecessor(s) in
interest thereof.
SECTION 8.7. DIVIDENDS.
Except as otherwise provided by law or by the Articles of Organization,
the Board of Directors may declare and pay dividends upon the shares of capital
stock of the Corporation, which dividends may be paid either in cash, securities
of the Corporation or other property.
SECTION 8.8. RATIFICATION.
Any action taken on behalf of the Corporation by the Directors or any
officer or representative of the Corporation which requires authorization by the
Stockholders or the Directors of the Corporation shall be deemed to have been
authorized if subsequently ratified by the Stockholders entitled to vote or by
the Directors, as the case may be, at a meeting held in accordance with these
By-Laws.
SECTION 8.9. RELIANCE UPON BOOKS, RECORDS AND REPORTS.
Each Director or officer of the Corporation shall be entitled to rely
on information, opinions, reports or records, including financial statements,
books of account and other financial records, in each case presented by or
prepared by or under the supervision of (i) one or more officers or employees of
the Corporation whom the Director or officer reasonably believes to be reliable
and competent in the matters presented, (ii) counsel, public accountants or
other persons as to matters which the Director or officer reasonably believes to
be within such person's professional or expert competence, or (iii) in the case
of a Director, a duly constituted committee of the Board of Directors upon which
he does not serve, as to matters within its delegated authority, which committee
the Director reasonably believes to merit confidence, but he shall not be
considered to be acting in good faith if he has knowledge concerning the matter
in question that would cause such reliance to be unwarranted. The fact that a
Director or officer so performed his duties shall be a complete defense to any
claim asserted against him by reason of his being or having been a Director or
officer of the Corporation, except as expressly provided by statute.
SECTION 8.10. CONTROL SHARE ACQUISITION.
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<PAGE> 17
Until such time as this section shall be repealed or these By-Laws
shall be amended to provide otherwise, including, without limitation, during any
time that the Corporation shall be an "issuing public corporation" as defined in
Chapter 110D of the Massachusetts General Laws, the provisions of Chapter 110D
of the Massachusetts General Laws shall not apply to "control share
acquisitions" of the Corporation within the meaning of such Chapter 110D.
ARTICLE IX
Amendments
----------
Except as otherwise provided in the Articles of Organization, these
By-Laws may be amended or repealed in whole or in part by the affirmative vote
of the holders of a majority of the shares of each class of the capital stock at
the time outstanding and entitled to vote at any annual or special meeting of
Stockholders, provided that notice of the substance of the proposed amendment is
stated in the notice of such meeting. If authorized by the Articles of
Organization, the Directors may make, amend or repeal the By-Laws, in whole or
in part, except with respect to any provision hereof which by law, by the
Articles of Organization or by the By-Laws requires action by the Stockholders.
Not later than the time of giving notice of the meeting of Stockholders next
following the making, amending or repealing by the Directors of any By-Law,
notice thereof stating the substance of such change shall be given to all
Stockholders entitled to vote on amending the By-Laws. Any By-Law adopted,
amended or repealed by the Directors may be repealed, amended or reinstated by
the Stockholders entitled to vote on amending the By-Laws.
17
<PAGE> 1
EXHIBIT 5.1
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109-2170
----------
TELEPHONE 617-832-1000 1615 L STREET, N.W., SUITE 850
FACSIMILE 617-832-7000 WASHINGTON, D.C. 20036
http://www.fhe.com TEL: 202-775-0600
FAX: 202-857-0140
April 21, 1998
Charles River Associates Incorporated
200 Clarendon Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
We are familiar with the Registration Statement on Form S-1 (Registration
No. 333-46941), as amended by Amendment Nos. 1 and 2 (as amended, the
"Registration Statement"), filed by Charles River Associates Incorporated, a
Massachusetts corporation (the "Company"), with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. The Registration
Statement relates to the proposed public offering by the Company of 1,796,875
shares (the "Company Shares") of its Common Stock, without par value (the
"Common Stock"), to be issued by the Company and to the proposed public offering
by certain stockholders of the Company (the "Selling Stockholders") of an
aggregate of 719,325 additional shares (the "Stockholder Shares") of such Common
Stock. (The foregoing numbers of Company Shares and Stockholder Shares assume
the exercise in full of the over-allotment option described in the Registration
Statement.)
We are familiar with the Company's Articles of Organization and all
amendments thereto and restatements thereof, its By-Laws and all amendments
thereto and restatements thereof, the records of meetings and consents of its
Board of Directors and of its stockholders provided to us by the Company, and
its stock records. In addition, we have examined and relied on the originals or
copies certified or otherwise identified to our satisfaction of all such
corporate records of the Company and such other instruments and other
certificates of public officials, officers and representatives of the Company
and such other persons, and we have made such investigations of law, as we have
deemed appropriate as a basis for the opinions expressed below.
Based on the foregoing, it is our opinion that:
1. The Company has corporate power adequate for the issuance of the
Company Shares in accordance with the Registration Statement. The Company has
taken all necessary corporate action required to authorize the issuance and sale
of the Company Shares. When certificates for the Company Shares have been duly
executed and countersigned, and delivered against due receipt of
<PAGE> 2
Charles River Associates Incorporated
April 21, 1998
Page 2
consideration therefor as described in the Registration Statement, the Company
Shares will be legally issued, fully paid and non-assessable.
2. Upon the due execution, countersignature and delivery of certificates
for the Stockholder Shares, the Stockholder Shares will be legally issued, fully
paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the heading "Legal Matters" in the
prospectus forming part of the Registration Statement.
Very truly yours,
Foley, Hoag & Eliot LLP
By: /s/ William R. Kolb
----------------------------------------
A Partner
<PAGE> 1
EXHIBIT 10.9
CHARLES RIVER ASSOCIATES INCORPORATED
STOCK RESTRICTION AGREEMENT
This Stock Restriction Agreement (the "Agreement") is made as of the 17th
day of April, 1998, by and among Charles River Associates Incorporated, a
Massachusetts corporation (the "Company"), and the persons whose names and
addresses appear on SCHEDULE A hereto (each, a "Stockholder" and collectively,
the "Stockholders").
WITNESSETH:
WHEREAS, each Stockholder is the record and beneficial owner of the number
of shares of the Company's Common Stock, without par value (the "Common Stock"),
as set forth on SCHEDULE A hereto;
WHEREAS, the Company and the Stockholders are parties to, or are otherwise
bound by, the Exit Agreement dated as of March 2, 1995 (as amended to date, the
"Exit Agreement"), which contains certain restrictions on the ability of the
Stockholders to sell, assign, transfer or otherwise dispose of their respective
shares of Common Stock;
WHEREAS, the Company has filed a registration statement on Form S-1 with
the Securities and Exchange Commission with respect to a proposed initial public
offering of shares of Common Stock;
WHEREAS, in light of the proposed initial public offering and the fact
that the original purpose of certain restrictions and other provisions of the
Exit Agreement will no longer exist from and after the Effective Date (as
defined below), the Company and the Stockholders desire to amend and restate the
Exit Agreement to modify, among other things, the restrictions on the ability of
the Stockholders to sell, assign, transfer and dispose of their respective
shares of Common Stock;
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Stockholders
hereby agree, and agree to amend and restate the Exit Agreement so that it shall
read in its entirety, as follows:
1. Definitions.
Capitalized terms used but not defined elsewhere in this Agreement shall
have the meanings set forth below:
"Associate" shall mean any director, officer, employee, consultant or
independent contractor of the Company.
<PAGE> 2
"Average EBBA" shall mean the average of EBBA for the two full fiscal
years immediately prior to the fiscal year in which (i) a Sale Event or
Liquidation occurs or (ii) a Former Stockholder shall die.
"Average Rate" shall mean, with respect to any period, a rate equal to the
average of the prime rates of interest published in The Wall Street Journal on
the first business day of such period and the day which is twenty (20) business
days prior to the last business day of such period.
"Book Value" shall mean, as of any date, the Company's book value as shown
on its relevant balance sheet prepared in accordance with GAAP minus any
goodwill carried as an asset on such balance sheet minus any principal amounts
owed by new stockholders of the Company to the Company for the purchase of
Common Stock from the Company.
"Closing Date" shall have the meaning set forth in Section 11(a).
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall have the meaning set forth in the first Whereas
clause hereof.
"Competition" and "Compete" shall mean engaging in or being associated
with any Competitive Business, as determined in the sole discretion of the
Board of Directors of the Company. The Board of Directors, in its sole
discretion, may determine, on a case by case basis, whether a Stockholder's
personal consulting activity or other employment elsewhere is Competition for
purposes of this Agreement; provided, however, employment in a line of business
that the Company affirmatively discontinues shall not be Competition for
purposes of this Agreement. A Pre-Offering Stockholder shall be deemed to be
associated with a Competitive Business if such Pre-Offering Stockholder shall
serve as a director, officer, employee, consultant or independent contractor
of, or shall advise or otherwise perform services for, that business,
regardless of whether the Pre-Offering Stockholder shall receive any
compensation for such service. Notwithstanding the foregoing, a Stockholder may
own, directly or indirectly, solely as an investment, up to one percent (1%) of
any class of "publicly traded securities" of any person or entity that owns a
Competitive Business. For the purposes of this paragraph, the term "publicly
traded securities" shall mean securities that are traded on a national
securities exchange or listed on the Nasdaq National Market or the Nasdaq
SmallCap Market.
