<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11,1998
REGISTRATION NO. 333-59833
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THE CORPORATE EXECUTIVE BOARD COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 8732 52-2056410
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
----------------
THE CORPORATE EXECUTIVE BOARD COMPANY
THE WATERGATE
600 NEW HAMPSHIRE AVENUE, N.W.
WASHINGTON, D.C. 20037
(202) 777-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JAMES J. MCGONIGLE
THE CORPORATE EXECUTIVE BOARD COMPANY
THE WATERGATE
600 NEW HAMPSHIRE AVENUE, N.W.
WASHINGTON, D.C. 20037
(202) 777-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
HOWARD B. ADLER, ESQ. THOMAS R. BROME, ESQ.
GIBSON, DUNN & CRUTCHER LLP CRAVATH, SWAINE & MOORE
1050 CONNECTICUT AVE., N.W. 825 EIGHTH AVENUE
WASHINGTON, D.C. 20036 NEW YORK, NY 10019
(202) 955-8500 (212) 474-1000
----------------
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 such section 8(a)
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 DECEMBER 11, 1998
PROSPECTUS
Shares
[LOGO]
The Corporate Executive Board Company
Common Stock
--------
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), of The Corporate Executive Board Company, a Delaware corporation (the
"Corporate Executive Board" or the "Company"), offered hereby are being offered
by the Selling Stockholders named herein under "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholders. See "Use of Proceeds."
Of the shares of Common Stock being offered hereby, a total of shares
are being offered hereby for sale in the United States and Canada (the "U.S.
Offering") by the underwriters of the U.S. Offering named herein under
"Underwriting" (the "U.S. Underwriters") and a total of shares are being
offered by the managers named herein under "Underwriting" (the "Managers" and,
together with the U.S. Underwriters, the "Underwriters") in a concurrent
international offering outside the United States and Canada (the "International
Offering" and, together with the U.S. Offering, the "Offering"). See
"Underwriting."
Up to shares of Common Stock are being reserved for sale to certain
existing stockholders, other employees and directors of the Company, and their
family members at the initial public offering price. See "Underwriting."
There is currently no public market for the Common Stock. It is currently
estimated that the initial public offering price per share of Common Stock will
be between $ and $ . See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company
has applied for the listing of the Common Stock on the Nasdaq National Market
under the symbol "EXBD."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF MATERIAL RISKS
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>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND SELLING
TO PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
- ---------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ---------------------------------------------------
Total(3) $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the U.S. Underwriters, see
"Underwriting."
(2) The expenses of the Offering, other than Underwriting Discounts and
Commissions, estimated to be approximately $1.4 million, will be paid by
the Company.
(3) David G. Bradley, the sole beneficial owner of the Company's outstanding
stock (the "Principal Selling Stockholder"), has granted the U.S.
Underwriters a 30-day option to purchase up to additional shares of
Common Stock solely to cover over-allotments, if any. See "Underwriting."
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Selling Stockholders
will be $ , $ , and $ respectively.
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that the shares of Common Stock
offered hereby will be made available for delivery on or about , 1999, at
the office of Smith Barney Inc., 333 West 34th Street, New York, New York
10001, or through the facilities of the Depository Trust Company.
--------
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
GOLDMAN, SACHS & CO.
, 1999
<PAGE>
[PICTURE OF PILLARS AND STATUES ON A BUILDING FACADE WITH THE FOLLOWING QUOTE
BY VICTOR HUGO: "A STAND CAN BE MADE AGAINST INVASION BY AN ARMY, NO STAND CAN
BE MADE AGAINST INVASION BY AN IDEA." A LIST OF ALL OF THE COMPANY'S MEMBERS
WILL BE INCLUDED ON THE INSIDE BACK COVER]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING AND SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF A PENALTY BID. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those discussed in the forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as general economic conditions, competition and other
factors discussed elsewhere in this Prospectus.
THE COMPANY
The Corporate Executive Board is the leading provider of "best practices"
research and analysis focusing on corporate strategy, operations and general
management issues. Best practices research identifies and analyzes specific
management initiatives, processes and strategies that have been determined to
produce the best results in solving common business problems or challenges. The
Company provides its research and analysis on an annual subscription basis to a
membership of over 1,300 of the world's largest and most prestigious
corporations. For a fixed annual fee, members of each subscription program have
access to an integrated set of services, including best practices research
studies, executive education seminars, customized research briefs and on-line
access to the program's database. For each of the last three years, the
Company's program renewal rate (defined as the percentage of prior year's
membership subscriptions renewed) exceeded 84%. More than 64% of the Fortune
500 companies are members of the Corporate Executive Board.
The Company's membership-based model, in which all subscribers (or "members")
participate in the Company's research and analysis, is central to its business
strategy. This model gives the Company access to the best business practices of
its members and enables the Company to provide comprehensive analysis on
current business issues, assessing the collective experiences and knowledge of
its members on leading-edge topics. By participating in the Corporate Executive
Board, members can learn about the best practices of the most progressive
corporations in the world at a fraction of the cost of a customized analysis
performed by any of the major consulting firms. The Company does not believe
that in-house research and analysis departments at individual corporations
could obtain, at any price, similar information from other corporations about
their management practices. In general, the membership comprises the most
progressive competitors in each industry sector, including American Express,
British Airways, Citigroup, Coca-Cola, Dell, Hewlett-Packard, Lucent, Merrill
Lynch, Microsoft, Procter & Gamble and Xerox. No one customer accounted for
more than 2% of revenues in any of the last three fiscal years. The Company
does not know of any other entity that enables corporations to study a broad
range of the best business practices of hundreds of other business enterprises
for fixed, annual subscription fees.
The Company currently offers ten discrete subscription programs, each
focusing on a single business constituency: finance, sales, information
technology, corporate strategy, human resources, bank operations, insurance,
trust and private banking, business banking and retail banking. The Company has
added three new subscription programs over the past 18 months and anticipates
adding one to three new subscription programs per year for the foreseeable
future. Each subscription program charges a separate fixed annual subscription
fee and is served by a dedicated staff of analysts and researchers.
Subscriptions are generally renewable on a 12-month basis, and the average
price per subscription program at September 30, 1998 was approximately $27,000.
For the twelve months ended September 30, 1998, the Company published 31 best
practices research studies, completed over 13,000 customized research briefs
and provided executive education services to 1,260 member corporations reaching
approximately 22,000 executive participants. The Company's 215 analysts and
researchers have compiled a proprietary database of 160 best practices research
studies and 25,000 customized research briefs containing over 100,000 profiles
of corporate practices.
3
<PAGE>
The Corporate Executive Board's revenue and costs have grown at compound
annual rates of 55.0% and 46.7%, respectively, from 1995 through 1997. Because
each subscription program provides its membership with standardized best
practices research studies and executive education seminars, new members
immediately add revenues while only incrementally increasing operating costs.
The Company's growth strategy is to cross-sell additional subscription programs
to existing members, to add new members and to develop new subscription
programs.
The Company's business was operated as a division of The Advisory Board
Company, a Maryland corporation, until October 31, 1997 when the business was
contributed to the Company. On October 31, 1997, all of the outstanding shares
of the Company were distributed as a dividend to David G. Bradley, the sole
stockholder of The Advisory Board Company. The Advisory Board Company continues
to provide best practices research and analysis to its member institutions in
the health care sector. See "Certain Transactions Prior to the Offering--
Formation and Spin-Off of the Company" and "Certain Relationships and
Transactions."
The Company maintains executive offices in Washington, D.C. at the Watergate,
600 New Hampshire Avenue, N.W., Washington, D.C. 20037. Its telephone number is
(202) 777-5000.
4
<PAGE>
THE OFFERING
Common Stock offered by the Selling
Stockholders:(1)(2)
U.S. Offering.................. shares
International Offering ........ shares
Total ......................... shares(2)
Common Stock to be outstanding
after the Offering............
shares(3)
Use of proceeds................
The Company will not receive any proceeds
from the sale of the Common Stock
pursuant to the Offering. It is expected,
however, that the Principal Selling
Stockholder will use approximately $6.58
million of proceeds to repay a promissory
note made by him in favor of the Company.
Proposed Nasdaq symbol.............. "EXBD"
- --------
(1) Offered by the Principal Selling Stockholder (and by The David G. Bradley
GRAT Trust Number 1, of which the Principal Selling Stockholder is the
trustee and the beneficiary ("the Bradley Trust")), Michael A. D'Amato and
Jeffrey D. Zients. These shares currently are Class A Voting Common Stock
(the "Class A Stock") and Class B Non-Voting Common Stock (the "Class B
Stock"), but automatically convert into shares of Common Stock upon the
closing of the Offering.
(2) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(3) Does not include shares of Common Stock reserved for issuance under the
Company's Stock-Based Incentive Plan (the "Incentive Plan"), the Company's
1998 Stock Option Plan (the "1998 Plan") and the Company's Directors' Stock
Plan (the "Directors Plan"), pursuant to which options to purchase an
aggregate of shares are outstanding with a weighted average exercise
price of $ per share.
RISK FACTORS
See "Risk Factors" beginning on page 8 for a discussion of material risks
that should be considered by prospective purchasers of the Common Stock.
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data presented below as of December 31, 1996 and 1997,
and for each of the three years in the period ended December 31, 1997, have
been derived from the financial statements of the Company which have been
audited by Arthur Andersen LLP, independent public accountants. The summary
financial data presented below as of December 31, 1993, 1994 and 1995 and as of
September 30, 1998 and for the years ended December 31, 1993 and 1994 and the
nine months ended September 30, 1997 and 1998 have been derived from the
unaudited financial statements of the Company, which have been prepared on the
same basis as the audited financial statements of the Company. The unaudited
financial statements for the nine months ended September 30, 1997 and 1998
include all adjustments, consisting of normal recurring accruals, that the
Company considers necessary for a fair presentation of the financial position
and results of operations as of and for such period. Operating results for the
nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. The summary
financial data presented below should be read in conjunction with the Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -----------------
1993 1994 1995 1996 1997 1997 1998
------ ------- -------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Revenues................ $8,108 $10,384 $ 17,547 $27,283 $38,669 $ 27,972 $ 38,239
Costs and expenses:
Cost of services...... 4,713 7,698 10,849 15,078 20,036 13,989 18,633
Member relations and
marketing............ 2,259 2,807 5,275 6,677 8,106 5,762 8,064
General and
administrative....... 778 1,147 2,589 3,832 5,660 4,317 4,624
Depreciation.......... 108 249 233 452 722 474 502
Stock option
restructuring and
repurchase(2)........ -- -- 9,390 1,473 3,063 1,554 1,158
------ ------- -------- ------- ------- -------- --------
Total costs and
expenses........... 7,858 11,901 28,336 27,512 37,587 26,096 32,981
------ ------- -------- ------- ------- -------- --------
Income (loss) from
operations(2).......... 250 (1,517) (10,789) (229) 1,082 1,876 5,258
Interest income......... -- -- -- -- 122 -- 575
------ ------- -------- ------- ------- -------- --------
Income (loss) before
provision (benefit) for
state income taxes..... 250 (1,517) (10,789) (229) 1,204 1,876 5,833
Provision (benefit) for
state income taxes(3).. 25 (151) (1,076) (23) 120 186 590
------ ------- -------- ------- ------- -------- --------
Net income (loss)....... $ 225 $(1,366) $ (9,713) $ (206) $ 1,084 $ 1,690 $ 5,243
====== ======= ======== ======= ======= ======== ========
Pro forma net income
(loss)(3).............. $ 150 $ (910) $ (6,473) $ (137) $ 722 $ 1,126 $ 3,500
====== ======= ======== ======= ======= ======== ========
Pro forma net income
(loss) per share--
basic(4)............... $ 0.21 $ (1.25) $ (8.90) $ (0.19) $ 0.99 $ 1.55 $ 4.81
Pro forma weighted
average shares
outstanding--basic(4).. 727 727 727 727 727 727 727
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
AS OF DECEMBER 31, 1998
---------------------------------------- ---------------------
PRO
1993 1994 1995 1996 1997 ACTUAL FORMA(5)
------ ------- ------- ------- ------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ -- $ -- $ -- $ -- $ 8,937 $ 5,739 $ 6,762
Working capital......... 3,291 1,712 (3,530) (4,645) (5,005) (5,629) (8,284)
Total assets............ 8,423 13,154 18,568 23,107 39,868 29,299 26,644
Deferred revenues....... 3,952 9,578 15,382 21,696 31,474 24,058 24,058
Total stockholder's eq-
uity (deficit)......... 3,874 2,508 (7,205) (7,411) (5,042) (6,259) (10,565)
</TABLE>
6
<PAGE>
OTHER OPERATING DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 12 MONTHS ENDED
------------------------- SEPTEMBER 30,
1995 1996 1997 1998
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Subscription programs(6)........ 6 7 9 10
Member institutions(6),(7)...... 784 1,003 1,150 1,319
Total membership
Subscriptions(6)............... 1,145 1,491 1,799 2,183
Average subscription programs
per member(6).................. 1.46 1.49 1.56 1.66
Program renewal rate(8)......... 85% 86% 85% 85%
</TABLE>
- --------
(1) The Statement of Operations Data do not reflect certain future charges that
the Company expects to incur, of which approximately $1.8 million are
expected to be recognized during the fourth quarter of 1998.. Of the
charges in such quarter, $1.7 million relate to the elimination of certain
employment requirements contained in agreements entered into by The
Advisory Board Company with certain employees to repurchase outstanding
stock options at fixed amounts (the "Liquid Markets Agreements"). The
Liquid Markets Agreements were entered into prior to the spin-off and
distribution of shares of capital stock of the Company by The Advisory
Board Company to David G. Bradley on October 31, 1997 (the "Spin-Off"). The
obligations under the Liquid Markets Agreements were transferred to the
Company in the Spin-Off to the extent such obligations were attributable to
the employees of the Company. The remaining $0.1 million of the charges
expected to be recognized in the fourth quarter of 1998 relate to a
substitution of Company stock options for Advisory Board Company stock
options that occurred at the time of the Spin-Off. See "Certain
Transactions Prior to the Offering--Stock Option Restructuring and
Repurchase Charges."
(2) The Company reflects charges relating to the Liquid Markets Agreements as
stock option repurchase expenses over the required employment period.
Furthermore, the terms of the stock option substitution effected at the
Spin-Off resulted in compensation expense being charged for the intrinsic
value of certain stock options. These charges are reflected as stock option
restructuring expense over the vesting period of the options. Excluding all
of these expenses related to the Company's options, Income (Loss) From
Operations for 1993, 1994, 1995, 1996 and 1997 would have been $0.3
million, $(1.5) million, $(1.4) million, $1.3 million, and $4.1 million,
respectively, and Income From Operations for the nine months ended
September 30, 1997 and September 30, 1998 would have been $3.4 million and
$6.4 million, respectively.
(3) The Company has elected to be taxed under subchapter S of the Internal
Revenue Code of 1986, as amended (the "Code"), whereby the Principal
Selling Stockholder (who prior to the Offering was the Company's sole
stockholder) is liable for individual federal income taxes on the Company's
taxable income. As the District of Columbia does not recognize S
corporation status, the Company has been directly responsible for District
of Columbia taxes. Effective as of the closing of the Offering, the Company
will terminate its S corporation election and will be subject to corporate
level federal income taxes. See "Certain Transactions Prior to the
Offering--S Corporation Distribution and Termination of S Corporation
Status." Accordingly, the pro forma net income (loss) reflects an estimate
of the income taxes that would have been recorded if the Company had been a
C corporation for the periods presented. See Note 6 to Financial
Statements.
(4) Basic pro forma net income (loss) per share is computed by dividing pro
forma net income (loss) by the weighted average number of shares of common
stock outstanding during the period. Fully diluted pro forma net income
(loss) per share is the same as basic pro forma earnings per share for all
periods except the year ended December 31, 1997 and the nine months ended
September 30, 1997 and September 30, 1998. Fully diluted pro forma net
income per share is $0.85, $1.33 and $3.66 for the year ended December 31,
1997 and the nine months ended September 30, 1997 and September 30, 1998,
respectively. See Note 2 to Financial Statements.
(5) Pro forma to give effect to (1) the distribution of $ million to the
Principal Selling Stockholder and the Bradley Trust prior to the closing of
the Offering, (2) the termination of the Company's S corporation election
and a resulting increase in the Company's federal deferred income tax asset
of approximately $3.7 million as of September 30, 1998, (3) the planned
amendment of the Liquid Markets Agreements which eliminates future
employment requirements as a condition for payment, resulting in an
increase in the long-term option repurchase liability of $1.7 million as of
September 30, 1998, (4) the repayment by the Principal Selling Stockholder
to the Company of a promissory note in the principal amount of $6.5
million, and (5) the payment by the Company of approximately $1.4 million
in Offering expenses, on behalf of the Selling Stockholders, which will be
treated for accounting purposes as a distribution to the Principal Selling
Stockholder and the Bradley Trust. See "Certain Transactions Prior to the
Offering--Stock Option Restructuring and Repurchase Charges."
(6) At the end of the period.
(7) The Company's membership consists primarily of domestic and multinational
corporations and secondarily of large subsidiaries of corporations and non-
profit institutions.
(8) Program renewal rate is defined as the percentage of membership
subscriptions renewed.
7
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating
the Company and its business before purchasing shares of Common Stock offered
hereby.
DEPENDENCE ON RENEWALS OF MEMBERSHIP-BASED SERVICES
All of the Company's revenues are derived from annual membership
subscriptions for the Company's products and services. Accordingly, the
Company's prospects depend on its ability to achieve and sustain high renewal
rates on existing subscription programs and to enter into new membership
arrangements. The Company's ability to secure membership renewals is dependent
upon, among other things, its ability to deliver consistent, high-quality and
timely research and analysis with respect to issues, developments and trends
that members view as important. There can be no assurance that the Company
will be able to sustain the necessary level of performance to achieve a high
rate of membership renewals. Any inability to achieve high membership renewal
rate levels would have a material adverse effect on the Company's operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
LIMITED SENIOR MANAGEMENT EXPERIENCE
Although James J. McGonigle, the Chief Executive Officer of the Company, has
managed the business of the Company as a division of The Advisory Board
Company for approximately three years prior to the Spin-Off, he has no
experience as a chief executive officer of an independent corporation. In
addition, the Company has recently hired Clay M. Whitson as its new Chief
Financial Officer. Michael A. D'Amato, the prior Chief Financial Officer of
the Company, resigned from such position in November 1998 but is continuing as
Executive Vice President--Finance and Secretary of the Company until the
closing of the Offering. Until such time, Mr. Whitson will report to Mr.
D'Amato. Mr. D'Amato will continue as a director of the Company but will not
be an officer of the Company after the closing of the Offering. Furthermore,
Jeffrey D. Zients, Chief Executive Officer of The Advisory Board Company and
the former Chief Operating Officer and Executive Vice President of the
Company, to whom Mr. McGonigle reported until July 1998, has been actively
involved in the management of the Company and will continue as a director but
will not be an officer of the Company after the closing of the Offering. See
"Management--Directors, Executive Officers and Key Employees." In addition,
the Principal Selling Stockholder, who was the founder of the Company, but in
the past several years has been involved with the Company only in an advisory
capacity, will not have any involvement with the Company after the Offering. A
failure by the Company's senior management to effectively manage the business
of the Company would have a material adverse effect on the Company's operating
results.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends, in part, on the continued service of
its key management, research, sales, product development and operations
personnel and on its ability to continue to motivate and retain highly
qualified employees. Accordingly, future operating results will depend upon
the Company's ability to retain the services of these individuals. See
"Business--Employees" and "Management."
DEPENDENCE ON ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
The Company's success will depend, in part, upon its ability to hire, train,
motivate and retain a significant number of highly-skilled employees,
particularly management, research analysts and sales and marketing staff. The
Company has experienced, and expects to continue to experience, intense
competition for professional personnel with other producers of research and
analysis products and services and management consulting firms. Many of these
firms have substantially greater financial resources than the Company to
attract and compensate qualified personnel. There can be no assurance that the
Company will be successful in attracting a sufficient number of highly-skilled
employees in the future, or that it will be successful in training, motivating
and retaining the employees it is able to hire. Any material inability to do
so would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Employees."
MANAGEMENT OF GROWTH
The Company's growth may place a significant demand on its financial,
operational and managerial resources. To manage future growth, the Company
will have to continue to implement and enhance its operations
8
<PAGE>
and financial systems and augment, train and manage its personnel. There can
be no assurance that the Company's systems, procedures or controls currently
in place will be adequate to support any growth of the Company's operations or
that the Company will be able to implement additional systems successfully and
in a timely manner, if required. Any inability of the Company to manage its
growth successfully would have a material adverse effect on the Company's
business, financial condition and results of operations.
UNCERTAINTIES OF NEW PRODUCT DEVELOPMENT
The Company's future success will depend, in part, on its ability to develop
new subscription programs that address specific industry and business
organization sectors and the changing needs of its current and prospective
members for information, analysis and advice. The process of internally
researching, developing, launching and gaining client acceptance of new
subscription programs is inherently risky. Delays or failures during
development or implementation, or lack of market acceptance of new
subscription programs, could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that efforts to introduce new subscription programs will be
successful. The Company's business, financial condition and results of
operations would be materially adversely affected if it were unable to develop
and introduce successful new subscription programs or to make enhancements to
existing subscription programs in a timely manner in response to member
requirements. See "Business--Products and Services."
COMPETITION
The Company has many competitors, including research and database companies,
consulting firms, trade associations, nonprofit organizations and the internal
planning and marketing staffs of current and prospective member organizations.
The Company's competitors, many of which have substantially greater financial,
information gathering and marketing resources than the Company, could choose
to compete more directly against the Company in the future. Increased
competition, direct and indirect, in one or more of the Company's market
segments could adversely affect the Company's operating results through
pricing pressure and loss of market share. There can be no assurance that the
Company will be able to compete successfully. See "Business--Competition."
LIMITATIONS ON THE COMPANY'S ABILITY TO SELL PRODUCTS AND SERVICES TO THE
HEALTH CARE INDUSTRY
Pursuant to a Noncompetition Agreement, dated January 1, 1999, between the
Company, The Advisory Board Company and the Principal Selling Stockholder (the
"Noncompetition Agreement"), the Company is prohibited from selling membership
based subscription services substantially similar to those provided by the
Company and The Advisory Board Company as of the date of the Noncompetition
Agreement to any company or institution that is principally engaged in the
health care business. The Company, however, may sell such products and
services to non-health care divisions or subsidiaries of health care
companies. The Company may continue to renew pre-existing subscriptions with
respect to those products and services that it has sold as of the Offering, if
such products and services do not specifically address health care provider
industry issues. Accordingly, the restrictions imposed under the
Noncompetition Agreement generally preclude the Company from selling
membership based subscription services to health care companies and,
therefore, may limit the Company's future growth opportunities. See "Certain
Relationships and Transactions -- Noncompetition Agreement."
DIFFICULTIES IN ANTICIPATING MARKET TRENDS
The Company's success depends, in part, upon its ability to anticipate
rapidly changing market trends and to adapt its research and analysis to meet
the changing information needs of its members. The industry and business
sectors that the Company analyzes undergo frequent and often dramatic changes,
including the introduction of new products and obsolescence of others,
shifting strategies and market positions of major industry participants and
changing objectives and expectations of users of members' products and
services. The environment of rapid and continuous change presents significant
challenges to the Company's ability to provide its members with current and
timely research and analysis on issues of importance. Meeting these challenges
requires the commitment of substantial resources. Any failure to continue to
provide helpful and timely research and analysis of developments and trends in
a manner that meets market needs would have a material adverse effect on the
Company's business, financial condition and results of operations.
9
<PAGE>
FINANCIAL INSTITUTION INDUSTRY CONSOLIDATION
For the twelve months ended September 30, 1998, approximately 46.7% of the
Company's revenues were attributable to financial institution members, which
include commercial banks, thrifts, credit card issuers, mutual fund companies,
consumer credit lenders, brokerage houses, private and trust banks and
insurance companies. Substantial consolidation in the financial services
industry, particularly in the bank and thrift segments, has occurred over the
last five years and is expected to continue. This consolidation has resulted,
and is expected to continue to result, in a reduction in the number of the
Company's financial institution members. Such a reduction could result in
decreased membership revenues. No assurance can be given that the Company's
results of operations will not be materially adversely affected by such
consolidation.
LIMITED HISTORY OF PROFITABILITY; PRIOR LOSSES; EQUITY DEFICIT
The Company incurred net losses of $1.4 million, $9.7 million and $206,000
in 1994, 1995 and 1996, respectively, and had a stockholder's deficit of $6.3
million at September 30, 1998. There can be no assurance that the Company will
achieve or maintain profitability in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may fluctuate significantly due to various
factors, including the growth in and timing of new memberships, the timing of
the development, introduction and marketing of new products and services, the
timing of the hiring of research analysts and sales and marketing staff,
changes in the spending patterns of the Company's members, the Company's
accounts receivable collection experience, changes in market demand for
research and analysis, foreign currency exchange rate fluctuations,
competitive conditions in the industry and general economic conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
INTELLECTUAL PROPERTY RIGHTS; POSSIBILITY OF LITIGATION RELATED TO CONTENT
The Company relies on copyright laws, as well as nondisclosure and
confidentiality arrangements, to protect its proprietary rights in its
products and services. There can be no assurance that the steps taken by the
Company to protect its intellectual property rights will be adequate to deter
misappropriation of such rights or that the Company will be able to detect
unauthorized uses and take timely and effective steps to enforce its rights.
If substantial and material unauthorized uses of the Company's proprietary
products and services were to occur, the Company may be required to engage in
costly and time-consuming litigation to enforce its rights. There could be no
assurance that the Company would prevail in such litigation.
As a publisher and distributor of original research and analysis and user of
licensed third-party content, the Company faces potential liability for
defamation, negligence, copyright and trademark infringement. Third party
content includes information created or provided by information services
organizations and consultants retained by the Company and may be delivered in
writing, over the Internet, or orally to clients. There can be no assurance
that the Company will not be involved in litigation, which can be expensive
and time consuming, as a result of the creation or dissemination of such
content. Any such litigation, whether or not resulting in a judgment requiring
the payment of monetary damages, could have a material adverse affect on the
Company's business, financial condition and results of operations.
POTENTIAL LOSS OF REVENUE RESULTING FROM THE COMPANY'S UNCONDITIONAL SERVICE
GUARANTEE
The Company offers an unconditional service guarantee to its members. At any
time during an annual subscription period, a member may demand a full refund
of its subscription fee for that year. The request for refunds of subscription
fees by a significant number of the Company's members could have a material
adverse effect on the Company's financial condition and results of operations.
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that, following the Offering, an active trading
market for the Common Stock will develop or be sustained or that the market
price of the Common Stock will not decline below the initial public offering
price. The initial public offering price will be determined by negotiations
among the Company, representatives of the Selling Stockholders and the
representatives of the Underwriters, and will not necessarily reflect the
market price of the Common Stock after the Offering. See "Underwriting" for a
discussion of the factors to be considered in
10
<PAGE>
determining the initial public offering price. The market price of the Common
Stock could experience significant fluctuations in response to, and may be
adversely affected by, variations in quarterly operating results, changes in
earnings estimates or other actions by analysts and earnings or other
announcements of the Company's members or competitors as well as other
factors.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares of Common Stock for
future sale, will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of the Common Stock in the public
market following the Offering, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock.
Immediately after the Offering, the Company will have outstanding shares
of Common Stock. After the Offering, the Principal Selling Stockholder, who
will hold approximately shares of Common Stock subsequent to the Offering
( shares of Common Stock if the Underwriters' over-allotment option is
exercised in full), will be entitled for a five-year period, beginning on the
date the Offering closes, to require the Company to register such shares under
the Securities Act of 1933 and he has informed the Company that he may sell
all or substantially all of his shares in the public market within such
period. The sale by the Principal Selling Stockholder of such shares of Common
Stock in the public market or the perception that such sales might occur could
have a material adverse effect on the price of the Common Stock. In addition,
the public sale of shares of Common Stock held by the Principal Selling
Stockholder could have an adverse effect on the Company's ability to raise
capital through the sale of stock.
The shares of Common Stock sold in the Offering will be freely transferable
without restriction or further registration under the Securities Act except
for any shares that are beneficially owned at any time by an "affiliate" of
the Company within the meaning of Rule 144 under the Securities Act of 1933
(which sales will be subject to the timing, volume and manner of sale
limitations of Rule 144). The outstanding shares of Common Stock that will
be held by the Principal Selling Stockholder after the Offering are
"restricted" securities within the meaning of Rule 144 under the Securities
Act of 1933 and may not be publicly resold, except in compliance with the
registration requirements of the Securities Act of 1933 or pursuant to an
exemption from registration, including that provided by Rule 144 under the
Securities Act of 1933. See "Certain Transactions Prior to the Offering--The
Recapitalization," "Principal and Selling Stockholders" and "Certain
Relationships and Transactions."
The Company and the Selling Stockholders have agreed that they will not
offer, sell, contract to sell, announce any intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission a
registration statement under the Securities Act relating to, any shares of
Common Stock or securities or other rights convertible into or exchangeable or
exercisable for any shares of Common Stock without the prior written consent
of Salomon Smith Barney for a period of 180 days after the date of this
Prospectus (the "Lock-Up Period"). Accordingly, if the Principal Selling
Stockholder wishes to exercise his registration rights during the Lock-Up
Period, the consent of Salomon Smith Barney would be required. The
restrictions applicable during the Lock-Up Period will not affect the ability
of the Company (i) to issue and sell Common Stock or make any awards pursuant
to the Incentive Plan, the 1998 Plan and the Directors Plan (ii) to issue
shares of Common Stock pursuant to the exercise of stock options currently
outstanding or granted pursuant to the Incentive Plan, the 1998 Plan or the
Directors Plan or (iii) to issue shares of Common Stock or securities
convertible into, or exercisable or exchangeable for, shares of Common Stock
in connection with an acquisition of or merger with another corporation as
long as such securities are not registered under the Securities Act of 1933
during the Lock-Up Period. See "Shares Eligible for Future Sale" and
"Underwriting."
ANTI-TAKEOVER PROVISIONS; POTENTIAL CONTROL OF THE COMPANY BY THE PRINCIPAL
SELLING STOCKHOLDER
The Company's Certificate of Incorporation includes provisions authorizing
the Board of Directors to issue shares of preferred stock from time to time
with such rights and preferences as the Board may determine and provisions
prohibiting stockholder action by written consent. These provisions could have
the effect of making it more difficult for a third party to acquire, or
discouraging a third party from attempting to acquire, control of the Company.
Such provisions also may have the effect of discouraging or preventing certain
types of
11
<PAGE>
transactions involving an actual or threatened change of control of the
Company (including unsolicited take-over attempts), even though such a
transaction may offer the Company's stockholders the opportunity to sell their
stock at a price above the prevailing market price. See "Description of
Capital Stock."
Upon the closing of the Offering, the Principal Selling Stockholder will
beneficially own approximately % of the shares of Common Stock ( % if the
over-allotment option is exercised in full). Accordingly, the Principal
Selling Stockholder may be able to influence the outcome of corporate actions
requiring stockholder approval after the Offering. See "Principal and Selling
Stockholders."
12
<PAGE>
CERTAIN TRANSACTIONS PRIOR TO THE OFFERING
FORMATION AND SPIN-OFF OF THE COMPANY
Prior to October 31, 1997, the Company's business was operated as a division
of The Advisory Board Company. The Company was incorporated in the State of
Delaware on September 11, 1997. On October 31, 1997: (i) the Company issued
shares of common stock to The Advisory Board Company in consideration for the
transfer to the Company by The Advisory Board Company of the assets and
certain liabilities relating to the corporate-related business (the
"Transferred Business") of The Advisory Board Company and (ii) The Advisory
Board Company distributed all issued and outstanding shares of common stock of
the Company to David G. Bradley, the sole stockholder of The Advisory Board
Company as part of the Spin-Off. After the Spin-Off, The Advisory Board
Company and the Company were separate corporations, each owned directly by
David G. Bradley.
The Spin-Off was consummated, among other things, (i) to permit management
of each of the Company and The Advisory Board Company to focus on their
respective strategic objectives and core business operations and (ii) to link
more directly incentive and compensation arrangements for key employees of
each entity with the operating results and performance of the respective
entities.
A Distribution Agreement, dated October 31, 1997, between The Advisory Board
Company and the Company (the "Distribution Agreement") provided for the
principal corporate transactions required to effect the Spin-Off. Among other
things, the Distribution Agreement required the transfer and assignment to the
Company of all assets and agreements (including the agreements between The
Advisory Board Company and its clients relating to the Transferred Business
(the "Member Contracts")) relating to the Transferred Business and the
assumption by the Company of liabilities, including all indebtedness relating
to the Transferred Business.
Pursuant to an Administrative Services Agreement (the "Administrative
Services Agreement") and a Vendor Contracts Agreement (the "Vendor Contracts
Agreement"), both dated October 31, 1997, as amended and restated on July 21,
1998, The Advisory Board Company agreed to provide to the Company certain
administrative services and certain vendor services. The term of each of these
agreements expires on October 31, 1999. Pursuant to a Member Contracts
Agreement, dated October 31, 1997 (the "Member Contracts Agreement"), the
Company appointed The Advisory Board Company as its agent to take
administrative and accounting-related actions on behalf of the Company with
respect to Member Contracts. The Member Contracts Agreement terminated on
October 31, 1998 in accordance with its terms. Pursuant to a Sublease
Agreement, dated October 31, 1997, as amended and restated on July 21, 1998
(the "Sublease Agreement"), the Company also subleases its office space from
The Advisory Board Company on terms consistent with the original lease
agreement, subject to termination by either The Advisory Board Company or the
Company with at least six months written notice. The Company records costs
associated with these agreements monthly as a payable to an affiliate, and
expects to settle amounts owed on a quarterly basis. See "Certain
Relationships and Transactions."
The Company's financial statements present the accounts of the Company as if
it had operated as a stand-alone entity, in accordance with the accounting
rules prescribed for "carve-out" financial statements, for periods preceding
the Spin-Off. For these periods, net funds contributed by the Company are
treated as an affiliate receivable because cash flows were commingled in The
Advisory Board Company accounts. This affiliate receivable was settled as part
of the transfer of assets and liabilities at the Spin-Off pursuant to the
Distribution Agreement.
S CORPORATION DISTRIBUTION AND TERMINATION OF S CORPORATION STATUS
Prior to the closing of the Offering, the Company has been treated as an S
corporation under the Code for federal and certain state income tax purposes.
As a result, the Company's earnings were taxed for federal and certain state
tax purposes directly to the Principal Selling Stockholder. Effective as of
the closing of the Offering, the Company's status as an S corporation will be
terminated and the Company will become subject to federal and state income
taxes.
13
<PAGE>
Prior to the closing of the Offering, the Company will distribute to the
Principal Selling Stockholder and the Bradley Trust an amount equal to $
million (the "Pre-Closing Distribution"). In addition, the expenses of the
Offering, estimated to be approximately $1.4 million, will be paid by the
Company and will be treated for accounting purposes as a distribution to the
Principal Selling Stockholder and the Bradley Trust.
In connection with the Pre-Closing Distribution and the payment of the
expenses of the Offering, the Company and the Principal Selling Stockholder
will enter into a cross-indemnification agreement pursuant to which the
Company will indemnify the Principal Selling Stockholder and the Principal
Selling Stockholder will indemnify the Company with respect to adverse tax
effects resulting from the reallocation of income and expenses between S
corporation and C corporation tax years.
THE RECAPITALIZATION
The Company currently has two classes of common stock issued and
outstanding, the Class A Stock and the Class B Stock, differing only as to
voting rights. On , 1998 the Board of Directors and the Principal Selling
Stockholder, approved a [ ]-for-1 stock split in the form of a dividend (the
"Stock Split"), an increase in the authorized number of shares of the Class A
Stock and the Class B Stock to and the authorization of shares of
Preferred Stock (the "Authorized Share Increase"). The Stock Split was
effected on , 1998. In order to facilitate the Offering, on , 1998,
the Board of Directors and the Principal Selling Stockholder approved the
reclassification of the Company's two outstanding classes of common stock into
shares of Common Stock automatically upon the closing of the Offering (the
"Reclassification"). The Stock Split, the Authorized Share Increase and the
Reclassification are referred to herein as the "Recapitalization." As a result
of the Recapitalization, the Company will have outstanding shares of
Common Stock as its only class of issued equity securities upon the closing of
the Offering. All holders of the Common Stock will have the same rights and
privileges. See "Description of Capital Stock." Except as specifically set
forth in this Prospectus, all references to numbers of shares of any class of
the Company's stock and all per share information set forth in this Prospectus
have been adjusted to give effect to the Recapitalization.
STOCK OPTION RESTRUCTURING AND REPURCHASE CHARGES
Beginning in 1995 and prior to the Spin-Off, The Advisory Board Company
entered into the Liquid Markets Agreements. The obligations associated with
these agreements were transferred to the Company in the Spin-Off to the extent
such obligations were attributable to employees of the Company. The cost of
such agreements is being charged to compensation expense over required
employment periods. The Company expects to eliminate future employment
requirements and to recognize the balance of the compensation expense related
to these agreements (approximately $1.7 million) during the fourth quarter of
1998. Furthermore, in connection with the Spin-Off, The Advisory Board Company
executed substitution agreements with each of the employees of the Company
participating in The Advisory Board Company's stock option plan. The
substitution allowed for the exchange of Advisory Board Company options for
Company options. The terms of this substitution resulted in compensation
expense being charged for the intrinsic value of certain stock options over
the vesting period. This compensation expense will result in non-cash charges
in the amount of $504,000 in 1998, $382,000 in 1999, $382,000 in 2000 and
$191,000 in 2001. Accordingly, compensation expense of approximately $96,000
relating to the substitution of the stock options will be recognized during
the quarter in which the Offering occurs.
NAME CHANGE
On July 27, 1998, the Company changed its name from The Corporate Advisory
Board Company to The Corporate Executive Board Company.
14
<PAGE>
USE OF PROCEEDS
All of the shares of Common Stock being sold in the Offering are being sold
by the Selling Stockholders. The Company will not receive any proceeds from
the sale of the Common Stock pursuant to the Offering. The Principal Selling
Stockholder, however, has agreed to use approximately $6.58 million of the
proceeds of the Offering to repay the principal and accrued and unpaid
interest on a promissory note made by the Principal Selling Stockholder in
favor of the Company. See "Certain Relationships and Transactions --Promissory
Note."
DIVIDEND POLICY
From the date of the Spin-Off to the closing of the Offering, the Company
has paid dividends of $11.9 million (including the Pre-Closing Distribution)
to the Principal Selling Stockholder and the Bradley Trust. In addition, the
Company will pay the expenses of the Offering in the amount of approximately
$1.4 million which will be treated for accounting purposes as a distribution
to the Principal Selling Stockholder and the Bradley Trust. After the
Offering, the Company does not anticipate declaring or paying dividends in the
foreseeable future. The timing and amount of future dividends, if any, will be
determined by the Board of Directors of the Company and will depend, among
other factors, upon the Company's earnings, financial condition and cash
requirements at the time such payment is considered.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1998 on an actual basis and pro forma to reflect the
transactions set forth in note (1) hereto. The Company will not receive any of
the proceeds from the Offering. See "Use of Proceeds" and "Principal and
Selling Stockholders." This table should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------
ACTUAL PRO FORMA(1)
------------- ---------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Cash and cash equivalents........................ $ 5,739 $
============= ===========
Current stock option repurchase liability(2)..... $ 3,150
-------------
Total current liabilities...................... $ 3,150 $
============= ===========
Long-term stock option repurchase liability(2)... $ 3,158 $ --
Preferred stock, par value $0.01 per share,
shares authorized, no shares issued and
outstanding..................................... -- --
Class A voting common stock, par value $0.01 per
share, 1,000 shares authorized, 1,000 shares
issued and outstanding (actual), no shares
issued and outstanding (pro forma).............. --
Class B non-voting common stock, par value $0.01
per share, 1,399,000 shares authorized, 726,000
shares issued and outstanding (actual), no
shares issued and outstanding (pro forma)....... 7 --
Common stock, par value $.01 per share,
shares authorized, no shares issued and
outstanding (actual), shares issued and
outstanding (pro forma).........................
Additional paid-in capital....................... 2,764
Deferred compensation............................ (1,050)
Accumulated deficit.............................. (7,980)
------------- -----------
Total capitalization........................... $ (3,101) $
============= ===========
</TABLE>
- --------
(1) Assumes the following transactions took place as of September 30, 1998:
(i) the elimination of certain employment requirements contained in the
Liquid Markets Agreements with certain employees relating to the
repurchase of certain stock options prior to the Spin-Off, resulting in an
increase in the long-term option repurchase liability of $1.7 million as
of September 30, 1998; (ii) the payment of the Pre-Closing Distribution in
the amount of $ million; (iii) the Recapitalization; (iv) the payment
of the expenses of the Offering in the amount of approximately
$1.4 million; (v) receipt by the Company of the proceeds from the
repayment of a promissory note in the principal amount of $6.5 million
made by the Principal Selling Stockholder in favor of the Company; and
(vi) the termination of the Company's S corporation election and a
resulting increase in the Company's federal deferred income tax asset of
approximately $3.7 million as of September 30, 1998. See "Certain
Transactions Prior to the Offering--S Corporation Distribution and
Termination of S Corporation Status;--The Recapitalization; and--Stock
Option Restructuring and Repurchase Charges."
(2) The Company has Liquid Markets Agreements with certain employees relating
to the repurchase of certain stock options prior to the Spin-Off at fixed
amounts subject to certain employment requirements. The amount due under
these agreements during the next 12 months is classified as current stock
option repurchase liability, and the amount due thereafter is classified
as long-term stock option repurchase liability. See "Certain Transactions
Prior to the Offering--Stock Option Restructuring and Repurchase Charges."
16
<PAGE>
DILUTION
The Company currently has only one stockholder, the Principal Selling
Stockholder. The Principal Selling Stockholder currently owns shares of
Common Stock, which were distributed to him in the form of a dividend on
October 31, 1997 by The Advisory Board Company as part of the Spin-Off. The
Principal Selling Stockholder paid no additional consideration for such stock.
It is anticipated that immediately prior to the date of this Prospectus,
Messrs. Zients and D'Amato will exercise options, at an exercise price of $
per share, to purchase shares of Common Stock from the Company, and that
such shares will be sold in the Offering. The following table sets forth
certain information with respect to the acquisition of shares of Common Stock
by existing stockholders and by investors in the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders
(1)..................... % $ % $
New Investors............
---------- --- ----------- --- -----------
Total.................... 100% $ 100% $
========== === =========== === ===========
</TABLE>
- --------
(1) The foregoing calculations (i) assume the shares of Common Stock owned by
the Principal Selling Stockholder were acquired for no additional
consideration, (ii) exclude shares of Common Stock reserved for
issuance under the Company's Incentive Plan and (iii) assume no exercise
of the Underwriters' over-allotment option.
Sales by the Selling Stockholders in the Offering will reduce the number of
shares of Common Stock held by the existing stockholders (including the
Principal Selling Stockholder) to shares or % ( shares or
% if the Underwriters' over-allotment option is exercised in full) of the
total number of shares of Common Stock outstanding after the Offering. As a
result of the Offering, the number of shares of Common Stock held by new
investors will be shares or % ( shares or % if the
Underwriters' over-allotment option is exercised in full) of the total number
of shares of Common Stock outstanding after the Offering. See "Principal and
Selling Stockholders."
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997 have
been derived from the financial statements of the Company which have been
audited by Arthur Andersen LLP, independent public accountants. The selected
financial data presented below as of December 31, 1993, 1994 and 1995 and as
of September 30, 1998, and for the years ended December 31, 1993 and 1994 and
the nine months ended September 30, 1997 and 1998 have been derived from the
unaudited financial statements of the Company, which have been prepared on the
same basis as the audited financial statements of the Company. The unaudited
financial statements for the nine months ended September 30, 1997 and 1998
include all adjustments, consisting of normal recurring accruals, that the
Company considers necessary for a fair presentation of the financial position
and results of operations as of and for such period. Operating results for the
nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. The
selected financial data presented below should be read in conjunction with the
Financial Statements and the Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Revenues................ $8,108 $10,384 $17,547 $27,283 $38,669 $ 27,972 $ 38,239
Costs and expenses:
Cost of services...... 4,713 7,698 10,849 15,078 20,036 13,989 18,633
Member relations and
marketing............ 2,259 2,807 5,275 6,677 8,106 5,762 8,064
General and adminis-
trative.............. 778 1,147 2,589 3,832 5,660 4,317 4,624
Depreciation.......... 108 249 233 452 722 474 502
Stock option restruc-
turing and repur-
chase(2)............. -- -- 9,390 1,473 3,063 1,554 1,158
------ ------- ------- ------- ------- -------- --------
Total costs and ex-
penses............. 7,858 11,901 28,336 27,512 37,587 26,096 32,981
------ ------- ------- ------- ------- -------- --------
Income (loss) from oper-
ations(2).............. 250 (1,517) (10,789) (229) 1,082 1,876 5,258
Interest income......... -- -- -- -- 122 -- 575
------ ------- ------- ------- ------- -------- --------
Income (loss) before
provision (benefit) for
state income taxes..... 250 (1,517) (10,789) (229) 1,204 1,876 5,833
Provision (benefit) for
state income taxes(3).. 25 (151) (1,076) (23) 120 186 590
------ ------- ------- ------- ------- -------- --------
Net income (loss)....... $ 225 $(1,366) $(9,713) $ (206) $ 1,084 $ 1,690 $ 5,243
====== ======= ======= ======= ======= ======== ========
Pro forma net income
(loss)(3).............. $ 150 $ (910) $(6,473) $ (137) $ 722 $ 1,126 $ 3,500
====== ======= ======= ======= ======= ======== ========
Pro forma net income
(loss) per share--ba-
sic(4)................. $ 0.21 $ (1.25) $ (8.90) $ (0.19) $ 0.99 $ 1.55 $ 4.81
Pro forma weighted aver-
age shares outstand-
ing--basic(4).......... 727 727 727 727 727 727 727
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
AS OF DECEMBER 31, 1998
------------------------------------ -----------------
PRO
1993 1994 1995 1996 1997 ACTUAL FORMA(5)
----- ------ ------ ------ ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equiva-
lents.................. -- -- -- -- $ 8,937 $ 5,739 $ 6,762
Working capital......... 3,291 1,712 (3,530) (4,645) (5,005) (5,629) (8,284)
Total assets............ 8,423 13,154 18,568 23,107 39,868 29,299 26,644
Deferred revenues....... 3,952 9,578 15,382 21,696 31,474 24,058 24,058
Total stockholder's eq-
uity (deficit)......... 3,874 2,508 (7,205) (7,411) (5,042) (6,259) (10,565)
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------- 12 MONTHS ENDED -----------
1995 1996 1997 SEPTEMBER 30, 1998
------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subscription pro-
grams(6)............... 6 7 9 10
Member institu-
tions(6),(7)........... 784 1,003 1,150 1,319
Total membership
subscriptions(6)....... 1,145 1,491 1,799 2,183
Average subscription
programs per member-
ship(6)................ 1.46 1.49 1.56 1.66
Program renewal
rate(8)................ 85% 86% 85% 85%
</TABLE>
- --------
(1) The Statement of Operations Data do not reflect certain future charges
that the Company expects to incur, of which approximately $1.8 million are
expected to be recognized during the fourth quarter of 1998. Of the
charges in such quarter, $1.7 million relate to the elimination of certain
employment requirements contained in the Liquid Markets Agreements and
$0.1 million relate to a substitution of Company stock options for
Advisory Board Company stock options that occurred at the time of the
Spin-Off. See "Certain Transactions Prior to the Offering--Stock Option
Restructuring and Repurchase Charges."
(2) The Company reflects charges relating to the Liquid Markets Agreements as
stock option repurchase expenses over the required employment period.
Furthermore, the terms of the stock option substitution effected at the
Spin-Off resulted in compensation expense being charged for the intrinsic
value of certain stock options. These charges are reflected as stock
option restructuring expense over the vesting period of the options.
Excluding these expenses related to the Company's options, Income (Loss)
From Operations for 1993, 1994, 1995, 1996 and 1997 would have been $0.3
million, $(1.5) million, $(1.4) million, $1.3 million, and $4.1 million,
respectively, and Income From Operations for the nine months ended
September 30, 1997 and September 30, 1998 would have been $3.4 million and
$6.4 million, respectively.
(3) The Company has elected to be taxed as an S Corporation under the Code
whereby the Principal Selling Stockholder (who prior to the Offering was
the Company's sole stockholder) is liable for individual federal income
taxes on the Company's taxable income. As the District of Columbia does
not recognize S corporation status, the Company has been directly
responsible for District of Columbia taxes. Effective as of the closing of
the Offering, the Company will terminate its S corporation election and
will be subject to corporate level federal income taxes. See "Certain
Transactions Prior to the Offering--S Corporation Distribution and
Termination of S Corporation Status." Accordingly, the pro forma net
income (loss) reflects an estimate of the income taxes that would have
been recorded if the Company had been a C corporation for the periods
presented. See Note 6 to Financial Statements.
(4) Basic pro forma net income (loss) per share is computed by dividing pro
forma net income (loss) by the weighted average number of shares of common
stock outstanding during the period. Fully diluted pro forma net income
(loss) per share is the same as basic pro forma earnings per share for all
periods except the year ended December 31, 1997 and the nine months ended
September 30, 1997 and September 30, 1998. Fully diluted pro forma net
income per share is $0.85 $1.33 and $3.66 for the year ended December 31,
1997 and the nine months ended September 30, 1997 and September 30, 1998,
respectively. See Note 2 to Financial Statements.
(5) Pro forma to give effect to (1) the distribution of $ million to the
Principal Selling Stockholder and the Bradley Trust as the Pre-Closing
Distribution, (2) the termination of the Company's S corporation election
and a resulting increase in the Company's federal deferred income tax
asset of approximately $3.7 million as of September 30, 1998, (3) the
planned amendment of the Liquid Markets Agreements which eliminates future
employment requirements as a condition for payment, resulting in an
increase in the long-term option repurchase liability of $1.7 million as
of September 30, 1998, (4) the repayment by the Principal Selling
Stockholder to the Company of a promissory note in the principal amount of
$6.5 million, and (5) the payment by the Company of approximately $1.4
million in Offering expenses, on behalf of the Selling Stockholders, which
will be treated for accounting purposes as a distribution to the Principal
Selling Stockholder and the Bradley Trust. See "Certain Transactions Prior
to the Offering--Stock Option Restructuring and Repurchase Charges."
(6) At the end of the period.
(7) The Company's membership consists primarily of domestic and multinational
corporations and secondarily of large subsidiaries of corporations and
non-profit institutions.
(8) Program renewal rate is defined as the percentage of membership
subscriptions renewed.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
OVERVIEW
The Corporate Executive Board is the leading provider of "best practices"
research and analysis focusing on corporate strategy, operations and general
management issues. Best practices research identifies and analyzes specific
management initiatives, processes and strategies that have been determined to
produce the best results in solving common business problems or challenges.
The Company provides its research and analysis on an annual subscription basis
to a membership of over 1,300 of the world's largest and most prestigious
corporations. For a fixed annual fee, members of each subscription program
have access to an integrated set of services, including best practices
research studies, executive education seminars, customized research briefs and
on-line access to the program's database.
Management's discussion and analysis and the accompanying financial
statements present the Company's results of operations as if it had operated
as a stand-alone entity in accordance with the accounting rules prescribed for
"carve-out" financial statements. The Company operated as a division of The
Advisory Board Company until October 31, 1997 when it was spun off to the
Principal Selling Stockholder, the sole stockholder of The Advisory Board
Company. See "Certain Transactions Prior to the Offering--Formation and Spin-
Off of the Company."
Subscription memberships, which are annually renewable contracts and
generally payable by members at the beginning of the contract term, comprise
100% of the Company's revenues. Billings attributable to the Company's
subscription programs initially are recorded as deferred membership fees and
then recognized pro rata over the contract term.
Over the last three years, the Company's revenues have grown at a compound
annual growth rate of 55.0% from $10.4 million in 1994 to $38.7 million in
1997, while costs have grown at a compound annual growth rate of 46.7% from
$11.9 million in 1994 to $37.6 million in 1997, resulting in operating losses
prior to 1997 and income from operations of $1.1 million in 1997. Comparing
the nine months ended September 30, 1997 to the nine months ended September
30, 1998, revenues increased 36.4% from $28.0 million to $38.2 million, costs
increased 26.4% from $26.1 million to $33.0 million, income from operations
increased 178.9% from $1.9 million to $5.3 million and the Company's operating
margin increased from 6.7% to 13.8%. The Company attributes the growth in
revenues to an increase in the number of memberships, driven primarily by new
sales for existing subscription programs and the introduction of new
subscription programs. The increase in costs is a function of the growth in
memberships and subscription programs and investments in certain
administrative functions. Costs are also affected by stock option
restructuring and repurchase charges as further explained below.
One measure of the Company's business is its annualized "Contract Value,"
which the Company calculates as the aggregate annualized membership revenue
attributed to all membership agreements in effect at a given point in time,
without regard to the remaining duration of such agreements. The Company's
experience is that a substantial portion of members renew subscriptions for an
equal or higher level of total membership payments each year. Contract Value
has grown at a compound annual growth rate of 49.1% over the past three fiscal
years and was $57.2 million at September 30, 1998.
The Company's operating expenses consist of cost of services, member
relations and marketing, general and administrative expenses and depreciation.
Cost of services represents the costs associated with the production and
delivery of the Company's products and services, including compensation of
research personnel and in-house faculty, the production of published
materials, the organization of member meetings and all associated support
services. Member relations and marketing expenses represent the costs of
acquiring new members and renewing existing members and consist of
compensation expenses (including sales commissions) travel and all associated
support services. General and administrative expenses include the costs of
human resources and recruiting, finance and accounting, management information
systems, facilities management, new product development and other
administrative functions of the Company.
The Company has Liquid Markets Agreements with certain employees relating to
the repurchase of certain options prior to the Spin-Off at fixed amounts
subject to certain employment requirements. The Company reflects
20
<PAGE>
these charges as stock option repurchase expenses over the required employment
period. In conjunction with the Spin-Off, The Advisory Board Company executed
substitution agreements with each of the employees of the Company
participating in The Advisory Board Company's stock option plan. The
substitution allowed for the exchange of Advisory Board Company options for
Company options. The terms of the substitution resulted in compensation
expense being charged for the intrinsic value of certain options over the
vesting period of the options, reflected as stock option restructuring
expense. See "Certain Transactions Prior to the Offering--Stock Option
Restructuring and Repurchase Charges."
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Total revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of services...................... 61.8 55.2 51.8 50.0 48.7
Member relations and marketing........ 30.1 24.5 21.0 20.6 21.1
General and administrative............ 14.8 14.0 14.6 15.4 12.1
Depreciation.......................... 1.3 1.7 1.9 1.7 1.3
Stock option restructuring and repur-
chase................................ 53.5 5.4 7.9 5.6 3.0
----- ----- ----- ------ ------
Total costs and expenses............ 161.5% 100.8% 97.2% 93.3% 86.2%
===== ===== ===== ====== ======
Income from operations.................. (61.5)% (0.8)% 2.8% 6.7% 13.8%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
Revenues. Total revenues increased 36.4% from $28.0 million for the nine
months ended September 30, 1997 to $38.2 million for the nine months ended
September 30, 1998. The increase in revenues is primarily attributable to
increased sales of existing subscription programs, the introduction of two new
subscription programs and consistent renewal rates.
Cost of Services. Cost of services decreased as a percentage of revenue from
50.0% for the nine months ended September 30, 1997 to 48.7% for the nine
months ended September 30, 1998. This decrease is attributable to the fixed
nature of the production costs of best practices research studies, as these
costs are not materially affected by growth in the number of members; offset
by the impact of the introduction of new subscription programs. The absolute
cost of these services increased 32.9% from $14.0 million for the nine months
ended September 30, 1997 to $18.6 million for the nine months ended September
30, 1998. The increases were principally due to the addition of research teams
related to the introduction of two new subscription programs and the increase
in customized research briefs and executive education costs to service the
growing member base for existing and new subscription programs.
Member Relations and Marketing. Member relations and marketing costs
increased as a percentage of total revenues from 20.6% for the nine months
ended September 30, 1997 to 21.1% for the nine months ended September 30,
1998. This increase is attributable to the Company's efforts to increase the
marketing staff to expand efforts for existing subscription programs and to
prepare for the launch of two new subscription programs in 1998. The absolute
dollar costs of member relations and marketing increased 39.7% from $5.8
million for the nine months ended September 30, 1997 to $8.1 million for the
nine months ended September 30, 1998. The increases were primarily due to
increases in personnel and related costs to expand marketing efforts on
existing subscription programs, to support planned new product offerings and
to provide a consistent level of member service to an expanding member base.
The increases also were due to increased incentive compensation correlated
with the growth in revenues.
21
<PAGE>
General and Administrative. General and administrative expenses decreased as
a percentage of revenue from 15.4% for the nine months ended September 30,
1997 to 12.1% for the nine months ended September 30, 1998. This decrease is
attributable to the fixed nature of certain administrative costs and the
timing of certain recruiting and new product development costs. The absolute
dollar costs for general and administrative expenses increased 7.0% from $4.3
million for the nine months ended September 30, 1997 to $4.6 million for the
nine months ended September 30, 1998.
Depreciation. Depreciation expense remained constant at $0.5 million for the
nine-month periods ended September 30, 1997 and 1998.
Stock Option Restructuring and Repurchase Charges. The Company recognized
$1.6 million and $750,000 in compensation expense related to the Liquid
Markets Agreements for the nine months ended September 30, 1997 and 1998,
respectively. The Company expects to eliminate future employment requirements
and to recognize the balance of the compensation expense related to these
agreements, approximately $1.7 million, during the fourth quarter of 1998.
Furthermore, in connection with the Spin-Off, The Advisory Board Company
executed substitution agreements with each of the employees of the Company
participating in The Advisory Board Company's stock option plan. The terms of
this substitution resulted in compensation expense for the intrinsic value of
certain stock options to be charged over the vesting period. Resulting
compensation charges were $408,000 for the nine months ended September 30,
1998. See "Certain Transactions Prior to the Offering--Stock Option
Restructuring and Repurchase Charges."
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Revenues. Total revenues increased 56.0% from $17.5 million for the year
ended December 31, 1995 to $27.3 million for the year ended December 31, 1996,
and 41.8% to $38.7 million for the year ended December 31, 1997. The increase
in revenues is primarily attributable to increased sales of existing
subscription programs, the introduction of new subscription programs,
consistent renewal rates and, to a lesser degree, price increases. A portion
of the increase also is due to the introduction of on-site executive education
services to existing members resulting in price increases in 1996. The Company
introduced one new subscription program in 1996 and two new subscription
programs in 1997.
The Company's program renewal rate, defined as the percentage of prior year
membership subscriptions renewed was 85%, 86% and 85% for 1995, 1996 and 1997,
respectively.
Cost of Services. Cost of services decreased as a percentage of revenue from
61.8% for the year ended December 31, 1995 to 55.2% for the year ended
December 31, 1996, to 51.8% for the year ended December 31, 1997. This
decrease is attributable to the fixed nature of the production costs of best
practices research studies, as these costs are not materially affected by
growth in the number of members. The absolute cost of these services increased
39.8% from $10.8 million for the year ended December 31, 1995 to $15.1 million
for the year ended December 31, 1996, and 32.5% to $20.0 million for the year
ended December 31, 1997. The increases were principally due to the addition of
research teams related to the introduction of new subscription programs and
the increase in customized research briefs and executive education costs to
service the growing member base for existing and new subscription programs.
Member Relations and Marketing. Member relations and marketing costs
decreased as a percentage of total revenues from 30.1% for the year ended
December 31, 1995 to 24.5% for the year ended December 31, 1996, to 21.0% for
the year ended December 31, 1997. This decrease is largely attributable to the
Company's ability to leverage marketing personnel to sell multiple
subscription programs. The absolute dollar costs of member relations and
marketing increased 26.4% from $5.3 million for the year ended December 31,
1995 to $6.7 million for the year ended December 31, 1996, and 20.9% to $8.1
million for the year ended December 31, 1997. The increases were primarily due
to increases in personnel and related costs to market and support new
subscription programs, increased marketing efforts for existing subscription
programs and increased incentive compensation correlated to the growth in
revenues.
22
<PAGE>
General and Administrative. General and administrative expenses remained
relatively constant as a percentage of total revenues at 14.8% for the year
ended December 31, 1995, 14.0% for the year ended December 31, 1996 and 14.6%
for the year ended December 31, 1997. The absolute dollar costs for general
and administrative expenses increased 46.2% from $2.6 million for the year
ended December 31, 1995 to $3.8 million for the year ended December 31, 1996,
and 50.0% to $5.7 million for the year ended December 31, 1997. The increases
reflect investments in new product development, human resources and
recruiting, management information systems and finance and accounting
functions required to support the Company's growth.
Depreciation. Depreciation expense increased 94.0% from $233,000 for the
year ended December 31, 1995 to $452,000 for the year ended December 31, 1996,
and 59.7% to $722,000 for the year ended December 31, 1997. The increase was
principally due to investments in computer equipment and software, office
furnishings and physical space to support the growth in the business.
Stock Option Restructuring and Repurchase Charges. The Company recognized
$9.4 million, $1.5 million and $1.8 million in compensation expense related to
the repurchase of certain stock options pursuant to the Liquid Markets
Agreements for the years ended December 31, 1995, 1996 and 1997, respectively.
The Company expects to recognize the balance of the compensation expense
related to these agreements, approximately $1.7 million, during the fourth
quarter of 1998. In addition, the Company recorded compensation charges
resulting from the substitution of Company stock options for Advisory Board
Company options as part of the Spin-Off, of $1.3 million in 1997, with
$504,000 in charges scheduled in 1998, $382,000 in 1999, $382,000 in 2000 and
$191,000 in 2001. See "Certain Transactions Prior to the Offering--Stock
Option Restructuring and Repurchase Charges."
LIQUIDITY AND CAPITAL RESOURCES
On October 31, 1997, the Company was a party to the Spin-Off transaction
with The Advisory Board Company whereby the assets and certain liabilities
relating to the corporate-related consulting business of The Advisory Board
Company were transferred to the Company, a newly incorporated entity. See
"Certain Transactions Prior to the Offering--Formation and Spin-Off of the
Company."
The Company's financial statements present the accounts of the Company as if
it had operated as a stand-alone entity in accordance with the accounting
rules prescribed for "carve-out" financial statements for periods preceding
the Spin-Off on October 31, 1997. For these periods, net funds contributed by
the Company were treated as an affiliate receivable as cash flows were
commingled in The Advisory Board Company accounts. This affiliate receivable
was settled as part of the transfer of assets and liabilities in the Spin-Off.
The Company entered into the Administrative Services Agreement, the Vendor
Contracts Agreement, the Member Contracts Agreement and the Sublease Agreement
with The Advisory Board Company coincident with the Spin-Off. See "Certain
Transactions Prior to the Offering--Formation and Spin-Off of the Company" and
"Certain Relationships and Transactions." The Company records costs associated
with these agreements monthly as a payable to affiliate, and expects to pay
amounts owed to The Advisory Board Company on a quarterly basis. The Company
believes that the services provided to the Company by The Advisory Board
Company under the Administrative Services Agreement may be obtained by the
Company from alternative sources and that the fees payable pursuant to the
Administrative Services Agreement approximate the cost to internally provide
or otherwise externally source such services. Under the Vendor Contracts
Agreement, the Company participates in certain vendor contracts entered into
by The Advisory Board Company for the provision of certain services. The
Company expects to enter into separately negotiated vendor contracts as soon
as reasonably practical, and does not expect to incur material incremental
costs. The terms of the Administrative Services Agreement and the Vendor
Contracts Agreement expire on October 31, 1999. The Company expects to have
internally assumed or externally sourced the services under both of these
agreements prior to their termination. The Member Contracts Agreement was
terminated on October 31, 1998 in accordance with its terms. The Company does
not expect to incur any additional costs as a result of the termination of the
Member Contracts Agreement. Pursuant to the Sublease Agreement, the Company
subleases its office space from The Advisory Board Company on terms consistent
with the original lease agreement, subject to termination by either the
Company or The Advisory Board Company with at least six months written notice.
23
<PAGE>
The Company has financed its operations to date through funds generated from
operations. Member subscriptions, which are annually renewable contracts and
generally payable by members at the beginning of the contract term, comprise
100% of the Company's revenues. The combination of year-to-year revenue growth
and payments in advance from members has historically resulted in positive
cash generation from operations. The Company generated $1.4 million in cash
from operating activities during 1995, $5.5 million in 1996, and $13.6 million
in 1997. In the nine months ended September 30, 1998, the Company generated
$7.6 million in cash from operating activities.
In 1997, the Company invested $11.8 million, of which $1.5 million was used
for the purchase of property and equipment, $3.8 million was used for the
purchase of marketable securities and $6.5 million was loaned to the Principal
Selling Stockholder. The Company's investment policy allows for the investment
of excess funds in short-term to intermediate-term federal government or
investment grade obligations. In the first nine months of 1998, the Company
used $2.4 million to repurchase stock options and $517,000 for the purchase of
property and equipment. During the first nine months of 1998, the Company
received $313,000 from the net sales of marketable securities. See Note 9 to
Financial Statements for further discussion regarding the option repurchase
program.
In the first nine months of 1998, the Company distributed $6.9 million to
the Principal Selling Stockholder primarily to pay income taxes on the
Company's S corporation earnings and as distributions of estimated
undistributed taxed or taxable earnings of the Company. The Company expects to
distribute an additional $ million to the Principal Selling Stockholder and
the Bradley Trust as the Pre-Closing Distribution prior to the closing of the
Offering. The Company will also pay approximately $1.4 million in Offering
expenses, which will be treated for accounting purposes as a distribution to
the Principal Selling Stockholder and the Bradley Trust.
The Company holds a promissory note in the amount of $6.5 million from the
Principal Selling Stockholder. The note bears interest at a rate of 7% payable
semiannually. The principal is payable on October 31, 2007. The note is
collateralized by assets of the Principal Selling Stockholder. The Principal
Selling Stockholder has agreed to repay this note from the proceeds of the
Offering.
As of September 30, 1998, the Company had cash and cash equivalents of $5.7
million. Management expects that its current cash balances and cash flows from
operations will satisfy working capital, financing activities and capital
expenditure requirements for the foreseeable future.
The Company has certain commitments related to the relocation of its office
facilities. The Company estimates that it will incur approximately $2.2
million and $5.0 million in leasehold improvements and related costs during
the remainder of 1998 and 1999, respectively. The Company has entered into a
$1.3 million Letter of Credit Agreement with a commercial bank to provide a
security deposit for the office space lease, expiring on June 23, 2003. The
Letter of Credit Agreement is collateralized by the Company's cash, accounts
receivable and physical property.
The Company has Liquid Markets Agreements with certain employees relating to
the repurchase of certain stock options prior to the Spin-Off at fixed
amounts. The Company paid $2.4 million related to these agreements in the
first nine months of 1998, and is obligated to pay $3.1 million during the
remainder of 1998, $1.7 million in 1999, and $3.1 million in 2000. See
"Certain Transactions Prior to the Offering--Stock Option Restructuring and
Repurchase Charges."
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." The Company adopted both
of these standards during the nine months ended September 30, 1998.
SFAS No. 130 requires "comprehensive income" and the components of "other
comprehensive income," to be reported in the financial statements and/or notes
thereto. As the Company does not currently have any components of "other
comprehensive income," reported net income is the same as "total comprehensive
income" for the nine months ended September 30, 1997 and 1998.
24
<PAGE>
SFAS No. 131 requires entities to disclose financial and descriptive
information about its reportable operating segments. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. SFAS No. 131 is not required for interim reporting
purposes during 1998. The Company is in the process of assessing the
additional disclosures, if any, required by SFAS No. 131. However, such
adoption will not impact the Company's results of operations or financial
position, since it relates only to disclosures.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed without consideration for the
impact of the upcoming century change in the year 2000. If not corrected,
applications which are not yet year 2000 compliant may fail or create
erroneous results when processing year 2000 information. The Company is in the
process of completing its analysis and assessment of the potential effects of
the year 2000 century change and has begun efforts to identify, evaluate and
implement changes to the Company's systems and applications necessary to
achieve a year 2000 date conversion.
The Company has audited all of its hardware systems and software
applications. The Company has determined that all of its hardware systems are
either currently compliant or have intermediate upgrades available from the
manufacturer. The Company's software applications that have been customized to
its particular needs have been tested and are currently being modified, or are
scheduled for replacement, as necessary to bring them into compliance. The
rest of the Company's software systems are commercial off-the-shelf packages.
The manufacturers of such software packages offer upgrades and replacements
for their non-compliant products. The Company estimates the cost to complete
the conversion to be $220,000. The Company expects to be year 2000 compliant
by May 1999. The costs of the year 2000 conversion and the date on which the
Company plans to complete the project are based upon management's best
estimates, which are derived on the basis of numerous assumptions of future
events. There can be no guarantee that these estimates will be achieved and
actual results could differ materially.
Each of the Company's department directors has been instructed to
communicate with their major suppliers with respect to such vendors' year 2000
compliance status. All of the Company's departments have been directed to make
arrangements with an alternative vendor if it appears that the current vendor
will not achieve compliance by the year 2000. There can be no guarantee,
however, that the systems of the Company's major vendors, including providers
of public utilities, will be timely converted, or that a failure to convert by
another company or organization, or a conversion that is incompatible with the
Company's systems, would not have an adverse effect on the Company.
The Company currently has not fully developed a contingency plan to address
possible material failures by the Company or its significant suppliers to be
year 2000 compliant. The Company, however, anticipates having contingency
plans in place by January 1999 to handle possible failures of its critical
systems as a result of the year 2000 conversion.
25
<PAGE>
BUSINESS
OVERVIEW
The Corporate Executive Board is the leading provider of "best practices"
research and analysis focusing on corporate strategy, operations and general
management issues. Best practices research identifies and analyzes specific
management initiatives, processes and strategies that have been determined to
produce the best results in solving common business problems or challenges.
The Company provides its research and analysis on an annual subscription basis
to a membership of over 1,300 of the world's largest and most prestigious
corporations. For a fixed annual fee, members of each subscription program
have access to an integrated set of services, including best practices
research studies, executive education seminars, customized research briefs and
on-line access to the program's database. For each of the last three years,
the Company's program renewal rate (defined as the percentage of prior year's
membership subscriptions renewed) exceeded 84%. More than 64% of the Fortune
500 companies are members of the Corporate Executive Board.
The Company's membership-based model, in which all subscribers (or
"members") participate in the Company's research and analysis, is central to
its business strategy. This model gives the Company access to the best
business practices of its members and enables the Company to provide
comprehensive analysis on current business issues, assessing the collective
experiences and knowledge of its members on leading edge topics. By
participating in the Corporate Executive Board, members can learn about the
best practices of the most progressive corporations in the world at a fraction
of the cost of a customized analysis performed by any of the major consulting
firms. The Company does not believe that in-house research and analysis
departments at individual corporations could obtain, at any price, similar
information from other corporations about their management practices. In
general, the membership comprises the most progressive competitors in each
industry sector, including American Express, British Airways, Citigroup, Coca-
Cola, Dell, Hewlett-Packard, Lucent, Merrill Lynch, Microsoft, Procter &
Gamble and Xerox. No one customer accounted for more than 2% of revenues in
any of the last three fiscal years. The Company believes that there is no
other entity that enables corporations to study a broad range of the best
practices of hundreds of other business enterprises for fixed, annual
subscription fees.
The Company currently offers ten discrete subscription programs, each
focusing on a single business constituency: finance, sales, information
technology, corporate strategy, human resources, bank operations, insurance,
trust and private banking, business banking and retail banking. The Company
has added three new subscription programs over the past 18 months and
anticipates adding one to three new subscription programs per year for the
foreseeable future. Each subscription program charges a separate fixed annual
subscription fee and is served by a dedicated staff of analysts and
researchers. Subscriptions are generally renewable on a 12-month basis, and
the average price per subscription program at September 30, 1998 was
approximately $27,000. For the twelve months ended September 30, 1998, the
Company published 31 best practices research studies, completed over 13,000
customized research briefs and provided executive education services to 1,260
member corporations reaching approximately 22,000 executive participants. The
Company's 215 analysts and researchers have compiled a proprietary database of
160 best practices research studies and 25,000 customized research briefs
containing over 100,000 profiles of corporate practices.
The Corporate Executive Board's revenue and costs have grown at compound
annual rates of 55.0% and 46.7%, respectively, from 1995 through 1997. Because
each subscription program provides its membership with standardized best
practices research studies and executive education seminars, new members
immediately add revenues while only incrementally increasing operating costs.
The Company's growth strategy is to cross-sell additional subscription
programs to existing members, to add new members and to develop new
subscription programs.
INDUSTRY BACKGROUND
Corporations today are experiencing greater competitive demands and facing
increasingly complex strategic and operational issues. The globalization of
the economy, the transformation from an industrial era to an information age
and the accelerating pace of technological change are dramatically altering
the business
26
<PAGE>
environment. In response to these trends, companies are exploring new business
strategies as well as reevaluating the performance of individual departments
within their organizations in order to maintain their competitive edge. The
pace of change is driving a greater interest in gaining access to leading
management practices and solutions to common business problems on a cross-
industry basis.
Capitalizing on the growing demand for information on business and
management issues, the professional information services industry has
experienced significant growth over the past few years. Industry participants
have approached the market for business-focused information by offering a
variety of products and services, including market research, strategic
planning, implementation services and educational programs. Services also
differ by the level of engagement, with some offering project-driven or long-
term consulting contracts, and others providing continuous research
publishing. Within this broad industry, management consulting and training and
development have emerged as key segments, representing $50 billion and $59
billion in 1997 revenues, respectively. Other entities, such as trade
associations, non-profit think-tanks and research and database companies, also
offer research, consulting and education services.
The Corporate Executive Board offers a distinctive approach that combines
many of the benefits of general management consulting and training and
development firms. The Company's research and analysis covers the same major
business issues generally addressed by management consulting firms, such as
issues concerning managing growth, cost reduction, outsourcing and strategy
development. The distinction is that the Corporate Executive Board provides
the same, standardized product to the whole of its membership at a fraction of
the cost to each individual member of consulting services. In common with
training and development firms, the Company offers education services both on-
site at member institutions and in large multi-company settings. Unlike
training and development firms, which typically invest only periodically in
new curriculum development, the Corporate Executive Board's curriculum is
constantly updated by its best practices research organization. A further
distinction is the seniority and breadth of the audience, with the Company
briefing executive and senior management staff drawn from a broad range of
industry sectors, business units and departments. Because of this unique
approach to the market, the Company believes that it offers its customers a
superior value proposition.
BUSINESS STRATEGY
The Company's goal is to research and analyze the most pertinent and timely
strategic and operational issues facing its membership, and to distribute the
results of this analysis to its membership in the most efficient, effective
and helpful manner. The Company's membership model allows it to draw upon a
large and growing universe of issues and solutions of relevance to today's
leading corporations. The Company actively engages its membership to help
focus its research on the challenges of the current business environment and
to maintain and enhance its position as the leading provider of best practices
research and analysis.
. Maintain Membership-Based Model. The Company believes that the
membership-based model is key to its success and continually strives to
increase the ties between its members and the Corporate Executive Board.
The Company encourages members to view the Corporate Executive Board as
their proprietary off-site research facility. The Company's fixed-fee
economic model promotes frequent use of the Company's products and
services. The Company believes that member satisfaction grows as members
access more of the Company's services, and that the growing roster of
satisfied members validates the Company's business model and induces new
members to join the Corporate Executive Board.
. Focus on Best Practices Research. The focus of the Company's work is
research on best demonstrated business and management practices. Many
large corporations believe that there are certain research economies and
other benefits that can be realized by learning from the experiences of
similar entities facing common business problems. The Company believes
that there will be a continuing desire on the part of progressive
corporations to access evolving solutions to these common business
problems. The Company believes that its success to date has uniquely
positioned it as a leading source for identifying, studying, evaluating
and communicating these evolving solutions.
. Continue Research and Analysis Excellence. The Company believes that the
quality of its research and analysis has driven the success of the
Corporate Executive Board. The Company regularly interacts with
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senior executives at member institutions to identify the most important
strategic and operational issues for research and analysis. Experienced
program directors are responsible for assuring that the Company's research
methodology is applied to all studies and that research quality is
maintained across all subscription programs. The Company is highly
selective in its hiring, recruiting only the top graduates of the leading
universities and graduate schools. Furthermore, the Company emphasizes
continual training of all employees in key areas, including industry
analysis, economics, quantitative modeling, root-cause analysis and
presentation skills. The Company currently employs over 180 analysts and
researchers.
. Leverage Economic Model. All of the Company's revenues are derived from
annual fees for each subscription program. Most of the Company's costs of
delivering its products and services in each subscription program are
fixed and do not vary with the number of subscribers. The Company expects
to increase revenues and improve operating margins as it adds new members
to each subscription program.
GROWTH STRATEGY
The Company believes that demand for its services will continue to grow, as
even the most prestigious corporations recognize the need to improve their
performance and seek access to other companies' solutions to common corporate
problems. The Company's growth strategy centers on leveraging the formula that
it has developed across the past decade by cross-selling subscription programs
to existing members, adding new members and developing new subscription
programs.
. Cross-sell Additional Subscription Programs to Existing Members. On
average, members currently participate in 1.7 subscription programs.
Corporations that have been members for three or more years currently
participate in an average of 2.4 subscription programs. The Company is
actively cross-selling additional programs to its members and believes
that most members are potential participants in approximately four to five
of its current subscription programs. As the Company develops new
subscription programs, cross-selling opportunities will increase.
. Add New Members. The Company has targeted 1,300 additional institutions
worldwide as potential new members, including corporations with revenues
greater than $500 million and financial institutions with assets in
excess of $1 billion. For the twelve months ended September 30, 1998, the
Company added 400 new member institutions.
. Develop New Subscription Programs. The Company currently offers
subscription programs covering ten business constituencies: finance,
sales, information technology, corporate strategy, human resources, bank
operations, insurance, trust and private banking, business banking and
retail banking. The Company has added three new subscription programs in
the past 18 months and has thus far identified 50 additional potential
business constituencies that may be suitable for subscription programs in
the future.
THE MEMBERSHIP
The Company's membership-based model, in which all subscribers (or
"members") share in the Company's research and analysis, is central to its
business strategy. This model gives the Company access to the best
demonstrated practices of its members and enables the Company to provide
comprehensive analysis on current business issues, utilizing the collective
experiences and knowledge of its members. By participating in the Corporate
Executive Board, members can learn about the best practices of the largest
corporations in the world at a fraction of the cost of a customized analysis
performed by any of the major consulting firms. The Company does not believe
that in-house research and analysis departments at individual corporations
could obtain, at any price, similar information from other corporations about
their business practices. The Company believes that there is no other entity
that enables corporations to study a broad range of the business practices of
hundreds of other business enterprises for fixed annual subscription fees.
The Company regularly interacts with senior executives at member
institutions to identify the most important strategic and operational issues
for research and analysis and continually strives to increase the ties between
its members and the Corporate Executive Board. The Company's products and
services are available exclusively to members. The Company's fixed-fee
economic model promotes frequent use of the Company's products and services.
The Company encourages members to view the Corporate Executive Board as their
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<PAGE>
proprietary off-site research facility. The Corporate Executive Board believes
that member satisfaction grows as members access more of the Company's
services, and that the growing roster of satisfied members validates the
Company's business model and induces new members to join the Corporate
Executive Board.
More than 64% of the Fortune 500 companies are members of the Corporate
Executive Board. At September 30, 1998, the Corporate Executive Board included
1,319 members. The membership includes some of the largest companies in each
sector. Some of the leading institutions in the membership are identified in
the following table:
CHEMICALS CONSUMER PRODUCTS ENERGY
Bayer AG Anheuser-Busch Companies, Inc.
The British Petroleum
The Dow Chemical Company Cadbury Schweppes p.l.c. Company p.l.c.
Eastman Chemical Company The Coca-Cola Company Enron Corporation
E.I. du Pont de Nemours The Gillette Company Mobil Corporation
& Co. NIKE, Inc. PacifiCorp
Shell Oil Company
Imperial Chemical The Procter & Gamble Company
Industries p.l.c. RJR Nabisco Holdings Corp. Texaco Inc.
Monsanto Company Unilever plc TransCanada Pipelines
Limited
FINANCIAL SERVICES INSURANCE MANUFACTURING
American Express Company Aetna Inc.
Barclays Bank plc The Allstate Corporation ABB Asea Brown Boveri
Charles Schwab & Co., Inc. CIGNA Corp. The Boeing Company
The Chase Manhattan Corporation Ford Motor Company
John Hancock Mutual Life
Insurance Company General Electric Company
Citigroup Inc. Lockheed Martin
Deutsche Bank AG New York Life Insurance Corporation
Fidelity Investment Co. Company
Merrill Lynch and Co., Inc.The Prudential Insurance
Company of America 3M
Philips Electronics NV
State Farm Mutual Siemens AG
Automobile Insurance
Company
MEDIA AND PUBLISHING RETAIL TECHNOLOGY
America Online Inc.
British Sky Broadcasting Group p.l.c.
Best Buy Co., Inc. Compaq Computer
Comcast Corporation The Gap, Inc. Corporation
Dow Jones & Company, Inc. The Home Depot, Inc. Dell Computer Corp.
The McGraw-Hill Companies The Limited, Inc. Electronic Data Systems
The New York Times Company L.L. Bean, Inc. Corp.
The Thomson Corporation McDonald's Corporation Hewlett-Packard Company
Sears Roebuck and Co. Intel Corporation
Time, Inc. Microsoft Corp.
The Washington Post CompanyStarbucks Coffee Company
SAP AG
Sun Microsystems, Inc.
TELECOMMUNICATIONS INSTITUTIONAL
Department of Energy
AT&T Corporation Department of Treasury
Bell Atlantic Corporation Duke University
Bell Canada Harvard University
Bell South Corporation National Security Agency
British Telecommunications p.l.c.
University of Virginia
GTE Corporation
Lucent Technologies Inc.
MCI WorldCom, Inc.
Nokia Group
US WEST Inc.
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<PAGE>
Memberships are renewable annually. The following table sets forth
information with respect to members, subscriptions and renewals for the
periods shown:
<TABLE>
<CAPTION>
12 MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1998
------------------------- ------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C> <C>
Subscription programs(1)..... 6 7 9 10
Member institutions(1),(2)... 784 1,003 1,150 1,319
Total membership
subscriptions(1)............ 1,145 1,491 1,799 2,183
Average subscription programs
per member institution(1)... 1.46 1.49 1.56 1.66
Program renewal rate(3)...... 85% 86% 85% 85%
</TABLE>
- --------
(1) At the end of the period.
(2) The Company's membership consists primarily of domestic and multinational
corporations and secondarily of large subsidiaries of corporations and
non-profit institutions.
(3) Program renewal rate is defined as the percentage of membership
subscriptions renewed.
PRODUCTS AND SERVICES
General
The Corporate Executive Board's research products and services are
renewable, membership-based subscription programs that focus on identifying,
analyzing and describing best demonstrated management practices. For the
twelve months ended September 30, 1998, the Company published 31 best
practices research studies, delivered over 13,000 customized research briefs
and provided executive education services to 1,260 member corporations
reaching approximately 22,000 executive participants. In general, the research
focuses primarily on identifying best demonstrated management practices, and
secondarily on critiquing widely-followed but ineffective practices. The
Company's staff of 215 analysts and researchers conducted over 40,000 company
interviews during the twelve months ended September 30, 1998, focusing on a
large number of substantive areas, including compensation, employee relations,
training, finance, cost management, performance metrics, risk management,
marketing, sales, new product development and strategic alliances. The
Corporate Executive Board believes that it adds value by focusing the
attention of senior management on important issues and providing an unbiased,
objective analysis of best practices for dealing with those issues currently
employed by the most successful corporations in the world.
The Corporate Executive Board's research programs offer a cost-effective,
time-efficient opportunity for senior executives to learn from the practices
and experiences of other corporations from around the world. Member
institutions can participate in one of the Company's subscription programs for
a fraction of the cost of proceeding independently either through an internal
research effort or through engagement of the services of a management
consulting firm.
Each subscription program is guided by a 12- to 18-month agenda. Each
subscription program has a research director who is responsible for applying
the Company's research methodology to produce best practices studies and for
maintaining research quality across all subscription program services. Using
fax polls, steering sessions and one-on-one interviews, the subscription
program's director works closely with the membership to identify agenda topics
of shared interest and to set the subscription program's research priorities.
Each subscription program is staffed by a dedicated team of researchers,
analysts and instructors who collectively research and write the best
practices studies, complete the customized research briefs and present the
findings to the membership.
The Company currently offers the following ten subscription programs, each
targeting a specific group of senior executives within a corporation's
headquarters or divisions: finance, sales, information technology, corporate
strategy, human resources, bank operations, insurance, trust and private
banking, business banking and retail banking.
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The following table describes the Company's current subscription programs:
<TABLE>
<CAPTION>
SUBSCRIPTION YEAR PRIMARY EXECUTIVE
PROGRAM NAME INTRODUCED RESEARCH FOCUS CONSTITUENCY MEMBERSHIP BASE
------------ ---------- ------------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Working Council for 1998 Finance Chief financial Corporations
Chief Financial officers across all
Officers............... industries
Sales Executive 1997 Sales Senior sales Corporations
Council................ executives across all
industries
Working Council for 1997 Information technology Chief information Corporations
Chief Information officers across all
Officers............... industries
Corporate Strategy 1996 Corporate strategy Senior corporate Corporations
Board.................. strategists across all
industries
Corporate Leadership 1993 Human resources Senior human Corporations
Council................ resources across all
executives industries
Operations Council...... 1992 Bank operations Senior Vice Commercial banks
Presidents of bank
operations
Insurance Advisory 1991 Insurance Senior marketing Insurance
Board.................. executives providers
The VIP Forum........... 1989 Trust and private banking Executives in Brokerage houses,
marketing and line commercial, trust
management and private banks,
mutual fund
companies
Business Banking Board.. 1986 Business banking Executive Vice Commercial banks
Presidents of and nonbank
commercial banking lenders
Council on Financial 1983 Retail banking Executives in line Commercial banks,
Competition............ management, consumer credit
marketing and lenders
brand management
</TABLE>
The Company's subscription programs provide members an integrated set of
products and services for a single annual fee. Each program provides its
members with (i) best practices research studies, (ii) executive education
services, (iii) customized research briefs and (iv) on-line access to the
program's proprietary research database. A description of each service
follows:
Best Practices Research Studies
Each subscription program generally publishes three to five best practices
research studies annually, each addressing a specific corporate issue or
problem identified in the research agenda. Each best practices study is
designed to present the conclusions and supporting best practices in a
graphical format, enabling the intended audience quickly to assimilate the 100
to 300 pages of research content. Each report is created using the Company's
structured research methodology: topic selection, root cause analysis,
secondary research, primary interviewing, analysis of findings and report
writing. Each program director can call upon the support of the Chief Research
Officer and his staff to provide assistance in framing arguments, screening
best practices and editing studies and their derivative executive education
curriculum content.
In the course of researching a best practices study topic, the research team
typically will review thousands of pages of business and academic literature
to ground their understanding of the issues. They then will initiate the
research process to identify and evaluate specific business processes,
strategies and management practices, typically conducting hundreds of in-depth
interviews with corporations, industry experts, management consultants and
academic leaders. During the course of its research, a team generally analyzes
and evaluates dozens of specific management practices in an attempt to isolate
the eight to 15 most important practices worthy of potential implementation by
members, separating out demonstrated and proven business practices and
disposing of those concepts, whether popular or conventional, that largely
have failed.
Each best practices study comprises two principal elements--the essay and
the best practices. The essay consists of a series of observations and
supporting evidence that frames the problems or business issues, helping to
communicate the need for change or action to the membership at large. Each
study typically contains eight to 15 best practices, and each best
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practice generally features a 12- to 20-page case study of narrative text,
graphics and supporting analytical detail describing how the best practice
works, how it was implemented and the best practice's costs and benefits. In
many cases, the Company assigns pseudonyms to protect the confidentiality of
proprietary information outlined in a study. Consistent application of the
Company's research methodology across all subscription programs enables the
Company to increase the number of its subscription programs while maintaining
research quality.
The following table lists selected agenda topics for each of the Company's
ten research programs:
<TABLE>
<CAPTION>
PROGRAM NAME PUBLISHED OR PLANNED BEST PRACTICES REPORT TITLES
------------ --------------------------------------------------------------------
<S> <C> <C> <C>
Working Council for Motivating and Models for Effective Corporate Performance
Chief Financial Officers Rewarding Growth: CEO-CFO Working Metrics: Evolving
Finance's Role in Partnerships Measurement Systems
Supporting Growth at First-Tier
Companies
Sales Executive Council Customer Integration: Perfecting the Sales Existing Customer
Models, Lessons and Channel: Economics Strategy: Innovations
Best Practices for and Impact of the New in Customer Service,
Maximizing Electronic Retention and
Relationships Marketplace Recovery
Working Council for Far From the Crowd: Creating Business Quest for Customer
Chief Information Strategies for Advantage: Models for Contact: Case Studies
Officers Attracting IT Talent Partnering with the in IT-Enabled Needs
in a Perfecting Labor Line Identification
Market
Corporate Strategy Board Unbroken Growth: Stall Points: Strategy Development
Salient Insights from Barriers to Growth Excellence: Frontier
Inaugural Research for the Large Practices of the
Corporate Enterprise World's Great
Strategic Planning
Departments
Corporate Leadership Forced Outside: Heart of the Recruiting
Council Leadership Talent Enterprise: Core Excellence: Emerging
Sourcing and Competencies and the Practices and
Retention Renaissance of the Organizational
Large Corporation Structures
Operations Council Retail Teleservicing: Item Processing: Retail Lockbox:
Achieving Operational Strategies for Achieving Operational
Excellence in Continuing Cost- Excellence in
Financial Services Reduction in Check Scannable Remittance
Call Centers Processing Operations Processing
Insurance Advisory Board The "Retail" The New Gold To Wake the Sleeping
Revolution: Standard: Restoring Giant: Insurance
Retirement Services Profitability Through Distribution in an
in an Era of Self- Customer Value Open Market
Reliance Management
Business Banking Board Escaping the Cleared for Takeoff: Charting a New
Commodity Trap: Matching Strategy to Course: Forging the
Strategies for Customer Needs Value-Focused Middle
Competing in an Market Bank
Economically Rational
Market
The VIP Forum The Future of Advice: Beyond Customer Great Expectations:
World-Class Satisfaction: A The Challenge of
Strategies for Quantitative Analysis Serving the Super-
Serving the "New of Satisfaction in Wealthy
Investor" the Affluent Market
Council on Financial Present at the Financial Innovation Traveling by
Competition Creation: Redefining Around the World: Daylight: Using
Competitive Advantage 1998 Review of New Profitability
Through Data-Driven Retail Products Information to Guide
Marketing and the Retail Financial
Management Institution
</TABLE>
Executive Education
The Company's executive education curriculum, which is based on its
proprietary best practices research, is provided to member companies
worldwide. The Company delivers executive education services through two
primary channels--general membership meetings and, in some programs, tailored
on-site seminars. The Company's executive education provides lively,
interactive forums for reinforcing the Company's textual best practices
research studies.
For the twelve months ended September 30, 1998, the Company delivered
executive education services to 1,260 member companies, reaching approximately
22,000 executive participants. Each subscription program
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<PAGE>
hosts a series of general membership meetings, where the most important
research findings from the annual agenda are presented to groups of ten to 200
members. For the twelve months ended September 30, 1998, the Company hosted 55
member meetings in North America, Europe and Australia/Asia.
As an example, the following table sets forth the 1998 schedule of general
membership meetings to be hosted by the Corporate Leadership Council, the
Company's human resources subscription program, which has the largest
membership base of any of the Company's subscription programs. Each
subscription program hosts similar general membership meetings.
<TABLE>
<CAPTION>
MEETING DATE MEETING LOCATION TARGET AUDIENCE
------------ ----------------- ------------------------
<S> <C> <C>
February 16 Sydney, Australia HR Executives
February 17 Sydney, Australia HR Staff & Line Managers
April 17 New York, NY HR Staff & Line Managers
May 14-15 Washington, DC HR Executives
September 14-15 Washington, DC HR Executives
October 8-9 Washington, DC HR Executives
October 13-14 San Francisco, CA HR Executives
October 19 Atlanta, GA HR Staff & Line Managers
October 23 New York, NY HR Staff & Line Managers
October 26-27 Washington, D.C. HR Executives
November 2 Toronto, Canada HR Staff & Line Managers
November 6 Chicago, IL HR Staff & Line Managers
November 9-10 Washington, D.C. HR Executives
November 13 London, England HR Staff & Line Managers
November 16-17 London, England HR Executives
November 23-24 Washington, D.C. HR Executives
December 10-11 Washington, D.C. HR Executives
</TABLE>
Certain subscription programs also provide on-site executive education
seminars as part of their membership services. Once a year, those members
entitled to an on-site seminar can schedule a Corporate Executive Board
faculty member to travel to their corporation to deliver an executive
education module, typically a one- to three-hour lecture, case study or
facilitated working group discussion, of the member's choice. For the twelve
months ended September 30, 1998, the Company conducted 785 on-site seminars at
member corporations.
The Corporate Executive Board deploys a staff of 14 full-time and part-time
faculty who conduct the on-site education seminars. The library of executive
education modules is updated throughout the year as new best practices
research is translated into executive education content.
As an example, the following table sets forth current executive education
modules available for on-site seminars to members of the Corporate Leadership
Council. Those subscription programs offering on-site education provide
similar executive education modules.
<TABLE>
<CAPTION>
MODULE TARGET AUDIENCE
------ ---------------
<S> <C>
Role of Human Resources in the New Corporate HR Management Teams
Headquarters
Workforce Management Structures of the New Line Managers
"Employers of Choice"
Core Competencies and the Renaissance of the HR Executives & Line Staff
Large Corporation
Revolutionizing Transactional Service Delivery HR Managers
Leadership Shortage Across the Spectrum HR Management Teams
Accelerating the Development of Rising Leaders HR Executives, Executive
Development & Succession
Planning Teams
Leadership Talent Sourcing and Retention Recruiting and Staffing
Teams
</TABLE>
33
<PAGE>
Research Briefs
Members of most subscription programs may assign short-answer, customized
research requests. Individual briefs can take the form of a literature search,
vendor profile, data retrieval or original primary and secondary research,
depending upon the need of the requesting member. For the twelve months ended
September 30, 1998, the Company completed over 13,000 customized assignments
on behalf of over 1,200 requesting members.
Once initiated, each customized research effort takes several days
(approximately eight days on average) to complete, depending on the depth of
the information request, the type of research product desired and the time
requirements of the member. Researchers typically begin their inquiry with a
review of the Company's proprietary research archives and then conduct a broad
literature search to identify relevant background material and practices.
In addition, certain subscription programs produce a series of short
research briefs (20-50 pages) that address issues of critical interest to the
membership. Projects are generated through an ongoing dialogue between members
and research managers and are executed over the year by the research staff.
Written research briefs generally contain five case studies or profiles of
interviewed institutions, highlighting significant trends, successful
practices and comparative responses to a range of questions. Upon completion
and delivery of the written brief to the requesting member, the best of these
briefs are accessible to other members through proprietary databases. Members
are able to search, select, view and print research briefs directly from the
subscription program database at no additional charge.
The Company believes that the research service of its subscription programs
builds its proprietary databases, serves as an excellent marketing tool for
attracting new members and encourages members to view the Company as a
reliable and effective resource for primary research.
The following table sets forth sample report topics of customized research
briefs undertaken by the Company in the recent past:
Sales Executive Council
. Competitive Intelligence Units
. Recruiting Top Sales Talent
. Branding in Commodity Industries
. Developing Electronic Commerce Channels
. Team-Based Selling
Working Council For Chief Information Officers
. Offshore Contracting: Accessing Indian and Irish Labor Markets
. Customer-Centric IT Strategy in the Express Shipping Industry
. SAP Implementation Contracting
. The Role of the Project Office: Embedding Project Management Discipline
. IT Recruiting: Channels and Strategies
Corporate Strategy Board
. Best Practices in M&A Execution
. Business Strategies for Entering China: Case Studies
. Structure of the Corporate Development Function
. The Balanced Scorecard
. Role of the CEO in the Strategic Planning Process
Corporate Leadership Council
. Developing a Corporate University or Learning Center
. Flexible Benefits Plans at United Kingdom-Based Companies
. Customer Service Reward Programs
. Self-Directed Work Teams in a Union Environment
. Gainsharing Programs for Hourly Employees
34
<PAGE>
Operations Council
. Retail Lockbox Outsourcing
. Customer Service Center Standards
. ATM Support Services
. Automated Investment Accounting Systems
. Practices for Handling Peak Check Volumes
Insurance Advisory Board
. Group Retirement Product Customer Support
. Direct Sales of Life Insurance and Annuities
. Auto Insurance Rating Factors
. No-Load and Low-Load Whole Life Insurance Products
. Group Disability Insurance Marketing
Business Banking Board
. Measuring Small Business and Middle Market Profitability
. Loan Workout Department Structures
. Corporate Sweep Accounts
. Turnkey 401(k) Products for Small Businesses
. Benchmarking the Commercial Credit Underwriting and Approval Process
The VIP Forum
. Electronic Delivery of Trust and Investment Services
. Client Prospecting and Retention in the Affluent Market
. Pension Fund Companies in Chile and Argentina
. Personal Banking Programs
. Centralized Credit Underwriting for Private Banking Departments
Council On Financial Competition
. Telephone Bill Payment Programs
. Branch Site Selection Procedures in Spanish-Speaking Countries
. Credit Card Risk-Based Pricing
. Customer Referral Programs
. Branding Issues Associated with Bank Mergers and Acquisitions
On-Line Proprietary Databases
Each subscription program maintains a proprietary database of best practices
and, in some cases, quantitative data accessible only to members of the
subscription program. The Company's growing proprietary databases are updated
continually with new corporate practices, quantitative performance data and
related information supplied by other members and derived by the Company's
researchers. All information and graphics generated in best practices research
studies and customized research briefs are included in the databases and are
available for corporate benchmarking and comparison by other members.
The Company's proprietary databases currently include 160 best practices
research studies and 25,000 customized research briefs containing over 100,000
profiles of corporate practices.
In 1996, the Company began to offer its members electronic access to
research content through password-protected World Wide Web sites. The Company
believes that the Internet provides a convenient means for members to
commission customized research briefs, browse and download the electronic
library of research studies and graphics, review executive education modules
and meeting schedules and communicate with the Company's staff.
35
<PAGE>
PRICING
Memberships in the Corporate Executive Board subscription programs are sold
as renewable one-year agreements. Agreements generally are paid in full within
three months of the start of the subscription period. At September 30, 1998,
the average price for a subscription program was approximately $27,000. The
actual price varies by size of member and by subscription program, and may be
lower for charter subscribers to new subscription programs. By spreading its
costs across a broad membership and offering a largely standardized research
product, the Company is able to charge fees that are a small fraction of the
typical engagement fees of specialized research or consulting firms.
The Company offers an unconditional service guarantee to its members. At any
time during the subscription period, a member may demand a full refund of its
subscription fee for that year. During the years ended December 31, 1995, 1996
and 1997, members requested refunds for four, five and five subscriptions (out
of 1,140, 1,486 and 1,833 subscriptions), respectively, under this guarantee
program.
SALES AND MARKETING
The Company markets an integrated set of services, consisting of best
practices research studies, executive education, customized research briefs
and on-line access to its proprietary databases, for a fixed fee per
subscription program. The Company believes that this marketing strategy
highlights the value to the members of the Company's range of services and
emphasizes the membership nature of the Company's business model, actively
engaging the membership and reinforcing members' commitment to the Corporate
Executive Board.
At September 30, 1998, the Company's sales force consisted of 27 new
business development representatives who are responsible for selling new
memberships to assigned geographic market segments in the United States and
abroad, as well as 19 member services representatives who are responsible for
servicing and renewing existing memberships. The Company has invested
extensively in the expansion of its direct sales force in order to continue
the growth of its member base. The Corporate Executive Board sales and member
services staff is based at the Company's headquarters in Washington, D.C. The
Company maintains an additional sales and member services office in London,
England.
The separation of responsibility for new membership sales and membership
renewal reflects the varying difficulty and cost of the respective functions.
New business development representatives are compensated with a base salary
and variable, goal-based incentive bonuses and travel on average 60% of the
time, conducting face-to-face meetings with senior executives at prospective
member institutions. Member services representatives assume more of an in-
house coordinating role, conducting most of their responsibilities over the
telephone.
Although the Company actively markets its subscription programs throughout
the year, in the past, approximately 55% of all renewals have taken place in
the fourth quarter of the year.
COMPETITION
The Company currently has few direct competitors, and those that do exist
generally compete only against a single subscription program. The Company
competes indirectly against other professional information services providers,
including management consulting firms, training and development companies,
non-profit think-tanks and research and database companies. The Company is not
aware of any other entity that enables corporations to study as broad a range
of the best corporate management practices for fixed annual subscription fees.
The Company believes that the principal competitive factors in its market
include quality and timeliness of research and analysis, reliable delivery,
depth and quality of the membership, ability to meet changing customer needs,
superior service and affordably-priced products. The Company believes it
competes favorably with respect to each of these factors.
The Advisory Board Company provides products and services to the health care
industry that are similar to the types of products and services that the
Company generally provides to corporations. The Company, The Advisory Board
Company and the Principal Selling Stockholder have entered into the
Noncompetition Agreement, which, for a five-year term, generally prohibits the
Company from competing with The Advisory Board Company with respect to health
care clients and issues and prohibits The Advisory Board Company and the
Principal Selling Stockholder from competing with respect to non-health care
clients and issues, other than products and services relating to advertising,
magazines and newspapers, and government relations and lobbying activities.
See "Certain Relationships and Transactions -- Noncompetition Agreement."
36
<PAGE>
EMPLOYEES
At September 30, 1998, the Company employed approximately 364 persons. Of
these employees, approximately 344 were located at the Company's headquarters
in Washington, D.C. and 20 were located at the Company's facilities in London,
England. None of the Company's employees is represented by a collective
bargaining arrangement. The Company believes that its relations with its
employees are favorable.
The Company believes strongly in a culture of meritocracy, rewarding key
contributors with opportunities for rapid professional growth and advancement
as well as competitive compensation. Training is a critical job component for
all of the Company's employees, including industry analysis, economics,
quantitative modeling, root-cause analysis and presentation skills.
FACILITIES
The Company's headquarters currently are located in approximately 55,000
square feet of office space in Washington, D.C. The facility accommodates
research, marketing and sales, information technology, administration, graphic
services and operations personnel. The Company recently signed a lease for a
new headquarters facility in Washington, D.C. and plans to gradually
transition all personnel to the new facility. This new lease has an 11 year
term and provides for an initial committment of 21,000 square feet in 1998 and
66,000 square feet of expansion space in 1999, expiring on June 30, 2009. The
Company believes that its existing and planned facilities will be adequate for
its current needs and that additional facilities are available for lease to
meet future needs.
37
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the names, ages and positions with the
Company of the persons who serve as directors, executive officers and other
key employees of the Company:
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS AGE POSITION
- -------------------------------- --- --------
<S> <C> <C>
Harold ("Rusty") L. Siebert...... 53 Chairman of the Board of Directors
James ("Jay") J. McGonigle....... 35 Chief Executive Officer and Director
Michael A. D'Amato............... 44 Executive Vice President--Finance,
Secretary and Director
Clay M. Whitson.................. 41 Chief Financial Officer
Sally Chang...................... 33 General Manager, Sales and Marketing
Derek C. van Bever............... 41 Chief Research Officer
Jeffrey D. Zients................ 32 Director
Robert C. Hall................... 67 Director Nominee
David W. Kenny................... 37 Director Nominee
Stephen G. Pagliuca.............. 43 Director Nominee
<CAPTION>
KEY EMPLOYEES
- -------------
<S> <C> <C>
Paul C. Amoruso.................. 33 Executive Director, Research, Information
Technology and Sales Practices
Jonathan F. Baker................ 32 Managing Director, Sales and Marketing
Peter Freire..................... 36 Executive Director, Research, Human
Resources Practices
Michael P. Kostoff............... 41 Executive Director, Research, Financial
Services Practices
William B. McKinnon.............. 29 Managing Director, Sales and Marketing
Thomas L. Monahan................ 31 Managing Director, Research, Financial
Services Practices
Matthew S. Olson................. 47 Executive Director, Research
</TABLE>
- --------
DIRECTORS AND EXECUTIVE OFFICERS
Harold ("Rusty") L. Siebert has been the Chairman of the Board since July
1998. From 1996 through July 1998, Mr. Siebert served as Chief Executive
Officer and Chairman of Inforum Inc., a company providing marketing and
planning systems for health care clients, and as Executive Vice President of
Medstat/Thomson, a healthcare information company. From 1995 until 1996, Mr.
Siebert served as Bureau Chief of TennCare, the State of Tennessee's Medicaid
managed care program. From 1993 until 1995, Mr. Siebert was a consultant to
Medstat/Thomson. In 1988, Mr. Siebert founded Inforum, Inc. and served as its
President and Chief Executive Officer from 1988 through 1993. Prior to 1988,
he held various senior-level positions at HBO & Co. and Baxter International.
Mr. Siebert received his B.S. from Miami University in Oxford, Ohio.
James ("Jay") J. McGonigle has been the Chief Executive Officer and a
director of the Company since July 1998. Mr. McGonigle is also the Chairman of
the Company's Management Operating Committee. From the Spin-Off until July
1998, Mr. McGonigle was the General Manager of the Company, and from 1995
until the Spin-Off, he was the General Manager of the corporate division of
The Advisory Board Company with responsibility for managing the business
assumed by the Company in the Spin-Off. From 1990 to 1995, Mr. McGonigle was a
consultant in the Financial Institutions Group at McKinsey & Company. Mr.
McGonigle received a B.A. from the Woodrow Wilson School at Princeton
University, and a J.D. from Harvard Law School.
Clay M. Whitson has been the Chief Financial Officer of the Company since
November 1998. Mr. Whitson is also a member of the Company's Management
Operating Company. From 1996 through October 1998,
38
<PAGE>
Mr. Whitson served as the Chief Financial Officer and Treasurer of PMT
Services, Inc., a publicly held credit card processing company. From 1990 to
1996, Mr. Whitson served as the Chief Financial Officer of the Gemala Group, a
diversified conglomerate based in Indonesia. Prior to joining the Gemala Group
in 1990, Mr. Whitson was a director in the Mergers and Acquisitions Department
of The Chase Manhattan Bank, N.A. Mr. Whitson received a B.A. from Southern
Methodist University and an M.B.A. from the University of Virginia.
Michael A. D'Amato has been a director of the Company since July 1998. Mr.
D'Amato is also a member of the Company's Management Operating Committee. From
July 1998 until the closing of the Offering, Mr. D'Amato served as the
Executive Vice President--Finance and the Secretary of the Company. From the
date of the Spin-Off until November 1998, Mr. D'Amato served as the Chief
Financial Officer of the Company. Mr. D'Amato will cease to be an officer of
the Company as of the closing of the Offering but will continue to serve as a
director. Since the Spin-Off, Mr. D'Amato also has served as the Executive
Vice President of The Advisory Board Company and the Chief Financial Officer
of DGB Enterprises, Inc., a company wholly-owned by the Principal Selling
Stockholder, and from 1996 until July 1998, he was the Chief Financial Officer
of The Advisory Board Company. From 1995 to 1996, Mr. D'Amato served as the
Special Advisor to the Chairman of The Advisory Board Company. From 1982 until
1995, Mr. D'Amato was a partner with Bain and Company. Mr. D'Amato received a
B.S. from Massachusetts Institute of Technology and an M.B.A. from Harvard
University. Mr. D'Amato also serves on the Board of Directors of The Wesley-
Jessen Company, a contact lens manufacturer.
Sally Chang has been the General Manager, Sales and Marketing, of the
Company since June 1998. Ms. Chang is also a member of the Company's
Management Operating Committee. From 1992 until joining the Company, she
served in various management capacities with The Advisory Board Company,
including General Manager, Health Care Member Services; General Manager,
Health Care Research; and an Executive Director, Research. Prior to 1992, Ms.
Chang worked in the corporate planning department of Fuji Xerox in Tokyo, as a
general management consultant with Touche Ross, and in the merger and
acquisitions group of Drexel Burnham Lambert. Ms. Chang received an A.B. from
Harvard University, an M.A. from the University of Pennsylvania and an M.B.A.
from the Wharton School of Business at the University of Pennsylvania.
Derek C. van Bever has been the Chief Research Officer of the Company since
the Spin-Off. Mr. van Bever is also a member of the Company's Management
Operating Committee. From 1995 through the date of the Spin-Off, he served as
the Chief Research Officer of the business assumed by the Company in the Spin-
Off. Prior to that, he served in various management capacities with The
Advisory Board Company, which he joined in 1981. Mr. van Bever received a B.A.
and an M.A. from the University of Delaware and an M.B.A. from Harvard
University.
Jeffrey D. Zients has been a director of the Company since July 1998. From
the Spin-Off until July 1998, Mr. Zients was the Chief Operating Officer and
the Executive Vice President of the Company and Mr. McGonigle reported to him
until July 1998. He also has served as the Chief Operating Officer of DGB
Enterprises, Inc. since the Spin-Off. From 1992, Mr. Zients held various
positions with The Advisory Board Company, most recently serving as its Chief
Operating Officer from 1996 until July 1998 and Chief Executive Officer since
July 1998. Prior to 1992, Mr. Zients was employed at Mercer Management
Consulting and Bain and Company. Mr. Zients received a B.S. from Duke
University.
Robert C. Hall has been named to become a director of the Company as of the
closing date of the Offering. Since 1995, Mr. Hall has been the Vice President
of Thomas Corporation, a publicly held information publishing company. From
1990 to 1995, Mr. Hall was the President of Thomas Information and Publishing
Group, a division of Thomas Corporation involved in professional information
and publishing. From 1985 to 1990, Mr. Hall was the President of Thomas
Financial Information Group, another publishing division of Thomas
Corporation. Mr. Hall serves on the Board of Directors of Advanta Corporation,
a publicly held financial services company, and Advanta Partners Company, a
venture capital firm. Mr. Hall received a B.S. from Iowa State University.
David W. Kenny has been named to become a director of the Company as of the
closing of the Offering. Mr. Kenny is the Chief Executive Officer of Bronner
Slosberg Humphery, a customer relationship and interactive marketing company.
From 1991 to 1997, Mr. Kenny was a partner at Bain and Company, a management
39
<PAGE>
consulting firm. Mr. Kenny serves on the Board of Directors of Bronner
Slosberg Humphery, the Harvard Business School Publishing Corporation, a
publishing company, and Harvard Business Review. Mr. Kenny received a B.S.
from General Motors Institute and an M.B.A. from Harvard University.
Stephen G. Pagliuca has been named to become a director of the Company as of
the closing date of the Offering. Mr. Pagliuca is Managing Director of Bain
Capital, Inc., a private equity investment firm, which he joined in 1989. From
1982 to 1989, Mr. Pagliuca was a partner with Bain and Company, a management
consulting firm. Mr. Pagliuca serves on the Board of Directors of Wesley
Jensen Vision Care, Inc., a publicly held contact lens company, Coram
Healthcare, a publicly held provider of health care therapies and the Gartner
Group, a publicly held information publishing company. Mr. Pagliuca received a
B.A. from Duke University and an M.B.A. from Harvard University.
KEY EMPLOYEES
Paul C. Amoruso has been an Executive Director, Research, of the Company
since the Spin-Off, focusing on the information technology and sales
practices. Mr. Amoruso is also a member of the Company's Management Operating
Committee. Prior to the Spin-Off, Mr. Amoruso worked in various capacities
with The Advisory Board Company, which he joined in 1994. From 1993 to 1994,
he was owner and President of Daedalus Partners, a consulting firm and broker-
dealer serving early-stage corporations. Mr. Amoruso received a B.A. from
Wesleyan University and an M.B.A. from the Wharton School of Business at the
University of Pennsylvania.
Jonathan F. Baker has been a Managing Director, Sales and Marketing, of the
Company since the Spin-Off. Prior to the Spin-Off, Mr. Baker served in similar
capacities with The Advisory Board Company, which he joined in 1989. Mr. Baker
received a B.A. from the University of Virginia.
Peter Freire has been an Executive Director, Research, of the Company since
the Spin-Off, focusing on the human resources practice. Mr. Freire is also a
member of the Company's Management Operating Committee. Prior to the Spin-Off,
Mr. Freire served in similar capacities with The Advisory Board Company, which
he joined in 1991. Prior to joining The Advisory Board Company, he served as a
consultant for Bain and Company and as a corporate banking officer for the
Bank of America. Mr. Freire received a B.A. from the London School of
Economics and an M.B.A. from Harvard University.
Michael P. Kostoff has been an Executive Director, Research, of the Company
since the Spin-Off, focusing on the financial services practice. Mr. Kostoff
is also a member of the Company's Management Operating Committee. Prior to the
Spin-Off, Mr. Kostoff served in similar capacities with The Advisory Board
Company, which he joined in 1989. Mr. Kostoff received a B.S. from the United
States Military Academy and an M.P.A. from Harvard University.
William B. McKinnon has been a Managing Director, Sales and Marketing, of
the Company since the Spin-Off, focusing on the financial services practice.
Prior to the Spin-Off, Mr. McKinnon served in similar capacities with The
Advisory Board Company, which he joined in 1990. Mr. McKinnon received a B.A.
from Duke University.
Thomas L. Monahan has been a Managing Director, Research, of the Company
since the Spin-Off, focusing on the financial services practice. Prior to the
Spin-Off, Mr. Monahan served in similar capacities with The Advisory Board
Company, which he joined in January 1996. From 1994 to December 1995, he
served as a senior consultant for the Deloitte & Touche Consulting Group. From
1990 to 1994, Mr. Monahan served as a Director at the Committee for Economic
Development. He also previously served as a staff consultant at Andersen
Consulting. Mr. Monahan received a B.A. from Harvard University and an M.B.A.
from New York University.
Matthew S. Olson has been an Executive Director, Research, of the Company
since the Spin-Off. Prior to the Spin-Off, Mr. Olson served in similar
capacities with The Advisory Board Company, which he joined in 1982. Prior to
joining The Advisory Board Company, he served as an economist for the Overseas
Private Investment Corporation. Mr. Olson received a B.A. and an M.A. from the
University of Minnesota and an M.A. from The Johns Hopkins University.
----------------
40
<PAGE>
MANAGEMENT OPERATING COMMITTEE
The Company's Management Operating Committee consists of members of the
Company's senior management. This committee meets every two weeks and
establishes the guidelines for, and manages, the general operations of the
Company. The Company's Management Operating Committee is not a Committee of
the Board of Directors of the Company.
----------------
All directors are elected annually and serve until the next annual meeting
of stockholders or until the election and qualification of their successors.
The Board of Directors elects the Company's executive officers and such
officers serve at the discretion of the Board. Except for Sally Chang and Paul
C. Amoruso who are married, there are no family relationships among the
directors, executive officers and other key employees of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
Following the closing of the Offering, the Board of Directors will establish
an audit committee (the "Audit Committee"), a majority of the members of which
will be non-management directors. The Audit Committee, among other things,
will make recommendations to the Board of Directors concerning the engagement
of independent public accountants; monitor and review the quality and
activities of the Company's internal audit function and those of its
independent accountants; and monitor the adequacy of the Company's operating
and internal controls as reported by management and the independent or
internal auditors. The members of the Audit Committee will be Messrs. .
Compensation Committee
Following the closing of the Offering, the Board of Directors will establish
a compensation committee (the "Compensation Committee"). The Compensation
Committee, among other things, will review salaries, benefits and other
compensation, including stock-based compensation under the Incentive Plan, the
1998 Plan and the Directors Plan, of directors, officers, and other key
employees of the Company and will make recommendations to the Board of
Directors. The members of the Compensation Committee will be Messrs. .
DIRECTOR COMPENSATION
Directors' compensation is set from time to time by the Board of Directors
or, to the extent authorized by the Board, by the Compensation Committee,
under the Directors Plan and such other arrangements as the Compensation
Committee determines to be appropriate. The Board of Directors has determined
that initially each director who is not an employee of the Company will, upon
the later of the date of the closing of the Offering or the time such person
commences service as a non-employee director, receive a one-time grant of
options to purchase shares of Common Stock. Non-employee directors will
also receive an annual grant of options to purchase shares of Common Stock
and will be paid an annual retainer in the amount of $ . Pursuant to the
terms of the Directors Plan, all non-employee director options will have an
exercise price equal to the Market Value (defined in the Directors Plan
generally as the reported closing sale price of the Common Stock) of the
Common Stock at the time such options are granted (which in the case of
options granted on the date of the closing of the Offering will be deemed to
equal the offering price set forth on the cover page of this Prospectus).
Directors who are employees of the Company do not receive any additional
compensation for their service as directors. The Company will reimburse each
director for his or her reasonable out-of-pocket expenses for attending Board
of Directors meetings.
EXECUTIVE COMPENSATION
The following table presents certain information concerning compensation
earned for services rendered to the Company for the fiscal year ended December
31, 1997 by certain executive officers whose annual salary and
41
<PAGE>
bonus during fiscal year 1997 exceeded $100,000 (the "Named Officers") [Note:
Amounts reflected on all tables will be adjusted to take into account the
recapitalization of the Company]:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY(1) BONUS(1)(2) OPTIONS COMPENSATION(3)
- ---------------------------- ------- ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
James J. McGonigle...... 1997 $ 400,000 $19,250 28,500 --
General Manager
Derek C. van Bever...... 1997 356,250 -- 10,500 $860,000
Chief Research Officer
Elizabeth Keffer(4)..... 1997 300,000 -- -- 680,000
General Manager, Member
Services
Jeffrey D. Zients(5).... 1997 170,000 102,500 60,000 --
Executive Vice
President
Michael A. D'Amato(5)... 1997 136,000 -- 28,000 --
Chief Financial Officer
</TABLE>
- -------
(1) Salary and bonus consists of amounts paid by The Advisory Board Company
for services performed from January 1, 1997 through the date of the Spin-
Off for the businesses assumed by the Company in the Spin-Off and, except
as noted otherwise, amounts paid by the Company for services performed
from the date of the Spin-Off through the end of the fiscal year.
(2) The Company generally does not pay bonuses to its executive officers.
However, the Company from time to time has paid discretionary bonuses
under certain special circumstances.
(3) Consists of $860,000 and $680,000 paid to Mr. van Bever and Ms. Keffer,
respectively, in connection with the repurchase of certain options of The
Advisory Board Company prior to the time of the Spin-Off.
(4) From the Spin-Off to June 1, 1998, Ms. Keffer was the General Manager,
Member Services, of the Company. On June 1, 1998, she joined The Advisory
Board Company in a similar capacity.
(5) Reported compensation represents payments by The Advisory Board Company
prior to the Spin-Off and, after the Spin-Off, by DGB Enterprises, Inc.,
as reflected in the Company's 1997 audited financial statements prepared
as if the Company had operated as a stand-alone entity in accordance with
accounting rules prescribed for "carve-out" financial statements. As of
July 1998, Mr. Zients ceased to serve as an executive officer of the
Company, although he continues as a director of the Company. In November
1998, Mr. D'Amato resigned as the Chief Financial Officer of the Company,
and as of the closing of the Offering, he will cease to serve as the
Executive Vice President--Finance and Secretary of the Company. Mr.
D'Amato will continue to serve as a director of the Company after the
Offering.
The following table sets forth certain information concerning grants of
stock options to each of the Company's Named Officers during the fiscal year
ended December 31, 1997 [Note: Amounts reflected on all tables will be
adjusted to take into account the recapitalization of the Company.]:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM
------------------------------------------------------------------- ---------------------
% OF TOTAL MARKET
NUMBER OF OPTIONS PRICE ON
SHARES GRANTED TO EXERCISE DATE
UNDERLYING EMPLOYEES IN PRICE OF EXPIRATION
NAME OPTION GRANTS FISCAL YEAR (PER SHARE)(1) GRANT(1) DATE 5% 10%
---- ------------- ------------ -------------- -------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
James J. McGonigle(2)... 28,500 10.46% $ 5.00 $35.00 April 30, 2003 $1,162,030 $1,542,394
Derek C. van Bever...... 10,500 3.85 35.00 35.00 April 30, 2004 137,147 315,326
Elizabeth Keffer........ -- -- -- -- -- -- --
Jeffrey D. Zients(3).... 57,462 21.09 16.00 35.00 March 31, 2009(4) 2,591,035 5,051,171
2,538 0.93 35.00 35.00 March 31, 2009(4) 66,220 174,880
Michael A.
D'Amato(2)(3).......... 25,212 9.26 16.00 35.00 April 30, 2001(5) 643,346 828,435
2,788 1.02 35.00 35.00 April 30, 2001(5) 18,171 38,638
</TABLE>
STOCK OPTION GRANTS IN 1997 FISCAL YEAR
- -------
(1) Options were granted in connection with the Spin-Off in replacement and
substitution of previously granted options for stock of The Advisory Board
Company. Exercise prices reflect adjustments of exercise prices of
cancelled options of The Advisory Board Company. Except as otherwise
noted, options generally become exercisable 50% one year following the
Offering, 30% two years following the Offering and 20% three years
following the Offering.
(2) Messrs. McGonigle's and D'Amato's stock option agreements with the Company
each provide that (A) upon the date, if ever, that the number of shares of
Common Stock outstanding on a fully diluted basis first equals or exceeds
1,100,000 shares, the number of shares of Common Stock
42
<PAGE>
subject to his options shall be increased by 10% of the sum of the number of
shares that (i) remain subject to his options, and (ii) have been issued
under the options and continue to be held by him, and (B) upon the date, if
ever, that the number of shares of Common Stock outstanding on a fully
diluted basis first equals or exceeds 1,200,000 shares, the number of shares
of Common Stock subject to his options shall be increased by 10% of the sum
of the number of shares that (i) remain subject to his options, and (ii)
have been issued under the options and continue to be held by him. The
exercise price per each additional share on each such date shall equal the
fair market value of a share of Common Stock on each such date.
(3) Messrs. Zients' and D'Amato's options will become exercisable immediately
before the closing of the Offering. Messrs. Zients' and D'Amato's options
with respect to shares and shares, respectively, will be exercised
immediately before the closing of the Offering and such shares will be sold
as part of the Offering. See "Principal and Selling Stockholders."
(4) Mr. Zients' options will expire on the earlier of (A) March 31, 2009 and
(B) the later of (i) 30 days after the expiration of any lockup period
applicable to the shares of Common Stock subject to his options, (ii) two
years and 30 days after the Offering, if he ceases to serve as a director
or employee of the Company within two years of the Offering, and (iii) 30
days after he ceases to serve as a director or employee of the Company, if
such cessation occurs, for reasons other than death or disability, more
than two years after the Offering.
(5) Mr. D'Amato's options will expire on the earlier of (A) April 30, 2001 and
(B) the later of (i) 30 days after the expiration of any lockup period
applicable to the shares of Common Stock subject to his options, (ii) two
years and 30 days after the Offering, if he ceases to serve as a director
or employee of the Company within two years of the Offering, and (iii) 30
days after he ceases to serve as a director or employee of the Company, if
such cessation occurs, for reasons other than death or disability, more
than two years after the Offering.
The following table sets forth certain information concerning stock options
held by each of the Company's Named Officers during the fiscal year ended
December 31, 1997 [Note: Amounts reflected on all tables will be adjusted to
take into account the recapitalization of the Company.]:
AGGREGATED OPTION EXERCISES IN 1997 FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
END AT FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James J. McGonigle...... -- $ -- -- 28,500 $ -- $1,197,000
Derek C. van Bever...... -- -- -- 10,500 -- 126,000
Elizabeth Keffer........ -- -- -- -- -- --
Jeffrey D. Zients....... -- -- 3,213 56,787 97,019 1,714,759
Michael A. D'Amato...... -- -- -- 28,000 -- 815,028
</TABLE>
- --------
(1) Based upon a Fiscal Year-End value estimated at $47.00 per share.
EMPLOYMENT AGREEMENTS
Mr. McGonigle is employed by the Company pursuant to the terms of an
employment agreement which continues in effect until Mr. McGonigle's
termination or separation from the Company. Under the terms of the employment
agreement, Mr. McGonigle receives an annual salary of $440,000, which is
subject to periodic increases in the Company's sole discretion. The employment
agreement requires Mr. McGonigle to devote his efforts and abilities to the
Company on a full-time basis and provides that Mr. McGonigle, in addition to
salary, is entitled to certain fringe benefits, including participation in the
Company's 401(k) plan, the reimbursement of business-related expenses,
disability insurance coverage and reimbursement of fees and expenses incurred
in connection with participation in community and business related
organizations.
Contemporaneously with the execution of his employment agreement, Mr.
McGonigle executed a noncompetition agreement with the Company pursuant to
which Mr. McGonigle, among other things, agreed not to compete with the Company
for a period of up to three years after his termination of employment, if he
voluntarily resigns or is terminated by the Company for cause. In addition, if
Mr. McGonigle is terminated by the Company without cause, (i) Mr. McGonigle has
agreed not to compete with the Company for one year and the Company has agreed
to pay Mr. McGonigle his base salary at the time of the termination over such
one-year period, and (ii) the Company may require Mr. McGonigle not to compete
with the Company for up to two additional years if the Company agrees to pay
Mr. McGonigle 125% of his base salary at the time of termination for each
additional one-year period of noncompetition. Mr. McGonigle also agreed as part
of his noncompetition agreement with the Company not to disclose any of the
Company's confidential or proprietary information during the course of his
employment or upon termination of his employment for any reason and not to
solicit employees
43
<PAGE>
of the Company to leave for a period of three years after the termination of
his employment with the Company for any reason.
Mr. Siebert serves as the Chairman of the Board of Directors of the Company
pursuant to the terms of an employment agreement which continues in effect
until Mr. Siebert's termination or separation from the Company. Under the
terms of the employment agreement, Mr. Siebert receives an annual salary of
$25,000 and such other compensation as Mr. Siebert and the Company shall
mutually agree (including but not limited to payments to cover reasonable
living expenses). The employment agreement provides that Mr. Siebert, in
addition to salary, is entitled to certain fringe benefits, including
participation in the Company's 401(k) plan and the reimbursement of business-
related expenses. In addition, under the employment agreement, Mr. Siebert was
granted options to purchase 10,000 shares of Common Stock at the then
prevailing fair market value of the Company upon the effective date of his
employment with the Company and, as of the pricing of the Offering, he shall
be granted options to purchase shares of Common Stock equal to 1% of the fully
diluted equity of the Company at the price at which shares of Common Stock are
offered in the Offering (as set forth on the cover page of this Prospectus).
The employment agreement also provides that Mr. Siebert shall receive
additional grants of options to purchase shares of Common Stock in such
amounts and at such times as Mr. Siebert and the Company shall mutually agree
at a purchase price per share equal to the then prevailing fair market value
of such shares.
Contemporaneously with the execution of his employment agreement, Mr.
Siebert executed a noncompetition agreement with the Company pursuant to which
Mr. Siebert, among other things, agreed not to compete with the Company for a
period of three years after his termination of employment if he voluntarily
resigns or is terminated by the Company for cause. In addition, if Mr. Siebert
is terminated by the Company without cause, the Company may require that Mr.
Siebert not compete with the Company for a period up to two years if the
Company agrees to pay Mr. Siebert 125% of his base salary at the time of his
termination for each one-year period of noncompetition. Mr. Siebert also
agreed as part of his noncompetition agreement with the Company not to
disclose any of the Company's confidential or proprietary information during
the course of his employment or upon termination of his employment for any
reason, and not to solicit employees of the Company to leave for a period of
three years after the termination of his employment with the Company for any
reason.
Mr. Whitson is employed by the Company pursuant to the terms of an
employment agreement which continues in effect until Mr. Whitson's termination
or separation from the Company. Under the terms of the employment agreement,
Mr. Whitson receives an annual salary of $250,000, which is subject to
periodic increases in the Company's sole discretion, and was given a one-time
signing bonus of $100,000 upon commencing work with the Company. The
employment agreement requires Mr. Whitson to devote his efforts and abilities
to the Company on a full-time basis and provides that Mr. Whitson, in addition
to salary, is entitled to certain fringe benefits, including participation in
the Company's 401(k) plan and the reimbursement of business-related expenses.
In addition upon the effective date of his employment with the Company, Mr.
Whitson was granted options to purchase 10,000 shares of Common Stock at a
purchase price of $245 per share.
Contemporaneously with the execution of his employment agreement, Mr.
Whitson executed a noncompetition agreement with the Company pursuant to which
Mr. Whitson, among other things, agreed not to compete with the Company for a
period of one year after termination of employment, or for three years after
the termination of employment if he voluntarily resigns or is terminated by
the Company for cause. In addition, if Mr. Whitson is terminated by the
Company without cause or if he resigns with good reason, the Company may
require that Mr. Whitson not compete with the Company for an additional period
of up to two years if the Company agrees to pay Mr. Whitson 100% of his base
salary at the time of his termination for each one-year period of
noncompetition. Mr. Whitson also agreed as part of his noncompetition
agreement with the Company not to disclose any of the Company's confidential
or proprietary information during the course of his employment or upon
termination of his employment for any reason and not to solicit employees of
the Company to leave for a period of three years after the termination of his
employment with the Company for any reason.
Messrs. Zients and D'Amato remain subject to noncompetition agreements that
they have executed with the Company, under which they have agreed not to
compete with the Company for a period of two years after their respective
resignations from the Company. As part of these noncompetition agreements with
the Company,
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Messrs. Zients and D'Amato also agreed not to disclose any of the Company's
confidential or proprietary information upon termination of their employment
for any reason and not to solicit employees of the Company to leave for a
period of three years after the termination of their employment with the
Company for any reason.
All officers and key employees have executed noncompetition agreements
containing terms substantially similar to that executed by Mr. Siebert. There
are no other employment agreements in effect with respect to any directors,
officers or employees of the Company.
STOCK PLANS AND AGREEMENTS
The Corporate Executive Board Company Stock-Based Incentive Compensation Plan
In connection with the Spin-Off, on October 31, 1997, the Board of Directors
adopted and the Principal Selling Stockholder approved the Company's Incentive
Plan. The Incentive Plan is designed to provide only for the grant of stock
options (the "Incentive Plan Options") that do not qualify as incentive stock
options under Section 422 of the Code.
As of the closing of the Offering, approximately shares will have been
issued under or will be subject to Incentive Plan Options granted before the
closing of the Offering. These shares include shares subject to Incentive Plan
Options that will be granted as of the closing of the Offering to the
Company's officers equal to 3.33% of the fully diluted equity of the Company
at the price at which shares of Common Stock are offered in the Offering (as
set forth on the cover of this Prospectus). As part of this grant,
Mr. McGonigle will receive Incentive Plan Options, Mr. Whitson will
receive Incentive Plan Options, Ms. Chang will receive Incentive
Plan Options and Mr. van Bever will receive Incentive Plan Options.
Generally, Incentive Plan Options become exercisable 50% one year following
the Offering, 30% two years following the Offering and 20% three years
following the Offering and expire as of April 30, 2003. In connection with the
Offering, the Board amended the Incentive Plan to reduce the total number of
shares available for issuance under the Incentive Plan to shares, and to
adopt certain technical amendments relating to the Company becoming a publicly
traded entity. The number of shares subject to outstanding Incentive Plan
Options or reserved for issuance under the Incentive Plan is subject to anti-
dilution provisions for reorganizations, recapitalizations, stock splits,
stock dividends and similar events. After granting Incentive Plan Options with
respect to shares available for issuance under the Incentive Plan, the Board
of Directors does not intend to make any additional grants under the Incentive
Plan.
The purpose of the Incentive Plan is to provide participants with an
increased economic and proprietary interest in the Company in order to
encourage those participants to contribute to the success and progress of the
Company. The Incentive Plan is administered by the Compensation Committee of
the Board of Directors or by the Board of Directors itself (the
"Administrator"), which may in its sole discretion establish the terms,
provisions and conditions upon which Incentive Plan Options are granted
(including, but not limited to, exercise price, exercisability, vesting and
termination). Incentive Plan Options may only be granted to employees of the
Company who are members of a select group of management or other key employees
of the Company that the Administrator may from time to time designate for
participation in the plan. The Administrator may permit the Common Stock
purchased upon the exercise of any Incentive Plan Options, on an individual
basis, to be paid for by cash or any other alternative means including the
acceptance of a promissory note secured by the number of shares of Common
Stock then issuable upon exercise of the Incentive Plan Options. Unless
otherwise provided, Incentive Plan Options are nontransferable by the
optionholder other than by will or the laws of descent and distribution, and
are exercisable only by the optionholder during his or her lifetime. No
Incentive Plan Options shall have a term extending beyond May 1, 2009.
1998 Stock Option Plan
On , 1998, the Board of Directors adopted and the Principal Selling
Stockholder of the Company approved the Company's 1998 Plan. The purpose of
the 1998 Plan is to provide participants with an increased economic and
proprietary interest in the Company in order to encourage those participants
to contribute
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<PAGE>
to the success and progress of the Company. The 1998 Plan is designed to
provide only for the grant of stock options ("Options") that do not qualify as
incentive stock options under Section 422 of the Code. Options may only be
granted to the Company's or its subsidiaries' officers, independent
contractors, and employees.
The 1998 Plan authorizes the grant of Options to purchase shares of the
Company's Common Stock, except that such number shall be increased by the
number of shares of Common Stock, if any, subject to Incentive Plan Options
that are cancelled, expire or terminate or that otherwise are available for
issuance but for any other reason are not issued under the Incentive Plan. In
addition, if any shares subject to Options granted under the 1998 Plan are
cancelled, expire, terminate or for any other reason are not issued under such
Options, such shares will again become available for issuance under Options.
All references in the 1998 Plan and in outstanding Options to the number and
type of shares or other securities subject thereto are subject to anti-
dilution provisions for reorganizations, reclassifications, dividends (other
than regular, quarterly cash dividends), or other distributions, stock splits,
reverse stock splits, spin-offs or similar transactions, or if substantially
all of the property and assets of the Company are sold, unless the terms of
the transaction provide otherwise.
The 1998 Plan is administered by the Administrator, which in its discretion
shall establish the terms, provisions and conditions of Options (including,
but not limited to, exercise price, exercisability, vesting and termination),
except that the Administrator may not grant Options with an exercise price
below the stock's fair market value on the date the Options are granted unless
such Options are granted in substitution of options granted by a new
employee's previous employer or the optionee pays or foregoes compensation in
the amount of any discount. Unless the Administrator provides otherwise,
Options granted under the 1998 Plan become exercisable 25% per year beginning
one year after the date of grant. The Administrator may provide that the
shares of stock issued upon exercise of an Option will be subject to
additional conditions or agreements as the Administrator in its discretion may
specify before the exercise of the Option, including deferrals on issuance of
shares, conditions on vesting or the transferability of Options, and
forfeiture or repurchase provisions. The Administrator may also provide for
the deferred delivery of shares of Common Stock upon the exercise of Options,
with such deferral generally evidenced by an unfunded and unsecured obligation
of the Company referred to as a "Stock Unit." A Stock Unit is a bookkeeping
entry representing an amount equivalent to the fair market value of one share
of Common Stock. Settlement of Stock Units upon expiration of the deferral
period shall be made in Common Stock or otherwise as determined by the
Administrator, and the amount to be distributed may be increased by an
interest factor or by dividend equivalents. Until settled, a Stock Unit will
be subject to the anti-dilution provisions described above.
The Administrator may permit the Common Stock purchased upon the exercise of
any Options granted under the 1998 Plan, on an individual basis, to be paid
for by cash or any other alternative means including the acceptance of a
promissory note secured by the number of shares of Common Stock then issuable
upon exercise of the Options. Unless otherwise provided by the Administrator,
Options granted under the 1998 Plan are nontransferable by the optionholder
other than by will or the laws of descent and distribution, and are
exercisable only by the optionholder during his or her lifetime.
The 1998 Plan provides that, unless approved by the Company's stockholders,
the 1998 Plan may not be amended to increase the number of shares of Common
Stock authorized for issuance. Subject to the foregoing limitation and except
as otherwise required by law, the Board of Directors may periodically amend
the 1998 Plan without further stockholder approval. Unless earlier terminated
by the Board of Directors, the 1998 Plan shall terminate on May 1, 2009.
Directors' Stock Plan
On , 1998, the Board of Directors adopted and the Principal Selling
Stockholder approved the Company's Directors Plan. The purpose of the
Directors Plan is to assist the Company in attracting, retaining and
motivating qualified individuals to serve on the Company's Board of Directors
and to align their financial interests with those of the Company's
stockholders by providing for or increasing their proprietary interest in the
Company.
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<PAGE>
Any person who is a member of the Company's Board of Directors or of the
board of directors of a subsidiary of the Company is eligible for the award of
stock options and/or stock grants under the Directors Plan. The Directors Plan
is administered by the Company's Board of Directors or by the Compensation
Committee to the extent the Board of Directors so designates (the Board of
Directors or such designated committee, the "Committee"). The Directors Plan
is intended to operate in a manner that exempts grants of stock under the
Directors Plan from Section 16(b) of the Securities Exchange Act of 1934, as
amended.
The maximum number of shares of the Company's Common Stock that can be
issued under the Directors Plan is . Any shares subject to a stock option
or stock grant which for any reason are not issued or are reacquired under the
stock option or stock grant are not counted against the number of shares that
can be issued under the Directors Plan. All references in the Directors Plan
and in outstanding options and stock grants to the number and type of shares
or other securities subject thereto will be subject to anti-dilution
provisions for reorganizations, reclassifications, dividends (other than
regular, quarterly cash dividends), or other distributions, stock splits,
reverse stock splits, spin-offs or similar transactions, or if substantially
all of the property and assets of the Company are sold, unless the terms of
the transaction provide otherwise.
Under the Directors Plan, the Committee may provide for stock options and/or
stock grants to be awarded to directors and has the discretion to establish
the terms, provisions and conditions of such awards (including, but not
limited to, exercise price, exercisability, vesting and termination), except
that the Committee may not grant options with an exercise price below the
stock's fair market value on the date the options are granted unless the
optionee pays or foregoes compensation in the amount of any discount. The
Directors Plan allows the Committee to condition the receipt of stock options
or stock grants upon a director electing to forego any other form of
compensation, including any cash retainers if then paid by the Company. The
Committee may provide that the shares of stock issued upon exercise of an
option will be subject to additional conditions or agreements as the Committee
in its discretion may specify before the exercise of the option, including
deferrals on issuance of shares, conditions on vesting or the transferability
of options, and forfeiture or repurchase provisions. The Committee may also
provide for the deferred delivery of Common Stock upon the exercise of Options
with such deferral generally evidenced by a Stock Unit.
The maximum number of shares of Common Stock subject to stock options and
stock awards granted under the Directors Plan for any calendar year to any
person on account of his or her service as a director may not exceed
shares. Unless otherwise provided by the Committee, awards granted under the
Directors Plan are nontransferable by the director other than by will or the
laws of descent and distribution, and are exercisable only by the director
during his or her lifetime.
The Directors Plan provides that, unless approved by the Company's
stockholders, the Directors Plan may not be amended to increase the number of
shares of Common Stock authorized for issuance. Subject to the foregoing
limitation and except as otherwise required by law, the Board of Directors may
periodically amend the Directors Plan without further stockholder approval.
Unless earlier terminated by the Board of Directors, the Directors Plan shall
terminate on May 1, 2009.
INDEMNIFICATION ARRANGEMENTS
The Company's Second Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") limits, to the maximum extent permitted by the
Delaware General Corporation Law, the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors. The
Company's Amended and Restated Bylaws (the "Bylaws") provide that the Company
shall indemnify its officers, directors, employees and other agents to the
fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not currently have a Compensation Committee. During fiscal
year 1997, the functions of the Compensation Committee were performed by the
Board of Directors, which consisted solely of the Principal Selling
Stockholder. From the Spin-Off until July 17, 1998, the Principal Selling
Stockholder served as the sole director of the Company. On July 17, 1998, the
Principal Selling Stockholder resigned as the sole director of the Company
and, as the sole stockholder of the Company, elected Messrs. Siebert,
McGonigle, D'Amato and Zients as the directors of the Company. After the
Offering, the Principal Selling Stockholder is not expected to have any role
with the Company. The Principal Selling Stockholder is the President and
Chairman of the Board of The Advisory Board Company and DGB Enterprises, Inc.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The following are descriptions of certain agreements between the Company and
The Advisory Board Company and between the Company and the Principal Selling
Stockholder. The Administrative Services Agreement, the Vendor Contracts
Agreement, the Member Contracts Agreement (collectively, the "Services
Agreements") and the Sublease Agreement were entered into between the Company
and The Advisory Board Company in connection with the Spin-Off. The Company
records costs associated with the Services Agreements and the Sublease
Agreement monthly as a payable to an affiliate, and expects to settle amounts
owed on a quarterly basis. The Noncompetition Agreement among the Company, The
Advisory Board Company and the Principal Selling Stockholder will be entered
into prior to the closing of the Offering.
SERVICES AGREEMENTS
Administrative Services Agreement. Pursuant to the Administrative Services
Agreement, The Advisory Board Company has agreed to provide certain
administrative services to the Company. Under the Administrative Services
Agreement, services include information systems support and maintenance,
certain human resources functions, and general services such as facilities
management. The Administrative Services Agreement provides for fees for these
services based on either direct costs per certain transaction, headcount or a
fixed cost per month. The Company believes that the services provided under
the Administrative Services Agreement may be obtained from alternative sources
and that the fees pursuant to the Administrative Services Agreement
approximate the cost to internally provide or otherwise externally source such
services. The aggregate value of the services currently provided under this
agreement is less than $100,000 per month. The term of this agreement expires
on October 31, 1999. The Company expects to assume internally these functions
over the term of this agreement.
Vendor Contracts Agreement. Pursuant to the Vendor Contracts Agreement, the
Company participates in certain vendor contracts entered into by The Advisory
Board Company for the provision of certain services, such as
telecommunications, travel, mailing and general office services. The Vendor
Contracts Agreement specifies that the Company will either pay the vendor
directly if costs can be segregated and billed separately, or it will
reimburse The Advisory Board Company for its reasonably allocated share of
commonly billed costs. The term of this agreement expires on October 31, 1999.
The Company expects to enter into separately negotiated vendor agreements as
soon as reasonably practical, and does not expect to incur material
incremental costs.
Member Contracts Agreement. The Member Contracts Agreement was terminated on
October 31, 1998 in accordance with its terms. Under the Member Contracts
Agreement, The Advisory Board Company acted as the Company's agent to provide
administrative and accounting services on behalf of the Company in connection
with member contracts, including the processing of new member contracts, the
renewal of existing member contracts and the collection of payments relating
to member contracts. The Member Contracts Agreement provided for fees for
these services based on either direct costs per certain transaction, headcount
or a fixed cost per month.
SUBLEASE AGREEMENT
Pursuant to the Sublease Agreement, the Company currently subleases its
office space from The Advisory Board Company on terms consistent with the
original lease agreement, subject to termination by either party at any time
with at least six months written notice. The Company's share of the leased
cost was determined based upon the same per square foot rent as the original
lease. The Company has entered into its own lease for separate property and
expects it will vacate the subleased space by August 1999.
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<PAGE>
NONCOMPETITION AGREEMENT
On January 1, 1999, the Company entered into the Noncompetition Agreement
with The Advisory Board Company and the Principal Selling Stockholder. The
Noncompetition Agreement has a term of five years, and generally prohibits the
Company from selling membership based subscription services substantially
similar to those provided by the Company and The Advisory Board Company as of
the date of the Noncompetition Agreement ("Covered Services") to any company
or institution, or any division or subsidiary of any company or institution,
that is principally engaged in the health care provider business (a "Health
Care Company"). The Company may sell its products and services to any company
or institution, or any division or subsidiary of any company or institution (a
"Non-Health Care Company"), that is not (i) a Health Care Company or (ii) a
company or institution, or a division or subsidiary of a company or
institution, that is not a Health Care Company but is principally engaged in
other types of health care business (such as pharmaceutical companies; medical
supply and equipment companies; technology, software, communications,
financing and services vendors selling to Health Care Companies; companies
providing health insurance; and managed care companies) ("Other Health Care
Company"). In addition, the Company may sell its products and services to
divisions and subsidiaries of companies other than Non-Health Care Companies,
if such divisions or subsidiaries are Non-Health Care Companies. The Company
may continue to renew pre-existing subscriptions with respect to those
products and services that it has sold as of the Offering, if such products
and services do not specifically address health care provider industry issues.
The Noncompetition Agreement generally prohibits The Advisory Board Company
and the Principal Selling Stockholder (including any entity controlled by the
Principal Selling Stockholder) (the "Bradley Parties") from selling Covered
Services to any Non-Health Care Companies. The Bradley Parties may sell their
products and services to any Health Care Company and to divisions and
subsidiaries of companies other than Health Care Companies, if such divisions
or subsidiaries are Health Care Companies. The Bradley Parties may continue to
renew pre-existing subscriptions with respect to those products and services
that they have sold as of the Offering, if such products and services
specifically address health care provider industry issues. In addition, the
Bradley Parties are permitted to offer and sell to any entity (i) magazines,
newspapers and news services, (ii) advertising for its publications and news
or on-line services, (iii) products and services that are specifically
addressed to and deal with advertising, promotion or marketing activities by
companies and institutions and advertising agencies, provided that such
products and services are offered only to the offices and divisions of
companies, institutions or advertising agencies that are responsible for the
placement or designing of advertisements and (iv) products and services that
are specifically addressed to and deal with government relations and lobbying
activities by companies and institutions, provided that such products and
services are offered only to the offices and divisions of companies or
institutions that are responsible for government relations and lobbying.
The Bradley Parties may sell Covered Services to Other Health Care
Companies. The Company may sell Covered Services to Other Health Care
Companies only if they are of a general business nature and are sold by the
Company principally to Non-Health Care Companies.
Under the Noncompetition Agreement, the Bradley Parties are prohibited, at
any time during the term of the Noncompetition Agreement, from recruiting or
employing any person who is an employee of the Company at such time, or who
was an employee of the Company at any time during the 24-month period
preceding the date of such recruitment or employment, unless the chief
executive officer of the Company consents to such recruitment or employment.
Any of the Bradley Parties, however, may hire Derek C. van Bever, the Chief
Research Officer of the Company, at any time after January 1, 2002. The
Noncompetition Agreement also prohibits the Company, at any time during the
term of the Noncompetition Agreement, from recruiting or employing any person
who is an employee of any of the Bradley Parties at such time, or who was an
employee of any of the Bradley Parties at any time during the 24-month period
preceding the date of such recruitment or employment, unless the chief
executive officer of the relevant Bradley Party consents to such recruitment
or employment. Additionally, under the Noncompetition Agreement, each of the
Company and The Advisory Board Company is required to incorporate in the
noncompetition agreements that it enters into with its respective
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employees provisions that would prohibit such employees from competing with
the other company and that impose similar restrictions on the use of
confidential information.
Under the Noncompetition Agreement, the Company has acknowledged The
Advisory Board Company's ownership of all rights, title and interest to the
name "The Advisory Board Company" and all of its derivations, including the
name "The Corporate Advisory Board Company." The Advisory Board Company,
however, has granted an exclusive, nontransferrable license for a period of
two years to the Company to use the name "The Corporate Advisory Board
Company" for the purpose of informing the general public that the Company has
changed its name from The Corporate Advisory Board Company to The Corporate
Executive Board Company. The Company, however, may use the name "The Corporate
Advisory Board Company" for recruiting purposes only with the prior written
consent of The Advisory Board Company. In addition, The Advisory Board Company
has agreed that it will not use the name "The Corporate Advisory Board
Company" or any other derivation of its name with the word "Corporate" during
the term of the Noncompetition Agreement.
REGISTRATION RIGHTS AGREEMENT
Following the closing of the Offering, the Principal Selling Stockholder
will hold shares of Common Stock ( shares if the Underwriters'
overallotment option is exercised in full). Pursuant to a Registration Rights
Agreement between the Company and the Principal Selling Stockholder, the
Principal Selling Stockholder is entitled to certain rights with respect to
the registration of such shares of Common Stock under the Securities Act of
1933 and he has informed the Company that he may sell all or substantially all
of such shares of Common Stock in the public market within a period of
approximately five years following the Offering. For a period of five years
after the closing of the Offering, the Principal Selling Stockholder may
require the Company, at the Principal Selling Stockholder's expense, on two
separate occasions, to file a registration statement under the Securities Act
of 1933 with respect to some or all of his shares of Common Stock. The
Principal Selling Stockholder may not exercise such rights prior to the
expiration of the Lock-Up Period without the prior written consent of Salomon
Smith Barney.Under certain circumstances, the Company may, on no more than one
occasion, delay such registration for a period of not more than three months.
In addition, during such period, if the Company proposes to register its
shares of capital stock under the Securities Act of 1933, subject to certain
exceptions, the Principal Selling Stockholder is entitled to notice of the
registration and to include such shares therein, provided that the managing
underwriters have the right to limit, in certain circumstances the number of
shares of the Principal Selling Stockholder's Common Stock included in such
registration.
PROMISSORY NOTE
The Company holds a promissory note in the amount of $6.5 million from the
Principal Selling Stockholder. This Note bears interest at a rate of 7%
payable semiannually on each May 1 and November 1. The principal sum is due
and payable on October 31, 2007. The Principal Selling Stockholder has agreed
to repay the principal of, and all accrued and unpaid interest on, the note
from the proceeds of the Offering.
CROSS-INDEMNIFICATION AGREEMENT
On , 1998, the Company and the Principal Selling Stockholder entered into
a Cross-Indemnification Agreement in connection with the Pre-Closing
Distribution and the Offering Expenses Distribution. Under this agreement, the
Company will indemnify the Principal Selling Stockholder and the Principal
Selling Stockholder will indemnify the Company with respect to adverse tax
effects resulting from the reallocation of income and expenses between S
corporation and C corporation tax years.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 30, 1998 with respect to (i)
each person known by the Company to beneficially own 5% or more of the
outstanding shares of Common Stock, including any option to purchase 5% or
more of the Common Stock, (ii) each Director and Named Officer of the Company,
(iii) all executive officers of the Company and all members of the Board of
Directors as a group and (iv) the three Selling Stockholders: David G.
Bradley, Jeffrey D. Zients and Michael A. D'Amato. Except as indicated in the
footnotes to the table, the persons named in the table have sole voting and
investment power with respect to all shares beneficially owned. [Note: Amounts
reflected on this table will be adjusted to take into account the
recapitalization of the Company.]
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES TO BE BENEFICIALLY
OFFERING(1) NUMBER OWNED AFTER OFFERING(4)
------------------------------------- OF ----------------------------
DILUTED SHARES
NAME NUMBER(2) PERCENTAGE(2) PERCENTAGE(3) OFFERED NUMBER(1) PERCENT
- ---- --------- ------------- ------------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
David G. Bradley(5)..... 727,000 100.00% 89.20%
Jeffrey D. Zients(6).... 60,000 7.62% 7.36%
Michael A. D'Amato(6)... 28,000 3.71% 3.44%
Harold L. Siebert....... -- 0.00% 0.00%
James J. McGonigle...... -- 0.00% 0.00%
Sally Chang............. -- 0.00% 0.00%
Derek C. van Bever...... -- 0.00% 0.00%
Elizabeth Keffer........ -- 0.00% 0.00%
All executive officers
and directors as a
group (7 persons)...... 88,000 10.80% 10.80%
</TABLE>
- --------
(1) The information contained in this Table (i) reflects "beneficial
ownership" as defined in Rule 13d-3 promulgated under the Exchange Act,
and (ii) gives effect to the Recapitalization. Other than the options held
by Messrs. D'Amato and Zients, none of the options granted to executive
officers will vest within 60 days after the date hereof, and are therefore
not included.
(2) The number of shares and percentages included in these columns are
calculated in accordance with Rule 13d-3(d) under the Exchange Act.
Pursuant to that rule, in addition to the 727,000 issued and outstanding
shares beneficially owned by Mr. Bradley, Messrs. Zients and D'Amato are
treated as beneficially owning 60,000 and 28,000 shares, respectively,
which are subject to options that are exercisable within 60 days. For
purposes of calculating the percentage of shares owned, the option shares
attributed to Mr. Zients and Mr. D'Amato are deemed to be outstanding for
the purpose of calculating the percentage of outstanding Common Stock
owned by each of them, but are not deemed to be outstanding for the
purpose of computing the percentage of Common Stock owned by any other
person.
(3) The percentages included in this column are calculated on a diluted basis,
assuming that the shares of Common Stock not outstanding which are subject
to options exercisable within 60 days and held by Messrs. Zients and
D'Amato are deemed to be outstanding for the purpose of calculating the
percentage of outstanding Common Stock owned by Messrs. Bradley, Zients
and D'Amato.
(4) Assumes no exercise of the Underwriters' over-allotment option. shares
of Common Stock are subject to the over-allotment option. In the event the
over-allotment option is exercised in full by the Underwriters, Mr.
Bradley will beneficially own shares of Common Stock, or % of the
outstanding Common Stock.
(5) Includes shares of Class B Stock held by the Bradley Trust.
(6) The shares to be sold by Messrs. Zients and D'Amato in the Offering will
be issued by the Company immediately prior to the date of this Prospectus
as a result of the exercise of options by Messrs. Zients and D'Amato.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Certificate of Incorporation, upon the closing of the Offering
and giving effect to the Recapitalization, will provide that the Company is
authorized to issue shares of Common Stock, par value $.01 per share, and
shares of preferred stock, par value $.01 per share (the "Preferred
Stock"). As of September 30, 1998, the Company had 1,000 shares of Class A
Stock and 726,000 shares of Class B Stock outstanding. Upon the closing of the
Offering and giving effect to the Recapitalization, there will be shares
of Common Stock outstanding and no shares of Preferred Stock outstanding. In
addition, an aggregate of shares of Common Stock will be reserved for
issuance under the Incentive Plan, the 1998 Plan and the Directors Plan.
COMMON STOCK
Stockholders are entitled to one vote for each share of Common Stock held of
record on all matters on which stockholders are entitled or permitted to vote.
The Common Stock does not have cumulative voting rights in the election of
directors. As a result, holders of a majority of the shares of Common Stock
voting for the election of directors can elect all the directors standing for
election.
Holders of the Common Stock are entitled to receive dividends out of funds
legally available therefor when and if declared from time to time by the Board
of Directors. See "Dividend Policy." In the event of the liquidation,
dissolution or winding up of the Company, the holders of the Common Stock will
be entitled to share ratably in all assets remaining after payment of
liabilities, subject to the rights of any then outstanding Preferred Stock.
The Common Stock has no preemptive, subscription or conversion rights and
there are no redemption or sinking fund provisions in the Company's
Certificate of Incorporation. The rights, preferences and privileges of
holders of the Common Stock are subject to, and may be adversely affected by,
the rights of holders of shares of any series of Preferred Stock that the
Company may designate and issue in the future. The issued and outstanding
shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized to issue the Preferred Stock in
different series and classes and to fix the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), liquidation preferences and other rights and
preferences of the Preferred Stock not in conflict with the Company's
Certificate of Incorporation or Delaware law. There currently are no shares of
Preferred Stock outstanding, and the Board of Directors has no present plans
to issue any shares of Preferred Stock. The Board of Directors, without
stockholder approval, can issue shares of Preferred Stock with voting and
conversion rights that could adversely affect the voting power of holders of
the Common Stock. The issuance of shares of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the
Company.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
REGARDING CORPORATE GOVERNANCE
The Company's Certificate of Incorporation provides that the Board may not
adopt a "stockholders rights plan" (as defined in the Certificate of
Incorporation), commonly called a "poison pill," unless the rights plan (i) is
ratified by the affirmative vote of the holders of a majority of the shares of
Common Stock then outstanding and present in person or by proxy at the next
meeting of stockholders, (ii) by its terms expires no later than 37 months
after adoption (unless extended by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock) and (iii) permits the
rights issued thereunder to be redeemed at any time by the affirmative vote of
the holders of a majority of outstanding shares of Common Stock. The Company
has elected not to be subject to Section 203 of the Delaware General
Corporation Law, which generally prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding
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voting stock) from engaging in a "business combination" (as defined) with a
Delaware corporation for three years following the date such person became an
interested stockholder unless certain conditions are satisfied. The Company's
Certificate of Incorporation does not permit stockholders to act by written
consent without a meeting of stockholders. The Certificate of Incorporation
and the Bylaws provide that special meetings of stockholders may be called by
a majority of the full Board of Directors, the Chairman of the Board or any
holder or holders of at least 40% of any class of the Company's outstanding
capital stock then entitled to vote at the meeting.
The Company's Bylaws provide that the number of directors will be fixed from
time to time by the stockholders or the Board of Directors. The number of
directors is currently fixed at four, but will be increased to seven prior to
the closing of the Offering.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the Delaware General Corporation Law, no director of the
Company will be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director. Under the Delaware General
Corporation Law, liability of a director may not be limited (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 that involve intentional misconduct or
a knowing violation of law, (iii) in respect of certain unlawful dividend
payments or stock redemptions or repurchases and (iv) for any transaction from
which the director derives an improper personal benefit. The effect of this
provision of the Company's Certificate of Incorporation is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior), except in the
situations described in clauses (i) through (iv) above. This provision does
not limit or eliminate the rights of the Company or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a
breach of a director's duty of care. In addition, the Company's Bylaws provide
that it shall indemnify its directors, officers, employees and agents to the
fullest extent permitted by the Delaware General Corporation Law. The Company
may purchase and maintain insurance or furnish similar protection on behalf of
any officer or director against any liability asserted against the officer or
director and incurred by the officer or director in such capacity, or arising
out of the status, as an officer or director.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Chase Mellon
Shareholder Services LLC.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock (assuming no exercise of the Underwriters' over-
allotment option), and shares of Common Stock will be reserved for
issuance upon the exercise of outstanding stock options pursuant to the
Incentive Plan, the 1998 Plan and the Directors Plan. The shares of Common
Stock sold in the Offering will be freely tradable without restriction or
further registration under the Securities Act of 1933, except that any shares
of Common Stock held by an "affiliate" of the Company (an "Affiliate") within
the meaning of Rule 144 under the Securities Act of 1933 will be subject to
the resale limitations of Rule 144. The remaining shares outstanding upon
completion of the Offering, including shares of Common Stock held by the
Principal Selling Stockholder ( shares if the Underwriters' over-allotment
option is exercised in full), are "restricted securities" as the term is
defined under Rule 144 and may not be sold publicly unless they are registered
under the Securities Act of 1933 or are sold pursuant to Rule 144 or another
exemption from registration. In this regard, the Principal Selling Stockholder
has been granted certain registration rights with respect to his shares of
Common Stock. See "Certain Relationships and Transactions -- Registration
Rights Agreement."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including any Affiliate of the Company, would be
entitled to sell within any three-month period a number of shares that does
not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock or (ii) the reported average weekly trading volume of the Common Stock
on national securities exchanges during the four calendar weeks preceding such
sale. Sales under Rule 144 also are subject to certain requirements regarding
the manner of sale, notice and the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
Affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned for at least two years the shares proposed to be
sold, would be entitled to sell such shares under Rule 144(k) without regard
to the requirements described above.
The Company and the Selling Stockholders have agreed that they will not
offer, sell, contract to sell, announce any intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission a
registration statement under the Securities Act of 1933 relating to, any
shares of Common Stock or securities or other rights convertible into or
exchangeable or exercisable for any shares of Common Stock without the prior
written consent of Salomon Smith Barney for a period of 180 days after the
date of this prospectus. Such restrictions will not affect the ability of the
Company (i) to issue and sell Common Stock or make any awards pursuant to the
Incentive Plan, the 1998 Plan or the Directors Plan, (ii) to issue shares of
Common Stock pursuant to the exercise of stock options currently outstanding
or granted pursuant to the Incentive Plan, the 1998 Plan or the Directors Plan
or (iii) to issue shares of Common Stock or securities convertible into, or
exercisable or exchangeable for, shares of Common Stock in connection with an
acquisition of or merger with another corporation as long as such securities
are not registered under the Securities Act of 1933 during the Lock- Up
Period. See "Underwriting."
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UNDERWRITING
Under the terms and subject to the conditions in the U.S. Underwriting
Agreement dated the date hereof, each of the underwriters of the U.S. Offering
named below (the "U.S. Underwriters") has severally agreed to purchase, and
the Selling Stockholders have agreed to sell to each U.S. Underwriter, shares
of Common Stock which equal the number of shares set forth opposite the name
of such U.S. Underwriter below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Salomon Smith Barney Inc....................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Friedman, Billings, Ramsey & Co., Inc.......................
Goldman, Sachs & Co.........................................
Total.....................................................
-----
(1)
</TABLE>
- --------
(1) Includes shares which is the maximum number of shares being reserved
for sale to certain existing stockholders, other employees and directors
of the Company, and their family members at the initial offering price (as
defined herein). The Underwriters will purchase all of such shares not
sold in the Direct Offering on a pro rata basis.
Under the terms and subject to the conditions contained in the International
Underwriting Agreement dated the date hereof, each of the managers of the
concurrent International Offering named below (the "Managers"), for whom
Salomon Smith Barney Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Friedman, Billings, Ramsey & Co., Inc. and Goldman Sachs
International are acting as the lead managers (the "Lead Managers"), has
severally agreed to purchase, and the Selling Stockholders have agreed to sell
to each Manager, shares of Common Stock which equal the number of shares set
forth opposite the name of such Manager below:
<TABLE>
<CAPTION>
MANAGERS NUMBER OF SHARES
-------- ----------------
<S> <C>
Salomon Smith Barney Inc....................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Friedman, Billings, Ramsey & Co., Inc.......................
Goldman, Sachs International................................
Total.....................................................
-----
</TABLE>
Each of the U.S. Underwriting Agreement and the International Underwriting
Agreement provides that the obligations of the U.S. Underwriters and the
Managers to pay for and accept delivery of the shares of Common Stock offered
hereby are subject to the approval of certain legal matters by counsel and to
certain other conditions. The U.S. Underwriters and the Managers are obligated
to take and pay for all the shares of Common Stock included in the respective
Offering (other than those covered by the over-allotment option described
below) if any such shares are taken.
The U.S. Underwriters and the Managers initially propose to offer part of
the shares of Common Stock directly to the public at the public offering price
set forth on the cover page of this Prospectus and part to certain dealers at
a price that represents a concession not in excess of $ per share below the
public offering price. The U.S. Underwriters and the Managers may allow, and
such dealers may reallow, a concession not in excess of $ per share to
other U.S. Underwriters and Managers or to certain other dealers. After the
initial offering of the shares of Common Stock offered hereby, the public
offering price and other selling terms may be changed by the U.S. Underwriters
and the Managers.
The Principal Selling Stockholder has granted to the U.S. Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase
up to an aggregate of additional shares of Common Stock at the price to
public set forth on the cover page of this Prospectus. The U.S. Underwriters
may exercise such option to purchase additional shares of Common Stock solely
for the purpose of covering over-allotments, if any, in
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<PAGE>
connection with the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, the U.S. Underwriters will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares of Common Stock as the number of shares of Common
Stock set forth opposite the U.S. Underwriters' names in the preceding table
bears to the total number of shares in such table.
The Company, the Selling Stockholders, and the U.S. Underwriters and the
Managers have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act.
The Company and the Selling Stockholders have agreed that they will not
offer, sell, contract to sell, announce any intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission a
registration statement under the Securities Act of 1933 relating to any shares
of Common Stock or securities or other rights convertible into or exchangeable
or exercisable for any shares of Common Stock, without the prior written
consent of Salomon Smith Barney for a period of 180 days after the date of
this Prospectus. Such restrictions will not affect the ability of the Company
(i) to issue and sell Common Stock or make any awards pursuant to the
Incentive Plan, the 1998 Plan and the Directors Plan (ii) to issue shares of
Common Stock pursuant to the exercise of stock options currently outstanding
or granted pursuant to the Incentive Plan, the 1998 Plan or the Directors
Plan, or (iii) to issue Shares of Common Stock or securities convertible into,
or exercisable or exchangeable for, Shares of Common Stock in connection with
an acquisition of or merger with another corporation as long as such
securities are not registered under the Securities Act of 1933 during the
Lock-Up Period. See "Shares Eligible for Future Sale."
The Underwriters have informed the Company and the Selling Stockholders that
they do not intend to confirm sales of shares of Common Stock for any
customer's account over which they exercise discretionary authority without
the prior written approval of the customer.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price for the shares of Common Stock
will be determined by negotiation among the Company, the Selling Stockholders
and the Representatives. Among the factors to be considered in determining the
initial public offering price will be the prevailing market conditions, the
Company's financial condition, its prospects and the prospects for the
industry in general, the management of the Company and the market prices of
securities for companies in businesses similar to that of the Company. There
can, however, be no assurance that the prices at which the shares of Common
Stock will sell in the public market after the Offering will not be lower than
the price at which the shares of Common Stock will initially be sold by the
Underwriters.
The U.S. Underwriters and the Managers have entered into an Agreement
Between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the [ ] shares of Common
Stock offered in the U.S. Offering, (i) it is not purchasing any such shares
for the account of anyone other than a U.S. or Canadian person (as defined
below) and (ii) it has not offered or sold, and will not offer, sell resell or
deliver, directly or indirectly, any of such shares or distribute any
prospectus relating to the U.S. Offering outside the United States or Canada
to anyone other than a U.S. or Canadian Person. In addition, each Manager has
agreed that as part of the distribution of the [ ] shares of Common Stock
offered in the International Offering (i) it is not purchasing any such shares
for the account of any U.S. or Canadian Person and (ii) it has not offered or
sold, and will not offer, sell, resell or deliver, directly or indirectly, any
of such shares or distribute any prospectus relating to the International
Offering in the United States or Canada or to any U.S. or Canadian Person.
Each Manager has also agreed that it will offer to sell shares only in
compliance with all relevant requirements of any applicable laws.
The foregoing limitations do not apply to stabilization transactions
specified in the U.S. Underwriting Agreement, the International Underwriting
Agreement and the Agreement Between U.S. Underwriters and Managers, including:
(i) certain purchases and sales between the U.S. Underwriters and the Mangers;
(ii) certain offers, sales, resales, deliveries or distributions to or through
investment advisors or other persons exercising investment discretion; (iii)
purchases, offers or sales by a U.S. Underwriter who is also acting as a
Manager or by a Manager who is also acting as a U.S. Underwriter; and (iv)
other transactions specifically approved by the U.S. Underwriters and the Lead
Manager. As used herein, "U.S. or Canadian Person" means any resident or
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<PAGE>
national of the United States or Canada, any corporation, partnership or other
entity created or organized in or under the laws of the United States or
Canada or any estate or trust the income of which is subject to United States
or Canadian income taxation regardless of the source of its income (other than
the foreign branch of any U.S. or Canadian Person), and includes any United
States or Canadian branch of a person other than a U.S. or Canadian Person.
Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada
in which such offer is made.
Each Manager agrees that it (i) will not offer or sell any shares to persons
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (whether as
principal or agent) for the purposes of their businesses or in other
circumstances which do not constitute an offer to the public in the United
Kingdom for the purposes of the Public Offers of Securities Regulation 1995
(the "Regulations"), (ii) will comply with all applicable provisions of the
Regulations and of the Financial Services Act 1986 with respect to anything
done by it in relation to the shares in, from or otherwise involving the
United Kingdom and (iii) will only issue or pass on in the United Kingdom any
document received by it in connection with the issue of these shares if that
person is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended) or is a
person to whom such documents may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction by the Company, the
Selling Stockholders or the Underwriters that would permit any offering to the
general public of the shares of Common Stock offered hereby in any
jurisdiction other than the United States.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the
cover page hereof.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of
shares of Common Stock as may be mutually agreed. The price of any shares so
sold shall be the public offering price as then in effect for shares being
sold by the U.S. Underwriters and the Managers, less all or any part of the
selling concession, unless otherwise determined by mutual agreement. To the
extent that there are sales between the U.S. Underwriters and the Managers
pursuant to the Agreement Between U.S. Underwriters and Managers, the number
of shares initially available for sale by the U.S. Underwriters and the
Managers may be more or less than the number of shares appearing on the front
cover of this Prospectus.
In connection with the Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appear above) and
may effect transactions which stabilize, maintain or otherwise affect the
market price of the Common Stock at levels above those which might otherwise
prevail in the open market. Such transactions may include placing bids for the
Common Stock or effecting purchases of the Common Stock for the purpose of
pegging, fixing or maintaining the price of Common Stock or for the purpose of
reducing a syndicate short position created in connection with the Offering. A
syndicate short position may be covered by exercise of the option described
above in lieu of or in addition to open market purchases. In addition, the
contractual arrangements among the Underwriters include a provision whereby if
the U.S. Underwriters or Lead Managers purchase Common Stock in the open
market for the account of the underwriting syndicate and the securities
purchased can be traced to a particular Underwriter, the underwriting
syndicate may require the Underwriter in question to purchase the Common Stock
in question at a cost price to the syndicate or may recover from (or decline
to pay to) the Underwriter in question the selling concession applicable to
the securities in question. The Underwriters are not required to engage in any
of these activities and any such activities, if commenced, may be discontinued
at any time.