"Competition Date" shall mean the date upon which a Stockholder Competes
with the Company, as determined in good faith by the Board of Directors.
"Competitive Business" shall have the meaning set forth in Section 8.
"Contingent Installment Payment" shall have the meaning set forth in
Section 4(b).
"Contingent Pay-Out" shall have the meaning set forth in Section 4(b).
"Defaulting Stockholder" shall have the meaning set forth in Section 9(f).
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<PAGE> 3
"Donee" shall have the meaning set forth in Section 14(a).
"Donee's Pro Rata Portion" shall have the meaning set forth in Section
14(d).
"Donor" shall have the meaning set forth in Section 14(a).
"Donor's Pro Rata Portion" shall have the meaning set forth in Section
14(c).
"EBBA" shall mean, with respect to any period, earnings before bonuses,
variable compensation and amortization of goodwill, if any, determined in
accordance with GAAP, for such period, but excluding any proceeds the Company
might receive under any key man insurance policy the Company may carry on the
life of any Associate.
"Effective Date" shall mean the effective date of the Registration
Statement.
"Effective Time" shall have the meaning set forth in Section 23(a).
"Fair Market Value" shall mean, with respect to the Common Stock, the
closing price per share of Common Stock on the principal United States national
securities exchange on which the Common Stock is listed, or, if the Common Stock
is not listed on any national securities exchange, the closing price per share
of Common Stock on any automated quotation system maintained by the Nasdaq Stock
Market, Inc. (including the Nasdaq National Market and the Nasdaq SmallCap
Market), or, if the Common Stock is not traded on any such automated quotation
system, the average of the last bid and asked prices of the Common Stock on any
over-the-counter market on which the Common Stock is traded, or, if the Common
Stock is not traded on any such over-the-counter market, the value as determined
in good faith by the Board of Directors of the Company.
"Family" shall mean, with respect to any natural person, any other natural
person related by blood, adoption and/or marriage to such natural person. The
Family of any Pre-Offering Stockholder that is a trust shall be the Family of
such Pre-Offering Stockholder's grantor and shall include such grantor. A trust
shall be considered to be for the benefit of members of a person's Family if all
present and future beneficiaries thereof (excluding any remote contingent future
beneficiaries and any permissible appointee under a testamentary power of
appointment) are members of such person's Family.
"Final Fiscal Year" shall have the meaning set forth in Section 4(a).
"First Unrestricted Stock Limit" shall mean, with respect to any
Pre-Offering Stockholder, the number of shares of Pre-Offering Stock that is
equal to fifty percent (50%) of the Pre-Offering Stock held by the Pre-Offering
Stockholder immediately before the Effective Date.
"Fixed Amount" shall have the meaning set forth in Section 4(a).
"Former Purchase Price" shall have the meaning set forth in Section 4.
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<PAGE> 4
"Former Stockholder" shall mean a stockholder who sold Repurchased Shares
to the Company before the Effective Time in accordance with the Exit Agreement.
"Former Stockholder's Death Amount" shall mean, with respect to any Former
Stockholder, (i) any Fixed Amount still due to such Former Stockholder, together
with all interest accrued on such Fixed Amount through the date of such Former
Stockholder's death, plus (ii) 25% of the Average EBBA multiplied by such Former
Stockholder's Percentage Interest multiplied by the number of Contingent
Installment Payments that would have been remaining in such Former Stockholder's
Contingent Pay-Out had such Former Stockholder's death not occurred.
"GAAP" shall mean United States generally accepted accounting principles
consistently applied.
"Gift Stock" shall have the meaning set forth in Section 14(a).
"Gift Transfer" shall have the meaning set forth in Section 14(a).
"Initial Restriction Period" shall mean the two-year period commencing on
the Effective Date and ending on the second anniversary thereof.
"Liquidation" shall mean the dissolution or winding up of the Company in
accordance with the laws of The Commonwealth of Massachusetts.
"Option Shares" shall have the meaning set forth in Section 11(a).
"Pay-Out Period" shall have the meaning set forth in Section 4(b).
"Percentage Interest" shall mean, with respect to any Former Stockholder
and any Prior Repurchase Date, a fraction, the numerator of which shall be the
number of Repurchased Shares repurchased from such Former Stockholder on such
Prior Repurchase Date and the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to such Prior
Repurchase Date.
"Pre-Offering Stock" shall mean all shares of Common Stock issued and
outstanding and held of record as set forth on SCHEDULE A hereto. In the event
that any Pre-Offering Stockholder shall, after the execution of this Agreement
but prior to the Effective Time, transfer any shares of Pre-Offering Stock with
the consent of the Board of Directors, SCHEDULE A shall be automatically amended
to reflect such transfer and each transferee of such shares of Pre-Offering
Stock shall be deemed a Pre-Offering Stockholder hereunder for all purposes.
"Pre-Offering Stockholder" shall mean any holder of record of Pre-Offering
Stock.
"Price Adjustment Amount" shall have the meaning set forth in Section
4(c).
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<PAGE> 5
"Prior Repurchase Date" shall mean, with respect to any Former
Stockholder, the date on which the Company shall have repurchased Repurchased
Shares from such Former Stockholder.
"Prohibited Transfer" shall have the meaning set forth in Section 9(f).
"Purchase Amount" shall have the meaning set forth in Section 10(c).
"Purchase Price" shall have the meaning set forth in Section 10(d).
"Registration Statement" shall mean the Registration Statement on Form S-1
(File Number 333-46941) filed by the Company with the Commission under the
Securities Act.
"Relevant Party" shall have the meaning set forth in Section 19(a).
"Repurchased Excess Shares" shall mean, with respect to any Former
Stockholder, the number of shares of Common Stock repurchased by the Company
from such Former Stockholder and set forth under the heading "Repurchased Excess
Shares" on SCHEDULE B.
"Repurchased Shares" shall mean, with respect to any Former Stockholder,
the number of shares of Common Stock repurchased by the Company from such Former
Stockholder (including Repurchased Excess Shares) pursuant to the Exit Agreement
prior to the Effective Time, as set forth under the heading "Total Repurchased
Shares" on SCHEDULE B. In the event that the Company shall repurchase shares of
Common Stock pursuant to the Exit Agreement after the execution of this
Agreement but prior to the Effective Time or pursuant to Section 10(f), SCHEDULE
B shall be automatically amended to reflect such repurchase and the seller of
such Common Stock shall be deemed a Former Stockholder hereunder for all
purposes.
"Repurchase Notice" shall have the meaning set forth in Section 11(a).
"Sale Event" shall mean the sale or other disposition of all or
substantially all of the assets or business of the Company, whether by asset
transfer, stock transfer, merger, combination or otherwise.
"Sale/Liquidation Amount" shall mean, with respect to any Former
Stockholder, (i) any Fixed Amount still due to such Former Stockholder, together
with all interest accrued on such Fixed Amount through the closing date of such
Sale Event or Liquidation, plus (ii) the product of 25% of the Average EBBA,
multiplied by such Former Stockholder's Percentage Interest, multiplied by the
number of Contingent Installment Payments that would have been remaining in such
Former Stockholder's Contingent Pay-Out if such Sale Event or Liquidation had
not occurred.
"Second Unrestricted Stock Limit" shall mean, with respect to any
Pre-Offering Stockholder, the number of shares of Pre-Offering Stock that is
equal to thirty percent (30%) of the Pre-Offering Stock held by the Pre-Offering
Stockholder immediately before the Effective Date.
"Securities Act" shall mean the Securities Act of 1933, as amended.
5
<PAGE> 6
"Separation Date" shall mean, with respect to any Former Stockholder or
Pre-Offering Stockholder, the date on which such Former Stockholder or
Pre-Offering Stockholder ceased or shall cease to be an Associate for any
reason, as determined in good faith by the Company's Board of Directors, or in
the case of the death of a Former Stockholder, the date of death of such Former
Stockholder.
"Separation Notice" shall mean a written notice from the Company to a
Former Stockholder or Pre-Offering Stockholder specifying the date as of which
such Former Stockholder or Pre-Offering Stockholder ceased to be an Associate
for any reason as determined in good faith by the Board of Directors.
"Separation Period" shall mean, with respect to any Pre-Offering
Stockholder, the period commencing on such Pre-Offering Stockholder's Separation
Date and ending 90 days after such Separation Date.
"Separation Year" shall have the meaning set forth in Section 4(a).
"Stock Plan" shall mean that certain Stock Distribution and Redemption
Plan of the Company, dated December 12, 1986, as amended on February 16, 1987,
April 12, 1988, November 4, 1988 and September 22, 1992.
"Transfer" shall mean directly or indirectly sell, assign, contract or
grant any option to sell (including without limitation any short sale), pledge,
transfer or otherwise dispose of, whether by act of such Pre-Offering
Stockholder (or such Pre-Offering Stockholder's legal representative) or by
operation of law.