In the ordinary course of their respective businesses, certain of the U.S.
Underwriters and their affiliates have performed, and may in the future
perform, investment banking or commercial banking services for the Company. In
addition, Friedman, Billings, Ramsey & Co., Inc. will receive a financial
advisory fee of $400,000 in connection with the Offering.
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<PAGE>
As part of the Offering, up to shares of Common Stock are being offered
for sale by the Principal Selling Stockholder, to certain existing
stockholders, other employees and directors of the Company, and their family
members, at a price equal to the initial public offering price per share (the
"Direct Offering"). The obligation of the investors to purchase shares of
Common Stock in the Direct Offering is contingent on the purchase of shares by
the Underwriters. There is no minimum number of shares to be purchased in the
Direct Offering. If less than shares are sold in the Direct Offering, any
shares reserved for sale in the Direct Offering, but not sold in the Direct
Offering, will be purchased by the Underwriters. See "Underwriting."
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<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general summary of certain United States federal income
and estate tax considerations with respect to the acquisition, ownership and
disposition of the Common Stock by a holder other than (i) a citizen or
resident of the United States; (ii) a corporation, partnership or other entity
created or organized in, or under the laws of, the United States or of any
political subdivision thereof; (iii) an estate, the income of which is subject
to United States federal income taxation regardless of its source; or (iv) a
trust if (a) a court within the United States is able to exercise primary
supervision over the administration of the trust and (b) one or more United
States persons have the authority to control all substantial decisions of the
trust (a "Non-U.S. Holder"). This summary does not address all of the United
States federal income and estate tax considerations that may be relevant to a
Non-U.S. Holder in light of its particular circumstances or to Non-U.S.
Holders that may be subject to special treatment under United States income
tax laws (such as insurance companies, tax-exempt organizations, financial
institutions, brokers, dealers in securities, and certain U.S. expatriates).
Furthermore, this summary does not discuss any aspects of state, local or non-
United States taxation. This summary is based on current provisions of the
Code, Treasury Regulations promulgated thereunder, judicial opinions,
published positions of the United States Internal Revenue Service (the "IRS"),
and all other applicable authorities, all of which are subject to change,
possibly with retroactive effect.
PROSPECTIVE NON-UNITED STATES INVESTORS ARE URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL, AND NON-UNITED
STATES INCOME AND OTHER TAX CONSIDERATIONS OF ACQUIRING, HOLDING AND DISPOSING
OF SHARES OF THE COMMON STOCK.
DIVIDENDS
Dividends, if any, paid to a Non-U.S. Holder generally will be subject to
United States withholding tax at a rate of 30% (or a lower rate prescribed by
an applicable income tax treaty) of the gross amount of the dividends unless
the dividends are effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder (or, if certain tax
treaties apply, are attributable to a United States permanent establishment
maintained by such Non-U.S. Holder) and the Non-U.S. Holder files the
appropriate documentation with the Company. Dividends effectively connected
with a United States trade or business generally will be subject to United
States federal income tax on a net income basis, in the same manner as
generally applied to United States persons. In the case of a Non-U.S. Holder
that is a corporation, such effectively connected income may also be subject
to the branch profits tax at a rate of 30% (or such lower rate as may be
specified by an applicable income tax treaty) on the repatriation from the
United States of its "effectively connected earnings and profits," subject to
certain adjustments. Non-U.S. Holders should consult any applicable income tax
treaties which may provide for a lower rate of tax or other rules different
from those described above. A Non-U.S. Holder may be required to satisfy
certain certification requirements in order to claim treaty benefits or
otherwise claim a reduction of, or exemption from, withholding under the
foregoing rules.
SALE OR OTHER DISPOSITION OF THE COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of the Common Stock unless (i) the gain is effectively
connected with the conduct of a trade or business within the United States by
the Non-U.S. Holder (or, if certain tax treaties apply, is attributable to a
United States permanent establishment maintained by such Non-U.S. Holder);
(ii) the Non-U.S. Holder is an individual who holds shares of Common Stock as
a capital asset and is present in the United States for 183 days or more in
the taxable year of disposition and certain other requirements are met; (iii)
the Non-U.S. Holder is subject to tax pursuant to the provisions of the Code
regarding the taxation of certain U.S. expatriates; or (iv) the Company is or
has been a "United States real property holding corporation" for United States
federal income tax purposes (which the Company does not believe that it is or
will become) and the Non-U.S. Holder holds or has held, directly or
indirectly, at any time within the shorter of
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<PAGE>
the five-year period preceding such disposition or such Non-U.S. Holder's
holding period for the shares of the Common Stock, more than 5% of the Common
Stock. Gain that is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder generally will be
subject to United States federal income tax on a net income basis, in the same
manner as generally applied to United States persons (and with respect to
corporate Non-U.S. Holders, the branch profits tax may also apply in certain
circumstances), but will not be subject to withholding. If an individual Non-
U.S. Holder falls under clause (ii) above, such Non-U.S. Holder generally will
be subject to tax at a rate of 30% on the gain realized, although such gain
may be offset by certain United States capital losses. Individual Non-U.S.
Holders who may fall under clause (iii) above, should consult their tax
advisors regarding the U.S. federal income tax consequences of a sale or other
disposition of the Common Stock. Non-U.S. Holders should consult any
applicable income tax treaties which may provide for a lower rate of tax or
other rules different from those described above.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-
U.S. Holder regardless of whether any tax was withheld. These reporting
requirements apply regardless of whether withholding was reduced or eliminated
by an applicable income tax treaty. Pursuant to applicable tax treaties or
other agreements, this information also may be made available to the tax
authorities in the country in which the Non-U.S. Holder resides or is
established.
Under current United States Treasury Regulations, United States information
reporting requirements and backup withholding tax at a rate of 31% will
generally apply to dividends paid on the Common Stock to a Non-U.S. Holder at
an address inside the United States and to payments to a Non-U.S. Holder by a
United States office of a broker of the proceeds of a sale of the Common Stock
unless the holder certifies its Non-U.S. Holder status under penalties of
perjury or otherwise establishes an exemption. Information reporting (but not
backup withholding) generally will also apply to payments of the proceeds of
sales of the Common Stock by foreign offices of United States brokers, or
foreign brokers with certain types of relationships with the United States,
unless the broker has documentary evidence in its records that the holder is a
Non-U.S. Holder and certain other conditions are met, or the holder otherwise
establishes an exemption.
The IRS has issued Treasury Regulations generally effective for payments
made after December 31, 1999 that will affect the procedures to be followed by
a Non-U.S. Holder in establishing such holder's status as a Non-U.S. Holder
for purposes of the backup withholding and information reporting requirements
discussed herein. Among other things, (i) Non-U.S. Holders currently required
to furnish certification of foreign status may be required to furnish new
certification of foreign status and (ii) certain Non-U.S. Holders not
currently required to furnish certification of foreign status may be required
to furnish certification of foreign status in the future. Prospective Non-U.S.
Holders should consult their tax advisors concerning the effect of such
regulations on an investment in the Common Stock.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder can be refunded
or credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
ESTATE TAX
The Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for United States federal estate tax purposes)
of the United States at the time of death will be includable in the
individual's gross estate for United States federal estate tax purposes
(unless an applicable estate tax treaty provides otherwise) and therefore may
be subject to United States federal estate tax.
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LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Gibson, Dunn & Crutcher LLP, Washington, D.C. The
Underwriters will be represented by Cravath, Swaine & Moore, New York, NY.
EXPERTS
The audited financial statements and schedule as of December 31, 1996 and
1997, and for each of the three years in the period ended December 31, 1997
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the SEC, Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and such Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
filed as part thereof. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, if such contract or document is filed as an
exhibit, reference is made to the copy of such contract or document filed as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference to such exhibit. A copy of the Registration
Statement, and the exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the SEC in Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of all or any part of the Registration
Statement may be obtained from such offices upon the payment of the fees
prescribed by the SEC. The SEC also maintains a World Wide Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants such as the Company which file
electronically with the SEC. The Registration Statement, including all
exhibits thereto and amendments thereof, are available on this World Wide Web
site.
The Company intends to furnish to its Stockholders annual reports containing
financial statements audited by its independent public accountants.
61
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................... F-2
Balance Sheets as of December 31, 1996 and 1997, as of September 30, 1998
and Pro Forma as of September 30, 1998.................................... F-3
Statements of Operations for the years ending December 31, 1995, 1996 and
1997, and the nine months ending September 30, 1997 and 1998.............. F-4
Statements of Changes in Stockholder's Deficit for the years ending
December 31, 1995, 1996 and 1997, and the nine months ending September 30,
1998...................................................................... F-5
Statements of Cash Flows for the years ending December 31, 1995, 1996, and
1997, and the nine months ending September 30, 1997 and 1998.............. F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of The Corporate Executive Board Company:
We have audited the accompanying balance sheets of The Corporate Executive
Board Company (formerly the Corporate Advisory Board Company and a division of
The Advisory Board Company until October 31, 1997) as of December 31, 1996 and
1997, and the related statements of operations, stockholder's deficit and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Corporate Executive
Board Company as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Washington, D.C.
July 24, 1998
F-2
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------- SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998
------- ------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...... $ -- $ 8,937 $ 5,739 $ 739
Marketable securities.......... -- 3,754 3,441 3,441
Membership fees receivable,
net........................... 13,894 15,796 7,124 7,124
Deferred income taxes.......... 956 1,150 1,008 4,703
Deferred incentive compensation
(Note 2)...................... 870 1,096 1,295 1,295
Prepaid expenses and other
current assets................ -- 122 1,664 1,664
Receivable from affiliate...... 5,682 -- -- --
Receivable from stockholder
(Note 10)..................... -- 6,500 6,500 6,500
------- ------- ------- -------
Total current assets......... 21,402 37,355 26,771 25,466
------- ------- ------- -------
PROPERTY AND EQUIPMENT, net...... 1,705 2,513 2,528 2,528
------- ------- ------- -------
Total assets................. $23,107 $39,868 $29,299 $27,994
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S
DEFICIT
CURRENT LIABILITIES:
Deferred revenues.............. $21,696 $31,474 $24,058 $24,058
Accounts payable and accrued
liabilities................... 1,098 2,082 3,323 3,323
Accrued incentive
compensation.................. 1,534 1,899 1,653 1,653
Payable to affiliate........... -- 1,507 216 216
Stock option repurchase
liability (Note 9)............ 1,719 5,398 3,150 3,150
------- ------- ------- -------
Total current liabilities.... 26,047 42,360 32,400 32,400
------- ------- ------- -------
OTHER LIABILITIES:
Long-term stock option
repurchase liability
(Note 9)...................... 4,471 2,550 3,158 4,809
------- ------- ------- -------
Total liabilities............ 30,518 44,910 35,558 37,209
------- ------- ------- -------
COMMITMENTS AND CONTINGENCIES
(Notes 7 and 9)
STOCKHOLDER'S DEFICIT (Note 9):
Class A Voting Common Stock,
$0.01 par value; 1,000 shares
authorized, issued and
outstanding as of December 31,
1997 and September 30, 1998... -- -- -- --
Class B Nonvoting Common Stock,
$0.01 par value; 1,399,000
shares authorized and 726,000
shares issued and outstanding
as of December 31, 1997, and
September 30, 1998............ -- 7 7 7
Additional paid-in capital..... -- 2,764 2,764 (8,172)
Deferred compensation.......... -- (1,459) (1,050) (1,050)
Accumulated deficit............ (7,411) (6,354) (7,980) --
------- ------- ------- -------
Total stockholder's deficit.. (7,411) (5,042) (6,259) (9,215)
------- ------- ------- -------
Total liabilities and
stockholder's deficit....... $23,107 $39,868 $29,299 $27,994
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDING DECEMBER 31, ENDING SEPTEMBER 30,
-------------------------- -----------------------
1995 1996 1997 1997 1998
-------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................... $ 17,547 $27,283 $38,669 $27,972 $38,239
COSTS AND EXPENSES:
Cost of services......... 10,849 15,078 20,036 13,989 18,633
Member relations and
marketing............... 5,275 6,677 8,106 5,762 8,064
General and
administrative.......... 2,589 3,832 5,660 4,317 4,624
Depreciation............. 233 452 722 474 502
Stock option
restructuring and
repurchase (Note 9)..... 9,390 1,473 3,063 1,554 1,158
-------- ------- ------- ------- -------
28,336 27,512 37,587 26,096 32,981
-------- ------- ------- ------- -------
INCOME (LOSS) FROM
OPERATIONS................ (10,789) (229) 1,082 1,876 5,258
INTEREST INCOME............ -- -- 122 -- 575
-------- ------- ------- ------- -------
INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR
STATE INCOME TAXES........ (10,789) (229) 1,204 1,876 5,833
PROVISION (BENEFIT) FOR
STATE INCOME TAXES........ (1,076) (23) 120 186 590
-------- ------- ------- ------- -------
NET INCOME (LOSS).......... $ (9,713) $ (206) $ 1,084 $ 1,690 $ 5,243
======== ======= ======= ======= =======
HISTORICAL NET INCOME
(LOSS) PER SHARE-BASIC
(NOTE 2).................. $ (13.36) $ (0.28) $ 1.49 $ 2.32 $ 7.21
======== ======= ======= ======= =======
WEIGHTED-AVERAGE SHARES
OUTSTANDING-BASIC
(NOTE 2).................. 727 727 727 727 727
======== ======= ======= ======= =======
HISTORICAL NET INCOME
(LOSS) PER SHARE-DILUTED
(NOTE 2).................. $ (13.36) $ (0.28) $ 1.28 $ 2.00 $ 5.48
======== ======= ======= ======= =======
WEIGHTED-AVERAGE SHARES
OUTSTANDING-DILUTED
(NOTE 2).................. 727 727 850 847 956
======== ======= ======= ======= =======
PRO FORMA STATEMENT OF
OPERATIONS DATA
(UNAUDITED) (NOTE 2):
Income (loss) before
provision (benefit) for
income taxes, as
reported................ $(10,789) $ (229) $ 1,204 $ 1,876 $ 5,833
Pro forma income tax
provision (benefit)..... (4,316) (92) 482 750 2,333
-------- ------- ------- ------- -------
Pro forma net income
(loss).................. $ (6,473) $ (137) $ 722 $ 1,126 $ 3,500
======== ======= ======= ======= =======
Pro forma net income
(loss) per share basic.. $ (8.90) $ (0.19) $ 0.99 $ 1.55 $ 4.81
======== ======= ======= ======= =======
Pro forma net income
(loss) per share
diluted................. $ (8.90) $ (0.19) $ 0.85 $ 1.33 $ 3.66
======== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
FOR THE YEARS ENDING DECEMBER 31, 1995, 1996, AND 1997, AND THE
NINE MONTHS ENDING SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
CLASS A VOTING NONVOTING
COMMON STOCK COMMON STOCK ADDITIONAL
---------------- -------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------- ------- ------- ------ ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994.................... -- $ -- -- $-- $ -- $ -- $ 2,508 $ 2,508
Net loss................. -- -- -- -- -- -- (9,713) (9,713)
------- ------ ------- ---- ------ ------- ------- -------
BALANCE AT DECEMBER 31,
1995.................... -- -- -- -- -- -- (7,205) (7,205)
Net loss................. -- -- -- -- -- -- (206) (206)
------- ------ ------- ---- ------ ------- ------- -------
BALANCE AT DECEMBER 31,
1996.................... -- -- -- -- -- -- (7,411) (7,411)
Distributions to
stockholder............. -- -- -- -- -- -- (20) (20)
Division Spin-Off
(Note 2)................ 1,000 -- 726,000 7 -- -- (7) --
Deferred compensation
pursuant to substitution
of stock options........ -- -- -- -- 2,764 (1,459) -- 1,305
Net income............... -- -- -- -- -- -- 1,084 1,084
------- ------ ------- ---- ------ ------- ------- -------
BALANCE AT DECEMBER 31,
1997.................... 1,000 -- 726,000 7 2,764 (1,459) (6,354) (5,042)
Distributions to
stockholder (Unaudited)
........................ -- -- -- -- -- -- (6,869) (6,869)
Amortization of deferred
compensation (Unaudited)
........................ -- -- -- -- -- 409 -- 409
Net income (Unaudited) .. -- -- -- -- -- -- 5,243 5,243
------- ------ ------- ---- ------ ------- ------- -------
BALANCE AT SEPTEMBER 30,
1998 (Unaudited) ....... 1,000 $ -- 726,000 $ 7 $2,764 $(1,050) $(7,980) $(6,259)
======= ====== ======= ==== ====== ======= ======= =======
</TABLE>
F-5
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDING DECEMBER 31, ENDING SEPTEMBER 30,
-------------------------- -----------------------
1995 1996 1997 1997 1998
------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)......... $(9,713) $ (206) $ 1,084 $1,690 $ 5,243
Adjustments to reconcile
net income to net cash
flows provided by
operating activities--
Depreciation............. 233 452 722 474 502
Option repurchase and
restructuring........... 9,390 1,473 3,063 1,554 1,158
Changes in assets and
liabilities:
Membership fees
receivable, net........ (4,154) (3,356) (1,902) 4,396 8,672
Deferred income taxes... (785) 144 (194) -- 142
Deferred incentive
compensation........... (464) 218 (226) 59 (199)
Prepaid expenses and
other current assets... -- -- (122) -- (1,542)
Deferred revenues....... 5,804 6,314 9,778 544 (7,416)
Accounts payable and
accrued liabilities.... 611 121 984 (126) 1,241
Accrued incentive
compensation........... 491 342 365 (373) (246)
------- ------- -------- ------ -------
Net cash flows provided
by operating
activities............ 1,413 5,502 13,552 8,218 7,555
------- ------- -------- ------ -------
CASH FLOWS USED FOR
INVESTING ACTIVITIES:
Purchases of property and
equipment................ (818) (776) (1,530) (1,100) (517)
(Purchases) sales of
marketable securities.... -- -- (3,754) -- 313
Receivable from
stockholder.............. -- -- (6,500) -- --
------- ------- -------- ------ -------
Net cash flows used in
investing activities.. (818) (776) (11,784) (1,100) (204)
------- ------- -------- ------ -------
CASH FLOWS (USED FOR)
PROVIDED BY FINANCING
ACTIVITIES:
Change in payable
to/receivable from
affiliate................ 574 (1,221) 7,189 (7,118) (1,291)
Distributions to
stockholder.............. -- -- (20) -- (6,869)
Stock option repurchases.. (1,169) (3,505) -- -- (2,389)
------- ------- -------- ------ -------
Net cash flows (used
in) provided by
financing activities.. (595) (4,726) 7,169 (7,118) (10,549)
------- ------- -------- ------ -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS.......... -- -- 8,937 -- (3,198)
Cash and cash equivalents,
beginning of period....... -- -- -- -- 8,937
------- ------- -------- ------ -------
Cash and cash equivalents,
end of period............. $ -- $ -- $ 8,937 $ -- $ 5,739
======= ======= ======== ====== =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the
period for--
State income taxes....... $ -- $ -- $ 90 $ -- $ 350
======= ======= ======== ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998, AND FOR THE NINE MONTHS ENDING
SEPTEMBER 30, 1997 AND 1998, IS UNAUDITED)
1. BASIS OF ACCOUNTING AND BUSINESS DESCRIPTION:
The Corporate Executive Board Company (the "Company," formerly The Corporate
Advisory Board Company) was incorporated on September 11, 1997, under the laws
of the State of Delaware. The Company's business was operated as a division of
The Advisory Board Company, a Maryland corporation, until October 31, 1997
when the business was contributed to the Company and spun-off (the "Spin-Off")
to The Advisory Board Company's sole stockholder. On October 31, 1997, all of
the outstanding shares of the Company were distributed as a dividend to the
sole stockholder of The Advisory Board Company. The Company is structured as
an "S" corporation, with ownership maintained by a sole stockholder. The
Company and The Advisory Board Company are wholly-owned by the same
stockholder. The accompanying financial statements represent the accounts of
the Company as if it had operated as a stand-alone entity in accordance with
the accounting rules prescribed for "carve-out" financial statements for the
periods preceding the Spin-Off.
The Company provides "best practices" research and analysis focusing on
corporate strategy, operations and general management issues. The Company
provides its research and analysis to corporations on an annual subscription
basis. For a fixed annual fee, members of each subscription program have
access to an integrated set of services, including best practices research
studies, executive education seminars, customized research briefs and on-line
access to the Company's databases.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information (unaudited)
The interim financial data as of September 30, 1998, and for the nine months
ending September 30, 1997 and 1998 have been prepared by the Company, without
audit, and include, in the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of interim
period results. The results of operations for the nine months ending September
30, 1998, are not necessarily indicative of the results to be expected for the
full year.
Spin-Off Presentation
Prior to the Spin-Off, the Company did not maintain separate bank accounts
and all cash receipts and disbursements were made via The Advisory Board
Company and are reflected as changes in receivable from (payable to)
affiliate. Subsequent to the Spin-Off, the Company is responsible for its own
cash management and records amounts owed to The Advisory Board Company in
payable to affiliate. The Company settles the amounts due to The Advisory
Board Company for certain common vendor costs and under an Administrative
Services Agreement (Note 3), and amounts due to DGB Enterprises, Inc., for
management cost allocations (Note 3), at least quarterly.
Revenue and Commission Expense Recognition
Membership fees are recognized ratably over the term of the related
membership, which is generally twelve months. Membership fees are generally
billable when a letter of agreement is signed by the member. Certain
membership fees are billed on an installment basis (Note 4).
The Company's policy is to record the full amount of membership fees
receivable and related deferred revenue when a letter of agreement is signed
by a member. Certain incentive compensation expenses related to the
negotiation of new and renewal memberships are deferred and are amortized over
the term of the related memberships.
F-7
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net Income (Loss) Per Share
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS
No. 128 is effective for financial statements issued after December 15, 1997.
SFAS No. 128 requires dual presentation of basic and diluted net income per
share. Basic net income per share includes no dilution and is computed by
dividing net income or loss available to common shareholders by the weighted-
average number of common shares outstanding for the period. Diluted net income
per share includes the impact of dilutive securities, such as options,
warrants and convertible debt or preferred equity securities. Options
outstanding as of December 31, 1995 and 1996 were not included in calculating
diluted net income per share because they were anti-dilutive. As a result,
there is no difference between the amounts of basic and diluted net income per
share for those periods.
In February 1998, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 98 ("SAB 98") concerning the computation of earnings
per share. Among other things, SAB 98 affects companies that issued shares of
stock within twelve months of an initial public offering ("IPO"), and/or
converted from an "S" corporation to a "C" corporation for Federal income tax
purposes. SAB 98 requires that, in addition to reporting pro forma net income
per share for the effect of the change in tax status, companies report actual
historical net income per share. Further, prior to the issuance of SAB 98,
stock and stock options issued within twelve months of an IPO below the IPO
price were treated as if outstanding for all periods presented, calculated
using the treasury stock method. SAB 98 has discontinued this treatment for
such issuances when the issuance price was considered more than nominal
("nominal issuances"). The Company has determined that the issuances of stock
and stock options within twelve months of the IPO were not nominal issuances.
SAB 98 was effective upon its issuance and has been applied in the
accompanying financial statements for all periods presented. Weighted-average
shares outstanding for the years ending December 31, 1995, 1996 and 1997, and
the nine months ending September 30, 1997 and 1998, were calculated assuming
that the capital structure established at the date of the Spin-Off was in
effect during those periods.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDING ENDING
DECEMBER 31, SEPTEMBER 30,
-------------- -----------------------
1995 1996 1997 1997 1998
---- ---- ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted-average common shares out-
standing--basic.................... 727 727 727 727 727
Dilutive effect of stock options.... -- -- 123 120 229
--- --- --- --- ---
Weighted-average common and
equivalent shares outstanding--
diluted............................ 727 727 850 847 956
=== === === === ===
</TABLE>
Pro Forma Statements of Operations Data (Unaudited)
Prior to the closing of the initial public offering, the Company will
terminate its status as an "S" corporation and will be subject to Federal and
state taxes at prevailing corporate rates. Accordingly, pro forma unaudited
net income (loss) and net income (loss) per share are based on the assumption
that the Company's "S" corporation status was terminated at the beginning of
each period. The Company has provided income taxes on a pro forma basis as if
it were a subchapter "C" corporation for all periods presented utilizing an
effective rate of 40%.
Pro Forma Balance Sheet (Unaudited)
The unaudited pro forma balance sheet as of September 30, 1998, reflects (1)
a distribution to the Company's sole stockholder of $5.0 million, (2)
termination of the Company's "S" corporation election and the increase
F-8
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of the Company's deferred income tax asset of approximately $3.7 million as of
September 30, 1998, (3) the amendment of the Liquid Markets Agreements (see
Note 9), which eliminate future employment requirements as a condition for
payment, resulting in an increase in the long-term option repurchase liability
of $1.7 million as of September 30, 1998, and (4) the reclassification of the
accumulated deficit to additional paid-in capital . The pro forma adjustments
give effect to transactions that will occur upon completion of the Company's
initial public offering.
Concentrations of Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, marketable securities, and membership fees receivable. The
Company maintains cash and cash equivalents and marketable securities with
quality financial institutions. Marketable securities consist of diversified
holdings of high-grade municipal and corporate bonds. The concentration of
credit risk with respect to membership fees receivable is generally
diversified due to the large number of entities comprising the Company's
membership base. The Company performs periodic evaluations of the financial
institutions, securities investments, and its membership base and establishes
allowances for potential credit losses.
The Company generates revenue from customers located outside the United
States. For the years ending December 31, 1995, 1996, and 1997, and the nine
months ending September 30, 1997 and 1998, approximately 28%, 29%, 31%, 31%,
and 33% of revenue, respectively, was generated from customers outside the
United States. Sales to customers in European countries for the years ending
December 31, 1995, 1996, and 1997, and the nine months ending September 30,
1997 and 1998, were approximately 10%, 12%, 13%, 13%, and 15%, respectively,
with no other geographic area representing more than 10% of revenue in any
period. No one customer accounted for more than 2% of revenues for any period
presented.
Fair Value of Financial Instruments
The fair value of current assets and current liabilities approximates their
carrying value due to their short maturity. The fair value of the long-term
portion of stock option repurchase liability was approximately $2.2 million as
of December 31, 1997, utilizing a discount rate of 7%.
Long-Lived Assets
Long-lived assets and identifiable assets to be held and used are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount should be addressed. Impairment is measured by comparing the
carrying value to the estimated undiscounted future cash flows expected to
result from the use of the assets and their eventual dispositions. The Company
considers expected cash flows and estimated future operating results, trends,
and other available information in assessing whether the carrying value of the
assets is impaired. The Company believes that no such impairment existed as of
December 31, 1996, 1997, and September 30, 1998.
Property and Equipment
Furniture, fixtures, and equipment are stated at cost, less accumulated
depreciation. Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets, ranging from five to seven years.
F-9
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The sole stockholder has elected that the Company be treated as an "S"
corporation for Federal income tax purposes, whereby taxable income or losses
flow through to, and are reportable by, the individual stockholder.
Accordingly, no provision has been made for Federal income taxes in the
accompanying audited financial statements. The District of Columbia as well as
several states, however, do not recognize "S" corporation status. Income taxes
related to the District of Columbia and other states are calculated for the
Company on a separate return basis for all periods presented using the
liability method in accordance with SFAS No. 109, "Accounting for Income
Taxes." The unaudited pro forma information included in the statement of
operations reflects income tax expense as if the Company had been a stand-
alone "C" corporation for all periods presented.
Product Development
Costs related to the identification and development of new programs are
expensed when incurred.
Cash Equivalents and Marketable Securities
Marketable securities that mature within three months of purchase are
considered cash equivalents. Investments with maturities of more than three
months are classified as marketable securities. As of December 31, 1997, and
September 30, 1998, the Company's marketable securities were municipal and
corporate bonds. These bonds are classified as trading securities in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly, the carrying value of these bonds is adjusted
to fair value, with unrealized gains and losses included in the statements of
operations. At December 31, 1997, and September 30, 1998, the fair value of
marketable securities approximated historical cost.
Use of Estimates in Preparation of Financial Statements
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.
Recently Adopted Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." The Company adopted both
of these standards during the nine months ending September 30, 1998.
SFAS No. 130 requires "comprehensive income" and the components of "other
comprehensive income" to be reported in the financial statements and/or notes
thereto. Since the Company does not have any components of "other
comprehensive income," reported net income is the same as "total comprehensive
income" for the nine months ending September 30, 1997 and 1998.
SFAS No. 131 requires an entity to disclose financial and descriptive
information about its reportable operating segments. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. SFAS No. 131 is not required for interim financial
reporting purposes during 1998. The Company is in the process of assessing the
additional disclosures, if any, required by SFAS No. 131. However, such
adoption will not impact the Company's results of operations or financial
position, since it relates only to disclosures.
F-10
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. TRANSACTIONS WITH AFFILIATES:
Administrative Support and Management Services
The Advisory Board Company, which is controlled by the same sole shareholder
as the Company, provides the Company with administrative support services.
Subsequent to the Spin-Off, fees are charged to the Company for these services
in accordance with an Administrative Services Agreement (the "ASA"). The term
of the ASA expires on October 31, 1999. The ASA provides for fees based on
either direct costs, costs per certain transaction, headcount, or a fixed cost
per month. For periods prior to the Spin-Off, the Company allocated the costs
for administrative support services using methodologies designed to
consistently apply the provisions of the ASA (e.g., direct costs, revenue
activity drivers, or headcount). In management's opinion, the standard costs
developed approximate the cost of internally providing or externally sourcing
such services and, therefore, represent what the costs would be on a stand-
alone basis.
Management cost allocations, consisting primarily of senior executive costs
allocated by DGB Enterprises, Inc., a separate entity controlled by the
Company's sole shareholder, are charged to the Company (pre and post Spin-Off)
based on an allocation of time spent on the Company's activities by each
executive monthly. In management's opinion, the allocations represent what the
costs would be on a stand-alone basis.
Receivable from (Payable to) Affiliate
Activity in the receivable from (payable to) affiliate is as follows (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDING DECEMBER 31, ENDING SEPTEMBER 30,
---------------------------- -----------------------
1995 1996 1997 1997 1998
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $ 5,035 $ 4,461 $ 5,682 $ 5,682 $(1,507)
Costs allocated to the
Company--
The Advisory Board
Company (2,096) (3,454) (5,502) (4,175) (4,043)
DGB Enterprises, Inc... (1,064) (1,404) (1,490) (1,092) (991)
Cash transfers from the
Company to The Advisory
Board Company.......... 2,586 6,079 4,079 12,385 11,275
Cash transfers to the
Company from The
Advisory Board
Company................ -- -- (4,276) -- (4,950)
-------- -------- -------- ------- -------
Balance at end of
period................. $ 4,461 $ 5,682 $ (1,507) $12,800 $ (216)
======== ======== ======== ======= =======
</TABLE>
4. MEMBERSHIP FEES RECEIVABLE:
Membership fees receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Billed fees receivable................................. $ 11,106 $ 12,734
Installment fees receivable............................ 3,188 4,062
--------- ---------
14,294 16,796
Allowance for doubtful accounts........................ (400) (1,000)
--------- ---------
Membership fees receivable, net...................... $ 13,894 $ 15,796
========= =========
</TABLE>
F-11
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Billed fees receivable represent invoiced membership fees. Installment fees
receivable represent fees due to be billed to members. Netted against revenues
are provisions for bad debt of $0.06 million, $0.3 million and $0.6 million,
for the years ending December 31, 1995, 1996, and 1997 respectively.
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------- SEPTEMBER 30,
1996 1997 1998
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture, fixtures, and equipment...... $ 2,928 $ 4,458 $ 4,975
Accumulated depreciation................ (1,223) (1,945) (2,447)
--------- --------- -------
Property and equipment, net........... $ 1,705 $ 2,513 $ 2,528
========= ========= =======
</TABLE>
6. INCOME TAXES:
The provision (benefit) for state income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, NINE MONTHS NINE MONTHS
---------------------------- ENDING SEPTEMBER 30, ENDING SEPTEMBER 30,
1995 1996 1997 1997 1998
--------- -------- -------- -------------------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current................ $ (291) $ (167) $ 314 $186 $448
Deferred............... (785) 144 (194) -- 142
--------- ------- ------- ---- ----
Provision (benefit)
for state income
taxes............... $ (1,076) $ (23) $ 120 $186 $590
========= ======= ======= ==== ====
</TABLE>
The statutory state and effective tax rates reflected in the provision
(benefit) for income taxes are both 9.975%. Deferred income taxes are provided
for temporary differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements. The tax effect of these
temporary differences is presented below (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------- SEPTEMBER 30,
1996 1997 1998
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred state income tax assets:
Deferred compensation agreements........ $ 617 $ 923 $ 791
Unamortized Section 481(a) adjustment
related to conversion to accrual basis
tax reporting.......................... 162 -- --
Allowance for doubtful accounts......... 44 100 118
Compensation accrued for financial
reporting purposes..................... 153 189 165
Other................................... 65 47 63
--------- --------- ------
Total deferred state income tax
assets............................... 1,041 1,259 1,137
--------- --------- ------
Deferred state income tax liabilities:
Deferred incentive compensation......... 85 109 129
--------- --------- ------
Net deferred state income tax assets.. $ 956 $ 1,150 $1,008
========= ========= ======
</TABLE>
F-12
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Management of the Company has determined that based upon the Company's
expected future earnings it will more likely than not be able to fully
recognize these net deferred state income tax assets.
7. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company has entered an office space sublease agreement with The Advisory
Board Company that is cancelable upon six months' notice. In 1998, the Company
initiated plans to relocate its office facilities and negotiated a new lease
with an unrelated third party. The new lease will expire on June 30, 2009. The
Company's estimated future minimum lease payments under these lease agreements
(including the transition period) are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------
<S> <C>
1998................................................................ $ 1,832
1999................................................................ 2,776
2000................................................................ 2,500
2001................................................................ 2,926
2002................................................................ 2,984
Thereafter.......................................................... 21,594
-------
Total............................................................. $34,617
=======
</TABLE>
In conjunction with the new lease, the Company entered into a $1.3 million
Letter-of-Credit Agreement to provide a security deposit for the office space
lease. The Letter-of-Credit Agreement is collateralized by the Company's cash,
accounts receivable and property and equipment.
Rent expense charged to operations during the fiscal years ending December
31, 1995, 1996, and 1997, was approximately $0.9 million, $1.3 million, and
$1.6 million, respectively. Rent expense charged for the nine months ending
September 30, 1997 and 1998, was $1.2 million and $1.6 million, respectively.
8. BENEFIT PLANS:
In fiscal 1993, The Advisory Board Company began sponsoring a defined
contribution 401(k) Plan (the "Plan") in which the Company's employees
participate. Pursuant to the Plan, all employees who have reached the age of
twenty-one are eligible to participate. The sponsor provides contributions
equal to 25% of an employee's contribution up to a maximum of 4% of base
salary. Contributions to the Plan for the Company's participants during the
years ending December 31, 1995, 1996, and 1997, were approximately $36,000,
$51,000 and $79,000, respectively. Contributions for the nine months ending
September 30, 1997 and 1998, were $53,000 and $81,000, respectively. In
September 1998, the Company established a defined contribution 401(k) Plan
(the "New Plan") with the same provisions as the Advisory Board Company Plan.
As of September 1, 1998, participants' accounts were transferred to the New
Plan and subsequent participant and Company contributions were made directly
to the New Plan.
9. STOCK OPTION PLANS:
Background
On March 1, 1994, The Advisory Board Company adopted the Stock-Based
Incentive Compensation Plan (the "Original Plan") to provide for granting of
incentive stock options ("Original Options"). The Original Plan entitled
certain employees to purchase shares of The Advisory Board Company's Class B
Nonvoting Common Stock at a price equal to at least the fair market value of
The Advisory Board Company's stock on the date of grant. The Original Options
were exercisable on the date ten years after the date of grant, subject to
acceleration upon the occurrence of certain events that would alter the
current ownership of The Advisory Board Company, including an initial public
offering or private sale.
F-13
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Liquid Markets Agreements
On March 31, 1995, The Advisory Board Company and existing optionees adopted
the Liquid Markets Agreements ("LM Agreements") to provide the optionees an
opportunity to (i) sell all or a portion of their Original Options to The
Advisory Board Company immediately and/or (ii) modify all or a portion of
their Original Options in accordance with the terms and conditions of the
Continuing Stock-Based Incentive Compensation Plan, which is described below
(the "Continuing Option Plan").
The LM Agreements provided for the designation of Original Options as
described above and governed the payments to be made to the optionees for
options sold ("Sold Options"). For the options elected to be sold, The
Advisory Board Company was committed to pay an initial payment of $55 per
option, minus the exercise price, in two installments (25% no later than
December 31, 1995, and 75% no later than December 31, 1996). The Advisory
Board Company was also obligated to pay the optionee an additional payment
(the "Earn Out Payment") based on The Advisory Board Company's income from
operations for the fiscal year ending March 31, 1998.
In March 1997, The Advisory Board Company amended the LM Agreements to
provide for (1) guaranteed versus variable Earn Out Payments, (2) revised
payment schedules, (3) revised employment requirements, and (4) in limited
instances, the ability to put current options retroactively into the Liquid
Markets plan.
The accompanying financial statements present the compensation expense
related to employees of the Company prior to and after the Spin-Off.
The Company recognized approximately $9.4 million, $1.5 million and $1.8
million in compensation expense related to the LM Agreements in years 1995,
1996, and 1997, respectively. Approximately $1.6 and $0.7 million were
recognized for the nine months ending September 30, 1997 and 1998,
respectively.
The Company's obligation under the LM Agreements is reflected in stock
option repurchase liability in the accompanying balance sheets. Earnings
charges subsequent to September 30, 1998, related to this agreement are
approximately $1.7 million. During the year ending December 31, 1997, the
Company made no payments under the LM Agreements. During the nine months
ending September 30, 1998, the Company paid $2.4 million in accordance with
the LM Agreements. Future cash commitments related to the LM Agreements are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998................................................................. $ 5,398
1999................................................................. 1,670
2000................................................................. 3,140
-------
Total.............................................................. $10,208
=======
</TABLE>
Stock-Based Incentive Compensation Plan
Adopted on March 31, 1995, the Continuing Option Plan amended and restated
the Original Plan and formalized the terms and conditions of the remaining
modified options (the "Continuing Options"). In conjunction with the Spin-Off,
The Advisory Board Company executed Substitution Agreements with each of the
employees of the Company participating in the Continuing Option Plan. The
Substitution Agreement provided for the exchange of The Advisory Board Company
Continuing Options for options in the Company (the "Options") granted under
the Company's Stock-Based Incentive Compensation Plan (the "Current Plan"),
which was adopted at the time of the Spin-Off. The Options will generally be
exercisable at the earlier of April 1, 2000, a sale of the Company, or upon an
initial public offering of the Company's capital stock (50% one year
F-14
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
after the offering, 30% two years after the offering and 20% three years after
the offering). The Options expire between April 2001 and March 2009. Upon
exercise, the following means of disposing of the stock will be available to
the optionee:
(i) prior to an initial public offering, the exercise of a right by the
optionee to sell the stock to the Company at fair market value after a minimum
six-month holding period, (ii) prior to an initial public offering, the
exercise of a right to sell the stock to a purchaser upon a sale of the
Company, (iii) the open market sale after an initial public offering of the
Company's capital stock, or (iv) prior to an initial public offering, the
exercise of a right by the Company to redeem the stock at fair market value.
The Current Plan provides for the issuance of options to purchase up to
400,000 shares of Class B Nonvoting Common Stock. As of September 30, 1998, a
total of 99,600 shares were available for future awards under this plan.
The terms of the Substitution Agreement resulted in a new measurement date
for 107,900 options held by employees of the Company, resulting in the
recognition of compensation expense. The compensation expense is being
recognized over the related vesting period. The compensation expense is
reflected in stock option restructuring and repurchase in the accompanying
statements of operations and was $1.3 and $0.4 million for the year ending
December 31, 1997, and the nine months ending September 30, 1998,
respectively. The Company will recognize the remaining $1.1 million over the
vesting period, which is subject to adjustment, as described above, in the
event of an initial public offering. The recognition of compensation expense
was not required on the remaining 82,674 options outstanding at the time of
the Spin-Off under the provisions of EITF No. 90-9.
Transactions
A summary of changes in common stock options under the Original Plan, the
Continuing Option Plan, and the Current Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER EXERCISE PRICE AVERAGE
OF OPTIONS PER SHARE EXERCISE PRICE
---------- -------------- --------------
<S> <C> <C> <C>
The Advisory Board Company
Original Options:
Outstanding at December 31,
1994........................... 129,100 $ 15.00-$30.00 $16.25
Options granted............... 144,475 $ 50.00-$63.00 $51.64
Options sold under LM Agree-
ment......................... (111,100) $ 15.00-$30.00 $15.99
-------- -------------- ------
Outstanding at December 31,
1995........................... 162,475 $ 15.00-$63.00 $47.91
Options granted............... 12,000 $ 63.00-$70.00 $65.92
-------- -------------- ------
Outstanding at December 31,
1996........................... 174,475 $ 15.00-$70.00 $49.15
Options granted............... 17,500 $74.00 $74.00
Options sold under LM Agree-
ment......................... (18,000) $ 15.00-$30.00 $17.92
Options cancelled............. (5,000) $63.00 $63.00
-------- -------------- ------
Outstanding prior to Spin-Off
Transaction.................... 168,975 $ 15.00-$74.00 $53.59
======== ============== ======
Company Options:
Outstanding subsequent to Spin-
Off
Transaction and related sub-
stitution.................... 190,574 $ 1.00-$22.00 $13.20
Options granted............... 81,826 $ 35.00-$47.00 $37.53
-------- -------------- ------
Outstanding at December 31,
1997........................... 272,400 $ 1.00-$47.00 $20.51
Options granted (unaudited)... 40,300 $47.00-$120.00 $95.97
Options cancelled (unau-
dited)....................... (12,300) $ 35.00-$47.00 $36.76
-------- -------------- ------
Outstanding at September 30,
1998 (unaudited)............... 300,400 $ 1.00-$120.00 $29.77
======== ============== ======
</TABLE>
F-15
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Exercise prices for options outstanding at September 30, 1998, are as
follows (unaudited):
<TABLE>
<CAPTION>
NUMBER OUTSTANDING WEIGHTED-AVERAGE WEIGHTED-
AS OF MARCH 31, REMAINING CONTRACTUAL AVERAGE
RANGE OF EXERCISE PRICES 1998 LIFE-YEARS EXERCISE PRICE
------------------------ ------------------ --------------------- --------------
<S> <C> <C> <C>
$1.00--$1.00 10,000 4.58 $ 1.00
$5.00--$7.00 40,500 4.58 $ 5.26
$10.00--$15.00 26,000 4.58 $ 12.87
$16.00--$22.00 114,074 7.12 $ 17.17
$35.00--$35.00 56,026 4.85 $ 35.00
$47.00--$53.50 27,700 4.59 $ 49.46
$120.00--$120.00 26,100 4.83 $120.00
---------------- ------- ---- -------
$1.00--$120.00 300,400 5.62 $ 29.77
================ ======= ==== =======
</TABLE>
As of September, 1998, 3,213 of the options that have been granted are
exercisable.
The Company has elected to account for stock and stock rights in accordance
with APB No. 25. SFAS No. 123, "Accounting for Stock Based Compensation,"
established an alternative method of expense recognition for stock-based
compensation awards to employees based on fair values. The Company has elected
not to adopt SFAS No. 123 for expense recognition purposes.
Pro forma information regarding net income is required by SFAS No. 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method prescribed by SFAS No. 123. The fair
values of options granted during the years ended December 31, 1995, 1996 and
the nine months ending September 30, 1997, were estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions: risk free interest rate of 6.5%; no dividend yield;
weighted-average expected lives of the option of five years, and expected
volatility of 50%. The fair values of options granted during the year ended
December 31, 1997, and the nine months ending September 30, 1998, were
estimated under the same method, with the following weighted-average
assumptions: risk free interest rate of 5.5%; no dividend yield; weighted-
average expected lives of the options of three years, and expected volatility
of 50%.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price
characteristics that are significantly different from those of traded options.
Because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
rights.
The weighted-average fair values of The Advisory Board Company original
options granted during the years ended December 31, 1995, 1996, from January 1
to the date of the Spin-Off, and during the nine months ending September 30,
1997, were $26.72, $34.11, $37.23, and $37.23 per share, respectively. The
weighted-average fair values of Company options granted from the date of the
Spin-Off to December 31, 1997, and the nine months ending September 30, 1998,
were $21.90 and $43.36, respectively. For purposes of pro forma disclosures,
the estimated fair value of options is amortized to expense over the estimated
service period. If the Company had used the fair value accounting provisions
of SFAS No. 123, the pro forma net loss for 1995 and 1996, would have been
approximately $9.9 million and $0.6 million, or $13.60 and $0.80 per share
(basic and diluted on a
F-16
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
historical basis), respectively. Pro forma net income for 1997 would have been
approximately $1.6 million or $2.20 per share (basic historical) and $1.88 per
share (diluted-historical). Pro forma net income for the nine months ending
September 30, 1997, would have been approximately $1.4 million, or $1.90 per
share (basic-historical) and $1.63 per share (diluted-historical). Pro forma
net income for the nine months ending September 30, 1998, would have been
approximately $4.1 million or $5.68 per share (basic-historical) and $4.32 per
share (diluted-historical). The provisions of SFAS No. 123 may not necessarily
be indicative of future results.
10. RECEIVABLE FROM STOCKHOLDER:
The Company holds a promissory note in the amount of $6.5 million from its
principal stockholder. The note bears interest at a rate of 7% payable
semiannually on each May 1 and November 1; the principal sum is due and
payable on October 31, 2007. The Company expects this note to be repaid using
proceeds from the initial public offering and, accordingly, has classified it
as current in the accompanying balance sheets.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of The Corporate Executive Board Company:
We have audited, in accordance with generally accepted auditing standards,
the financial statements of The Corporate Executive Board Company (formerly
The Corporate Advisory Board Company and a division of The Advisory Board
Company until October 31, 1997) included in this registration statement and
have issued our report thereon dated July 24, 1998. Our audits were made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The Schedule II--Valuation and Qualifying Accounts is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ Arthur Andersen LLP
Washington, D.C.
July 24, 1998
F-18
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(FORMERLY THE CORPORATE ADVISORY BOARD COMPANY)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END OF
OF YEAR EXPENSES ACCOUNTS RESERVE YEAR
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ending December 31,
1995
Allowance for
doubtful accounts.... $ 35 $ 322 $-- $263 $ 94
---- ------ ---- ---- ------
$ 35 $ 322 $-- $263 $ 94
==== ====== ==== ==== ======
Year ending December 31,
1996
Allowance for
doubtful accounts.... $ 94 $ 715 $-- $409 $ 400
---- ------ ---- ---- ------
$ 94 $ 715 $-- $409 $ 400
==== ====== ==== ==== ======
Year ending December 31,
1997
Allowance for
doubtful accounts.... $400 $1,180 $-- $580 $1,000
---- ------ ---- ---- ------
$400 $1,180 $-- $580 $1,000
==== ====== ==== ==== ======
</TABLE>
F-19
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE SE-
CURITIES TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAW-
FUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Certain Transactions Prior to the Offering............................... 13
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................ 20
Business................................................................. 26
Management............................................................... 38
Certain Relationships and Transactions................................... 48
Principal and Selling Stockholders....................................... 51
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 55
Certain United States Federal Income Tax Considerations for Non-United
States Holders.......................................................... 59
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 61
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1998 (25 days after the commencement of the Offering) all
dealers effecting transactions in the Common Stock, 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
THE CORPORATE EXECUTIVE BOARD COMPANY
COMMON STOCK
[LOGO]
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
GOLDMAN, SACHS & CO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 SEPTEMBER , 1998
PROSPECTUS
Shares
[LOGO]
The Corporate Executive Board Company
Common Stock
--------
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), of The Corporate Executive Board Company, a Delaware corporation (the
"Corporate Executive Board" or the "Company"), offered hereby are being offered
by the Selling Stockholders named herein under "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholders. See "Use of Proceeds."
Of the shares of Common Stock being offered hereby, a total of shares
are being offered hereby in an international offering outside the United States
and Canada (the "International Offering") by the managers named herein under
"Underwriting" (the "Managers") and a total of shares are being offered by
the underwriters of the U.S. Offering named herein under "Underwriting" (the
"U.S. Underwriters" and, together with the Managers, the "Underwriters") in a
concurrent offering in the United States and Canada (the "U.S. Offering" and,
together with the International Offering, the "Offering"). See "Underwriting."
Up to shares of Common Stock are being reserved for sale to certain
existing stockholders, other employees and directors of the Company, and their
family members at the initial offering price less underwriting discounts and
commissions. See "Underwriting."
There is currently no public market for the Common Stock. It is currently
estimated that the initial public offering price per share of Common Stock will
be between $ and $ . See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company
has applied for the listing of the Common Stock on the Nasdaq National Market
under the symbol "EXBD."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF MATERIAL RISKS
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>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND SELLING
TO PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
- ---------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ---------------------------------------------------
Total(3) $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the Managers, see
"Underwriting."
(2) The expenses of the Offering, other than Underwriting Discounts and
Commissions, estimated to be approximately $1.4 million, will be paid by
the Company.
(3) David G. Bradley, the sole beneficial owner of the Company's outstanding
stock (the "Principal Selling Stockholder") has granted the U.S.
Underwriters a 30-day option to purchase up to additional shares of
Common Stock solely to cover over-allotments, if any. See "Underwriting."
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Selling Stockholders
will be $ , $ , and $ respectively.
--------
The shares of Common Stock are being offered by the several Managers named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that the shares of Common Stock offered
hereby will be made available for delivery on or about , 1999, at the office
of Smith Barney Inc., 333 West 34th Street, New York, New York 10001, or
through the facilities of the Depository Trust Company.
--------
SALOMON SMITH BARNEY INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
GOLDMAN SACHS INTERNATIONAL
, 1998
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE SE-
CURITIES TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAW-
FUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Certain Transactions Prior to the Offering............................... 13
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................ 20
Business................................................................. 26
Management............................................................... 38
Certain Relationships and Transactions................................... 48
Principal and Selling Stockholders....................................... 51
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 55
Certain United States Federal Income Tax Considerations for Non-United
States Holders.......................................................... 59
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 61
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1998 (25 days after the commencement of the Offering) all
dealers effecting transactions in the Common Stock, 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
THE CORPORATE EXECUTIVE BOARD COMPANY
COMMON STOCK
[LOGO]
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
GOLDMAN SACHS INTERNATIONAL
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Offering (all of which will be
paid by the Company and will be treated as a distribution to the Principal
Selling Stockholder), are as follows:
<TABLE>
<CAPTION>
EXPENSES AMOUNT
-------- -------
<S> <C>
Securities and Exchange Commission registration fee.................. 57,525
NASD filing fee...................................................... 20,000
Nasdaq listing fees..................................................
Printing expenses....................................................
Accounting fees and expenses......................................... 300,000
Legal fees and expenses.............................................. 500,000
Blue Sky fees and expenses........................................... 5,000
Transfer agent's fees and expenses................................... 20,000
Miscellaneous........................................................
-------
Total..............................................................
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no cause to believe his or her conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that such person acted in any of the capacities
set forth above, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit if he or she acted under similar standards,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the court in which such action
or suit was brought shall determine that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to be indemnified for such expenses which the
court shall deem proper.
Section 145 of the Delaware General Corporation Law further provides that
(i) to the extent that a former or present director or officer of a
corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
or her in connection therewith; (ii) indemnification provided for by Section
145 shall not be deemed exclusive of any other rights to which the indemnified
party may be entitled; and (iii) the corporation may purchase and maintain
insurance on behalf of any present or former director, officer, employee or
agent of the corporation or any person who at the request of the corporation
was serving in such capacity for another entity against any liability asserted
II-1
<PAGE>
against such person and incurred by him or her in any such capacity or arising
out of his or her status as such, whether or not the corporation would have
the power to indemnify him or her against such liabilities under Section 145.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
the Company's Certificate of Incorporation provides that a director shall not
be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director. However, such provision does not eliminate or
limit the liability of a director for acts or omissions not in good faith or
for breaching his or her duty of loyalty, engaging in intentional misconduct
or knowingly violating a law, paying a dividend or approving a stock
repurchase which was illegal, or obtaining an improper personal benefit. In
addition, the Bylaws of the Company contain provisions indemnifying the
directors, officers, employees and agents of the Company to the fullest extent
permitted by the Delaware General Corporation Law. Any indemnification under
the Company's Bylaws is subject to a prior determination by a majority of the
directors of the Company who are not party to the underlying action that the
person seeking indemnification has met the applicable standard of conduct.
Under the provisions of the Company's Bylaws, expenses incurred by an
officer or director in defending a civil or criminal suit or proceeding shall
be paid by the Company in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
person seeking indemnification to repay such amounts if it is ultimately
determined that he or she is not entitled to be indemnified.
The Company may, to the fullest extent permitted by the Delaware General
Corporation Law, purchase and maintain insurance on behalf of any officer,
director, employee or agent against any liability which may be asserted
against such person.
The Company anticipates obtaining a policy of directors' and officers'
liability insurance prior to the closing of the Offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the three years preceding the offering contemplated hereby (the
"Offering"), the Registrant has not issued or sold securities that were not
registered under the Securities Act of 1933, except as follows:
(a) pursuant to the exercise of options under the Registrant's Stock-Based
Incentive Compensation Plan, which will be exercised after the registration
statement is declared effective, the Registrant will sell
shares of its Class B Non-Voting Common Stock to Jeffrey D. Zients for an
aggregate of $ ;
(b) pursuant to the exercise of options under the Registrant's Stock-Based
Incentive Compensation Plan, which will be exercised after the registration
statement is declared effective, the Registrant will sell
shares of its Class B Non-Voting Common Stock to Michael A. D'Amato for an
aggregate of $ ; and
(c) the Registrant has awarded to employees and directors options to
purchase shares of its Class B Non-Voting Common Stock, none of
which have become exercisable; except, after the exercise of the options
set forth in paragraphs (a) and (b) above, (i) options held by Mr. Zients
for shares of Class B Non-Voting Common Stock, exercisable in whole
or in part at $ per share ($ per share giving effect to the stock
split in the form of a dividend effected on , 1998 (the "Stock
Split")), and (ii) options held by Mr. D'Amato for shares of Class
B Non-Voting Common Stock, exercisable in whole or in part at $ per
share ($ per share giving effect to the Stock Split). See Note 9 of
Notes to Financial Statements.
The transactions set forth in paragraphs (a) and (b) above were undertaken
in reliance upon the exemptions from the registration requirements of the
Securities Act of 1933 afforded by Rule 701 promulgated thereunder, as
transactions pursuant to the compensatory benefit plans and contracts relating
to compensation. With respect to the transactions set forth in paragraph (c)
above, the options awarded were part of a compensatory arrangement and did not
constitute a "sale."
II-2
<PAGE>
On October 31, 1997, the Registrant issued and distributed to David G.
Bradley 726,000 shares of its Class B Non-Voting Common Stock and 1,000 shares
of its Class A Voting Common Stock, representing all of its issued and
outstanding shares of capital stock at such time. These shares were
distributed to Mr. Bradley as part of the spin-off of the Registrant from The
Advisory Board Company, which was at such time, and currently is, wholly owned
by Mr. Bradley. This transaction was not a "sale" because it fits within the
requirements set forth in Staff Legal Bulletin No. 4 (September 16, 1997).
Upon the transfer of shares of Class B Non-Voting Common Stock or Class A
Voting Common Stock to the Underwriters pursuant to the Offering, all shares
of capital stock of the Registrant automatically will be converted into shares
of Common Stock.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement.*
3.1 --Second Amended and Restated Certificate of Incorporation of the
Company.*
3.2 --Amended and Restated Bylaws of the Company.*
4.1 --Specimen Common Stock Certificate.*
5.1 --Opinion of Gibson, Dunn & Crutcher LLP.*
10.1 --Employment Agreement, dated , 1998, between the Company and
James J. McGonigle.*
10.2 --Employment Agreement, dated , 1998, between the Company and
Harold L. Siebert.*
10.3 --Employment Agreement, dated , 1998, between the Company and
Clay M. Whitson.
10.4 --Stock Option Agreement Pursuant to The Corporate Advisory Board
Company Stock-Based Incentive Compensation Plan, dated October
31, 1997, between the Company and James J. McGonigle, as amended
on .*
10.5 --Stock Option Agreement Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, effective as of
April 15, 1998, between the Company and Harold L. Siebert.*
10.6 --Stock Option Agreement Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, effective as of
the date of the Offering, between the Company and Harold L.
Siebert.*
10.7 --Stock Option Agreement Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, dated as of
November 1, 1998, between the Company and Clay M. Whitson.
10.8 --Stock Option Agreement #1 Pursuant to The Corporate Executive
Board Company Stock-Based Incentive Compensation Plan, effective
as of October 31, 1997, between the Company and Michael A.
D'Amato.*
10.9 --Stock Option Agreement #2 Pursuant to The Corporate Executive
Board Company Stock-Based Incentive Compensation Plan, effective
as of October 31, 1997, between the Company and Michael A.
D'Amato.*
10.10 --Stock Option Agreement #1 Pursuant to The Corporate Executive
Board Company Stock-Based Incentive Compensation Plan, effective
as of October 31, 1997, between the Company and Jeffrey D.
Zients.*
10.11 --Stock Option Agreement #2 Pursuant to The Corporate Executive
Board Company Stock-Based Incentive Compensation Plan, effective
as of October 31, 1997, between the Company and Jeffrey D.
Zients.*
10.12 --Stock Option Agreement Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, effective as of
June 1, 1998, between the Company and Sally Chang.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.13 --Stock Option Agreement Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, dated as of
, between the Company and Derek C. van Bever.*
10.14 --Form of Stock Option Agreement Pursuant to The Corporate Advisory
Board Company Stock-Based Incentive Compensation Plan, including
form of amendment.
10.15 --Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and
Work Product, dated , between the Company and James J.
McGonigle.*
10.16 --Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and
Work Product, dated , between the Company and Harold L.
Siebert.*
10.17 --Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and
Work Product, dated November 1, 1998, between the Company and
Clay M. Whitson.
10.18 --Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and
Work Product, dated October 30, 1997, between the Company and
Michael A. D'Amato.
10.19 --Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and
Work Product, dated October 30, 1997, between the Company and
Jeffrey D. Zients.
10.20 --Form of Agreement Concerning Exclusive Services, Confidential
Information, Business Opportunities, Non-Competition, Non-
Solicitation and Work Product.
10.21 --The Corporate Executive Board Company Stock-Based Incentive
Compensation Plan, adopted on October 31, 1997, as amended and
restated on , 1998.
10.22 --Directors' Stock Plan.
10.23 --1998 Stock Option Plan.
10.24 --Cross-Indemnification Agreement, dated as of , 1998 between
David G. Bradley and the Company.*
10.25 --Promissory Note, dated October 31, 1998, between David G. Bradley
and the Company.***
10.26 --Security Agreement, dated October 31, 1997, between the Principal
Selling Stockholder and the Company.****
10.27 --Letter Agreement, dated , 1998, between the Company and David
G. Bradley with respect to the repayment of $6.5 million
Promissory note.
10.28 --Administrative Services Agreement, dated as of October 31, 1997,
as amended and restated on July 21, 1998, between The Advisory
Board Company and the Company.
10.29 --Member Contracts Agreement, dated as of October 31, 1997, between
The Advisory Board Company and the Company.
10.30 --Vendor Contracts Agreement, dated as of October 31, 1997, as
amended and restated on July 21, 1998, between The Advisory Board
Company and the Company.
10.31 --Non-Competition Agreement, dated as of , 1998, among The
Advisory Board Company, the Company and David G. Bradley.*
10.32 --Sublease Agreement, dated as of October 31, 1997, as amended and
restated on July 21, 1998, between The Advisory Board and the
Company.
10.33 --Distribution Agreement, dated as of October 31, 1997, between the
Company and The Advisory Board Company.
10.34 --Agreement of Lease, dated June 23, 1998, between the Company and
The George Washington University.
10.35 --Registration Rights Agreement, dated , between the Company
and David G. Bradley.*
10.36 --License Agreement, dated , between the Company and The
Advisory Board Company.*
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
21.1 --List of Subsidiaries of the Registrant.**
23.1 --Consent of Gibson, Dunn & Crutcher LLP (included in its opinion filed as Exhibit 5.1).*
23.2 --Consent of Arthur Andersen LLP.
24.1 --Power of Attorney (included in the signature page in Part II of the initial filing of
Registration Statement).**
99.1 --Consent of Persons to Become Directors Pursuant to Rule 438.*
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
***Previously filed as Exhibit 10.8.
****Previously filed as Exhibit 10.9.
(B) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are either not required
under the related instructions or are inapplicable, and therefore have been
omitted, except for Schedule II--Valuation and Qualifying Accounts which is
provided on page F-21.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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
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 Act
and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) that for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by 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) that for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof; and
(3) 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.
II-5
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
DISTRICT OF COLUMBIA, ON DECEMBER 11, 1998.
The Corporate Executive Board
/s/ James J. McGonigle
By___________________________________
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive
______________________________________ Officer and Director
JAMES J. MCGONIGLE (Principal Executive
Officer)
/s/ Michael A. D'Amato Chief Financial Officer December 11, 1998
______________________________________ (Principal Financial and
MICHAEL A. D'AMATO Principle Accounting
Officer)
* Director
______________________________________
JEFFREY D. ZIENTS
* Director
______________________________________
HAROLD L. SIEBERT
* By: /s/ Michael A. D'Amato December 11, 1998
______________________________________
MICHAEL A. D'AMATO
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<S> <C>
1.1 --Form of Underwriting Agreement.*
3.1 --Second Amended and Restated Certificate of Incorporation of the
Company.*
3.2 --Amended and Restated Bylaws of the Company.*
4.1 --Specimen Common Stock Certificate.*
5.1 --Opinion of Gibson, Dunn & Crutcher LLP.*
10.1 --Employment Agreement, dated [ ], between the Company and James
J. McGonigle.*
10.2 --Employment Agreement, dated [ ], between the Company and Harold
L. Siebert.*
10.3 --Employment Agreement, dated [ ], 1998, between the Company and
Clay M. Whitson.
10.4 --Stock Option Agreement Pursuant to The Corporate Advisory Board
Company Stock-Based Incentive Compensation Plan, dated October 31,
1997, between the Company and James J. McGonigle, as amended on
[ ].*
10.5 --Stock Option Agreement Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, effective as of
April 15, 1998, between the Company and Harold L. Siebert.*
10.6 --Stock Option Agreement Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, effective as of
the date of the Offering, between the Company and Harold L.
Siebert.*
10.7 --Stock Option Agreement Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, dated as of
November 1, 1998, between the Company and Clay M. Whitson.
10.8 --Stock Option Agreement #1 Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, effective as of
October 31, 1997, between the Company and Michael A. D'Amato.*
10.9 --Stock Option Agreement #2 Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, effective as of
October 31, 1997, between the Company and Michael A. D'Amato.*
10.10 --Stock Option Agreement #1 Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, effective as of
October 31, 1997, between the Company and Jeffrey D. Zients.*
10.11 --Stock Option Agreement #2 Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, effective as of
October 31, 1997, between the Company and Jeffrey D. Zients.*
10.12 --Stock Option Agreement Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, effective as of
June 1, 1998, between the Company and Sally Chang.
10.13 --Stock Option Agreement Pursuant to The Corporate Executive Board
Company Stock-Based Incentive Compensation Plan, dated as of
[ ], between the Company and Derek C. van Bever.*
10.14 --Form of Stock Option Agreement Pursuant to The Corporate Advisory
Board Company Stock-Based Incentive Compensation Plan, including
form of amendment.
10.15 --Agreement Concerning Exclusive Services, Confidential Information,
Businesss Opportunities, Non-Competition, Non-Solicitation and Work
Product, dated [ ], between the Company and James J.
McGonigle.*
10.16 --Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and Work
Product, dated [ ], between the Company and Harold L. Siebert.*
10.17 --Agreement Concerning Exclusive Services, Confidential Information,
Buisness Opportunities, Non-Competition, Non-Solicitation and Work
Product, dated November 1, 1998, between the Company and Clay M.
Whitson.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.18 --Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and Work
Product, dated October 30, 1997, between the Company and Michael A.
D'Amato.
10.19 --Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and Work
Product, dated October 30, 1997, between the Company and Jeffrey D.
Zients.
10.20 --Form of Agreement Concerning Exclusive Services, Confidential
Information, Business Opportunities, Non-Competition, Non-
Solicitation and Work Product.
10.21 --The Corporate Executive Board Company Stock-Based Incentive
Compensation Plan, adopted on October 31, 1997, as amended and
restated on , 1998.
10.22 --Directors' Stock Plan.
10.23 --1998 Stock Option Plan.
10.24 --Cross-Indemnification Agreement, dated as of [ ], 1998, between
David G. Bradley and the Company.*
10.25 --Promissory Note, dated October 31, 1997, between the Principal
Selling Stockholder and the Company.***
10.26 --Security Agreement, dated October 31, 1997, between the Principal
Selling Stockholder and the Company.****
10.27 --Letter Agreement, dated [ ], 1998, between the Company and David
G. Bradley with respect to the repayment of $6.5 million Promissory
note.
10.28 --Administrative Services Agreement, dated as of October 31, 1997, as
amended and restated on July 21, 1998, between The Advisory Board
Company and the Company.
10.29 --Member Contracts Agreement, dated as of October 31, 1997, between
The Advisory Board Company and the Company.
10.30 --Vendor Contracts Agreement, dated as of October 31, 1997, as amended
and restated on July 21, 1998, between The Advisory Board Company
and the Company.
10.31 --Non-Competition Agreement, dated as of [ ], among The Advisory
Board Company, the Company and David G. Bradley.*
10.32 --Sublease Agreement, dated as of October 31, 1997, as amended and
restated on July 21, 1998, between The Advisory Board Company and
the Company.
10.33 --Distribution Agreement dated as of October 31, 1997, between the
Company and The Advisory Board Company.
10.34 --Agreement of Lease, dated June 23, 1998, between the Company and The
George Washington University.
10.35 --Registration Rights Agreement, dated [ ], between the Company
and David G. Bradley.*
10.36 --License Agreement, dated , between the Company and The Advisory
Board Company.*
21.1 --List of Subsidiaries of the Registrant.**
23.1 --Consent of Gibson, Dunn & Crutcher LLP (included in its opinion
filed as Exhibit 5.1).*
23.2 --Consent of Arthur Andersen LLP.
24.1 --Power of Attorney (included in the signature page in Part II of the
initial filing of Registration Statement).**
99.1 --Consent of Persons to Become Directors Pursuant to Rule 438.*
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
***Previously filed as Exhibit 10.8.
****Previously filed as Exhibit 10.9.
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective as of November 1, 1998 (the "Effective Date"), is
made and entered into by and between The Corporate Executive Board Company, a
Delaware corporation (hereinafter "the Company"), and Clay M. Whitson
(hereinafter the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company; and
WHEREAS, the Company and the Executive have agreed on the terms and
conditions of the Executive's employment with the Company; and
WHEREAS, the Company and the Executive desire to memorialize the terms and
conditions of the Executive's employment with company in a written and binding
contract.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, the adequacy of which is hereby
acknowledged, the parties agree as follows:
1. EMPLOYMENT
----------
The Company hereby agrees to employ the Executive as of the Effective
Date, on the terms and conditions stated herein, to perform and discharge such
services and duties as are reasonably required of the Chief Financial Officer of
the Company, and such other services and duties as he may be assigned from time
to time by the Company's Board of Directors and the Company's Chief Executive
Officer. The Executive agrees to accept such employment with the Company as of
the Effective Date on the terms and conditions stated herein, and to devote his
full and best efforts, energies and abilities to the Company on a full time
basis.
2. TERM
----
The term of this Agreement shall commence as of the Effective Date and
shall continue until this Agreement is terminated pursuant to Section 6 below.
The Executive may be terminated by the Company at will at any time. However, a
termination of the Executive shall be governed by the provisions of Section 6
below.
3. COMPENSATION
------------
A. SIGNING BONUS
-------------
The Company shall pay the Executive, on or prior to the Effective
Date, a signing bonus in the amount of One Hundred Thousand Dollars
($100,000.00), subject to the repayment provisions set forth in Section 6(c)
below.
<PAGE>
B. BASE SALARY
-----------
As compensation for services rendered by the Executive during his
employment under this Agreement, the Company shall, commencing with the
Effective Date, pay the Executive a base salary at the rate of Two Hundred Fifty
Thousand Dollars ($250,000.00) per annum. All salary payments hereunder shall
be payable in installments in accordance with the Company's policy governing
salary payments to executive employees generally. The Company shall review the
Executive's salary periodically, but not less frequently than on an annual
basis, and may, in its sole discretion, grant increases to the Executive's
salary rate.
C. STOCK OPTIONS
-------------
As additional compensation for services rendered by the Executive
during his employment under this Agreement, as of the Effective Date, the
Company shall grant the Executive the right and option to purchase shares of
Class B, $0.01 par value, Nonvoting Common Stock of the Company, equal to one
percent (1%) of the fully diluted equity of the Company, at the then prevailing
fair market value of the Company, subject to the terms and conditions Company's
Stock-Based Incentive Compensation Plan or such other Company stock option plan
as the Board of Directors of the Company may designate, and as set forth in the
Stock Option Agreement between the Company and the Executive (the "Option
Agreement"), and the Stockholders' Agreement between the Company and the
Executive (the "Stockholders' Agreement"). The Option Agreement and the
Stockholders' Agreement, which are hereby incorporated herein in their entirety
by this reference, shall be executed contemporaneously with this Agreement.
D. BENEFITS
--------
The Company shall provide the Executive with all of the standard
benefits it provides to other executive employees who are similarly situated, as
such benefits may be modified from time to time, including without limitation
vacation, holidays, sick leave, group health insurance, short term and long term
disability insurance, life insurance and participation in the 401(k) plan.
E. EXPENSES
--------
The Company shall reimburse the Executive for all reasonable and
necessary business expenses incurred by him in the performance of his duties
hereunder, in accordance with its policies, and provided they are vouchered in a
form satisfactory to the Internal Revenue Service and consistent with the
Company's policy for the deduction of such expenses.
4. COMPLIANCE WITH OTHER AGREEMENTS
--------------------------------
The Executive represents and warrants that his performance hereunder
shall not conflict with any other agreements to which he was or is a party. He
further represents and warrants that he will not use in his performance
hereunder any information, material or documents of a former employer which are
trade secrets or are otherwise confidential or
2
<PAGE>
proprietary to said employer, unless he has first obtained written authorization
from such former employer for their possession or use. The Executive agrees not
to enter into any agreement, either written or oral, which may conflict with
this Agreement, and he authorizes the Company to make known the terms of this
Agreement to any person or entity, including, but not limited to, members of the
Company and future employers of the Executive.
5. EXCLUSIVE SERVICES, CONFIDENTIAL INFORMATION, BUSINESS OPPORTUNITIES,
---------------------------------------------------------------------
NON-COMPETITION, NON-SOLICITATION AND WORK PRODUCT
--------------------------------------------------
Contemporaneous with their execution of this Agreement, the Executive
and the Company shall execute the Company's Agreement Concerning Exclusive
Services, Confidential Information, Business Opportunities, Non-Competition,
Non-Solicitation and Work Product ("Non-Competition Agreement"), which is hereby
incorporated herein in its entirety by this reference.
6. TERMINATION
-----------
A. BY THE COMPANY
--------------
(I) TERMINATION FOR CAUSE
---------------------
The Company may terminate the employment of the Executive
for Cause at any time upon three (3) months prior written notice to the
Executive. For purposes of this Agreement, "Cause" for termination shall mean
the commission of an act of fraud or theft against the Company; conviction for
any felony; conviction for any misdemeanor involving moral turpitude which
might, in the Company's opinion, cause embarrassment to the Company; significant
violation of any material Company policy; willful or repeated non-performance or
substandard performance of material duties which is not cured within thirty (30)
days after written notice thereof to the Executive; or violation of any material
District of Columbia, state or federal laws, rules or regulations in connection
with or during performance of the Executive's work which, if such violation is
curable, is not cured within thirty (30) days after notice thereof to the
Executive. In the event of a termination pursuant to this Section 6(a)(i), the
Company may at any time prior to the expiration of the notice period relieve the
Executive of his duties and pay him his salary in lieu of notice for the
remainder of such period. In the event of termination pursuant to this Section
6(a)(i), the Executive shall not be entitled to any further compensation or
benefits from the Company, except for such compensation or benefits which have
been earned prior to the date of termination pursuant to the express terms of
this Agreement or the Option Agreement .
(II) TERMINATION WITHOUT CAUSE
-------------------------
The Company may, in its sole discretion, without Cause or
without any other reason whatsoever, terminate the Executive's employment at any
time. A termination without Cause shall not include death or Disability (as
defined in Section 6(b) below) or a termination by the Executive under Section
6(c) below. In the event of a termination without Cause pursuant to this Section
6(a)(ii), (A) the Company shall pay the Executive an amount
3
<PAGE>
equal to one year's annual base salary of the Executive at the time of such
termination, and (B) the options granted to the Executive pursuant to Section
3(c) hereof shall vest and become exercisable immediately and such options shall
expire 90 days after such termination without Cause. The Executive shall not be
entitled to any further compensation or benefits from the Company, except for
such compensation or benefits which have been earned prior to the date of
termination pursuant to the express terms of this Agreement or the Option
Agreement.
B. DEATH OR DISABILITY
-------------------
The Executive's employment shall be terminated in the event of his
death or Disability. The term "Disability" shall mean a serious and permanent
medical incapacity or disability that precludes the Executive from performing
professional work. The Company, at its option and expense, shall be entitled to
retain a physician reasonably acceptable to the Executive to confirm the
existence of such incapacity or disability. In the event of death or Disability
as referred to in the Option Agreement, all options granted to the Executive
shall become fully vested as provided therein. In addition, in the event of
termination under this Section 6(b), neither the Executive nor his estate shall
be entitled to any compensation or benefits from the Company, except for such
compensation or benefits which have been earned prior to the date of termination
pursuant to the express terms of this Agreement or the Option Agreement.
C. BY THE EXECUTIVE
----------------
(I) TERMINATION NOT FOR GOOD REASON.
-------------------------------
The Executive may voluntarily terminate his employment other than for
Good Reason (as defined in Section 6(c)(ii) below) at any time upon three (3)
months prior written notice to the Company. A voluntary termination not for
Good Reason by the Executive shall not include a date on which the Executive
ceases to be employed by the Company due to death or Disability. Should the
Executive voluntarily terminate his employment not for Good Reason at any time
within two (2) years of the Effective Date, the Executive must repay the Company
within three (3) months of the Executive's termination such portion of the
signing bonus described in Section 3(a) above as is equal to the product of such
signing bonus multiplied by a fraction the numerator of which is the number of
days that remain in such two-year period after the Executive's termination and
the denominator of which is 730. In the event of such voluntary termination by
the Executive, the Company may at any time prior to the expiration of the notice
period relieve him of his duties and pay him his salary in lieu of notice for
the remainder of said notice period. In the event of termination pursuant to
this Section 6(c)(i), the Executive shall not be entitled to any compensation or
benefits from the Company, except for such compensation or benefits which have
been earned prior to the date of termination pursuant to the express terms of
this Agreement or the Option Agreement.
(II) TERMINATION FOR GOOD REASON.
---------------------------
The Executive may voluntarily terminate his employment for Good Reason
at any time upon three (3) months prior written notice to the Company. For
purposes of this Agreement, "Good Reason" shall exist if the Company (i) effects
a material adverse change
4
<PAGE>
to the employment responsibilities or authority of the Executive, (ii) effects a
reduction in the base salary of the Executive, (iii) relocates the Executive's
place of employment to a location that is more than thirty-five (35) miles from
the location of the Company's headquarters on the date of this Agreement, or
(iv) materially breaches this Agreement. A termination for Good Reason shall not
include death or Disability. In addition, if, as a result of one or more related
transactions, the majority of the capital stock of the Company or substantially
all of its assets are purchased by, or the Company is merged with, another
company, the Executive may terminate his employment for Good Reason, if, after
such transactions, there is a significant and material adverse change in the
Executive's responsibility for, and authority over, the same internal functions
of the Company's business as he had prior to such transactions. In the event of
a termination for Good Reason by the Executive pursuant to this Section
6(c)(ii), (A) the Company shall pay the Executive an amount equal to one year's
annual base salary of the Executive at the time of such termination, and (B) the
options granted to the Executive pursuant to Section 3(c) hereof shall vest and
become exercisable immediately and such options shall expire within 90 days of
such termination for Good Reason. The Executive shall not be entitled to any
further compensation or benefits from the Company, except for such compensation
or benefits which have been earned prior to the date of termination pursuant to
the express terms of this Agreement or the Option Agreement.
(III) TERMINATION FOR NON-OCCURRENCE OF INITIAL PUBLIC OFFERING
---------------------------------------------------------
OR APPROVED SALE.
----------------
In the event an Initial Public Offering or an Approved Sale of the
Company has not commenced within eighteen (18) months from the Effective Date,
the Executive may voluntarily terminate his employment with the Company within
thirty (30) days after the expiration of such eighteen (18)-month period and the
Company shall pay the Executive upon such termination, in lieu of any other
payments by, or obligations of, the Company to the Executive provided for by
this Agreement and any other compensation or stock option agreement between the
Company and the Executive (other than any Base Salary earned by the Executive
through the date of such termination), an amount equal to the greater of (I)
$250,000 or (II) an amount equal to the value of one-third (1/3) of the options
granted to the Executive under Section 3(c) hereof calculated on the basis of
the then prevailing fair market value of the Company at the time of termination.
For purposes of this Agreement: (x) a termination pursuant to this Section
6(c)(iii) shall not obligate the Executive to repay his signing bonus as
provided in Section 6(c)(i) above; (y) the term "Initial Public Offering" shall
mean the effectiveness of a registration statement under the Securities Act of
1933 covering any of the capital stock, and the completion of a sale of such
stock thereunder, if as a result of such sale (i) the Company becomes a
reporting company under Section 12(b) or 12(g) of the Securities Exchange Act of
1934, and (ii) the capital stock is traded on the New York Stock Exchange or the
American Stock Exchange, or quoted on the NASDAQ National Market System; and (z)
the term "Approved Sale" shall mean a transaction or a series of related sale
transactions that result in a bona fide unaffiliated change of economic
---- ----
beneficial ownership of the Company (disregarding for this purpose any disparate
voting rights attributable to the outstanding stock of the Company) whether
pursuant to the sale of the stock of the Company, the sale of the assets of the
Company, or a merger or consolidation
5
<PAGE>
involving the Company (however, an Approved Sale shall not include (A) an
issuance by the Company of its own stock, or (B) a gift of the stock of the
Company).
7. ARBITRATION
-----------
The parties shall endeavor to settle all disputes by amicable
negotiations. Subject to Section 7(f) hereof, any claim, dispute, disagreement
or controversy that arises among the parties relating to this Employment
Agreement that is not amicably settled shall be resolved by arbitration, as
follows:
(a) Any such arbitration shall be heard in the District of Columbia,
before a panel consisting of one (1) to three (3) arbitrators, each of whom
shall be impartial. Except as the parties may otherwise agree, all arbitrators
shall be appointed in the first instance by the appropriate official in the
District of Columbia office of the American Arbitration Association or, in the
event of his or her unavailability by reason of disqualification or otherwise,
by the appropriate official in the New York City office of the American
Arbitration Association. In determining the number and appropriate background
of the arbitrators, the appointing authority shall give due consideration to the
issues to be resolved, but his or her decision as to the number of arbitrators
and their identity shall be final. Except as otherwise provided in this Section
7, all of the arbitration proceedings shall be conducted in accordance with the
rules of the arbitrators.
(b) An arbitration may be commenced by any party to this Agreement by
the service of a written request for arbitration upon the other affected
parties. Such request for arbitration shall summarize the controversy or claim
to be arbitrated, and shall be referred by the complaining party to the
appointing authority for appointment of arbitrators ten (10) days following such
service or thereafter. If the panel of arbitrators is not appointed by the
appointing authority within thirty (30) days following such reference, any party
may apply to any court within the District of Columbia for an order appointing
arbitrators qualified as set forth below.
(c) All attorneys' fees and costs of the arbitration shall in the
first instance be borne by the respective party incurring such costs and fees,
but the arbitrators shall have the discretion to award costs and/or attorneys'
fees as they deem appropriate under the circumstances. The parties hereby
expressly waive punitive damages, and under no circumstances shall an award
contain any amount that in any way reflects punitive damages.
(d) Judgment on the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
(e) It is intended that controversies or claims submitted to
arbitration under this Section 7 shall remain confidential, and to that end it
is agreed by the parties that neither the facts disclosed in the arbitration,
the issues arbitrated, nor the views or opinions of any persons concerning them,
shall be disclosed to third persons at any time, except to the extent necessary
to enforce an award or judgment or as required by law or in response to legal
process or in connection with such arbitration.
6
<PAGE>
(f) Notwithstanding anything to the contrary contained in this
Agreement, the Company shall be entitled to initiate at any time legal action in
a court of competent jurisdiction for the purpose of seeking and obtaining the
issuance of a temporary restraining order, preliminary injunction and/or other
similar relief restraining the Executive from committing or continuing to
commit any breach of the Non-Competition Agreement pending final resolution of
the arbitration proceeding. In the event the Company prevails in such
arbitration proceeding, in addition to any other remedies granted to the Company
pursuant to such proceeding, the Company shall be entitled to seek and obtain a
permanent injunction and/or other similar relief restraining the Executive from
committing or continuing to commit any breach of the Non-Competition Agreement.
8. NON-WAIVER
----------
It is understood and agreed that one party's failure at any time to
require the performance by the other party of any of the terms, provisions,
covenants or conditions hereof shall in no way affect the first party's right
thereafter to enforce the same, nor shall the waiver by either party of the
breach of any term, provision, covenant or condition hereof be taken or held to
be a waiver of any succeeding breach.
9. SEVERABILITY
------------
In the event that any provision of this Agreement conflicts with the
law under which this Agreement is to be construed, or if any such provision is
held invalid or unenforceable by a court of competent jurisdiction or any
arbitrator, such provision shall be deleted from this Agreement and this
Agreement shall be construed to give full effect to the remaining provisions
thereof.
10. GOVERNING LAW
-------------
This Agreement shall be interpreted, construed and governed according
to the laws of the District of Columbia, without regard to the principle of
conflicts of laws thereof.
11. HEADINGS AND CAPTIONS
---------------------
The paragraph headings and captions contained in this Agreement are
for convenience only and shall not be construed to define, limit or affect the
scope or meaning of the provisions hereof.
7
<PAGE>
12. SURVIVAL
--------
The provisions of the Non-Competition Agreement, the Option Agreement
and the Stockholders' Agreement (and any agreements incorporated therein by
reference) shall survive the termination and/or expiration of this Agreement.
13. ENTIRE AGREEMENT
----------------
This Agreement, including the agreements expressly incorporated by
reference herein pursuant to Sections 3(c) and 5 above (and any agreements
incorporated therein by reference), contains and represents the entire agreement
of the parties and supersedes all prior agreements, representations or
understandings, oral or written, express or implied with respect to
the subject matter hereof. This Agreement may not be modified or amended in any
way unless in a writing signed by both the Executive and the Company.
14. ASSIGNABILITY
-------------
Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the other.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their heirs, successors and assigns.
15. NOTICES
-------
All notices required or permitted hereunder shall be in writing and
shall be deemed properly given if delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, or sent by telegram,
telex, telecopy or similar form of telecommunication, and shall be deemed to
have been given when received. Any such notice or communication shall be
addressed: (a) if to The Company, to Chief Executive Officer, The Corporate
Executive Board Company, The Watergate, 600 New Hampshire Avenue, N.W.,
Washington, D.C. 20037; or (b) if to the Executive, to his last known home
address on file with the Company; or to such other address as the parties shall
have furnished to one another in writing.
16. COUNTERPARTS
------------
This Agreement may be executed in two or more counterparts all of
which shall have the same force and effect as if all parties hereto had executed
a single copy of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
THE CORPORATE EXECUTIVE BOARD COMPANY
____________________________ By: _______________________________
Clay M. Whitson Name: Michael A. D'Amato
Title: Executive Vice President
9
<PAGE>
Exhibit 10.7
STOCK OPTION AGREEMENT
PURSUANT TO
THE CORPORATE EXECUTIVE BOARD COMPANY
STOCK-BASED INCENTIVE COMPENSATION PLAN
THIS STOCK OPTION AGREEMENT (this "Option Agreement") is made as of
November 1, 1998 (the "Effective Date"), between The Corporate Executive Board
Company, a Delaware corporation (the "Company"), and Clay M. Whitson (the
"Optionee"), granting to the Optionee Options to purchase 10,000 Option Shares
at a purchase price of $245 per Option Share, as further described in Section 2
hereinbelow.