2. Change of Name of Agreement. The Exit Agreement, as amended and
restated hereby, shall hereafter be referred to as the "Stock Restriction
Agreement."
3. Termination of Stock Plan. By execution of this Agreement, the
Company hereby terminates the Stock Plan. Each Stockholder understands and
agrees that by executing this Agreement, such Stockholder waives any and all
rights such Stockholder may have had under the Stock Plan.
4. Payments to Former Stockholders. After the Effective Time, the
Company shall pay the Former Stockholders their respective remaining portions of
the Former Purchase Price for the Repurchased Shares. The "Former Purchase
Price" shall equal:
(a) an amount (the "Fixed Amount") equal to (i) the Book Value as
of the last day of the Company's fiscal year (the "Final Fiscal Year") ended
immediately prior to the year in which the applicable Former Stockholder's
Separation Date occurred multiplied by such Former Stockholder's Percentage
Interest plus (ii) such Former Stockholder's Percentage Interest multiplied by
the Company's net income or loss recorded in accordance with GAAP for the fiscal
year in which such Former Stockholder's Separation Date occurred (the
"Separation Year") multiplied by a fraction, the numerator of which shall be the
number of days from the first day of the Separation
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<PAGE> 7
Year through such Stockholder's Separation Date and the denominator of which
shall be 365, minus any dividends paid to such Former Stockholder (including,
without limitation, dividends for the payment of such Former Stockholder's taxes
on such Former Stockholder's proportionate share of such net income or loss)
after the close of the Final Fiscal Year and not reflected in the Company's Book
Value as of the end of such Final Fiscal Year. Except as otherwise provided in
this Agreement, the Fixed Amount will be paid by the Company in three equal
annual installments with interest on the balance compounded annually at the
Average Rate with the first such installment due on the later of (x) April 1 of
the year following the Separation Year and (y) the first anniversary of the
Prior Repurchase Date, and the remaining installments due on the second and
third anniversaries of the Prior Repurchase Date; and
(b) an amount (the "Contingent Pay-Out") equal to the applicable
Former Stockholder's Percentage Interest multiplied by 25% of the Company's EBBA
for each of five fiscal years (the "Pay-Out Period") commencing with the fiscal
year in which the repurchase is made. Except as otherwise provided in this
Agreement, the Contingent Pay-Out shall be paid by the Company in five annual
installments (each a "Contingent Installment Payment") commencing on April 1 of
the fiscal year following the fiscal year in which the repurchase is made; and
(c) an amount (the "Price Adjustment Amount") equal to (i) the
amount per share of any cash dividend such Former Stockholder would have
received from the Company for the payment of such Former Stockholder's income
taxes on such Former Stockholder's proportional share of the Company's income
with respect to such Former Stockholder's Separation Year had such Former
Stockholder continued to be a stockholder of the Company on the date such
dividend was declared by the Company, multiplied by (ii) the number of such
Former Stockholder's Repurchased Shares, multiplied by (iii) a fraction, the
numerator of which shall be the number of days from the first day of such
Separation Year through such Former Stockholder's Separation Date and the
denominator of which shall be 365; such Price Adjustment Amount to be paid on
April 1 of the year following the Separation Year.
5. Cap on Payments. Notwithstanding Section 4 hereof, unless this
limitation is waived by the Company, the aggregate of all payments made in any
fiscal year to Former Stockholders for the repurchase of Repurchased Shares
(other than payments made under Section 6 and payments made under Section 7)
shall not exceed (i) 15 percent of EBBA in the immediately preceding fiscal year
plus (ii) any amounts contributed to the capital of the Company by new
stockholders or by existing Stockholders expanding their equity interest in the
Company in the immediately preceding fiscal year. If by reason of this
limitation, funds available to make payments to Former Stockholders for
Repurchased Shares are less than the aggregate amount of all such payments due
with respect to any fiscal year, payments shall first be made to cover interest
on the Fixed Amounts due with respect to Repurchased Excess Shares, then to
cover the Fixed Amounts due with respect to Repurchased Excess Shares, then to
cover Contingent Installment Payments due with respect to Repurchased Excess
Shares, then to cover interest on the Fixed Amounts due on Repurchased Shares
other than Repurchased Excess Shares, then to cover Fixed Amounts due with
respect to Repurchased Shares other than Repurchased Excess Shares and the
remainder to cover Contingent Installment Payments due with respect to
Repurchased Shares other than Repurchased Excess Shares. Payments made in the
order of priority described in the preceding sentence shall be made
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<PAGE> 8
in direct chronological order with the oldest deferred amounts in any priority
category being paid first. Interest will accrue at the Average Rate on any
portion of any payment not paid when due, and shall be payable to each Former
Stockholder on the next anniversary of such Former Stockholder's Prior
Repurchase Date on which funds are available to make such payments in accordance
with this Agreement (including, without limitation, this Section 5).
6. Payments to Former Stockholders following a Sale Event or
Liquidation.
(a) Notwithstanding Section 4 of this Agreement, upon the
occurrence of a Sale Event or Liquidation, in lieu of the payments that would
otherwise have been due to each Former Stockholder with respect to his or her
Repurchased Shares, the Company shall pay each such Former Stockholder on the
closing date of such Sale Event or Liquidation such Former Stockholder's
Sale/Liquidation Amount.
(b) Pre-Offering Stockholders who hold Pre-Offering Stock at the
time of a Sale Event or Liquidation shall receive any distributions to which
they may be entitled in the ordinary course as a stockholder of the Company on
account of such Sale Event or Liquidation.
(c) Upon payment by the Company of the Sale/Liquidation Amount or
the distribution under Section 6(b), or both, as the case may be, the Company's
obligations under this Agreement shall cease and the applicable Former
Stockholder or Pre-Offering Stockholder shall have no further recourse against
the Company hereunder.
7. Payments to Former Stockholders Upon Death.
(a) Notwithstanding Section 4 of this Agreement, if a Former
Stockholder shall die, in lieu of any remaining payments such Former Stockholder
would have received for the repurchase of such Former Stockholder's Repurchased
Shares, such Former Stockholder's legal representative shall receive such Former
Stockholder's Death Amount.
(b) Upon payment of the Former Stockholder's Death Amount, the
Company's obligations under this Agreement shall cease and the Former
Stockholder's legal representative shall have no further recourse against the
Company hereunder.
8. Competition by Former Stockholder. Unless this limitation is waived
by the Company, notwithstanding any other provision of this Agreement, any
Former Stockholder who (i) is not an Associate as determined in good faith by
the Company's Board of Directors, and (ii) is still entitled to all or any
portion of such Former Stockholder's Contingent Pay-Out, and (iii) engages in a
business competitive directly or indirectly, in whole or in part, with the
Company's business (a "Competitive Business"), shall after the "Competition
Date" (as hereinafter defined) lose all right to receive the following with
respect to all Repurchased Shares repurchased by the Company from such Former
Stockholder other than Repurchased Excess Shares: (i) such Former Stockholder's
remaining Contingent Installment Payments and (ii) the portion of such Former
Stockholder's Sale/Liquidation Amount and Former Stockholder Death Amount based
upon a percentage of Average EBBA.
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<PAGE> 9
9. Restrictions on Transfer. During the term of this Agreement, no
Pre-Offering Stockholder may Transfer any Pre-Offering Stock except as follows:
(a) During the Initial Restriction Period, no Pre-Offering
Stockholder shall Transfer any shares of Pre-Offering Stock, except that any
Pre-Offering Stockholder may Transfer up to 15% of such Pre-Offering
Stockholder's Pre-Offering Stock pursuant to one or more registration statements
declared effective by the Commission under the Securities Act. Nothing in this
Agreement shall be construed to entitle any Pre-Offering Stockholder to include
any shares of Common Stock in any such registration statement.
(b) After the Initial Restriction Period, each Pre-Offering
Stockholder shall be entitled to Transfer shares of such Pre-Offering
Stockholder's Pre-Offering Stock until such Pre-Offering Stockholder's
remaining holdings of Pre-Offering Stock shall equal the First Unrestricted
Stock Limit.
(c) In the period commencing immediately after the fifth
anniversary of the Effective Date and ending on the seventh anniversary of the
Effective Date, each Pre-Offering Stockholder shall be entitled to Transfer
shares of such Pre-Offering Stockholder's Pre-Offering Stock until such
Pre-Offering Stockholder's remaining holdings of Pre-Offering Stock shall equal
the Second Unrestricted Stock Limit.
(d) After the seventh anniversary of the Effective Date, each
Pre-Offering Stockholder shall be entitled, in any 12-month period, to Transfer
an amount of Pre-Offering Stock equal to the greater of (i) one-third of the
Pre-Offering Stock held by such Pre-Offering Stockholder immediately after the
seventh anniversary of the Effective Date and (ii) ten percent (10%) of the Pre-
Offering Stock held by such Pre-Offering Stockholder immediately before the
Effective Date.
(e) Notwithstanding any other provision of this Section 9, a
Pre-Offering Stockholder shall not be entitled to Transfer any shares of such
Pre-Offering Stockholder's Pre-Offering Stock during such Pre-Offering
Stockholder's Separation Period and for 30 days thereafter if such Transfer
would cause such Pre-Offering Stockholder's remaining holdings of Pre-Offering
Stock to be less than the relevant Purchase Amount (as defined below).
(f) In the event of a purported Transfer of shares of Pre-Offering
Stock by a Pre-Offering Stockholder (or Pre-Offering Stockholder's legal
representative) (a "Defaulting Stockholder") in violation of this Section 9 (a
"Prohibited Transfer"), such Prohibited Transfer shall be null and void, such
Prohibited Transfer shall not be recognized on the books and records of the
Company, and the Defaulting Stockholder shall retain the right to vote and
receive distributions.
(g) In the event of a Prohibited Transfer, the Company may, in its
sole discretion, repurchase all of the Pre-Offering Stock held by the Defaulting
Stockholder by delivering to such Defaulting Stockholder a Repurchase Notice and
paying the Purchase Price (as hereinafter defined) in accordance with Sections
10 and 11 hereof.
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<PAGE> 10
10. Repurchase Rights upon Separation from the Company.
(a) If any Pre-Offering Stockholder shall cease for any reason
(other than the reasons set forth in Section 16) to be an Associate, as
determined in good faith by the Board of Directors of the Company, the Company
shall deliver a Separation Notice to such Pre-Offering Stockholder not later
than 30 days after such determination; provided, however, that the failure to
deliver a Separation Notice shall not affect the Company's rights under this
Section 10. The Separation Notice shall specify such Pre-Offering Stockholder's
Separation Date. A Pre-Offering Stockholder may be deemed to have ceased to be
an Associate if the Pre-Offering Stockholder shall fail to work for the Company
or devote time to the Company's business in accordance with the Company's
expectations for persons similarly situated.
(b) At any time during a Pre-Offering Stockholder's Separation
Period, the Company shall have the option to repurchase up to the Purchase
Amount (as hereinafter defined) of such Pre-Offering Stockholder's Pre-Offering
Stock at a price per share equal to the applicable Purchase Price (as
hereinafter defined).
(c) With respect to any Pre-Offering Stockholder, the Purchase
Amount of Pre-Offering Stock shall equal:
(i) if such Pre-Offering Stockholder's Separation Date shall
occur on or before the Effective Date, all of such Pre-Offering
Stockholder's Pre-Offering Stock;
(ii) if such Pre-Offering Stockholder's Separation Date shall
occur in the period commencing immediately after the Effective Date and
ending on or before the second anniversary of the Effective Date, 85% of
such Pre-Offering Stockholder's Pre-Offering Stock;
(iii) if such Pre-Offering Stockholder's Separation Date shall
occur in the period commencing immediately after the second anniversary of
the Effective Date and ending on or before the fifth anniversary of the
Effective Date, such Pre-Offering Stockholder's First Unrestricted Stock
Limit;
(iv) if such Pre-Offering Stockholder's Separation Date shall
occur in the period commencing immediately after the fifth anniversary of
the Effective Date and ending on the seventh anniversary of the Effective
Date, such Pre-Offering Stockholder's Second Unrestricted Stock Limit;
(v) if such Pre-Offering Stockholder's Separation Date shall
occur after the seventh anniversary of the Effective Date, all
Pre-Offering Stock held by the Pre-Offering Stockholder on such
Pre-Offering Stockholder's Separation Date, up to the maximum amount which
the Pre-Offering Stockholder shall not have been not permitted to sell on
such Pre-Offering Stockholder's Separation Date pursuant to Section 9(d)
hereof.
(d) With respect to any Pre-Offering Stockholder, the Purchase
Price shall equal:
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<PAGE> 11
(i) in the case of a Pre-Offering Stockholder who shall
retire (other than retirement for disability in accordance with Section
16) after the fifth anniversary of the Effective Date, ninety-five (95%)
of the Fair Market Value of the Common Stock on the Pre-Offering
Stockholder's Separation Date;
(ii) except as provided in Section 10(d)(i), in the case of a
Pre-Offering Stockholder who shall not Compete with the Company, seventy
percent (70%) of the Fair Market Value of the Common Stock on the
Pre-Offering Stockholder's Separation Date; and
(iii) in the case of a Pre-Offering Stockholder who shall
Compete with the Company at any time prior to the third anniversary of
such Pre-Offering Stockholder's Separation Date, forty percent (40%) of
the lower of (A) the Fair Market Value of the Common Stock on the
Pre-Offering Stockholder's Separation Date and (B) the lowest Fair Market
Value of the Common Stock in the period commencing on the Separation Date
and ending on the fourteenth day following the date on which the
Pre-Offering Stockholder shall first Compete with the Company.
(e) The Purchase Price shall be payable in three equal annual
installments, the first of which shall be paid on the first anniversary of the
Pre-Offering Stockholder's Separation Date, and shall bear interest at the
Average Rate. If the Pre-Offering Stockholder shall Compete with the Company at
any time prior to the third anniversary of the Pre-Offering Stockholder's
Separation Date, the Purchase Price will be reduced to that set forth in Section
10(d)(iii) hereof, the remaining installments shall be adjusted accordingly, and
the Pre-Offering Stockholder shall repay to the Company any amounts received in
excess of the installments that the Pre-Offering Stockholder would have received
if Section 10(d)(iii) hereof had applied and Section 10(d)(i) or Section
10(d)(ii), as the case may be, had not applied, together with interest
compounded annually at the Average Rate (accrued from the respective date or
dates on which such excess amounts were received by the Pre-Offering
Stockholder). To the extent that the Pre-Offering Stockholder shall owe the
Company any portion of the purchase price of any shares of Common Stock or any
other amount, the Company shall have the right to offset such amount (whether or
not such amount shall then be due and payable to the Company) against any
installment of the Purchase Price.
(f) Notwithstanding anything to the contrary in Section 10(d) or
Section 10(e), if a Pre-Offering Stockholder's Separation Date shall occur on or
before the Effective Date, (i) the Purchase Price shall be the Former Purchase
Price, (ii) such Former Purchase Price shall be payable in accordance with
Section 4, and (iii) for purposes of this Agreement, unless the context
otherwise requires, such Pre-Offering Stockholder shall be deemed a Former
Stockholder and the shares of Common Stock repurchased by the Company pursuant
to this Section 10 shall be deemed Repurchased Shares.
(g) Notwithstanding anything to the contrary in this Section 10,
if a Pre-Offering Stockholder shall retire (other than retirement for disability
in accordance with Section 16) after the fifth anniversary of the Effective
Date, at any time during a Pre-Offering Stockholder's Separation Period, the
Company and such Pre-Offering Stockholder may agree, subject to the provisions
of
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<PAGE> 12
Section 9(e), to extend such Pre-Offering Stockholder's Separation Period until
90 days after such Pre-Offering Stockholder shall notify the Company in writing
that such Pre-Offering Stockholder desires to terminate such Pre-Offering
Stockholder's Separation Period.
11. Repurchase Procedures.
(a) To exercise the repurchase option set forth in Section 10 with
respect to any Pre-Offering Stockholder, the Company shall deliver to such
Pre-Offering Stockholder (or in the case of death such Pre-Offering
Stockholder's legal representative), at any time during the Separation Period, a
written notice (the "Repurchase Notice") stating that the Company shall exercise
its repurchase option. The Repurchase Notice shall specify (i) the number of
shares to be repurchased (the "Option Shares"), (ii) the Purchase Price at the
time of the Repurchase Notice and (iii) a closing date for the repurchase (the
"Closing Date"), which shall not be later than 30 days after the date of the
Repurchase Notice.
(b) A closing with respect to the repurchase of any shares of
Pre-Offering Stock shall take place at the Company's principal executive offices
at 10:00 a.m. on the Closing Date. On the Closing Date, the Pre-Offering
Stockholder (or in the case of death such Pre-Offering Stockholder's legal
representative) shall sell, and the Company shall purchase, the Option Shares in
accordance with the terms of this Agreement. At the closing, the Pre-Offering
Stockholder (or in the case of death such Pre-Offering Stockholder's legal
representative) shall deliver to the Company certificates representing the
Option Shares duly endorsed in blank or with blank stock powers sufficient to
permit transfer attached. All of the Option Shares shall be conveyed to the
Company free and clear of all security interests, liens, claims, pledges and
encumbrances of any kind, and the Pre-Offering Stockholder shall provide to the
Company a written certificate to that effect, which certificate shall be in such
form as the Company shall reasonably request.
(c) Except as otherwise provided in this Agreement, the Option
Shares and all voting rights, rights to receive cash dividends, including
without limitation cash liquidating dividends, and other rights incident to the
ownership of the Option Shares shall be deemed transferred to the Company on the
Closing Date.
12. Subordination. The Company's obligations to make all payments
hereunder shall be subordinate to the Company's debt obligations to any lender.