R E C I T A L S
- - - - - - - -
A. The Company adopted as of October 31, 1997 the Stock-Based Incentive
Compensation Plan (the "Plan"), a copy which is attached hereto as Exhibit "A".
B. In accordance with the Plan, the Committee is granting to the Optionee,
as of the Effective Date, Options to purchase shares of Stock (as hereinafter
defined), subject to the terms and conditions of the Plan and this Option
Agreement.
C. The Optionee acknowledges that he is or will be an employee of the
Company with substantial knowledge concerning the performance, operations and
future opportunities relating to the Company. The Optionee further acknowledges
that he or she has been briefed on the past and potential future performance of
the Company by Michael D'Amato and/or other senior executives of the Company,
and that the Optionee had the opportunity to ask Michael D'Amato and/or other
senior executives of the Company whatever questions the Optionee desired
concerning the financial and operational performance and expectations of the
Company. Finally, the Optionee acknowledges that all future operating results
are impossible to predict and that no representation is being made by the
Company with respect to the accuracy or completeness of any forecast regarding
the future.
D. The Optionee acknowledges and agrees that, as of the Effective Date,
(i) the Company will be an S Corporation as defined in Section 1361 of the
Internal Revenue Code of 1986, as amended, and (ii) that the capitalization of
the Company will be as described below:
(1) 1,000 authorized shares of Class A Common Stock, par value $0.01
per share, of which 1,000 shares are issued to David G. Bradley;
(2) 1,399,000 authorized shares of Class B Nonvoting Common Stock
(the "Stock"), par value $0.01 per share, of which 653,300 shares
are issued to David G. Bradley and 72,700 shares are issued to
The David G. Bradley GRAT Trust Number 1;
<PAGE>
(3) The maximum number of shares of Stock that may be subject to
Options granted pursuant to the Plan is 400,000.
Changes in the above capitalization (including increases or decreases in the
number of authorized shares of capital stock) and available options with respect
to the Company's capital stock may be made in the future. To the extent
applicable, Sections 8 and 9 of this Option Agreement may apply to further
adjustments to the above capitalization.
AGREEMENTS
----------
1. DEFINITIONS. Capitalized terms used herein shall have the following
-----------
meanings:
"Act" is defined in Section 6(a).
"Agreement Not to Compete" is the Agreement Concerning Exclusive Services,
Confidential Information, Business Opportunities, Non-Competition, Non-
Solicitation, and Work Product between the Optionee and the Company.
"Approved Sale" means a transaction or a series of related sale
transactions that result in a bona fide unaffiliated change of economic
---- ----
beneficial ownership of the Company (disregarding for this purpose any disparate
voting rights attributable to the outstanding stock of the Company) whether
pursuant to the sale of the stock of the Company, the sale of the assets of the
Company, or a merger or consolidation involving the Company. However, an
Approved Sale shall not include (i) an issuance by the Company of its own Stock,
or (ii) a gift of the stock of the Company.
"Cash Shortage" is the condition that exists when, in the judgment of the
Company, the Company's cash reserves may prove insufficient to (i) cover the
Company's working capital and other obligations as they come due, including
obligations pursuant to any stock option agreement, stockholders' agreement,
agreement not to compete, substitution agreement or liquid markets agreement
entered into by the Company and any other obligation of the Company to its
employees; (ii) maintain sufficient cash reserves to pay unforeseeable costs
that may arise; and at the same time (iii) make payments to Optionee pursuant to
this Option Agreement.
"Cause" for termination is the commission of an act of fraud or theft
against the Company; conviction for any felony; conviction for any misdemeanor
involving moral turpitude which might, in the Company's opinion, cause
embarrassment to the Company; significant violation of any material Company
policy; willful or repeated non-performance or substandard performance of
material duties which is not cured within thirty (30) days after written notice
thereof to the Optionee; or violation of any material District of Columbia,
state or federal laws, rules or regulations in connection with or during
performance of the Optionee's work which, if such violation is curable, is not
cured within thirty (30) days after notice thereof to the Optionee.
"Chairman of the Board" means the Chairman of the Board of Directors of the
Company.
"Committee" is defined in the Plan.
2
<PAGE>
"Company" is defined in the preamble.
"Disability" shall mean a serious and permanent medical incapacity or
disability that precludes the Optionee from performing professional work. The
Company, at its option and expense, shall be entitled to retain a physician
reasonably acceptable to the Optionee to confirm the existence of such
incapacity or disability. The Chairman of the Board reserves the right to
define Disability in a more liberal manner.
"Distribution" means distributions to Stockholders with respect to the
capital stock of the Company in the form of dividends, redemption payments,
liquidation payments, or other similar payment types.
"Effective Date" is defined in the preamble.
"Employment Agreement" means the Employment Agreement between the Optionee
and the Company.
"Exercisability Date" is defined in Section 3.
"Exercise Date" is defined in Section 5(a).
"Exercise Price" is defined in Section 2.
"Expiration Date" is defined in Section 4(a).
"Expiration Event" is defined in Section 4.
"Fair Market Value" means the fair market value determined by an investment
bank selected by the Company, in its sole and absolute discretion. The
investment bank shall use customary criteria generally employed within the
investment banking community for valuing the assets or capital stock of an
entity similar to the Company. With respect to the Options and the Option
Shares, Fair Market Value will be determined by applying such minority,
liquidity, or other discounts as may be applicable to minority shares of capital
stock of this type.
"Fiscal Year" means the Company's fiscal year ending March 31 of each year
or such other date as shall be designated by the Company in its sole and
absolute discretion.
"Full Recourse" means the right of the Company to recover against all of
the assets of the Optionee in the event of a default by the Optionee with
respect to the Note.
"Initial Public Offering" means the effectiveness of a registration
statement under the Act covering any of the capital stock of the Company and the
completion of a sale of such stock thereunder, if as a result of such sale (i)
the issuer becomes a reporting company under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and (ii) such stock is traded on
the New York Stock Exchange or the American Stock Exchange, or is quoted on the
NASDAQ National Market System.
3
<PAGE>
"Majority Shareholder" means a holder of more than fifty percent (50%) of
the outstanding stock of the Company, or if no person holds more than fifty
percent (50%) of the outstanding stock of the Company, the holder of a plurality
of the outstanding stock of the Company.
"Market Rate" is a floating rate equal to the Prime Rate as quoted in The
Wall Street Journal and as adjusted from time to time but not to exceed 10% per
annum.
"Net Proceeds" is defined in Section 3(b)(ii).
"Note" is defined in Section 5(a)(iii).
"Option" or "Options" is defined in Section 2.
"Option Agreement" is defined in the preamble.
"Option Number" is defined in Section 2.
"Optionee" is defined in the preamble.
"Option Shares" means Stock subject to the Option.
"Plan" is defined in Recital A.
"Redemption Date" is defined in Section 10(a).
"Redemption Payment" is defined in Section 10(a).
"Redemption Payment Period" is defined in Section 10(a).
"Stock" is defined in Recital D.
"Stockholder" means a record holder of one or more shares of capital stock
of the Company.
"Stockholders' Agreement" means the Stockholders' Agreement of the Company,
setting forth, inter alia, certain rights, preferences and privileges of and
----------
restrictions on the Option Shares. The Optionee must execute a copy of the
Stockholders' Agreement prior to receiving his or her Option Shares pursuant to
the exercise of the Option.
"Termination Date" means the date on which the Optionee ceases to be
employed by the Company for any reason other than (i) for Cause, (ii) for death
or a Disability, or (iii) upon a Voluntary Resignation Date. A Termination Date
shall also exist if the Optionee voluntarily ceases his employment with the
Company as a result of the Company (i) effecting a material adverse change to
the employment responsibilities or authority of the Optionee, (ii) effecting a
reduction in the base salary of the Optionee, (iii) relocating the Optionee's
place of employment to a location that is more than thirty-five (35) miles from
the location of the Company's
4
<PAGE>
headquarters on the date of the Employment Agreement, or (iv) materially
breaching the Employment Agreement. In addition, if, as a result of one or more
related transactions, the majority of the capital stock of the Company or
substantially all of its assets are purchased by, or the Company is merged with,
another company, and the Optionee voluntarily ceases his employment with the
Company, a Termination Date shall be deemed to have occurred, if, after such
transactions, there is a significant and material adverse change in the
Optionee's responsibility for, and authority over, the same internal functions
of the Company's business as he had prior to such transactions.
"Undistributed Earnings" means, on any given date, the greater of (but not
less than zero): (i) the retained earnings (or similar entry) shown on the
audited financial statements of the Company for the prior Fiscal Year plus an
estimate by the Company of additions to or subtractions from such retained
earnings through such date of computation, and (ii) the "accumulated adjustments
account" (or similar computation) of the Company for the prior taxable year of
the Company pursuant to Section 1368(e) of the Internal Revenue Code of 1986, as
amended, plus an estimate by the Company of additions to or subtractions from
this account through such date of computation.
"Voluntary Notice Date" means the date the Optionee gives notice of his or
her Voluntary Resignation Date.
"Voluntary Resignation Date" means the date on which the Optionee ceases
employment with the Company for voluntary reasons. Voluntary Resignation Date
shall not include a Termination Date or the date on which the Optionee ceases to
be employed by the Company due to death or a Disability.
"Withholding Taxes" is defined in Section 11.
2. GRANT OF OPTION. The Company grants to the Optionee the right and
---------------
option (the "Option" or "Options") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate number of Option Shares
as described in the preamble (the outstanding amount of such unexercised and
unexpired Options herein referred to as the "Option Number"), at the purchase
price per Option Share as described in the preamble (as such amount may be
adjusted as herein provided, the "Exercise Price"), on the terms and conditions
set forth herein. These Options shall be treated as non-qualified stock
options.
3. EXERCISABILITY.
--------------
(A) EXERCISABILITY DATE. Prior to an Initial Public Offering, the Options
-------------------
shall be exercisable during the month of July beginning on July 1, 2002 (the
"Exercisability Date") and during every month of October, January, April and
July thereafter, or at such other times after the Exercisability Date and prior
to an Initial Public Offering as determined by the Company in its sole and
absolute discretion. Prior to an Initial Public Offering and notwithstanding
the foregoing, if an investment bank is performing, or has performed,
substantial services for the Company to examine, investigate, and analyze the
possibility, feasibility, or viability of an Initial Public Offering within six
(6) months of a month during which the Options would otherwise
5
<PAGE>
become exercisable pursuant to this Section 3(a), the Chairman of the Board may,
in his sole and absolute discretion, make a determination that such Options
shall not be exercisable for such month and may designate some other month
(including the following month of January, April, July, or October, as
appropriate) for the exercise of the Options; provided, however, the Chairman of
the Board may not designate some other month for the exercise of the Options
pursuant to this Section 3(a) any later than the month of April beginning on
July 1, 2003.
(B) OTHER EXERCISABLE EVENTS. Notwithstanding anything to the contrary in
------------------------
Section 3(a) above, the Options shall be exercisable upon the occurrence of any
of the following events prior to, on, or after, the Exercisability Date:
(i) Approved Sale of Stock. Prior to an Initial Public Offering,
----------------------
in the event of an Approved Sale by the Majority Shareholder of one hundred
percent (100%) of the Company's outstanding Stock held by such Majority
Shareholder, the Options shall be exercisable on the date of such Approved
Sale. However, if the Majority Shareholder sells less than one hundred
percent (100%) of the Company's outstanding Stock held by such Majority
Shareholder pursuant to an Approved Sale, the Optionee shall only be
entitled to exercise the Options with respect to a number of Option Shares
equal to the Option Number immediately prior to such Approved Sale
multiplied by the fraction equal to the number of shares of the Company's
outstanding Stock sold pursuant to the Approved Sale by such Majority
Shareholder divided by the total number of shares of the Company's
outstanding Stock held by such Majority Shareholder immediately prior to
such Approved Sale.
(ii) Approved Sale of Assets. Prior to an Initial Public Offering,
-----------------------
in the event of a Distribution by the Company that is funded with one
hundred percent (100%) of the proceeds, after payment of related expenses
(the "Net Proceeds") from an Approved Sale of one hundred percent (100%) of
the Company's assets, the Options shall be exercisable on the date of such
Distribution. For purposes of this Section 3(b)(ii), a Distribution made
by the Company shall not be treated as a Distribution funded with the Net
Proceeds from an Approved Sale of the Company's assets to the extent of the
Company's Undistributed Earnings as of the Distribution date. However, if
less than one hundred percent (100%) of the Net Proceeds from an Approved
Sale of one hundred percent (100%) of the Company's assets is so
distributed, the Optionee shall only be entitled on the date of the
Distribution to exercise Options with respect to a number of Option Shares
equal to the Option Number immediately prior to such Distribution
multiplied by the percentage of the Net Proceeds from such Approved Sale
that is so distributed by the Company. If less than one hundred percent
(100%) of the Company's assets is sold pursuant to an Approved Sale and all
or some portion of the Net Proceeds from such Approved Sale is so
distributed, the Optionee shall be entitled on the date of Distribution to
exercise Options with respect to a number of Option Shares equal to the
Option Number immediately prior to such Distribution multiplied by the
product of (A) the percentage, based on Fair Market Value, of the Company's
assets sold pursuant to such Approved Sale, and (B) the percentage of the
Net Proceeds from such Approved Sale that is so distributed by the Company.
6
<PAGE>
(iii) Initial Public Offering. In the event of an Initial Public
-----------------------
Offering of the Company's Stock, the Options shall be exercisable as
follows:
(A) as of the date one (1) year after the Initial Public
Offering or such earlier date(s) as the Chairman of the Board shall
designate in his sole and absolute discretion, one third (1/3) of the
Option Number as of the date of the Initial Public Offering;
(B) as of the date two (2) years after the Initial Public
Offering or such earlier date(s) as the Chairman of the Board shall
designate in his sole and absolute discretion, one third (1/3) of the
Option Number as of the date of the Initial Public Offering; and
(C) as of the date three (3) years after the Initial Public
Offering or such earlier date(s) as the Chairman of the Board shall
designate in his sole and absolute discretion, one third (1/3) of the
Option Number as of the date of the Initial Public Offering.
(iv) Termination Date. As of a Termination Date, the Options shall
----------------
be immediately exercisable.
(C) DETERMINATION OF EXERCISABLE OPTIONS. The good faith determination by
------------------------------------
the Company of the number of Options that may be exercisable by the Optionee
pursuant to Sections 3(b)(i), (ii) and (iii) above shall be binding upon the
Optionee.
4. EXPIRATION. The number of Option Shares that the Optionee is entitled
----------
to purchase pursuant to the Options shall be decreased by the number of Option
Shares purchased by the Optionee on any given date. In addition, as described
below, some or all of the Options shall expire and shall no longer be
exercisable, at the end of the day upon which ANY of the following events occurs
---
(each an "Expiration Event"):
(A) EXPIRATION DATE. Upon July 31, 2003 (the "Expiration Date"), the
---------------
Options shall expire. Notwithstanding the foregoing, in the event of an Initial
Public Offering prior to Expiration Date, the Options shall expire the later of
five (5) years and thirty (30) days after the Initial Public Offering or the
Expiration Date.
(B) TERMINATION WITH CAUSE OR VOLUNTARY RESIGNATION. Prior to an Initial
-----------------------------------------------
Public Offering, the Options shall all expire as of (i) the date the Optionee
ceases to be employed by the Company for Cause or (ii) a Voluntary Resignation
Date.
(C) TERMINATION DATE. As of the date ninety (90) days after a Termination
----------------
Date, the Options shall all expire.
(D) APPROVED SALE OF STOCK. Prior to an Initial Public Offering, the
----------------------
Options shall all expire upon an Approved Sale by the Majority Shareholder of
one hundred percent (100%) of the Company's outstanding stock held by such
Majority Shareholder. However, if the Majority
7
<PAGE>
Shareholder sells less than one hundred percent (100%) of the Company's
outstanding stock held by such Majority Shareholder pursuant to an Approved
Sale, the number of Options that shall expire shall be equal to the amount by
which the Option Number immediately prior to such Approved Sale multiplied by
the fraction equal to the number of shares of the Company's outstanding Stock
sold pursuant to the Approved Sale by such Majority Shareholder divided by the
total number of shares of the Company's outstanding Stock held by such Majority
Shareholder immediately prior to such Approved Sale exceeds the number of Option
Shares purchased by the Optionee on the date of such Approved Sale.
(E) APPROVED SALE OF ASSETS. Prior to an Initial Public Offering, the
-----------------------
Options shall all expire upon a Distribution by the Company that is funded with
one hundred percent (100%) of the Net Proceeds from an Approved Sale of one
hundred percent (100%) of the Company's assets. For purposes of this Section
4(e), a Distribution made by the Company shall not be treated as a Distribution
funded with the Net Proceeds from an Approved Sale of the Company's assets to
the extent of the Company's Undistributed Earnings as of the date of the
Distribution. However, if less than one hundred percent (100%) of the Net
Proceeds from an Approved Sale of one hundred percent (100%) of the Company's
assets is so distributed, the number of Options that shall expire shall be equal
to the amount by which the Option Number immediately prior to such Distribution
multiplied by the percentage of the Net Proceeds from such Approved Sale that is
so distributed by the Company exceeds the number of Option Shares purchased by
the Optionee on the date of such Distribution. If less than one hundred percent
(100%) of the Company's assets is sold pursuant to an Approved Sale and all or
some portion of the Net Proceeds from such Approved Sale is so distributed, the
number of Options that shall expire shall be equal to the amount by which the
Option Number immediately prior to such Distribution multiplied by the product
of (i) the percentage, based on Fair Market Value, of the Company's assets sold
pursuant to such Approved Sale, and (ii) the percentage of the Net Proceeds from
such Approved Sale that is so distributed by the Company, exceeds the number of
Option Shares purchased by the Optionee on the date of such Distribution.
(F) INITIAL PUBLIC OFFERING. In the event of an Initial Public Offering,
-----------------------
(i) the Options shall all expire as of the date on which the Optionee ceases to
be employed by the Company for Cause; and (ii) upon a Voluntary Resignation
Date, (A) any portion of the Option that is unexercisable as of the Voluntary
Resignation Date shall remain unexercisable and shall terminate as of such date,
and (B) any portion of the Option that is exercisable as of the Voluntary
Resignation Date shall expire the earlier of thirty (30) days after such date
and the date provided in Section 4(a) above.
5. EXERCISE OF THE OPTION.
----------------------
(a) Prior to the expiration thereof, the Optionee may exercise the Options
from time to time in whole or in part as permitted hereunder (the "Exercise
Date"). On the Exercise Date, the Optionee shall deliver to the Chairman of the
Board the following:
(i) A copy of the Stockholders' Agreement duly executed by the
Optionee;
8
<PAGE>
(ii) A written and signed notice of such election setting forth the
number of Option Shares the Optionee has elected to purchase;
(iii) Payment in full of the aggregate Exercise Price of such Option
Shares in one or a combination of the following: (A) cash or a cashier's or
certified bank check payable to the order of the Company, or (B) a Full
Recourse promissory note, in a form determined by the Company in its sole
and absolute discretion (the "Note"), secured by the number of Option
Shares the Optionee has elected to purchase, bearing a Market Rate of
interest, and due and payable the earlier of the date the Optionee disposes
of all or a portion of his or her Stock securing the Note, or the date six
(6) months after the Exercise Date or such later date as the Company
determines in its sole and absolute discretion; and
(iv) The amount, if any, required pursuant to Section 11 hereof.
(b) Notwithstanding anything in Section 5(a) to the contrary, the Committee
may, in its sole and absolute discretion, permit payment of the Exercise Price
in such form or in such manner as may be otherwise permissible under the Plan
and under any applicable law.
(c) If the Optionee provides payment as provided in Section 5(a)(iii)(B)
above, the Optionee agrees to execute and deliver such other documents as may be
reasonably required by the Company to effectuate and secure the Note. If a
Voluntary Notice Date occurs less than three (3) months prior to a Voluntary
Resignation Date, the Note, together with any accrued interest thereon, shall be
immediately payable upon the earlier of the due date of the Note or the
Voluntary Resignation Date.
6. COMPLIANCE WITH LEGAL REQUIREMENTS.
----------------------------------
(a) No Option Shares shall be issued or transferred pursuant to this Option
Agreement unless and until all legal requirements applicable to such issuance or
transfer have, in the opinion of counsel to the Company, been satisfied. Such
requirements may include, but are not limited to, registering or qualifying such
Option Shares under any state or federal law, satisfying any applicable law
relating to the transfer of unregistered securities or demonstrating the
availability of an exemption from applicable laws, placing a legend on the
Option Shares to the effect that they were issued in reliance upon an exemption
from registration under the Securities Act of 1933, as amended (the "Act"), and
may not be transferred other than in reliance upon Rule 144 or Rule 701
promulgated under the Act, if available, or upon another exemption from the Act,
or obtaining the consent or approval of any governmental regulatory body.
(b) The Optionee understands that the Company intends for the offering and
sale of Option Shares to be effected in reliance upon Rule 701 or another
available exemption from registration under the Act and intends to file a Form
701 as appropriate, and that the Company is under no obligation to register for
resale the Option Shares issued upon exercise of the Option, subject to the
Stockholders' Agreement. In connection with any such issuance or transfer, the
person acquiring the Option Shares shall, if requested by the Company, provide
information and assurances satisfactory to counsel to the Company with respect
to such matters as the Company reasonably may deem desirable to assure
compliance with all applicable legal requirements.
9
<PAGE>
(c) The Option Shares issued pursuant to this Option Agreement may bear
such legends with respect to their transferability that the Committee may deem
appropriate.
7. NONTRANSFERABILITY. Subject to Sections 8 and 10 hereof, the Option
------------------
shall not be transferable by the Optionee except, after the Optionee's death, to
his or her spouse, child, estate, personal representative, heir or successor.
More particularly (but without limiting the generality of the foregoing), the
Option may not be assigned, transferred (except as aforesaid), pledged or
hypothecated in any way (whether by operation of law or otherwise), and shall
not be subject to execution, attachment or similar process. Any assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof, and the levy of any attachment or similar process upon
the Option that would otherwise effect a change in the ownership of the Option,
shall terminate the Option; provided, however, that in the case of the
involuntary levy of any attachment or similar involuntary process upon the
Option, the Optionee shall have thirty (30) days after notice thereof to cure
such levy or process before the Option terminates. This Option Agreement shall
be binding on and enforceable against any person who is a permitted transferee
of the Option pursuant to the first sentence of this Section.
8. EFFECT OF MERGER; ADJUSTMENTS.
-----------------------------
(a) In the event of an Approved Sale that is a merger or other form of
corporate reorganization and notwithstanding any other provisions of this Option
Agreement, the unexercised portion of the Option shall be subject to the terms
of the agreement or plan of merger or reorganization effecting such merger or
reorganization and shall be converted, redeemed, exchanged, canceled or
otherwise treated as provided in such agreement or plan of merger or
reorganization.
(b) Subject to Section 8(a) above, if the shares of the Stock are changed
into or exchanged for a different number or kind of shares or securities, as the
result of any one or more reorganizations, recapitalizations, mergers,
acquisitions, stock splits, reverse stock splits, stock dividends or similar
events, an appropriate adjustment shall be made in the number and kind of shares
or other securities subject to the Option, and the price for each share or other
unit of any securities subject to this Option Agreement, in accordance with
Section 10 of the Plan. No fractional interests shall be issued on account of
any such adjustment unless the Committee specifically determines to the
contrary; provided, however, that in lieu of fractional interests, the Optionee,
-------- -------
upon the exercise of the Option in whole or part, shall receive cash in an
amount equal to the amount by which the Fair Market Value of such fractional
interests exceeds the Exercise Price attributable to such fractional interests.
9. ADJUSTMENTS AND DILUTION.
------------------------
(a) If the capitalization of the Company changes as the result of one or
more stock dividends, stock splits, reverse stock splits, combinations,
recapitalizations, reclassifications, mergers, consolidations or similar events,
an appropriate adjustment shall be made in the number and kind of shares or
other securities subject to the Option, and the price for each share or other
unit of any securities subject to this Option Agreement, in accordance with
Section 10 of the Plan. No fractional interests shall be issued on account of
any such adjustment unless the
10
<PAGE>
Committee specifically determines to the contrary; provided, however, that in
-------- -------
lieu of fractional interests, the Optionee, upon the exercise of the Option in
whole or part, shall receive cash in an amount equal to the amount by which the
Fair Market Value of such fractional interests exceeds the Exercise Price
attributable to such fractional interests.
(b) Except as may be specifically provided in this Option Agreement,
nothing herein shall prohibit or restrict the Company from taking any corporate
action or engaging in any corporate transaction of any kind, including, without
limitation, the issuance and sale of additional shares of capital stock of the
Company, any merger, consolidation, liquidation or sale of assets, or create in
Optionee or his or her permitted transferee any rights to acquire or receive
additional shares of capital stock of the Company or otherwise be protected
against dilution.
10. RIGHT OF REDEMPTION OF OPTIONS.
------------------------------
(a) Prior to an Initial Public Offering and notwithstanding anything in
Section 7 above to the contrary, the Company shall have the right, on or after
the Exercisability Date and in its sole and absolute discretion, to redeem, in
whole, the Option granted by this Option Agreement, and the Optionee shall be
obligated to sell, in whole, the Option as required by the Company's exercise of
this right. The redemption of the Option shall be effective as of the date of
such redemption (the "Redemption Date"). Payment for the redeemed Option (the
"Redemption Payment") shall be made by means of the payment to the Optionee by
the Company of the Fair Market Value of such Option in cash or by check as of
the date one (1) year after the Redemption Date or such earlier date(s) as the
Company may designate in its sole and absolute discretion (the "Redemption
Payment Period"). No interest shall accrue on any portion of the Redemption
Payment due and outstanding during the Redemption Payment Period.
(b) Notwithstanding anything to the contrary in Section 10(a) above, as of
the end of the Redemption Payment Period, payment of any due and outstanding
portion of the Redemption Payment shall be delayed if the Company determines it
is suffering from a Cash Shortage. Any outstanding portion of a Redemption
Payment that would otherwise be due and payable during a period of Cash Shortage
shall be delayed for a period of six (6) months, after which time the Company
shall either make any payment that has been delayed, or determine that the
Company continues to suffer from a Cash Shortage. Interest shall accrue at
Market Rate during any period of delay due to this Section 10(b).
(c) Notwithstanding anything in this Section 10 to the contrary, if a
Voluntary Notice Date occurs less than three (3) months prior to a Voluntary
Resignation Date, any portion of the Redemption Payment outstanding as of the
Voluntary Resignation Date, together with any accrued and unpaid interest
thereon, shall be forfeited by the Optionee, and the Company shall have no
further liability with respect to such outstanding portion and such accrued
interest, if any.
11. TAXES. The Committee may, in its discretion, make such provisions and
-----
take such steps as it may deem necessary or appropriate for the withholding of
all federal, state, local and other taxes required by law to be withheld with
respect to the exercise of the Option or the redemption of the Option (the
"Withholding Taxes") including, but not limited to, deducting the
11
<PAGE>
amount of any such withholding taxes from any other amount then or thereafter
payable to the Optionee, requiring the Optionee to pay to the Company the amount
required to be withheld or to execute such documents as the Committee deems
necessary or desirable to enable it to satisfy its obligations with respect to
the Withholding Taxes. With the consent of the Company, the Optionee may
authorize the Company to withhold a sufficient number of the shares of Stock
otherwise issuable to the Optionee on the Exercise Date as payment of his
obligation with respect to the Withholding Taxes (such shares to be valued on
the basis of the Fair Market Value of the Stock of the Company on the Exercise
Date).
12. NO INTEREST IN SHARES SUBJECT TO OPTION. Neither the Optionee
---------------------------------------
(individually or as a member of a group) nor any beneficiary or other person
claiming under or through the Optionee shall have any right, title, interest, or
privilege in or to any shares of Stock allocated or reserved for the purpose of
the Plan or subject to this Agreement except as to such Option Shares, if any,
as shall have been issued to such person upon exercise of the Option or portion
thereof.
13. SUBJECT TO STOCKHOLDERS' AGREEMENT. The Optionee acknowledges that
----------------------------------
the Option Shares are subject to the terms of the Stockholders' Agreement.
14. THE PLAN CONTROLS. The Option hereby granted is subject to, and the
-----------------
Company and the Optionee agree to be bound by, all of the terms and conditions
of the Plan as the same may be amended from time to time in accordance with the
terms thereof, but no such amendment shall be effective as to the Option without
the Optionee's consent insofar as it may adversely affect the Optionee's rights
under this Option Agreement.
15. NOT AN EMPLOYMENT CONTRACT. Nothing in the Plan, in this Option
--------------------------
Agreement or any other instrument executed pursuant thereto shall confer upon
the Optionee any right to continue in the employ of the Company nor shall affect
the right of the Company to terminate the employment of the Optionee with or
without Cause.
16. SUBJECT TO AGREEMENT NOT TO COMPETE. The Optionee acknowledges that
-----------------------------------
the execution of the Agreement Not to Compete attached hereto is a condition
precedent to the receipt of any rights or benefits conferred on the Optionee by
this Option Agreement.
17. NOTICES. All notices, requests, demands and other communications
-------
pursuant to this Option Agreement shall be in writing and shall be deemed to
have been duly given if personally delivered, telexed or telecopied to, or, if
mailed, when received by, the other party, if to the Company at its principal
executive offices addressed to the attention of the Chairman of the Board, and
if to Optionee at his or her address as it appears on the books of the Company
(or at such other address as shall be given in writing by Optionee or his or her
permitted transferee to the Company).
18. BINDING EFFECT. This Option Agreement shall inure to the benefit of
--------------
and be binding upon the parties hereto and their respective permitted successors
and assigns.
12
<PAGE>
19. ENTIRE OPTION AGREEMENT. This Option Agreement, together with the
-----------------------
Plan, the Employment Agreement, the Stockholders' Agreement and the Agreement
Not to Compete, sets forth the entire agreement and understanding between the
parties as to the subject matter hereof (including, but not limited to, any
rights of the Optionee to any value or appreciation in value of the Company or
its capital stock) and supersedes all prior oral and written and all
contemporaneous oral discussions, agreements and understandings of any kind or
nature.
20. AMENDMENTS AND WAIVERS. This Option Agreement may be amended, and any
----------------------
provision hereof may be waived, only by a writing signed by the party to be
charged.
21. FURTHER ASSURANCES. Each party shall cooperate and take such action
------------------
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Option Agreement.
22. ACTIONS BY THE COMPANY. Any reference within this Option Agreement to
----------------------
an action, judgment, conclusion, or determination by the Company shall mean an
action, judgment, conclusion, or determination of the Board of Directors of the
Company or its authorized representative(s).
23. HEADINGS. The headings preceding the text of the sections hereof are
--------
inserted solely for convenience of reference, and shall not constitute a part of
this Option Agreement, nor shall they affect its meaning, construction or
effect.
24. GOVERNING LAW. All terms of and rights under this Option Agreement
-------------
shall be governed by and construed in accordance with the internal law of the
State of Delaware, without giving effect to principles of conflicts of law.
25. ARBITRATION. The parties shall endeavor to settle all disputes by
-----------
amicable negotiations. Subject to Section 25(f) hereof, any claim, dispute,
disagreement or controversy that arises among the parties relating to this
Option Agreement that is not amicably settled shall be resolved by arbitration,
as follows:
(a) Any such arbitration shall be heard in the District of Columbia,
before a panel consisting of one (1) to three (3) arbitrators, each of whom
shall be impartial. Except as the parties may otherwise agree, all arbitrators
shall be appointed in the first instance by the appropriate official in the
District of Columbia office of the American Arbitration Association or, in the
event of his or her unavailability by reason of disqualification or otherwise,
by the appropriate official in the New York City office of the American
Arbitration Association. In determining the number and appropriate background of
the arbitrators, the appointing authority shall give due consideration to the
issues to be resolved, but his or her decision as to the number of arbitrators
and their identity shall be final. Except as otherwise provided in this Section
25, all of the arbitration proceedings shall be conducted in accordance with the
rules of the arbitrators.
(b) An arbitration may be commenced by any party to this Option Agreement
by the service of a written request for arbitration upon the other affected
parties. Such request for arbitration shall summarize the controversy or claim
to be arbitrated, and shall be referred by the
13
<PAGE>
complaining party to the appointing authority for appointment of arbitrators ten
(10) days following such service or thereafter. If the panel of arbitrators is
not appointed by the appointing authority within thirty (30) days following such
reference, any party may apply to any court within the District of Columbia for
an order appointing arbitrators qualified as set forth below.
(c) All attorneys' fees and costs of the arbitration shall in the first
instance be borne by the respective party incurring such costs and fees, but the
arbitrators shall have the discretion to award costs and/or attorneys' fees as
they deem appropriate under the circumstances. The parties hereby expressly
waive punitive damages, and under no circumstances shall an award contain any
amount that in any way reflects punitive damages.
(d) Judgment on the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
(e) It is intended that controversies or claims submitted to arbitration
under this Section 25 shall remain confidential, and to that end it is agreed by
the parties that neither the facts disclosed in the arbitration, the issues
arbitrated, nor the views or opinions of any persons concerning them, shall be
disclosed to third persons at any time, except to the extent necessary to
enforce an award or judgment or as required by law or in response to legal
process or in connection with such arbitration.
(f) Notwithstanding anything to the contrary contained in this Option
Agreement, the Company shall be entitled to initiate at any time legal action in
a court of competent jurisdiction for the purpose of seeking and obtaining the
issuance of a temporary restraining order, preliminary injunction and/or other
similar relief restraining the Optionee from committing or continuing to commit
any breach of the Agreement Not to Compete pending final resolution of the
arbitration proceeding. In the event the Company prevails in such arbitration
proceeding, in addition to any other remedies granted to the Company pursuant to
such proceeding, the Company shall be entitled to seek and obtain a permanent
injunction and/or other similar relief restraining the Optionee from committing
or continuing to commit any breach of the Agreement Not to Compete.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Option Agreement as of
the dates set forth below.
THE CORPORATE EXECUTIVE BOARD COMPANY
By: __________________________________
Name: /s/ Michael A. D'Amato
-------------------------------
Title: Executive Vice President
------------------------------
Date: _______________________________
OPTIONEE
Signature: __________________________
Date: ________________________________
15
<PAGE>
Exhibit 10.12
STOCK OPTION AGREEMENT
PURSUANT TO
THE CORPORATE EXECUTIVE BOARD COMPANY
STOCK-BASED INCENTIVE COMPENSATION PLAN
THIS STOCK OPTION AGREEMENT (this "Option Agreement") is made effective as
of June 1, 1998 (the "Effective Date"), between The Corporate Executive Board
Company, a Delaware corporation (the "Company"), and Sally Chang (the
"Optionee"), granting to the Optionee Options to purchase 14,000 Option Shares
at a purchase price of $120.00 per Option Share, as further described in Section
2 hereinbelow.
R E C I T A L S
- - - - - - - -
A. The Company adopted as of October 31, 1997 the Stock-Based Incentive
Compensation Plan (the "Plan"), a copy which is attached hereto as Exhibit "A".
B. In accordance with the Plan, the Committee is granting to the Optionee,
as of the Effective Date, Options to purchase shares of Stock (as hereinafter
defined), subject to the terms and conditions of the Plan and this Option
Agreement.
C. The Optionee acknowledges that she is an employee of the Company with
substantial knowledge concerning the performance, operations and future
opportunities relating to the Company. The Optionee further acknowledges that
she has been briefed on the past and potential future performance of the Company
by Jeffrey D. Zients, Michael D'Amato and/or other senior executives of the
Company, and that the Optionee had the opportunity to ask Jeffrey D. Zients,
Michael D'Amato and/or other senior executives of the Company whatever questions
the Optionee desired concerning the financial and operational performance and
expectations of the Company. Finally, the Optionee acknowledges that all future
operating results are impossible to predict and that no representation is being
made by the Company with respect to the accuracy or completeness of any forecast
regarding the future.
D. The Optionee acknowledges and agrees that, as of the Effective Date,
(i) the Company is an S Corporation as defined in Section 1361 of the Internal
Revenue Code of 1986, as amended, and (ii) that the capitalization of the
Company is as described below:
(1) 1,000 authorized shares of Class A Voting Common Stock, par value
$0.01 per share, of which 1,000 shares are issued to David G.
Bradley;
(2) 1,399,000 authorized shares of Class B Nonvoting Common Stock
(the "Stock"), par value $0.01 per share, of which 726,000 shares
are issued to David G. Bradley;
<PAGE>
(3) The maximum number of shares of Stock that may be subject to
Options granted pursuant to the Plan is 400,000.
Changes in the above capitalization (including increases or decreases in the
number of authorized shares of capital stock) and available options with respect
to the Company's capital stock may be made in the future. To the extent
applicable, Sections 8 and 9 of this Option Agreement may apply to further
adjustments to the above capitalization.
AGREEMENTS
----------
1. DEFINITIONS. Capitalized terms used herein shall have the following
-----------
meanings:
"Act" is defined in Section 6(a).
"Agreement Not to Compete" is the Agreement Concerning Exclusive Services,
Confidential Information, Business Opportunities, Non-Competition, Non-
Solicitation, and Work Product between the Optionee and the Company.
"Approved Sale" means a transaction or a series of related sale
transactions that result in a bona fide unaffiliated change of economic
---- ----
beneficial ownership of the Company (disregarding for this purpose any disparate
voting rights attributable to the outstanding stock of the Company) whether
pursuant to the sale of the stock of the Company, the sale of the assets of the
Company, or a merger or consolidation involving the Company. However, an
Approved Sale shall not include (i) an issuance by the Company of its own Stock,
or (ii) a gift of the stock of the Company.
"Cash Shortage" is the condition that exists when, in the judgment of the
Company, the Company's cash reserves may prove insufficient to (i) cover the
Company's working capital and other obligations as they come due, including
obligations pursuant to any stock option agreement, stockholders' agreement,
agreement not to compete, substitution agreement or liquid markets agreement
entered into by the Company and any other obligation of the Company to its
employees; (ii) maintain sufficient cash reserves to pay unforeseeable costs
that may arise; and at the same time (iii) make payments to Optionee pursuant to
this Option Agreement.
"Cause" for termination is the commission of an act of fraud, theft or
dishonesty against the Company; arrest or conviction for any felony; arrest or
conviction for any misdemeanor involving moral turpitude which might, in the
Company's opinion, cause embarrassment to the Company; misconduct; substance
abuse; insubordination; violation of Company policy; willful or repeated non-
performance or substandard performance of duties; violation of any District of
Columbia, state or federal laws, rules or regulations in connection with or
during performance of work; or Performance Inconsistent with Past Levels of
Contribution, as defined below.
"Chairman of the Board" means the Chairman of the Board of Directors of the
Company.
"Committee" is defined in the Plan.
2
<PAGE>
"Company" is defined in the preamble.
"Disability" shall mean a serious and permanent medical incapacity or
disability that precludes the Optionee from performing professional work. The
Company, at its option and expense, shall be entitled to retain a physician
reasonably acceptable to the Optionee to confirm the existence of such
incapacity or disability. The Chairman of the Board reserves the right to
define Disability in a more liberal manner.
"Distribution" means distributions to Stockholders with respect to the
capital stock of the Company in the form of dividends, redemption payments,
liquidation payments, or other similar payment types.
"Effective Date" is defined in the preamble.
"Exercisability Date" is defined in Section 3.
"Exercise Date" is defined in Section 5(a).
"Exercise Price" is defined in Section 2.
"Expiration Date" is defined in Section 4(a).
"Expiration Event" is defined in Section 4.
"Fair Market Value" means the fair market value determined by an investment
bank selected by the Company, in its sole and absolute discretion. The
investment bank shall use customary criteria generally employed within the
investment banking community for valuing the assets or capital stock of an
entity similar to the Company. With respect to the Options and the Option
Shares, Fair Market Value will be determined by applying such minority,
liquidity, or other discounts as may be applicable to minority shares of capital
stock of this type.
"Fiscal Year" means the Company's fiscal year ending March 31 of each year
or such other date as shall be designated by the Company in its sole and
absolute discretion.
"Full Recourse" means the right of the Company to recover against all of
the assets of the Optionee in the event of a default by the Optionee with
respect to the Note.
"Initial Public Offering" means the effectiveness of a registration
statement under the Act covering any of the capital stock of the Company and the
completion of a sale of such stock thereunder, if as a result of such sale (i)
the issuer becomes a reporting company under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and (ii) such stock is traded on
the New York Stock Exchange or the American Stock Exchange, or is quoted on the
NASDAQ National Market System.
"Majority Shareholder" means a holder of more than fifty percent (50%) of
the outstanding stock of the Company, or if no person holds more than fifty
percent (50%) of the
3
<PAGE>
outstanding stock of the Company, the holder of a plurality of the outstanding
stock of the Company.
"Market Rate" is a floating rate equal to the Prime Rate as quoted in The
Wall Street Journal and as adjusted from time to time but not to exceed 10% per
annum.
"Net Proceeds" is defined in Section 3(b)(ii).
"Note" is defined in Section 5(a)(iii).
"Option" or "Options" is defined in Section 2.
"Option Number" is defined in Section 2.
"Optionee" is defined in the preamble.
"Option Shares" means Stock subject to the Option.
"Performance Inconsistent with Past Levels of Contribution" is any neglect
of, or refusal or inability to, perform the Optionee's duties or
responsibilities with respect to the Company with the same level of contribution
as in past periods of employment; or any insubordination, dishonesty, negligence
or malfeasance in the performance of such duties and responsibilities; or the
taking of actions which impair the Optionee's ability to perform such duties and
responsibilities; or any material violation of Company rules or regulations.
"Plan" is defined in Recital A.
"Redemption Date" is defined in Section 10(a).
"Redemption Payment" is defined in Section 10(a).
"Redemption Payment Period" is defined in Section 10(a).
"Stock" is defined in Recital D.
"Stockholder" means a record holder of one or more shares of capital stock
of the Company.
"Stockholders' Agreement" means the Stockholders' Agreement of the Company
setting forth, inter alia, certain rights, preferences and privileges of and
----------
restrictions on the Option Shares. The Optionee must execute a copy of the
Stockholders' Agreement prior to receiving his or her Option Shares pursuant to
the exercise of the Option.
"Termination Date" means the date on which the Optionee ceases to be
employed by the Company for any reason other than (i) for Cause, (ii) for death
or a Disability, or (iii) upon a Voluntary Resignation Date.
4
<PAGE>
"Undistributed Earnings" means, on any given date, the greater of (but not
less than zero): (i) the retained earnings (or similar entry) shown on the
audited financial statements of the Company for the prior Fiscal Year plus an
estimate by the Company of additions to or subtractions from such retained
earnings through such date of computation, and (ii) the
"accumulated adjustments account" (or similar computation) of the Company for
the prior taxable year of the Company pursuant to Section 1368(e) of the
Internal Revenue Code of 1986, as amended, plus an estimate by the Company of
additions to or subtractions from this account through such date of computation.
"Voluntary Notice Date" means the date the Optionee gives notice of his or
her Voluntary Resignation Date.
"Voluntary Resignation Date" means the date on which the Optionee ceases
employment with the Company for voluntary reasons. Voluntary Resignation Date
shall not include the date on which the Optionee ceases to be employed by the
Company due to death or a Disability.
"Withholding Taxes" is defined in Section 11.
2. GRANT OF OPTION. The Company grants to the Optionee the right and
---------------
option (the "Option" or "Options") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate number of Option Shares
as described in the preamble (the outstanding amount of such unexercised and
unexpired Options herein referred to as the "Option Number"), at the purchase
price per Option Share as described in the preamble (as such amount may be
adjusted as herein provided, the "Exercise Price"), on the terms and conditions
set forth herein. These Options shall be treated as non-qualified stock
options.
3. EXERCISABILITY.
--------------
(A) EXERCISABILITY DATE. Prior to an Initial Public Offering, Options
-------------------
equal to fifty percent (50%) of the Option Number as of April 1, 1999 shall be
exercisable during the month of April beginning on April 1, 1999 and the
remaining Options shall be exercisable during the month of April beginning on
April 1, 2000 (the dates of April 1, 1999 and April 1, 2000, individually and
collectively, the "Exercisability Date"). The Options shall be exercisable
during every month of July, October, January and April occurring after their
respective Exercisability Date, or at such other times after the Exercisability
Date and prior to an Initial Public Offering as determined by the Company in its
sole and absolute discretion. Prior to an Initial Public Offering and
notwithstanding the foregoing, if an investment bank is performing, or has
performed, substantial services for the Company to examine, investigate, and
analyze the possibility, feasibility, or viability of an Initial Public Offering
within six (6) months of a month during which the Options would otherwise become
exercisable pursuant to this Section 3(a), the Chairman of the Board may, in his
sole and absolute discretion, make a determination that such Options shall not
be exercisable for such month and may designate some other month (including the
following month of January, April, July, or October, as appropriate) for the
exercise of the Options; provided, however, the Chairman of the Board may not
designate some other month for the exercise of the Options pursuant to this
Section 3(a) any later than the month of April beginning on April 1, 2004.
5
<PAGE>
(B) OTHER EXERCISABLE EVENTS. Notwithstanding anything to the contrary in
------------------------
Section 3(a) above, the Options shall be exercisable upon the occurrence of any
of the following events prior to, on, or after, the Exercisability Date:
(i) Approved Sale of Stock. Prior to an Initial Public Offering,
----------------------
in the event of an Approved Sale by the Majority Shareholder of one hundred
percent (100%) of the Company's outstanding Stock held by such Majority
Shareholder, the Options shall be exercisable on the date of such Approved
Sale. However, if the Majority Shareholder sells less than one hundred
percent (100%) of the Company's outstanding Stock held by such Majority
Shareholder pursuant to an Approved Sale, the Optionee shall only be
entitled to exercise the Options with respect to a number of Option Shares
equal to the Option Number immediately prior to such Approved Sale
multiplied by the fraction equal to the number of shares of the Company's
outstanding Stock sold pursuant to the Approved Sale by such Majority
Shareholder divided by the total number of shares of the Company's
outstanding Stock held by such Majority Shareholder immediately prior to
such Approved Sale.
(ii) Approved Sale of Assets. Prior to an Initial Public Offering,
-----------------------
in the event of a Distribution by the Company that is funded with one
hundred percent (100%) of the proceeds, after payment of related expenses
(the "Net Proceeds") from an Approved Sale of one hundred percent (100%) of
the Company's assets, the Options shall be exercisable on the date of such
Distribution. For purposes of this Section 3(b)(ii), a Distribution made
by the Company shall not be treated as a Distribution funded with the Net
Proceeds from an Approved Sale of the Company's assets to the extent of the
Company's Undistributed Earnings as of the Distribution date. However, if
less than one hundred percent (100%) of the Net Proceeds from an Approved
Sale of one hundred percent (100%) of the Company's assets is so
distributed, the Optionee shall only be entitled on the date of the
Distribution to exercise Options with respect to a number of Option Shares
equal to the Option Number immediately prior to such Distribution
multiplied by the percentage of the Net Proceeds from such Approved Sale
that is so distributed by the Company. If less than one hundred percent
(100%) of the Company's assets is sold pursuant to an Approved Sale and all
or some portion of the Net Proceeds from such Approved Sale is so
distributed, the Optionee shall be entitled on the date of Distribution to
exercise Options with respect to a number of Option Shares equal to the
Option Number immediately prior to such Distribution multiplied by the
product of (A) the percentage, based on Fair Market Value, of the Company's
assets sold pursuant to such Approved Sale, and (B) the percentage of the
Net Proceeds from such Approved Sale that is so distributed by the Company.
(iii) Initial Public Offering. In the event of an Initial Public
-----------------------
Offering of the Company's Stock, the Options shall be exercisable as
follows:
(A) as of the date one (1) year after the Initial Public Offering
or such earlier date(s) as the Chairman of the Board shall designate
in his sole and
6
<PAGE>
absolute discretion, fifty percent (50%) of the Option Number as of
the date of the Initial Public Offering;
(B) as of the date two (2) years after the Initial Public
Offering or such earlier date(s) as the Chairman of the Board shall
designate in his sole and absolute discretion, thirty percent (30%) of
the Option Number as of the date of the Initial Public Offering; and
(C) as of the date (3) years after the Initial Public Offering or
such earlier date(s) as the Chairman of the Board shall designate in
his sole and absolute discretion, twenty percent (20%) of the Option
Number as of the date of the Initial Public Offering.
(C) DETERMINATION OF EXERCISABLE OPTIONS. The good faith determination by
------------------------------------
the Company of the number of Options that may be exercisable by the Optionee
pursuant to Sections 3(b)(i), (ii) and (iii) above shall be binding upon the
Optionee.
4. EXPIRATION. The number of Option Shares that the Optionee is entitled
----------
to purchase pursuant to the Options shall be decreased by the number of Option
Shares purchased by the Optionee on any given date. In addition, as described
below, some or all of the Options shall expire and shall no longer be
exercisable, at the end of the day upon which ANY of the following events occurs
---
(each an "Expiration Event"):
(A) EXPIRATION DATE. Upon April 30, 2004 (the "Expiration Date"), the
---------------
Options shall expire. Notwithstanding the foregoing, in the event of an Initial
Public Offering prior to Expiration Date, the Options shall expire the later of
three (3) years and thirty (30) days after the Initial Public Offering or the
Expiration Date.
(B) TERMINATION BY THE COMPANY. Prior to an Initial Public Offering, (i)
--------------------------
the Options shall all expire as of the date the Optionee ceases to be employed
by the Company for Cause; or (ii) as of the Termination Date, the Options shall
all expire as of such Termination Date provided such date occurs prior to the
Exercisability Date. Notwithstanding anything herein to the contrary, prior to
an Initial Public Offering, all exercisable Options shall terminate as the date
occurring sixty (60) days after the Termination Date.
(C) VOLUNTARY RESIGNATION BY THE OPTIONEE. Prior to an Initial Public
-------------------------------------
Offering, the Options shall all expire on the Voluntary Notice Date if (i) the
Voluntary Notice Date occurs less than twelve (12) months prior to the Voluntary
Resignation Date; or (ii) the Voluntary Resignation Date occurs prior to April
1, 2003. Notwithstanding anything herein to the contrary, prior to an Initial
Public Offering, all exercisable Options shall terminate as the date occurring
sixty (60) days after the Voluntary Resignation Date.
(D) APPROVED SALE OF STOCK. Prior to an Initial Public Offering, the
----------------------
Options shall all expire upon an Approved Sale by the Majority Shareholder of
one hundred percent (100%) of the Company's outstanding stock held by such
Majority Shareholder. However, if the Majority Shareholder sells less than one
hundred percent (100%) of the Company's outstanding stock held
7
<PAGE>
by such Majority Shareholder pursuant to an Approved Sale, the number of Options
that shall expire shall be equal to the amount by which the Option Number
immediately prior to such Approved Sale multiplied by the fraction equal to the
number of shares of the Company's outstanding Stock sold pursuant to the
Approved Sale by such Majority Shareholder divided by the total number of shares
of the Company's outstanding Stock held by such Majority Shareholder immediately
prior to such Approved Sale exceeds the number of Option Shares purchased by the
Optionee on the date of such Approved Sale.
(E) APPROVED SALE OF ASSETS. Prior to an Initial Public Offering, the
-----------------------
Options shall all expire upon a Distribution by the Company that is funded with
one hundred percent (100%) of the Net Proceeds from an Approved Sale of one
hundred percent (100%) of the Company's assets. For purposes of this Section
4(e), a Distribution made by the Company shall not be treated as a Distribution
funded with the Net Proceeds from an Approved Sale of the Company's assets to
the extent of the Company's Undistributed Earnings as of the date of the
Distribution. However, if less than one hundred percent (100%) of the Net
Proceeds from an Approved Sale of one hundred percent (100%) of the Company's
assets is so distributed, the number of Options that shall expire shall be equal
to the amount by which the Option Number immediately prior to such Distribution
multiplied by the percentage of the Net Proceeds from such Approved Sale that is
so distributed by the Company exceeds the number of Option Shares purchased by
the Optionee on the date of such Distribution. If less than one hundred percent
(100%) of the Company's assets is sold pursuant to an Approved Sale and all or
some portion of the Net Proceeds from such Approved Sale is so distributed, the
number of Options that shall expire shall be equal to the amount by which the
Option Number immediately prior to such Distribution multiplied by the product
of (i) the percentage, based on Fair Market Value, of the Company's assets sold
pursuant to such Approved Sale, and (ii) the percentage of the Net Proceeds from
such Approved Sale that is so distributed by the Company, exceeds the number of
Option Shares purchased by the Optionee on the date of such Distribution.
(F) INITIAL PUBLIC OFFERING. In the event of an Initial Public Offering,
-----------------------
the Options shall expire as of the Voluntary Resignation Date or the date on
which the Optionee ceases to be employed by the Company for Cause. Any portion
of the Option that is unexercisable as of the expiration date shall remain
unexercisable and shall also terminate as of such date. If, within three (3)
years after an Initial Public Offering, the Optionee is terminated by the
Company other than for Cause or ceases employment as a result of death or a
Disability, the Options shall expire as of the date three (3) years and thirty
(30) days after the date of the Initial Public Offering. Notwithstanding
anything in this subsection (f) to the contrary and except as otherwise provided
in Section 4(a) above, if three (3) years has elapsed since the Initial Public
Offering, the Option shall expire as of the date thirty (30) days after the date
on which the Optionee ceases to be employed by the Company for any reason other
than death or a Disability.
5. EXERCISE OF THE OPTION.
----------------------
(a) Prior to the expiration thereof, the Optionee may exercise the Options
from time to time in whole or in part as permitted hereunder (the "Exercise
Date"). On the Exercise Date, the Optionee shall deliver to the Chairman of the
Board the following:
8
<PAGE>
(i) A copy of the Stockholders' Agreement duly executed by the
Optionee;
(ii) A written and signed notice of such election setting forth the
number of Option Shares the Optionee has elected to purchase;
(iii) Payment in full of the aggregate Exercise Price of such Option
Shares in one or a combination of the following: (A) cash or a cashier's
or certified bank check payable to the order of the Company, or (B) prior
to an Initial Public Offering, a Full Recourse promissory note, in a form
determined by the Company in its sole and absolute discretion (the "Note"),
secured by the number of Option Shares the Optionee has elected to
purchase, bearing a Market Rate of interest, and due and payable the
earlier of the date the Optionee disposes of all or a portion of his or her
Stock securing the Note, or the date six (6) months after the Exercise Date
or such later date as the Company determines in its sole and absolute
discretion; and
(iv) The amount, if any, required pursuant to Section 11 hereof.
(b) Notwithstanding anything in Section 5(a) to the contrary, the Committee
may, in its sole and absolute discretion, permit payment of the Exercise Price
in such form or in such manner as may be otherwise permissible under the Plan
and under any applicable law.
(c) If the Optionee provides payment as provided in Section 5(a)(iii)(B)
above, the Optionee agrees to execute and deliver such other documents as may be
reasonably required by the Company to effectuate and secure the Note. If a
Voluntary Notice Date occurs less than twelve (12) months prior to a Voluntary
Resignation Date, the Note, together with any accrued interest thereon, shall be
immediately payable upon the earlier of the due date of the Note or the
Voluntary Resignation Date.
6. COMPLIANCE WITH LEGAL REQUIREMENTS.
----------------------------------
(a) No Option Shares shall be issued or transferred pursuant to this Option
Agreement unless and until all legal requirements applicable to such issuance or
transfer have, in the opinion of counsel to the Company, been satisfied. Such
requirements may include, but are not limited to, registering or qualifying such
Option Shares under any state or federal law, satisfying any applicable law
relating to the transfer of unregistered securities or demonstrating the
availability of an exemption from applicable laws, placing a legend on the
Option Shares to the effect that they were issued in reliance upon an exemption
from registration under the Securities Act of 1933, as amended (the "Act"), and
may not be transferred other than in reliance upon Rule 144 or Rule 701
promulgated under the Act, if available, or upon another exemption from the Act,
or obtaining the consent or approval of any governmental regulatory body.
(b) The Optionee understands that the Company intends for the offering and
sale of Option Shares to be effected in reliance upon Rule 701 or another
available exemption from registration under the Act and intends to file a Form
701 as appropriate, and that the Company is under no obligation to register for
resale the Option Shares issued upon exercise of the Option, subject to the
Stockholders' Agreement. In connection with any such issuance or transfer, the
person acquiring the Option Shares shall, if requested by the Company, provide
9
<PAGE>
information and assurances satisfactory to counsel to the Company with respect
to such matters as the Company reasonably may deem desirable to assure
compliance with all applicable legal requirements.
(c) The Option Shares issued pursuant to this Option Agreement may bear
such legends with respect to their transferability that the Committee may deem
appropriate.
7. NONTRANSFERABILITY. Subject to Sections 8 and 10 hereof, the Option
------------------
shall not be transferable by the Optionee except, after the Optionee's death, to
his or her spouse, child, estate, personal representative, heir or successor.
More particularly (but without limiting the generality of the foregoing), the
Option may not be assigned, transferred (except as aforesaid), pledged or
hypothecated in any way (whether by operation of law or otherwise), and shall
not be subject to execution, attachment or similar process. Any assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof, and the levy of any attachment or similar process upon
the Option that would otherwise effect a change in the ownership of the Option,
shall terminate the Option; provided, however, that in the case of the
involuntary levy of any attachment or similar involuntary process upon the
Option, the Optionee shall have thirty (30) days after notice thereof to cure
such levy or process before the Option terminates. This Option Agreement shall
be binding on and enforceable against any person who is a permitted transferee
of the Option pursuant to the first sentence of this Section.
8. EFFECT OF MERGER; ADJUSTMENTS.
-----------------------------
(a) In the event of an Approved Sale that is a merger or other form of
corporate reorganization and notwithstanding any other provisions of this Option
Agreement, the unexercised portion of the Option shall be subject to the terms
of the agreement or plan of merger or reorganization effecting such merger or
reorganization and shall be converted, redeemed, exchanged, canceled or
otherwise treated as provided in such agreement or plan of merger or
reorganization.
(b) Subject to Section 8(a) above, if the shares of the Stock are changed
into or exchanged for a different number or kind of shares or securities, as the
result of any one or more reorganizations, recapitalizations, mergers,
acquisitions, stock splits, reverse stock splits, stock dividends or similar
events, an appropriate adjustment shall be made in the number and kind of shares
or other securities subject to the Option, and the price for each share or other
unit of any securities subject to this Option Agreement, in accordance with
Section 10 of the Plan. No fractional interests shall be issued on account of
any such adjustment unless the Committee specifically determines to the
contrary; provided, however, that in lieu of fractional interests, the Optionee,
-------- -------
upon the exercise of the Option in whole or part, shall receive cash in an
amount equal to the amount by which the Fair Market Value of such fractional
interests exceeds the Exercise Price attributable to such fractional interests.
9. ADJUSTMENTS AND DILUTION.
------------------------
(a) If the capitalization of the Company changes as the result of one or
more stock dividends, stock splits, reverse stock splits, combinations,
recapitalizations, reclassifications,
10
<PAGE>
mergers, consolidations or similar events, an appropriate adjustment shall be
made in the number and kind of shares or other securities subject to the Option,
and the price for each share or other unit of any securities subject to this
Option Agreement, in accordance with Section 10 of the Plan. No fractional
interests shall be issued on account of any such adjustment unless the Committee
specifically determines to the contrary; provided, however, that in lieu of
-------- -------
fractional interests, the Optionee, upon the exercise of the Option in whole or
part, shall receive cash in an amount equal to the amount by which the Fair
Market Value of such fractional interests exceeds the Exercise Price
attributable to such fractional interests.
(b) Except as may be specifically provided in this Option Agreement,
nothing herein shall prohibit or restrict the Company from taking any corporate
action or engaging in any corporate transaction of any kind, including, without
limitation, the issuance and sale of additional shares of capital stock of the
Company, any merger, consolidation, liquidation or sale of assets, or create in
Optionee or his or her permitted transferee any rights to acquire or receive
additional shares of capital stock of the Company or otherwise be protected
against dilution.
10. RIGHT OF REDEMPTION OF OPTIONS.
------------------------------
(a) Prior to an Initial Public Offering of the Stock of the Company and
notwithstanding anything in Section 7 above to the contrary, the Company shall
have the right, on or after the Exercisability Date and in its sole and absolute
discretion, to redeem, in whole, the Option granted by this Option Agreement,
and the Optionee shall be obligated to sell, in whole, the Option as required by
the Company's exercise of this right. The redemption of the Option shall be
effective as of the date of such redemption (the "Redemption Date"). Payment
for the redeemed Option (the "Redemption Payment") shall be made by means of the
payment to the Optionee by the Company of the Fair Market Value of such Option
in cash or by check as of the date one (1) year after the Redemption Date or
such earlier date(s) as the Company may designate in its sole and absolute
discretion (the "Redemption Payment Period"). No interest shall accrue on any
portion of the Redemption Payment due and outstanding during the Redemption
Payment Period.
(b) Notwithstanding anything to the contrary in Section 10(a) above, as of
the end of the Redemption Payment Period, payment of any due and outstanding
portion of the Redemption Payment shall be delayed if the Company determines it
is suffering from a Cash Shortage. Any outstanding portion of a Redemption
Payment that would otherwise be due and payable during a period of Cash Shortage
shall be delayed for a period of six (6) months, after which time the Company
shall either make any payment that has been delayed, or determine that the
Company continues to suffer from a Cash Shortage. Interest shall accrue at
Market Rate during any period of delay due to this Section 10(b).
(c) Notwithstanding anything in this Section 10 to the contrary, if a
Voluntary Notice Date occurs less than twelve (12) months prior to a Voluntary
Resignation Date, any portion of the Redemption Payment outstanding as of the
Voluntary Resignation Date, together with any accrued and unpaid interest
thereon, shall be forfeited by the Optionee, and the Company shall
11
<PAGE>
have no further liability with respect to such outstanding portion and such
accrued interest, if any.
11. TAXES. The Committee may, in its discretion, make such provisions and
-----
take such steps as it may deem necessary or appropriate for the withholding of
all federal, state, local and other taxes required by law to be withheld with
respect to the exercise of the Option or the redemption of the Option (the
"Withholding Taxes") including, but not limited to, deducting the amount of any
such withholding taxes from any other amount then or thereafter payable to the
Optionee, requiring the Optionee to pay to the Company the amount required to be
withheld or to execute such documents as the Committee deems necessary or
desirable to enable it to satisfy its obligations with respect to the
Withholding Taxes. With the consent of the Company, the Optionee may authorize
the Company to withhold a sufficient number of the shares of Stock otherwise
issuable to the Optionee on the Exercise Date as payment of his or her
obligation with respect to the Withholding Taxes (such shares to be valued on
the basis of the Fair Market Value of the Stock of the Company on the Exercise
Date).
12. NO INTEREST IN SHARES SUBJECT TO OPTION. Neither the Optionee
---------------------------------------
(individually or as a member of a group) nor any beneficiary or other person
claiming under or through the Optionee shall have any right, title, interest, or
privilege in or to any shares of Stock allocated or reserved for the purpose of
the Plan or subject to this Option Agreement except as to such Option Shares, if
any, as shall have been issued to such person upon exercise of the Option or
portion thereof.
13. SUBJECT TO STOCKHOLDERS' AGREEMENT. The Optionee acknowledges that
----------------------------------
the Option Shares are subject to the terms of the Stockholders' Agreement.
14. THE PLAN CONTROLS. The Option hereby granted is subject to, and the
-----------------
Company and the Optionee agree to be bound by, all of the terms and conditions
of the Plan as the same may be amended from time to time in accordance with the
terms thereof, but no such amendment shall be effective as to the Option without
the Optionee's consent insofar as it may adversely affect the Optionee's rights
under this Option Agreement.
15. NOT AN EMPLOYMENT CONTRACT. Nothing in the Plan, in this Option
--------------------------
Agreement or any other instrument executed pursuant thereto shall confer upon
the Optionee any right to continue in the employ of the Company nor shall affect
the right of the Company to terminate the employment of the Optionee with or
without Cause.
16. SUBJECT TO AGREEMENT NOT TO COMPETE. The Optionee acknowledges that
-----------------------------------
the execution of the Agreement Not to Compete attached hereto is a condition
precedent to the receipt of any rights or benefits conferred on the Optionee by
this Option Agreement.
17. NOTICES. All notices, requests, demands and other communications
-------
pursuant to this Option Agreement shall be in writing and shall be deemed to
have been duly given if personally delivered, telexed or telecopied to, or, if
mailed, when received by, the other party, if to the Company at its principal
executive offices addressed to the attention of the Chairman of the Board, and
if to Optionee at his or her address as it appears on the books of the Company
(or
12
<PAGE>
at such other address as shall be given in writing by Optionee or his or her
permitted transferee to the Company).
18. BINDING EFFECT. This Option Agreement shall inure to the benefit of
--------------
and be binding upon the parties hereto and their respective permitted successors
and assigns.
19. ENTIRE OPTION AGREEMENT. This Option Agreement, together with the
-----------------------
Plan, the Stockholders' Agreement and the Agreement Not to Compete, sets forth
the entire agreement and understanding between the parties as to the subject
matter hereof (including, but not limited to, any rights of the Optionee to any
value or appreciation in value of the Company or its capital stock) and
supersedes all prior oral and written and all contemporaneous oral discussions,
agreements and understandings of any kind or nature.
20. AMENDMENTS AND WAIVERS. This Option Agreement may be amended, and any
----------------------
provision hereof may be waived, only by a writing signed by the party to be
charged.
21. FURTHER ASSURANCES. Each party shall cooperate and take such action
------------------
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Option Agreement.
22. ACTIONS BY THE COMPANY. Any reference within this Option Agreement to
----------------------
an action, judgment, conclusion, or determination by the Company shall mean an
action, judgment, conclusion, or determination of the Board of Directors of the
Company or its authorized representative(s).
23. HEADINGS. The headings preceding the text of the sections hereof are
--------
inserted solely for convenience of reference, and shall not constitute a part of
this Option Agreement, nor shall they affect its meaning, construction or
effect.
24. GOVERNING LAW. All terms of and rights under this Option Agreement
-------------
shall be governed by and construed in accordance with the internal law of the
State of Delaware, without giving effect to principles of conflicts of law.
25. ARBITRATION. The parties shall endeavor to settle all disputes by
-----------
amicable negotiations. Any claim, dispute, disagreement or controversy that
arises among the parties relating to this Option Agreement (excluding
enforcement by the Company of its rights under the Agreement Not to Compete)
that is not amicably settled shall be resolved by arbitration, as follows:
(a) Any such arbitration shall be heard in the District of Columbia, before
a panel consisting of one (1) to three (3) arbitrators, each of whom shall be
impartial. Except as the parties may otherwise agree, all arbitrators shall be
appointed in the first instance by the appropriate official in the District of
Columbia office of the American Arbitration Association or, in the event of his
or her unavailability by reason of disqualification or otherwise, by the
appropriate official in the New York City office of the American Arbitration
Association. In determining the number and appropriate background of the
arbitrators, the appointing authority
13
<PAGE>
shall give due consideration to the issues to be resolved, but his or her
decision as to the number of arbitrators and their identity shall be final.
Except as otherwise provided in this Section 25, all of the arbitration
proceedings shall be conducted in accordance with the rules of the arbitrators.
(b) An arbitration may be commenced by any party to this Option Agreement
by the service of a written request for arbitration upon the other affected
parties. Such request for arbitration shall summarize the controversy or claim
to be arbitrated, and shall be referred by the complaining party to the
appointing authority for appointment of arbitrators ten (10) days following such
service or thereafter. If the panel of arbitrators is not appointed by the
appointing authority within thirty (30) days following such reference, any party
may apply to any court within the District of Columbia for an order appointing
arbitrators qualified as set forth below.
(c) All attorneys' fees and costs of the arbitration shall in the first
instance be borne by the respective party incurring such costs and fees, but the
arbitrators shall have the discretion to award costs and/or attorneys' fees as
they deem appropriate under the circumstances. The parties hereby expressly
waive punitive damages, and under no circumstances shall an award contain any
amount that in any way reflects punitive damages.
(d) Judgment on the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
(e) It is intended that controversies or claims submitted to arbitration
under this Section 25 shall remain confidential, and to that end it is agreed by
the parties that neither the facts disclosed in the arbitration, the issues
arbitrated, nor the views or opinions of any persons concerning them, shall be
disclosed to third persons at any time, except to the extent necessary to
enforce an award or judgment or as required by law or in response to legal
process or in connection with such arbitration.
IN WITNESS WHEREOF, the parties have executed this Option Agreement as of
the dates set forth below.
THE CORPORATE EXECUTIVE BOARD COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
OPTIONEE
------------------------
Signature:
----------------------
14
<PAGE>
Exhibit 10.14
STOCK OPTION AGREEMENT
PURSUANT TO
THE CORPORATE ADVISORY BOARD COMPANY
STOCK-BASED INCENTIVE COMPENSATION PLAN
THIS STOCK OPTION AGREEMENT (this "Option Agreement") is made effective as
of the Effective Date, between The Corporate Advisory Board Company, a Delaware
corporation (the "Company"), and ____________________ (the "Optionee"), granting
to the Optionee Options to purchase ________ Option Shares at a purchase price
of _________ per Option Share, as further described in Section 2 hereinbelow.
R E C I T A L S
- - - - - - - -
A. The Optionee entered into the Continuing Stock Option Agreement, made
as of ___________, 19___, pursuant to which to The Advisory Board Company, a
Maryland corporation (the "Advisory Board"), granted the Optionee the right and
option (the "Continuing Option" or "Continuing Options") to purchase shares of
Class B Nonvoting Stock, $0.01 par value, of the Advisory Board, subject to the
terms and conditions of the Continuing Stock-Based Incentive Compensation Plan,
originally adopted by the Advisory Board on March 1, 1994.
B. The Advisory Board proposes a spin-off transaction (the "Spin-off
Transaction") in which (i) its unincorporated division or functional unit
containing its corporate business (the "Corporate Business") will be transferred
to the Company, and (ii) the shares of capital stock of the Company will be
transferred pro rata to the Advisory Board's shareholder. Following the Spin-
off Transaction, it is expected that the Company will be the employer of the
Optionee.
C. The Company shall adopt, on or before the effective date of the Spin-
off Transaction (the "Effective Date"), the Stock-Based Incentive Compensation
Plan (the "Plan"), a copy of which is attached hereto as Exhibit A, pursuant to
which the Company may grant on or after the Effective Date Options to purchase
shares of Class B Nonvoting Common Stock of the Company, par value $0.01 per
share (the "Stock").
D. Pursuant to the terms and conditions of the Substitution Agreement
between the Advisory Board and the Optionee (the "Substitution Agreement"), the
Optionee has agreed as of the Effective Date to substitute Options to purchase
shares of Stock, subject to the terms and conditions of the Plan and this Option
Agreement, for his or her right, title and interest in and to the Continuing
Options.
E. Therefore, in accordance with the Plan and the Optionee's agreement to
substitute Options for Continuing Options as set forth in the Substitution
Agreement, the Committee is granting to the Optionee as of the Effective Date
Options to purchase shares of Stock, subject to the terms and conditions of the
Plan and this Option Agreement.
<PAGE>
F. The Optionee acknowledges that he or she is (or was) an employee of the
Advisory Board (and will be (or is) an employee of the Company) with substantial
knowledge concerning the performance, operations and future opportunities
relating to the Advisory Board and the Corporate Business. The Optionee further
acknowledges that he or she has been briefed on the past and potential future
performance of the Advisory Board and the Corporate Business by Jeffrey D.
Zients, Michael D'Amato and/or other senior executives of the Advisory Board
and/or the Company, and that the Optionee had the opportunity to ask Jeffrey D.
Zients, Michael D'Amato and/or other senior executives of the Advisory Board
and/or the Company whatever questions the Optionee desired concerning the
financial and operational performance and expectations of the Advisory Board and
the Corporate Business. Finally, the Optionee acknowledges that all future
operating results are impossible to predict and that no representation is being
made by the Advisory Board or the Company with respect to the accuracy or
completeness of any forecast regarding the future.
G. The Optionee acknowledges and agrees that, as of the Effective Date,
(i) the Company will be an S Corporation as defined in Section 1361 of the
Internal Revenue Code of 1986, as amended, and (ii) that the initial
capitalization of the Company will be as described below:
(1) 1,000 authorized shares of Class A Common Stock, par value $0.01
per share, of which 1,000 shares will be issued to David G.
Bradley;
(2) 1,399,000 authorized shares of Class B Nonvoting Common Stock
(the "Stock"), par value $0.01 per share, of which _______ shares
will be issued to David G. Bradley;
(3) The maximum number of shares of Stock that initially may be
subject to Options granted pursuant to the Plan will be 400,000.
Changes in the above capitalization (including increases or decreases in the
number of authorized shares of capital stock) and available options with respect
to the Company's capital stock may be made in the future. To the extent
applicable, Sections 8 and 9 of this Option Agreement may apply to further
adjustments to the above capitalization.
AGREEMENTS
----------
1. DEFINITIONS. Capitalized terms used herein shall have the following
-----------
meanings:
"Act" is defined in Section 6(a).
"Advisory Board" is defined in Recital A.
"Agreement Not to Compete" is the Agreement Concerning Exclusive Services,
Confidential Information, Business Opportunities, Non-Competition, Non-
Solicitation, and Work Product between the Optionee and the Company as attached
hereto in Exhibit "B".
2
<PAGE>
"Approved Sale" means a transaction or a series of related sale
transactions that result in a bona fide unaffiliated change of economic
---- ----
beneficial ownership of the Company (disregarding for this purpose any disparate
voting rights attributable to the outstanding stock of the Company) whether
pursuant to the sale of the stock of the Company, the sale of the assets of the
Company, or a merger or consolidation involving the Company. However, an
Approved Sale shall not include (i) an issuance by the Company of its own Stock,
or (ii) a gift of the stock of the Company.
"Cash Shortage" is the condition that exists when, in the judgment of the
Company, the Company's cash reserves may prove insufficient to (i) cover the
Company's working capital and other obligations as they come due, including
obligations pursuant to any stock option agreement, stockholders' agreement,
agreement not to compete, substitution agreement or liquid markets agreement
entered into by the Company and any other obligation of the Company to its
employees; (ii) maintain sufficient cash reserves to pay unforeseeable costs
that may arise; and at the same time (iii) make payments to Optionee pursuant to
this Option Agreement.
"Cause" for termination is the commission of an act of fraud, theft or
dishonesty against the Company; arrest or conviction for any felony; arrest or
conviction for any misdemeanor involving moral turpitude which might, in the
Company's opinion, cause embarrassment to the Company; misconduct; substance
abuse; insubordination; violation of Company policy; willful or repeated non-
performance or substandard performance of duties; violation of any District of
Columbia, state or federal laws, rules or regulations in connection with or
during performance of work; or Performance Inconsistent with Past Levels of
Contribution, as defined below.
"Chairman of the Board" means the Chairman of the Board of Directors of the
Company.
"Committee" is defined in the Plan.
"Company" is defined in the preamble.
"Continuing Option" or "Continuing Options" is defined in Recital A.
"Corporate Business" is defined in Recital B.
"Disability" shall mean a serious and permanent medical incapacity or
disability that precludes the Optionee from performing professional work. The
Company, at its option and expense, shall be entitled to retain a physician
reasonably acceptable to the Optionee to confirm the existence of such
incapacity or disability. The Chairman of the Board reserves the right to
define Disability in a more liberal manner.
"Distribution" means distributions to Stockholders with respect to the
capital stock of the Company in the form of dividends, redemption payments,
liquidation payments, or other similar payment types.
"Effective Date" is defined in Recital C.
"Exercisability Date" is defined in Section 3.
3
<PAGE>
"Exercise Date" is defined in Section 5(a).
"Exercise Price" is defined in Section 2.
"Expiration Date" is defined in Section 4(a).
"Expiration Event" is defined in Section 4.
"Fair Market Value" means the fair market value determined by an investment
bank selected by the Company, in its sole and absolute discretion. The
investment bank shall use customary criteria generally employed within the
investment banking community for valuing the assets or capital stock of an
entity similar to the Company. With respect to the Options and the Option
Shares, Fair Market Value will be determined by applying such minority,
liquidity, or other discounts as may be applicable to minority shares of capital
stock of this type.
"Fiscal Year" means the Company's fiscal year ending March 31 of each year
or such other date as shall be designated by the Company in its sole and
absolute discretion.
"Full Recourse" means the right of the Company to recover against all of
the assets of the Optionee in the event of a default by the Optionee with
respect to the Note.
"Initial Public Offering" means the effectiveness of a registration
statement under the Act covering any of the capital stock of the Company and the
completion of a sale of such stock thereunder, if as a result of such sale (i)
the issuer becomes a reporting company under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and (ii) such stock is traded on
the New York Stock Exchange or the American Stock Exchange, or is quoted on the
NASDAQ National Market System.
"Majority Shareholder" means a holder of more than fifty percent (50%) of
the outstanding stock of the Company, or if no person holds more than fifty
percent (50%) of the outstanding stock of the Company, the holder of a plurality
of the outstanding stock of the Company.
"Market Rate" is a floating rate equal to the Prime Rate as quoted in The
Wall Street Journal and as adjusted from time to time but not to exceed 10% per
annum.
"Net Proceeds" is defined in Section 3(b)(ii).
"Note" is defined in Section 5(a)(iii).
"Option" or "Options" is defined in Section 2.
"Option Number" is defined in Section 2.
"Optionee" is defined in the preamble.
4
<PAGE>
"Option Shares" means Stock subject to the Option.
"Performance Inconsistent with Past Levels of Contribution" is any neglect
of, or refusal or inability to, perform the Optionee's duties or
responsibilities with respect to the Company with the same level of contribution
as in past periods of employment; or any insubordination, dishonesty, negligence
or malfeasance in the performance of such duties and responsibilities; or the
taking of actions which impair the Optionee's ability to perform such duties and
responsibilities; or any material violation of Company rules or regulations.
"Plan" is defined in Recital C.
"Redemption Date" is defined in Section 10(a).
"Redemption Payment" is defined in Section 10(a).
"Redemption Payment Period" is defined in Section 10(a).
"Spin-off Transaction" is defined in Recital B.
"Stock" is defined in Recitals C and G.
"Stockholder" means a record holder of one or more shares of capital stock
of the Company.
"Stockholders' Agreement" means the Stockholders' Agreement of the Company,
attached hereto as Exhibit C, setting forth, inter alia, certain rights,
----------
preferences and privileges of and restrictions on the Option Shares. The
Optionee must execute a copy of the Stockholders' Agreement prior to receiving
his or her Option Shares pursuant to the exercise of the Option.
"Substitution Agreement" is defined in Recital D.
"Termination Date" means the date on which the Optionee ceases to be
employed by the Company for any reason other than (i) for Cause, (ii) for death
or a Disability, or (iii) upon a Voluntary Resignation Date.
"Undistributed Earnings" means, on any given date, the greater of (but not
less than zero): (i) the retained earnings (or similar entry) shown on the
audited financial statements of the Company for the prior Fiscal Year plus an
estimate by the Company of additions to or subtractions from such retained
earnings through such date of computation, and (ii) the "accumulated adjustments
account" (or similar computation) of the Company for the prior taxable year of
the Company pursuant to Section 1368(e) of the Internal Revenue Code of 1986, as
amended, plus an estimate by the Company of additions to or subtractions from
this account through such date of computation.
"Voluntary Notice Date" means the date the Optionee gives notice of his or
her Voluntary Resignation Date.
5
<PAGE>
"Voluntary Resignation Date" means the date on which the Optionee ceases
employment with the Company for voluntary reasons. Voluntary Resignation Date
shall not include the date on which the Optionee ceases to be employed by the
Company due to death or a Disability.
"Withholding Taxes" is defined in Section 11.
2. GRANT OF OPTION. The Company grants to the Optionee the right and
---------------
option (the "Option" or "Options") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate number of Option Shares
as described in the preamble (the outstanding amount of such unexercised and
unexpired Options herein referred to as the "Option Number"), at the purchase
price per Option Share as described in the preamble (as such amount may be
adjusted as herein provided, the "Exercise Price"), on the terms and conditions
set forth herein. These Options shall be treated as non-qualified stock
options.
3. EXERCISABILITY.
--------------
(A) EXERCISABILITY DATE. Prior to an Initial Public Offering, the Options
-------------------
shall be exercisable during the month of ____________ beginning on
______________ (the "Exercisability Date") and during every month of July,
October, January and April thereafter, or at such other times after the
Exercisability Date and prior to an Initial Public Offering as determined by the
Company in its sole and absolute discretion. Prior to an Initial Public
Offering and notwithstanding the foregoing, if an investment bank is performing,
or has performed, substantial services for the Company to examine, investigate,
and analyze the possibility, feasibility, or viability of an Initial Public
Offering within six (6) months of a month during which the Options would
otherwise become exercisable pursuant to this Section 3(a), the Chairman of the
Board may, in his sole and absolute discretion, make a determination that such
Options shall not be exercisable for such month and may designate some other
month (including the following month of January, April, July, or October, as
appropriate) for the exercise of the Options; provided, however, the Chairman of
the Board may not designate some other month for the exercise of the Options
pursuant to this Section 3(a) any later than the month of April beginning on
_______________________.
(B) OTHER EXERCISABLE EVENTS. Notwithstanding anything to the contrary in
------------------------
Section 3(a) above, the Options shall be exercisable upon the occurrence of any
of the following events prior to, on, or after, the Exercisability Date:
(i) Approved Sale of Stock. Prior to an Initial Public Offering,
----------------------
in the event of an Approved Sale by the Majority Shareholder of one hundred
percent (100%) of the Company's outstanding Stock held by such Majority
Shareholder, the Options shall be exercisable on the date of such Approved
Sale. However, if the Majority Shareholder sells less than one hundred
percent (100%) of the Company's outstanding Stock held by such Majority
Shareholder pursuant to an Approved Sale, the Optionee shall only be
entitled to exercise the Options with respect to a number of Option Shares
equal to the Option Number immediately prior to such Approved Sale
multiplied by the fraction equal to the number of shares of the Company's
outstanding Stock sold pursuant to the Approved Sale by such Majority
Shareholder divided by the total number of shares of the
6
<PAGE>
Company's outstanding Stock held by such Majority Shareholder immediately
prior to such Approved Sale.
(ii) Approved Sale of Assets. Prior to an Initial Public Offering,
-----------------------
in the event of a Distribution by the Company that is funded with one
hundred percent (100%) of the proceeds, after payment of related expenses
(the "Net Proceeds") from an Approved Sale of one hundred percent (100%) of
the Company's assets, the Options shall be exercisable on the date of such
Distribution. For purposes of this Section 3(b)(ii), a Distribution made
by the Company shall not be treated as a Distribution funded with the Net
Proceeds from an Approved Sale of the Company's assets to the extent of the
Company's Undistributed Earnings as of the Distribution date. However, if
less than one hundred percent (100%) of the Net Proceeds from an Approved
Sale of one hundred percent (100%) of the Company's assets is so
distributed, the Optionee shall only be entitled on the date of the
Distribution to exercise Options with respect to a number of Option Shares
equal to the Option Number immediately prior to such Distribution
multiplied by the percentage of the Net Proceeds from such Approved Sale
that is so distributed by the Company. If less than one hundred percent
(100%) of the Company's assets is sold pursuant to an Approved Sale and all
or some portion of the Net Proceeds from such Approved Sale is so
distributed, the Optionee shall be entitled on the date of Distribution to
exercise Options with respect to a number of Option Shares equal to the
Option Number immediately prior to such Distribution multiplied by the
product of (A) the percentage, based on Fair Market Value, of the Company's
assets sold pursuant to such Approved Sale, and (B) the percentage of the
Net Proceeds from such Approved Sale that is so distributed by the Company.
(iii) Initial Public Offering. In the event of an Initial Public
-----------------------
Offering of the Company's Stock, the Options shall be exercisable as
follows:
(A) as of the date one (1) year after the Initial Public Offering
or such earlier date(s) as the Chairman of the Board shall designate
in his sole and absolute discretion, fifty percent (50%) of the Option
Number as of the date of the Initial Public Offering; and
(B) as of the date two (2) years after the Initial Public
Offering or such earlier date(s) as the Chairman of the Board shall
designate in his sole and absolute discretion, fifty percent (50%) of
the Option Number as of the date of the Initial Public Offering.
(C) DETERMINATION OF EXERCISABLE OPTIONS. The good faith determination by
------------------------------------
the Company of the number of Options that may be exercisable by the Optionee
pursuant to Sections 3(b)(i), (ii) and (iii) above shall be binding upon the
Optionee.