Interest will accrue at the Average Rate on any portion of any payment not paid
when due by reason of this limitation, and such payment shall be payable
thereafter as soon as funds are available to make such payment. Upon request,
each Former Stockholder and each Pre-Offering Stockholder shall confirm this
relationship to any lender of the Company in a form reasonably required by such
lender.
13. No Insolvency. Notwithstanding any other provision of this
Agreement, no payment shall be made hereunder if making such payment would
render the Company insolvent, would be unlawful or could reasonably be expected
to give rise to personal liability for any director, any Former Stockholder or
any Pre-Offering Stockholder. Interest will accrue at the Average Rate on any
portion of any payment not paid when due by reason of this limitation, and such
payment shall be payable thereafter as soon as funds are available to make such
payment.
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<PAGE> 13
14. Transfer by Gift of Pre-Offering Stock.
(a) Notwithstanding the provisions of Section 9 hereof, a
Pre-Offering Stockholder (a "Donor") may, with the written consent of the Board
of Directors (which consent may be withheld for any reason and which may be
subject to such conditions as the Board of Directors shall impose), Transfer at
any time after the Effective Date any amount of Pre-Offering Stock (the "Gift
Stock") by gift (a "Gift Transfer") to any member of the Pre-Offering
Stockholder's Family or to a trust for the benefit of the Pre-Offering
Stockholder and/or such Family members (each, a "Donee"), provided that such
Gift Transfer shall comply with all of the terms of this Section 14. A
distribution or other Transfer by a Pre-Offering Stockholder that is a trust to
any trust or other person eligible to be a Donee under this section shall
constitute a Gift Transfer. As a condition precedent to any such Gift Transfer,
each Donee shall agree to be bound by the terms of this Agreement as if such
Donee were a Pre-Offering Stockholder and shall execute and deliver to the
Company a written agreement to that effect in such form as the Company shall
require. Upon the receipt by the Company of such written agreement executed by
the Donee, SCHEDULE A shall be automatically amended to reflect the Gift
Transfer, listing the name and address of the Donee and the number of shares of
Gift Stock held by the Donee, and such Donee shall thereafter be deemed a
Pre-Offering Stockholder hereunder for all purposes.
(b) Immediately after any Gift Transfer, (i) the Donor shall be
deemed to have held, immediately before the Effective Date, the Donor's Pro Rata
Portion (as defined hereinafter) of the number of shares of Pre-Offering Stock
held (or deemed held) by the Donor immediately before the Effective Date, and
(ii) the Donee shall be deemed to have held, immediately before the Effective
Date, in addition to any shares of Pre-Offering Stock held (or deemed held) by
the Donee immediately before the Effective Date, the Donee's Pro Rata Portion
(as defined hereinafter) of the number of shares of Pre-Offering Stock held (or
deemed held) by the Donor immediately before the Effective Date. If the Gift
Transfer shall occur after the seventh anniversary of the Effective Date, (i)
the Donor shall be deemed to have held, immediately after the seventh
anniversary of the Effective Date, the Donor's Pro Rata Portion of the number of
shares of Pre-Offering Stock held (or deemed held) by the Donor immediately
after the seventh anniversary of the Effective Date, and (ii) the Donee shall be
deemed to have held, immediately after the seventh anniversary of the Effective
Date, in addition to any shares of Pre-Offering Stock held (or deemed held) by
the Donee immediately after the seventh anniversary of the Effective Date, the
Donee's Pro Rata Portion of the number of shares of Pre-Offering Stock held (or
deemed held) by the Donor immediately after the seventh anniversary of the
Effective Date.
(c) With respect to any Gift Transfer, a "Donor's Pro Rata
Portion" of a number shall equal the product of that number and a fraction, the
numerator of which is the number of shares of Pre-Offering Stock held by the
Donor immediately after the Gift Transfer, and the denominator of which is the
total number of shares of Pre-Offering Stock held by the Donor immediately
before the Gift Transfer.
(d) With respect to any Gift Transfer, a "Donee's Pro Rata
Portion" of a number shall equal the product of that number and a fraction, the
numerator of which is the number of shares
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<PAGE> 14
of Gift Stock received by the Donee from the Donor, and the denominator of which
is the total number of shares of Pre-Offering Stock held by the Donor
immediately before the Gift Transfer.
15. Additional Restrictions on Transfer.
(a) All transfer restrictions and rights of the Company set forth
in this Agreement, the Company's Articles of Organization in effect from time to
time, or otherwise applicable to shares of capital stock of the Company, shall
be cumulative. No provision of this Agreement shall be deemed to terminate,
amend or limit in any manner whatsoever any transfer restriction, right of first
refusal or other provision of the Company's Articles of Organization in effect
from time to time, or any other agreement or applicable law to which the Company
or its capital stock may be subject from time to time. To the extent any
provision of this Agreement is or becomes inconsistent with any provision of the
Company's Articles of Organization in effect from time to time, the Articles of
Organization shall govern.
(b) The provisions of this Agreement are in addition to any
restrictions imposed by any lock-up agreements that may be required by the
underwriters of any public offering registered by the Company under the
Securities Act. Each Pre-Offering Stockholder hereby agrees to be bound by any
such lock-up agreement and, upon the request of the Company or such
underwriters, to execute and deliver a separate lock-up agreement in such form
as the Company or such underwriters shall request, provided that the
restrictions imposed by any such lock-up agreement shall terminate not later
than 180 days after the closing date of the related public offering.
16. Termination of Restrictions. All restrictions on the Transfer of
Pre-Offering Stock imposed by this Agreement shall terminate with respect to a
Pre-Offering Stockholder upon the earlier to occur of (a) the death of the
Pre-Offering Stockholder and (b) the retirement for disability of the
Pre-Offering Stockholder in accordance with Company's retirement policies in
effect at the time of such retirement, as determined in good faith by the Board
of Directors of the Company.
17. Waiver of Restrictions. The Company's Board of Directors may waive
any provision of this Agreement for the Company's benefit for any reason and may
impose such conditions on the grant of any waiver as the Board of Directors
shall deem necessary or appropriate. No waiver granted to a Pre-Offering
Stockholder shall entitle any other Pre-Offering Stockholder (or the same
Pre-Offering Stockholder) to the same or a similar waiver.
18. Delegation of Authority. The Board of Directors of the Company may
delegate any of its power or authority under this Agreement to the Compensation
Committee of the Board of Directors or to any other duly authorized committee of
the Board of Directors.
19. Non-Associate Pre-Offering Stockholders.
(a) The Pre-Offering Stockholders listed on SCHEDULE C hereto are
not Associates of the Company on the Effective Date. However, the parties
acknowledge and agree that each such non-Associate Pre-Offering Stockholder
shall be treated as though such non-Associate Pre-Offering Stockholder were an
Associate hereunder for so long as the person whose name is listed next to such
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<PAGE> 15
non-Associate Pre-Offering Stockholder's name on SCHEDULE C (such non-Associate
Pre-Offering Stockholder's "Relevant Party") is an Associate.
(b) In the event that any Donor with respect to whom the
restrictions imposed by this Agreement shall not have terminated pursuant to
Section 16 or lapsed upon expiration of such Donor's Separation Period (or the
Separation Period of another predecessor in title) shall make any Gift Transfer
pursuant to Section 14, SCHEDULE C shall be revised to include such Donor's
Donee and shall list such Donor as the Donee's Relevant Party (or, if such Donor
shall have become a Pre-Offering Stockholder by means of one or more Gift
Transfers, the Donee's Relevant Party shall be the Donee's closest predecessor
in title who shall be an Associate or whose Separation Period shall not have
lapsed).
(c) For purposes of this Agreement, (i) a non-Associate
Pre-Offering Stockholder shall be deemed to have ceased to be an Associate when
such non-Associate Pre-Offering Stockholder's Relevant Party shall have ceased
to be an Associate, (ii) a non-Associate Pre-Offering Stockholder shall be
deemed to Compete with the Company when such non-Associate Pre-Offering
Stockholder's Relevant Party shall Compete with the Company, (iii) such
non-Associate Pre-Offering Stockholder's retirement for disability shall be
deemed to occur on the retirement for disability of such non-Associate
Pre-Offering Stockholder's Relevant Party, and (iv) such non-Associate
Pre-Offering Stockholder's death shall be deemed to occur on the earlier of the
death of such non-Associate Pre-Offering Stockholder or such non-Associate
Pre-Offering Stockholder's Relevant Party.
20. Jointly Held Pre-Offering Stock. If Pre-Offering Stock shall be held
jointly by two or more persons, such persons shall be jointly referred to herein
as a "Pre-Offering Stockholder." Such Pre-Offering Stockholder shall be deemed
an Associate for so long as any one of the persons jointly holding the
Pre-Offering Stock shall be an Associate. The death or retirement for disability
of such Pre-Offering Stockholder shall be deemed to occur only on the death or
retirement for disability of the one of the persons jointly holding the
Pre-Offering Stock who was an Associate.
21. Stock Options. Shares of Common Stock acquired by a Pre-Offering
Stockholder upon the exercise of stock options shall not be subject to the
restrictions on Pre-Offering Stock imposed by this Agreement unless the Board of
Directors shall in its sole discretion determine otherwise. The Board of
Directors shall not be required to make uniform or consistent determinations
regarding the imposition of restrictions on any shares of Common Stock so
acquired.
22. Application of Dividend Payments. Each Pre-Offering Stockholder
understands and agrees that the Company shall apply the entire amount of any
dividends declared after December 31, 1997 that are payable to such Pre-Offering
Stockholder toward the satisfaction of any amounts payable now or hereafter by
such Pre-Offering Stockholder (i) to the Company pursuant to one or more stock
purchase agreements by and between the Company and such Pre-Offering
Stockholder, and/or (ii) pursuant to the Stock Purchase Agreement dated as of
March 2, 1995 by and among certain of the Pre-Offering Stockholders and the
other persons named on SCHEDULE A and SCHEDULE B thereto. Any such dividends in
excess of the amounts so payable shall be paid to the Pre-Offering Stockholder
in accordance with the Company's usual practice.
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<PAGE> 16
23. Effective Time; Termination.
(a) This amendment and restatement of the Exit Agreement shall
become effective (the "Effective Time") as of the Effective Date, except that
Sections 22 through 34 (and any definitions used therein) shall become effective
upon the execution and delivery of this amendment and restatement of the Exit
Agreement. Until the Effective Time, the Exit Agreement, as in effect
immediately prior to the execution and delivery of this amendment and
restatement of the Exit Agreement, shall continue in full force and effect in
accordance with its terms. If the Effective Date shall not have occurred on or
before July 31, 1998, this amendment and restatement of the Exit Agreement may
be terminated by the Company by the affirmative vote of a majority of the
directors then in office, in which case the Exit Agreement, as in effect
immediately prior to the execution and delivery of this amendment and
restatement of the Exit Agreement, shall be reinstated and shall continue in
full force and effect in accordance with its terms as if this amendment and
restatement of the Exit Agreement had never been executed and delivered.
(b) If this amendment and restatement of the Exit Agreement shall
have become effective, this amendment and restatement of the Exit Agreement
shall terminate upon the tenth anniversary of the Effective Date and may be
earlier terminated by the Company by the affirmative vote of a majority of the
directors then in office; provided, however, that the Company's obligation to
make payments hereunder shall survive any such termination.
24. Amendment; Waiver. Except as otherwise provided herein, this
Agreement may be amended, and any provision hereof may be waived, only by the
written consent of the Company and the holders of two-thirds of the shares of
Common Stock listed on SCHEDULE A and held by the parties hereto on the date of
such amendment or waiver; provided, however, that no such amendment or waiver
shall apply to any non-Associate Pre-Offering Stockholder that has received or
shall have received shares of Pre-Offering Stock as a result of one or more
Transfers from another Pre-Offering Stockholder unless (i) such amendment or
waiver shall have been approved with the written consent of the holders of
two-thirds of the shares of Common Stock listed on SCHEDULE A and held by the
parties hereto, other than such non-Associate Pre-Offering Stockholder's
Relevant Party, on the date of such amendment or waiver and (ii) within three
business days of the earlier of (A) the date on which the Company shall give
notice to such non-Associate Pre-Offering Stockholder that such amendment or
waiver shall have been approved or (B) the date on which such amendment or
waiver is first submitted to such non-Associate Pre-Offering Stockholder for
such non-Associate Pre-Offering Stockholder's written consent, the Company
shall not have received a written notice (a "Refusal Notice") from such
non-Associate Pre-Offering Stockholder to the effect that such non- Associate
Pre-Offering Stockholder refuses to be bound by such amendment or waiver. If
such amendment or waiver shall have been approved in accordance with clause (i)
of this Section 24, any such non-Associate Pre-Offering Stockholder that shall
have delivered a Refusal Notice to the Company may be deemed at any time
thereafter to have ceased to be an Associate.
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<PAGE> 17
25. Governing Law; Arbitration.
(a) This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of The Commonwealth of Massachusetts
without regard to its principles of conflicts of laws.
(b) Any dispute, controversy or claim arising out of or relating
to this Agreement, including, without limitation, the breach, termination or
invalidity thereof, shall be finally settled by arbitration according to the
Commercial Rules of the American Arbitration Association. Such arbitration shall
be conducted in Boston, Massachusetts, or such other place as the parties to
such arbitration shall mutually select, before a tribunal composed of one or
more arbitrators as the parties to such arbitration shall mutually agree. The
award or decision made by the arbitrator(s) shall be binding upon the parties to
such arbitration; provided, however, the parties hereto waive any rights to
damages in the nature of punitive, exemplary or statutory damages in excess of
compensatory damages, and the arbitrator(s) is/are hereby divested of any power
to award damages in the nature of punitive, exemplary or statutory damages in
excess of compensatory damages hereunder. Judgment upon any such award or
decision may be entered in and enforced by any court of competent jurisdiction.
Each party shall bear its own costs of such arbitration, including, without
limitation, its own attorneys' fees.
26. Integration. This Agreement constitutes the entire Agreement of the
parties hereto with respect to the subject matter hereof and, except as
otherwise provided herein, supersedes all prior agreements and understandings,
written or oral, among them with respect to the subject matter hereof.
27. Notices.
(a) All notices and communications hereunder given or made by any
party hereto shall be in writing and shall be deemed sufficiently given if
delivered personally or if sent by registered or certified mail, return receipt
requested, by nationally recognized overnight delivery service, or by telecopier
with confirmation of transmission as follows:
If to the Company, to:
Charles River Associates Incorporated
200 Clarendon Street
Boston, Massachusetts 02116
Attention: President
If to a Stockholder, to:
the address of such Stockholder listed on SCHEDULE A hereto.
(b) Any change by any party in any such address shall be made by
such notice to the other parties.
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<PAGE> 18
28. Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns. Except as otherwise provided
in this Agreement, neither this Agreement nor any rights or obligations
hereunder may be assigned or otherwise transferred by any party without the
prior written consent of the Company's Board of Directors.
29. Expenses. Each party hereto shall pay its own legal and other fees
and expenses incurred in connection with the negotiation, preparation, execution
and delivery of this Agreement and the transactions contemplated hereby.
30. Interest Reduction. Notwithstanding any other provision of this
Agreement to the contrary, nothing herein contained shall require the payment of
any interest, expense or other charge by any party which, when aggregated with
all other interest, expenses and other charges directly or indirectly paid by
such party, shall exceed the highest lawful rate permissible under any law
applicable thereto. If, but for this provision, this Agreement would require any
such payment in excess of any such highest lawful rate, this Agreement shall
automatically be deemed amended so that all interest, expenses and other charges
and payments required hereunder, individually and in the aggregate, shall be
equal to, but no greater than, the highest lawful rate therefor.
31. Survival of Representations, Warranties and Covenants. The
representations and warranties of each party hereto and such party's covenants
and agreements herein shall survive the repurchase by the Company of any
Pre-Offering Stock hereunder.
32. Severability. If any provision of this Agreement shall be determined
to be invalid, illegal or otherwise unenforceable by any court of competent
jurisdiction, the validity, legality and enforceability of the other provisions
of this Agreement shall not be affected thereby. Any invalid, illegal or
unenforceable provision of this Agreement shall be severable, and after any such
severance, all other provisions hereof shall remain in full force and effect.
33. Dates. Whenever a date hereunder shall fall on a day when the
Company shall be closed for business, the date shall be deemed to be the next
day the Company shall be open for business.
34. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
together constitute one agreement.
[Remainder of page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this Stock
Restriction Agreement under seal as of the date first written above.