4. EXPIRATION. The number of Option Shares that the Optionee is entitled
----------
to purchase pursuant to the Options shall be decreased by the number of Option
Shares purchased by the Optionee on any given date. In addition, as described
below, some or all of the Options
7
<PAGE>
shall expire and shall no longer be exercisable, at the end of the day upon
which ANY of the following events occurs (each an "Expiration Event"):
---
(A) EXPIRATION DATE. Upon ________________ (the "Expiration Date"), the
---------------
Options shall expire. Notwithstanding the foregoing, in the event of an Initial
Public Offering prior to Expiration Date, the Options shall expire the later of
two (2) years and thirty (30) days after the Initial Public Offering or
Expiration Date.
(B) TERMINATION BY THE COMPANY. Prior to an Initial Public Offering,
--------------------------
(i) the Options shall all expire as of the date the Optionee ceases to be
employed by the Company for Cause; or (ii) as of the Termination Date, the
Options shall all expire as of such Termination Date provided such date occurs
prior to the Exercisability Date.
(C) VOLUNTARY RESIGNATION BY THE OPTIONEE. Prior to an Initial Public
-------------------------------------
Offering, the Options shall all expire on the Voluntary Notice Date if (i) the
Voluntary Notice Date occurs less than twelve (12) months prior to the Voluntary
Resignation Date; or (ii) the Voluntary Resignation Date occurs prior to
______________________.
(D) APPROVED SALE OF STOCK. Prior to an Initial Public Offering, the
----------------------
Options shall all expire upon an Approved Sale by the Majority Shareholder of
one hundred percent (100%) of the Company's outstanding stock held by such
Majority Shareholder. However, if the Majority Shareholder sells less than one
hundred percent (100%) of the Company's outstanding stock held by such Majority
Shareholder pursuant to an Approved Sale, the number of Options that shall
expire shall be equal to the amount by which the Option Number immediately prior
to such Approved Sale multiplied by the fraction equal to the number of shares
of the Company's outstanding Stock sold pursuant to the Approved Sale by such
Majority Shareholder divided by the total number of shares of the Company's
outstanding Stock held by such Majority Shareholder immediately prior to such
Approved Sale exceeds the number of Option Shares purchased by the Optionee on
the date of such Approved Sale.
(E) APPROVED SALE OF ASSETS. Prior to an Initial Public Offering, the
-----------------------
Options shall all expire upon a Distribution by the Company that is funded with
one hundred percent (100%) of the Net Proceeds from an Approved Sale of one
hundred percent (100%) of the Company's assets. For purposes of this Section
4(e), a Distribution made by the Company shall not be treated as a Distribution
funded with the Net Proceeds from an Approved Sale of the Company's assets to
the extent of the Company's Undistributed Earnings as of the date of the
Distribution. However, if less than one hundred percent (100%) of the Net
Proceeds from an Approved Sale of one hundred percent (100%) of the Company's
assets is so distributed, the number of Options that shall expire shall be equal
to the amount by which the Option Number immediately prior to such Distribution
multiplied by the percentage of the Net Proceeds from such Approved Sale that is
so distributed by the Company exceeds the number of Option Shares purchased by
the Optionee on the date of such Distribution. If less than one hundred percent
(100%) of the Company's assets is sold pursuant to an Approved Sale and all or
some portion of the Net Proceeds from such Approved Sale is so distributed, the
number of Options that shall expire shall be equal to the amount by which the
Option Number immediately prior to such Distribution
8
<PAGE>
multiplied by the product of (i) the percentage, based on Fair Market Value, of
the Company's assets sold pursuant to such Approved Sale, and (ii) the
percentage of the Net Proceeds from such Approved Sale that is so distributed by
the Company, exceeds the number of Option Shares purchased by the Optionee on
the date of such Distribution.
(F) INITIAL PUBLIC OFFERING. In the event of an Initial Public Offering,
-----------------------
the Options shall expire as of the Voluntary Resignation Date or the date on
which the Optionee ceases to be employed by the Company for Cause. Any portion
of the Option that is unexercisable as of the expiration date shall remain
unexercisable and shall also terminate as of such date. If, within two (2)
years after an Initial Public Offering, the Optionee is terminated by the
Company other than for Cause or ceases employment as a result of death or a
Disability, the Options shall expire as of the date two (2) years and thirty
(30) days after the date of the Initial Public Offering. Notwithstanding
anything in this subsection (f) to the contrary and except as otherwise provided
in Section 4(a) above, if two (2) years has elapsed since the Initial Public
Offering, the Option shall expire as of the date thirty (30) days after the date
on which the Optionee ceases to be employed by the Company for any reason other
than death or a Disability.
5. EXERCISE OF THE OPTION.
----------------------
(a) Prior to the expiration thereof, the Optionee may exercise the Options
from time to time in whole or in part as permitted hereunder (the "Exercise
Date"). On the Exercise Date, the Optionee shall deliver to the Chairman of the
Board the following:
(i) A copy of the Stockholders' Agreement duly executed by the
Optionee;
(ii) A written and signed notice of such election setting forth the
number of Option Shares the Optionee has elected to purchase;
(iii) Payment in full of the aggregate Exercise Price of such Option
Shares in one or a combination of the following: (A) cash or a cashier's
or certified bank check payable to the order of the Company, or (B) prior
to an Initial Public Offering, a Full Recourse promissory note, in a form
determined by the Company in its sole and absolute discretion (the "Note"),
secured by the number of Option Shares the Optionee has elected to
purchase, bearing a Market Rate of interest, and due and payable the
earlier of the date the Optionee disposes of all or a portion of his or her
Stock securing the Note, or the date six (6) months after the Exercise Date
or such later date as the Company determines in its sole and absolute
discretion; and
(iv) The amount, if any, required pursuant to Section 11 hereof.
(b) Notwithstanding anything in Section 5(a) to the contrary, the Committee
may, in its sole and absolute discretion, permit payment of the Exercise Price
in such form or in such manner as may be otherwise permissible under the Plan
and under any applicable law.
(c) If the Optionee provides payment as provided in Section 5(a)(iii)(B)
above, the Optionee agrees to execute and deliver such other documents as may be
reasonably required by
9
<PAGE>
the Company to effectuate and secure the Note. If a Voluntary Notice Date occurs
less than twelve (12) months prior to a Voluntary Resignation Date, the Note,
together with any accrued interest thereon, shall be immediately payable upon
the earlier of the due date of the Note or the Voluntary Resignation Date.
6. COMPLIANCE WITH LEGAL REQUIREMENTS.
----------------------------------
(a) No Option Shares shall be issued or transferred pursuant to this Option
Agreement unless and until all legal requirements applicable to such issuance or
transfer have, in the opinion of counsel to the Company, been satisfied. Such
requirements may include, but are not limited to, registering or qualifying such
Option Shares under any state or federal law, satisfying any applicable law
relating to the transfer of unregistered securities or demonstrating the
availability of an exemption from applicable laws, placing a legend on the
Option Shares to the effect that they were issued in reliance upon an exemption
from registration under the Securities Act of 1933, as amended (the "Act"), and
may not be transferred other than in reliance upon Rule 144 or Rule 701
promulgated under the Act, if available, or upon another exemption from the Act,
or obtaining the consent or approval of any governmental regulatory body.
(b) The Optionee understands that the Company intends for the offering and
sale of Option Shares to be effected in reliance upon Rule 701 or another
available exemption from registration under the Act and intends to file a Form
701 as appropriate, and that the Company is under no obligation to register for
resale the Option Shares issued upon exercise of the Option, subject to the
Stockholders' Agreement. In connection with any such issuance or transfer, the
person acquiring the Option Shares shall, if requested by the Company, provide
information and assurances satisfactory to counsel to the Company with respect
to such matters as the Company reasonably may deem desirable to assure
compliance with all applicable legal requirements.
(c) The Option Shares issued pursuant to this Option Agreement may bear
such legends with respect to their transferability that the Committee may deem
appropriate.
7. NONTRANSFERABILITY. Subject to Sections 8 and 10 hereof, the Option
------------------
shall not be transferable by the Optionee except, after the Optionee's death, to
his or her spouse, child, estate, personal representative, heir or successor.
More particularly (but without limiting the generality of the foregoing), the
Option may not be assigned, transferred (except as aforesaid), pledged or
hypothecated in any way (whether by operation of law or otherwise), and shall
not be subject to execution, attachment or similar process. Any assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof, and the levy of any attachment or similar process upon
the Option that would otherwise effect a change in the ownership of the Option,
shall terminate the Option; provided, however, that in the case of the
involuntary levy of any attachment or similar involuntary process upon the
Option, the Optionee shall have thirty (30) days after notice thereof to cure
such levy or process before the Option terminates. This Option Agreement shall
be binding on and enforceable against any person who is a permitted transferee
of the Option pursuant to the first sentence of this Section.
8. EFFECT OF MERGER; ADJUSTMENTS.
-----------------------------
10
<PAGE>
(a) In the event of an Approved Sale that is a merger or other form of
corporate reorganization and notwithstanding any other provisions of this Option
Agreement, the unexercised portion of the Option shall be subject to the terms
of the agreement or plan of merger or reorganization effecting such merger or
reorganization and shall be converted, redeemed, exchanged, canceled or
otherwise treated as provided in such agreement or plan of merger or
reorganization.
(b) Subject to Section 8(a) above, if the shares of the Stock are changed
into or exchanged for a different number or kind of shares or securities, as the
result of any one or more reorganizations, recapitalizations, mergers,
acquisitions, stock splits, reverse stock splits, stock dividends or similar
events, an appropriate adjustment shall be made in the number and kind of shares
or other securities subject to the Option, and the price for each share or other
unit of any securities subject to this Option Agreement, in accordance with
Section 10 of the Plan. No fractional interests shall be issued on account of
any such adjustment unless the Committee specifically determines to the
contrary; provided, however, that in lieu of fractional interests, the Optionee,
-------- -------
upon the exercise of the Option in whole or part, shall receive cash in an
amount equal to the amount by which the Fair Market Value of such fractional
interests exceeds the Exercise Price attributable to such fractional interests.
9. ADJUSTMENTS AND DILUTION.
------------------------
(a) If the capitalization of the Company changes as the result of one or
more stock dividends, stock splits, reverse stock splits, combinations,
recapitalizations, reclassifications, mergers, consolidations or similar events,
an appropriate adjustment shall be made in the number and kind of shares or
other securities subject to the Option, and the price for each share or other
unit of any securities subject to this Option Agreement, in accordance with
Section 10 of the Plan. No fractional interests shall be issued on account of
any such adjustment unless the Committee specifically determines to the
contrary; provided, however, that in lieu of fractional interests, the Optionee,
-------- -------
upon the exercise of the Option in whole or part, shall receive cash in an
amount equal to the amount by which the Fair Market Value of such fractional
interests exceeds the Exercise Price attributable to such fractional interests.
(b) Except as may be specifically provided in this Option Agreement,
nothing herein shall prohibit or restrict the Company from taking any corporate
action or engaging in any corporate transaction of any kind, including, without
limitation, the issuance and sale of additional shares of capital stock of the
Company, any merger, consolidation, liquidation or sale of assets, or create in
Optionee or his or her permitted transferee any rights to acquire or receive
additional shares of capital stock of the Company or otherwise be protected
against dilution.
10. RIGHT OF REDEMPTION OF OPTIONS.
------------------------------
(a) Prior to an Initial Public Offering of the Stock of the Company and
notwithstanding anything in Section 7 above to the contrary, the Company shall
have the right, on or after the Exercisability Date and in its sole and absolute
discretion, to redeem, in whole, the Option granted by this Option Agreement,
and the Optionee shall be obligated to sell, in whole, the Option as required by
the Company's exercise of this right. The redemption of the Option
11
<PAGE>
shall be effective as of the date of such redemption (the "Redemption Date").
Payment for the redeemed Option (the "Redemption Payment") shall be made by
means of the payment to the Optionee by the Company of the Fair Market Value of
such Option in cash or by check as of the date one (1) year after the Redemption
Date or such earlier date(s) as the Company may designate in its sole and
absolute discretion (the "Redemption Payment Period"). No interest shall accrue
on any portion of the Redemption Payment due and outstanding during the
Redemption Payment Period.
(b) Notwithstanding anything to the contrary in Section 10(a) above, as of
the end of the Redemption Payment Period, payment of any due and outstanding
portion of the Redemption Payment shall be delayed if the Company determines it
is suffering from a Cash Shortage. Any outstanding portion of a Redemption
Payment that would otherwise be due and payable during a period of Cash Shortage
shall be delayed for a period of six (6) months, after which time the Company
shall either make any payment that has been delayed, or determine that the
Company continues to suffer from a Cash Shortage. Interest shall accrue at
Market Rate during any period of delay due to this Section 10(b).
(c) Notwithstanding anything in this Section 10 to the contrary, if a
Voluntary Notice Date occurs less than twelve months (12) prior to a Voluntary
Resignation Date, any portion of the Redemption Payment outstanding as of the
Voluntary Resignation Date, together with any accrued and unpaid interest
thereon, shall be forfeited by the Optionee, and the Company shall have no
further liability with respect to such outstanding portion and such accrued
interest, if any.
11. TAXES. The Committee may, in its discretion, make such provisions and
-----
take such steps as it may deem necessary or appropriate for the withholding of
all federal, state, local and other taxes required by law to be withheld with
respect to the exercise of the Option or the redemption of the Option (the
"Withholding Taxes") including, but not limited to, deducting the amount of any
such withholding taxes from any other amount then or thereafter payable to the
Optionee, requiring the Optionee to pay to the Company the amount required to be
withheld or to execute such documents as the Committee deems necessary or
desirable to enable it to satisfy its obligations with respect to the
Withholding Taxes. With the consent of the Company, the Optionee may authorize
the Company to withhold a sufficient number of the shares of Stock otherwise
issuable to the Optionee on the Exercise Date as payment of his or her
obligation with respect to the Withholding Taxes (such shares to be valued on
the basis of the Fair Market Value of the Stock of the Company on the Exercise
Date).
12. NO INTEREST IN SHARES SUBJECT TO OPTION. Neither the Optionee
---------------------------------------
(individually or as a member of a group) nor any beneficiary or other person
claiming under or through the Optionee shall have any right, title, interest, or
privilege in or to any shares of Stock allocated or reserved for the purpose of
the Plan or subject to this Option Agreement except as to such Option Shares, if
any, as shall have been issued to such person upon exercise of the Option or
portion thereof.
12
<PAGE>
13. SUBJECT TO STOCKHOLDERS' AGREEMENT. The Optionee acknowledges that
----------------------------------
the Option Shares are subject to the terms of the Stockholders' Agreement.
14. THE PLAN CONTROLS. The Option hereby granted is subject to, and the
-----------------
Company and the Optionee agree to be bound by, all of the terms and conditions
of the Plan as the same may be amended from time to time in accordance with the
terms thereof, but no such amendment shall be effective as to the Option without
the Optionee's consent insofar as it may adversely affect the Optionee's rights
under this Option Agreement.
15. NOT AN EMPLOYMENT CONTRACT. Nothing in the Plan, in this Option
--------------------------
Agreement or any other instrument executed pursuant thereto shall confer upon
the Optionee any right to continue in the employ of the Company nor shall affect
the right of the Company to terminate the employment of the Optionee with or
without Cause.
16. SUBJECT TO AGREEMENT NOT TO COMPETE. The Optionee acknowledges that
-----------------------------------
the execution of the Agreement Not to Compete attached hereto is a condition
precedent to the receipt of any rights or benefits conferred on the Optionee by
this Option Agreement.
17. NOTICES. All notices, requests, demands and other communications
-------
pursuant to this Option Agreement shall be in writing and shall be deemed to
have been duly given if personally delivered, telexed or telecopied to, or, if
mailed, when received by, the other party, if the Company at its principal
executive offices addressed to the attention of the Chairman of the Board, and
if to Optionee at his or her address as it appears on the books of the Company
(or at such other address as shall be given in writing by Optionee or his or her
permitted transferee to the Company).
18. BINDING EFFECT. This Option Agreement shall inure to the benefit of
--------------
and be binding upon the parties hereto and their respective permitted successors
and assigns.
19. ENTIRE OPTION AGREEMENT. This Option Agreement, together with the
-----------------------
Plan, the Stockholders' Agreement, the Agreement Not to Compete and the
Substitution Agreement, sets forth the entire agreement and understanding
between the parties as to the subject matter hereof (including, but not limited
to, any rights of the Optionee to any value or appreciation in value of the
Company or its capital stock) and supersedes all prior oral and written and all
contemporaneous oral discussions, agreements and understandings of any kind or
nature.
20. AMENDMENTS AND WAIVERS. This Option Agreement may be amended, and any
----------------------
provision hereof may be waived, only by a writing signed by the party to be
charged.
21. FURTHER ASSURANCES. Each party shall cooperate and take such action
------------------
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Option Agreement.
22. ACTIONS BY THE COMPANY. Any reference within this Option Agreement to
----------------------
an action, judgment, conclusion, or determination by the Company shall mean an
action, judgment,
13
<PAGE>
conclusion, or determination of the Board of Directors of the Company or its
authorized representative(s).
23. HEADINGS. The headings preceding the text of the sections hereof are
--------
inserted solely for convenience of reference, and shall not constitute a part of
this Option Agreement, nor shall they affect its meaning, construction or
effect.
24. GOVERNING LAW. All terms of and rights under this Option Agreement
-------------
shall be governed by and construed in accordance with the internal law of the
State of Delaware, without giving effect to principles of conflicts of law.
25. ARBITRATION. The parties shall endeavor to settle all disputes by
-----------
amicable negotiations. Any claim, dispute, disagreement or controversy that
arises among the parties relating to this Option Agreement (excluding
enforcement by the Company of its rights under the Agreement Not to Compete)
that is not amicably settled shall be resolved by arbitration, as follows:
(a) Any such arbitration shall be heard in the District of Columbia, before
a panel consisting of one (1) to three (3) arbitrators, each of whom shall be
impartial. Except as the parties may otherwise agree, all arbitrators shall be
appointed in the first instance by the appropriate official in the District of
Columbia office of the American Arbitration Association or, in the event of his
or her unavailability by reason of disqualification or otherwise, by the
appropriate official in the New York City office of the American Arbitration
Association. In determining the number and appropriate background of the
arbitrators, the appointing authority shall give due consideration to the issues
to be resolved, but his or her decision as to the number of arbitrators and
their identity shall be final. Except as otherwise provided in this Section 25,
all of the arbitration proceedings shall be conducted in accordance with the
rules of the arbitrators.
(b) An arbitration may be commenced by any party to this Option Agreement
by the service of a written request for arbitration upon the other affected
parties. Such request for arbitration shall summarize the controversy or claim
to be arbitrated, and shall be referred by the complaining party to the
appointing authority for appointment of arbitrators ten (10) days following such
service or thereafter. If the panel of arbitrators is not appointed by the
appointing authority within thirty (30) days following such reference, any party
may apply to any court within the District of Columbia for an order appointing
arbitrators qualified as set forth below.
(c) All attorneys' fees and costs of the arbitration shall in the first
instance be borne by the respective party incurring such costs and fees, but the
arbitrators shall have the discretion to award costs and/or attorneys' fees as
they deem appropriate under the circumstances. The parties hereby expressly
waive punitive damages, and under no circumstances shall an award contain any
amount that in any way reflects punitive damages.
(d) Judgment on the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
14
<PAGE>
(e) It is intended that controversies or claims submitted to arbitration
under this Section 25 shall remain confidential, and to that end it is agreed by
the parties that neither the facts disclosed in the arbitration, the issues
arbitrated, nor the views or opinions of any persons concerning them, shall be
disclosed to third persons at any time, except to the extent necessary to
enforce an award or judgment or as required by law or in response to legal
process or in connection with such arbitration.
IN WITNESS WHEREOF, the parties have executed this Option Agreement as of
the dates set forth below.
THE CORPORATE ADVISORY BOARD COMPANY
By: _____________________________
Name: ___________________________
Title: __________________________
Date: ___________________________
OPTIONEE
Signature:________________________
Date: ___________________________
15
<PAGE>
AMENDMENT TO STOCK OPTION AGREEMENT
This Amendment, made and effective as of the ____ day of ___, 199_ (the
"Effective Date"), by and between The Corporate Advisory Board Company, a
Delaware corporation (the "Company") and ____________(the "Optionee") with
respect to the Stock Option Agreement Pursuant to The Corporate Advisory Board
Company Stock-Based Incentive Compensation Plan between the Company and the
Optionee (the "Stock Option Agreement") (collectively, the "Amendment");
For good and valuable consideration, the receipt and sufficiency of which hereby
are acknowledged, and in accordance with the terms of the Stock Option
Agreement, the Company and the Optionee have agreed to amend the Stock Option
Agreement as follows, provided such amendment (A) shall not apply unless there
is an Initial Public Offering on or prior to December 31, 1999 and (B) shall not
apply to any Optionee who (i) is terminated by the Company other than for Cause
or (ii) ceases employment as a result of death or a Disability:
1. Section 3(b)(iii) of the Stock Option Agreement is amended to read in its
entirety as follows:
(iii) Initial Public Offering. In the event of an Initial Public Offering
-----------------------
of the Company's Stock, the Options shall be exercisable as follows:
(A) as of the date one (1) year after the Initial Public Offering,
fifty percent (50%) of the Option Number as of the date of the
Initial Public Offering; and
(B) as of the date two (2) years after the Initial Public Offering,
thirty percent (30%) of the Option Number as of the date of the
Initial Public Offering (for an aggregate total to date of eighty
percent (80%) of such Option Number); and
(C) as of the date three (3) years after the Initial Public Offering,
twenty percent (20%) of the Option Number as of the date of the
Initial Public Offering (for an aggregate total to date of one
hundred percent (100%) of such Option Number).
2. All capitalized terms used in this Amendment, unless otherwise defined
herein, shall have the meaning given them in the Stock Option Agreement. As
amended by this Amendment, the Stock Option Agreement continues in full
force and effect. Except for the specific provisions amended by this
Amendment, the terms and conditions of the Stock Option Agreement are
unchanged.
IN WITNESS WHEREOF, each party hereto has caused this Amendment to be executed
and delivered, all as of the date first set forth above.
The Corporate Advisory Board Company
By: __________________________________ ________________________________
Name: Michael D'Amato OPTIONEE
Title: Executive Vice President
16
<PAGE>
Exhibit 10.17
AGREEMENT CONCERNING EXCLUSIVE SERVICES,
CONFIDENTIAL INFORMATION, BUSINESS OPPORTUNITIES,
NON-COMPETITION, NON-SOLICITATION AND WORK PRODUCT
This Agreement is made November 1, 1998, by and between The Corporate
Executive Board Company, including its affiliates, successors and assigns (the
"Company") and Clay M. Whitson (the "Employee").
R E C I T A L S
- - - - - - - -
R1. The Company is engaged in the business of providing research and
advisory services to individual members in various industries, including without
limitation such services as short-answer or custom research on demand, multiple
client or syndicated studies, benchmarking data and databases and conferences,
seminars, training and education. In order to remain competitive in this
business, the Company must protect its good will, its base of members and
prospective members, its employees, its confidential and proprietary
information, and the work product of its employees.
R2. The Company has offered employment or continued employment to the
Employee. During the course of employment, the Employee will develop important
contacts with the members and prospective members of the Company, and will also
become aware of certain methods, practices, information and procedures with
which the Company conducts its business, all of which are considered
confidential and proprietary by the Company. The Employee may also prepare
studies and other written materials using the Company's resources.
R3. The Company and the Employee agree that it is reasonable and necessary
to enter into an agreement to protect the Company's good will, its base of
members and prospective members, its employees, its confidential and proprietary
information, and its work product.
NOW, THEREFORE, in consideration of the recitals above, initial and/or
continued employment, participation in the Company's employee benefit programs
as reflected in the Employment Agreement, Stockholders Agreement and Stock
Option Agreement between the Employee and the Company (the "Employee Benefit
Programs") and other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree as follows:
1. EXCLUSIVE SERVICES
------------------
During the term of employment, the Employee shall at all times devote his
entire working time, attention, energies, efforts and skills to the business of
the Company, and shall not, directly or indirectly, engage in any other business
activity, whether or not for profit, gain or other pecuniary advantages, without
the express written permission of the Company. The Employee shall not, without
prior written permission of the Company, directly or indirectly, either as an
officer, director, employee, agent, adviser, consultant, principal, stockholder,
partner, owner or in any other capacity, on his own behalf or otherwise, in any
way engage in, represent, be
<PAGE>
connected with or have a financial interest in, any business which is, or to the
best of his knowledge, is about to become, engaged in the same or substantially
similar business lines as the Company or any of its affiliates or which
otherwise competes with or is about to compete with the Company or any of its
affiliates.
2. CONFIDENTIAL INFORMATION
------------------------
Except as may be required and authorized in the course of his employment
with the Company, the Employee shall not at any time during his employment with
the Company or after the termination thereof for any reason disclose or use,
directly or indirectly, any confidential or proprietary information of the
Company or its affiliates. For the purposes of this Agreement, "confidential or
proprietary information" shall mean all information disclosed to the Employee,
or known by him as a consequence of or through his employment with the Company,
where such information is not generally known in the trade or industry or which
is considered confidential by the Company or was the subject of efforts by the
Company to maintain its confidentiality, and where such information refers or
relates in any manner whatsoever to the business activities, financial
condition, processes, services or products of the Company or its affiliates.
3. RETURN OF COMPANY PROPERTY
--------------------------
Upon termination of employment for any reason, the Employee shall
immediately return to the Company all of the Company's and its affiliates'
property and confidential or proprietary information which is in tangible form
and all copies thereof in the Employee's possession, custody or control.
4. BUSINESS OPPORTUNITIES
----------------------
During the term of his employment, the Employee shall promptly disclose to
the Company each business opportunity of a type which, based upon its prospects
and relationship to the business of the Company or its affiliates, the Company
might reasonably consider pursuing. In the event that the Employee's employment
is terminated for any reason, the Company or its affiliates shall have the
exclusive right to participate in or undertake any such opportunity on their own
behalf without any involvement by or compensation to the Employee.
5. COVENANT NOT TO COMPETE
-----------------------
(a) If the Employee's employment is terminated by the Company for Cause (as
defined in Section 5(d) below), or if the Employee voluntarily resigns other
than for Good Reason (as defined in Section 5(d) below), the Employee shall not,
directly or indirectly, either individually or as a stockholder, director,
officer, partner, consultant, owner, employee, agent, or in any other capacity,
for a period of three (3) years following the termination of employment with the
Company, (i) provide "Company Services" or work for or provide services to any
person or entity that provides "Company Services" in the United States or in any
foreign country in which the Company or any of its affiliates (as defined in
Section 5(d) below) is engaged in business as of the date of the Employee's
termination; or (ii) solicit or offer to provide or provide "Company Services,"
or work for a person or entity that solicits or offers to provide or provides
2
<PAGE>
"Company Services," to any person or entity who was a member of the Company or
its affiliates or was directly or indirectly solicited to be a member of the
Company or any of its affiliates at any time during the two-year period prior to
the termination of the Employee's employment with the Company. For the purposes
of this Section 5(a), the term "Company Services" shall mean: (aa) providing
short-answer or custom research on demand, including without limitation
literature or database searches, telephone interviews, or other research of the
same or substantially similar type as that provided by the Company or its
affiliates; or (bb) preparing published multiple client or syndicated studies,
including without limitation studies of the same or substantially similar type
provided by the Company or its affiliates; or (cc) selling benchmarking data and
databases of the same or substantially similar type provided by the Company or
its affiliates; or (dd) providing conferences, seminars, training or education
of the same or substantially similar type provided by the Company or its
affiliates; or (ee) providing any other services or products not described in
(aa) through (dd) above that the Company or its affiliates is providing, has
provided or proposes to provide as of the date of the Employee's termination;
where any of the foregoing services described in (aa) through (ee) above are
provided to any of the following: physicians, hospitals, health plans,
pharmaceutical companies, insurance companies, managed care companies,
commercial banks, brokerage houses, mutual fund companies or Fortune 1000
companies. The Company may release the Employee from some or all of the
restrictions in this section only in a written instrument signed by the Employee
and the Chairman of the Company.
(b) If the Employee's employment is terminated by the Company without Cause
or if the Employee voluntarily resigns for Good Reason, the provisions of
Section 5(a) of this Agreement shall apply to the Employee and the Employee must
comply with the provisions of Section 5(a) as if he was terminated for Cause or
voluntarily resigned other than for Good Reason for a period of one (1) year
from such termination (the "Initial Period"). If the Company notifies the
Employee in writing within ninety (90) days of the end of the Initial Period of
the Company's desire to extend the Initial Period for an additional one (1) year
period (the "First Additional Period") (for a total of two years from the date
of termination), the Employee must comply with the provisions of Section 5(a) as
if he was terminated for Cause or voluntarily resigned other than for Good
Reason for a period of one (1) year after the expiration of the Initial Period,
provided the Company agrees to pay the Employee, in monthly installments, one
hundred percent (100%) of the Employee's base salary at the time of termination
over the First Additional Period. In addition, if the Company notifies the
Employee in writing within ninety (90) days of the end of the First Additional
Period of the Company's desire to extend the First Additional Period for an
additional one (1) year period (the "Second Additional Period") (for a total of
three years from the date of termination), the Employee must comply with the
provisions of Section 5(a) as if he was terminated for Cause or voluntarily
resigned other than for Good Reason for a period one (1) year in addition to the
First Additional Period, provided the Company agrees to pay the Employee, in
monthly installments, one hundred percent (100%) of the Employee's base salary
at the time of termination over the Second Additional Period.
(c) The Employee agrees that the restrictions imposed upon him by the
provisions of this Section 5 are fair and reasonable considering the nature of
the Company's business, were specifically discussed in good faith, are
reasonably required for the protection of the Company
3
<PAGE>
and are acceptable to the Employee. Nevertheless, to the extent that these
restrictions exceed the maximum areas of restriction, member limitations or
periods of time which a court of competent jurisdiction would enforce, the areas
of restriction, member limitations or time periods shall be modified by such
court to be the maximum areas of restriction, member limitations or time periods
which such court would enforce in any state in which such court shall be
convened. In addition, both during and subsequent to his term of employment and
at such times as the Company may reasonably request, the Employee agrees to
provide the Company with such information as may be necessary to demonstrate his
compliance with the terms and conditions of this Agreement.
(d) For purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i) The term "affiliates" shall mean a corporation of which 50
percent or more of the total combined voting power or value of all classes
of capital stock are, directly or indirectly, owned by the Company or by
the beneficial shareholders of the Company. Without limiting the foregoing,
The Advisory Board Company, a Maryland corporation, shall be deemed to be
an affiliate of the Company.
(ii) "Cause" for termination is the commission of an act of fraud or
theft against the Company; conviction for any felony; conviction for any
misdemeanor involving moral turpitude which might, in the Company's
opinion, cause embarrassment to the Company; significant violation of any
material Company policy; willful or repeated non-performance or substandard
performance of material duties which is not cured within thirty (30) days
after written notice thereof to the Employee; or violation of any material
District of Columbia, state or federal laws, rules or regulations in
connection with or during performance of the Employee's work, which, if
such violation is curable, is not cured within thirty (30) days after
notice thereof to the Employee.
(iii) "Good Reason" shall exist if the Company (i) effects a material
adverse change to the employment responsibilities or authority of the
Employee, (ii) effects a reduction in the base salary of the Employee,
(iii) relocates the Employee's place of employment to a location that is
more than thirty-five (35) miles from the location of the Company's
headquarters on the date of the Employment Agreement between the Company
and the Employee (the "Employment Agreement"), or (iv) materially breaches
the Employment Agreement. A termination for Good Reason shall not include
death or disability. In addition, if, as a result of one or more related
transactions, the majority of the capital stock of the Company or
substantially all of its assets are purchased by, or the Company is merged
with, another company, the Employee may terminate his employment for Good
Reason, if, after such transactions, there is a significant and material
adverse change in the Employee's responsibility for, and authority over,
the same internal functions of the Company's business as he had prior to
such transactions.
4
<PAGE>
6. SOLICITATION OF EMPLOYEES
-------------------------
The Employee agrees that during the term of his employment, and for a period
of three (3) years after termination of such employment for any reason, he shall
not, except in the course of his duties for the Company, directly or indirectly,
induce or attempt to induce or otherwise counsel, advise, ask or encourage any
person who at the time is a current employee of the Company or its affiliates,
or who left such employ within the preceding six (6) months, to leave the employ
of the Company or to accept employment with another employer besides the Company
or as an independent contractor, or offer employment to or hire such person, or
work for any person or entity that offers employment to or hires such person.
7. SEVERABILITY
------------
If any provision of this Agreement shall be determined, by a court having
jurisdiction, to be invalid, illegal or unenforceable, the remainder of this
Agreement shall not be affected but shall continue in full force and effect as
though such invalid, illegal or unenforceable provision were not originally a
part of this Agreement.
8. SPECIFIC PERFORMANCE AND ATTORNEYS' FEES
----------------------------------------
Subject to the immediately following sentence, the parties hereto agree to
resolve any disputes relating to this Agreement by arbitration in accordance
with Section 7 of the Employment Agreement between the Company and the Employee
(the "Employment Agreement"). Notwithstanding anything to the contrary
contained herein or in the Employment Agreement, the Employee acknowledges and
hereby agrees that a breach of any of the provisions of this Agreement may
result in continuing and irreparable damages to the Company or its affiliates
for which there may be no adequate remedy at law and that the Company or its
affiliates, in addition to all other relief available to it, shall be entitled
to initiate at any time legal action in a court of competent jurisdiction for
the purpose of seeking and obtaining the issuance of a temporary restraining
order, preliminary injunction and/or other similar relief restraining the
Employee from committing or continuing to commit any breach of this Agreement
pending final resolution of the arbitration proceeding. In the event the
Company prevails in such arbitration proceeding, in addition to any other
remedies granted to the Company pursuant to such proceeding, the Company shall
be entitled to seek and obtain a permanent injunction and/or other similar
relief restraining the Employee from committing or continuing to commit any
breach of this Agreement. The prevailing party in any action for breach of this
Agreement shall be entitled to be reimbursed by the other party for its
reasonable attorneys' fees and costs incurred in such action. The Employee also
agrees that any applicable time period limitation on any provision of this
Agreement (such as the limitation periods set forth in Sections 5(a), 5(b) and 6
above) shall be extended on a day-for-day basis for each day during which the
Employee is in breach of this Agreement.
9. CHOICE OF LAW
-------------
This Agreement shall be construed in accordance with and governed by the
laws of the District of Columbia, irrespective of the principles of conflicts of
law therein.
5
<PAGE>
10. LIMITATIONS OF AGREEMENT
------------------------
This Agreement does not constitute a contract of employment for a definite
period of time. Either party may terminate the employment relationship with or
without cause at any time for any lawful reason. The provisions of this
Agreement shall survive the termination of the employment relationship between
the Company and the Employee.
11. SUCCESSORS AND ASSIGNS
----------------------
This Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns. Notwithstanding the
foregoing, the Employee shall not assign his obligations under this Agreement
without the express written consent of the Company and its successors and
assigns.
12. COUNTERPARTS
------------
This Agreement may be executed in two or more counterparts all of which
shall have the same force and effect as if all parties hereto had executed a
single copy of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
EMPLOYEE THE CORPORATE EXECUTIVE BOARD
COMPANY
By:_____________________________________
_____________________________
Clay M. Whitson Name: Michael A. D'Amato
Title: Executive Vice President
6
<PAGE>
Exhibit 10.18
AGREEMENT CONCERNING EXCLUSIVE SERVICES, CONFIDENTIAL INFORMATION, BUSINESS
---------------------------------------------------------------------------
OPPORTUNITIES, NON-COMPETITION, NON-SOLICITATION AND WORK PRODUCT
-----------------------------------------------------------------
This Agreement is made this 30th day of October, 1997, by and between The
Corporate Advisory Board Company, including its affiliates, successors and
assigns (the "Company") and Michael D'Amato (the "Employee").
R E C I T A L S
---------------
Rl. The Company is engaged in the business of providing research and
advisory services to individual members in various industries, including without
limitation such services as short-answer or custom research on demand, multiple
client or syndicated studies, benchmarking data and databases and conferences,
seminars, training and education. In order to remain competitive in this
business, the Company must protect its good will, its base of members and
prospective members, its employees, its confidential and proprietary
information, and the work product of its employees.
R2. The Company has offered employment or continued employment to the
Employee. During the course of employment, the Employee will develop important
contacts with the members and prospective members of the Company, and will also
become aware of certain methods, practices, information and procedures with
which the Company conducts its business, all of which are considered
confidential and proprietary by the Company. The Employee may also prepare
studies and other written materials using the Company's resources.
R3. The Company and the Employee agree that it is reasonable and necessary
to enter into an Agreement to protect the Company's good will, its base of
members and prospective members, its employees, its confidential and proprietary
information, and its work product.
NOW THEREFORE, in consideration of the recitals above, initial and/or
continued employment, participation in the Company's employee benefit programs
as reflected in the Stock Option Agreement and Substitution Agreement between
the Employee and the Company and other good and valuable consideration, the
receipt and sufficiency of which is acknowledged, the parties agree as follows:
1. EXCLUSIVE SERVICES
------------------
During the term of employment, the Employee shall at all times devote a
mutually agreeable percentage of his working time, attention, energies, efforts
and skills to the business of the Company or its affiliates, and shall not,
directly or indirectly, engage in any other significant business activity,
whether or not for profit, gain or other pecuniary advantages, without the
express permission of the Company (which shall not be unreasonably withheld).
The Company acknowledges that the Employee is engaged in ongoing work with Bain
and Company (hereinafter "Bain") and certain clients of Bain. The Employee
shall not, however, without prior written permission of the Company or its
affiliates, directly or indirectly, either as an officer,
<PAGE>
director, employee, agent, adviser, consultant, principal, stockholder, partner,
owner or in any other capacity, on his/her own behalf or otherwise, in any way
engage in, represent, be connected with or have a financial interest in, any
business which is, or to the best of his/her knowledge, is about to become,
engaged in the same or substantially similar business lines as the Company or
any of its affiliates or which otherwise competes with or is about to compete
with the Company or any of its affiliates. Nothing herein will preclude the
Employee from owning up to 10% of the stock of any publicly traded company.
2. CONFIDENTIAL INFORMATION
------------------------
Except as may be required and authorized in the course of his/her
employment with the Company, the Employee shall not at any time during his/her
employment with the Company or after the termination thereof for any reason
disclose or use, directly or indirectly, any confidential or proprietary
information of the Company or its affiliates. For the purposes of this
Agreement, "confidential or proprietary information" shall mean all information
disclosed to the Employee, or known by him/her as a consequence of or through
his/her employment with the Company, where such information is not generally
known in the trade or industry or which is reasonably considered confidential by
the Company, and where such information refers or relates in any manner
whatsoever to the business activities, processes, services or products of the
Company or its affiliate. Such information includes, but is not limited to,
trade secrets as defined by the District of Columbia Trade Secrets Act, D.C.
Code (S) 48-501 et seq., business and development plans (whether contemplated,
------
initiated or completed), business contacts, methods of operation, policies,
results of analysis, member and prospective member lists, employee lists,
business forecasts, financial data, advertising and marketing methods, manuals,
training materials, management, performance review, project assessment and all
other forms and documents used in management of the Company's employees and in
performing work for the Company, reports, correspondence, data collection forms
and other documents provided to members, syndicated, multi-client studies,
custom research reports, statements, reports, strategic information and other
information distributed to policy or management committee members, information
relating to costs and revenues, and similar information.
3. RETURN OF COMPANY PROPERTY
--------------------------
Upon termination of employment for any reason, the Employee shall
immediately return to the Company all of the Company's and its affiliates'
property and confidential or proprietary information which is in tangible form
(including, but not limited to, all correspondence, memoranda, files, manuals,
books, lists, records, equipment, computer disks, magnetic tape, and electronic
and other media and equipment) and all copies thereof in the Employee's
possession, custody or control, provided that the Employee may retain one copy
of each published study to which he/she contributed personally.
4. BUSINESS OPPORTUNITIES
----------------------
During the term of his/her employment, the Employee shall promptly disclose
to the Company each business opportunity of a type which, based upon its
prospects and relationship to the business of the Company or its affiliates, the
Company might reasonably consider pursuing,
2
<PAGE>
to the extent such disclosure would not conflict with duties employee owes to
other parties that are disclosed to and agreed to by the Company.
5. COVENANT NOT TO COMPETE
-----------------------
(a) Except as otherwise provided in Section 5(b) below, if the Employee's
employment is terminated by the Company for Cause, or if the Employee
voluntarily resigns for any reason, the Employee shall not, directly or
indirectly, either individually or as a stockholder, director, officer, partner,
consultant, owner, employee, agent, or in any other capacity, for a period of
two (2) years following such termination, (i) provide "Company Services" or work
for or provide services to any person or entity that provides "Company
Services," within a one hundred (100) mile radius of any city or location in the
United States or in any foreign country in which the Company or its affiliates
has an office, is engaged in business, or proposes to engage in business as of
the date of the Employee's termination; or (ii) solicit or offer to provide or
provide "Company Services," or work for a person or entity that directly
solicits or offers to provide or provides "Company Services," to any person or
entity who was a member of the Company or its affiliates or was directly or
indirectly solicited to be a member of the Company or its affiliates at any time
during the two-year period prior to the termination of the Employee's employment
with the Company or its affiliates. For the purposes of this Section 5(a), the
term "Company Services" shall mean: (aa) providing short-answer or custom
research on demand, including literature or database searches, telephone
interviews, or other research, of the same or substantially similar type as that
provided by the Company or its affiliates; or (bb) preparing published multiple
client or syndicated studies of the same or substantially similar type provided
by the Company or its affiliates; or (cc) selling benchmarking data and
databases of the same or substantially similar type provided by the Company or
its affiliates; or (dd) providing conferences, seminars, training or education
of the same or substantially similar type provided by the Company or its
affiliates; or (ee) providing any other services or products not described in
(aa) through (dd) above that the Company or its affiliates is providing, has
provided or proposes to provide as of the date of the Employee's termination;
where any of the foregoing services described in (aa) through (dd) above are
provided to any of the following: physicians, hospitals, health plans,
pharmaceutical companies, insurance companies, managed care companies,
commercial banks, brokerage houses, mutual fund companies or Fortune 1000
companies. Notwithstanding the foregoing, the parties agree and acknowledge
that the Employee may (at the conclusion of his employment with the Company)
work as a consultant providing services of the same or substantially similar
type as provided by Bain and Company, McKinsey and Company, Inc. and The Boston
Consulting Group (the "Consulting Firms"), or be employed by a management
consulting firm of the same or substantially similar type as the Consulting
Firms. The Company may release the Employee from some or all of the
restrictions in this section only in a written instrument signed by the Employee
and the Chairman of the Company.
For the purposes of this Section 5(a), "Cause" for termination shall mean
(i) the commission of an act of fraud, theft or dishonesty against the Company;
(ii) conviction of or pleading guilty or nolo contendere to any felony or any
misdemeanor involving moral turpitude which, in the Company's reasonable
opinion, causes embarrassment to the Company; (iii) material violation of
material Company policy; or (iv) willful and repeated nonperformance or
3
<PAGE>
substandard performance of reasonable duties, provided, however, that in the
--------- -------
case of either (iii) or (iv), above, the Company shall notify the Employee in
writing of such material violation or such performance (as applicable) and
provide a reasonable opportunity to cure such material violation or such
performance (the "Cure Period"). If the Employee fails to cure such material
violation or such performance in the Cure Period, a subsequent termination shall
be for "Cause."
(b) In the event of an Approved Sale or an Initial Public Offering prior to
the date of the Employee's termination, the two year limitation period set forth
in Section 5(a) above shall be extended an additional one (1) year (for a total
of three (3) years from the date of termination). For purposes of this
Agreement, an "Approved Sale" shall mean a transaction or a series of related
transactions that result in a bona fide unaffiliated change of more than fifty
---- ----
percent (50%) of the economic beneficial ownership of (A) the Company or (B) a
functional unit or division of the Company in which the Employee is employed
(disregarding for purposes of this Section 5 any disparate voting rights
attributable to the outstanding capital stock of the Company), whether pursuant
to the sale of the capital stock of the Company, the sale of the assets of the
Company, or a merger or consolidation involving the Company. However, an
Approved Sale shall not include (i) an issuance by the Company of its own
capital stock, or (ii) a gift of the capital stock of the Company. For purposes
of this Agreement, an "Initial Public Offering" shall mean the effectiveness of
a registration statement under the Securities Act of 1933, as amended, covering
any of the capital stock of the Company and the completion of the sale
thereunder, if as a result of such sale (aa) the issuer becomes a reporting
company under Securities Exchange Act of 1934, as amended, and (bb) such stock
is traded on the New York Stock Exchange or the American Stock Exchange, or is
quoted on the NASDAQ National Market System.
(c) The Employee agrees that the restrictions imposed upon him/her by the
provisions of this section are fair and reasonable considering the nature of the
Company's business, and are reasonably required for the protection of the
Company. The Employee further agrees that the provisions of Section 5(a)
relating to areas of restriction, member limitations, or time periods of
restriction were specifically discussed in good faith and are acceptable to the
Employee. Nevertheless, to the extent that these restrictions exceed the
maximum areas of restriction, member limitations or periods of time which a
court of competent jurisdiction would enforce, the areas of restriction member
limitations or time periods shall be modified by such court to be the maximum
areas of restriction, member limitations or time periods which such court would
enforce in any state in which such court shall be convened. If any other part
of Section 5(a) is held to be invalid or unenforceable, the remaining parts
shall nevertheless continue to be valid and enforceable as though the
unenforceable portions were absent. In addition, both during and subsequent to
his/her term of employment and at such times as the Company may reasonably
request, the Employee agrees to provide the Company with such information as may
be necessary to demonstrate his/her compliance with the terms and conditions of
this Agreement.
(d) Notwithstanding anything set forth above to the contrary, if the
Company notifies the Employee in writing within thirty (30) days of his or her
termination without Cause of the Company's desire to have the provisions of
Section 5(a) of this Agreement apply to the Employee, the Employee must comply
with the provisions of Section 5(a) as if he or she was terminated for Cause or
voluntarily resigned for a period of one (1) year from such termination,
4
<PAGE>
provided the Company agrees to pay the Employee, in monthly installments, one
hundred twenty-five percent (125%) of the Employee's base salary at the time of
termination over such one (1) year period. In addition, if the Company notifies
the Employee in writing within thirty (30) days of the end of the one-year
period of non-competition provided by this Section 5(d) of the Company's desire
to extend such one-year period for an additional one (1) year period (for a
total of two years from the date of termination), the Employee must comply with
the provisions of Section 5(a) as if he or she was terminated for Cause or
voluntarily resigned for a period of one (1) additional year, provided the
Company agrees to pay the Employee, in monthly installments, one hundred twenty-
five percent (125%) of the Employee's base salary at the time of termination
over such additional one-year period.
(e) For purposes of this Agreement, the term "affiliates" shall mean a
corporation of which 50 percent or more of the total combined voting power or
value of all classes of capital stock are, directly or indirectly, owned by the
Company or by the beneficial shareholders of the Company. Without limiting the
foregoing, The Advisory Board Company, a Maryland corporation, shall be an
affiliate of the Company.
6. SOLICITATION OF EMPLOYEES
-------------------------
The Employee agrees that during the term of his/her employment, and for a
period of two (2) years after termination of such employment for any reason,
he/she shall not, except in the course of his/her duties for the Company,
directly or indirectly, induce or attempt to induce or otherwise counsel,
advise, ask or encourage any person who at the time is a current employee of the
Company or its affiliates, or who left such employ within the preceding six
months, to leave the employ of the Company or to accept employment with another
employer besides the Company or as an independent contractor, or offers
employment to or hire such person, or work for any person or entity that offers
employment to or hires such person. In the event of an Approved Sale or an
Initial Public Offering prior to the date of the Employee's termination, the two
year limitation period set forth in this Section 6 shall be extended an
additional one (1) year (for a total of three (3) years from the date of
termination).
7. INVENTIONS, IMPROVEMENTS AND COPYRIGHTABLE MATERIALS
----------------------------------------------------
The Employee shall disclose promptly in writing and assign immediately, and
hereby assigns to the Company, all of the employee's right, title and interest
in and to, any original works of authorship, formulas, processes, programs,
benchmarking or other databases, techniques, know-how, data, developments or
discoveries, whether or not copyrightable, (hereinafter referred to collectively
as "Work Product") which the Employee may make or conceive, or first reduce to
practice or learn either solely or jointly with others through the Employee's
work with the Company or its affiliates or with any other person or entity
pursuant to an assignment by the Company or its affiliates. The Employee
acknowledges the special interest the Company holds in its processes, techniques
and technologies in producing its editorial works and agrees that such
processes, techniques and technologies shall not be directly or indirectly used
or distributed by the Employee for the interests of any person or entity besides
the Company.
5
<PAGE>
(a) All disclosures and assignments made pursuant to this Agreement are
made without royalty or any additional consideration to the Employee other than
the regular compensation paid to the Employee by the Company or its affiliates.
(b) The Employee shall execute, acknowledge and deliver to the Company or
its affiliates all necessary documents, and shall take such other action as may
be necessary to assist the Company in obtaining by statute, letters patent,
copyrights, trademarks or other statutory or common law protections for the Work
Product covered by this Agreement, vesting title and right in such patents,
copyrights, trademarks and other protections in the Company and its designees.
The Employee hereby agrees that the Work Product constitutes a "work made for
hire" in accordance with the definition of that term under the U.S. copyright
laws. The Employee shall further assist the Company or its affiliates in every
proper and reasonable way to enforce such patents, copyrights, trademarks and
other protections as the Company or its affiliates may desire. The Employee's
obligation to deliver documents and assist the Company under this Agreement
applies both during and subsequent to the term of his/her employment.
(c) Any Work Product which the Employee may disclose to anyone within six
(6) months after the termination of his/her employment, or for which the Company
or its affiliates may file application for letters patent, copyright, trademark
or other statutory or common law protection within eighteen (18) months after
the termination of said employment, shall be rebuttably presumed to have been
made, conceived, first reduced to practice or learned during the term of
Employee's employment and fully subject to the terms and conditions set forth
herein; provided that if the Employee, in fact, conceived any such Work Product
subsequent to the termination of the employment and such Work Product is not
based upon or derived from confidential or proprietary information of the
Company or its affiliates or does not relate to the scope of work performed by
the Employee pursuant to his/her employment duties with the company or its
affiliates, then such Work Product shall belong to the Employee and shall be the
Employee's sole property.
(d) The Employee represents that the Work Product does not infringe any
copyright or other proprietary right of any person or entity.
8. SEVERABILITY
------------
If any provision of this Agreement shall be determined, by a court having
jurisdiction, to be invalid, illegal or unenforceable, the remainder of this
Agreement shall not be affected but shall continue in full force and effect as
though such invalid, illegal or unenforceable provision were not originally a
part of this Agreement.
9. SPECIFIC PERFORMANCE AND ATTORNEYS' FEES
----------------------------------------
The Employee acknowledges that a breach of any of the provisions of this
Agreement may result in continuing and irreparable damages to the Company or its
affiliates for which there may be no adequate remedy at law and that the Company
or its affiliates in addition to all other relief available to it shall be
entitled to the issuance of a temporary restraining order, preliminary
injunction and permanent injunction restraining the Employee from committing or
continuing to
6
<PAGE>
commit any breach of this Agreement both pending further legal proceedings and
for appropriate periods in the future. The prevailing party in any action for
breach of this Agreement shall reimburse the other party for its reasonable
attorneys' fees and costs incurred in such action. The Employee agrees that any
applicable time period limitation on any provision of this Agreement (such as
the two year or three year limitation periods set forth in Sections 5(a) and 6
above) shall be extended on a day-for-day basis for each day during which the
Employee participates in any activity in violation of any such provision.
10. CHOICE OF LAW
-------------
This Agreement shall be construed in accordance with and governed by the
laws of the District of Columbia, irrespective of the principles of conflicts of
law therein.
11. LIMITATIONS OF AGREEMENT
------------------------
This Agreement does not constitute a contract of employment for a definite
period of time. Either party may terminate the employment relationship with or
without cause at any time for any lawful reason. The provisions of this
Agreement shall survive the termination of the employment relationship between
the Company and the Employee.
12. SUCCESSORS AND ASSIGNS
----------------------
This Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns. Notwithstanding the
foregoing, the Employee shall not assign his/her obligations under this
Agreement without the express written consent of the Company and its successors
and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EMPLOYEE THE CORPORATE ADVISORY BOARD
COMPANY
_____________________________ By:______________________________________
Print Name
_____________________________ Title:___________________________________
Signature
Date:________________________ Date:____________________________________
7
<PAGE>
Exhibit 10.19
AGREEMENT CONCERNING EXCLUSIVE SERVICES,
CONFIDENTIAL INFORMATION, BUSINESS OPPORTUNITIES,
NON-COMPETITION, NON-SOLICITATION AND WORK PRODUCT
This Agreement is made this 30th day of October, 1997, by and between The
Corporate Executive Board Company, including its affiliates, successors and
assigns (the "Company") and Jeffrey D. Zients (the "Employee").
R E C I T A L S
---------------
R1. The Company is engaged in the business of providing research and
advisory services to individual members in various industries, including without
limitation such services as short-answer or custom research on demand, multiple
client or syndicated studies, benchmarking data and databases and conferences,
seminars, training and education. In order to remain competitive in this
business, the Company must protect its good will, its base of members and
prospective members, its employees, its confidential and proprietary
information, and the work product of its employees.
R2. The Company has offered employment or continued employment to the
Employee. During the course of employment, the Employee will develop important
contacts with the members and prospective members of the Company, and will also
become aware of certain methods, practices, information and procedures with
which the Company conducts its business, all of which are considered
confidential and proprietary by the Company. The Employee may also prepare
studies and other written materials using the Company's resources.
R3. The Company and the Employee agree that it is reasonable and necessary
to enter into an Agreement to protect the Company's good will, its base of
members and prospective members, its employees, its confidential and proprietary
information, and its work product.
NOW, THEREFORE, in consideration of the recitals above, initial and/or
continued employment, participation in the Company's employee benefit programs
as reflected in the Liquid Markets Agreement, Substitution Agreement and Stock
Option Agreement between the Employee and the Company (the "Employee Benefit
Programs") and other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree as follows:
1. EXCLUSIVE SERVICES
------------------
During the term of employment, the Employee shall at all times devote
his/her entire working time, attention, energies, efforts and skills to the
business of the Company, and shall not, directly or indirectly, engage in any
other business activity, whether or not for profit, gain or other pecuniary
advantages, without the express written permission of the Company. The Employee
shall not, without prior written permission of the Company, directly or
indirectly, either as an officer, director, employee, agent, adviser,
consultant, principal, stockholder, partner, owner or in any other capacity, on
his/her own behalf or otherwise, in any way engage in,
<PAGE>
represent, be connected with or have a financial interest in, any business which
is, or to the best of her knowledge, is about to become, engaged in the same or
substantially similar business lines as the Company or any of its affiliates or
which otherwise competes with or is about to compete with the Company or any of
its affiliates.
2. CONFIDENTIAL INFORMATION
------------------------
Except as may be required and authorized in the course of his/her
employment with the Company, the Employee shall not at any time during his/her
employment with the Company or after the termination thereof for any reason
disclose or use, directly or indirectly, any confidential or proprietary
information of the Company or its affiliates. For the purposes of this
Agreement, "confidential or proprietary information" shall mean all information
disclosed to the Employee, or known by him/her as a consequence of or through
his/her employment with the Company, where such information is not generally
known in the trade or industry or which is considered confidential by the
Company or was the subject of efforts by the Company to maintain its
confidentiality, and where such information refers or relates in any manner
whatsoever to the business activities, processes, services or products of the
Company or its affiliates. Such information includes, but is not limited to,
trade secrets as defined by the District of Columbia Trade Secrets Act, D.C.
Code (S) 48-501 et seq., business and development plans (whether contemplated,
------
initiated or completed), business contacts, methods of operation, policies,
results of analysis, member and prospective member lists, employee lists,
business forecasts, financial data, advertising and marketing methods, manuals,
training materials, management, performance review, project assessment and all
other forms and documents used in management of the Company's employees and in
performing work for the Company, reports, correspondence, data collection forms
and other documents provided to members, syndicated, multi-client studies,
custom research reports, statements, reports, strategic information and other
information distributed to policy or management committee members, information
relating to costs and revenues, and similar information.
3. RETURN OF COMPANY PROPERTY
--------------------------
Upon termination of employment for any reason, the Employee shall
immediately return to the Company all of the Company's and its affiliates'
property and confidential or proprietary information which is in tangible form
(including, but not limited to, all correspondence, memoranda, files, manuals,
books, lists, records, equipment, computer disks, magnetic tape, and electronic
and other media and equipment) and all copies thereof in the Employee's
possession, custody or control, provided that the Employee may retain one copy
of each published study to which he/she contributed personally.
4. BUSINESS OPPORTUNITIES
----------------------
During the term of his/her employment, the Employee shall promptly disclose
to the Company each business opportunity of a type which, based upon its
prospects and relationship to the business of the Company or its affiliates, the
Company might reasonably consider pursuing. In the event that the Employee's
employment is terminated for any reason, the Company or its
2
<PAGE>
affiliates shall have the exclusive right to participate in or undertake any
such opportunity on their own behalf without any involvement by or compensation
to the Employee.
5. COVENANT NOT TO COMPETE
-----------------------
(a) Except as otherwise provided in Section 5(b) below, if the Employee's
employment is terminated by the Company for Cause, or if the Employee
voluntarily resigns for any reason, the Employee shall not, directly or
indirectly, either individually or as a stockholder, director, officer, partner,
consultant, owner, employee, agent, or in any other capacity, for a period of
two (2) years following such termination, (i) provide "Company Services" or work
for or provide services to any person or entity that provides "Company
Services," within a one hundred (100) mile radius of any city or location in the
United States or in any foreign country in which the Company or its affiliates
has an office, is or has engaged in business, or proposes to engage in business
as of the date of the Employee's termination; or (ii) solicit or offer to
provide or provide "Company Services," or work for a person or entity that
solicits or offers to provide or provides "Company Services," to any person or
entity who was a member of the Company or its affiliates or was directly or
indirectly solicited to be a member of the Company or its affiliates at any time
during the two-year period prior to the termination of the Employee's employment
with the Company. For the purposes of this Section 5(a), the term "Company
Services" shall mean: (aa) providing short-answer or custom research on demand,
including without limitation literature or database searches, telephone
interviews, or other research of the same or substantially similar type as that
provided by the Company or its affiliates; or (bb) preparing published multiple
client or syndicated studies, including without limitation studies of the same
or substantially similar type provided by the Company or its affiliates; or (cc)
selling benchmarking data and databases of the same or substantially similar
type provided by the Company or its affiliates; or (dd) providing conferences,
seminars, training or education of the same or substantially similar type
provided by the Company or its affiliates; or (ee) providing any other services
or products not described in (aa) through (dd) above that the Company or its
affiliates is providing, has provided or proposes to provide as of the date of
the Employee's termination; where any of the foregoing services described in
(aa) through (ee) above are provided to any of the following: physicians,
hospitals, health plans, pharmaceutical companies, insurance companies, managed
care companies, commercial banks, brokerage houses, mutual fund companies or
Fortune 1000 companies. Notwithstanding the foregoing, the Employee may upon
termination in the situations described above work as a consultant or for a
consulting firm, provided he/she complies with all of the provisions of this
Section 5(a). The Company may release the Employee from some or all of the
restrictions in this section only in a written instrument signed by the Employee
and the Chairman of the Company.
For the purposes of this Section 5(a), "Cause" for termination shall mean
the commission of an act of fraud, theft or dishonesty against the Company;
arrest or conviction for any felony; arrest or conviction for any misdemeanor
involving moral turpitude which might, in the Company's reasonable opinion,
cause embarrassment to the Company; misconduct; substance abuse;
insubordination; violation of Company policy; willful or repeated non-
performance or substandard performance of duties; violation of any District of
Columbia, state or federal laws, rules or regulations in connection with or
during performance of work; or Performance
3
<PAGE>
Inconsistent with Past Levels of Contribution. For the purposes of this Section
5(a), "Performance Inconsistent with Past Levels of Contribution" means any
neglect of, or refusal or inability to perform, the Employee's duties or
responsibilities with respect to the Company with the same level of contribution
as in part periods of employment; or any insubordination, dishonesty, negligence
or malfeasance in the performance of such duties and responsibilities; or the
taking of actions which impair the Employee's ability to perform such duties and
responsibilities; or any material violation of Company rules or regulations.
(b) In the event of an Approved Sale or an Initial Public Offering prior to
the date of the Employee's termination, the two year limitation period set forth
in Section 5(a) above shall be extended an additional one (1) year (for a total
of three (3) years from the date of termination). For purposes of this
Agreement, an "Approved Sale" shall mean a transaction or a series of related
transactions that result in a bona fide unaffiliated change of more than fifty
---- ----
percent (50%) of the economic beneficial ownership of (A) the Company or (B) a
functional unit or division of the Company in which the Employee is employed
(disregarding for purposes of this Section 5 any disparate voting rights
attributable to the outstanding capital stock of the Company), whether pursuant
to the sale of the capital stock of the Company, the sale of the assets of the
Company, or a merger or consolidation involving the Company. However, an
Approved Sale shall not include (i) an issuance by the Company of its own
capital stock, or (ii) a gift of the capital stock of the Company. For purposes
of this Agreement, an "Initial Public Offering" shall mean the effectiveness of
a registration statement under the Securities Act of 1933, as amended, covering
any of the capital stock of the Company and the completion of the sale
thereunder, if as a result of such sale (aa) the issuer becomes a reporting
company under Securities Exchange Act of 1934, as amended, and (bb) such stock
is traded on the New York Stock Exchange or the American Stock Exchange, or is
quoted on the NASDAQ National Market System.
(c) The Employee agrees that the restrictions imposed upon him/her by the
provisions of this section are fair and reasonable considering the nature of the
Company's business, and are reasonably required for the protection of the
Company. The Employee further agrees that the provisions of Section 5(a)
relating to areas of restriction, member limitations, or time periods of
restriction were specifically discussed in good faith and are acceptable to the
Employee. Nevertheless, to the extent that these restrictions exceed the
maximum areas of restriction, member limitations or periods of time which a
court of competent jurisdiction would enforce, the areas of restriction, member
limitations or time periods shall be modified by such court to be the maximum
areas of restriction, member limitations or time periods which such court would
enforce in any state in which such court shall be convened. If any other part
of Section 5(a) is held to be invalid or unenforceable, the remaining parts
shall nevertheless continue to be valid and enforceable as though the
unenforceable portions were absent. In addition, both during and subsequent to
his/her term of employment and at such times as the Company may reasonably
request, the Employee agrees to provide the Company with such information as may
be necessary to demonstrate his/her compliance with the terms and conditions of
this Agreement.
(d) Notwithstanding anything set forth above to the contrary, if the
Company notifies the Employee in writing within thirty (30) days of his or her
termination without Cause of the Company's desire to have the provisions of
Section 5(a) of this Agreement apply to the
4
<PAGE>
Employee, the Employee must comply with the provisions of Section 5(a) as if he
or she was terminated for Cause or voluntarily resigned for a period of one (1)
year from such termination, provided the Company agrees to pay the Employee, in
monthly installments, one hundred twenty-five percent (125%) of the Employee's
base salary at the time of termination over such one (1) year period. In
addition, if the Company notifies the Employee in writing within thirty (30)
days of the end of the one-year period of non-competition provided by this
Section 5(d) of the Company's desire to extend such one-year period for an
additional one (1) year period (for a total of two years from the date of
termination), the Employee must comply with the provisions of Section 5(a) as if
she was terminated for Cause or voluntarily resigned for a period of one (1)
additional year, provided the Company agrees to pay the Employee, in monthly
installments, one hundred twenty-five percent (125%) of the Employee's base
salary at the time of termination over such additional one-year period.
(e) For purposes of this Agreement, the term "affiliates" shall mean a
corporation of which 50 percent or more of the total combined voting power or
value of all classes of capital stock are, directly or indirectly, owned by the
Company or by the beneficial shareholders of the Company. Without limiting the
foregoing, The Advisory Board Company, a Maryland corporation, shall be deemed
to be an affiliate of the Company.
6. SOLICITATION OF EMPLOYEES
-------------------------
The Employee agrees that during the term of his/her employment, and for a
period of two (2) years after termination of such employment for any reason,
he/she shall not, except in the course of his/her duties for the Company,
directly or indirectly, induce or attempt to induce or otherwise counsel,
advise, ask or encourage any person who at the time is a current employee of the
Company or its affiliates, or who left such employ within the preceding six (6)
months, to leave the employ of the Company or to accept employment with another
employer besides the Company or as an independent contractor, or offer
employment to or hire such person, or work for any person or entity that offers
employment to or hires such person. In the event of an Approved Sale or an
Initial Public Offering prior to the date of the Employee's termination, the two
year limitation period set forth in this Section 6 shall be extended an
additional one (1) year (for a total of three (3) years from the date of
termination).
7. COPYRIGHTABLE MATERIALS
-----------------------
The Employee shall disclose promptly in writing and assign immediately, and
hereby assigns to the Company, all of the Employee's right, title and interest
in and to, any original works of authorship, formulas, processes, programs,
benchmarking or other databases, techniques, know-how, data, developments or
discoveries, whether or not copyrightable (hereinafter referred to collectively
as "Work Product"), which the Employee may make or conceive, or first reduce to
practice or learn either solely or jointly with others, during the employment
period with the Company or its affiliates through the Employee's work with the
Company or its affiliates or with any other person or entity pursuant to an
assignment by the Company. The Employee acknowledges the special interest the
Company holds in its processes, techniques and technologies in producing its
editorial works and agrees that such processes,
5
<PAGE>
techniques and technologies shall not be directly or indirectly used or
distributed by the Employee for the interests of any person or entity besides
the Company.
(a) All disclosures and assignment made pursuant to this Agreement are made
without royalty or any additional consideration to the Employee other than the
regular compensation paid to the Employee by the Company or its affiliates.
(b) The Employee shall execute, acknowledge and deliver to the Company or
its affiliates all necessary documents, and shall take such other action as may
be necessary to assist the Company in obtaining by statute, copyrights,
trademarks or other statutory or common law protections for the Work Product
covered by this Agreement, vesting title and right in such copyrights,
trademarks and other protections in the Company and its designees. The Employee
hereby agrees that the Work Product constitutes a "work made for hire" in
accordance with the definition of that term under the U.S. copyright laws. The
Employee shall further assist the Company or its affiliates in every proper and
reasonable way to enforce such copyrights, trademarks and other protections as
the Company may desire. The Employee's obligation to deliver documents and
assist the Company or its affiliates under this Agreement applies both during
and subsequent to the term of his/her employment.
(c) Any Work Product which the Employee may disclose to anyone within six
(6) months after the termination of his/her employment, or for which the Company
or its affiliates may file an application for copyright, trademark or other
statutory or common law protection within eighteen (18) months after the
termination of said employment, shall be presumed to have been made, conceived,
first reduced to practice or learned during the term of Employee's employment
and fully subject to the terms and conditions set forth herein; provided that if
the Employee, in fact, conceived any such Work Product subsequent to the
termination of the employment and such Work Product is not based upon or derived
from confidential or proprietary information of the Company or its affiliates or
does not relate to the scope of work performed by the Employee pursuant to
his/her employment duties with the Company or its affiliates, then such Work
Product shall belong to the Employee and shall be the Employee's sole property.
Employee assumes the responsibility of establishing by competent legal evidence
that such Work Product is not based on such confidential or proprietary
information and that the Employee conceived any such Work Product after the
termination of his/her employment.
(d) The Employee represents that the Work Product does not infringe any
copyright or other proprietary right of any person or entity.
(e) Attached to and made as part of this Agreement as Exhibit A is a
complete list of all Work Product, whether or not copyrighted, which has been
made or conceived or first reduced to practice by the Employee alone or jointly
prior to the date of his/her employment with the Company or its affiliates. Such
Work Product shall be excluded from the operation of this Agreement. If there is
no such list on Exhibit A, the Employee represents that no such Work Product
exists at the time of signing this Agreement.
6
<PAGE>
8. SEVERABILITY
------------
If any provision of this Agreement shall be determined, by a court having
jurisdiction, to be invalid, illegal or unenforceable, the remainder of this
Agreement shall not be affected but shall continue in full force and effect as
though such invalid, illegal or unenforceable provision were not originally a
part of this Agreement.
9. SPECIFIC PERFORMANCE, LIQUIDATED DAMAGES, AND ATTORNEYS' FEES
-------------------------------------------------------------
The Employee acknowledges that a breach of any of the provisions of this
Agreement may result in continuing and irreparable damages to the Company or its
affiliates for which there may be no adequate remedy at law and that the Company
or its affiliates, in addition to all other relief available to it, shall be
entitled to the issuance of a temporary restraining order, preliminary
injunction and permanent injunction restraining the Employee from committing or
continuing to commit any breach of this Agreement both pending further legal
proceedings and for appropriate periods in the future. Furthermore, the Employee
understands that his/her breach of this Agreement may cause monetary damages to
the Company or its affiliates that are difficult to calculate. Thus, should the
Employee breach and term of this Agreement, he/she shall be required to pay the
Company or its affiliates as liquidated damages 100% of the value of all cash
payments (including gain from the sale of stock obtained on exercise of any
options) he/she has received with respect to the Employee Benefit Programs
during the five-year period preceding said breach and he/she shall forfeit 100%
of the value of all such cash payments to which he/she may be entitled in the
future. The Employee agrees that the foregoing amount of liquidated damages is
reasonable and does not constitute a penalty. If the Company or its affiliate is
the prevailing party in any action for breach of this Agreement, the Employee
shall reimburse the Company for its reasonable attorneys' fees and costs
incurred in such action. The Employee also agrees that any applicable time
period limitation on any provision of this Agreement (such as the two year or
three year limitation periods set forth in Sections 5(a) and 6 above) shall be
extended on a day-for-day basis for each day during which the Employee is in
breach of this Agreement.
10. CHOICE OF LAW
-------------
This Agreement shall be construed in accordance with and governed by the
laws of the District of Columbia, irrespective of the principles of conflicts of
law therein.
11. LIMITATIONS OF AGREEMENT
------------------------
This Agreement does not constitute a contract of employment for a definite
period of time. Either party may terminate the employment relationship with or
without cause at any time for any lawful reason. The provisions of this
Agreement shall survive the termination of the employment relationship between
the Company and the Employee.
12. SUCCESSORS AND ASSIGNS
----------------------
This Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns. Notwithstanding the
foregoing, the Employee shall not
7
<PAGE>
assign his/her obligations under this Agreement without the express written
consent of the Company and its successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
EMPLOYEE THE CORPORATE EXECUTIVE BOARD
COMPANY
By:
- ------------------------------ ----------------------------
Print Name
Title:
- ------------------------------ -------------------------
Signature
Date: Date:
------------------------- --------------------------
8
<PAGE>
EXHIBIT 10.20
AGREEMENT CONCERNING EXCLUSIVE SERVICES,
CONFIDENTIAL INFORMATION, BUSINESS OPPORTUNITIES,
NON-COMPETITION, NON-SOLICITATION AND WORK PRODUCT
This Agreement is made this ____ day of ____________, 199_, by and between
The Corporate Advisory Board Company, including its affiliates, successors and
assigns (the "Company") and __________________ (the "Employee").
R E C I T A L S
---------------
R1. The Company is engaged in the business of providing research and
advisory services to individual members in various industries, including without
limitation such services as short-answer or custom research on demand, multiple
client or syndicated studies, benchmarking data and databases and conferences,
seminars, training and education. In order to remain competitive in this
business, the Company must protect its good will, its base of members and
prospective members, its employees, its confidential and proprietary
information, and the work product of its employees.
R2. The Company has offered employment or continued employment to the
Employee. During the course of employment, the Employee will develop important
contacts with the members and prospective members of the Company, and will also
become aware of certain methods, practices, information and procedures with
which the Company conducts its business, all of which are considered
confidential and proprietary by the Company. The Employee may also prepare
studies and other written materials using the Company's resources.
R3. The Company and the Employee agree that it is reasonable and necessary
to enter into an Agreement to protect the Company's good will, its base of
members and prospective members, its employees, its confidential and proprietary
information, and its work product.
NOW, THEREFORE, in consideration of the recitals above, initial and/or
continued employment, participation in the Company's employee benefit programs
as reflected in the Liquid Markets Agreement, Substitution Agreement and Stock
Option Agreement between the Employee and the Company (the "Employee Benefit
Programs") and other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree as follows:
1. EXCLUSIVE SERVICES
------------------
During the term of employment, the Employee shall at all times devote
his/her entire working time, attention, energies, efforts and skills to the
business of the Company, and shall not, directly or indirectly, engage in any
other business activity, whether or not for profit, gain or other pecuniary
advantages, without the express written permission of the Company. The Employee
shall not, without prior written permission of the Company, directly or
indirectly, either as an officer, director, employee, agent, adviser,
consultant, principal, stockholder, partner, owner or in any other capacity, on
his/her own behalf of otherwise, in any way engage in,
<PAGE>
represent, be connected with or have a financial interest in, any business which
is, or to the best of his/her knowledge, is about to become, engaged in the same
or substantially similar business lines as the Company or any of its affiliates
or which otherwise competes with or is about to compete with the Company or any
of its affiliates.
2. CONFIDENTIAL INFORMATION
------------------------
Except as may be required and authorized in the course of his/her
employment with the Company, the Employee shall not at any time during his/her
employment with the Company or after the termination thereof for any reason
disclose or use, directly or indirectly, any confidential or proprietary
information of the Company or its affiliates. For the purposes of this
Agreement, "confidential or proprietary information" shall mean all information
disclosed to the Employee, or known by him/her as a consequence of or through
his/her employment with the Company, where such information is not generally
known in the trade or industry or which is considered confidential by the
Company or was the subject of efforts by the Company to maintain its
confidentiality, and where such information refers or relates in any manner
whatsoever to the business activities, processes, services or products of the
Company or its affiliates. Such information includes, but is not limited to,
trade secrets as defined by the District of Columbia Trade Secrets Act, D.C.
Code (S) 48-501 et seq., business and development plans (whether contemplated,
-- ---
initiated or completed), business contacts, methods of operation, policies,
results of analysis, member and prospective member lists, employee lists,
business forecasts, financial data, advertising and marketing methods, manuals,
training materials, management, performance review, project assessment and all
other forms and documents used in management of the Company's employees and in
performing work for the Company, reports, correspondence, data collection forms
and other documents provided to members, syndicated, multi-client studies,
custom research reports, statements, reports, strategic information and other
information distributed to policy or management committee members, information
relating to costs and revenues, and similar information.
3. RETURN OF COMPANY PROPERTY
--------------------------
Upon termination of employment for any reason, the Employee shall
immediately return to the Company all of the Company's and its affiliates'
property and confidential or proprietary information which is in tangible form
(including, but not limited to, all correspondence, memoranda, files, manuals,
books, lists, records, equipment, computer disks, magnetic tape, and electronic
and other media and equipment) and all copies thereof in the Employee's
possession, custody or control, provided that the Employee may retain one copy
of each published study to which he/she contributed personally.
4. BUSINESS OPPORTUNITIES
----------------------
During the term of his/her employment, the Employee shall promptly disclose
to the Company each business opportunity of a type which, based upon its
prospects and relationship to the business of the Company or its affiliates,
the Company might reasonably consider pursuing. In the event that the
Employee's employment is terminated for any reason, the Company or its
2
<PAGE>
affiliates shall have the exclusive right to participate in or undertake any
such opportunity on their own behalf without any involvement by or compensation
to the Employee.
5. COVENANT NOT TO COMPETE
-----------------------
(a) Except as otherwise provided in Section 5(b) below, if the Employee's
employment is terminated by the Company for Cause, or if the Employee
voluntarily resigns for any reason, the Employee shall not, directly or
indirectly, either individually or as a stockholder, director, officer, partner,
consultant, owner, employee, agent, or in any other capacity, for a period of
two (2) years following such termination, (i) provide "Company Services" or work
for or provide services to any person or entity that provides "Company
Services," within a one hundred (100) mile radius of any city or location in the
United States or in any foreign country in which the Company or its affiliates
has an office, is or has engaged in business, or proposes to engage in business
as of the date of the Employee's termination; or (ii) solicit or offer to
provide or provide "Company Services," or work for a person or entity that
solicits or offers to provide or provides "Company Services," to any person or
entity who was a member of the Company or its affiliates or was directly or
indirectly solicited to be a member of the Company or its affiliates at any time
during the two-year period prior to the termination of the Employee's employment
with the Company. For the purposes of this Section 5(a), the term "Company
Services" shall mean: (aa) providing short-answer or custom research on demand,
including without limitation literature or database searches, telephone
interviews, or other research of the same or substantially similar type as that
provided by the Company or its affiliates; or (bb) preparing published multiple
client or syndicated studies, including without limitation studies of the same
or substantially similar type provided by the Company or its affiliates; or (cc)
selling benchmarking data and databases of the same or substantially similar
type provided by the Company or its affiliates; or (dd) providing conferences,
seminars, training or education of the same or substantially similar type
provided by the Company or its affiliates; or (ee) providing any other services
or products not described in (aa) through (dd) above that the Company or its
affiliates is providing, has provided or proposes to provide as of the date of
the Employee's termination; where any of the foregoing services described in
(aa) through (ee) above are provided to any of the following: physicians,
hospitals, health plans, pharmaceutical companies, insurance companies, managed
care companies, commercial banks, brokerage houses, mutual fund companies or
Fortune 1000 companies. Notwithstanding the foregoing, the Employee may upon
termination in the situations described above work as a consultant or for a
consulting firm, provided he/she complies with all of the provisions of this
Section 5(a). The Company may release the Employee from some or all of the
restrictions in this section only in a written instrument signed by the Employee
and the Chairman of the Company.
For the purposes of this Section 5(a), "Cause" for termination shall mean
the commission of an act of fraud, theft or dishonesty against the Company;
arrest or conviction for any felony; arrest or conviction for any misdemeanor
involving moral turpitude which might, in the Company's reasonable opinion,
cause embarrassment to the Company; misconduct; substance abuse;
insubordination; violation of Company policy; willful or repeated non-
performance or substandard performance of duties; violation of any District of
Columbia, state or federal laws, rules or regulations in connection with or
during performance of work; or Performance
3
<PAGE>
Inconsistent with Past Levels of Contribution. For the purposes of this Section
5(a), "Performance Inconsistent with Past Levels of Contribution" means any
neglect of, or refusal or inability to perform, the Employee's duties or
responsibilities with respect to the Company with the same level of contribution
as in part periods of employment; or any insubordination, dishonesty, negligence
or malfeasance in the performance of such duties and responsibilities; or the
taking of actions which impair the Employee's ability to perform such duties and
responsibilities; or any material violation of Company rules or regulations.
(b) In the event of an Approved Sale or an Initial Public Offering prior to
the date of the Employee's termination, the two year limitation period set forth
in Section 5(a) above shall be extended an additional one (1) year (for a total
of three (3) years from the date of termination). For purposes of this
Agreement, an "Approved Sale" shall mean a transaction or a series of related
transactions that result in a bona fide unaffiliated change of more than fifty
---- ----
percent (50%) of the economic beneficial ownership of (A) the Company or (B) a
functional unit or division of the Company in which the Employee is employed
(disregarding for purposes of this Section 5 any disparate voting rights
attributable to the outstanding capital stock of the Company), whether pursuant
to the sale of the capital stock of the Company, the sale of the assets of the
Company, or a merger or consolidation involving the Company. However, an
Approved Sale shall not include (i) an issuance by the Company of its own
capital stock, or (ii) a gift of the capital stock of the Company. For purposes
of this Agreement, an "Initial Public Offering" shall mean the effectiveness of
a registration statement under the Securities Act of 1933, as amended, covering
any of the capital stock of the Company and the completion of the sale
thereunder, if as a result of such sale (aa) the issuer becomes a reporting
company under Securities Exchange Act of 1934, as amended, and (bb) such stock
is traded on the New York Stock Exchange or the American Stock Exchange, or is
quoted on the NASDAQ National Market System.
(c) The Employee agrees that the restrictions imposed upon him/her by the
provisions of this section are fair and reasonable considering the nature of the
Company's business, and are reasonably required for the protection of the
Company. The Employee further agrees that the provisions of Section 5(a)
relating to areas of restriction, member limitations, or time periods of
restriction were specifically discussed in good faith and are acceptable to the
Employee. Nevertheless, to the extent that these restrictions exceed the
maximum areas of restriction, member limitations or periods of time which a
court of competent jurisdiction would enforce, the areas of restriction, member
limitations or time periods shall be modified by such court to be the maximum
areas of restriction, member limitations or time periods which such court would
enforce in any state in which such court shall be convened. If any other part
of Section 5(a) is held to be invalid or unenforceable, the remaining parts
shall nevertheless continue to be valid and enforceable as though the
unenforceable portions were absent. In addition, both during and subsequent to
his/her term of employment and at such times as the Company may reasonably
request, the Employee agrees to provide the Company with such information as may
be necessary to demonstrate his/her compliance with the terms and conditions of
this Agreement.
(d) Notwithstanding anything set forth above to the contrary, if the
Company notifies the Employee in writing within thirty (30) days of his or her
termination without Cause of the Company's desire to have the provisions of
Section 5(a) of this Agreement apply to the
4
<PAGE>
Employee, the Employee must comply with the provisions of Section 5(a) as if he
or she was terminated for Cause or voluntarily resigned for a period of one (1)
year from such termination, provided the Company agrees to pay the Employee, in
monthly installments, one hundred twenty-five percent (125%) of the Employee's
base salary at the time of termination over such one (1) year period. In
addition, if the Company notifies the Employee in writing within thirty (30)
days of the end of the one-year period of non-competition provided by this
Section 5(d) of the Company's desire to extend such one-year period for an
additional one (1) year period (for a total of two years from the date of
termination), the Employee must comply with the provisions of Section 5(a) as if
he or she was terminated for Cause or voluntarily resigned for a period of one
(1) additional year, provided the Company agrees to pay the Employee, in monthly
installments, one hundred twenty-five percent (125%) of the Employee's base
salary at the time of termination over such additional one-year period.
(e) For purposes of this Agreement, the term "affiliates" shall mean a
corporation of which 50 percent or more of the total combined voting power or
value of all classes of capital stock are, directly or indirectly, owned by the
Company or by the beneficial shareholders of the Company. Without limiting the
foregoing, The Advisory Board Company, a Maryland corporation, shall be an
affiliate of the Company.
6. SOLICITATION OF EMPLOYEES
-------------------------
The Employee agrees that during the term of his/her employment, and for a
period of two (2) years after termination of such employment for any reason,
he/she shall not, except in the course of his/her duties for the Company,
directly or indirectly, induce or attempt to induce or otherwise counsel,
advise, ask or encourage any person who at the time is a current employee of the
Company or its affiliates, or who left such employ within the preceding six (6)
months, to leave the employ of the Company or to accept employment with another
employer besides the Company or as an independent contractor, or offer
employment to or hire such person, or work for any person or entity that offers
employment to or hires such person. In the event of an Approved Sale or an
Initial Public Offering prior to the date of the Employee's termination, the two
year limitation period set forth in this Section 6 shall be extended an
additional one (1) year (for a total of three (3) years from the date of
termination).
7. COPYRIGHTABLE MATERIALS
-----------------------
The Employee shall disclose promptly in writing and assign immediately, and
hereby assigns to the Company, all of the Employee's right, title and interest
in and to, any original works of authorship, formulas, processes, programs,
benchmarking or other databases, techniques, know-how, data, developments or
discoveries, whether or not copyrightable (hereinafter referred to collectively
as "Work Product"), which the Employee may make or conceive, or first reduce to
practice or learn either solely or jointly with others, during the employment
period with the Company or its affiliates through the Employee's work with the
Company or its affiliates or with any other person or entity pursuant to an
assignment by the Company. The Employee acknowledges the special interest the
Company holds in its processes, techniques and technologies in producing its
editorial works and agrees that such processes,
5
<PAGE>
techniques and technologies shall not be directly or indirectly used or
distributed by the Employee for the interests of any person or entity besides
the Company.
(a) All disclosures and assignment made pursuant to this Agreement are made
without royalty or any additional consideration to the Employee other than the
regular compensation paid to the Employee by the Company or its affiliates.
(b) The Employee shall execute, acknowledge and deliver to the Company or
its affiliates all necessary documents, and shall take such other action as may
be necessary to assist the Company in obtaining by statute, copyrights,
trademarks or other statutory or common law protections for the Work Product
covered by this Agreement, vesting title and right in such copyrights,
trademarks and other protections in the Company and its designees. The Employee
hereby agrees that the Work Product constitutes a "work made for hire" in
accordance with the definition of that term under the U.S. copyright laws. The
Employee shall further assist the Company or its affiliates in every proper and
reasonable way to enforce such copyrights, trademarks and other protections as
the Company may desire. The Employee's obligation to deliver documents and
assist the Company or its affiliates under this Agreement applies both during
and subsequent to the term of his/her employment.