CHARLES RIVER ASSOCIATES INCORPORATED
By: /s/ James C. Burrows
------------------------------------------
James C. Burrows, President
PRE-OFFERING STOCKHOLDERS:
/s/ Jagdish C. Agarwal
------------------------------------------
Jagdish C. Agarwal
/s/ Gregory K. Bell
------------------------------------------
Gregory K. Bell
/s/ Marlene Besen
------------------------------------------
Marlene Besen as Trustee of The Besen
Family Trust under instrument dated
March 30, 1998 and not individually
/s/ Stanley M. Besen
------------------------------------------
Stanley M. Besen
/s/ Douglas R. Bohi
------------------------------------------
Douglas R. Bohi
/s/ Daniel Brand
------------------------------------------
Daniel Brand
/s/ Steven R. Brenner
------------------------------------------
Steven R. Brenner
/s/ William B. Burnett
------------------------------------------
William B. Burnett
19
<PAGE> 20
/s/ James C. Burrows
------------------------------------------
James. C. Burrows
/s/ George C. Eads
------------------------------------------
George C. Eads
/s/ Ellen P. Fisher
------------------------------------------
Ellen P. Fisher as Trustee of The Franklin
M. Fisher 1998 Gift Trust under instrument
dated 3/11/98 and not individually
/s/ Ellen P. Fisher
------------------------------------------
Ellen P. Fisher as Trustee of The Franklin
M. Fisher 1998 Gift Trust #2 under
instrument dated 3/11/98 and not
individually
/s/ Franklin M. Fisher
------------------------------------------
Franklin M. Fisher
/s/ Judith R. Gelman
------------------------------------------
Judith R. Gelman as Trustee of The Salop
Irrevocable GST -- Exempt Trust 1998 and not
individually
/s/ Judith R. Gelman
------------------------------------------
Judith R. Gelman as Trustee of The Salop
Irrevocable GST -- Taxable Trust 1998 and
not individually
/s/ Joen E. Greenwood
------------------------------------------
Joen E. Greenwood
/s/ Kenneth L. Grinnell
------------------------------------------
Kenneth L. Grinnell as Trustee of The
James C. Burrows Qualified Annuity Trust --
1998 and not individually
20
<PAGE> 21
/s/ Mary F. Hughes
------------------------------------------
Mary F. Hughes as Trustee of The William
R. Hughes Irrevocable Trust 1998 and not
individually
/s/ William R. Hughes
------------------------------------------
William R. Hughes
/s/ Stephen H. Kalos
------------------------------------------
Stephen H. Kalos
/s/ Firoze E. Katrak
------------------------------------------
Firoze E. Katrak
/s/ Carl Kaysen
------------------------------------------
Carl Kaysen
/s/ Michael A. Kemp
------------------------------------------
Michael A. Kemp
Robert J. Larner and Anne M. Larner, as
joint tenants with right of survivorship
By: /s/ Robert J. Larner
------------------------------------------
Robert J. Larner
By: /s/ Anne M. Larner
------------------------------------------
Anne M. Larner
/s/ Arnold J. Lowenstein
------------------------------------------
Arnold J. Lowenstein
/s/ C. Christopher Maxwell
------------------------------------------
C. Christopher Maxwell
21
<PAGE> 22
/s/ Paul R. Milgrom
------------------------------------------
Paul R. Milgrom
/s/ Bridger M. Mitchell
------------------------------------------
Bridger M. Mitchell
/s/ W. David Montgomery
------------------------------------------
W. David Montgomery
/s/ Rowland T. Moriarty
------------------------------------------
Rowland T. Moriarty
/s/ Jenny Fitz Moriarty
------------------------------------------
Jenny Fitz Moriarty as Trustee of The
Rowland T. Moriarty Qualified Annuity Trust
1998 and not individually
/s/ Laurel E. Morrison
------------------------------------------
Laurel E. Morrison
/s/ Monica G. Noether
------------------------------------------
Monica G. Noether
/s/ Thomas R. Overstreet
------------------------------------------
Thomas R. Overstreet
/s/ John E. Parsons
------------------------------------------
John E. Parsons
/s/ Raju Patel
------------------------------------------
Raju Patel
/s/ Gary L. Roberts
------------------------------------------
Gary L. Roberts
22
<PAGE> 23
/s/ Richard S. Ruback
------------------------------------------
Richard S. Ruback
/s/ Steven C. Salop
------------------------------------------
Steven C. Salop
/s/ Robert M. Spann
------------------------------------------
Robert M. Spann
/s/ Louis L. Wilde
------------------------------------------
Louis L. Wilde
/s/ Alan R. Willens
------------------------------------------
Alan R. Willens
/s/ John R. Woodbury
------------------------------------------
John R. Woodbury
/s/ Deloris R. Wright
------------------------------------------
Deloris R. Wright
23
<PAGE> 24
SCHEDULE A
<TABLE>
<CAPTION>
STOCKHOLDER ADDRESS SHARES
- ----------- ------- ------
<S> <C> <C>
Jagdish C. Agarwal 125 Ford Road 208,000
Sudbury, MA 01776
Gregory K. Bell 1 Apple Hill Lane 65,000
Lynnfield, MA 01940
Marlene Besen as Trustee of 4918 Western Avenue 52,000
The Besen Family Trust Bethesda, MD 20816
u/i/d March 30, 1998
Stanley M. Besen 4918 Western Avenue 130,000
Bethesda, MD 20816
Douglas R. Bohi 8121 Thoreau Drive 26,000
Bethesda, MD 20817
Daniel Brand 57 Lexington Road 119,600
Concord, MA 01742
Steven R. Brenner 5904 Plainview Road 119,600
Bethesda, MD 20817
William B. Burnett 404 North Pitt Street 312,000
Alexandria, VA 22314
James C. Burrows 75 Clairemont Road 490,256
Belmont, MA 02178
George C. Eads 3718 Harrison Street, N.W. 119,600
Washington, D.C. 20015
Ellen P. Fisher as Trustee of 130 Mt. Auburn Street, #508 54,444
The Franklin M. Fisher 1998 Cambridge, MA 02138
Gift Trust u/i/d 3/11/98
Ellen P. Fisher as Trustee of 130 Mt. Auburn Street, #508 126,984
The Franklin M. Fisher 1998 Cambridge, MA 02138
Gift Trust #2 u/i/d 3/11/98
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C>
Franklin M. Fisher 130 Mt. Auburn Street, #508 472,160
Cambridge, MA 02138
Judith R. Gelman as Trustee of 4636 Broad Branch Road, N.W. 93,600
The Salop Irrevocable GST Washington, D.C. 20008
-- Exempt Trust 1998
Judith R. Gelman as Trustee of 4636 Broad Branch Road, N.W. 93,600
The Salop Irrevocable GST Washington, D.C. 20008
-- Taxable Trust 1998
Joen E. Greenwood 108 Chestnut Street 88,608
Cambridge, MA 02139
Kenneth L. Grinnell as Trustee of c/o Foley, Hoag & Eliot LLP 130,000
The James C. Burrows Qualified One Post Office Square
Annuity Trust -- 1998 Boston, MA 02109
William R. Hughes 40 Main Street 36,400
Byfield, MA 01922
Mary F. Hughes as Trustee of 40 Main Street 41,600
The William R. Hughes Byfield, MA 01922
Irrevocable Trust 1998
Stephen H. Kalos 169 Washington Street 104,000
Belmont, MA 02178
Firoze E. Katrak 6 Canal Park, Unit 706 308,100
Cambridge, MA 02141
Carl Kaysen 41 Holden Street 67,600
Cambridge, MA 02138
Michael A. Kemp 14 Sheridan Road 182,000
Wellesley, MA 02181
Robert J. Larner and 68 Myrtle Street 89,700
Anne M. Larner, Newton, MA 02165
joint tenants with right
of survivorship
David L. Loeser 167 Tower Avenue --
Needham, MA 02194
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C> <C>
Arnold J. Lowenstein 100 Woodchester Drive 104,000
Chestnut Hill, MA 02167
C. Christopher Maxwell 142 Elgin Street 104,000
Newton Center, MA 02159
Paul R. Milgrom 823 Pine Hill Road 52,000
Stanford, CA 94305
Bridger M. Mitchell 60 Hayfields Road 182,000
Portola Valley, CA 94028
W. David Montgomery 12340 Quince Valley Drive 119,600
North Potomac, MD 20878
Rowland T. Moriarty 105 Hundreds Road 306,800
Wellesley Hills, MA 02181
Jenny Fitz Moriarty as Trustee 105 Hundreds Road 104,000
of The Rowland T. Moriarty Wellesley Hills, MA 02181
Qualified Annuity Trust 1998
Laurel E. Morrison 49 Lenox Street 26,000
Newton, MA 02165
Monica G. Noether 6 Chestnut Street 98,800
Winchester, MA 01890
Thomas R. Overstreet 9720 Rolling Ridge Drive 208,000
Fairfax Station, VA 22039
John E. Parsons 7 Longfellow Street 26,000
Dorchester, MA 02122
Raju Patel 3 Garrison Street 130,000
Chestnut Hill, MA 02167
Gary L. Roberts 806 Aaron Court 119,600
Great Falls, VA 22066
Richard S. Ruback 32 Alberta Road 312,000
Brookline, MA 02167
Steven C. Salop 4636 Broad Branch Road, N.W. 397,800
Washington, D.C. 20008
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
Robert M. Spann 9438 Rabbit Hill Road 104,000
Great Falls, VA 22061
Ronald M. Whitfield 67 Whit's End Road --
Concord, MA 01742
Louis L. Wilde 200 South Larchmont Blvd. 119,600
Los Angeles, CA 90004
Alan R. Willens 130 Appleton Street, No. 1G 188,188
Boston, MA 02116
John R. Woodbury 8811 Brierly Road 104,000
Chevy Chase, MD 20815
Deloris R. Wright 133 Rosemont Drive 182,000
No. Andover, MA 01845
</TABLE>
27
<PAGE> 28
SCHEDULE B
REPURCHASED SHARES
<TABLE>
<CAPTION>
Number of
Number of Repurchased Total
Name of Former Stockholder Repurchased Shares Excess Shares Repurchased Shares
- -------------------------- ------------------ ------------- ------------------
<S> <C> <C> <C>
Franklin M. Fisher -- 59,800 59,800
David L. Loeser 83,200 -- 83,200
Ronald M. Whitfield 119,600 -- 119,600
Alan R. Willens -- 59,800 59,800
</TABLE>
28
<PAGE> 29
SCHEDULE C
NON-ASSOCIATE PRE-OFFERING STOCKHOLDER RELEVANT PARTY
- -------------------------------------- --------------
Marlene Besen as Trustee of Stanley M. Besen
The Besen Family Trust u/i/d March 30, 1998
Ellen P. Fisher as Trustee of Franklin M. Fisher
The Franklin M. Fisher 1998 Gift Trust
u/i/d 3/11/98
Ellen P. Fisher as Trustee of Franklin M. Fisher
The Franklin M. Fisher 1998 Gift Trust #2
u/i/d 3/11/98
Judith R. Gelman as Trustee of Steven C. Salop
The Salop Irrevocable GST -- Exempt
Trust 1998
Judith R. Gelman as Trustee of Steven C. Salop
The Salop Irrevocable GST -- Taxable
Trust 1998
Kenneth L. Grinnell as Trustee of James C. Burrows
The James C. Burrows Qualified Annuity
Trust -- 1998
Mary F. Hughes as Trustee of William R. Hughes
The William R. Hughes Irrevocable
Trust 1998
Jenny Fitz Moriarty as Trustee of Rowland T. Moriarty
The Rowland T. Moriarty Qualified Annuity
Trust 1998
Raju Patel Firoze E. Katrak
29
<PAGE> 1
EXHIBIT 10.11
CHARLES RIVER ASSOCIATES INCORPORATED
INDEMNITY AGREEMENT
This Indemnity Agreement is made as of April __, 1998 by and among Charles
River Associates Incorporated, a Massachusetts corporation (the "Company"), and
the stockholders of the Company named in EXHIBIT A hereto (the "Selling
Stockholders").
WHEREAS, the Company and the Selling Stockholders propose to sell an
aggregate of up to 2,516,200 shares of the common stock, without par value (the
"Common Stock"), of the Company to the several underwriters (the "Underwriters")
named in that certain underwriting agreement (the "Underwriting Agreement") of
even date herewith by and among the Company, the Selling Stockholders,
NationsBanc Montgomery Securities LLC and William Blair & Company, L.L.C., as
representatives of the Underwriters, upon the terms described in the
Underwriting Agreement; and
WHEREAS, pursuant to Section 8 of the Underwriting Agreement, the Selling
Stockholders have agreed to indemnify the Underwriters in certain respects and
contribute to the payment of certain amounts and the Selling Stockholders desire
that the Company agree to indemnify them in certain respects and contribute to
the payment of certain amounts as hereinafter provided;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Selling Stockholders hereby agree as follows:
1. INDEMNIFICATION OF THE SELLING STOCKHOLDERS. The Company shall
indemnify and hold harmless each Selling Stockholder, and each person, if any,
who controls any Selling Stockholder within the meaning of Section 15 of the
Securities Act of 1933, as amended (the "Securities Act"), or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any loss, claim, damage, liability or expense, as incurred, to which
such Selling Stockholder or such controlling person may become subject, under
the Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law, under Section 8 or Section 9 of the Underwriting
Agreement, or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Selling Stockholder or
such controlling person, as the case may be), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based (i) upon any failure, omission or alleged
failure or omission on the part of the Company, in connection with the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) or the offering contemplated thereby, to comply
with any provision of the Securities Act and the then applicable rules and
regulations of the Securities and Exchange Commission or other federal agency at
the time charged with administration of the Securities Act; (ii) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; (iii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary
<PAGE> 2
prospectus or the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; (iv) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained in the Underwriting
Agreement; (v) in whole or in part upon any failure of the Company to perform
its obligations under the Underwriting Agreement or under law; (vi) upon any act
or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the offering contemplated by the
Underwriting Agreement, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any matter
covered by clause (ii) or (iii) above; and shall reimburse each Selling
Stockholder and each such controlling person for any and all expenses (including
the reasonable fees and disbursements of not more than one separate counsel
(together with local counsel) for the Selling Stockholders) as such expenses are
reasonably incurred by such Selling Stockholder or such controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action. Notwithstanding the
foregoing, the indemnity and reimbursement agreements in the preceding sentence
shall not apply to any loss, claim, damage, liability or expense to the extent,
but only to the extent, that it arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by any Selling Stockholder or any Underwriter expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto). The indemnity and reimbursement agreements set
forth in this Section 1 shall be in addition to any liabilities that the Company
may otherwise have.
2. NOTIFICATION AND OTHER INDEMNIFICATION PROCEDURES. Promptly after
receipt by an indemnified party under Section 1 of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the Company under Section 1, notify the Company in writing of the
commencement thereof, but the omission so to notify the Company will not relieve
the Company from any liability which the Company may have to any indemnified
party for contribution or otherwise than under the indemnity agreement contained
in Section 1 or to the extent the Company is not prejudiced as a proximate
result of such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek indemnity
from the Company, the Company will be entitled to participate in, and, to the
extent that it shall elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel selected by the Company; provided,
however, that if the defendants in any such action include both the indemnified
party and the Company and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the Company and the
indemnified party in conducting the defense of any such action or that there may
be legal defenses available to such indemnified party and/or other indemnified
parties that are different from or additional to those available to the Company,
the indemnified party or parties shall have the right to select separate
counsel, satisfactory to the Company, to assume such legal defenses and
otherwise to participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the Company to such
indemnified party of the Company's election so to assume the defense of such
action, the Company will not be liable to such indemnified party under Section 1
for any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof unless (i)
2
<PAGE> 3
the indemnified party shall have employed separate counsel in accordance with
the proviso to the next preceding sentence (it being understood, however, that
the Company shall not be liable for the fees and expenses of more than one
separate counsel (together with local counsel), satisfactory to the Company,
representing the indemnified parties who are parties to such action) or (ii) the
Company shall not have employed counsel to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each of
which cases the reasonable fees and expenses of counsel shall be at the expense
of the Company. As a condition to indemnification hereunder, each indemnified
party shall cooperate fully with the Company in the defense of any action with
respect to which indemnification is to be sought, and, at the Company's expense,
shall provide all such documents and take all such actions which the Company may
reasonably request in connection with such defense.
3. SETTLEMENTS. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Company shall
indemnify the indemnified party against any loss, claim, damage, liability or
expense by reason of such settlement or judgment. The Company shall not, without
the prior written consent of the indemnified party, effect any settlement,
compromise or consent to the entry of judgment in any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity was or could have been sought hereunder by such
indemnified party, unless such settlement, compromise or consent includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
4. CONTRIBUTION.
(a) If the indemnification provided for in Section 1 is for any
reason held to be unavailable to or otherwise insufficient to hold harmless
an indemnified party in respect of any losses, claims, damages, liabilities
or expenses referred to therein, then the Company shall contribute to the
aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred
to therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the indemnified
party, on the other hand, from the offering of the Common Shares pursuant
to the Underwriting Agreement or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company, on the one hand, and
the indemnified party, on the other hand, in connection with the statements
in or omissions from any preliminary prospectus, the Prospectus or the
Registration Statement (or any amendment or supplement to any of the
foregoing) or inaccuracies in the representations and warranties of the
Company in the Underwriting Agreement that resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one
hand, and the indemnified party, on the other hand, in connection with the
offering of the Common Shares pursuant to the Underwriting Agreement shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the
total net proceeds from
3
<PAGE> 4
the offering received by the indemnified party. The relative fault of the
Company, on the one hand, and the indemnified party, on the other hand,
shall be determined by reference to, among other things, whether any such
untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact or any such inaccurate or alleged
inaccurate representation or warranty relates to information supplied by
the Company, on the one hand, or the indemnified party, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(b) The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed
to include, subject to the limitations set forth in Section 1 and Section
2, any legal or other fees or expenses reasonably incurred by such party in
connection with investigating, defending, settling or compromising any
action or claim. The provisions set forth in Section 2 with respect to
notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 4; provided, however, that no
additional notice shall be required with respect to any action for which
notice has been given under Section 2 for purposes of indemnification.
(c) The Company and the Selling Stockholders agree that it would not
be just and equitable if contribution pursuant to this Section 4 were
determined by pro rata allocation (even if the Selling Stockholders were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to in this Section 4.
(d) No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 4, each person, if any, who
controls a Selling Stockholder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights
to contribution as such Selling Stockholder.
5. CAPITALIZED TERMS. Except as otherwise specified, capitalized terms
used herein which are not otherwise specifically defined herein shall have the
meanings given them in the Underwriting Agreement. Notices required or permitted
hereunder shall be given in the manner prescribed in Section 13 of the
Underwriting Agreement.
6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the Company, the Selling Stockholders, and their
respective controlling persons, officers, directors, successors, heirs,
executors, administrators and assigns.
7. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Massachusetts,
without regard to its principles of conflicts of laws.
4
<PAGE> 1
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 25, 1998, in Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-46941) and related Prospectus of
Charles River Associates Incorporated for the registration of 2,516,200 shares
of its common stock.
/s/ Ernst & Young LLP
Boston, Massachusetts
April 18, 1998