(c) Any Work Product which the Employee may disclose to anyone within six
(6) months after the termination of his/her employment, or for which the Company
or its affiliates may file an application for copyright, trademark or other
statutory or common law protection within eighteen (18) months after the
termination of said employment, shall be presumed to have been made, conceived,
first reduced to practice or learned during the term of Employee's employment
and fully subject to the terms and conditions set forth herein; provided that if
the Employee, in fact, conceived any such Work Product subsequent to the
termination of the employment and such Work Product is not based upon or derived
from confidential or proprietary information of the Company or its affiliates or
does not relate to the scope of work performed by the Employee pursuant to
his/her employment duties with the Company or its affiliates, then such Work
Product shall belong to the Employee and shall be the Employee's sole property.
Employee assumes the responsibility of establishing by competent legal evidence
that such Work Product is not based on such confidential or proprietary
information and that the Employee conceived any such Work Product after the
termination of his/her employment.
(d) The Employee represents that the Work Product does not infringe any
copyright or other proprietary right of any person or entity.
(e) Attached to and made as part of this Agreement as Exhibit A is a
complete list of all Work Product, whether or not copyrighted, which has been
made or conceived or first reduced to practice by the Employee alone or jointly
prior to the date of his/her employment with the Company or its affiliates.
Such Work Product shall be excluded from the operation of this Agreement. If
there is no such list on Exhibit A, the Employee represents that no such Work
Product exists at the time of signing this Agreement.
6
<PAGE>
8. SEVERABILITY
------------
If any provision of this Agreement shall be determined, by a court having
jurisdiction, to be invalid, illegal or unenforceable, the remainder of this
Agreement shall not be affected but shall continue in full force and effect as
though such invalid, illegal or unenforceable provision were not originally a
part of this Agreement.
9. SPECIFIC PERFORMANCE, LIQUIDATED DAMAGES, AND ATTORNEYS' FEES
--------------------------------------------------------------
The Employee acknowledges that a breach of any of the provisions of this
Agreement may result in continuing and irreparable damages to the Company or its
affiliates for which there may be no adequate remedy at law and that the Company
or its affiliates, in addition to all other relief available to it, shall be
entitled to the issuance of a temporary restraining order, preliminary
injunction and permanent injunction restraining the Employee from committing or
continuing to commit any breach of this Agreement both pending further legal
proceedings and for appropriate periods in the future. Furthermore, the
Employee understands that his/her breach of this Agreement may cause monetary
damages to the Company or its affiliates that are difficult to calculate. Thus,
should the Employee breach and term of this Agreement, he/she shall be required
to pay the Company or its affiliates as liquidated damages 100% of the value of
all cash payments (including gain from the sale of stock obtained on exercise of
any options) he/she has received with respect to the Employee Benefit Programs
during the five-year period preceding said breach and he/she shall forfeit 100%
of the value of all such cash payments to which he/she may be entitled in the
future. The Employee agrees that the foregoing amount of liquidated damages is
reasonable and does not constitute a penalty. If the Company or its affiliate
is the prevailing party in any action for breach of this Agreement, the Employee
shall reimburse the Company for its reasonable attorneys' fees and costs
incurred in such action. The Employee also agrees that any applicable time
period limitation on any provision of this Agreement (such as the two year or
three year limitation periods set forth in Sections 5(a) and 6 above) shall be
extended on a day-for-day basis for each day during which the Employee is in
breach of this Agreement.
10. CHOICE OF LAW
-------------
This Agreement shall be construed in accordance with and governed by the
laws of the District of Columbia, irrespective of the principles of conflicts of
law therein.
11. LIMITATIONS OF AGREEMENT
------------------------
This Agreement does not constitute a contract of employment for a definite
period of time. Either party may terminate the employment relationship with or
without cause at any time for any lawful reason. The provisions of this
Agreement shall survive the termination of the employment relationship between
the Company and the Employee.
12. SUCCESSORS AND ASSIGNS
----------------------
This Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns. Notwithstanding the
foregoing, the Employee shall not
7
<PAGE>
assign his/her obligations under this Agreement without the express written
consent of the Company and its successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
EMPLOYEE THE CORPORATE ADVISORY BOARD
COMPANY
______________________________ By:_______________________________
Print Name
______________________________
Signature Title:____________________________
Date:_________________________ Date:_____________________________
8
<PAGE>
Exhibit 10.21
THE CORPORATE EXECUTIVE BOARD COMPANY
STOCK-BASED INCENTIVE COMPENSATION PLAN
1. ESTABLISHMENT AND PURPOSE OF THE PLAN. The Stock-Based Incentive
-------------------------------------
Compensation Plan (the "Original Plan") was established by The Corporate
Executive Board Company, a Delaware corporation (the "Company"), as of October
31, 1997, to provide certain employees of the Company with an increased economic
and proprietary interest in the Company in order to encourage those employees'
contributions to the success and progress of the Company. This Stock-Based
Incentive Compensation Plan (the "Plan") was amended and restated in its
entirety on _______, 1998. The Plan is designed to provide for the grant of
options ("Options") that will not qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended.
2. STOCK SUBJECT TO THE PLAN. The maximum number of shares of stock that
-------------------------
may be subject to Options granted hereunder shall not exceed [400,000] shares of
the capital stock, one cent ($0.01) par value (the "Stock"), of the Company,
subject to adjustment under Section 10 hereof. The Stock that may be subject to
Options granted may be authorized and unissued Stock or Stock reacquired by the
Company and held as treasury stock. Except as provided in Section 13 hereof, if
any Option granted under the Plan is canceled without the Optionee having
received any benefit of ownership, the number of shares subject to such Option
that have not been exercised prior to the Option's cancellation may not again be
optioned hereunder.
3. ELIGIBILITY. Persons who shall be eligible for grants of Options
-----------
hereunder ("Eligible Employees") shall be those employees of the Company who are
members of a select group of management or other key employees that the
Committee may from time to time designate to participate under the Plan (
"Optionees") through grants of Options.
4. OPTIONEE'S AGREEMENT. The terms upon which Options are granted shall
--------------------
be evidenced by a written agreement executed by the Company and the Optionee to
whom Options are granted (the "Optionee's Agreement"). The Options shall be
subject to the terms and restrictions contained in the Optionee's Agreement.
5. STOCKHOLDERS' AGREEMENT. Prior to a public offering, Stock issued
-----------------------
pursuant to Options shall also be subject to the terms and restrictions
contained in a Stockholders' Agreement related to the Company. The
Stockholders' Agreement may contain such terms, provisions, and conditions as
may be determined by the Committee as long as such terms, conditions and
provisions are not inconsistent with the Plan. A copy of the Stockholders
Agreement shall be delivered to the Optionee at the time of grant.
6. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
--------------------------
compensation committee of the Board of Directors of the Company (the "Board") or
by the Board itself (if no Committee exists) (any such plan administrator, the
"Committee").
<PAGE>
All actions of the Committee shall be authorized by a majority vote thereof
at a duly called meeting or by unanimous written consent. The Committee shall
have the sole authority, in its absolute discretion, to adopt, amend, and
rescind such rules and regulations as, in its opinion, may be advisable in the
administration of the Plan, in construing and interpreting the Plan, the rules
and regulations, and the agreements and other instruments evidencing Options
granted under the Plan, and in making all other determinations deemed necessary
or advisable for the administration of the Plan. All decisions, determinations,
and interpretations of the Committee shall be final and conclusive upon the
Eligible Employees. Notwithstanding the foregoing, any dispute arising under
any Optionee's Agreement shall be resolved pursuant to the dispute resolution
mechanism set forth in such Agreement.
Subject to the express provisions of the Plan, the Committee shall
determine the number of shares of Stock subject to grants or issuances and the
terms thereof, including but not limited to the provisions relating to the
exercisability of Options, vesting of Options and the termination and/or
forfeiture of Options under the Plan.
7. TERMS AND CONDITIONS OF OPTIONS. No Option shall be granted for a term
-------------------------------
beyond May 1, 2009. The Committee shall have full and sole discretion to
determine the exercisability of the Options under the Plan. The Optionee's
Agreement may contain such other terms, provisions, and conditions as may be
determined by the Committee (including, but not limited to, exercise price,
exercisability, expiration date and vesting) as long as such terms, conditions
and provisions are not inconsistent with the Plan.
8. EXERCISE PRICE OF OPTIONS. The exercise price for each Option granted
-------------------------
hereunder shall be set forth in the applicable Optionee's Agreement. Payment
for Stock purchased upon exercise of any Option granted hereunder shall be in
cash at the time of exercise. At its sole discretion on an individual basis,
the Committee may permit payment or agree to permit payment by such other
alternative means as may be lawful, including (but not limited to) the
acceptance of a promissory note secured by the number of shares of Stock then
issuable upon the exercise of the Option.
9. NON-TRANSFERABILITY. Unless provided otherwise in the Optionee's
-------------------
Agreement, any Option granted under this Plan shall, by its terms, be
nontransferable by the Optionee other than by will or the laws of descent and
distribution (in which case such descendant or beneficiary shall be subject to
all terms of the Plan applicable to Optionees), and is exercisable during the
Optionee's lifetime only by the Optionee.
10. ADJUSTMENTS. If at any time the Stock subject to this Plan is changed
-----------
into, or outstanding Stock is exchanged for, a different number or kind of
shares or securities, as the result of any one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends or
similar events, an appropriate adjustment shall be made in the number, exercise
or sale price and/or type of shares or securities for which Options may
thereafter be granted under the Plan unless waived in writing by the Optionee.
The Committee also shall designate the appropriate changes that shall be made in
Options under the Plan, and the Committee may do so either at the time the
Option is granted or at the time of the event causing
2
<PAGE>
the adjustment. Any such adjustment in outstanding Options shall be made
without changing the aggregate exercise price applicable to the unexercised
portions of such Options.
11. AMENDMENT AND TERMINATION OF THE PLAN. Unless earlier terminated by
-------------------------------------
the Board of Directors of the Company, the Plan shall terminate on May 1, 2009.
The Committee may amend the Plan or any agreement issued hereunder to the
extent necessary for any Option granted under the Plan to comply with applicable
tax or securities laws.
No Option may be granted during any suspension or after the termination of
the Plan. No amendment, suspension or termination of the Plan or of any
Optionee's Agreement issued hereunder shall, without the consent of the affected
holder of such Option alter or impair any rights or obligations in any Option
theretofore granted or issued to such holder under the Plan.
12. NATURE OF PLAN. This Plan is intended to qualify as a compensatory
--------------
benefit plan within the meaning of Rule 701 under the Securities Act of 1933.
This Plan is intended to constitute an unfunded arrangement for a select group
of management or other key employees.
13. CANCELLATION OF OPTIONS. Any Option granted under the Plan may be
-----------------------
canceled at any time with the consent of the holder and a new Option may be
granted to such holder in lieu thereof.
14. WITHHOLDING TAXES. The Committee may in its discretion require the
-----------------
Optionee to remit to the Company, prior to the delivery of any certificate or
certificates for such Stock or the payment of any such amounts, all or any part
of the amount determined in the Committee's discretion to be sufficient to
satisfy federal, state and local withholding tax obligations (the "Withholding
Obligation") that the Company or its counsel determines may arise with respect
to such exercise, issuance or payment. At the sole discretion of the Committee
on an individual basis, the Optionee may (i) request the Company to withhold
delivery of a sufficient number of shares of Stock or a sufficient amount of the
Optionee's compensation or (ii) deliver a sufficient number of previously-issued
shares of Stock, to satisfy the Withholding Obligation.
15. RIGHT OF REDEMPTION. The Committee, in its sole discretion and on an
-------------------
individual basis, may provide within any agreement issued hereunder the right of
the Company to redeem the Options and/or the shares of Stock issued under the
Plan (the "Right of Redemption"). The Right of Redemption shall be subject to
such terms, provisions, and conditions as may be determined by the Committee as
long as such terms, conditions and provisions are not inconsistent with the
Plan.
16. RIGHT OF SALE. The Committee, in its sole discretion and on an
-------------
individual basis, may provide within any agreement issued hereunder the right of
the Optionee to sell his or her Options and/or shares of Stock issued under the
Plan to the Company (the "Right of Sale"). The Right of Sale shall be subject
to such terms, provisions, and conditions as may be determined by the Committee
as long as such terms, conditions and provisions are not inconsistent with the
Plan.
3
<PAGE>
Exhibit 10.22
THE CORPORATE EXECUTIVE BOARD COMPANY
DIRECTORS' STOCK PLAN
1. PURPOSE
-------
The purpose of The Corporate Executive Board Company Directors' Stock Plan
(the "Plan") is to advance the interests of The Corporate Executive Board
Company, a Delaware corporation (hereinafter the "Company"), by enabling
the Company to attract, retain and motivate qualified individuals to serve
on the Company's Board of Directors and to align the financial interests
of such individuals with those of the Company's stockholders by providing
for or increasing their proprietary interest in the Company. Any stock
options granted pursuant to this Plan shall not qualify under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), as
incentive stock options. The plan is intended to operate in a manner that
exempts grants of Common Stock under the Plan from Section 16(b) of the
Securities Exchange Act of 1934, as amended.
2. DEFINITIONS
-----------
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the Board and/or the Compensation Committee of
the Board acting pursuant to its authorization to administer this Plan
under Section 7.
(c) "Common Stock" means the Company's common stock, par value $.01,
subject to adjustment as provided in Section 9.
(d) "Market Value" means, as of any date, and unless the Committee
shall specify otherwise, the closing sale price of the Common Stock as
reported for such date pursuant to the consolidated quotation system
or any other transaction reporting plan under Section 11A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or,
if there have been no sales so reported for such date, the average of
the best bid and best offer prices quoted under the consolidated
quotation system or any other such transaction reporting plan as of
4:00 p.m., New York time, on such date, or if on any date the Common
Stock is not so quoted, the average of the best bid and best offered
prices on such day in the domestic over-the-counter market as reported
by the National Quotation Bureau, Incorporated, or any similar
successor or comparable organization. If at any time the Common Stock
is not listed on any domestic securities exchange or quoted under a
transaction reporting plan or in the domestic over-the-counter market,
the "Market Value" shall be the fair value thereof determined by the
Committee.
(e) "Options" shall mean the stock options granted to a Participant
with respect to shares of Common Stock pursuant to the terms of this
Plan.
<PAGE>
(f) "Stock Grant" shall mean the award of shares of Common Stock to a
Participant pursuant to the terms of this Plan.
3. SHARES SUBJECT TO THE PLAN
--------------------------
Subject to adjustment as provided in Section 9, the maximum number of
shares of Common Stock which may be issued pursuant to this Plan shall not
exceed _______. Shares issued under this Plan may be authorized and
unissued shares of Common Stock or shares of Common Stock reacquired by
the Company. All or any shares of Common Stock subject to an Option or a
Stock Grant which for any reason are not issued, do not become vested or
are reacquired pursuant to the Plan or the terms of an Option or Stock
Grant may again be made subject to an Option or Stock Grant under the
Plan.
4. PARTICIPANTS
------------
Any person who is a director of the Company or any of its subsidiaries
shall be eligible for the award of Options and/or Stock Grants hereunder.
The Committee shall determine to which directors any such Options and/or
Stock Grants shall be awarded hereunder (any such director and his or her
authorized transferees hereinafter referred to as a "Participant").
5. DIRECTOR AWARDS
---------------
The Committee may provide for Options and/or Stock Grants to be awarded to
Directors in consideration for their service to the Company. The Committee
shall specify the number of shares subject to each Option or Stock Grant
provided for under this Section 5, or the formula pursuant to which such
number shall be determined, the Participants to receive any such award,
the date of award and the vesting and expiration terms applicable to such
Option or Stock Grant. The award of Options or Stock Grants hereunder may,
but need not, be conditioned on the Director electing to forego his or her
right to all or any part of his or her cash retainer or other fees.
Subject to adjustment pursuant to Section 9, the maximum number of shares
of Common Stock subject to Options and Stock Grants awarded under this
Plan during any calendar year to any person on account of his or her
service as a director shall not exceed ______ shares.
6. TERMS AND CONDITIONS OF OPTIONS AND STOCK GRANTS
------------------------------------------------
(a) General Terms and Conditions: Options and Stock Grants awarded
----------------------------
pursuant to the Plan need not be identical but each Option and Stock Grant
shall be subject to the following general terms and conditions:
(1) Terms and Restrictions Upon Shares: The Committee may provide
----------------------------------
that the shares of Common Stock issued upon exercise of an Option
or receipt of a Stock Grant shall be subject to such further
conditions, restrictions or agreements as the Committee in its
discretion may specify prior to the exercise of such Option or
receipt of such Stock Grant, including without limitation, deferrals
on issuance, conditions on vesting or transferability, and
forfeiture or repurchase provisions. The Committee may establish
rules for the deferred
2
<PAGE>
delivery of Common Stock upon exercise of an Option or receipt of a
Stock Grant with the deferral evidenced by use of "Stock Units" equal
in number to the number of shares of Common Stock whose delivery is so
deferred. A "Stock Unit" is a bookkeeping entry representing an amount
equivalent to the Market Value of one share of Common Stock. Stock
Units represent an unfunded and unsecured obligation of the Company
except as otherwise provided by the Board. Settlement of Stock Units
upon expiration of the deferral period shall be made in Common Stock
or otherwise as determined by the Committee. The amount of Common
Stock, or other settlement medium, to be so distributed may be
increased by an interest factor or by dividend equivalents. Until a
Stock Unit is settled, the number of shares of Common Stock
represented by a Stock Unit shall be subject to adjustment pursuant to
Section 9.
(2) Transferability: Unless otherwise provided by the Committee,
---------------
awards of Options or Stock Grants under the Plan shall be
nontransferable by the Participant other than by will or the laws of
descent and distribution and Stock Options shall be exercisable only
by the Participant during his or her lifetime.
(3) Other Terms and Conditions: No holder of an Option or Stock Grant
--------------------------
shall have any rights as a stockholder with respect to any shares of
Common Stock subject to an Option or Stock Grant hereunder until said
shares have been issued. Options and Stock Grants may also contain
such other provisions, which shall not be inconsistent with any of the
foregoing terms, as the Committee shall deem appropriate. The
Committee may waive conditions to and/or accelerate exercisability of
an Option or Stock Grant, either automatically upon the occurrence of
specified events (including in connection with a change of control of
the Company) or otherwise in its discretion. No Option or Stock Grant,
however, nor anything contained in the Plan, shall confer upon any
Participant any right to serve as a director of the Company or any of
its subsidiaries.
(b) Option Terms: The Committee may establish the terms, provisions and
------------
conditions applicable to awards of Options (including, but not limited to,
exercise price, exercisability and vesting) to the extent such terms,
provisions and conditions are consistent with the express provisions of the
Plan. The exercise price for each Option shall be established by the
Committee or under a formula established by the Committee. Notwithstanding
the forgoing, the exercise price shall not be less than the Market Value of
the Common Stock on the date of grant of the Option, unless the Participant
pays or foregoes compensation in the amount of any discount. The exercise
price of an Option shall be payable (i) in cash, (ii) by payment under an
arrangement with a broker where payment is made pursuant to an irrevocable
direction to the broker to deliver all or part of the proceeds from the sale
of the Option shares to the Company, (iii) by tendering (either physically
or by attestation) shares of Common Stock owned by the Participant
exercising the Option and having a Market Value on the date of exercise
equal to the exercise price but only if such will not result in an
accounting charge to the Company, or (iv) by any combination of the
foregoing. In addition, the exercise price may be payable in such other
form(s) of consideration as the
3
<PAGE>
Committee in its discretion shall specify, including without limitation by
loan (as described in Section 8) or by techniques that may result in an
accounting charge to the Company.
(c) Stock Grant Terms: Stock Grants under the Plan may, in the sole
-----------------
discretion of the Committee, but need not, be conditioned upon the
Participant paying cash or cash-equivalent consideration or agreeing to
forego other compensation for the shares of Common Stock covered by the
Stock Grant. Stock Grants under the Plan may be subject to terms, provisions
and conditions (including, but not limited to, vesting) as are established
in the sole discretion of the Committee, provided such terms, provisions and
conditions are consistent with the express provisions of the Plan. The
terms, provisions and conditions may be contingent upon the passage of time,
continued service or achievement of Company or individual performance goals,
as specified by the Committee.
7. ADMINISTRATION OF THE PLAN
--------------------------
The Plan shall be administered by the Board, except to the extent the Board
designates that the Plan shall be administered by the Compensation Committee
of the Board (the Board or any such designated committee, the "Committee").
The Committee shall act pursuant to a majority vote or unanimous written
consent.
Subject to the express provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in
connection with the administration of this Plan, including, without
limitation: (a) to prescribe, amend and rescind rules relating to this Plan
and to define terms not otherwise defined herein; (b) to prescribe the form
of documentation used to evidence any Option or Stock Grant awarded
hereunder, including provision for such terms as it considers necessary or
desirable, not inconsistent with the terms established by the Committee; (c)
to establish and verify the extent of satisfaction of any conditions to
exercisability applicable to Options or to receipt or vesting of Stock
Grants; (d) to determine whether, and the extent to which, adjustments are
required pursuant to Section 9 hereof; and (e) to interpret and construe
this Plan, any rules and regulations under the Plan and the terms and
conditions of any Option or Stock Grant awarded hereunder, and to make
exceptions to any procedural provisions in good faith and for the benefit of
the Company.
All decisions, determinations and interpretations by the Committee regarding
the Plan, any rules and regulations under the Plan and the terms and
conditions of any Option or Stock Grant awarded hereunder, shall be final
and binding on all Participants and holders of Options and Stock Grants.
The Committee may consider such factors as it deems relevant, in its sole
and absolute discretion, in making such decisions, determinations and
interpretations including, without limitation, the recommendations or advice
of any officer or other employee of the Company and such attorneys,
consultants and accountants as it may select.
8. LOANS
-----
The Company may, if authorized by the Committee, make loans for the purpose
of enabling a Participant to exercise Options and, if applicable, receive
Common Stock awarded under the Plan and to pay the tax liability resulting
from an Option exercise or
4
<PAGE>
Stock Grant under the Plan. The Committee shall have full authority to
determine the terms and conditions of such loans. Such loans may be secured
by the shares of Common Stock received upon exercise of such Option or
receipt of such Stock Grant.
9. ADJUSTMENT OF AND CHANGES IN THE STOCK
--------------------------------------
If the outstanding securities of the class then subject to this Plan are
increased, decreased or exchanged for or converted into cash, property or a
different number or kind of shares or securities, or if cash, property or
shares or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization,
reclassification, dividend (other than a regular, quarterly cash dividend or
an issuance of the class of securities then subject to this Plan as part of
a public or private offering thereof) or other distribution, stock split,
reverse stock split, spin-off or the like, or if substantially all of the
property and assets of the Company are sold, then, unless the terms of such
transaction shall provide otherwise, the maximum number and type of shares
or other securities that may be issued under this Plan shall be
appropriately adjusted. The Committee shall determine in its sole
discretion the appropriate adjustment, if any, to be effected pursuant to
the immediately preceding sentence. In addition, in connection with any
such change in the class of securities then subject to this Plan, the
Committee may make appropriate and proportionate adjustments in the number
and type of shares or other securities or cash or other property that may be
acquired pursuant to Options and Stock Grants theretofore awarded under this
Plan and the exercise price of such Options or price, if any, of such Stock
Grants.
No right to purchase or receive fractional shares shall result from any
adjustment in Options or Stock Grants pursuant to this Section 9. In case
of any such adjustment, the shares subject to the Option or Stock Grant
shall be rounded up to the nearest whole share of Common Stock.
10. REGISTRATION, LISTING OR QUALIFICATION OF STOCK
-----------------------------------------------
In the event that the Committee determines in its discretion that the
registration, listing or qualification of the shares of Common Stock
issuable under the Plan on any securities exchange or under any applicable
law or governmental regulation is necessary as a condition to the issuance
of such shares under the Option or Stock Grant, the Option or Stock Grant
shall not be exercisable or exercised in whole or in part unless such
registration, listing, qualification, consent or approval has been
unconditionally obtained.
11. TAXES
-----
The Committee may make such provisions or impose such conditions as it may
deem appropriate for the withholding or payment by a Participant of any
taxes which it determines are necessary or appropriate in connection with
any issuance, exercise or vesting of any Options, Stock Grants or shares
under this Plan, and the rights of a holder of an Option or Stock Grant or
shares are subject to satisfaction of such conditions. The Company shall not
be required to issue shares of Common Stock or to recognize the disposition
of such shares until such obligations are satisfied. At the Participant's
election, any such obligations may be satisfied by having the Company
5
<PAGE>
withhold a portion of the shares of Common Stock that otherwise would be
issued to the holder of the Option or Stock Grant upon exercise of the
Option or vesting or receipt of the Stock Grant or by surrendering to the
Company shares of Common Stock previously acquired, provided that such will
not result in an accounting charge to the Company. The Company and any
affiliate of the Company shall not be liable to a Participant or any other
persons as to any tax consequence expected, but not realized, by any
Participant or other person due to the receipt of any Options or shares
awarded hereunder.
12. ARBITRATION AND APPLICABLE LAW
------------------------------
Any claim, dispute or other matter in question of any kind relating to this
Plan shall be settled by arbitration before a single arbitrator (who is
mutually agreeable to the parties) and otherwise conducted in accordance
with the Rules of the American Arbitration Association (the "AAA Rules"),
which proceedings shall be held in the city in which the Company's executive
offices are located. If the parties are unable to agree upon an arbitrator,
the arbitrator shall be selected in accordance with the AAA Rules. Notice
of demand for arbitration shall be made in writing to the opposing party and
to the American Arbitration Association within a reasonable time after the
claim, dispute or other matter in question has arisen. In no event shall a
demand for arbitration be made after the date when the applicable statute of
limitations would bar the institution of a legal or equitable proceeding
based on such claim, dispute or other matter in question. The decision of
the arbitrator shall be final and may be enforced in any court of competent
jurisdiction. This Plan and any rights hereunder shall be interpreted and
construed in accordance with the laws of the State of Delaware and
applicable federal law.
13. EFFECTIVE DATE, AMENDMENT AND TERMINATION OF PLAN
-------------------------------------------------
This Plan shall become effective upon its adoption by the Board and approval
by the Company's stockholder. Any Options and Stock Grants awarded prior to
the such date shall be contingent on such approval and, if such approval is
not obtained, shall be null and of no effect.
Unless earlier suspended or terminated by the Board, no Options or Stock
Grants may be awarded after May 1, 2009. The Board may periodically amend
the Plan as it determines appropriate, without further action by the
Company's stockholders except to the extent required by applicable law. Any
amendment to the Plan will not affect the rights and obligations arising
under Options or Stock Grants theretofore awarded and then in effect.
Notwithstanding the foregoing, and subject to adjustment pursuant to Section
9, the Plan may not be amended to increase the number of shares of Common
Stock authorized for issuance under the Plan, unless any such amendment is
approved by the Company's stockholders. The Plan may be earlier terminated
at such earlier time as the Board may determine. Termination and expiration
of the Plan will not affect the rights and obligations arising under Options
or Stock Grants theretofore awarded and then in effect.
6
<PAGE>
Exhibit 10.23
THE CORPORATE EXECUTIVE BOARD COMPANY
1998 STOCK OPTION PLAN
1. PURPOSE
The purpose of The Corporate Executive Board Company 1998 Stock Option Plan
(the "Plan") is to provide Participants with an increased economic and
proprietary interest in the Company in order to encourage those
Participants to contribute to the success and progress of the Company. The
Plan provides solely for the grant of Options which shall not be incentive
stock options, as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
2. DEFINITIONS
(a) "Administrator" means the Administrator of the Plan in accordance with
Section 11.
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Common Stock" means the Company's common stock, par value $.01,
subject to adjustment as provided in Section 8.
(d) "Company" means The Corporate Executive Board Company, a Delaware
corporation.
(e) "Options" shall mean the stock options granted pursuant to the Plan.
(f) "Participants" shall mean those officers, independent contractors and
employees of the Company and its subsidiaries to whom Options have
been granted from time to time by the Administrator and any authorized
transferee of such officers, independent contractors and employees.
(g) "Plan" means The Corporate Executive Board Company 1998 Stock Option
Plan.
(h) "Retirement" shall have the meaning specified by the Administrator in
the terms of an option grant or, in the absence of any such term,
shall mean retirement from active employment with the Company (i) at
or after age 55 and with the approval of the Administrator or (ii) at
or after age 65. The determination of the Administrator as to an
individual's Retirement shall be conclusive on all parties.
(i) "Total and Permanent Disablement" shall have the meaning specified by
the Administrator in the terms of an option grant or, in the absence
of any such term, shall mean a physical condition arising from an
illness or injury which renders an individual incapable of performing
work. The determination of the Administrator as to an individual's
Disablement shall be conclusive on all of the parties.
1
<PAGE>
3. PARTICIPANTS
Options may only be granted to officers, independent contractors, employees
and prospective employees of the Company and its subsidiaries as selected
by the Administrator. For purposes of this Plan, the Chairman of the
Board's status as an employee shall be determined by the Board of
Directors. Options may not be granted to directors of the Company unless
such directors otherwise qualify for participation in the Plan.
4. EFFECTIVE DATE AND TERMINATION OF PLAN
This Plan was adopted by the Board of Directors and approved by the sole
stockholder of the Company on ________ and is effective as of ________.
The Plan shall remain available for the grant of Options until May 1, 2009.
Notwithstanding the foregoing, the Plan may be terminated at such earlier
time as the Board of Directors may determine. Termination of the Plan will
not affect the rights and obligations of the Participants and the Company
arising under Options theretofore granted and then in effect.
5. SHARES SUBJECT TO THE PLAN AND TO OPTIONS
The stock subject to Options authorized to be granted under the Plan shall
consist of ________ shares of the Company's Common Stock, or the number and
kind of shares of stock or other securities which shall be substituted or
adjusted for such shares as provided in Section 8. In the event that
shares of Common Stock subject to the Company's Stock-Based Incentive
Compensation Plan, as amended and restated on ______________, 1998 (the
"Incentive Plan"), are canceled, expire or terminate or that otherwise are
available for issuance but for any other reason are not issued under the
Incentive Plan, then the number of shares of Common Stock authorized for
issuance under the Plan shall be increased accordingly. Such shares may be
authorized and unissued shares of the Company's Common Stock. All or any
shares of Common Stock subject to an Option which for any reason are not
issued, do not become vested or are reacquired pursuant to the Plan or the
terms of an Option may again be made subject to an Option under the Plan.
6. GRANT, TERMS AND CONDITIONS OF OPTIONS
Options may be granted at any time and from time to time prior to the
termination of the Plan, to certain officers, independent contractors and
employees of the Company selected by the Administrator. No Participant
shall have any rights as a stockholder with respect to any shares of stock
subject to Option hereunder until said shares have been issued. Each
Option shall be evidenced by a written stock option agreement and/or such
other written arrangements as may be approved from time to time by the
Administrator. Options granted pursuant to the Plan need not be identical
but each Option much contain and be subject to the following terms and
conditions:
(a) Price: The purchase price under each Option shall be established by
-----
the Administrator. In no event will the option price be less than the
fair market value
2
<PAGE>
of the stock on the date of grant unless such Options are granted in
substitution of options granted by a new employee's previous employer
or the optionee pays or foregoes compensation in the amount of any
discount. The price may be paid in cash or any alternative means
acceptable to the Administrator, including an irrevocable commitment
by a broker to pay over such amount from a sale of the shares issuable
under an Option and the acceptance of a promissory note secured by the
number of shares of Common Stock then issuable upon exercise of the
Options.
(b) Duration and Exercise or Termination of Option: Unless the
----------------------------------------------
Administrator provides otherwise, Options shall become exercisable 25
percent per year beginning one year after the date of the grant.
Unless the Administrator provides otherwise, each Option granted must
expire within a period of not more than ten (10) years from the date
of grant.
(c) Suspension or Termination of Option: Except as otherwise provided by
-----------------------------------
the Administrator, if at any time (including after a notice of
exercise has been delivered) the Chief Executive Officer or any other
person designated by the Administrator (each such person, an
"Authorized Officer") reasonably believes that a Participant has
committed an act of misconduct as described in this Section, the
Authorized Officer may suspend the Participant's rights to exercise
any Option pending a determination of whether an act of misconduct has
been committed.
Except as otherwise provided by the Administrator, if the
Administrator or an Authorized Officer determines a Participant has
committed an act of embezzlement, fraud, dishonesty, nonpayment of any
obligation owed to the Company, breach of fiduciary duty or deliberate
disregard of the Company rules resulting in loss, damage or injury to
the Company, or if a Participant makes an unauthorized disclosure of
any Company trade secret or confidential information, engages in any
conduct constituting unfair competition, induces any Company customer
to breach a contract with the Company or induces any principal for
whom the Company acts as agent to terminate such agency relationship,
neither the Participant nor his or her estate nor transferee shall be
entitled to exercise any Option whatsoever. In making such
determination, the Administrator or an Authorized Officer shall act
fairly and shall give the Participant an opportunity to appear and
present evidence on his or her behalf at a hearing before the
Administrator or the Board of Directors. For any Participant who is an
"executive officer" for purposes of Section 16 of the Securities
Exchange Act of 1934, the determination of the Authorized Officer
shall be subject to the approval of the Administrator.
(d) Termination of Employment: Subject to Section 6(b), unless the
-------------------------
Administrator specifies otherwise, upon the termination of the
Participant's employment, his or her rights to exercise an Option then
held shall be only as follows:
3
<PAGE>
(1) Death. Upon the death of a Participant while in the employ of the
-----
Company, all of the Participant's Options then held shall be
exercisable by his or her estate, heir or beneficiary at any time
during the twelve (12) months next succeeding the date of death.
Any and all Options that are unexercised during the twelve (12)
months next succeeding the date of death shall terminate as of
the end of such twelve (12) month period.
If a Participant should die within thirty (30) days of his or her
termination of employment with the Company, an Option shall be
exercisable by his or her estate, heir or beneficiary at any time
during the twelve (12) months succeeding the date of termination,
but only to the extent of the number of shares as to which such
Option was exercisable as of the date of such termination. Any
and all Options that are unexercised during the twelve (12)
months succeeding the date of termination shall terminate as of
the end of such twelve (12) month period. A Participant's estate
shall mean his or her legal representative or other person who so
acquires the right to exercise the Option.
(2) Total and Permanent Disablement. Upon termination as a result of
-------------------------------
the Total and Permanent Disablement of any Participant, all of
the Participant's Options then held shall be exercisable for a
period of twelve (12) months after termination. Any and all
Options that are unexercised during the twelve (12) months
succeeding the date of termination shall terminate as of the end
of such twelve (12) month period.
(3) Retirement. Upon Retirement of a Participant, the Participant's
----------
Options then held shall be exercisable for a period of twelve
(12) months after Retirement. The number of shares with respect
to which the Options shall be exercisable shall equal the total
number of shares which were exercisable under the Participant's
Option on the date of his or her Retirement. Any and all Options
that are unexercised during the twelve (12) months succeeding the
date of termination shall terminate as of the end of such twelve
(12) month period.
(4) Other Reasons. Upon the date of a termination of a Participant's
-------------
employment for any reason other than those stated above in
Sections 6(d)(1), (d)(2) and (d)(3) or as described in
Section 6(c) above, (A) any Option that is unexercisable as of
such termination date shall remain unexercisable and shall
terminate as of such date, and (B) any Option that is exercisable
as of such termination date shall expire the earlier of
(i) thirty (30) days following such date or (ii) the expiration
date of such Option.
(e) Transferability of Option: Unless the Administrator specifies
-------------------------
otherwise, each Option shall be nontransferable by the Participant
other than by will or the laws of
4
<PAGE>
descent and distribution and shall only be exercisable by the
Participant during his or her lifetime.
(f) Cancellation: The Administrator may, at any time prior to exercise and
------------
subject to consent of the Participant, cancel any Options previously
granted and may or may not substitute in their place Options at a
different price and different type under different terms or in
different amounts.
(g) Conditions and Restrictions Upon Securities Subject to Options: The
--------------------------------------------------------------
Administrator may provide that the shares of Common Stock issued upon
exercise of an Option shall be subject to such further conditions or
agreements as the Administrator in its discretion may specify prior to
the exercise of such Option, including without limitation, conditions
on vesting or transferability, forfeiture or repurchase provisions and
method of payment for the shares issued upon exercise (including the
actual or constructive surrender of Common Stock already owned by the
Participant). The Administrator may establish rules for the deferred
delivery of Common Stock upon exercise of an Option with the deferral
evidenced by use of "Stock Units" equal in number to the number of
shares of Common Stock whose delivery is so deferred. A "Stock Unit" is
a bookkeeping entry representing an amount equivalent to the fair
market value of one share of Common Stock. Unless the Administrator
specifies otherwise, Stock Units represent an unfunded and unsecured
obligation of the Company. Settlement of Stock Units upon expiration of
the deferral period shall be made in Common Stock or otherwise as
determined by the Administrator. The amount of Common Stock, or other
settlement medium, to be so distributed may be increased by an interest
factor or by dividend equivalents. Until a Stock Unit is so settled,
the number of shares of Common Stock represented by a Stock Unit shall
be subject to adjustment pursuant to Section 8. Any Stock Units that
are settled after the holder's death shall be distributed to the
holder's designated beneficiary(ies) or, if none was designated, the
holder's estate.
(h) Other Terms and Conditions: Options may also contain such other
--------------------------
provisions, which shall not be inconsistent with any of the foregoing
terms, as the Administrator shall deem appropriate. No Option, however,
nor anything contained in the Plan shall confer upon any Participant
any right to continue in the Company's employ or service nor limit in
any way the Company's right to terminate his or her employment at any
time.
7. LOANS
The Company may make loans, at the request of the Participant and in the
sole discretion of the Administrator, for the purpose of enabling the
Participant to exercise Options granted under the Plan and to pay the tax
liability resulting from an Option exercised under the Plan. The
Administrator shall have full authority to determine the terms and
5
<PAGE>
conditions of such loans. Such loans may be secured by the shares received
upon exercise of such Option.
8. ADJUSTMENT OF AND CHANGES IN THE STOCK
In the event that the number of shares of Common Stock of the Company shall
be increased or decreased through reorganization, reclassification,
combination of shares, stock splits, reverse stock splits, spin-offs, or
the payment of a stock dividend, (other than regular, quarterly cash
dividends) or otherwise, then each share of Common Stock of the Company
which has been authorized for issuance under the Plan, whether such share
is then currently subject to or may become subject to an Option under the
Plan, may be proportionately adjusted to reflect such increase or decrease,
unless the terms of the transaction provide otherwise. Outstanding Options
may also be amended as to price and other terms if necessary to reflect the
foregoing events.
In the event there shall be any other change in the number or kind of the
outstanding shares of Common Stock of the Company, or any stock or other
securities into which such Common Stock shall have been changed, or for
which it shall have been exchanged, whether by reason of merger,
consolidation or otherwise, then the Administrator shall, in its sole
discretion, determine the appropriate adjustment, if any, to be effected.
In addition, in the event of such change described in this paragraph, the
Administrator may accelerate the time or times at which any Option may be
exercised and may provide for cancellation of such accelerated Options
which are not exercised within a time prescribed by the Administrator in
its sole discretion.
No right to purchase fractional shares shall result from any adjustment in
Options pursuant to this Section 8. In case of any such adjustment, the
shares subject to the Option shall be rounded down to the nearest whole
share. Notice of any adjustment shall be given by the Company to each
Participant which shall have been so adjusted and such adjustment (whether
or not notice is given) shall be effective and binding for all purposes of
the Plan.
9. LISTING OR QUALIFICATION OF STOCK
In the event that the Board of Directors or the Administrator determines in
its discretion that the listing or qualification of the Plan shares on any
securities exchange or quotation or trading system or under any applicable
law or governmental regulation is necessary as a condition to the issuance
of such shares under the Option, the Option may not be exercised in whole
or in part unless such listing, qualification, consent or approval has been
unconditionally obtained.
10. WITHHOLDING
To the extent required by applicable federal, state, local or foreign law,
a Participant shall make arrangements satisfactory to the Company for the
satisfaction of any withholding tax obligations that arise by reason of an
Option exercise. The Company shall not be
6
<PAGE>
required to issue shares or to recognize the disposition of such shares
until such obligations are satisfied. The Administrator may permit these
obligations to be satisfied by having the Company withhold a portion of the
shares of stock that otherwise would be issued to him or her upon exercise
of the Option, or to the extent permitted, by tendering shares previously
acquired, provided that such will not result in an accounting charge to the
Company.
11. ADMINISTRATION AND AMENDMENT OF THE PLAN
The Plan shall be administered by the Administrator who shall be the
Compensation Committee of the Board of Directors or, in the absence of a
Compensation Committee, the Board of Directors itself. Subject to the
express provisions of this Plan, the Administrator shall be authorized and
empowered to do all things necessary or desirable in connection with the
administration of this Plan, including, without limitation: (a) to
prescribe, amend and rescind rules and regulations relating to this Plan
and to define terms not otherwise defined herein; (b) to determine which
persons are Participants (as defined in Section 3 hereof) and to which of
such Participants, if any, an Option shall be granted hereunder and the
timing of any such Option grants; (c) to determine the number of shares of
Common Stock subject to an Option and the exercise or purchase price of
such shares; (d) to establish and verify the extent of satisfaction of any
conditions to exercisability applicable to an Option; (e) to waive
conditions to and/or accelerate exercisability of an Option, either
automatically upon the occurrence of specified events (including in
connection with a change of control of the Company) or otherwise in its
discretion; (f) to prescribe and amend the terms of Option grants made
under this Plan (which need not be identical); (g) to determine whether,
and the extent to which, adjustments are required pursuant to Section 8
hereof; and (h) to interpret and construe this Plan, any rules and
regulations under the Plan and the terms and conditions of any Option
granted hereunder, and to make exceptions to any such provisions in good
faith and for the benefit of the Company.
All decisions, determinations and interpretations by the Administrator
regarding the Plan, any rules and regulations under the Plan and the terms
and conditions of any Option granted hereunder, shall be final and binding
on all Participants and optionholders. The Administrator shall consider
such factors as it deems relevant, in its sole and absolute discretion, to
making such decisions, determinations and interpretations including,
without limitation, the recommendations or advice of any officer or other
employee of the Company and such attorneys, consultants and accountants as
it may select.
The Administrator may, from time to time, delegate some of its
responsibilities with respect to the administration of the Plan to such
persons as it may designate in its sole discretion but may not delegate
authority to grant options to a person who is not a member of the Board of
Directors.
The interpretation and construction of any provision of the Plan by the
Board of Directors shall be final and conclusive. The Board of Directors
may periodically adopt rules and
7
<PAGE>
regulations for carrying out the Plan, and amend the Plan as desired,
without further action by the Company's stockholders except to the extent
required by applicable law. Any amendment to the Plan will not affect the
rights and obligations of the Participants and the Company arising under
Options theretofore granted and then in effect. Notwithstanding the
foregoing, and subject to adjustment pursuant to Section 8, the Plan may
not be amended to increase the number of shares of Common Stock authorized
for issuance, unless approved by the Company's stockholders.
12. TIME OF GRANTING OPTIONS
The effective date of such Option shall be the date on which the grant was
made. Within a reasonable time thereafter, the Company will deliver the
Option to the Participant.
8
<PAGE>
Exhibit 10.27
THE CORPORATE EXECUTIVE BOARD COMPANY
THE WATERGATE
600 NEW HAMPSHIRE AVENUE, N.W.
WASHINGTON, D.C. 20037
December __, 1998
Mr. David G. Bradley
2211 30th Street N.W.
Washington, DC 20008
Re: $6,500,000 Promissory Note (the "Promissory Note") made on October 31,
1997 by David G. Bradley ("DGB") in favor of The Corporate Executive
Board ("CEB") and the Security Agreement (the "Security Agreement"),
dated October 31, 1997, by and between DGB and CEB, securing the
payment of the balance due under the Promissory Note
Dear Mr. Bradley:
Please refer to the Promissory Note and the Security Agreement referenced
above. Capitalized terms used by not defined in this Letter Agreement (this
"Letter Agreement") have the meanings given them in the Security Agreement.
This Letter Agreement memorializes the following additional agreements and
understandings between DGB and CEB in connection with the Promissory Note and
the Security Agreement:
1. DGB will prepay the outstanding principal balance under the Promissory
Note plus any interest accrued thereon through the date of such prepayment
(collectively, the "Prepayment Amount") to CEB within 30 days after the closing
of the initial public offering by CEB of its shares of Common Stock.
2. Upon CEB's receipt of the Prepayment Amount, CEB shall (i) return the
Promissory Note to DGB, (ii) terminate the Security Agreement, (iii) release the
Collateral and (iv) waive any and all rights that it may have under the Security
Agreement.
CEB and DGB agree that at any time and from time to time, upon written
request, they will execute and deliver such further documents and do such
further acts and things as may be reasonably requested in order to effectuate
the purposes of this Letter Agreement and the transactions contemplated hereby.
<PAGE>
If the foregoing accurately reflects our understandings and agreements,
please so indicate by signing below, whereupon this Letter Agreement shall
constitute a binding agreement between the parties hereto.
THE CORPORATE EXECUTIVE BOARD
COMPANY
By:
------------------------
Name:
Title
SO AGREED:
----------------
By: DAVID G. BRADLEY
2
<PAGE>
EXHIBIT 10.28
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT, dated as of July 21, 1998, (this
"Agreement"), is made by and between THE ADVISORY BOARD COMPANY, a Maryland
corporation ("ABC") and THE CORPORATE EXECUTIVE BOARD COMPANY (formerly known as
The Corporate Advisory Board Company), a Delaware corporation ("CEB").
WHEREAS, ABC and CEB are parties to a Management Services Agreement, dated
October 31, 1997 (the "Original Agreement");
WHEREAS, ABC and CEB desire to amend and restate the Original Agreement,
among other things, to extend the term of the Original Agreement through October
31, 1998;
WHEREAS, the parties hereto desire to amend, modify and restate the
Original Agreement in accordance with the foregoing; and
WHEREAS, the parties hereto amend and restate the following recitals:
RECITALS
--------
A. ABC and CEB have entered into a Distribution Agreement dated as of
October 31, 1997 (the "Distribution Agreement"), providing for the contribution
by ABC of the Transferred Business to CEB.
B. Following the Contribution, subject to the conditions set forth in the
Distribution Agreement, all issued and outstanding shares of capital stock of
CEB were distributed to the Sole Stockholder.
C. During the Transition Period, ABC desires to provide, and CEB desires
to receive, certain administrative and other corporate services from ABC, as
hereinafter specifically provided (collectively, the "Administrative Services"
and, individually, a "Administrative Service"), and the parties desire to set
forth herein the basis on which the Administrative Services shall be provided to
CEB.
The parties agree as follows:
1. Definitions. Unless the context otherwise requires, capitalized
-- -----------
terms not otherwise defined herein shall have the respective meanings given to
them in the Distribution Agreement.
2. Administrative Services. The specific Administrative Services to be
-- -----------------------
provided by ABC to CEB are comprised of the services more particularly set forth
in Attachment 1 hereto. Subject to the terms of this Agreement, upon the
written request setting forth additional or amended Administrative Services to
be provided to CEB made by an Executive Vice President of CEB or a person
designated to act on his behalf in an instrument executed by such CEB Executive
Vice President and delivered to ABC, ABC shall provide each of such additional
or amended Administrative Services with respect to the Transferred Business in
the manner and to
1
<PAGE>
the same general extent as such Administrative Services have been provided by
ABC in connection with the Transferred Business before the Contribution.
3. Term. Except with respect to Section 12, the term of this Agreement
-- ----
shall be two (2) years commencing on October 31, 1997 (the "Term"). Services
shall be provided only as specified in Attachment 1 hereto, unless otherwise
agreed to by the parties. In addition, CEB shall have the right to terminate an
Administrative Service or the Administrative Services upon sixty (60) days prior
written notice to ABC. Termination of one or more Administrative Services by CEB
shall not affect the obligation of ABC to furnish all other Administrative
Services for the remainder of the Term.
4. Cost. Unless otherwise expressly agreed in writing by a duly
-- ----
authorized officer of ABC and CEB, the Administrative Services shall be provided
to CEB in consideration for payment to ABC of the administrative fees set forth
in Attachment 1.
5. Delegation. ABC may retain the services of such third parties,
-- ----------
either by oral or written contract, as ABC may, from time to time, deem
necessary or appropriate to facilitate the expeditious discharge of ABC's
responsibilities hereunder.
6. Independence. All employees and representatives of ABC providing
-- ------------
Administrative Services to CEB will be deemed for purposes of all compensation
and employee benefits to be employees or representatives of ABC and not
employees or representatives of CEB. In performing such Administrative
Services, such employees or representatives will be under the direction, control
and supervision of ABC (and not CEB) and ABC will have the sole right to
exercise all authority with respect to the employment (including termination of
employment), assignment and compensation of such employees and representatives.
ABC shall be solely responsible for the payment of all payroll and withholding
taxes relating to its employees for services provided to CEB during the Term.
7. Impracticability. ABC shall not be required to provide any
-- ----------------
Administrative Service to the extent the performance or the provision of such
Administrative Service becomes impracticable as a result of a cause or causes
outside of the reasonable control of ABC, or to the extent the performance of
such Administrative Service would require ABC to violate applicable laws, rules
or regulations or result in the breach of any license, permit or applicable
contract.
8. Additional Resources. In providing the Administrative Services, ABC
-- --------------------
shall not be obligated to: (i) hire any additional employees, (ii) maintain the
employment of any specific employee, or (iii) purchase, lease or license any
additional equipment or software.
9. Force Majeure. The obligations of ABC under this Agreement are
-- -------------
subject to conditions of force majeure, including an act of God, strike or
walkout or other labor dispute, act of a public enemy, war, revolution, riot,
fire, storm, flood, earthquake, embargo and any other cause which is not
reasonably within the control of the party affected thereby.
10. Nondisclosure. In the event that, during the Term and in connection
--- -------------
with a party's performance of its obligations hereunder, either party shall
receive information concerning the other party hereto which the receiving party
knows, or has reason to believe, is confidential or proprietary to the party to
whom such information relates, the party receiving such information
2
<PAGE>
shall take all reasonable steps to (a) protect and hold such information in
confidence and prevent its disclosure to third parties unless such third parties
are under a duty of confidentiality to the party to which such information
relates; and (b) restrict its use to those purposes consented to in writing by
the party to whom such information relates; provided, however, that the party
receiving such information shall not be required to protect or hold in
confidence any information or data which (i) is or becomes available to the
public without the fault of the receiving party, (ii) is independently developed
by the receiving party, (iii) is disclosed to the receiving party by a third
party known to the receiving party not to be under any duty of confidentiality
to the party to whom such information relates with respect to such information
or (iv) except as may otherwise be required by law. This Section 10 shall not
limit the obligation of the parties under the Distribution Agreement to provide
access to records after the date hereof.
11. Limitation on Liability. ABC's liability to CEB in connection with
--- -----------------------
this Agreement and the Administrative Services to be provided by ABC shall be
limited to actual damages arising from ABC's gross negligence or willful
misconduct in the performance of its duties and responsibilities hereunder;
provided, however, that, in no event shall ABC be liable for any incidental or
consequential damages.
12. Indemnity.
--- ---------
(a) ABC agrees to defend, indemnify and hold CEB and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by CEB arising out of the
performance of the Administrative Services hereunder, except where such
liability, loss, claim, damage or expense shall have been caused by CEB's gross
negligence or willful misconduct in the performance of its duties and
responsibilities hereunder.
(b) CEB agrees to defend, indemnify and hold ABC and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by ABC arising out of the
performance of the Administrative Services hereunder, except where such
liability, loss, claim, damage or expense shall have been caused by ABC's gross
negligence or willful misconduct in the performance of its duties and
responsibilities hereunder.
13. Mutual Cooperation. ABC and CEB will provide each other with
--- ------------------
information and assistance reasonably necessary to investigate, defend or
prosecute any claims, suits, charges, including but not limited to equal
employment opportunity, workers compensation, insurance and similar claims
brought by or against ABC or CEB relating to either of their businesses. This
provision shall survive termination of this Agreement.
14. Third Party Rights. Nothing in this Agreement, express or implied, is
--- ------------------
intended to confer upon any person (including, without limitation, employees),
other than the parties hereto and their respective successors and assigns, any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
15. Relationship of Parties. Nothing in this Agreement shall be deemed or
--- -----------------------
construed by the parties or any third party as creating the relationship of
principal and agent, partnership or
3
<PAGE>
joint venture between the parties, it being understood and agreed that no
provision contained herein, and no act of the parties, shall be deemed to create
any relationship between the parties other than the relationship of independent
contractor nor be deemed to vest any rights, interest or claims in any third
parties.
16. Successor and Assigns. This Agreement shall inure to the benefit of
--- ---------------------
and be binding upon the respective successors and assigns of the parties hereto,
provided that this Agreement may not be assigned by either of the parties hereto
without the prior written consent of the other.
17. Notices. All notices and other communications required or permitted
--- -------
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, postage prepaid or by certified
or registered mail, and addressed to the applicable party at the respective
addresses set forth in the Distribution Agreement (or at such other address for
a party as shall be specified by a like notice).
18. Governing Law. The validity, enforceability and performance of this
--- -------------
Agreement shall be governed by and construed in accordance with the laws of the
State of Maryland (excluding its choice of law rules).
19. Entire Agreement. The parties intend that the terms of this
--- ----------------
Agreement, including the attached schedules, shall be the final expression of
their agreement with respect to the subject matter hereof and may not be
contradicted by evidence of any prior or contemporaneous agreement. The parties
further intend that this Agreement shall constitute the complete and exclusive
statement of its terms and that no extrinsic evidence whatsoever may be
introduced in any judicial, administrative or other legal proceedings involving
this Agreement.
20. Counterparts. This Agreement may be executed in counterparts, each of
--- ------------
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
21. Headings. The headings used in this Agreement are inserted for
--- --------
convenience of reference only and shall not affect the meaning or interpretation
of any provision of this Agreement.
22. Amendments and Waivers. This Agreement may not be amended except
--- ----------------------
upon the written consent of all of the parties. By an instrument in writing, any
party may waive compliance by any other party with any term or provision of this
Agreement that such other party was or is obligated to comply with or perform,
provided, however, that such waiver shall not operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power hereunder preclude any other or further exercise thereof
or the exercise of any other right remedy, or power provided herein or by law or
in equity. The waiver by any party of the time for performance of any act or
condition hereunder does not constitute a waiver of the act or condition itself.
23. Expenses. Whether or not the transactions contemplated in this
--- --------
Agreement are consummated, unless specifically provided otherwise in this
Agreement (including all Schedules
4
<PAGE>
hereto), each party shall bear and pay all expenses
incurred by it or on its behalf in connection with the preparation of this
Agreement and consummation of the transactions described herein.
24. Severability. If any provision of this Agreement, or the application
--- ------------
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be void, invalid or unenforceable, the remainder of
this Agreement and such provisions as applied to other persons, places or
circumstances shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
THE ADVISORY BOARD COMPANY,
a Maryland corporation
By:
--------------------------------------------
Its:
--------------------------------------------
THE CORPORATE EXECUTIVE BOARD COMPANY,
a Delaware
corporation
By:
--------------------------------------------
Its:
--------------------------------------------
5
<PAGE>
ATTACHMENT 1
ADMINISTRATIVE SERVICES AND FEES
Internal Services ASA (revised)
<TABLE>
<CAPTION>
Pricing Fee (annual unless otherwise noted)
- --------------------------------------------- ------------------------------------------------
<S> <C>
Service
Information Systems
Help Desk $528 per FTE
Network Support $420 per FTE
Operating System Rental $14,500 per month
Web Sites $600 per month maintenance plus direct
development costs
Finance
Accounts Payable 0.3% of invoice totals
T & E Processing 0.64% of amount processed
Accounts Receivable 0.14% of revenue
Payroll $67 per FTE
General Accounting $14,000 per month
Career Management
Syndicated Recruiting $10,800 per hire plus all direct expenses
Custom Recruiting $15,000 per month retainer plus $2,200/hire and
direct signing bonuses
Education $900 per FTE
Human Resources $288 per FTE
Administration
General Services
Order Fulfillment percentage of usage on non-direct costs plus
all direct costs
New Product Development all direct costs
Facilities $624 per FTE (includes mailroom)
IRC $360 per FTE plus all direct costs
Reception $576 per FTE
Telephone Services $180 per FTE
Telephone Network $8,000 per month
Meeting Planner $3,567 fixed charge/meeting plus $1,196 travel
per away mtg. plus $14.48 per attendee plus
XBS (copy services) additional $1,305 for an additional mtg. mgr.
$0.049 per copy
</TABLE>
6
<PAGE>
Exhibit 10.29
MEMBER CONTRACTS AGREEMENT
THIS MEMBER CONTRACTS AGREEMENT, dated as of October 31, 1997 (the
"Agreement"), is made by and between THE ADVISORY BOARD COMPANY, a Maryland
corporation ("ABC") and THE CORPORATE ADVISORY BOARD COMPANY, a Delaware
corporation ("New AB").
RECITALS
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A. ABC and New AB have entered into a Distribution Agreement dated as of
October 31, 1997 (the "Distribution Agreement"), providing for the contribution
by ABC of the Transferred Business (as defined therein) to New AB (including
specifically assignment of the Member Contracts to New AB).
B. Following the Contribution, subject to the conditions set forth in the
Distribution Agreement, all issued and outstanding shares of capital stock of
New AB will be distributed (the "Distribution") to the Sole Stockholder.
C. In the interest of an orderly transition with respect to the transfer
of the Transferred Business to New AB and the continued administration of the
Member Contracts during the Pre-Renewal Period (as defined herein), New AB
desires to appoint ABC as its agent as hereinafter specifically provided for
certain purposes in connection with the Member Contracts and to receive certain
related services from ABC.
The parties agree as follows:
1. Definitions. Unless the context otherwise requires, capitalized terms
-----------
not otherwise defined herein shall have the respective meanings given to them in
the Distribution Agreement.
2. Agency. New AB hereby appoints ABC as its agent to provide such
------
administrative and accounting-related services and take all administrative and
accounting-related actions on behalf of New AB in connection with the Member
Contracts during the Term as may be necessary or advisable, including without
limitation, provision of such administrative services relating to the Member
Contracts as may be necessary or advisable (including processing of new Member
Contracts and renewals of existing Member Contracts), collection of payments
relating to Member Contracts and transmittal of such payments to New AB
(collectively, the "Agency Services"). ABC hereby accepts its appointment as
agent of New AB and agrees to provide the Agency Services as provided herein.
ABC shall provide each of the Agency Services with respect to the Member
Contracts in the manner and to the same general extent as such services have
been provided by ABC in connection with the Member Contracts before the
Contribution, except that all new Member Contracts and renewals of existing
Member Contracts shall processed in the name of New AB.
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3. Term. Except with respect to Section 12, the term of this Agreement
----
shall commence on the date hereof and terminate upon the earlier of (a) the last
date of the renewal or expiration of each Member Contract existing on the date
hereof or (b) at the end of the Transition Period. In addition, New AB shall
have the right to terminate an Agency Service or Agency Services upon sixty (60)
days prior written notice to ABC. Termination of one or more Agency Services by
New AB shall not affect the obligation of ABC to furnish all other Agency
Services for the remainder of the Term.
4. Cost. Unless otherwise expressly agreed in writing executed by a duly
----
authorized officer of ABC and New AB, the Agency Services shall be provided to
New AB at the costs specified for such services on Attachment 1 of the
Management Services Agreement.
5. Delegation. ABC may retain the services of such third parties, either
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by oral or written contract, as ABC may, from time to time, deem necessary or
appropriate to facilitate the expeditious discharge of ABC's responsibilities
hereunder.
6. Independence. All employees and representatives of ABC providing Agency
------------
Services to New AB will be deemed for purposes of all compensation and employee
benefits to be employees of ABC and not employees of New AB. In performing such
Agency Services, such employees or representatives will be under the direction,
control and supervision of ABC (and not New AB) and ABC will have the sole right
to exercise all authority with respect to the employment (including termination
of employment), assignment and compensation of such employees and
representatives. ABC shall be solely responsible for the payment of all payroll
and withholding taxes relating to its employees for services provided to New AB
during the Term.
7. Impracticability. ABC shall not be required to provide any Agency
----------------
Service to the extent the performance or the provision of such Agency Service
becomes impracticable as a result of a cause or causes outside of the reasonable
control of ABC, or to the extent the performance of such Agency Service would
require ABC to violate applicable laws, rules or regulations or result in the
breach of any license, permit or applicable contract.
8. Additional Resources. In providing the Agency Services, ABC shall not
--------------------
be obligated to: (i) hire any additional employees, (ii) maintain the employment
of any specific employee, or (iii) purchase, lease or license any additional
equipment or software.
9. Force Majeure. The obligations of ABC under this Agreement are subject
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to conditions of force majeure, including an act of God, strike or walkout or
other labor dispute, act of a public enemy, war, revolution, riot, fire, storm,
flood, earthquake, embargo and any other cause which is not reasonably within
the control of the party affected thereby.
10. Nondisclosure. In the event that, during the Term and in connection
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with a party's performance of its obligations hereunder, either party shall
receive information concerning the other party hereto which the receiving party
knows, or has reason to believe, is confidential or proprietary to the party to
whom such information relates, the party receiving such information shall take
all reasonable steps to (a) protect and hold such information in confidence and
prevent
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its disclosure to third parties unless such third parties are under a duty of
confidentiality to the party to which such information relates; and (b) restrict
its use to those purposes consent to in writing by the party to whom such
information relates; provided, however, that the party receiving such
information shall not be required to protect or hold in confidence any
information or data which (i) is or becomes available to the public without the
fault of the receiving party, (ii) is independently developed by the receiving
party, (iii) is disclosed to the receiving party by a third party known to the
receiving party not to be under any duty of confidentiality to the party to whom
such information relates with respect to such information or (iv) except as may
otherwise be required by law. This Section 10 shall not limit the obligation of
the parties under the Distribution Agreement to provide access to records after
the date hereof.
11. Limitation on Liability. ABC's liability to New AB in connection with
-----------------------
this Agreement and the Agency Services to be provided by ABC shall be limited to
actual damages arising from ABC's gross negligence or willful misconduct in the
performance of its duties and responsibilities hereunder; provided, however,
that, in no event shall ABC be liable for any incidental or consequential
damages.
12. Indemnity.
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(a) ABC agrees to defend, indemnify and hold New AB and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by New AB arising out of the
performance of the Agency Services hereunder, except where such liability, loss,
claim, damage or expense shall have been caused by New AB's gross negligence or
willful misconduct in the performance of its duties and responsibilities
hereunder.
(b) New AB agrees to defend, indemnify and hold ABC and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by ABC arising out of the
performance of the Agency Services hereunder, except where such liability, loss,
claim, damage or expense shall have been caused by ABC's gross negligence or
willful misconduct in the performance of its duties and responsibilities
hereunder.
13. Mutual Cooperation. ABC and New AB will provide each other with
------------------
information and assistance reasonably necessary to investigate, defend or
prosecute any claims, suits, charges, including but not limited to equal
employment opportunity, workers compensation, insurance and similar claims
brought by or against ABC or New AB relating to either of their businesses. This
provision shall survive termination of this Agreement.
14. Third Party Rights. Nothing in this Agreement, express or implied, is
------------------
intended to confer upon any person (including, without limitation, employees),
other than the parties hereto and their respective successors and assigns, any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
15. Successor and Assigns. This Agreement shall inure to the benefit of and
---------------------
and be binding upon the respective successors and assigns of the parties hereto,
provided that
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this Agreement may not be assigned by either of the parties hereto
without the prior written consent of the other.
16. Notices. All notices and other communications required or permitted
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to be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, postage prepaid or by certified
or registered mail, and addressed to the applicable party at the respective
addresses set forth in the Distribution Agreement (or at such other address for
a party as shall be specified by a like notice).
17. Governing Law. The validity, enforceability and performance of this
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Agreement shall be governed by and construed in accordance with the laws of the
State of Maryland (excluding its choice of law rules).
18. Entire Agreement. The parties intend that the terms of this Agreement,
----------------
including the attached schedules, shall be the final expression of their
agreement with respect to the subject matter hereof and may not be contradicted
by evidence of any prior or contemporaneous agreement. The parties further
intend that this Agreement shall constitute the complete and exclusive statement
of its terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative or other legal proceedings involving this Agreement.
19. Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
20. Headings. The headings used in this Agreement are inserted for
--------
convenience of reference only and shall not affect the meaning or interpretation
of any provision of this Agreement.
21. Amendments and Waivers. This Agreement may not be amended except
----------------------
upon the written consent of all of the parties. By an instrument in writing, any
party may waive compliance by any other party with any term or provision of this
Agreement that such other party was or is obligated to comply with or perform,
provided, however, that such waiver shall not operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power hereunder preclude any other or further exercise thereof
or the exercise of any other right remedy, or power provided herein or by law or
in equity. The waiver by any party of the time for performance of any act or
condition hereunder does not constitute a waiver of the act or condition itself.
22. Expenses. Whether or not the transactions contemplated in this
--------
Agreement are consummated, unless specifically provided otherwise in this
Agreement (including all Schedules hereto), each party shall bear and pay all
expenses incurred by it or on its behalf in connection with the preparation of
this Agreement and consummation of the transactions described herein.
23. Severability. If any provision of this Agreement, or the application
------------
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be void,
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invalid or unenforceable, the remainder of this Agreement and such provisions as
applied to other persons, places or circumstances shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
THE ADVISORY BOARD COMPANY,
a Maryland corporation
By:
-----------------------------------
Its:
-----------------------------------
THE CORPORATE ADVISORY BOARD COMPANY,
a Delaware corporation
By:
-----------------------------------
Its:
-----------------------------------
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EXHIBIT 10.30
VENDOR CONTRACTS AGREEMENT
THIS VENDOR CONTRACTS AGREEMENT, dated as of July 21, 1998, (this
"Agreement"), is made by and between THE ADVISORY BOARD COMPANY, a Maryland
corporation ("ABC") and THE CORPORATE EXECUTIVE BOARD COMPANY (formerly known as
the Corporate Advisory Board Company), a Delaware corporation ("CEB").
WHEREAS, ABC and CEB are parties to a Vendor Contracts Agreement, dated
October 31, 1997 (the "Original Agreement");
WHEREAS, ABC and CEB desire to amend and restate the Original Agreement,
among other things, to extend the term of the Original Agreement through October
31, 1998;
WHEREAS, the parties hereto desire to amend, modify and restate the
Original Agreement in accordance with the foregoing; and
WHEREAS, the parties hereto amend and restate the following recitals:
RECITALS
--------
A. ABC and CEB have entered into a Distribution Agreement dated as of
October 31, 1997 (the "Distribution Agreement"), providing for the contribution
by ABC of the Transferred Business to CEB.
B. Following the Contribution, subject to the conditions set forth in the
Distribution Agreement, all issued and outstanding shares of capital stock of
CEB were distributed to the Sole Stockholder.
C. In the interest of an orderly transition with respect to the transfer
of the Transferred Business to CEB and certain third-party vendor contracts
relating thereto (the "Vendor Contracts"), the parties desire to provide for (i)
the provision during the Transition Period of services pursuant to the Vendor
Contracts (the "Vendor Services") to CEB or ABC as appropriate and (ii) the
appropriate allocation of related costs and expenses relating to such Vendor
Services.
The parties agree as follows:
1. Definitions. Unless the context otherwise requires, capitalized
-----------
terms not otherwise defined herein shall have the respective meanings given to
them in the Distribution Agreement.
2. Vendor Services.
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(a) The Vendor Contracts are set forth in Attachment 1 hereto. Subject
to the terms of this Agreement, upon the written request setting forth
additional or amended Vendor Services to be provided to CEB made by an Executive
Vice President of CEB or a person designated to act on his behalf in an
instrument executed by such CEB Executive Vice President
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and delivered to ABC, ABC shall provide, or cause provision, to CEB of each of
the Vendor Services with respect to the Transferred Business in the manner and
to the same general extent as such Vendor Services have been provided to ABC in
connection with the Transferred Business before the Contribution.
(b) Costs and expenses relating to Vendor Contracts shall be allocated as
shall be determined by the parties as follows or as otherwise shall be mutually
agreed in writing by the parties:
(i) Segregate Vendor Contract Invoices: If invoices relating to
Vendor Services can be divided to reflect properly the Vendor Services
provided to ABC and CEB, respectively, such invoices shall be
segregated and paid directly by the appropriate party to whom the
related Vendor Services were provided.
(ii) Reimburse ABC: In the event that invoices relating to Vendor
Services cannot be segregated and paid as described in subparagraph
(i) above, CEB shall pay its allocated share directly or reimburse ABC
for Vendor Services provided to CEB pursuant to this Agreement as set
forth in Attachment 1.
3. Term. Except with respect to Section 6, the term of this Agreement
----
shall be two (2) years commencing on October 31, 1997 (the "Term"). CEB shall
have the right to terminate a Vendor Service or Vendor Services upon sixty (60)
days prior written notice to ABC. Termination of one or more Vendor Services by
CEB shall not affect the obligation of ABC to furnish all other Services for the
remainder of the Term.
4. Nondisclosure. In the event that, during the Term and in connection
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with a party's performance of its obligations hereunder, either party shall
receive information concerning the other party hereto which the receiving party
knows, or has reason to believe, is confidential or proprietary to the party to
whom such information relates, the party receiving such information shall take
all reasonable steps to (a) protect and hold such information in confidence and
prevent its disclosure to third parties unless such third parties are under a
duty of confidentiality to the party to which such information relates; and (b)
restrict its use to those purposes consented to in writing by the party to whom
such information relates; provided, however, that the party receiving such
information shall not be required to protect or hold in confidence any
information or data which (i) is or becomes available to the public without the
fault of the receiving party, (ii) is independently developed by the receiving
party, (iii) is disclosed to the receiving party by a third party known to the
receiving party not to be under any duty of confidentiality to the party to whom
such information relates with respect to such information or (iv) except as may
otherwise be required by law. This Section 4 shall not limit the obligation of
the parties under the Distribution Agreement to provide access to records after
the date hereof.
5. Limitation on Liability. ABC's liability to CEB in connection with
-----------------------
this Agreement and the Vendor Services to be provided by ABC shall be limited to
actual damages arising from ABC's gross negligence or willful misconduct in the
performance of its duties and responsibilities hereunder; provided, however,
that, in no event shall ABC be liable for any incidental or consequential
damages.
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6. Indemnity.
---------
(a) ABC agrees to defend, indemnify and hold CEB and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by CEB arising out of the
performance of the Services hereunder, except where such liability, loss, claim,
damage or expense shall have been caused by CEB's gross negligence or willful
misconduct in the performance of its duties and responsibilities hereunder.
(b) CEB agrees to defend, indemnify and hold ABC and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by ABC arising out of the
performance of the Services hereunder, except where such liability, loss, claim,
damage or expense shall have been caused by ABC's gross negligence or willful
misconduct in the performance of its duties and responsibilities hereunder.
7. Mutual Cooperation. ABC and CEB will provide each other with
------------------
information and assistance reasonably necessary to investigate, defend or
prosecute any claims, suits, charges, including but not limited to equal
employment opportunity, workers compensation, insurance and similar claims
brought by or against ABC or CEB relating to either of their businesses. This
provision shall survive termination of this Agreement.
8. Third Party Rights. Nothing in this Agreement, express or implied,
------------------
is intended to confer upon any person (including, without limitation,
employees), other than the parties hereto and their respective successors and
assigns, any rights or remedies of any nature whatsoever under or by reason of
this Agreement.
9. Relationship of Parties. Nothing in this Agreement shall be deemed or
-----------------------
construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship of independent contractor nor be deemed to vest any
rights, interest or claims in any third parties.
10. Successor and Assigns. This Agreement shall inure to the benefit of
---------------------
and be binding upon the respective successors and assigns of the parties hereto,
provided that this Agreement may not be assigned by either of the parties hereto
without the prior written consent of the other.
11. Notices. All notices and other communications required or permitted
-------
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, postage prepaid or by certified
or registered mail, and addressed to the applicable party at the respective
addresses set forth in the Distribution Agreement (or at such other address for
a party as shall be specified by a like notice).
12. Governing Law. The validity, enforceability and performance of this
-------------
Agreement shall be governed by and construed in accordance with the laws of the
State of Maryland (excluding its choice of law rules).
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13. Entire Agreement. The parties intend that the terms of this Agreement,
----------------
including the attached schedules, shall be the final expression of their
agreement with respect to the subject matter hereof and may not be contradicted
by evidence of any prior or contemporaneous agreement. The parties further
intend that this Agreement shall constitute the complete and exclusive statement
of its terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative or other legal proceedings involving this Agreement.
14. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
15. Headings. The headings used in this Agreement are inserted for
--------
convenience of reference only and shall not affect the meaning or interpretation
of any provision of this Agreement.
16. Amendments and Waivers. This Agreement may not be amended except
----------------------
upon the written consent of all of the parties. By an instrument in writing, any
party may waive compliance by any other party with any term or provision of this
Agreement that such other party was or is obligated to comply with or perform,
provided, however, that such waiver shall not operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power hereunder preclude any other or further exercise thereof
or the exercise of any other right remedy, or power provided herein or by law or
in equity. The waiver by any party of the time for performance of any act or
condition hereunder does not constitute a waiver of the act or condition itself.
17. Expenses. Whether or not the transactions contemplated in this
--------
Agreement are consummated, unless specifically provided otherwise in this
Agreement (including all Schedules hereto), each party shall bear and pay all
expenses incurred by it or on its behalf in connection with the preparation of
this Agreement and consummation of the transactions described herein.
18. Severability. If any provision of this Agreement, or the application
------------
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be void, invalid or unenforceable, the remainder of
this Agreement and such provisions as applied to other persons, places or
circumstances shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
THE ADVISORY BOARD COMPANY,
a Maryland corporation
By:
-----------------------------------
Its:
----------------------------------
THE CORPORATE EXECUTIVE BOARD
COMPANY, a Delaware corporation
By:
-----------------------------------
Its:
----------------------------------
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ATTACHMENT 1
VENDOR CONTRACTS
6
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ADVISORY BOARD COMPANY
EXTERNAL VENDOR SUMMARY
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Nature of Will Split
Vendor Services Billing? If not, Billing Methodology
- ------------------------- ---------------------- ---------- ------------------------------------------------------
<S> <C> <C> <C>
UPS Package Delivery Yes
Corporate Express Office Supplies Yes
XBS Office Management No XBS contract costs will be charged on copy volume
PMDS Bulk Shipping/Order Yes/No Book inventory currently commingled. Storage
Fulfillment/Storage costs will be split based on volume stored.
Resourcenet Office Supplies No Paper for copiers will be charged based on
anticipated user.
Worldcom Long Distance No Data for long distance usage will be gathered by ABC
Bell Atlantic Local Telephone No Local phone charges will be split on a per user basis
Mead Data Info. Resources No Research charges will be split on a per user basis
JKE Printing Yes
Arthur Andersen Audit/Tax/Consulting Yes
Legal Firms Legal Yes
Dell Computer Purchases No Capital Expenditures split based on user
Comp USA Computer Equipment No Capital Expenditures split based on user
Microsoft Software No Capital Expenditures split based on user
Ritz Carlton/Four Seasons Meeting Space Yes
Ikon Meeting Binders, Misc. Yes
Corporate Visions Meeting Binders Yes
New York Life Health Insurance Yes
Unum Disability Yes
ADP Payroll Services Yes
</TABLE>
<PAGE>
EXHIBIT 10.32
SUBLEASE AGREEMENT
THIS SUBLEASE, dated as of July 21, 1998, by and between THE ADVISORY
BOARD COMPANY, a Maryland corporation (hereinafter called "Sublessor"), and THE
CORPORATE EXECUTIVE BOARD COMPANY(formerly known as The Corporate Advisory Board
Company), a Delaware corporation (hereinafter called "Sublessee").
WHEREAS, ABC and CEB are parties to a Sublease Agreement, dated
October 31, 1997 (the "Original Agreement");
WHEREAS, ABC and CEB desire to amend and restate the Original
Agreement, among other things, to extend the time period required for prior
written notice to terminate this Sublease from five days to six months;
WHEREAS, the parties hereto desire to amend, modify and restate the
Original Agreement in accordance with the foregoing; and
WHEREAS, the parties hereto amend and restate the following recitals:
RECITALS
1. John Hancock Mutual Life Insurance Company, a Massachusetts
corporation ("Lessor"), and Sublessor, as lessee, are the parties to a certain
Lease Agreement dated as of August 7, 1992 (the "Overlease"), pursuant to which
Lessor has leased to Sublessor the Premises (as hereinafter defined).
2. Sublessor and Sublessee have agreed that Sublessor will sublease
to Sublessee the Premises.
3. The parties desire to set out in detail their agreements and the
consideration for this Sublease.
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1. "Commencement Date" shall mean the date hereof.
1.2. "Sublease" shall mean this sublease agreement as amended from
time to time pursuant to the terms hereof.
1.3. "Sublease Term" shall mean the duration of the leasehold estate
created by this Sublease as specified in Article III hereof.
<PAGE>
1.4. "Premises" shall mean and refer to the portion of the Overlease
Premises described in Attachment A hereto.
1.5. "Overlease Premises" shall mean the premises at 600 New
Hampshire Avenue, N.W., Washington, D.C. described in the Overlease.
1.6 "Termination Date" shall mean the date that is the end of the
Term as defined in the Overlease.
ARTICLE II
DEMISED PROPERTY
2.1. Sublease. Sublessor hereby subleases to Sublessee and Sublessee
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hereby subleases from Sublessor the Premises.
ARTICLE III
TERM
3.1. Term. The term of this Sublease shall begin on the Commencement
----
Date and, unless earlier terminated as provided herein, shall end on the
Termination Date.
3.2. Termination. Each of Sublessee and Sublessor shall have the
-----------
right, in its absolute discretion and without liability to the other party, to
terminate this Sublease at any time during the Sublease Term on not less than
six (6) months prior written notice.
ARTICLE IV
RENT
4.1. Rent. During the term of this Sublease, Sublessee shall pay
----
rent to Sublessor in such annual amount per square foot of Premises as is equal
to the annual per square foot rent payable under the Overlease for the Overlease
Premises. Such rent payments shall be made in lawful money of the United States
of America, at Sublessor's address for notice hereunder or otherwise as
Sublessor may designate. Such rent shall be payable in equal monthly
installments on the first day of every calendar month during the term of this
Sublease.
4.2 Annual Adjustments to Rent. To the extent that annual cost of
--------------------------
living adjustments increase the Annual Base Rent (as defined in the Overlease)
payable by Sublessor pursuant to the Overlease, an amount equal to such increase
shall be added to the rent payable under this Sublease pursuant to Section 4.1.
4.3 Additional Rent for Operating Expenses. To the extent that
--------------------------------------
Additional Rent (as defined in the Overlease) relating to increased Operating
Expenses (as defined in the Overlease) is payable by Sublessor pursuant to the
Overlease, an amount equal to the portion of such Additional Rent that is in
proportion to the area of the Overlease Premises that is represented by the area
of the Premises shall be added to the rent payable under this Sublease pursuant
to Section 4.1.
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4.4 Additional Space; Amended Allocation. Sublessor and Sublessee
------------------------------------
may, by mutual agreement, revise Attachment A to (i) add additional space to the
Premises to be leased by Sublessor under this Sublease, (ii) revise the location
of the space leased under this Sublease, or (iii) make such other modifications
and amendments as the parties may mutually agree.
ARTICLE V
USE OF PREMISES
5.1. Use of Premises. Sublessee shall use the Premises only for the
---------------
purpose of general office use and as otherwise described in the Overlease.
ARTICLE VI
ASSIGNMENT AND SUBLETTING
6.1. Assignment and Sublease. Sublessee shall not mortgage,
-----------------------
encumber, assign, sublease or otherwise dispose of or transfer its interest in
this Sublease or the Premises except as may be permitted by the Overlease.
ARTICLE VII
UTILITIES AND SERVICES
7.1. Utilities and Services. Sublessor shall supply to the Premises
----------------------
utilities and services to the extent that such utilities and services are
provided to Sublessor pursuant to the Overlease.
ARTICLE VIII
QUIET ENJOYMENT
8.1. Quiet Enjoyment. If Sublessee pays the rent and other charges
---------------
herein provided and performs all of the covenants and agreements herein
stipulated to be performed on Sublessee's part, Sublessee shall, at all times
during said term, peaceably and quietly have, hold and enjoy the Premises
without disturbance from Sublessor or anyone claiming by or through Sublessor,
subject to the terms of this Sublease and to the rights of the parties presently
or hereinafter secured by any deed of trust or mortgage against the Premises.
ARTICLE IX
FIRE AND OTHER CASUALTY
9.1. Restoration of Damaged Premises. In the event the Premises are
-------------------------------
damaged or destroyed or rendered partially untenantable for their then use by
fire or other casualty, the Sublessee shall notify Sublessor and promptly repair
the Premises and restore the same to the condition in which they were
immediately prior to the happening of such casualty.
9.2. Rent Abatement. During the period from the date of such
--------------
casualty until the Premises are repaired and restored, Sublessee's obligation to
pay the rent due hereunder, shall abate, but only to the extent that Sublessor's
rent payment obligations under the Overlease are
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abated. The abatement shall be in the proportion of which the area of the
Premises destroyed or rendered untenantable bears to the total area of the
Premises.
9.3. Fire and Other Casualty. Except as herein expressly provided,
-----------------------
this Sublease shall not terminate nor shall there be any abatement of rent as a
result of fire or other casualty.
ARTICLE X
INSURANCE
10.1. Casualty Insurance. The Sublessee shall maintain in effect
------------------
policies of (i) comprehensive liability insurance and (ii) insurance covering
Sublessee's furniture, furnishings, trade fixtures and all other personal
property from time to time on or in the Premises in an amount not less than 100%
of their actual replacement cost.
ARTICLE XI
SURRENDER OF PREMISES
11.1. Surrender of Premises. The Sublessee shall on the expiration
---------------------
or the sooner termination of the Sublease Term surrender to the Sublessor the
Premises, including all buildings, replacements, changes, additions, and
improvements constructed or placed by the Sublessee thereon, with all equipment
in or appurtenant thereto, and all movable trade fixtures installed by the
Sublessee.
ARTICLE XII
CERTIFICATES
12.1. Certificates. Either party shall, without charge, at any time
------------
and from time to time hereafter, within ten (10) days after written request of
the other, certify by written instrument duly executed and acknowledged to any
mortgagee or purchaser, or proposed mortgagee or proposed purchaser, or any
other person specified in such request: (a) as to whether this Sublease has
been supplemented or amended, and if so, the substance and manner of such
supplement or amendment; (b) as to the validity and force and effect of this
Sublease, in accordance with its tenor as then constituted; (c) as to the
existence of any default thereunder; (d) as to the existence of any offsets,
counterclaims, or defense thereto on the part of such other party; (e) as to the
commencement and expiration dates of the term of this Sublease; and (f) as to
any other matters as may reasonably be so requested. Any such certificate many
be relied upon by the party requesting it and any other person to whom the same
may be exhibited or delivered and the contents of such certificate shall be
binding on the party executing same.
ARTICLE XIII
EVENTS OF DEFAULT, REMEDIES
13.1. Default. Any of the following occurrences, conditions, or acts
-------
shall constitute an "Event of Default" under this Sublease:
4
<PAGE>
13.1.1. If:
(a) Sublessee defaults in making payment when due of any the rent, and
if such default shall continue for five (5) business days after Sublessor shall
have given written notice to Sublessee specifying such default and demanding
that same be cured;
(b) Sublessee defaults in the observance or performance of any other
provisions of this Sublease, and such default continues for thirty (30) calendar
days after Sublessor shall have given written notice to Sublessee specifying
such default and demanding that the same be cured (unless such default cannot be
cured by the payment of money and cannot with due diligence be wholly cured
within such period of thirty (30) calendar days, in which case Sublessee shall
have such longer period as shall be necessary to cure the default, so long as
Sublessee proceeds diligently to attempt to cure the same within such thirty
(30) day period, prosecutes the cure to completion with due diligence, and
advises Sublessor from time to time, upon Sublessor's request, of the actions
which Sublessee is taking and the progress being made);
13.1.2. Sublessee abandons or vacates the Premises for a period of
ten (10) consecutive calendar days;
13.1.3. Sublessee files a petition in bankruptcy, for
reorganization or for an arrangement pursuant to Federal Bankruptcy law or any
similar federal or state law; is adjudicated bankrupt or become insolvent; is
unable to meet Sublessee's obligations as they become due; or takes any
corporate action in furtherance of any of the foregoing;
13.1.4. A petition or answer shall be filed proposing (a) the
adjudication of Sublessee as bankrupt or (b) the reorganization of Sublessee
pursuant to Federal Bankruptcy law or any similar federal or state law, and (i)
Sublessee shall consent to the filing thereof, or (ii) such petition or answer
shall not be discharged or denied within sixty (60) days after the filing
thereof;
13.1.5. A receiver, trustee, or liquidator (or other similar
official) of Sublessee shall be appointed with respect to (a) all or
substantially all of its businesses or assets or (b) the estate or interest of
Sublessee in the Premises and (i) shall not be discharged within sixty (60) days
thereafter or (ii) Sublessee consents to or acquiesces in such appointment;
13.1.6. The estate or interest of Sublessee in the Premises shall
be levied upon or attached in any proceeding and such process shall not be
vacated or discharged within sixty (60) days after such levy or attachment; or
13.1.7. Sublessee is dissolved, merged, consolidated or
reorganized, or any change occurs in the ownership or control of Sublessee,
without the prior written consent of Sublessor.
13.1.8. Notwithstanding the provisions of paragraphs 13.1.3,
13.1.4, 13.1.5 or 13.1.6 hereof, if at any time during the term hereof, (a)
proceedings in bankruptcy, insolvency or other similar proceedings are
instituted by or against Sublessee, whether or not
5
<PAGE>
such proceedings result in an adjudication against Sublessee, or (b) should a
receiver of the business or assets of Sublessee be appointed; such proceedings
or adjudications shall not affect the validity of this lease so long as (i) the
rent reserved hereunder continue to be paid to Sublessor and (ii) the other
terms, covenants and conditions of this Sublease on the part of the Sublessee to
be performed, are performed. In such event, this Sublease shall continue to
remain in full force and in accordance with the terms herein contained.
13.2. Remedies. In case of Default,
--------
(a) the rent shall become due thereupon and be paid up to the
time of re-entry, expiration and/or dispossession;
(b) Sublessor may elect the premises or any part or parts
thereof, whether in the name of Sublessor or otherwise, for a term or terms
which may, at Sublessor's option, be less than or exceed the period which would
otherwise have constituted the balance of the term of this sublease;
(c) Sublessee shall also pay to Sublessor, as liquidated damages
for the failure of Sublessee to observe and perform Sublessee's covenants herein
contained, any deficiency between the (i) rent hereby reserved and (ii) the net
amount, if any, of the rents collected on account of the lease or leases of the
Premises for the period which would have constituted the balance of the Sublease
Term (hereinafter called "Liquidated Damages"). Liquidated Damages shall be paid
as the said rent shall become due and payable in monthly installments. Sublessee
shall also pay to Sublessor such reasonable expenses as Sublessor-may incur in
connection with reletting, such as brokerage and preparation for reletting
(hereinafter called "Consequential Damages").
(d) Liquidated and Consequential Damages shall be paid in
monthly installments by Sublessee on the Rent Payment Dates specified in this
Sublease. Any suit brought to collect Liquidated and Consequential Damages for
any month shall not prejudice in any way the rights of Sublessor to collect
Liquidated and Consequential Damages for any subsequent month by a similar
proceeding. Sublessor, at Sublessor's option, may make such alterations,
repairs, replacements, and/or decorations in the premises as Sublessor; in
Sublessor's' sole judgment, considers advisable and necessary for the purpose of
reletting the premises; and the making of such alterations, repairs,
replacements, and/or decorations shall not operate or be construed to release
Sublessee from liability hereunder as aforesaid. Sublessor agrees to use its
best efforts to mitigate all damages and to elect the Premises in the event of
any Default specified herein.
ARTICLE XIV
RIGHT TO CURE DEFAULTS
14.1. Default by Lessor. If Sublessor fails to perform any covenant
-----------------
or agreement in this Sublease contained on the part of Sublessor to be
performed, then and in such event, after the continuance of any such failure or
default for thirty (30) calendar days after notice is given by Sublessee to
Sublessor (notwithstanding any delay or forbearance in giving
6
<PAGE>
such notice), Sublessee may cure such default. Sublessee may further make all
necessary payments in connection therewith, including, but not limited to the
payment of any reasonable attorney's fees, costs, and charges of or in
connection with any legal action which may have been brought. Sublessor agrees
to pay to Sublessee forthwith any amount so paid by the Sublessee, together with
interest thereon at the maximum legal rate, or if no such rate is established at
the rate of 12% per annum. All sums charged to Sublessor by Sublessee hereunder
shall be indebtedness of Sublessor to Sublessee payable on demand. If all such
indebtedness of Sublessor is not fully paid within 30 days after demand,
Sublessee may elect (i) to deduct such amount from rent subsequently becoming
due hereunder, (ii) terminate this Sublease upon thirty (30) calendar days
notice to Sublessor (unless Sublessor shall cure such default) or (iii) extend
this Sublease the same covenants and conditions and herein provided until such
indebtedness is fully paid by application to rents.
14.2. Default by Lessee. If Sublessee shall fail to-make or perform
-----------------
any payment or act required by this Sublease, then Sublessor may (but need not),
make such payment or perform such act for the account of Sublessee. All amounts
so paid by Sublessor, and all incidental costs and expenses (including
attorneys' fees) incurred in connection with such payment or performance,
together with interest thereon at the maximum legal rate, or if no such rate is
established at the rate 12% per annum from the date of the making of such
payment or of the incurring of such costs and expenses, shall be paid by
Sublessee to Sublessor on demand.
ARTICLE XV
MISCELLANEOUS
15.1. Notices. All notices, demands, requests, consents, approvals,
-------
offers, statements, and other instruments or communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been given when delivered, or when mailed by first class registered or certified
mail, postage prepaid, and addressed as follows:
If to Sublessor:
David G. Bradley
The Advisory Board Company
600 New Hampshire Avenue, NW
Washington, D.C. 20037
If to Sublessee:
Clay M. Whitson
The Corporate Advisory Board Company
600 New Hampshire Avenue, NW
Washington, D.C. 20037
15.2. Amendments; Entire Agreement. This Sublease may not be
----------------------------
amended, modified, or terminated, nor may any obligation hereunder be waived
orally, and no such amendment, modification, termination, or waiver shall be
effective for any purpose unless it is in
7
<PAGE>
writing, signed by the party against whom enforcement thereof is sought. This
Sublease is intended by the parties to be an entire, complete and integrated
statement of all their respective rights, obligations and remedies with respect
to the subject matter of this Sublease. All prior and contemporaneous oral or
written statements, representations, warranties or agreements are superseded and
merged in this Sublease.
15.3. Severability. If any provisions of this Sublease or any
------------
application thereof shall be invalid or unenforceable, the remainder of this
Sublease and any other application of such provision shall not be affected
thereby.
15.4. Binding Effect. This Sublease shall be binding upon and inure
--------------
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto.
15.5. Captions. The table of contents, the Article headings, and the
--------
Section headings are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
15.6. Counterparts. This Sublease may be executed in counterparts,
------------
each of which shall constitute an original and all of which shall be one and the
same document.
15.7. Governing Law. This Sublease shall be governed by and
-------------
construed in accordance with the laws of the District of Columbia.
15.8. Relationship of Parties. Sublessor and Sublessee shall not be
-----------------------
considered or deemed to be joint venturers or partners and neither shall have
the power to bind or obligate the other except as set forth herein.
15.9. Default of Lessor's Trustee. In the event the Sublessor is
---------------------------
involved in any bankruptcy or insolvency proceedings and the Sublessor or the
Sublessor's trustee or receiver fails to perform any of the Sublessor's
obligations under this Sublease with the result that Sublessee is unable to use
the Premises for Sublessee's intended use, Sublessee shall have the option to
terminate this Sublease.
15.10. Construction. All terms used in this Sublease, regardless of
------------
the number or gender in which they are used, shall be deemed and construed to
include any other number, singular or plural, and any other gender, masculine,
feminine, neuter, as the context or sense of this Sublease or any section,
subsection, or clause herein may require as if such terms had been fully and
properly written in such number or gender.
15.11. Subordination to Overlease. This Sublease is and shall remain
--------------------------
subject to the terms of the Overlease.
15.12. Exculpation. Nothing herein shall be construed to impose any
-----------
liability on the officers, directors or shareholders of Sublessee and
Sublessor's sole recourse under this Sublease (absent fraud or willful
misconduct by such officers, directors or shareholders) shall be against
Sublessee and the assets of Sublessee.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Sublease to be
executed by their respective duly authorized officers as of the 21st day of
July, 1998.
THE ADVISORY BOARD COMPANY, SUBLESSOR
By:__________________________________
Name:
Title:
THE CORPORATE EXECUTIVE BOARD COMPANY, LESSEE
By:____________________________________
Name:
Title:
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ATTACHMENT A
PREMISES DESCRIBED
Location in Overlease Premises
---------------------------------------
Portion of Lobby level
Portion of Third floor
Portion of Sixth floor
Portion of Eighth floor
100% of Ninth Floor
Total Square Feet -54,5000
10
<PAGE>
EXHIBIT 10.33
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT, dated as of October 31, 1997 (the
"Agreement"), is made by and between THE ADVISORY BOARD COMPANY, a Maryland
corporation ("ABC") and THE CORPORATE ADVISORY BOARD COMPANY, a Delaware
corporation ("New AB").
RECITALS
--------
A. Corporate Structure. New AB is a wholly-owned subsidiary of ABC.
-------------------
B. The Contribution. ABC intends to contribute to New AB the Transferred
----------------
Business (the "Contribution").
C. The Distribution. Following the Contribution, subject to the
----------------
conditions set forth in this Distribution Agreement, all issued and outstanding
shares of capital stock of New AB will be distributed (the "Distribution") to
the Sole Stockholder.
D. The Intention of the Parties. It is the intention of the parties to
----------------------------
this Distribution Agreement that, for United States federal income tax purposes,
the Contribution and the Distribution shall qualify as tax-free transactions
under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as
amended (the "Code").
The parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 As used in this Distribution Agreement, the following terms shall have
the following meanings (these meanings shall be equally applicable to the
singular and plural forms of the terms defined):
"Affiliate" of a specified person is a person that directly or indirectly
controls or is controlled by, or is under common control with, the person
specified.
"Agreement" means this Distribution Agreement together with all Schedules
attached hereto, as modified, amended or extended from time to time. References
to Articles, Sections and Schedules refer to Articles, Sections and Schedules of
this Distribution Agreement unless otherwise indicated.
"Ancillary Agreements" means, collectively, all of the written agreements,
instruments, understandings, assignments or other arrangements (other than this
Distribution Agreement) entered or to be entered into in connection with the
transactions contemplated hereby, including without limitation the Transfer and
Assumption Instruments and the Services Agreements, all in the respective forms
attached hereto as exhibits, and as any of such agreements may be subsequently
modified or amended, together with any additional or supplemental agreement
entered into by the parties in connection with or to facilitate the
Distribution; provided, however, that in no event shall any agreement constitute
an Ancillary Agreement or be further modified or amended unless consented to by
each of ABC and New AB.
"Business Day" means a day on which New AB is open for business in Delaware
and which is not a Saturday or Sunday.
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"Code" shall have the meaning as defined in Recital D hereof.
"Contribution" shall have the meaning as defined in Recital B hereof.
"Distribution" shall have the meaning as defined in Recital C hereof.
"Distribution Date" means such date as may hereafter be determined by ABC's
Board of Directors as the date on which the Distribution shall be effected.
"Indemnifiable Losses" means any and all losses, liabilities, claims,
damages, penalties, fines, demands, awards and judgments, including reasonable
costs and expenses (including, without limitation, attorneys' fees and any and
all out-of-pocket expenses whatsoever reasonably incurred in investigating,
preparing for or defending against any action, suit, claim, arbitration,
inquiry, proceeding or investigation involving an Indemnifiable Loss, incurred
by an Indemnitee.
"Indemnifying Party" shall have the meaning set forth in Section 4.4.
"Indemnitee" shall have the meaning set forth in Section 4.4.
"Member Contracts" means the agreements between ABC and its clients
relating to the Transferred Business, pursuant to which such clients are
entitled to receive certain services and publications from ABC for the
applicable term.
"Records" shall have the meaning set forth in Section 5.1.
"Services Agreements" means the Management Services Agreement, Member
Contracts Agreement, Vendor Contracts Agreement, all to be dated as of the
Distribution Date by and between ABC and New AB.
"Sole Stockholder" means David G. Bradley, the sole holder of outstanding
capital stock of ABC.
"Third Party Claim" shall have the meaning set forth in Section 4.5.
"Transferred Business" means the corporate-related consulting business of
ABC, which provides strategic analysis of industry trends and other high level
information services to financial services and Fortune 1000 companies, and all
assets and liabilities relating to such business as set forth in Schedule 1.1
(including but not limited to (i) all rights to intellectual property as set
forth herein and all Member Contracts, (ii) Amended and Restated "Liquid
Markets" Agreements with certain employees, and (iii) a portion of a note from
David G. Bradley).
"Transactions" means the Contribution and the Distribution and all
transactions and actions contemplated thereby or incident thereto.
"Transition Period" means the period commencing on the Distribution Date
and ending on the date that is the first anniversary of the Distribution Date.
"Transfer and Assumption Instruments" mean, collectively, the various
agreements, instruments and other documents to be entered into among or between
ABC and New AB to effect the transfer of assets and the assumption of
liabilities relating to the Transferred Business in the manner contemplated by
this Distribution Agreement, including, without limitation, real estate transfer
documents and leases and all other instruments, documents and agreements
delivered in accordance with Section 2.3 hereof.
2
<PAGE>
ARTICLE II
DISTRIBUTION AND OTHER TRANSACTIONS
2.1 Transfer of Assets and Liabilities.
----------------------------------
(a) Procedure for Transactions. The Transactions shall take place
--------------------------
upon the terms and subject to the conditions of this Distribution Agreement, and
in accordance with the provisions of the General Business Law of the State of
Delaware ("GBL") and any plan of reorganization pursuant to which, on the
Distribution Date the Distribution shall be effective.
(b) Contribution. ABC will transfer to New AB before the Distribution
------------
all of ABC's right, title and interest in and to the Transferred Business in the
manner contemplated by the internal plan of reorganization attached hereto as
Exhibit A and incorporated herein by reference.
(c) Transfer of Agreements. On or before the Distribution Date,
----------------------
subject to the limitations set forth in this Section 2.1(c), ABC will assign,
transfer and convey to New AB all of ABC's right, title and interest in and to
any and all agreements that relate primarily to the Transferred Business
(including Member Contracts), to the extent such agreements were not previously
transferred in connection with the transactions contemplated by Sections 2.1(a)
and (b) hereof. As assignee of any agreement assigned in whole or in part
hereunder, New AB shall assume and agree to pay, perform and fully discharge all
obligations of the assignor under such agreement. Notwithstanding anything in
this Distribution Agreement to the contrary, this Distribution Agreement shall
not constitute an agreement to assign any agreement, in whole or in part, or any
rights thereunder, if the agreement to assign or any attempted assignment,
without the consent of a third party, would constitute a breach thereof or in
any way adversely affect the rights of the assignee thereof; provided, however,
the provisions of Section 2.3 shall be applicable thereto.
(d) Services Agreements. On or before the Distribution Date, ABC and
-------------------
New AB shall execute and deliver the Services Agreements setting forth the terms
upon which ABC and New AB shall, after the Distribution Date, provide such
services to the other party as set forth therein and as may be requested by from
time to time during the Transition Period.
(e) Delivery of Shares. On or before the Distribution Date, ABC shall
------------------
deliver to the Sole Stockholder the share certificates representing all issued
and outstanding shares of New AB capital stock.
(f) Other Transactions. On or before the Distribution Date, ABC shall
------------------
assign, transfer and convey to New AB all of ABC's right, title and interest in
and to (i) all items of intellectual property relating to the Transferred
Business except for those items listed on Schedule 2.1(f), which shall be
retained by ABC, and (ii) all real estate leases, utility accounts, trade
organization memberships, vendor service contracts, warranty contracts and items
of a similar nature except for those items listed on Schedule 2.1(f) which shall
be retained by ABC.
2.2 Certain Financial and Other Arrangements.
----------------------------------------
(a) Intercompany Accounts. At the time of the Distribution, all
---------------------
intercompany receivables, payables and loans (other than receivables, payables,
loans, debits and credits otherwise specifically provided for in any of the
Ancillary Agreements or hereunder), if any, shall be netted out, in each case in
such manner and amount as may be agreed in writing by the
3
<PAGE>
duly authorized representatives of ABC and New AB; and (i) the resulting net
balance due, if any, from New AB to ABC shall be distributed to ABC as a
dividend; and (ii) the resulting net balance due, if any, from ABC to New AB
shall be contributed to New AB as additional capital.
(b) Operations in the Ordinary Course. Each of ABC and New AB
---------------------------------
covenants and agrees that, except as otherwise provided in this Distribution
Agreement or any Ancillary Agreement, during the period from the date of this
Distribution Agreement through the Distribution Date, it will conduct its
business in a manner substantially consistent with the current and past
operating practices and in the ordinary course, including, without limitation,
with respect to the payment and administration of accounts payable and the
collection and administration of accounts receivable, the purchase of capital
assets and equipment, cash management practices, the allocation of interest,
corporate overhead and costs of legal, insurance and other centralized
functions.
(c) Assumption of Indebtedness; Payment or Provision for Certain
------------------------------------------------------------
Debts; Settlement of Expenses and Other Items.
- ---------------------------------------------
(i) ABC and New AB shall take such action as shall be necessary
and appropriate to cause New AB to assume all indebtedness relating to the
Transferred Business, if any.
(ii) ABC shall pay or cause to be paid, or otherwise provide for
by bond, indemnification or other appropriate assurances, to the extent
that ABC or New AB is unable to effect releases of ABC from liability
thereunder, all ABC indebtedness or other non-contingent liabilities
relating to the Transferred Business as to which ABC is a direct obligor,
if any.
2.3 Assumption and Satisfaction of Liabilities. Except as otherwise
------------------------------------------
specifically set forth in any Ancillary Agreement, at all times from and after
the Distribution Date, New AB shall, and shall cause any and all successors and
assigns to assume, pay, perform and discharge all liabilities relating to the
Transferred Business as and when due.
2.4 Further Assurances.
------------------
(a) In case at any time after the Distribution Date any further action
is reasonably necessary or desirable to carry out the purposes of this
Distribution Agreement and the Ancillary Agreements, the proper officers of each
party to this Distribution Agreement shall take all such action. Without
limiting the foregoing, ABC and New AB shall use their commercially reasonable
efforts to obtain all required consents and approvals of third parties, to enter
into all amendatory agreements and to make all filings and applications that may
be required for the consummation of the transactions contemplated by this
Distribution Agreement and the Ancillary Agreements.
(b) In the event that after the Distribution Date, ABC shall (i)
receive notice from New AB that certain assets or liabilities which properly
relate to the Transferred Business were not transferred to New AB on or before
the Distribution Date, or (ii) determine that certain assets or liabilities of
ABC that constitute assets or liabilities that do not properly relate to the
Transferred Business were transferred in error to New AB on the Distribution
Date, then as promptly as practical thereafter ABC shall transfer and assign
such assets or liabilities to New AB or New AB shall transfer and assign such
assets or liabilities to ABC, as the case may be, without, in any case, the
payment by either party of any consideration therefor.
4
<PAGE>
(c) Nothing in this Distribution Agreement shall be deemed to require
the transfer of any assets or the assumption of any liabilities which by their
terms or operation of law cannot be transferred; provided, however, that the
parties hereto shall cooperate to seek to obtain any necessary consents or
approvals for the transfer of all assets and liabilities contemplated to be
transferred pursuant to this Distribution Agreement. In the event that any such
transfer of assets or liabilities has not been consummated as of the
Distribution Date, from and after the Distribution Date the party retaining such
asset shall hold such asset in trust for the use and benefit of the party
entitled thereto (at the expense of the party entitled thereto, with the party
retaining such asset to be promptly reimbursed all reasonable expenses incurred
in holding such asset) or retain such liability for the account of the party by
whom such liability is to be assumed pursuant hereto, as the case may be (at the
expense of the party by which such liability is to be assessed, with the party
retaining such liability to be promptly reimbursed all reasonable expenses
incurred in retaining such liability), and take such other action as may be
reasonably requested by the party to whom such asset is to be transferred, or by
whom such liability is to be assumed, as the case may be, in order to place such
party, insofar as is reasonably possible, in the same position as would have
existed has such asset or liability been transferred as contemplated hereby. As
and when any such asset or liability becomes transferable, such transfer shall
be effected forthwith. As of the Distribution Date, each party hereto shall be
deemed to have acquired complete and sole beneficial ownership over all of the
assets held by it, together with all rights, powers and privileges incident
thereto, and shall be deemed to have assumed in accordance with the terms of
this Distribution Agreement all of the liabilities, and all duties, obligations
and responsibilities incident thereto, which such party is entitled to acquire
or required to assume pursuant to the terms of this Distribution Agreement.
2.5 No Representations or Warranties. Each of the parties hereto
--------------------------------
understands and agrees that no party hereto is in this Distribution Agreement or
in any other agreement or document contemplated by this Distribution Agreement
or otherwise, making any representation or warranty whatsoever, including,
without limitation, as to title, value or legal sufficiency. It is also agreed
and understood that all assets either transferred to or retained by the parties,
as the case may be, shall be "as is, where is" and that the party to which such
assets are to be transferred hereunder shall (subject to Section 2.3) bear
economic and legal risk that any conveyances of such assets shall prove to be
insufficient or that such party's title to any such assets shall be other than
good and marketable and free from encumbrances.
2.6 Guarantees. Except as may be specified in any Ancillary Agreement,
----------
each of ABC and New AB shall use is best reasonable effort to have, on the
Distribution Date, or as soon as practicable thereafter, ABC removed as
guarantor of or obligor for any liabilities relating to the Transferred
Business.
2.7 Certain Post-Distribution Transactions. Each of ABC and New AB shall
--------------------------------------
comply and otherwise not take any action inconsistent with each representation,
covenant and statement made, or to be made, to tax counsel in connection with
such counsel's rendering of an opinion as to certain tax aspects of the
Distribution.
2.8 Ancillary Agreements. Effective as of the Distribution Date, each of
--------------------
ABC and New AB shall enter into the Ancillary Agreements and any other
agreements in respect of the Distribution reasonably necessary or appropriate in
connection with the transactions contemplated thereby and hereby.
5
<PAGE>
ARTICLE III
THE DISTRIBUTION
3.1 Distribution Date. Subject to the satisfaction of the conditions set
-----------------
forth in Section 6.1, the Board of Directors of ABC, in its sole discretion,
shall establish the Distribution Date and any appropriate procedures in
connection with the Distribution.
3.2 Procedure. Subject to the terms and conditions of this Distribution
---------
Agreement, as of the Distribution Date ABC shall deliver to the Sole Stockholder
one or more share certificates representing all of the outstanding shares of New
AB capital stock, to be distributed in connection with the payment of the
Distribution.
ARTICLE IV
SURVIVAL AND INDEMNIFICATION
4.1 Survival of Agreements. All covenants and agreements of the parties
----------------------
hereto contained in this Distribution Agreement shall survive the Distribution
Date.
4.2 Indemnification by ABC. After the Distribution Date, except as
----------------------
otherwise specifically set forth in any provision of this Distribution Agreement
or of any Ancillary Agreement, ABC shall indemnify, defend and hold harmless New
AB and its directors, officers, successors and assigns, from and against any and
all Indemnifiable Losses arising out of, by reason of or otherwise in connection
with (a) liabilities other than liabilities relating to the Transferred
Business, or (b) the breach, whether before or after the Distribution Date, by
ABC of any provision of this Distribution Agreement or any Ancillary Agreement.
4.3 Indemnification by New AB. After the Distribution Date, except as
-------------------------
otherwise specifically set forth in any provision of this Distribution Agreement
or of any Ancillary Agreement, New AB shall indemnify, defend and hold harmless
ABC and its directors, officers, successors and assigns, from and against any
and all Indemnifiable Losses arising out of, by reason of or otherwise in
connection with (a) liabilities relating to the Transferred Business, or (b) the
breach, whether before or after the Distribution Date, by New AB of any
provision of this Distribution Agreement or any Ancillary Agreement.
4.4 Limitations on Indemnification Obligations. The amount that any party
------------------------------------------
(an "Indemnifying Party") is or may be required to pay to any other person (an
"Indemnitee") pursuant to Section 4.2 or Section 4.3, as applicable, shall be
reduced (retroactively or prospectively) by an insurance proceeds or other
amounts actually recovered by or on behalf of such Indemnitee in respect of the
related Indemnifiable Loss. Notwithstanding anything herein to the contrary,
indemnification relating to any arrangements between ABC and New AB for the
provision after the Distribution of goods and services in the ordinary course
shall be governed by the terms of such arrangements and not by this Article or
as otherwise set forth in this Distribution Agreement and the Ancillary
Agreements.
4.5 Procedures for Indemnification.
------------------------------
(a) If a claim or demand is made against an Indemniteee by any person
who is not a party to this Distribution Agreement (a "Third Party Claim") as to
which such Indemnitee is entitled to indemnification pursuant to this
Distribution Agreement, such Indemnitee shall notify the Indemnifying Party in
writing and in reasonable detail of the Third Party Claim promptly (and in any
event within 20 business days) after receipt by such Indemnitee of written
notice of the
6
<PAGE>
Third Party Claim. Thereafter, the Indemnitee shall deliver to the Indemnifying
Party, promptly (and in any event within 20 business days) after Indemnitee's
receipt thereof, copies of all notices and documents received by the Indemnitee
relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses and acknowledges in writing its obligation to indemnify the
Indemnitee therefor, to assume the defense thereof with counsel selected by the
Indemnifying Party. Should the Indemnifying Party so elect to assume the
defense of a Third Party Claim the Indemnifying Party shall not be liable to the
Indemnitee for legal or other expenses subsequently incurred by the Indemnitee
in connection with the defense thereof.
(c) If the Indemnifying Party acknowledges in writing liability for
indemnification of a Third Party Claim, then in no event will the Indemnitee
admit any liability with respect to, or settle, compromise or discharge, any
Third Party Claim without the Indemnifying Party's prior written consent.
4.6 Indemnification Payments. Indemnification required by this Article IV
------------------------
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or loss, liability,
claim, damage or expense is incurred.
4.7 Other Adjustments. The amount of any indemnification payments shall
-----------------
be (i) increased to take into account any net tax cost actually incurred by the
Indemnitee arising from any payments received from the Indemnifying Party
(grossed up for such increase), and (ii) reduced to take account of any tax
benefit or recovery of insurance proceeds actually realized by the Indemnitee
arising from the such indemnification payment. In computing the amount of such
tax cost or tax benefit, the Indemnitee shall be deemed to recognize all other
items of income, gain, loss, deduction or credit before recognizing any item
arising from the receipt of any payment with respect to any indemnification
payments pursuant to this Distribution Agreement. In addition, if the amount of
any losses subject to indemnification under this Distribution Agreement, at any
time after payment of such indemnification, be reduced by recovery, settlement
or otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party, up to the aggregate amount of any payments received from
such Indemnifying Party pursuant to this Distribution Agreement with respect to
such losses.
4.8 Survival of Indemnities. The rights and obligations of each of ABC
-----------------------
and New AB and their respective Indemnitees under this Article IV shall survive
the sale or other transfer by any party of any assets or businesses or the
assignment by either of them of any liabilities.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
5.1 Provision of Records. After the Distribution Date, upon the prior
--------------------
written request by one of the parties to this Distribution Agreement for
specific and identified agreements, documents, books, record or files
(collectively, "Records") relating to or affecting the other party, the
recipient of the request shall arrange, as soon as reasonably practicable
following the receipt of such request, for the provision of appropriate copies
of such Records (or the original thereof if there is a reasonable need for such
originals) in the possession of the party receiving such
7
<PAGE>
request, but only to the extent such items are not already in the possession of
the requesting party.
5.2 Access to Information. From and after the Distribution Date, each of
---------------------
ABC and New AB shall afford to the other and its authorized accountants, counsel
and other designated representatives reasonable access during normal business
hours, subject to appropriate restrictions for classified, privileged or
confidential information, to the personnel, properties, books and records of
such party insofar as such access is reasonably required by the other party.
5.3 Further Assurances. In addition to the actions specifically provided
------------------
for elsewhere in this Distribution Agreement, each of ABC and New AB will
execute, acknowledge and deliver such instruments (including instruments of
conveyance, assignment and transfer) and take or cause to be taken such other
actions, and do or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to consummate the
make effective the transactions contemplated by this Distribution Agreement and
the Ancillary Agreements.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of Both Parties. The respective obligations
-----------------------------------------
of each of ABC and New AB to consummate the transactions contemplated by this
Distribution Agreement are subject to the satisfaction of each of the following
conditions precedent:
a) Compliance. ABC and New AB shall have performed and complied in
----------
all material respects with each of its respective covenants and agreements
contained herein, if any, that are required to be performed or complied with by
it on or before the Distribution Date.
b) Ancillary Agreements. The applicable parties shall have entered
--------------------
into each of the Ancillary Agreements.
d) Authorization. The execution, delivery and performance of this
-------------
Distribution Agreement and the consummation of the transactions contemplated
hereby shall have been duly and validly authorized and approved by all requisite
corporate action on the part of each of ABC and New AB.
e) No Violations of Law, Litigation. The transactions contemplated
--------------------------------
by this Distribution Agreement shall not violate any Applicable Law. No suit,
action, investigation, inquiry or other legal or administrative proceeding by
any governmental body or other person or entity shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby, or in any manner seeking to restrict or prohibit the
transactions contemplated hereby or seeking to obtain any material damaged
against any person as a result of the transactions contemplated hereby.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement and the obligations of the parties
-----------
hereunder may be terminated at any time before the Distribution Date by ABC.
7.2 Effect of Termination. In the event of termination of this
---------------------
Distribution Agreement and abandonment of the transactions contemplated hereby
pursuant to this Article VIII, no party
8
<PAGE>
hereto (or any of its directors, officers, employees, agents or affiliates)
shall have any liability or further obligation to any other party, except that
nothing herein will relieve any party from liability for any breach of this
Distribution Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Assignment: Successors and Assigns. Each party hereto agrees that it
----------------------------------
will not assign, sell, transfer, delegate, or otherwise dispose of, whether
voluntarily or involuntarily or by operation of law, any right or obligation
under this Distribution Agreement without the written consent of the other
parties hereto. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Except as expressly provided in this
Distribution Agreement, this Distribution Agreement does not create, and shall
not be construed as creating, any rights or claims enforceable by any person or
entity not a party to this Distribution Agreement.
9.2 Notices. All notices, requests, demands, consents and other
-------
communications required or permitted to be given under this Distribution
Agreement and under the related documents shall be made in writing and shall be
deemed to have been duly given if delivered by hand or mailed, postage prepaid
or by certified or registered mail, and addressed to the applicable party as
indicated below:
If to ABC: David G. Bradley
The Advisory Board Company
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
If to New AB: Jeffrey D. Zients
c/o The Corporate Advisory Board Company
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
Notice of change of address shall be effective only when done in accordance
with this Section. All notices complying with this Section shall be deemed to
have been received on the date of delivery or on the third Business Day after
mailing.
9.3 Governing Law. The validity, enforceability and performance of this
-------------
Distribution Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland (excluding its choice of law rules).
9.4 Entire Agreement. The parties intend that the terms of this
----------------
Distribution Agreement, including the attached schedules, shall be the final
expression of their agreement with respect to the subject matter hereof and may
not be contradicted by evidence of any prior or contemporaneous agreement. The
parties further intend that this Distribution Agreement shall constitute the
complete and exclusive statement of its terms and that no extrinsic evidence
whatsoever may be introduced in any judicial, administrative, or other legal
proceedings involving this Distribution Agreement.
9.5 Counterparts. This Distribution Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
9
<PAGE>
9.6 Headings. The headings used in this Distribution Agreement are
--------
inserted for convenience of reference only and shall not affect the meaning or
interpretation of any provision of this Distribution Agreement.
9.7 Amendments and Waivers. This Distribution Agreement may not be
----------------------
amended except upon the written consent of all of the parties. By an instrument
in writing, any party may waive compliance by any other party with any term or
provision of this Distribution Agreement that such other party was or is
obligated to comply with or perform, provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy, or
power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, or power hereunder preclude any other or
further exercise thereof or the exercise of any other right remedy, or power
provided herein or by law or in equity. The waiver by any party of the time for
performance of any act or condition hereunder does not constitute a waiver of
the act or condition itself.
9.8 Expenses. Whether or not the transactions contemplated in this
--------
Distribution Agreement are consummated, unless specifically provided otherwise
in this Distribution Agreement (including all Schedules hereto), each party
shall bear and pay all expenses incurred by it or on its behalf in connection
with the preparation of this Distribution Agreement and consummation of the
transactions described herein.
9.9 Severability. If any provision of this Distribution Agreement, or the
------------
application thereof to any person, place or circumstance, shall be held by a
court of competent jurisdiction to be void, invalid or unenforceable, the
remainder of this Distribution Agreement and such provisions as applied to other
persons, places or circumstances shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Distribution
Agreement to be executed by their duly authorized officers as of the date first
above written.
THE ADVISORY BOARD COMPANY,
a Maryland corporation
By:
-----------------------------
Its:
------------------------------
THE CORPORATE ADVISORY BOARD
COMPANY, a Delaware corporation
By:
-------------------------------
Its:
------------------------------
10
<PAGE>
INDEX TO EXHIBITS AND SCHEDULES
Schedule 1.1 Assets and Liabilities to be Transferred
Schedule 2.1(f) Retained Intellectual Property and Contracts
Exhibit A Plan of Reorganization
Exhibit B Management Services Agreement
Exhibit C Member Contracts Agreement
Exhibit D Vendor Contracts Agreement
<PAGE>
THE ADVISORY BOARD COMPANY
BALANCE SHEET (BOOK)
SEPTEMBER 30, 1997 *
<TABLE>
<CAPTION>
DESCRIPTION Total ABC Corporate Advisory
Board Company
--------------------------------------------------------------
<S> <C> <C> <C>
Cash 14,102 7,079 7,023
Membership 26,921 17,315 9,606
Misc. A/R 13,288 6,788 6,500
Prepaid Expenses 203 148 55
Fixed Assets, net 7,927 5,053 2,874
Other Assets 2,859 2,652 208
--------------------------------------------------------------
Total Assets 65,301 39,036 26,266
Current Liabilities 9,287 6,027 3,208
Option Repurchase Liability 15,376 6,200 9,176
Deferred Incentives (1,123) (292) (831)
Deferred Revenue 51,786 29,546 22,240
Prepaid Members/Refunds 116 72 44
--------------------------------------------------------------
Total Liabilities 75,442 41,553 33,837
Equity (10,141) (2,517) (7,571)
--------------------------------------------------------------
Total Liabilities and Equity 65,301 39,036 26,266
</TABLE>
* preliminary; to be updated as of October 31, 1997
<PAGE>
Schedule 2.1(f)
Retained Intellectual Property and Contracts
<TABLE>
<CAPTION>
Mark/Reg. No. Declaration of Use Due
- ------------- -----------------------
<S> <C>
CORPORATE LEADERSHIP COUNCIL 1/14/2002-2003
2031322
Class 16 Publications
CORPORATE LEADERSHIP COUNCIL 1/7/2002-2003
2029397
Class 42 Research Services
OPERATIONS AND TECHNOLOGY COUNCIL 1/7/2002-2003
2029399
Class 16 Publications
OPERATIONS AND TECHNOLOGY COUNCIL 1/7/2002-2003
2029401
Class 42 Research Services
COUNCIL ON FINANCIAL COMPETITION 1/7/2002-2003
2029406
Class 16 Publications
COUNCIL ON FINANCIAL COMPETITION 1/7/2002-2003
2029403
Class 42 Research Services
THE VIP FORUM 4/1/2002-2003
2049074
Class 16 Publications
THE VIP FORUM 4/15/2002-2003
2052576
Class 42 Services
CORPORATE STRATEGY BOARD 7/22/2002-2003
2082639
Class 16 Publications
CORPORATE STRATEGY BOARD 7/29/2002-2003
2085109
Class 42 Planning Services
BUSINESS BANKING BOARD 10/14/2002-2003
2104838
Class 16 Publications
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Mark/Reg. No. Declaration of Use Due
- ------------- -----------------------
<S> <C>
BANK BUSINESS BOARD 7/15/2002-2003
2080406
Class 42 Research Services
INSURANCE ADVISORY BOARD 10/14/2002-2003
2104863
Class 16 Publications
INSURANCE ADVISORY BOARD 7/15/2002-2003
2080407
Class 42 Research Services
</TABLE>
2
<PAGE>
EXHIBIT A
PLAN OF REORGANIZATION
The following sets forth the reorganization and related restructuring
action (the "Reorganization") that will be taken before and to facilitate the
Distribution. Capitalized terms used in this Plan and not otherwise defined
shall have the meanings given to them in the Distribution Agreement between The
Advisory Board Company ("ABC") and The Corporate Advisory Board Company ("New
AB") dated as of October 31, 1997 (the "Distribution Agreement").
1. New AB shall be authorized to provide for the issuance and sale to ABC
of shares of its capital stock such that New AB shall be a wholly-owned
subsidiary of ABC. New AB's capital structure also shall provide for
sufficient additional authorized classes or series within any class of
capital stock or other rights or interests therein, as may be deemed
appropriate by the Boards of Directors of ABC and New AB and the sole
stockholder of ABC.
2. ABC will transfer to New AB all assets and liabilities relating to the
Transferred Business before the Distribution.
3. ABC will distribute all of the issued and outstanding stock of New AB
to the sole stockholder of ABC.
A-1
<PAGE>
EXHIBIT B
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT, dated as of October 31, 1997 (the
"Agreement"), is made by and between THE ADVISORY BOARD COMPANY, a Maryland
corporation ("ABC") and THE CORPORATE ADVISORY BOARD COMPANY, a Delaware
corporation ("New AB").
RECITALS
--------
A. ABC and New AB have entered into a Distribution Agreement dated as of
October 31, 1997 (the "Distribution Agreement"), providing for the contribution
by ABC of the Transferred Business (as defined therein) to New AB.
B. Following the Contribution, subject to the conditions set forth in the
Distribution Agreement, all issued and outstanding shares of capital stock of
New AB will be distributed (the "Distribution") to the Sole Stockholder.
C. During the Transition Period, ABC desires to provide, and New AB
desires to receive, certain management and other corporate services from ABC, as
hereinafter specifically provided (collectively, the "Management Services" and,
individually, a "Management Service"), and the parties desire to set forth
herein the basis on which the Management Services shall be provided to New AB.
The parties agree as follows:
1. Definitions. Unless the context otherwise requires, capitalized
-----------
terms not otherwise defined herein shall have the respective meanings given to
them in the Distribution Agreement.
2. Management Services. The specific Management Services to be provided
-------------------
by ABC to New AB are comprised of the services more particularly set forth on
Attachment 1 hereto. Subject to the terms of this Agreement, upon the written
request setting forth additional or amended Management Services to be provided
to New AB made by an Executive Vice President of New AB or a person designated
to act on his behalf in an instrument executed by such New AB Executive Vice
President and delivered to ABC, ABC shall provide each of such additional or
amended Management Services with respect to the Transferred Business in the
manner and to the same general extent as such Management Services have been
provided by ABC in connection with the Transferred Business before the
Contribution.
3. Term. Except with respect to Section 12, the term of this Agreement
----
shall commence on the date hereof and terminate (a) at the end of the Transition
Period or (b) on such other date as the parties hereto shall mutually agree in
writing to terminate this Agreement (the "Term"). Services shall be provided
only as specified in Attachment 1 hereto, unless otherwise agreed to by the
parties. In addition, New AB shall have the right to terminate a Management
Service or Management Services upon sixty (60) days prior written notice to ABC.
Termination of one or more Management Services by New AB shall not affect the
obligation of ABC to furnish all other Management Services for the remainder of
the Term.
B-1
<PAGE>
4. Cost. Unless otherwise expressly agreed in writing executed by a duly
----
authorized officer of ABC and New AB, the Management Services shall be provided
to New AB in consideration for payment to ABC of the management fees set forth
on Attachment 1.
5. Delegation. ABC may retain the services of such third parties,
----------
either by oral or written contract, as ABC may, from time to time, deem
necessary or appropriate to facilitate the expeditious discharge of ABC's
responsibilities hereunder.
6. Independence. All employees and representatives of ABC providing
------------
Management Services to New AB will be deemed for purposes of all compensation
and employee benefits to be employees or representatives of ABC and not
employees or representatives of New AB. In performing such Management Services,
such employees or representatives will be under the direction, control and
supervision of ABC (and not New AB) and ABC will have the sole right to exercise
all authority with respect to the employment (including termination of
employment), assignment and compensation of such employees and representatives.
ABC shall be solely responsible for the payment of all payroll and withholding
taxes relating to its employees for services provided to New AB during the Term.
7. Impracticability. ABC shall not be required to provide any Management
----------------
Service to the extent the performance or the provision of such Management
Service becomes impracticable as a result of a cause or causes outside of the
reasonable control of ABC, or to the extent the performance of such Management
Service would require ABC to violate applicable laws, rules or regulations or
result in the breach of any license, permit or applicable contract.
8. Additional Resources. In providing the Management Services, ABC
--------------------
shall not be obligated to: (i) hire any additional employees, (ii) maintain the
employment of any specific employee, or (iii) purchase, lease or license any
additional equipment or software.
9. Force Majeure. The obligations of ABC under this Agreement are
-------------
subject to conditions of force majeure, including an act of God, strike or
walkout or other labor dispute, act of a public enemy, war, revolution, riot,
fire, storm, flood, earthquake, embargo and any other cause which is not
reasonably within the control of the party affected thereby.
10. Nondisclosure. In the event that, during the Term and in connection
-------------
with a party's performance of its obligations hereunder, either party shall
receive information concerning the other party hereto which the receiving party
knows, or has reason to believe, is confidential or proprietary to the party to
whom such information relates, the party receiving such information shall take
all reasonable steps to (a) protect and hold such information in confidence and
prevent its disclosure to third parties unless such third parties are under a
duty of confidentiality to the party to which such information relates; and (b)
restrict its use to those purposes consent to in writing by the party to whom
such information relates; provided, however, that the party receiving such
information shall not be required to protect or hold in confidence any
information or data which (i) is or becomes available to the public without the
fault of the receiving party, (ii) is independently developed by the receiving
party, (iii) is disclosed to the receiving party by a third party known to the
receiving party not to be under any duty of confidentiality to the party to whom
such information relates with respect to such information or (iv) except as may
otherwise be required by law. This Section 10 shall not limit the obligation of
the parties under the Distribution Agreement to provide access to records after
the date hereof.
B-2
<PAGE>
11. Limitation on Liability. ABC's liability to New AB in connection
-----------------------
with this Agreement and the Management Services to be provided by ABC shall be
limited to actual damages arising from ABC's gross negligence or willful
misconduct in the performance of its duties and responsibilities hereunder;
provided, however, that, in no event shall ABC be liable for any incidental or
consequential damages.
12. Indemnity.
---------
(a) ABC agrees to defend, indemnify and hold New AB and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by New AB arising out of the
performance of the Management Services hereunder, except where such liability,
loss, claim, damage or expense shall have been caused by New AB's gross
negligence or willful misconduct in the performance of its duties and
responsibilities hereunder.
(b) New AB agrees to defend, indemnify and hold ABC and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by ABC arising out of the
performance of the Management Services hereunder, except where such liability,
loss, claim, damage or expense shall have been caused by ABC's gross negligence
or willful misconduct in the performance of its duties and responsibilities
hereunder.
13. Mutual Cooperation. ABC and New AB will provide each other with
------------------
information and assistance reasonably necessary to investigate, defend or
prosecute any claims, suits, charges, including but not limited to equal
employment opportunity, workers compensation, insurance and similar claims
brought by or against ABC or New AB relating to either of their businesses.
This provision shall survive termination of this Agreement.
14. Third Party Rights. Nothing in this Agreement, express or implied, is
------------------
intended to confer upon any person (including, without limitation, employees),
other than the parties hereto and their respective successors and assigns, any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
15. Relationship of Parties. Nothing in this Agreement shall be deemed or
-----------------------
construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship of independent contractor nor be deemed to vest any
rights, interest or claims in any third parties.
16. Successor and Assigns. This Agreement shall inure to the benefit of
---------------------
and be binding upon the respective successors and assigns of the parties hereto,
provided that this Agreement may not be assigned by either of the parties hereto
without the prior written consent of the other.
17. Notices. All notices and other communications required or permitted
-------
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, postage prepaid or by certified
or registered mail, and addressed to the applicable party at the respective
addresses set forth in the Distribution Agreement (or at such other address for
a party as shall be specified by a like notice).
B-3
<PAGE>
18. Governing Law. The validity, enforceability and performance of this
-------------
Agreement shall be governed by and construed in accordance with the laws of the
State of Maryland (excluding its choice of law rules).
19. Entire Agreement. The parties intend that the terms of this
----------------
Agreement, including the attached schedules, shall be the final expression of
their agreement with respect to the subject matter hereof and may not be
contradicted by evidence of any prior or contemporaneous agreement. The parties
further intend that this Agreement shall constitute the complete and exclusive
statement of its terms and that no extrinsic evidence whatsoever may be
introduced in any judicial, administrative or other legal proceedings involving
this Agreement.
20. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
21. Headings. The headings used in this Agreement are inserted for
--------
convenience of reference only and shall not affect the meaning or interpretation
of any provision of this Agreement.
22. Amendments and Waivers. This Agreement may not be amended except
----------------------
upon the written consent of all of the parties. By an instrument in writing, any
party may waive compliance by any other party with any term or provision of this
Agreement that such other party was or is obligated to comply with or perform,
provided, however, that such waiver shall not operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power hereunder preclude any other or further exercise thereof
or the exercise of any other right remedy, or power provided herein or by law or
in equity. The waiver by any party of the time for performance of any act or
condition hereunder does not constitute a waiver of the act or condition itself.
23. Expenses. Whether or not the transactions contemplated in this
--------
Agreement are consummated, unless specifically provided otherwise in this
Agreement (including all Schedules hereto), each party shall bear and pay all
expenses incurred by it or on its behalf in connection with the preparation of
this Agreement and consummation of the transactions described herein.
24. Severability. If any provision of this Agreement, or the application
------------
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be void, invalid or unenforceable, the remainder of
this Agreement and such provisions as applied to other persons, places or
circumstances shall remain in full force and effect.
B-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
THE ADVISORY BOARD COMPANY,
a Maryland corporation
By:
-----------------------------
Its:
----------------------------
THE CORPORATE ADVISORY BOARD
COMPANY, a Delaware corporation
By:
-----------------------------
Its:
----------------------------
B-5
<PAGE>
ATTACHMENT 1
MANAGEMENT SERVICES AND FEES
1
<PAGE>
EXHIBIT C
MEMBER CONTRACTS AGREEMENT
THIS MEMBER CONTRACTS AGREEMENT, dated as of October 31, 1997 (the
"Agreement"), is made by and between THE ADVISORY BOARD COMPANY, a Maryland
corporation ("ABC") and THE CORPORATE ADVISORY BOARD COMPANY, a Delaware
corporation ("New AB").
RECITALS
--------
A. ABC and New AB have entered into a Distribution Agreement dated as of
October 31, 1997 (the "Distribution Agreement"), providing for the contribution
by ABC of the Transferred Business (as defined therein) to New AB (including
specifically assignment of the Member Contracts to New AB).
B. Following the Contribution, subject to the conditions set forth in the
Distribution Agreement, all issued and outstanding shares of capital stock of
New AB will be distributed (the "Distribution") to the Sole Stockholder.
C. In the interest of an orderly transition with respect to the transfer
of the Transferred Business to New AB and the continued administration of the
Member Contracts during the Pre-Renewal Period (as defined herein), New AB
desires to appoint ABC as its agent as hereinafter specifically provided for
certain purposes in connection with the Member Contracts and to receive certain
related services from ABC.
The parties agree as follows:
1. Definitions. Unless the context otherwise requires, capitalized terms
-----------
not otherwise defined herein shall have the respective meanings given to them in
the Distribution Agreement.
2. Agency. New AB hereby appoints ABC as its agent to provide such
------
administrative and accounting-related services and take all administrative and
accounting-related actions on behalf of New AB in connection with the Member
Contracts during the Term as may be necessary or advisable, including without
limitation, provision of such administrative services relating to the Member
Contracts as may be necessary or advisable (including processing of new Member
Contracts and renewals of existing Member Contracts), collection of payments
relating to Member Contracts and transmittal of such payments to New AB
(collectively, the "Agency Services"). ABC hereby accepts its appointment as
agent of New AB and agrees to provide the Agency Services as provided herein.
ABC shall provide each of the Agency Services with respect to the Member
Contracts in the manner and to the same general extent as such services have
been provided by ABC in connection with the Member Contracts before the
Contribution, except that all new Member Contracts and renewals of existing
Member Contracts shall processed in the name of New AB.
3. Term. Except with respect to Section 12, the term of this Agreement
----
shall commence on the date hereof and terminate upon the earlier of (a) the last
date of the renewal or expiration of each Member Contract existing on the date
hereof or (b) at the end of the Transition Period. In addition, New AB shall
have the right to terminate an Agency Service or Agency Services upon sixty (60)
days prior written notice to ABC. Termination of one or more Agency
C-1
<PAGE>
Services by New AB shall not affect the obligation of ABC to furnish all other
Agency Services for the remainder of the Term.
4. Cost. Unless otherwise expressly agreed in writing executed by a duly
----
authorized officer of ABC and New AB, the Agency Services shall be provided to
New AB at the costs specified for such services on Attachment 1 of the
Management Services Agreement.
5. Delegation. ABC may retain the services of such third parties, either
----------
by oral or written contract, as ABC may, from time to time, deem necessary or
appropriate to facilitate the expeditious discharge of ABC's responsibilities
hereunder.
6. Independence. All employees and representatives of ABC providing
------------
Agency Services to New AB will be deemed for purposes of all compensation and
employee benefits to be employees of ABC and not employees of New AB. In
performing such Agency Services, such employees or representatives will be under
the direction, control and supervision of ABC (and not New AB) and ABC will have
the sole right to exercise all authority with respect to the employment
(including termination of employment), assignment and compensation of such
employees and representatives. ABC shall be solely responsible for the payment
of all payroll and withholding taxes relating to its employees for services
provided to New AB during the Term.
7. Impracticability. ABC shall not be required to provide any Agency
----------------
Service to the extent the performance or the provision of such Agency Service
becomes impracticable as a result of a cause or causes outside of the reasonable
control of ABC, or to the extent the performance of such Agency Service would
require ABC to violate applicable laws, rules or regulations or result in the
breach of any license, permit or applicable contract.
8. Additional Resources. In providing the Agency Services, ABC shall not
--------------------
be obligated to: (i) hire any additional employees, (ii) maintain the employment
of any specific employee, or (iii) purchase, lease or license any additional
equipment or software.
9. Force Majeure. The obligations of ABC under this Agreement are subject
-------------
to conditions of force majeure, including an act of God, strike or walkout or
other labor dispute, act of a public enemy, war, revolution, riot, fire, storm,
flood, earthquake, embargo and any other cause which is not reasonably within
the control of the party affected thereby.
10. Nondisclosure. In the event that, during the Term and in connection
-------------
with a party's performance of its obligations hereunder, either party shall
receive information concerning the other party hereto which the receiving party
knows, or has reason to believe, is confidential or proprietary to the party to
whom such information relates, the party receiving such information shall take
all reasonable steps to (a) protect and hold such information in confidence and
prevent its disclosure to third parties unless such third parties are under a
duty of confidentiality to the party to which such information relates; and (b)
restrict its use to those purposes consent to in writing by the party to whom
such information relates; provided, however, that the party receiving such
information shall not be required to protect or hold in confidence any
information or data which (i) is or becomes available to the public without the
fault of the receiving party, (ii) is independently developed by the receiving
party, (iii) is disclosed to the receiving party by a third party known to the
receiving party not to be under any duty of confidentiality to the party to whom
such information relates with respect to such information or (iv) except as may
otherwise
C-2
<PAGE>
be required by law. This Section 10 shall not limit the obligation of the
parties under the Distribution Agreement to provide access to records after the
date hereof.
11. Limitation on Liability. ABC's liability to New AB in connection
-----------------------
with this Agreement and the Agency Services to be provided by ABC shall be
limited to actual damages arising from ABC's gross negligence or willful
misconduct in the performance of its duties and responsibilities hereunder;
provided, however, that, in no event shall ABC be liable for any incidental or
consequential damages.
12. Indemnity.
---------
(a) ABC agrees to defend, indemnify and hold New AB and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by New AB arising out of the
performance of the Agency Services hereunder, except where such liability, loss,
claim, damage or expense shall have been caused by New AB's gross negligence or
willful misconduct in the performance of its duties and responsibilities
hereunder.
(b) New AB agrees to defend, indemnify and hold ABC and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by ABC arising out of the
performance of the Agency Services hereunder, except where such liability, loss,
claim, damage or expense shall have been caused by ABC's gross negligence or
willful misconduct in the performance of its duties and responsibilities
hereunder.
13. Mutual Cooperation. ABC and New AB will provide each other with
------------------
information and assistance reasonably necessary to investigate, defend or
prosecute any claims, suits, charges, including but not limited to equal
employment opportunity, workers compensation, insurance and similar claims
brought by or against ABC or New AB relating to either of their businesses.
This provision shall survive termination of this Agreement.
14. Third Party Rights. Nothing in this Agreement, express or implied, is
------------------
intended to confer upon any person (including, without limitation, employees),
other than the parties hereto and their respective successors and assigns, any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
15. Successor and Assigns. This Agreement shall inure to the benefit
---------------------
of and be binding upon the respective successors and assigns of the parties
hereto, provided that this Agreement may not be assigned by either of the
parties hereto without the prior written consent of the other.
16. Notices. All notices and other communications required or permitted
-------
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, postage prepaid or by certified
or registered mail, and addressed to the applicable party at the respective
addresses set forth in the Distribution Agreement (or at such other address for
a party as shall be specified by a like notice).
17. Governing Law. The validity, enforceability and performance of this
-------------
Agreement shall be governed by and construed in accordance with the laws of the
State of Maryland (excluding its choice of law rules).
C-3
<PAGE>
18. Entire Agreement. The parties intend that the terms of this
----------------
Agreement, including the attached schedules, shall be the final expression of
their agreement with respect to the subject matter hereof and may not be
contradicted by evidence of any prior or contemporaneous agreement. The parties
further intend that this Agreement shall constitute the complete and exclusive
statement of its terms and that no extrinsic evidence whatsoever may be
introduced in any judicial, administrative or other legal proceedings involving
this Agreement.
19. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
20. Headings. The headings used in this Agreement are inserted for
--------
convenience of reference only and shall not affect the meaning or interpretation
of any provision of this Agreement.
21. Amendments and Waivers. This Agreement may not be amended except
----------------------
upon the written consent of all of the parties. By an instrument in writing, any
party may waive compliance by any other party with any term or provision of this
Agreement that such other party was or is obligated to comply with or perform,
provided, however, that such waiver shall not operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power hereunder preclude any other or further exercise thereof
or the exercise of any other right remedy, or power provided herein or by law or
in equity. The waiver by any party of the time for performance of any act or
condition hereunder does not constitute a waiver of the act or condition itself.
22. Expenses. Whether or not the transactions contemplated in this
--------
Agreement are consummated, unless specifically provided otherwise in this
Agreement (including all Schedules hereto), each party shall bear and pay all
expenses incurred by it or on its behalf in connection with the preparation of
this Agreement and consummation of the transactions described herein.
23. Severability. If any provision of this Agreement, or the application
------------
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be void, invalid or unenforceable, the remainder of
this Agreement and such provisions as applied to other persons, places or
circumstances shall remain in full force and effect.
C-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
THE ADVISORY BOARD COMPANY,
a Maryland corporation
By:
----------------------------------
Its:
---------------------------------
THE CORPORATE ADVISORY BOARD
COMPANY, a Delaware corporation
By:
----------------------------------
Its:
---------------------------------
C-5
<PAGE>
EXHIBIT D
VENDOR CONTRACTS AGREEMENT
THIS VENDOR CONTRACTS AGREEMENT, dated as of October 31, 1997 (the
"Agreement"), is made by and between THE ADVISORY BOARD COMPANY, a Maryland
corporation ("ABC") and THE CORPORATE ADVISORY BOARD COMPANY, a Delaware
corporation ("New AB").
RECITALS
--------
A. ABC and New AB have entered into a Distribution Agreement dated as of
October 31, 1997 (the "Distribution Agreement"), providing for the contribution
by ABC of the Transferred Business (as defined therein) to New AB.
B. Following the Contribution, subject to the conditions set forth in the
Distribution Agreement, all issued and outstanding shares of capital stock of
New AB will be distributed (the "Distribution") to the Sole Stockholder.
C. In the interest of an orderly transition with respect to the transfer
of the Transferred Business to New AB and certain third-party vendor contracts
relating thereto (the "Vendor Contracts"), the parties desire to provide for (i)
the provision during the Transition Period of services pursuant to the Vendor
Contracts (the "Vendor Services") to New AB or ABC as appropriate and (ii) the
appropriate allocation of related costs and expenses relating to such Vendor
Services.
The parties agree as follows:
1. Definitions. Unless the context otherwise requires, capitalized terms
-----------
not otherwise defined herein shall have the respective meanings given to them in
the Distribution Agreement.
2. Vendor Services.
---------------
(a) The Vendor Contracts are set forth on Attachment 1 hereto. Subject
to the terms of this Agreement, upon the written request setting forth
additional or amended Vendor Services to be provided to New AB made by an
Executive Vice President of New AB or a person designated to act on his behalf
in an instrument executed by such New AB Executive Vice President and delivered
to ABC, ABC shall provide, or cause provision, to New AB of each of the Vendor
Services with respect to the Transferred Business in the manner and to the same
general extent as such Vendor Services have been provided to ABC in connection
with the Transferred Business before the Contribution.
(b) Costs and expenses relating to Vendor Contracts shall be allocated
as shall be determined by the parties as follows or as otherwise shall be
mutually agreed in writing by the parties:
(i) Segregate Vendor Contract Invoices: If invoices relating to
Vendor Services can be divided to reflect properly the Vendor Services
provided to ABC and New AB, respectively, such invoices shall be
segregated and paid directly by the appropriate party to whom the
related Vendor Services were provided.
(ii) Reimburse ABC: In the event that invoices relating to
Vendor Services cannot be segregated and paid as described in
subparagraph (i) above, New AB shall pay its allocated share directly
or reimburse ABC for Vendor Services provided to New AB pursuant to
this Agreement as set forth in Attachment 1.
D-1
<PAGE>
3. Term. Except with respect to Section 6, the term of this Agreement
----
shall commence on the date hereof and terminate (a) at the end of the Transition
Period or (b) such other date as the parties hereto shall mutually agree in
writing to terminate this Agreement (the "Term"). New AB shall have the right
to terminate a Vendor Service or Vendor Services upon sixty (60) days prior
written notice to ABC. Termination of one or more Vendor Services by New AB
shall not affect the obligation of ABC to furnish all other Services for the
remainder of the Term.
4. Nondisclosure. In the event that, during the Term and in connection
-------------
with a party's performance of its obligations hereunder, either party shall
receive information concerning the other party hereto which the receiving party
knows, or has reason to believe, is confidential or proprietary to the party to
whom such information relates, the party receiving such information shall take
all reasonable steps to (a) protect and hold such information in confidence and
prevent its disclosure to third parties unless such third parties are under a
duty of confidentiality to the party to which such information relates; and (b)
restrict its use to those purposes consent to in writing by the party to whom
such information relates; provided, however, that the party receiving such
information shall not be required to protect or hold in confidence any
information or data which (i) is or becomes available to the public without the
fault of the receiving party, (ii) is independently developed by the receiving
party, (iii) is disclosed to the receiving party by a third party known to the
receiving party not to be under any duty of confidentiality to the party to whom
such information relates with respect to such information or (iv) except as may
otherwise be required by law. This Section 4 shall not limit the obligation of
the parties under the Distribution Agreement to provide access to records after
the date hereof.
5. Limitation on Liability. ABC's liability to New AB in connection
-----------------------
with this Agreement and the Vendor Services to be provided by ABC shall be
limited to actual damages arising from ABC's gross negligence or willful
misconduct in the performance of its duties and responsibilities hereunder;
provided, however, that, in no event shall ABC be liable for any incidental or
consequential damages.
6. Indemnity.
---------
(a) ABC agrees to defend, indemnify and hold New AB and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by New AB arising out of the
performance of the Services hereunder, except where such liability, loss, claim,
damage or expense shall have been caused by New AB's gross negligence or willful
misconduct in the performance of its duties and responsibilities hereunder.
(b) New AB agrees to defend, indemnify and hold ABC and its officers,
directors, employees and agents harmless from and against all liabilities,
losses, claims, damages and expenses of any nature, including reasonable
attorneys' fees, that are reasonably incurred by ABC arising out of the
performance of the Services hereunder, except where such liability, loss, claim,
D-2
<PAGE>
damage or expense shall have been caused by ABC's gross negligence or willful
misconduct in the performance of its duties and responsibilities hereunder.
7. Mutual Cooperation. ABC and New AB will provide each other with
------------------
information and assistance reasonably necessary to investigate, defend or
prosecute any claims, suits, charges, including but not limited to equal
employment opportunity, workers compensation, insurance and similar claims
brought by or against ABC or New AB relating to either of their businesses. This
provision shall survive termination of this Agreement.
8. Third Party Rights. Nothing in this Agreement, express or implied, is
------------------
intended to confer upon any person (including, without limitation, employees),
other than the parties hereto and their respective successors and assigns, any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
9. Relationship of Parties. Nothing in this Agreement shall be deemed or
-----------------------
construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship of independent contractor nor be deemed to vest any
rights, interest or claims in any third parties.
10. Successor and Assigns. This Agreement shall inure to the benefit of
---------------------
and be binding upon the respective successors and assigns of the parties hereto,
provided that this Agreement may not be assigned by either of the parties hereto
without the prior written consent of the other.
11. Notices. All notices and other communications required or permitted
-------
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, postage prepaid or by certified
or registered mail, and addressed to the applicable party at the respective
addresses set forth in the Distribution Agreement (or at such other address for
a party as shall be specified by a like notice).
12. Governing Law. The validity, enforceability and performance of this
-------------
Agreement shall be governed by and construed in accordance with the laws of the
State of Maryland (excluding its choice of law rules).
13. Entire Agreement. The parties intend that the terms of this
----------------
Agreement, including the attached schedules, shall be the final expression of
their agreement with respect to the subject matter hereof and may not be
contradicted by evidence of any prior or contemporaneous agreement. The parties
further intend that this Agreement shall constitute the complete and exclusive
statement of its terms and that no extrinsic evidence whatsoever may be
introduced in any judicial, administrative or other legal proceedings involving
this Agreement.
14. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
15. Headings. The headings used in this Agreement are inserted for
--------
convenience of reference only and shall not affect the meaning or interpretation
of any provision of this Agreement.
D-3
<PAGE>
16. Amendments and Waivers. This Agreement may not be amended except
----------------------
upon the written consent of all of the parties. By an instrument in writing, any
party may waive compliance by any other party with any term or provision of this
Agreement that such other party was or is obligated to comply with or perform,
provided, however, that such waiver shall not operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power hereunder preclude any other or further exercise thereof
or the exercise of any other right remedy, or power provided herein or by law or
in equity. The waiver by any party of the time for performance of any act or
condition hereunder does not constitute a waiver of the act or condition itself.
17. Expenses. Whether or not the transactions contemplated in this
--------
Agreement are consummated, unless specifically provided otherwise in this
Agreement (including all Schedules hereto), each party shall bear and pay all
expenses incurred by it or on its behalf in connection with the preparation of
this Agreement and consummation of the transactions described herein.
18. Severability. If any provision of this Agreement, or the application
------------
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be void, invalid or unenforceable, the remainder of
this Agreement and such provisions as applied to other persons, places or
circumstances shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
THE ADVISORY BOARD COMPANY,
a Maryland corporation
By:
-----------------------------
Its:
----------------------------
THE CORPORATE ADVISORY BOARD
COMPANY, a Delaware corporation
By:
-----------------------------
Its:
----------------------------
D-4
<PAGE>
ATTACHMENT 1
VENDOR CONTRACTS
1
<PAGE>
EXHIBIT 10.34
AGREEMENT OF LEASE
(OFFICE)
FOR
THE CORPORATE ADVISORY BOARD COMPANY
SUITES _____
2000 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20006
The Corporate Advisory Board Company Lease
June 23, 1998 Final
<PAGE>
TABLE OF CONTENTS
Page
----
1. INITIAL DEMISED PREMISES/CONDITION OF INITIAL DEMISED PREMISES....... 1
--------------------------------------------------------------
2. TERM................................................................. 1
----
3. RENT/BASIC ANNUAL RENT............................................... 2
----------------------
5. OPERATING EXPENSE INCREASES AND REAL ESTATE TAX ADJUSTMENTS.......... 5
-----------------------------------------------------------
6. SECURITY DEPOSIT..................................................... 12
----------------
7. USE.................................................................. 13
---
9. UPKEEP OF BUILDING................................................... 14
------------------
10. ASSIGNMENT AND SUBLETTING............................................ 15
-------------------------
11. ALTERATIONS.......................................................... 19
-----------
12. MECHANICS' LIENS AND SIMILAR LIENS................................... 22
----------------------------------
13. PERSONAL PROPERTY.................................................... 22
-----------------
14. DELIVERIES AND MOVING OF PROPERTY BELONGING TO TENANT................ 23
-----------------------------------------------------
15. TENANT'S EQUIPMENT................................................... 24
------------------
16. SIGNS AND ADVERTISEMENTS............................................. 26
------------------------
17. LANDLORD'S ACCESS.................................................... 26
-----------------
18. SERVICES............................................................. 27
--------
19. RULES AND REGULATIONS................................................ 28
---------------------
20. DAMAGE BY TENANT..................................................... 28
----------------
21. LIABILITY............................................................ 29
---------
22. INSURANCE............................................................ 30
---------
23. REQUIREMENTS FOR TENANT'S INSURANCE POLICIES......................... 31
--------------------------------------------
24. DAMAGE BY FIRE OR OTHER CASUALTY..................................... 32
--------------------------------
25. EMINENT DOMAIN....................................................... 33
--------------
The Corporate Advisory Board Company Lease
June 23, 1998 Final
i
<PAGE>
26. SUBORDINATION........................................................ 34
-------------
27. ESTOPPEL CERTIFICATES................................................ 36
---------------------
28. BANKRUPTCY........................................................... 37
----------
29. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT............................ 38
-----------------------------------------
30. DEFAULTS AND REMEDIES................................................ 39
---------------------
31. REPEATED DEFAULTS.................................................... 41
-----------------
32. SUCCESSORS........................................................... 41
----------
33. AUTOMOBILE PARKING................................................... 41
------------------
34. ALTERNATIVE TELEPHONE OR TELECOMMUNICATIONS PROVIDER................. 42
----------------------------------------------------
35. TENANT HOLDOVER...................................................... 43
---------------
36. RIGHTS RESERVED BY LANDLORD.......................................... 44
---------------------------
37. JURY TRIAL WAIVER.................................................... 45
-----------------
38. NOTICES.............................................................. 45
-------
39. LIEN FOR RENT........................................................ 45
-------------
40. LIMITATION ON LANDLORD'S LIABILITY................................... 46
----------------------------------
41. COVENANTS OF LANDLORD................................................ 46
---------------------
42. MISCELLANEOUS........................................................ 46
-------------
43. TENANT'S RIGHT TO RENEW..............................................
-----------------------
44. EXPANSION OPTIONS....................................................
-----------------
TABLE OF EXHIBITS
-----------------
Exhibit A Floor Plan(s) of the Demised Premises and Expansion Spaces
Exhibit B Declaration as to Date of Delivery of Demised Premises and as
to Lease Commencement Date
Exhibit C Rules and Regulations
Exhibit D Specifications for Office Space
The Corporate Advisory Board Company Lease
June 23, 1998 Final
ii
<PAGE>
Exhibit E Form of Tenant Estoppel Certificate
Exhibit F Cleaning Specifications
Exhibit G Guaranty
Exhibit H First Amendment to Deed of Trust
TABLE OF DEFINED TERMS
----------------------
<TABLE>
<S> <C>
Term PAGE
- ---- ----
Additional Rent................................................................. 3
Adjustment Rent................................................................. 10
affiliate....................................................................... 16
Alterations..................................................................... 19
Assignment Date................................................................. 17
Assignment Notice............................................................... 17
base building systems........................................................... 14
Base Operating Expenses......................................................... 10
Base Real Estate Taxes.......................................................... 10
Basic Annual Rent............................................................... 2
Building........................................................................ 1
Calendar Year................................................................... 5
control......................................................................... 16
Fiscal Year..................................................................... 5
Indemnitees..................................................................... 29
Land............................................................................ 9
Landlord........................................................................ 1
Lease........................................................................... 1
</TABLE>
The Corporate Advisory Board Company Lease
June 23, 1998 Final
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Lease Year...................................................................... 5
Operating Expense Share......................................................... 9
Operating Expenses.............................................................. 6
Provider........................................................................ 42
Real Estate Tax Share........................................................... 9
Real Estate Tax Year............................................................ 10
Real Estate Taxes............................................................... 9
Recapture Space................................................................. 18
Security Deposit................................................................ 12
Sublet Space.................................................................... 18
Subletting Date................................................................. 18
Subletting Notice............................................................... 18
subsidiary...................................................................... 16
successor partnership, limited liability company or professional corporation.... 16
Taking Date..................................................................... 34
Tenant.......................................................................... 1
Tenant's Property............................................................... 23
</TABLE>
The Corporate Advisory Board Company Lease
June 23, 1998 Final
iv
<PAGE>
AGREEMENT OF LEASE
FOR
THE CORPORATE ADVISORY BOARD COMPANY
THIS AGREEMENT OF LEASE (the "Lease") is made as of the ___ day of June,
1998, by and between The George Washington University, a non-profit corporation
chartered by an act of the Congress of the United States (hereinafter called
"Landlord"), and The Corporate Advisory Board Company, a Delaware corporation
(hereinafter called "Tenant").
WITNESSETH, that, for and in consideration of the rents, mutual covenants
and agreements hereinafter set forth, the parties hereto do mutually agree as
follows:
1. INITIAL DEMISED PREMISES/CONDITION OF INITIAL DEMISED PREMISES
--------------------------------------------------------------
(A.) Initial Demised Premises. Landlord has leased, and does hereby lease
--------------------------
and demise unto Tenant, and Tenant has leased and does hereby lease and hire
from Landlord as tenant of Landlord, at the rent and upon the terms, covenants
and conditions herein set forth, approximately 21,000 square feet of rentable
area on the seventh (7th) floor of the building presently known as Suite 7000,
which building is known by street address as 2000 Pennsylvania Avenue, N.W.,
Washington, D.C. 20006 and being herein referred to as the "Building". Suite
7000 is hereinafter referred to as the "Initial Demised Premises". The Initial
Demised Premises is shown on the floor plan attached to this Lease and made a
part hereof as Exhibit A.
----------
(B.) Condition of Initial Demised Premises. Tenant agrees to accept the
-------------------------------------
Initial Demised Premises in its "as is" condition existing on the date
possession of the Initial Demised Premises is delivered to Tenant by Landlord,
without Landlord being required to undertake any demolitions, removals,
alterations, improvements, decorations, repairs or modifications of the Initial
Demised Premises. This provision shall not in any way affect any repair and
maintenance obligations of Landlord hereunder with respect to the Demised
Premises, if any.
(C.) Tenant Examination. Tenant represents that it has thoroughly
------------------
examined the Initial Demised Premises as of the date of this Lease first stated
and is aware of and accepts the existing condition of each.
(D) Swing Space. Landlord has leased, and does hereby lease and demise
------------
unto Tenant, and Tenant has leased and does hereby lease and hire from Landlord
as tenant of Landlord, upon the terms, covenants and conditions herein set
forth, approximately 4,958 square feet of rentable area on the second (2nd)
floor of the Building presently known as Suite 2500 (hereinafter called the
"Swing Space"). The Swing Space is outlined on the floor plan attached to this
Lease and made a part hereof as Exhibit A .
---------
(E.) Definition of Demised Premises. The Initial Demised Premises and any
-------------------------------
other rentable areas of the Building leased to Tenant from time to time pursuant
to the provisions of this Lease are collectively hereinafter referred to as the
"Demised Premises".
2. TERM
----
(A.) Lease Commencement Date. The term of this Lease shall commence on the
-----------------------
Delivery Date (as hereinafter defined) of the Initial Demised Premises (the
"Lease Commencement Date"). The delivery date of the Initial Demised Premises
shall be the 1st day of July, 1998 ("Delivery Date") and except as provided
under Subparagraph (B.) of this Paragraph below,
The Corporate Advisory Board Company Lease
June 23, 1998 Final
1
<PAGE>
Landlord will deliver, and Tenant shall accept, possession of the Initial
Demised Premises on the Lease Commencement Date.
(B.) Delay in Delivery of Initial Demised Premises and Swing Space. In the
-------------------------------------------------------------
event Landlord is unable to deliver possession of Suite 7000 and/or the Swing
Space to Tenant by July 1, 1998, Landlord, its agents and employees, shall not
be liable or responsible for any claims, damages or liabilities arising in
connection therewith or by reason thereof, nor shall the validity of this Lease
be affected or Tenant be excused or released from this Lease, or its performance
hereunder. The Lease Commencement Date shall be extended, if necessary, to the
date Landlord delivers possession of the Initial Demised Premises and Tenant's
obligations pursuant to this Lease shall commence thereon. For the purposes of
this Lease, the term "Lease Commencement Date" shall also mean any extended date
of commencement of the term of this Lease as may be established pursuant to the
operation of the provisions of this Paragraph of the Lease. If any existing
tenant of the Initial Demised Premises or occupant of the Initial Demised
Premises holds over in violation of its lease, Landlord shall promptly initiate
and pursue appropriate legal action to evict such tenant or occupant from the
Initial Demised Premises.
(C.) Confirmation of Lease Commencement Date. When Tenant accepts
---------------------------------------
possession of the Initial Demised Premises on the Lease Commencement Date,
Landlord and Tenant shall execute the "Declaration of Lease Commencement Date,"
attached hereto as Exhibit B, which shall specify and be controlling as to the
---------
Lease Commencement Date and as to the Rent Commencement Date, as hereinafter
defined. Actual entry by Tenant into the Initial Demised Premises shall not be
necessary to establish that the Lease Commencement Date has occurred and
Tenant's obligations hereunder have become effective.
(D.) The Lease Expiration Date. The initial term of this Lease shall
-------------------------
expire on June 30, 2009 (the "Lease Expiration Date"), unless the term of this
Lease shall sooner cease and expire as hereinafter provided in this Lease.
(E) Rent Commencement. Tenant's first payment of Basic Annual Rent (as
------------------
hereinafter defined) shall be due on the date that is ninety (90) days after the
Lease Commencement Date (the "Rent Commencement Date").
(F) Swing Space Term. The term of this Lease for the Swing Space (i.e.,
-----------------
unless and until such Swing Space becomes Expansion Space B as described in
Paragraph 44 hereof) shall commence on the Lease Commencement Date and continue
through June 30, 1999. In no event shall Tenant be entitled to lease or occupy
the Swing Space after June 30, 1999 without exercising the option for Expansion
Space B set forth in Paragraph 44 hereof, and should Tenant continue in
occupancy after June 30, 1999 without having exercised Tenant's option for
Expansion Space B, Tenant shall be considered to be a tenant at will and the
provisions of Paragraph 35 TENANT HOLDOVER shall apply.
---------------
3. RENT/BASIC ANNUAL RENT
----------------------
(A.) Rent. Tenant hereby covenants and agrees to pay to Landlord, as
----
consideration for making this Lease with Tenant, rent of the kind and nature
hereinafter prescribed in this Lease. Rent shall include, but is not limited
to, Basic Annual Rent, as increased pursuant to this Lease (as hereinafter
defined), Adjustment Rent (as hereinafter defined), any modification to Basic
Annual Rent or Adjustment Rent, any increases due to increases or decreases in
the size of the Demised Premises, and any sums, charges, expenses and costs
identified in this Lease as to be
The Corporate Advisory Board Company Lease
June 23, 1998 Final
2
<PAGE>
paid by Tenant to Landlord (with all rent, other than Basic Annual Rent [and any
modifications thereto] being collectively defined and hereinafter referred to as
"Additional Rent").
(B.) Basic Annual Rent/Basic Monthly Rent. In keeping with Tenant's
------------------------------------
covenant and commitment to pay rent, Tenant agrees to pay a basic annual rent
for the leasing of the Initial Demised Premises (other than the Swing Space) of
Thirty-two and 50/100th Dollars ($32.50) per rentable square foot, subject to
annual increases during the term of this Lease as set forth hereinbelow, (such
rent, as adjusted is hereinafter referred to as "Basic Annual Rent"). Basic
Annual Rent shall be due and payable in equal monthly installments. Each of
said monthly installments of Basic Annual Rent are hereinafter called "Basic
Monthly Rent". Every installment of Basic Monthly Rent shall be due and payable
without demand and shall not be subject to setoff, deduction or counterclaim,
except if and as otherwise provided herein. Installments of Basic Monthly Rent
shall be due and payable in advance on or before the first day of each calendar
month during the term hereof, commencing on the Rent Commencement Date. If the
Rent Commencement Date occurs on a day other than the first day of a calendar
month, then the first installment of Basic Monthly Rent paid by Tenant shall be
prorated based upon the number of days in such partial month and Tenant shall be
credited with any overpayment.
It is agreed by Landlord and Tenant that all Basic Monthly Rent and
Additional Rent otherwise due on the Swing Space shall be abated for the period
from July 1, 1998 through June 30, 1999 or, if the Lease Commencement Date with
respect to the Swing Space is not July 1, 1998, then for a period commencing on
the Lease Commencement Date and continuing for a period of twelve (12) months
from such Lease Commencement Date. It is agreed by Landlord and Tenant that all
Basic Monthly Rent otherwise due for Suite 7000 and for the Mandatory Expansion
Space, as hereinafter defined, shall be abated for the months of July and
August, 2000, or if the Lease Commencement Date is not July 1, 1998, then for
the first two (2) months of the third Lease Year.
Basic Annual Rent per rentable square foot shall be subject to adjustment
and escalation effective as of the first day of each Lease Year starting with
the second Lease Year, (excluding, however, the sixth Lease Year), by an amount
equal to two percent (2%) of the per-square-foot Basic Annual Rent in effect for
the immediately preceding and expiring Lease Year. In lieu of a 2% escalation
in the sixth Lease Year, the per-square-foot Basic Annual Rent for the sixth
Lease Year shall be equal to the per-square-foot Basic Annual Rent in effect for
the fifth (5th) Lease Year plus an amount equal to Two Dollars ($2.00) per
rentable square foot.
Accordingly, as computed, Basic Annual Rent and the resulting Basic Monthly
Rent for the Initial Demised Premises shall be as follows:
<TABLE>
<CAPTION>
Basic Annual Rent Basic Annual Basic Monthly
Lease Year Per Square Foot Rent Rent
- ------------------------------ ------------------- --------------- ---------------
<S> <C> <C> <C>
1 $32.50 $682,500 $56,875
- ------------------------------ ------------------- --------------- ---------------
2 $33.15 $696,150 $58,012.50
- ------------------------------ ------------------- --------------- ---------------
3 $33.81 $710,010 $59,167.50
- ------------------------------ ------------------- --------------- ---------------
4 $34.49 $724,290 $60,357.50
- ------------------------------ ------------------- --------------- ---------------
5 $35.18 $738,780 $61,565
- ------------------------------ ------------------- --------------- ---------------
6 $37.18 $780,780 $65,065
- ------------------------------ ------------------- --------------- ---------------
</TABLE>
The Corporate Advisory Board Company Lease
June 23, 1998 Final
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
7 $37.92 $796,320 $66,360
- ------------------------------ ------------------- --------------- ---------------
8 $38.68 $812,280 $67,690
- ------------------------------ ------------------- --------------- ---------------
9 $39.45 $828,450 $69,037.50
- ------------------------------ ------------------- --------------- ---------------
10 $40.24 $845,040 $70,420
- ------------------------------ ------------------- --------------- ---------------
11 $41.04 $861,840 $71,820
- ------------------------------ ------------------- --------------- ---------------
</TABLE>
(C.) Payment Instructions. All rent shall be paid by check (subject to
--------------------
collection) made payable to the order of " The George Washington University" and
shall be delivered to "LaSalle Partners Management Services, Inc., P.O. Box
71015, Chicago, IL 60694-1015," or to such other party or address as Landlord
may from time to time designate in writing.
(D.) Certified/Cashier's Check. If Tenant is delayed or in default in
-------------------------
making any payment of rent of any kind and nature more than once during any
Lease Year during the term of this Lease, then Landlord at its option may
require that all future payments of rent thereafter be made by certified or
cashier's check, payable to Landlord. This requirement shall be in addition to
and not in limitation of any remedies available to Landlord under this Lease for
Tenant's failure to timely and properly pay rent.
4. MANDATORY EXPANSION OF INITIAL DEMISED PREMISES.
------------------------------------------------
(A.) Obligation.
-----------
Subject to the provisions of Subparagraph (B.) of this Paragraph,
Tenant shall be obligated to lease from Landlord, and Landlord shall be
obligated to lease to Tenant, approximately 6,765 square feet of rentable area
on the seventh (7th) floor of the Building presently known as Suite 7400 and
approximately 37,701 square feet of rentable area on the sixth (6th) floor of
the Building presently known as Suite 6000 (collectively, the "Mandatory
Expansion Space"). The Mandatory Expansion Space is outlined on the floor plan
attached to this Lease and made a part hereof as Exhibit A. If any existing
---------
tenant of the Mandatory Expansion Space or occupant of the Mandatory Expansion
Space holds over in violation of its lease, Landlord shall promptly initiate and
pursue appropriate legal action to evict such tenant or occupant from the
Mandatory Expansion Space.
(B.) Commencement Date.
------------------
(i) The commencement date of this Lease with regard to the Mandatory
Expansion Space shall be March 23, 1999, or such later date as Landlord shall be
able to deliver the Mandatory Expansion Space to Tenant (in either case, the
"Mandatory Expansion Space Lease Commencement Date").
(ii) The term of this Lease with regard to the Mandatory Expansion
Space shall commence on the date Landlord delivers possession of the Mandatory
Expansion Space to Tenant ("Mandatory Expansion Space Delivery Date"), but in no
event shall the Mandatory Expansion Space Delivery Date be earlier than March
23, 1999, without Tenant's prior approval.
(iii) The lease termination date with respect to the Mandatory
Expansion Space will be the same as the Lease Expiration Date for the Initial
Demised Premises.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
4
<PAGE>
(C.) Conditions of the Leasing of the Mandatory Expansion Space by Tenant.
---------------------------------------------------------------------
Tenant shall lease the Mandatory Expansion Space from Landlord subject
to and upon the following conditions, and where not in conflict with the
following, on the same terms and conditions as the Initial Demised Premises:
(i) Tenant shall accept the Mandatory Expansion Space in "AS IS"
condition, without Landlord being required to undertake any demolition,
removals, alterations, improvements, decorations, repairs or modifications of
the Mandatory Expansion Space. This provision shall not in any way affect any
repair and maintenance obligations of Landlord hereunder with respect to the
Mandatory Expansion Space, if any.
(ii) Tenant shall pay to Landlord, as Basic Annual Rent for the
Mandatory Expansion Space ("Mandatory Expansion Space Rent") an amount equal to
the product of the number of square feet of rentable area attributable to the
Mandatory Expansion Space, multiplied by the then-applicable per-square-foot
Basic Annual Rent attributable to the Initial Demised Premises in effect for
each Lease Year of the remainder of the term, beginning with the Lease Year in
which the Mandatory Expansion Space Rent Commencement Date (as hereinafter
defined) occurs and further, to pay that Mandatory Expansion Space Rent in equal
monthly installments to Landlord with the Basic Monthly Rent paid for the
Initial Demised Premises.
(iii) Tenant shall commence to pay Mandatory Expansion Space Rent, in
advance, from and after three (3) months after the Mandatory Expansion Space
Lease Commencement Date (the "Mandatory Expansion Space Rent Commencement
Date").
(iv) Tenant shall commence to pay Adjustment Rent for the Mandatory
Expansion Space from and after the Mandatory Expansion Space Rent Commencement
Date, and the percentage of the Tenant's Operating Expense Share and the
percentage of the Tenant's Real Estate Tax Share shall be increased to reflect
the addition of the Mandatory Expansion Space to the Initial Demised Premises in
accordance with the calculation of such percentages set forth in Paragraph 5 of
the Lease entitled "OPERATING EXPENSE INCREASES AND REAL ESTATE TAX
-----------------------------------------------
ADJUSTMENTS", such revised percentages to become effective as of the Mandatory
- --------------
Expansion Space Rent Commencement Date, with appropriate pro rata adjustments in
Adjustment Rent being made in the Lease Year in which the Mandatory Expansion
Space Rent Commencement Date occurs.
5. OPERATING EXPENSE INCREASES AND REAL ESTATE TAX ADJUSTMENTS
-----------------------------------------------------------
(A.) Definitions. As used in this Lease, the terms listed below shall have
-----------
the meanings indicated, namely:
(i) "Calendar Year" shall mean each consecutive twelve (12) calendar
month period, January 1st through the succeeding December 31st, of any
year in which this Lease is in effect.
(ii) "Fiscal Year" shall mean the period July 1st of one Calendar Year
through June 30th of the next Calendar Year, being the fiscal year of
the Building, or such other twelve (12) calendar month period,
including a Calendar Year, as Landlord may determine from time to time
during the term of this Lease.
(iii) "Lease Year" shall mean each consecutive twelve (12) calendar
month period commencing on the Lease Commencement Date, or if the
Lease
The Corporate Advisory Board Company Lease
June 23, 1998 Final
5
<PAGE>
Commencement Date is not the first day of a calendar month, then
commencing on the first day of the calendar month next following the
Lease Commencement Date.
(iv) "Operating Expenses" shall mean any and all expenses reasonably
allocated by Landlord to the office areas of the Building (as
distinguished from the areas of the Building designated from time to
time by Landlord as retail areas of the Building) incurred in a Fiscal
Year in connection with the operation, maintenance, servicing, repair
and improvement of the Building and its appurtenances, but net of any
discounts, credits, rebates or reimbursements to Landlord. Operating
Expenses shall be determined in accordance with generally accepted
accounting principles, ("GAAP") consistently applied and modified as
necessary to reflect customary property management practices and the
specific provisions of this paragraph (iv). By way of example, but
without limitation, Operating Expenses shall include, but are not
limited to, any and all of the following:
(a) salaries, wages, medical, surgical and general welfare
benefits (including also group life insurance and pension
payments for employees of Landlord or Landlord's agent or
agents engaged in the operation, maintenance, servicing or
repair of the Building);
(b) payroll taxes;
(c) premiums and payments related to workmen's compensation
insurance;
(d) license and permit fees and charges;
(e) electricity charges;
(f) costs and expenses for repairs and maintenance;
(g) utility taxes;
(h) water and sewer charges;
(i) natural gas charges (if any);
(j) oil and other fuels charges;
(k) premiums and other charges for insurance provided and
maintained by Landlord, including casualty and liability
insurance;
(l) charges for security services;
(m) fees and charges for char and cleaning services;
(n) costs of operating supplies for the Building, including
cleaning supplies and equipment;
(o) costs of uniforms and dry cleaning and laundering;
(p) costs related to window cleaning;
The Corporate Advisory Board Company Lease
June 23, 1998 Final
6
<PAGE>
(q) costs related to snow removal;
(r) costs and expenses of repair and maintenance of common areas
in or about the Building and the Land, including but not
limited to sidewalks, driveways, parking facilities, vaults,
roadways, grounds, and public spaces;
(s) management and service provider fees actually incurred by
Landlord (but as to property management fees, not to exceed
market rates for such services for first-class office
buildings in downtown Washington, D.C.) ;
(t) costs and expenses of service or management contracts with
independent contractors;
(u) fees and expenses of accountants and attorneys, including
but not limited to those incurred to reduce or contest
Operating Expenses or Real Estate Taxes;
(v) costs and expenses incurred for telephone, telegraph,
postage, stationery, supplies and other materials required
for or related to the operation of the Building, including
those of any management office supporting the Building;
(w) the cost of capital improvements to the Building and
appurtenant improvements made by Landlord (i) for the
purpose of complying with governmental laws, rules,
regulations or order arising subsequent to the date of this
Lease first hereinabove stated, or (ii) which are reasonably
determined by third party consultants hired by Landlord to
be likely to reduce Operating Expenses, provided that the
cost of each such capital improvement, together with
financing charges if the improvement is not financed by
borrowing, shall be amortized in constant annual payments
over the useful life of the improvement, and only the amount
of that annual payment shall be included as Operating
Expenses for any Fiscal year; and,
(x) any other expenses or charges of any nature whatsoever,
whether or not herein mentioned, which would be included as
operating expenses of a mixed use, commercial office
building in accordance with generally accepted accounting
and management principles with respect to operation of
first-class office buildings in the Washington, D.C.,
Metropolitan Area.
Operating Expenses may, in Landlord's sole discretion, include
payments made to entities related to Landlord, or in which Landlord
may have a direct or indirect interest, to reimburse such entities (as
determined by Landlord using commercially reasonable principles) for
the proportionate use by Landlord within the Building of equipment
owned or personnel employed by such entities which are used both by
such entities and Landlord.
Operating Expenses shall not include any of the following: (a)
painting or decorating areas of the Building other than public areas;
(b) interest and amortization
The Corporate Advisory Board Company Lease
June 23, 1998 Final
7
<PAGE>
on mortgages; (c) depreciation of the Building (but not any
amortization of capital improvements and interest thereon as provided
for above); (d) ground rent, if any; (e) salaries and other
compensation paid to officers or executives of Landlord or to any
partner, principal or owner of the entity comprising Landlord; (f)
income taxes imposed upon the net income of Landlord from the
operation of the Building; (g) the costs of alterations, capital
improvements and other items which under generally accepted accounting
principles are properly classified as capital expenditures (except to
the extent otherwise provided in Subparagraph 5(A.)(iv)(w)); (h) any
tenant work performed or alteration of space leased to Tenant or other
tenants or occupants of the Building, whether such work or alteration
is performed for the initial occupancy by such tenant or occupant or
thereafter; (i) any cash or other consideration paid by Landlord on
account of, with respect to or in lieu of the tenant work or
alterations described in (h) above; (j) interest and amortization of
indebtedness or any costs of financing or refinancing, depreciation or
ground rent; (j) management fees in excess of the amount permitted
under Subparagraph 5(A.)(iv)(s); (k) leasing commissions and
advertising (other than advertising for building employees) and
promotional expenses related to leasing space in the Building; (l)
"takeover lease expenses" (i.e., expenses incurred by Landlord with
----
respect to leases entered into by tenants of the Building for space
which such tenants vacated in another building in connection with the
leasing of space in the Building); (m) any amounts payable by Landlord
by way of indemnity or for damages or which constitute a fine,
interest or penalty which payments were not triggered or caused,
directly or indirectly, by the actions or inactions of Tenant; (n) any
cost representing an amount paid for services or materials to a
person, firm or entity related to Landlord or any general partner of
Landlord to the extent such amount exceeds the maximum amount that
would be paid in the marketplace for such services or materials to an
unrelated third party for the identical level and nature of services
or materials; (o) costs for which Landlord actually receives
reimbursement from insurance, condemnation awards or any other source
and expenses for repairs and other work caused by fire, windstorm or
other casualty required to be insured under this Lease; (p) any
expenses incurred by Landlord as a result of asbestos in the Building
or on or about the Land or suspected to be in the Building or on or
about the Land; and (q) legal, investigative, and court costs in
connection with the enforcement by Landlord of leases to tenants in
the Building. In addition, to the extent that the costs of performing
additional services (including operation of the Building beyond the
days and hours specified in Paragraph 15 (A.) and start-up time
related thereto) or the costs of installations to or for tenants other
than Tenant are reimbursed to Landlord by such tenants, such costs
shall not be included in Operating Expenses.
If during all or part of any Fiscal Year, including the Fiscal
Year ending June 30, 1999, Landlord shall not furnish any particular
item of work or service (which would constitute an item of Operating
Expenses hereunder) to at least ninety-five percent (95%) of the
rentable area of the Building designated by Landlord as office space,
because (a) less than all of the space then designated for office
space of the Building is occupied, or (b) such item of work or service
is not desired or required by any tenant of the office space, or (c)
any tenant of the office space is itself obtaining and providing such
item of work or service, then an adjustment shall be made in computing
the Operating Expenses for such Fiscal Year so that the Operating
Expenses shall be increased for such Fiscal Year to the amount that
would have been reasonably incurred had Landlord provided such item of
work or service to ninety-five percent (95%) of the rentable area of
the Building designated by Landlord as office space for the entire
Fiscal Year.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
8
<PAGE>
(v) "Operating Expense Share" shall mean Tenant's proportionate share
of increases in Operating Expenses (as hereinafter defined);
representing the ratio that the rentable area of the Demised Premises
bears to the total rentable area of all office area in the Building
from time to time, which total rentable area of office area of the
Building excludes the area of any storage areas located outside any
Demised Premises leased to tenants in the Building and the area of the
garage within the Building. As of the date of this Lease first
hereinabove stated, Tenant's Operating Expense Share will be seven and
one thousand seven hundred ninety-three ten-thousandths percent
(7.1793%) and Tenant's Operating Expense Share will increase to
twenty-two and three thousand eight hundred eight ten-thousandths
percent (22.3808%) from and after the Mandatory Expansion Space Rent
Commencement Date. Tenant's Operating Expense Share will increase
upon the addition of any of Expansion Space A, Expansion Space B, or
Expansion Space C, all as provided in Paragraph 44 hereof.
(vi) "Real Estate Tax Share" shall mean Tenant's proportionate share
of increases in Real Estate Taxes (as hereinafter defined),
representing the ratio that the rentable area of the Demised Premises
bears to the total rentable area of all office and retail areas
contained in the Building from time to time, which total rentable area
of office and retail areas of the Building excludes the area of any
storage areas located outside any Demised Premises leased to tenants
in the Building and the area of the garage within the Building. As of
the date of this Lease first herein above stated, Tenant's Real Estate
Tax Share will be five and seven thousand nine hundred fifty-one ten-
thousandths percent (5.7951%) and shall increase to eighteen and six
hundred fifty-eight ten-thousandths percent (18.0658%) from and after
the Mandatory Expansion Space Rent Commencement Date. Tenant's Real
Estate Tax Share will increase upon the addition of any of Expansion
Space A, Expansion Space B, or Expansion Space C, all as provided in
Paragraph 44 hereof.
(vii) "Real Estate Taxes" shall mean all taxes, rates and
assessments, general and special and including also any increases in
tax rate and/or in assessed valuation, which are now or at any time(s)
hereafter levied, assessed or imposed with respect to the Building and
all land related or appurtenant thereto (the "Land"), and/or upon
Landlord's leasehold interest (if any) in the said Land, to the extent
same apply to a Real Estate Tax Year (or part thereof occurring during
the term of this Lease). Real Estate Taxes shall include without
limitation, real estate taxes, personal property taxes applicable to
the personalty in the Building, any and all unincorporated and other
business license and/or franchise taxes (other than such taxes based
upon Landlord's net income), public space rentals, including but not
limited to vault rentals, any taxes, assessments or other levies which
may at any time be imposed and/or collected by any federal, state,
county, municipal, quasi-governmental or corporate entity in respect
of bus, subway or other public transportation facilities operating in
the metropolitan area of the District of Columbia, and including also
any assessment or levy for any business improvement district duly
formed in accordance with applicable law, and any tax assessment or
other charges in the nature of a sales, use or other tax upon
Landlord, the Demised Premises, the Building, the Land and/or the
rents payable hereunder (except income taxes, franchise taxes
calculated upon Landlord's net income, estate or inheritance taxes of
Landlord). If the system of real estate taxation shall be altered or
varied and any new tax or levy shall be levied or imposed on the
Building, and/or Land and/or Landlord, in addition to or in
substitution for real estate taxes
The Corporate Advisory Board Company Lease
June 23, 1998 Final
9
<PAGE>
and/or personal property taxes presently levied or imposed on
immovables in the District of Columbia, and including also without
limitation any taxes on rents, then any such new tax or levy shall be
included within the term "Real Estate Taxes". If any Real Estate Tax
is levied or assessed in such a manner that the amount thereof
required to be paid by Tenant hereunder in respect of its Real Estate
Tax Share is not ascertainable because such tax relates to one or more
properties other than the Building or to rents received by Landlord in
addition to those received from the Building, then Tenant's Real
Estate Tax Share of said items to be paid by Tenant forming a part of
the Real Estate Taxes shall be reasonably determined by Landlord. If
any Real Estate Taxes levied against the Land, Building or
improvements covered hereby or the rents reserved therefrom, shall be
evidenced by improvement bonds or other bonds, or in any other form,
which may be paid in annual installments, Landlord shall include the
same in Real Estate Taxes based upon the maximum period permitted by
law for payment of such installments and only the amount payable for a
Real Estate Tax Year elapsing during the term of this Lease shall be
included as Real Estate Taxes for purposes of this definition.
(viii) "Real Estate Tax Year" shall mean the fiscal year of the
District of Columbia being October 1st of one Calendar Year through
September 30th of the next succeeding Calendar Year, or such other
twelve (12) calendar month period as Landlord may determine from time
to time during the term of this Lease, including such other period as
may be defined as the fiscal year of the District of Columbia from
time to time during the term of this Lease. The term "Real Estate Tax
Year" shall include any period of adjustment which may result from a
change in designation of the period identified by the District of
Columbia as its fiscal year.
(B.) Obligations for Adjustment Rent. During the term of this Lease and
-------------------------------
any renewals or extensions thereof, Tenant covenants and agrees to pay to
Landlord, as part of Additional Rent, (i.) Tenant's Operating Expense Share of
any Operating Expenses in excess of the Operating Expenses incurred during the
Fiscal Year elapsing between July 1, 1998 and June 30, 1999 ("Base Operating
Expenses"), and (ii.) Tenant's Real Estate Tax Share of Real Estate Taxes in
excess of the Real Estate Taxes payable for the Real Estate Tax Year 1999 (i.e.,
----
October 1, 1998 through September 30, 1999) ("Base Real Estate Taxes"),
provided, however, that during any renewal or extension of this Lease, the Base
Operating Expenses and Base Real Estate Taxes shall be modified to reflect the
Fiscal Year and Real Estate Tax Year during which such renewal or extension
commences, or such other Fiscal Year and Real Estate Tax Year as Landlord and
Tenant agree should apply. The payments called for above as (i) and (ii) in
this Subparagraph (B.) are hereinafter sometimes collectively referred to as
"Adjustment Rent." Tenant shall make the payments of Adjustment Rent called for
in this Subparagraph (B.) commencing on July 1, 1999 and shall make such
payments within thirty (30) days after each and every request therefor from
Landlord. Copies of the appropriate bills for Real Estate Taxes, together with
the statement of Operating Expenses of the Building for the Fiscal Year in
reasonable detail prepared by Landlord or Landlord's accountants, covering said
Adjustment Rent shall be furnished to Tenant as soon as is reasonably
practicable following Landlord's billing of such Adjustment Rent under this
Subparagraph (B.), and unless timely contested by Tenant pursuant to Paragraph
5(D) below, shall be deemed conclusive and binding on the parties. Tenant's
obligation to pay Adjustment Rent shall survive the expiration or earlier
termination of this Lease with regards to payments thereof covering any portion
of the term of this Lease through the date of expiration or termination of the
Lease.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
10
<PAGE>
(C.) Estimates by Landlord. Landlord may from time to time during the term
---------------------
hereof (and more frequently than once during any Lease Year) deliver to Tenant a
written estimate by Landlord of the amount of annual Adjustment Rent which
Landlord may estimate and determine will be payable by Tenant during any ensuing
Fiscal Year (or portions of a Fiscal Year). Such estimated sum is hereinafter
called the "Estimated Adjustment Rent". Commencing on the first day of the
calendar month immediately following the month in which such statement of
Estimated Adjustment Rent is tendered, and on the first day of each and every
calendar month thereafter until the next such statement, Tenant shall pay to
Landlord (in addition to and with Basic Monthly Rent), as Additional Rent, a sum
as specified by Landlord which is equal to one-twelfth (1/12th) of said
Estimated Adjustment Rent, such payments to continue to be due and payable until
further notice from Landlord. At the end of each Fiscal Year, Landlord shall
furnish to Tenant, within a reasonable time after the end of such Fiscal Year,
an annual statement setting forth in reasonable detail the actual amount of the
annual Adjustment Rent due and payable by Tenant for the immediately preceding
Fiscal Year in which such monthly installments of Estimated Adjustment Rent were
paid by Tenant pursuant to this Subparagraph (C.). Thereafter Landlord and
Tenant shall then make an appropriate adjustment of said Estimated Adjustment
Rent paid by Tenant for the then expired Fiscal Year within thirty (30) days
after delivery of such statement, accomplished as applicable either by Tenant's
payment to Landlord of any deficiency, or, at Landlord's option, by Landlord's
refund or credit toward future installments of Basic Monthly Rent in case of any
overpayment of Adjustment Rent by Tenant.
(D.) Within ninety (90) days after delivery of an annual Operating Expense
statement, Tenant shall notify Landlord whether Tenant will examine Landlord's
books and records with respect to such Operating Expense statement. If Tenant
so notifies Landlord then Tenant and its representatives shall have the right,
at Tenant's expense, upon reasonable prior notice to Landlord during normal
business hours, to examine Landlord's books and records relating to the
operation of the Building for the three (3) most recent Fiscal Years to verify
matters in the Operating Expense statement(s) for such three most recent Fiscal
Years, provided however, that Tenant may review the books and records and
request an adjustment in Tenant's Adjustment Rent only once for each Fiscal Year
being reviewed by or on behalf of Tenant and such review shall not occur more
than one time in any Lease Year. If as a result of such examination, Tenant
disputes any such Operating Expense statement, Tenant shall notify Landlord that
it disputes such Operating Expense statement setting forth the reasons therefor
(a "Notice of Dispute"). If Landlord shall have overstated Adjustment Rent for
any Fiscal Year, Landlord shall promptly refund such excess to Tenant. If such
Adjustment Rent shall have been overstated by an amount in excess of five
percent (5%), Landlord shall reimburse Tenant for the reasonable, actual, out-of
pocket cost of such examination. If Landlord shall have understated Adjustment
Rent for any Fiscal Year, Tenant shall promptly pay such understated amount to
Landlord. Tenant agrees to maintain all information it receives from Landlord or
Landlord's agents in connection with Tenant's examination of the books and
records in strictest confidence and shall not reveal the same to any other
persons or entities except to such accounting or real estate brokerage firms or
attorneys which Tenant has employed to assist Tenant in the review of such books
and records, which firms shall, prior to receiving any information from such
books and records, execute an agreement with Tenant and Landlord agreeing to
maintain all such information in confidence. In the event that Tenant employs
any persons or entities to review the books and records in accordance with
Tenant's rights stated herein, such persons or entities shall not be compensated
for their work for Tenant on a contingency basis or in any manner which is based
upon the amount of the discrepancies or errors found in the books and records.
In the event that Adjustment Rent is found not to be overstated, then Tenant
shall immediately pay Landlord an administrative fee of $500 for the costs and
expense incurred by Landlord and Landlord's personnel in making such books and
records available for review and in handling any other requests by Tenant or
Tenant's agents in connection with the review of the books and records.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
11
<PAGE>
6. SECURITY DEPOSIT
----------------
(A.) Delivery. Simultaneous with the delivery by Tenant of this Lease
--------
fully executed by Tenant, Tenant shall deposit with Landlord the sum of One
Million Three Hundred Thousand Dollars ($1,300,000) as security for Tenant's
performance under this Lease (the "Security Deposit"). The Security Deposit
shall be in the form of an unconditional, irrevocable letter of credit payable
at sight to Landlord in form and substance and from a financial institution
acceptable to Landlord in its reasonable discretion. Such letter of credit
shall be assignable by Landlord, as beneficiary, and any successor to Landlord.
Such letter of credit shall have a term of not less than one year and shall be
automatically renewed without notice from Landlord or Tenant to the issuer at
least forty-five days prior to each one year anniversary of the letter of
credit's issuance. In the event that Tenant has not provided Landlord with a
replacement letter of credit within thirty (30) days prior to the expiration of
the letter of credit then being held by Landlord, Landlord shall draw down the
letter of credit and shall hold the sum thereby received in a non-interest
bearing account, provided, however, that if Tenant delivers a replacement letter
of credit, in form and substance acceptable to Landlord in its sole discretion
and in compliance with the provisions of this Paragraph 6, and Tenant is not
otherwise in default of its obligations under this Lease, then Landlord shall
return to Tenant the cash then on deposit in such non-interest bearing account.
If Tenant is in default of its obligations under this Lease at the time Tenant
delivers a replacement letter of credit as aforesaid, then only after such
default has been cured to Landlord's full satisfaction during the period
provided herein for the curing of such default, shall Landlord return the cash
then on deposit in a non-interest bearing account to Tenant. Provided that
Tenant is not then in default and has not been in default during the term
hereof, the letter of credit may be reduced to One Million Forty Thousand
Dollars ($1,040,000) on the Burnoff Date, as such term is defined in the
Guaranty of even date herewith from The Advisory Board Company to Landlord, a
copy of which is attached hereto and incorporated herein by this reference as
Exhibit G and provided that Tenant is not then in default and has not been in
- ---------
default during the term hereof, and further provided that the Burnoff Date has
occurred, then the letter of credit may be further reduced to Six Hundred Fifty
Thousand Dollars ($650,000) on the one year anniversary of the Burnoff Date. In
the event that Tenant is in default on the date upon which the letter of credit
would otherwise have been reduced in amount, and the cure period for such
default by Tenant, if any, has not yet expired, then in the event that Tenant
cures such default within any applicable cure period, Tenant may thereafter
reduce the amount of the letter of credit to an amount which it would have been
absent the default by Tenant on the applicable date for reduction thereof. From
and after the one year anniversary of the Burnoff Date, Tenant shall maintain
the letter of credit in the amount of $ 650,000 through the term of this Lease.
The letter of credit shall be security for Tenant's payment and performance of
all Tenant's obligations, covenants, conditions and agreements under this Lease.
(B.) Availability to Landlord. In the event Tenant fails to perform its
------------------------
obligations, including but not limited to accepting possession of the applicable
portion of the Demised Premises on the Lease Commencement Date and the
Mandatory Expansion Space Lease Commencement Date as provided for herein,
Landlord shall have the right, but shall not be obligated, to apply all or any
portion of the Security Deposit to cure any default by Tenant. The use of the
Security Deposit by Landlord, as aforesaid, shall not excuse Tenant's liability
for defaults hereunder nor limit Landlord's remedies. If Landlord so applies
any or all of the Security Deposit, Tenant shall be obligated to promptly
restore the Security Deposit to its original amount, within five (5) days after
receiving a request from Landlord to do so. The Security Deposit shall not be
deemed liquidated damages and Landlord may apply all or a portion of the
Security Deposit to reduce Landlord's damages of any kind and nature (including
but not limited to court costs and reasonable
The Corporate Advisory Board Company Lease
June 23, 1998 Final
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<PAGE>
attorneys' fees). Such application of the Security Deposit shall not preclude
Landlord from recovering from Tenant all additional damages incurred by
Landlord.
(C.) Return of Security Deposit. If Tenant fully and faithfully complies
--------------------------
with all terms and conditions of this Lease, the Security Deposit shall be
returned to Tenant within thirty (30) days following the expiration of the term
of this Lease and Tenant's surrender of the Demised Premises in accordance with
the terms of this Lease.
(D.) Sale or Transfer. In the event of the sale or transfer of Landlord's
----------------
interest in the Building, Landlord shall transfer the Security Deposit to such
purchaser or transferee, in which event Tenant shall be entitled to look to the
new party identified as Landlord for the return of the Security Deposit, and
Landlord shall thereupon be released from all liability to Tenant for the return
of the Security Deposit. Furthermore no holder of a mortgage or deed of trust
to which this Lease is subordinate shall be responsible for the Security Deposit
unless such mortgagee or holder of such deed of trust shall have actually
received or obtained control over the Security Deposit.
7. USE
---
(A.) Permitted Use. Tenant shall use and occupy the Demised Premises for
-------------
general office use and for no other use or purpose whatsoever without the prior
written consent of Landlord. Tenant may not use the Demised Premises for any
use which will cause Landlord to have to modify the Building common areas to
comply with The Americans With Disabilities Act, as it may be amended (the
"ADA") or other similar laws, rules, ordinances and regulations which may
hereinafter be enacted. Tenant hereby covenants and agrees, on behalf of
itself and its assigns, subtenants, contractors and invitees, not to obstruct or
interfere with the rights of other tenants of the Building, and not to injure or
annoy them or those having business with them. Tenant may not use or permit the
Demised Premises or any part thereof to be used for any disorderly, unlawful or
extra hazardous purpose nor for any other purpose than herein specified. Tenant
shall specifically not manufacture any commodity within the Demised Premises.
Tenant shall not store or use, or permit others to store or use, within the
Demised Premises any hazardous or toxic substances or hazardous or toxic wastes
or materials, as defined under applicable Federal and/or local law in violation
of any such law.
(B.) Compliance. Tenant shall comply with all laws, ordinances, rules,
----------
orders and regulations of all government authorities and of the Board of Fire
Underwriters (and any successor thereto) at any time promulgated and in force,
attributable to the use, or manner of use by Tenant of the Demised Premises, or
any part thereof. To the extent after the date of this Lease that Tenant's use
or uses of the Demised Premises, or Tenant's manner of operation creates a need
or requirement under applicable statute, ordinance or regulation of any
governmental authority to modify or alter the Demised Premises, supporting
facilities, or access thereto, Tenant shall be fully responsible for the costs
to undertake such changes, and to obtain Landlord's approval (such approval not
to be unreasonably withheld, delayed or conditioned) to undertake such changes
pursuant to the Paragraph of this Lease entitled "ALTERATIONS".
-----------
(C.) Certificate of Occupancy. Tenant specifically shall be required to
------------------------
obtain a Certificate of Occupancy from the District of Columbia for Tenant's use
and occupancy of the Building at or prior to the date Tenant occupies the
Demised Premises for its business purposes.
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June 23, 1998 Final
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<PAGE>
8. UPKEEP OF DEMISED PREMISES
--------------------------
Tenant shall keep the Demised Premises and related appurtenances, including
without limitations, doors and windows, the fixtures and equipment therein
clean, safe and sanitary, in good order and condition, in compliance with all
applicable laws, ordinances and regulations of any governmental authority having
jurisdiction over the Building, shall take good care thereof, and shall suffer
no waste or injury thereto. At the expiration or earlier termination of the
term of this Lease, Tenant shall surrender the Demised Premises broom clean and
in the same order and condition in which they were on the Lease Commencement
Date or the Mandatory Expansion Space Lease Commencement Date, as applicable,
ordinary wear and tear and damage by the elements excepted. To the extent that
Tenant's manner of operation or use of the Demised Premises (which Tenant agrees
shall be general office use) creates a need or requirement under applicable law,
ordinance or regulation of any governmental authority for special cleaning,
maintenance, repair and/or modification of the Demised Premises, its fixtures or
improvements, Tenant shall be fully responsible to undertake such cleaning,
maintenance, repair or modification at its sole cost.
9. UPKEEP OF BUILDING
------------------
Subject to the provisions of this Lease entitled "DAMAGE BY TENANT,"
----------------
Landlord agrees that it will deliver and keep the Base Building Systems of the
Building (as hereinafter defined) and all structural elements thereof in good
working order and condition, in accordance with the standards customarily
employed by other landlords of similar and comparable first class office
buildings located within the central business district of Washington, D.C., and
the costs thereof incurred by Landlord shall be deemed to be an element of
Operating Expenses of the Building except as otherwise provided in Paragraph
5(A.). For the purposes of this Paragraph, the term "Base Building Systems"
shall be deemed to include, but not be limited to, the roof, the exterior
windows and window systems, the elevators, the base building mechanical and
plumbing systems including building heating, cooling and ventilation systems
(but not any supplementary systems serving less than the entire Building), major
ventilation distribution ducts to each floor of the Building and the electrical
system from the external power supply source to the electrical panel on each
floor, and life safety systems outside the Demised Premises.
Landlord at its cost and expense, shall keep and maintain the Building, and
its fixtures, appurtenances, systems and facilities (including the Building
parking garage), and the sidewalks, plazas and landscaped areas located in or
about the Building in good working order, condition and repair and shall make
all repairs as needed in or about the Building, except those repairs for which
Tenant is responsible pursuant to the provisions of Paragraph 8 hereof or which
do not preclude Tenant's reasonable use and enjoyment of the Demised Premises
and the Building. Landlord shall provide a Building security system comparable
to other first-class office buildings in the downtown Washington, D.C. area and
comparable to what presently exists at the Building as of the date hereof.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
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<PAGE>
10. ASSIGNMENT AND SUBLETTING
-------------------------
(A.) Restrictions on Tenant.
----------------------
(i) Subject to Subparagraphs (B.) or (C.) below of this Paragraph as
applicable, Tenant shall not, without first obtaining in writing the prior
consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed: (a) assign, mortgage, pledge, encumber or otherwise
transfer this Lease, the term and estate hereby granted or any interest
hereunder; (b) permit the Demised Premises or any part hereof to be utilized by
anyone other than Tenant for desk space, mailing privileges, or as a concession;
(c) sublet or offer or advertise for subletting the Demised Premises or any part
thereof; or (d) permit any person to occupy the Demised Premises or any part
thereof, other than employees or affiliates of Tenant or clients of Tenant where
such clients, affiliates or employees occupy the space for a temporary period
not to exceed one hundred eighty (180) days and where such occupancy is without
charge by Tenant to such clients, affiliates or employees.
(ii) Within 10 business days after Landlord's receipt of the
Subletting Notice (as hereinafter defined) or the Assignment Notice (as
hereinafter defined), Landlord shall by notice to Tenant grant or deny its
consent to such request.
(iii) If Landlord shall fail to notify Tenant within the 10 business-
day period of Landlord's approval or rejection of Tenant's request to sublet or
assign, Tenant shall give Landlord a notice so advising Landlord (the "Reminder
Notice") together with a duplicate of Tenant's sublet or assignment request.
The first page of such Reminder Notice must contain the following in capitalized
and boldface type:
LANDLORD'S FAILURE TO APPROVE OR DISAPPROVE THE ATTACHED REQUEST WITHIN TEN
(10) BUSINESS DAYS AFTER RECEIPT OF THIS NOTICE SHALL BE DEEMED TO BE
LANDLORD'S APPROVAL OF SUCH REQUEST.
If within ten (10) business days after Landlord's receipt of the Reminder
Notice, Landlord shall again fail to notify Tenant of Landlord's approval or
disapproval of Tenant's sublet or assignment request, Landlord shall be deemed
to have approved such proposed sublet or assignment.
(iv) The consent of Landlord to any assignment or other transfer of
this Lease and the term and estate hereby granted or to any subletting or
occupancy may not be unreasonably withheld, conditioned or delayed by Landlord.
Without limiting the other instances in which it may be reasonable for Landlord
to withhold its consent to an assignment (or transfer), or subletting (or
occupancy), Landlord and Tenant acknowledge that it will be reasonable for
Landlord to withhold its consent in any of the following instances: (a) in
Landlord's reasonable judgment, the financial worth of the proposed assignee or
sublessee does not meet the credit standards applied by Landlord for other
tenants under leases in the Building with comparable terms; (b) in Landlord's
reasonable judgment, the character or reputation of the proposed use of the
Demised Premises by the proposed assignee or sublessee is inconsistent with the
quality of other tenants in the Building; (c) Landlord has received from any
prior lessor to the proposed assignee or subtenant a negative report concerning
such prior lessor's experience with the proposed assignee or sublessee; (d)
Landlord has experienced previous defaults by or is in litigation with the
proposed assignee or sublessee; (e) the proposed assignee or subtenant is a
tenant in the Building and Landlord has space in the Building available for
leasing to such proposed assignee or subtenant; (f) the proposed assignee or
sublessee is a person or entity with whom Landlord is negotiating to lease space
in the Building or whom has asked the Landlord for
The Corporate Advisory Board Company Lease
June 23, 1998 Final
15
<PAGE>
a proposal to lease space in the Building; or (g) Tenant is in default of any
obligation(s) of Tenant under this Lease, or Tenant has defaulted under this
Lease on three (3) or more occasions during the previous twelve (12) months
preceding the date that Tenant makes its request for consent.
(v) Landlord's consent if given shall not relieve Tenant of the
obligation to obtain such consent to any further or subsequent assignment (or
other transfer), or subletting (or occupancy) not expressly permitted under this
Paragraph. Furthermore, Landlord's consent to any assignment, transfer,
subletting or occupancy shall not be construed as a waiver, discharge, or
release of Tenant, and any immediate or remote successors in interest to Tenant
from liability for the performance or observance of any covenant or obligation
to be performed by Tenant under this Lease even where (a) an agreement has been
undertaken to modify any right or obligation of any party under this Lease, (b)
a stipulation extending the time for performance has been granted by Landlord
from time to time, (c) a waiver of performance has been granted by Landlord from
time to time, or (d) Landlord has failed to enforce any obligation set forth in
this Lease. The collection or acceptance of rent from any assignee, sublessee
or occupant shall not constitute a waiver or release of Tenant, and any
immediate or remote successors in interest to Tenant from any of its liabilities
or obligations under this Lease.
(vi) Notwithstanding any other provision of this Paragraph of the
Lease to the contrary, but provided Tenant is not then in default of any
provision of this Lease (regardless of whether any applicable notice has been
given or period to cure expired), Tenant shall have the right to assign this
Lease or sublet the Demised Premises in whole or in part to any Subsidiary or
Affiliate or successor of Tenant, or to any successor partnership, limited
liability company or corporation to Tenant upon giving Landlord not less than
ten (10) business days prior written notice of such assignment or subletting.
Such an assignment or subletting shall not trigger any Landlord right to
terminate the Lease or subsequently require Landlord's consent to any assignee
or sublessee. A "Subsidiary" of Tenant shall mean any corporation or other
entity not less than fifty percent (50%) of whose outstanding voting stock or a
controlling interest in which shall, at the time, be owned, directly or
indirectly, by Tenant. An "Affiliate" of Tenant shall mean any corporation or
other entity which, directly or indirectly, controls or is controlled by or is
under common control with Tenant. For purpose of the definition of "Affiliate,"
the word "control" (including "controlled by" and "under common control with"),
as used with respect to any corporation, partnership, limited liability company
or association, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policy of a particular
corporation, partnership, limited liability company or association, whether
through the ownership of voting securities or by contract or otherwise. A
"successor partnership, limited liability company or corporation" shall mean any
partnership, limited liability company or corporation (i) into which Tenant is
merged or with which Tenant is consolidated, (ii) to which all or substantially
all of Tenant's business assets or stock shares are transferred, (iii) which has
financial strength commensurate with the obligations of this Lease, and which
(iv) is duly qualified to do business in the District of Columbia. Tenant shall
promptly furnish to Landlord such information as Landlord may reasonably request
in order to make its determination regarding the financial strength of such
partnership, limited liability company or corporation.
(vii) Notwithstanding any other provision of this Paragraph 10 of the
Lease to the contrary, but provided Tenant is not then in default of any
provision of this Lease (regardless of whether any applicable notice has been
given or cure period expired), the following actions shall not constitute an
assignment of this Lease and shall therefore not trigger any right of Landlord
to terminate the Lease pursuant to Paragraph 10 or require Landlord's consent:
(A) the transfer or sale of Tenant's stock to employees of Tenant;
The Corporate Advisory Board Company Lease
June 23, 1998 Final
16
<PAGE>
(B) the sale of any or all of the stock of Tenant to any public company;
(C) the sale of Tenant's stock in connection with any public offering by
Tenant; or
(D) the sale or transfer of stock of Tenant which does not affect control
of the Tenant.
Tenant shall give Landlord notice of any proposed public offering of Tenant's
stock or the sale of substantially all of the stock of Tenant to its employees
or the sale of any or all of the stock of Tenant to any public company.
(B.) Proposed Assignments.
--------------------
Except as noted in Subparagraph (A.)(vi) and (vii) of this paragraph, in
the event Tenant desires to assign or transfer this Lease then the following
additional provisions shall apply.
(i) In the event Tenant desires to assign or transfer this Lease, then
at least thirty (30) days, but not more than ninety (90) days prior to the date
that Tenant desires the assignment to become effective (the "Assignment Date"),
Tenant shall give Landlord a written notice (the "Assignment Notice") which
shall set forth the name, address, proposed use, financial information,
including bank references and business of the proposed assignee, the Assignment
Date and the consideration and all other material terms and conditions of the
proposed assignment, all in such detail as Landlord shall reasonably require.
(ii) If Landlord requests additional detail, the Assignment Notice
shall not be deemed to have been received until Landlord receives such
additional detail. Landlord shall have the option, exercisable by giving notice
to Tenant at any time within thirty (30) days after Landlord's receipt of the
Assignment Notice, to terminate this Lease as of the date specified in the
Assignment Notice as the Assignment Date. If Landlord exercises such option,
this Lease, and the term and estate hereby granted, shall terminate as of the
Assignment Date. No failure of Landlord to exercise such option to terminate
this Lease shall be deemed to be Landlord's consent to the proposed assignment.
(iii) If Tenant is a partnership, a limited liability partnership, or
a limited liability company, any dissolution of Tenant or withdrawal or change,
whether voluntary, involuntary or by operation of law, of any general or limited
partner or partners, or alternatively, member or members, of Tenant shall be
deemed a voluntary assignment of this Lease and thus shall be subject to the
provisions of this Paragraph. If Tenant is a corporation, any dissolution,
merger, consolidation or other reorganization of Tenant, or the sale or transfer
of any stock or any interest in the capital stock of Tenant, voluntarily,
involuntarily or by operation of law, shall be deemed a voluntary assignment of
this Lease and subject to the provisions of this Paragraph. In the event of any
conflict between the provisions of this Paragraph 10 (B.) (iii) and either
Paragraph 10 A.(vi) or Paragraph 10 (A)(vii), the latter shall govern.
(iv) In the event that the proposed assignee has a credit rating by
Moody's or Standard and Poor's of AA or better, then provided that Landlord
consents to such assignment, Tenant shall be relieved of any further obligations
hereunder as of the effective date of the assignment, except that Tenant's
Security Deposit shall not be returned and shall be available to Landlord in
accordance with the provisions of this Lease unless the assignee has provided to
Landlord a replacement Security Deposit in form and substance satisfactory to
Landlord.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
17
<PAGE>
(C.) Proposed Sublettings.
--------------------
Except as noted in Subparagraph (A.)(vi) of this Paragraph, the following
additional provisions shall apply in the event Tenant desires to sublet the
Demised Premises or permit occupancy thereof by others, in whole or in part.
(i) Where Tenant desires to sublet the Demised Premises or any part
thereof, or permit the occupancy thereof, then at least thirty (30) days, but
not more than ninety (90) days, prior to the date when Tenant desires the
subletting to be effective (the "Subletting Date"), Tenant shall give Landlord a
written notice (the "Subletting Notice") which shall set forth the name, address
and business of the proposed sublessee, a detailed description of the space
proposed to be sublet, which must be one or more commercially leasable self-
contained unit(s) which meet all requirements of the local building, fire and
safety codes (the "Sublet Space"), any rights of the proposed subtenant to use
Tenant's improvements and the like; the Subletting Date and the fixed rent and
other consideration and all other material terms and conditions of the proposed
subletting, all in such detail as Landlord shall reasonably require and which
Subletting Notice shall be accompanied by financial information from the
proposed subtenant for the immediately preceding three (3) calendar years. If
Landlord requests additional detail, the Subletting Notice shall not be deemed
to have been received until Landlord receives such additional detail.
(ii) Landlord shall have the option, exercisable by giving notice to
Tenant at any time within thirty (30) days after Landlord's receipt of the
Subletting Notice, to sublease from Tenant all or such part of the Sublet Space
as may be specified in the notice exercising the option (the "Recapture Space")
upon the terms and conditions set forth in the Subletting Notice, except that
the rental rate shall be the lower of a rental rate per square foot derived from
the per square foot Basic Annual Rent (a) specified in the Paragraph of this
Lease entitled "RENT/BASIC ANNUAL RENT" as adjusted pursuant to this Lease and
----------------------
that part of the Adjustment Rent described in the Paragraph of this Lease
entitled "OPERATING EXPENSE INCREASES AND REAL ESTATE TAX ADJUSTMENTS" payable
-----------------------------------------------------------
under this Lease for the Recapture Space, or (b) a rental rate derived from the
per square foot Basic Annual Rent and other consideration set forth in the
Subletting Notice which is applicable to the Recapture Space and except that
Landlord shall not have the right to sublet the first 10,000 square feet of the
Demised Premises which Tenant desires to sublease. As to such first 10,000
square feet of the Demised Premises which Tenant desires to sublease, no such
sublease shall be permitted unless and until the proposed subtenant otherwise
meets the requirements of this Paragraph 10.
(iii) If Landlord exercises its option to sublet the Recapture Space,
Tenant shall sublet the Recapture Space to Landlord upon the aforesaid terms and
conditions; provided, however, that (a) Landlord shall at all times under such
sublease have the right and option further to sublet the Recapture Space without
obtaining Tenant's consent, (b) the provisions of the Paragraph of this Lease
entitled "USE" and of this Paragraph shall not be applicable thereto as regards
---
Landlord as sublessee, (c) Landlord and its under subtenants shall have the
right to the use in common with Tenant all lavatories, corridors and lobbies (if
any) which are within the Demised Premises and the use of which is reasonably
required for the use and enjoyment of the Recapture Space, and (d) Landlord's
liability under such sublease shall not, unless expressly assumed or taken
subject to, be deemed assumed or taken subject to by any successor to Landlord's
interest under this Lease (including the holder of any underlying mortgage). No
failure of Landlord to exercise such option with respect to all of the Sublet
Space shall be deemed to be Landlord's consent to the subletting of all of the
Sublet Space or such portion thereof which does not constitute Recapture Space.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
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<PAGE>
(D.) General Conditions.
------------------
(i) For any period during which Tenant is in default hereunder, Tenant
hereby assigns to Landlord any monies otherwise due to Tenant from any assignee,
transferee, sublessee or occupant of Tenant and hereby authorizes each such
assignee, transferee, sublessee or occupant to make such payments directly to
Landlord to be applied toward the payment of rent by Tenant under this Lease.
(ii) If the rent paid to Tenant on any subletting, assignment or
occupancy exceeds the rent payable by Tenant to Landlord hereunder (and if the
area of the Demised Premises subleased does not constitute the entire Demised
Premises, the existence of such excess shall be determined on a pro rata basis),
fifty percent (50%) of all such excess shall be paid to Landlord as Additional
Rent hereunder (after reimbursement to Tenant of reasonable costs incurred by
Tenant in connection with such subleasing or assignment).
(iii) Tenant may not mortgage or encumber this Lease, without the
prior written consent of Landlord, which consent may be withheld for any reason.
(iv) Notwithstanding any other provision of this Lease to the
contrary, Tenant shall have no right to transfer, assign, sublet, enter into
license or concession agreements, or mortgage or hypothecate this Lease or
Tenant's interest in the Demised Premises or any part thereof to a foreign
government or to any individual or entity whereby enforcement of the obligations
of the Tenant under this Lease might be limited by sovereign immunity. Any such
attempted transfer, assignment, subletting, license or concession agreement,
mortgage or hypothecation shall be void and confer no rights on such foreign
government or individual or entity.
(v) Tenant agrees to pay to Landlord as Additional Rent hereunder the
costs (including reasonable attorneys' fees) incurred by Landlord in connection
with any request by Tenant to obtain Landlord's consent to any assignment,
transfer, mortgage, encumbrance, subletting, or occupancy by Tenant, such
payment by Tenant not to exceed $1,500.00. Any sublease, occupancy agreement,
assignment or other transfer shall, at Landlord's option, be effected on forms
reasonably approved by Landlord.
11. ALTERATIONS
-----------
(A.) No Alterations without Landlord's Consent. Without the prior written
-----------------------------------------
consent of Landlord in each instance, which consent shall not be unreasonably
withheld, conditioned or delayed, Tenant will not make, from and after the Lease
Commencement Date or the Mandatory Lease Expansion Commencement Date, as
applicable, any removals, demolition, alterations, improvements, installations,
changes, replacements, additions, or improvements (structural or otherwise,
including without limitation wall paper and coverings, floor tile, ceiling light
fixtures, window blinds and wall to wall carpeting) in or to the Demised
Premises or any part thereof, including work to be undertaken by Tenant related
to its use and occupancy of the Demised Premises (collectively "Alterations"),
including any Alterations relating to any subletting of any portion of the
Demised Premises. Landlord's consent to any requested Alterations may not be
unreasonably withheld, delayed or conditioned, provided that Tenant has
delivered to Landlord the submissions provided for in Subparagraph (B.) below of
this Paragraph. Notwithstanding the foregoing, Landlord may withhold its
consent for any reason with regard to the requested Alterations where Landlord
determines in good faith that the Alterations will likely (i) adversely affect
the structure or safety of the Building or the mechanical, plumbing, electrical
or HVAC systems of the
The Corporate Advisory Board Company Lease
June 23, 1998 Final
19
<PAGE>
Building, (ii) are or become visible from the exterior of the Building or any of
the common areas of the Building, (iii) interfere with the operation of the
Building or the provision of services or utilities to other tenants of the
Building, or (iv) could cause Landlord to have to undertake capital improvements
or impose upon Landlord costs which could not be included in Operating Expenses
of the Building. Landlord shall be entitled to at least ten (10) business days
to review Tenant's submissions, but shall timely apprise Tenant of any omissions
or need for additional information as and when discovered by Landlord.
Landlord's consent to a subletting pursuant to the Paragraph of this Lease
entitled "ASSIGNMENT AND SUBLETTING" shall not mean Landlord's consent or
-------------------------
approval to any related Alterations.
(B.) Tenant Submissions. At the time that Tenant makes its request to
------------------
Landlord, Tenant, at its sole cost and expense, shall provide Landlord with a
copy of the original or revised full-floor mechanical and electrical plans for
the floor or floors on which the Alterations are to be made, revised by the
Tenant's architect and engineers to show Tenant's proposed Alterations, and a
complete set of any and all architectural and engineering plans for the
Alterations (including, without limitation, structural engineering plans) for
Landlord's review and comment, such review and comment to be completed by
Landlord not later than ten (10) business days after delivery of a complete set
of any and all architectural and engineering plans for the Alterations and such
review and comment to be done using Landlord's reasonable discretion. Tenant
shall also deliver to Landlord a fee not to exceed Five Hundred Dollars
($500.00) for Landlord's out-of-pocket expenses incurred in connection with a
review of the plans for Tenant's proposed Alterations, provided, however, that
if Tenant has used Landlord's mechanical, electrical and plumbing engineer for
the Building (the "MEP Engineer") to design the plans for Alterations, then such
Five Hundred Dollar ($500.00) processing charge shall be waived by Landlord, and
provided further that Tenant shall use Landlord's designated structural engineer
for the Building for Tenant's Alterations provided such designated structural
engineer is available to Tenant at a cost not to exceed market rates for such
structural engineering services. Notwithstanding the foregoing, architectural
and engineering plans will not be required for Alterations which do not require
Landlord's prior written consent.
(C.) Landlord's Oversight and Review of Alterations. Landlord shall be
----------------------------------------------
entitled to review the construction, installation and fabrication of Alterations
from time to time as Alterations are being undertaken, but shall not exercise
any direct responsibility over any contractor of Tenant. Landlord agrees to
promptly bring to Tenant's attention any violation or irregularity observed by
Landlord during the construction, installation or fabrication of any elements of
Alterations.
(D.) Cost/Approval of Contractors. All Alterations made or to be made by
----------------------------
or on behalf of Tenant shall be undertaken (i) at Tenant's sole expense, (ii) at
such times, in such manner, and pursuant to such rules and regulations as
Landlord may designate, (iii) in a good, workmanlike, first class and prompt
manner, (iv) using new materials only, (v) in accordance with all applicable
legal requirements and the requirements of any insurance company insuring the
Building, as supplied by Landlord, (vi) in accordance with Landlord's
construction rules, if any, as supplied by Landlord, (vii) in satisfaction of
all applicable insurance requirements, at law and under this Lease and (viii)
only in accordance with all applicable governmental codes and regulatory
requirements. Tenant shall be solely responsible for and shall obtain any
necessary permits from appropriate governmental authorities prior to commencing
work, and shall furnish copies of the permits to Landlord prior to commencement
of any Alterations. Tenant shall be solely responsible for and shall obtain all
certificates of occupancy required by applicable regulations of the District of
Columbia in order to permit Tenant to occupy and use the altered Demised
Premises. Tenant shall be solely responsible for all penalties and claims
arising from civil infractions noted by the District of Columbia related to
performance of Alterations or its use and occupancy of the
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June 23, 1998 Final
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<PAGE>
Demised Premises. To the extent Landlord incurs costs arising from Tenant's
activities related to construction, installation and/or fabrication of
Alterations arising from damage to the Building or to other areas of the
Building occupied by other tenants, or is required to provide additional
services, such as but not limited to extra security measures, additional
disposal or waste collection services and char and cleaning services, arising
from the ongoing constructions, installations and/or fabrications of
Alterations, Tenant shall reimburse Landlord for such costs (without mark up to
Landlord) within thirty (30) days of receipt by Tenant of a request from
Landlord for reimbursement. Such costs incurred by Landlord shall be deemed
Additional Rent.
(E.) Approval of Contractors. Any and all Alterations shall be made
-----------------------
only by such contractors, mechanics or suppliers as are approved in writing in
advance by Landlord. Approval of contractors, suppliers, or mechanics by
Landlord, which approval may not be unreasonably withheld, conditioned or
delayed, shall be based upon the contractors, supplier or mechanics being
properly licensed, their financial posture, experience and past job performance.
Any contractor employed shall be solely the contractor of Tenant and shall have
no privity or relationship with Landlord. Tenant shall indemnify Landlord with
regard to all activities of any contractor, mechanic or supplier employed by
Tenant or through any such party employed by Tenant.
(F.) Alterations Without Landlord's Approval. If any Alterations are made
---------------------------------------
without the prior written consent of Landlord, Landlord may correct or remove
the same, and Tenant shall be liable to Landlord for any and all expenses
incurred by Landlord in the performance of this work, including an overhead and
administrative charge equal to fifteen percent (15%) of such expenses incurred
by Landlord, all of which amounts shall be deemed Additional Rent. Landlord's
prior written consent shall not be required for Alterations consisting of
recarpeting or repainting of the Demised Premises or the hanging of pictures on
the walls of the Demised Premises where the same are not visible from the common
areas of the Building.
(G.) Ownership of Alterations.
------------------------
(i) It is distinctly understood that all Alterations whether made by
or at the expense of Landlord or by Tenant, and including without limitation
wall paper and coverings, floor tile, ceiling light fixtures, window blinds,
wall to wall carpet, and any other fixtures and equipment attached to, or built
into, the Demised Premises as of the Lease Commencement Date or the Mandatory
Expansion Space Lease Commencement Date, as applicable, or during the term of
this Lease (whether made with or without Landlord's consent, and whether or not
made at Landlord's or Tenant's expense) shall be and remain part of the Demised
Premises and be deemed the property of Landlord, to be surrendered with the
Demised Premises at the expiration of this Lease without disturbance,
molestation or injury.
(ii) Notwithstanding the foregoing Landlord at its option and
discretion may require that Tenant, at Tenant's expense, to remove at the
expiration or any termination of this Lease any or all Alterations to the
Demised Premises made by Tenant, other than the initial improvements to the
Demised Premises made by Tenant on or prior to the date of initial occupancy of
each portion of the Demised Premises, which are unusual in nature and of which
Tenant has been notified by Landlord or Landlord's agent that removal will be
required at the time of installation of the same. If Tenant is required to
remove any or all Alterations, then Tenant shall repair any damage to the
Demised Premises or Building caused by such removal. Tenant specifically agrees
to promptly comply with such directions to remove and repair.
(iii) In addition to all legal, equitable and other rights and
remedies available to Landlord, it is agreed that if Tenant does not comply with
its obligations under this Paragraph and
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June 23, 1998 Final
21
<PAGE>
such non-compliance continues for a period of ten (10) days after notice to
Tenant (except in the case of an emergency, for which no notice or cure period
shall be required or permitted), Landlord shall have the right (but not the
obligation) to perform or cause to be performed Tenant's obligations, duties and
covenants, in which event Tenant shall reimburse to Landlord within five (5)
days after demand all costs incurred by Landlord to undertake the removal and
repairs, plus a sum equal to fifteen percent (15%) of such costs representing
overhead and administrative expenses of Landlord in such matters, all of which
amounts shall be deemed Additional Rent.
12. MECHANICS' LIENS AND SIMILAR LIENS
----------------------------------
(A.) Liens Prohibited. Tenant shall not do or suffer anything to be done
----------------
whereby the Land and/or Building may be encumbered by any mechanic's or
materialmen's lien. If any mechanic's lien or similar lien is filed against the
Demised Premises, or the Building, for work, labor, services, or materials, done
for or supplied to or claimed to have been done or supplied to Tenant, including
but not limited to Alterations, that lien shall be discharged or bonded off by
Tenant to Landlord's sole satisfaction, at Tenant's sole cost and expense,
within thirty (30) days after the earlier of (i) the date Tenant is delivered
written demand from Landlord to discharge said lien, or (ii) the date Tenant
becomes aware of the filing of such lien (or notice thereof) with the District
of Columbia under applicable law. If Tenant fails to discharge or
satisfactorily bond off any lien, Landlord may, at its option, discharge the
same and treat the cost thereof as Additional Rent, due and payable upon receipt
by Tenant of a written statement of costs from Landlord. It is hereby expressly
covenanted and agreed that such discharge or satisfactorily bonding off of any
lien by Landlord shall not be deemed to waive or release Tenant from its default
under the Lease for failing to discharge the same.
(B.) No Assumption of Liability. Notice is hereby given that Landlord
--------------------------
shall not be liable for any labor or materials furnished or to be furnished to
Tenant upon credit, and that no mechanic's or materialmen's or other lien for
any such labor or materials shall attach to or affect the reversionary or other
estate or interest of Landlord in and to the Land and Building. In no event
shall Landlord be deemed to be the agent of Tenant for purposes of Title 38-101
of the District of Columbia Code (1981 Edition, as amended) and no contractor of
Tenant shall by virtue of its contract be entitled to assert any mechanic's lien
against the Building or land appurtenant thereto.
(C.) Indemnification. Tenant will indemnify and hold harmless Landlord
---------------
from and against any and all claims, damages and expenses incurred by Landlord,
arising from any liens placed against the Demised Premises or the Building and
the Land as a result of Tenant undertaking Alterations or other work.
13. PERSONAL PROPERTY
-----------------
(A.) No Liability of Landlord. Tenant's personal property, including but
------------------------
not limited to its furniture, fixtures and equipment, and the property of any
officer, employee and invitee, and of any agent, contractor, subtenant or
occupant brought into and located within the Building or within the Demised
Premises shall remain therein as the sole risk of such party. Landlord shall
have no liability for any accident to or damage to such personal property and
obligation to protect, repair or restore the same. Landlord shall not, in any
event, be liable for damages to any property of Tenant or any other party,
resulting from water, steam or other causes. Tenant hereby expressly releases
Landlord from any liability for damages.
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June 23, 1998 Final
22
<PAGE>
(B.) Removal Upon Expiration or Earlier Termination of Lease.
-------------------------------------------------------
(i) Tenant shall remove all of its personal property not affixed or
attached to the Demised Premises from the Building and the Land at the
expiration or earlier termination of the Lease. As provided in Paragraph 11 of
this Lease entitled "ALTERATIONS", any property identified as an Alteration but
-----------
which may be removed without causing material damage to the Demised Premises and
which was installed by and at the sole expense of Tenant ("Tenant's Property")
shall be deemed to be the personal property of Tenant and, unless Tenant is in
default under this Lease, may be removed from the Demised Premises by Tenant
upon notice to Landlord prior to the expiration of the term of this Lease or
before any earlier termination thereof. Tenant shall be obligated however to
repair any damage to and restore the Demised Premises and/or the Building
occasioned by such removal to a condition no less than Building standard
condition specified in Exhibit D attached hereto and made a part thereof, or
---------
shall reimburse Landlord immediately upon demand for the cost of repairing such
damage if Tenant fails to timely repair, which costs incurred by Landlord shall
become Additional Rent under this Lease. Tenant shall schedule its move-out of
the Demised Premises with Landlord in advance and Landlord will make the freight
elevator available to Tenant for Tenant's move-out in the exercise of Landlord's
reasonable discretion.
(ii) In the event Tenant fails to remove any of its personal property,
including Tenant's Property, which Tenant was obligated to remove, such property
shall be deemed abandoned by Tenant and Landlord may remove that property from
the Demised Premises at Tenant's expense. Tenant hereby agrees to pay to
Landlord, as Additional Rent, the cost of this removal together with any and all
damages which Landlord may suffer and sustain by reason of the failure of Tenant
to remove the same. This amount of Additional Rent shall be due and payable
upon receipt by Tenant of a written statement of costs and damages from
Landlord.
(iii) If Tenant is in default under this Lease, then notwithstanding
the provisions of Subparagraph (B.)(i.) of this Paragraph, it shall not remove
any of its personal property, including Tenant's Property, without Landlord's
prior written consent.
14. DELIVERIES AND MOVING OF PROPERTY BELONGING TO TENANT.
-----------------------------------------------------
(A.) Delivery and Moving to, from or within Building. No furniture,
-----------------------------------------------
equipment or other bulky matter of any description (including but not limited to
materials related to construction, installation and/or fabrication of
Alterations) shall be received into or removed from the Building, moved through
the common area of the Building or carried in the elevators of the Building,
except in the manner and during the times reasonably approved by Landlord and in
accordance with any policies and procedures of Landlord in effect from time to
time. Tenant shall obtain Landlord's prior determination as to the manner and
the time that delivery, and/or movement into, out of or through the Building is
permitted prior to moving said property into, out of or through the Building.
(B.) Supervision of Deliveries and Moving. All moving of furniture,
------------------------------------
equipment and such other items noted in Subparagraph (A.) of this Paragraph
within the public areas shall be coordinated with Landlord, who shall, however,
not be responsible for any damage resulting from, to or charges for moving the
same.
(C.) Elevator Load Capacities. Landlord shall have the sole right to
------------------------
determine the load capacities of the elevators of the Building and to determine
the furniture, equipment and other such
The Corporate Advisory Board Company Lease
June 23, 1998 Final
23
<PAGE>
items noted in Subparagraphs (A.) of this Paragraph if can be safely transported
in the elevators.
(D.) Clearing Property from Public Spaces. Tenant agrees promptly to
------------------------------------
remove from the sidewalks adjacent to the Building any of the property of Tenant
or any other person or entity claiming rights under this Lease by and through
Tenant, including but not limited to furniture, equipment or other materials
delivered or deposited there.
(E.) Responsibility for Damage. Subject to the provisions of Paragraph
-------------------------
22(C)(iii), all damage done to the Demised Premises and to the Building by the
taking in or removal of any property of Tenant referred to in this Paragraph
(including but not limited to materials related to construction, installations
or fabrication of Alterations), or due to its being in the Demised Premises,
shall be repaired at the expense of Tenant. Tenant hereby agrees to pay
Landlord, as Additional Rent, the cost of any repairs of such damage not
undertaken by Tenant. The amount of Additional Rent shall be due and payable by
Tenant upon receipt by Tenant of a written statement of costs from Landlord.
15. TENANT'S EQUIPMENT
------------------
(A.) No Equipment without Consent. Without first obtaining Landlord's
----------------------------
prior written consent, which consent shall not be unreasonably withheld or
delayed, but which may be reasonably conditioned, Tenant shall not install or
operate in the Demised Premises any electrically operated equipment or other
machinery, other than typewriters, word processing machines, desktop personal
computers, adding machines, postage meters, radios, televisions, tape recorders,
dictaphones, telecopiers, bookkeeping machines, copying machines, clocks, and
other business machines and equipment normally employed for general office use
in first-class office buildings and which do not require high electricity
consumption for operation or do not require dedicated circuitry. Furthermore
Tenant shall not install any equipment of any kind or nature whatsoever that
will or may necessitate any changes, replacements or additions to, the water
system, plumbing system, heating system, or air conditioning system of the
Demised Premises or of the Building without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed, but which
may be reasonably conditioned.
Landlord may condition its consent to installation and operation of
equipment upon the agreement of Tenant to pay to Landlord, as Additional Rent,
compensation for additional consumption of electricity and/or other utility
services, including but not limited to, water for cooling purposes. Such
consumption charges shall be in addition to Tenant's obligations, pursuant to
the Paragraph of this Lease entitled "OPERATING EXPENSE INCREASES AND REAL
------------------------------------
ESTATE TAX ADJUSTMENTS" to pay its proportionate share of increases in Operating
- ----------------------
Expenses.
If Tenant's equipment causes Tenant's consumption of electricity for lights
and power to exceed an average of five (5) watts per rentable square foot or
causes other utility service consumption above Building standard levels, or if
such equipment is to be consistently operated beyond the normal Building hours
of 8:00 a.m. to 7:00 p.m., Monday through Friday, and 9:00 a.m. to 1:00 p.m. on
Saturday, exclusive of designated holidays, ("Building Standard Hours"),
Landlord may install at its option and as applicable (i) a separate electric
meter for the Demised Premises at Tenant's sole cost and expense, (ii) a
separate electric meter for the specific equipment that is causing Tenant's
excessive consumption of electricity, and/or (iii) other separate monitoring
devices to measure utility consumption, all at Tenant's sole cost and expense.
In the event Landlord installs any separate meter for the Demised Premises,
Tenant shall then pay the cost of consumption as recorded by such meter directly
to the utility company to the extent such
The Corporate Advisory Board Company Lease
June 23, 1998 Final
24
<PAGE>
consumption exceeds the level specified above in this paragraph. In the event
that separate billing by the utility service provider is not possible, Landlord
will separately monitor consumption and bill Tenant periodically based upon such
excess consumption. Any claims for reimbursement and any billing by Landlord to
Tenant under this Subparagraph of the Lease shall be deemed Additional Rent due
and owing by Tenant.
Furthermore, if any or all of Tenant's equipment exceeds the level
specified above and requires electricity consumption in excess of the capacity
of the electrical system installed by Landlord in the Demised Premises and/or
dedicated circuitry, and/or consumption of other utility services in excess of
the capacity of the Building's systems at the Demised Premises, and/or types of
utility services that are not available in the Building, then if approved by
Landlord, any installation of additional transformers, pumps, distribution
panels, wiring, plumbing or other modifications to the Building's systems or
structure related thereto shall be at Tenant's sole expense, and any expense
incurred by Landlord related thereto shall be treated as Additional Rent due and
payable to Tenant. Necessary modifications to the Building's systems, utilities
and structure to address these needs of Tenant's equipment approved by Landlord
shall only be undertaken by Landlord, unless Landlord otherwise permits Tenant
to undertake such work.
(B.) Maintenance and Repair of Equipment. Maintenance and repair of
-----------------------------------
Tenant's equipment, including but not limited to telecommunications equipment,
office equipment, kitchen fixtures, separate air conditioning equipment, or any
other type of equipment, whether installed by Tenant or by Landlord on behalf of
Tenant, specially related to Tenant's use and occupancy of the Demised Premises,
shall be the sole responsibility of Tenant, and Landlord shall have no
obligation in connection therewith. Tenant shall maintain such equipment in
good working order and condition, subject to all other applicable provisions of
this Lease.
(C.) No Modifications of Building Systems. Tenant shall not install any
------------------------------------
equipment of any kind or nature whatsoever which will or may necessitate any
changes, replacements or additions to, or in the use of, the water system,
heating system, plumbing system, air-conditioning system, or electrical system
of the Demised Premises or the Building without first obtaining the prior
written consent of Landlord, not to be unreasonably withheld or delayed, but
which may be reasonably conditioned.
(D.) Noise or Vibration. Business machines and mechanical equipment
------------------
belonging to Tenant which cause noise or vibration that may be transmitted to
the structure of the Building or to any space therein to such a degree as to be
objectionable to Landlord or to any tenant in the Building shall be installed by
Tenant, at Tenant's expense, with vibration eliminators or other devices
sufficient to eliminate such noise and vibration. Tenant shall maintain such
devices at its sole expense. Any expense in this regard incurred by Landlord
shall be deemed Additional Rent.
(E.) Location of Heavy Equipment. Landlord shall have the right to
---------------------------
prescribe the weight and position of all heavy equipment and fixtures,
including, but not limited to, data processing equipment, record and file
systems, and safes which Tenant intends to install or locate within the Demised
Premises. Tenant will not install in the Demised Premises any fixtures,
equipment or machinery that will place a load upon any floor exceeding the floor
load per square foot area which such floor was designed to carry. Tenant shall
obtain Landlord's prior review and approval before installing or locating heavy
equipment and fixtures in the Demised Premises. If installation or location of
such equipment or fixtures, in Landlord's opinion, requires alterations to the
Demised Premises or the Building, Tenant agrees to reimburse Landlord, as
Additional Rent, for any and all costs incurred by Landlord to make such
required modifications or reinforcements, and such modifications or
reinforcements to the Building and Tenant shall make such required modifications
or reinforcements to the interior of the Demised Premises, all of which
The Corporate Advisory Board Company Lease
June 23, 1998 Final
25
<PAGE>
modifications or reinforcements shall be completed prior to Tenant installing or
locating such equipment or fixtures in the Demised Premises. Tenant shall
reimburse Landlord within thirty (30) days of receipt of any statement setting
forth those costs.
16. SIGNS AND ADVERTISEMENTS
------------------------
(A.) No Signs without Consent. Tenant may not inscribe, paint or affix
------------------------
sign, advertisement or notice on any part of the outside of the Demised Premises
or Building or any sign, notice or advertisement inside the Demised Premises
which is visible from the common areas of the Building or the exterior of the
Building, except on the directories and doors of offices, and then only in such
size, color and style as Landlord shall reasonably approve. Tenant may display
its name on the main entry door(s) of the Demised Premises in Building standard,
color, size and style of lettering, or as Landlord may otherwise approve, at
Tenant's expense.
(B.) No Advertisements Without Consent. Landlord may have the right to
---------------------------------
prohibit any advertisement of Tenant which in Landlord's reasonable opinion
tends to impair the reputation of the Building or its desirability as a Building
for offices or for financial, insurance or other institutions and businesses of
like nature, and upon written notice from Landlord, Tenant shall refrain from
and discontinue such advertisement.
(C.) Building Directory. Tenant shall have a proportionate share of
------------------
listings in the Building's directory at the time of Tenant's occupancy of the
Initial Demised Premises (which share shall increase as the Demised Premises
increases) in the size and style of lettering used by Landlord, at Landlord's
expense. Any changes to such display requested by Tenant shall be done at
Tenant's sole expense.
17. LANDLORD'S ACCESS
-----------------
(A.) Landlord's Right to Access. Upon reasonable prior notice to Tenant,
--------------------------
which may be less than one (1) Business Day, Tenant shall permit Landlord, or
its agents, employees or contractors, as well as Landlord's mortgagees to enter
the Demised Premises at all reasonable times and in a reasonable manner, without
charge to Landlord or diminution of rent, including Basic Monthly Rent and
Adjustment Rent, payable by Tenant, to examine, inspect and protect the
Building, and to make any repairs as in the judgment of Landlord may be deemed
necessary to maintain or protect the Building, or to exhibit the Building to
prospective tenants, purchasers and lenders. In the event of any emergency, no
prior notice from Landlord shall be required before Landlord or its agents
enters the Demised Premises. Landlord shall use reasonable efforts to minimize
interference with Tenant's business when making repairs, but Landlord shall not
be required to perform the repairs at a time other than during normal working
hours. At Tenant's request, a representative of Tenant may accompany Landlord,
provided that such request does not delay Landlord's or Landlord's agents entry
in the event of an emergency.
(B.) Emergency Access. In the event of an emergency, Landlord may enter
----------------
the Demised Premises without notice and make whatever repairs are necessary to
protect the Building and the base building systems.
(C.) Additional Permitted Access. Upon reasonable prior notice, except in
---------------------------
the case of an emergency, Tenant shall permit Landlord, or its agents, employees
or contractors, upon prior notice to Tenant, to enter the Demised Premises at
reasonable times and in a reasonable manner, without charge to Landlord or
diminution of Basic Monthly Rent and Adjustment Rent payable by Tenant, (i) to
make installations related to the construction of pre-occupancy tenant work
being
The Corporate Advisory Board Company Lease
June 23, 1998 Final
26
<PAGE>
performed by Landlord for other tenants of the Building, (ii) to make repairs,
alterations and improvements arising due to repairs, alterations and
improvements to any areas adjoining the Demised Premises, (iii) to erect, use
and maintain pipes and conduits in and through the Demised Premises, (iv) to
make alterations, installations, improvements and repairs to the Building, or
(v) to make installations, improvements, and repairs to the utility services of
the Building. Landlord shall use reasonable efforts to minimize any interference
with Tenant's business operations, but except in unusual circumstances, Landlord
shall not be required to perform such work at a time other than during Building
Standard Hours.
18. SERVICES
--------
(A.) Building Services to Be Provided. Landlord shall furnish to Tenant
--------------------------------
reasonably adequate electric current (not to exceed five (5) watts per square
foot of the Demised Premises for lighting and power), water, lavatory supplies,
Building standard ballasts and fluorescent tube replacements, automatically
operated elevator service and normal and usual cleaning and char service after 7
p.m. and consistent with the specifications set forth in Exhibit F (Mondays to
---------
Fridays, both inclusive, except on holidays) , all consistent with the standards
of a first-class office building located in downtown Washington, D.C., without
additional cost to Tenant, excepting only Tenant's obligation to pay Basic
Monthly Rent and Additional Rent. Landlord further agrees to furnish heat and
air conditioning (based upon human occupancy of not more than one (1) person per
each 120 square feet of rentable area) during the appropriate seasons of the
year. It is also agreed that if Tenant desires air-conditioning, heat, or other
Building standard services beyond the Building Standard Hours or on recognized
holidays and provided arrangements are made therefor with Landlord's management
agent (with such reasonable advance written notice of such desire as Landlord or
its management agent may require from time to time), Landlord will make
available such air-conditioning, heat, or other Building services outside of the
Building Standard Hours and on recognized holidays and Tenant agrees to pay for
the same, as Additional Rent, with the next monthly installment of Basic Monthly
Rent or at such other time(s) as Landlord may require, in accordance with the
then current schedule of costs and assessments therefor charged by Landlord. As
of the date of this Lease, the cost charged by Landlord for such after-hours
Building services is $26.00 per hour per (approximately) one half floor. This
cost is subject to change from time to time, if and to the extent Landlord's
cost therefor increases as determined by Landlord in Landlord's sole, but
reasonable, discretion. Landlord shall not be liable for failure to furnish,
or for suspension or delays in furnishing, any services required of Landlord
under this Lease, provided however, that in the event there is a failure of
Building services for a period of more than ten (10) consecutive business days,
and (1) such failure of Building services is within Landlord's reasonable
control to remedy, (2) such failure renders all or at least twenty percent (20%)
of the square footage of the Demised Premises untenantable for such ten (10)
consecutive business day period, (3) Tenant in fact does not use that portion of
the Demised Premises rendered untenantable, (4) Tenant is not then in default in
its obligations under the Lease, (5) Tenant's inaction or actions were not the
cause of the failure of Building services, and (6) Tenant has given Landlord
written notice of the failure of Building services and Landlord has not remedied
such failure within the aforesaid ten (10) consecutive business days period or
such longer period as Landlord determines in good faith is reasonably necessary
to remedy such failure of Building services, provided that Landlord is
diligently pursuing such remedy, then that portion of Basic Monthly Rent which
corresponds to the portion of the Demised Premises rendered untenantable shall
be abated until such time as the failure of services is corrected. Landlord
shall use reasonable, good faith efforts to restore such Building services.
(B.) Conservation Controls. Tenant agrees on behalf of itself and its
---------------------
subtenants to comply with all mandatory and voluntary conservation controls and
requirements applicable to
The Corporate Advisory Board Company Lease
June 23, 1998 Final
27
<PAGE>
office buildings that are imposed or instituted by the Federal or District of
Columbia governments, including without limitation, controls on the permitted
range of temperature settings in office buildings and requirements necessitating
curtailment of the volume of energy consumption of the hours of operation of the
Building. Any terms or conditions of this Lease that conflict or interfere with
compliance with such controls or requirements shall be suspended for the
duration of such controls or requirements. It is further agreed that compliance
with such controls or requirements shall not be considered an eviction, actual
or constructive, of Tenant from the Demised Premises or a violation of
Landlord's covenants set forth in the Paragraph of this Lease entitled
"COVENANTS OF LANDLORD," and shall not entitle Tenant to terminate this Lease or
---------------------
to an abatement of any rent payable hereunder.
(C) Additional Landlord Services. Landlord shall manage and operate the
-----------------------------
Building as a first-class office building in the Washington, D.C. area.
Landlord, at its cost and expense, shall keep and maintain the Building, and its
fixtures, appurtenances, systems and facilities (including the garage) and the
sidewalks, plaza and landscaped areas located thereon in good order, condition
and repair. Landlord, at its cost and expense, shall: (i) keep the sidewalks,
plazas and landscaped areas adjoining the Building free of accumulations of
snow, ice, dirt, refuse, rubbish and unlawful obstructions; (ii) keep the
Building atrium, lobbies and the common areas of the Building clean; (iii) care
for and maintain the shrubbery, planting and landscaping, if any, on the plaza
or plazas adjacent to the Building or other public areas of the Building; (iv)
provide a Building security system as reasonably determined by Landlord to be
comparable to that of other comparable office buildings in the area; (v) provide
Tenant, its employees and invitees prompt access into the Building, the Demised
Premises, and the Building garage twenty-four (24) hours each day, seven (7)
days per week.
19. RULES AND REGULATIONS
---------------------
Tenant, its agents, employees and guests shall abide by and observe the
rules and regulations attached hereto as Exhibit C and such other reasonable
---------
rules and regulations as may be promulgated from time to time by Landlord which
in Landlord's judgment are needed for the general well being, safety, care,
operation, maintenance and cleanliness of the Demised Premises and the Building,
provided a copy thereof is sent to Tenant. Nothing contained in this Lease
shall be construed to impose upon Landlord any duty or obligation to enforce
such rules and regulations, or the terms, conditions or covenants contained in
any other lease as against any other tenant, and Landlord shall not be liable to
Tenant for violation of the same by any other tenant, any other tenant's
employees, agents, business invitees, licensees, customers, clients, family
members or guests. Landlord shall not discriminate against Tenant in the
enforcement of any rule or regulation however.
20. DAMAGE BY TENANT
----------------
Subject to the provisions of Paragraph 22 (C)(iii) , Tenant shall be
responsible for all damage or injury to the Demised Premises or the Building
caused by Tenant, or its agents, employees, contractors and invitees doing work
in or about the Building or moving property into, in or out of, the said
Building and all breakage done by Tenant or its agents, employees, contractors
and invitees. Landlord may make such repairs or undertake appropriate
corrective action on Tenant's behalf, or at Landlord's sole election direct
Tenant to promptly repair or correct the damage under Landlord's supervision.
Any charge or cost incurred by Landlord shall be the sole responsibility of
Tenant due and payable by Tenant as Additional Rent, as and when billed to
Tenant by Landlord. This provision shall be construed as an additional remedy
granted
The Corporate Advisory Board Company Lease
June 23, 1998 Final
28
<PAGE>
to Landlord and not in limitation of any other rights and remedies which
Landlord has or may have in said circumstances.
21. LIABILITY
---------
(A.) No Landlord Liability. Landlord assumes no liability or
---------------------
responsibility whatsoever with respect to the conduct and operation of the
business to be conducted in the Demised Premises. Neither Landlord nor its
management agent shall be liable for any accident or injury to any person or
persons or property in or about the Demised Premises which are caused by the
conduct and operation of said business, or by virtue of equipment or property of
Tenant in the Demised Premises and which are not due to Landlord's gross
negligence or willful misconduct or that of Landlord's agents.
(B.) Indemnification of Landlord. Tenant shall defend and hereby does
---------------------------
indemnify and save harmless Landlord and Landlord's officers, directors,
partners, agents and employees (collectively, "Landlord's Indemnitees") from and
against all liability (statutory or otherwise), claims, suits, causes of action,
demands, judgments, costs, interest and expenses (including also reasonable
attorneys' fees and disbursements incurred in the defense thereof) to which any
Landlord's Indemnitees may (except insofar as it arises out of the negligence or
the intentional act or failure to act of such Landlord Indemnitees or their
contractors) be subject or suffer, whether by reason of any claim for, any
injury to, or death of, any person or persons or damage to or loss of property
(including also any loss of use thereof) or otherwise, and arising from or in
connection with the use by Tenant of, or from any work or anything whatsoever
done by Tenant (or any of its officers, directors, agents, contractors,
employees, licensees or invitees) in any part of the Demised Premises or the
Building (other than by Landlord or its agents or contractors) during the term
of this Lease. Tenant's agreement to indemnify and save harmless shall also
apply during the period of time, if any, prior to the Lease Commencement Date
and the Mandatory Expansion Space Lease Commencement Date, as applicable, with
respect to such part of the Demised Premises and/or the Building that Tenant may
have been given access to for the purpose of undertaking Alterations, or
preparing to conduct the Alterations or arising from any condition of the
Demised Premises or the Building due to or resulting from any default by Tenant
in the keeping, observance or performance of any covenant or agreement contained
in this Lease or from any fault or neglect of Tenant or any of its officers,
directors, agents, contractors, employees, licenses or invitees.
(C.) Indemnification of Tenant. Landlord shall defend, and hereby does
--------------------------
indemnify and save harmless Tenant and Tenant's officers, directors, partners,
and employees (collectively, "Tenant Indemnitees") from and against all
liability (statutory or otherwise), claims, suits, causes of action, demands,
judgments, costs, interest and expenses (including also reasonable attorneys'
fees and disbursements incurred in the defense thereof) to which any Tenant
Indemnitees may (except insofar as it arises out of the fault or neglect of such
Tenant Indemnitees or their contractors) be subject or suffer, whether by reason
of any claim for, any injury to, or death of, any person or persons or damage to
or loss of Tenant's Business Property (which shall mean Tenant's personal
property used in the operations of its business, including, but not limited to,
fixtures, furnishings and equipment) and arising from or in connection with the
negligence or the intentional act or omission of Landlord or its agents,
contractors, and employees in or about any part of the Demised Premises or the
Building during the term of this Lease or any renewal or extension thereof.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
29
<PAGE>
22. INSURANCE
---------
(A.) Insurance Rating
----------------
(i) Tenant hereby covenants and agrees that it will not do or permit
anything to be done in or on the Demised Premises, the Building, or the Land, or
bring or keep anything therein that shall in any way increase the rate of fire
or other insurance on said Building, or on the property kept therein, or
conflict with the fire laws or regulations, or with any insurance policy upon
said Building or any part thereof, or with any statutes, rules or regulations
enacted or established by the appropriate governmental authority. If any acts
or omissions of Tenant in violation of this Paragraph should cause any increase
in the premiums for any insurance carried by Landlord above standard rates for
the Building occupied for normal office use, then Landlord, in addition to any
other remedies it may have, shall be entitled to immediate reimbursement from
Tenant, as Additional Rent, of all such excess costs for insurance premiums
occasioned by such acts or omissions of Tenant.
(ii) Nothing contained in this Paragraph, or in any other Paragraph of
this Lease, shall obligate Landlord to enforce the provisions of this Paragraph
for the benefit of any other tenant or occupant of space in the Building. It is
expressly understood and agreed that all such provisions are included in this
Lease solely for Landlord's benefit and for its enforcement at its exclusive
option and discretion. Similarly, Tenant shall have no right to require
Landlord to enforce such or similar provisions in other leases for the benefit
of Tenant, any such enforcement being solely in Landlord's discretion.
(B.) Commercial General Liability Insurance. Tenant shall obtain and
--------------------------------------
maintain in effect at all times during the term of this Lease, a policy of
commercial general liability insurance, against any liability for bodily injury,
death or property damage occurring upon, in or about any part of the Demised
Premises, the Building or the Land, written on an occurrence basis, and
including contractual liability coverage, premises and operations coverage,
broad form property damage coverage and independent contractors coverage, and
containing an endorsement for personal injury. Such policies of insurance shall
afford protection with respect to bodily injury or death of not less than Two
Million Dollars ($2,000,000.00) as concerns one person in any one occurrence,
and Four Million Dollars ($4,000,000.00) as concerns more than one person in any
occurrence, and not less than Two Hundred Fifty Thousand Dollars ($250,000.00)
with respect to damage to property, in all cases with commercially reasonable
deductible amounts permitted. Neither the issuance of any insurance policy
required under this Lease, nor the minimum limits specified herein with respect
to Tenant's insurance coverage, shall be deemed to limit or restrict in any way
Tenant's liability arising under or out of this Lease. Copies of said policies
and renewals, with evidence of premiums paid, will be delivered to Landlord
promptly on its request. The provisions of this Paragraph shall not limit in
any fashion the liability of Tenant under the Paragraph of this Lease entitled
"LIABILITY."
- ----------
(C.) All Risk Coverage Insurance
---------------------------
(i) Landlord shall obtain and maintain All Risk Coverage insurance
covering the Building and the base building operating systems thereof, in an
amount not less than 80% of Landlord's estimate of replacement cost and in an
amount sufficient to replace the Building and building standard improvements in
the Demised Premises as specified in Exhibit D attached hereto and made a part
---------
hereof.
(ii) Tenant shall obtain and maintain throughout the term of this
Lease, including any extension periods All Risk Coverage insurance insuring
against damage to and loss
The Corporate Advisory Board Company Lease
June 23, 1998 Final
30
<PAGE>
of Alterations above building standard alterations, and the fixtures, equipment,
furniture, and personal property in and about the Demised Premises of Tenant,
its officers, employees, contractors, agents and invitees with deductibles in an
amount reasonably acceptable to Landlord.
(iii) Notwithstanding anything to the contrary contained in this
Lease, Landlord and Tenant hereby release each other and waive any claims they
may have against the other for loss or damage to the Building, Demised Premises,
tenant improvements including Alterations, fixtures, equipment and/or any other
personal property arising from a risk insured against under the All Risk
Coverage insurance policies carried or required to be carried by Landlord and
Tenant, as required above, even though such loss or damage was caused by the
negligence of Landlord, Tenant, or their respective agents or employees (or any
combination thereof). Landlord and Tenant agree to obtain and maintain
throughout the term of this Lease endorsements to their respective All Risk
Coverage policies waiving the right of subrogation of their insurance companies
against the other party and its agents and employees.
(D.) Worker's Compensation Insurance. Tenant shall carry and keep in full
-------------------------------
force and effect at all times during the term of this Lease, at its sole cost,
worker's compensation or similar insurance in form and amounts required by law,
with a commercially reasonable deductible amount. Such insurance shall contain
waiver of subrogation provisions in favor of Landlord and its agent, if
available.
(E.) Business Interruption Insurance. Tenant shall obtain and maintain
-------------------------------
throughout the term of this Lease business interruption insurance, with
deductibles in an amount reasonably acceptable to Landlord. Such insurance
shall be in minimum amounts typically carried by prudent tenants engaged in
similar operations to Tenant, but in no event in an amount less than five (5)
times the Basic Annual Rent in effect from time to time.
(F.) Employer's Liability Insurance. Tenant shall obtain and maintain
------------------------------
throughout the term of this Lease employer's liability insurance. Such
insurance shall be in an amount not less than One Million Dollars ($1,000,000)
for each accident, One Million Dollars ($1,000,000) disease policy limit and One
Million Dollars ($1,000,000) disease each employee, with no deductible amount
permitted.
(G.) Tenant's Contractor's Insurance. Tenant shall require any contractor
-------------------------------
of Tenant performing work on the Demised Premises to carry and maintain, at no
expense to Landlord:
(i) commercial general liability insurance, including contractor's
liability coverage, contractual liability coverage, completed operations
coverage, broad form property damage endorsement and contractor's protective
liability coverage, to afford protection with limits, for each occurrence, of
not less than One Million Dollars ($1,000,000.00) with respect to personal
injury, death, property damage with a commercially reasonable deductible amount
permitted; and
(ii) worker's compensation or similar insurance in form and amounts
required by law.
23. REQUIREMENTS FOR TENANT'S INSURANCE POLICIES
--------------------------------------------
(A.) Requirements. The company or companies writing any insurance which
------------
Tenant is required to carry and maintain, or cause to be carried or maintained,
pursuant to this Lease, as
The Corporate Advisory Board Company Lease
June 23, 1998 Final
31
<PAGE>
well as the form of such insurance, shall at all times be subject to Landlord's
reasonable approval and any such company or companies shall be good and
responsible, licensed to do business in the District of Columbia, and have a
rating equal to or exceeding A:XI from Best's Insurance Guide. All commercial
general liability and all risk coverage insurance policies required to be
provided by Tenant and certificates evidencing such insurance shall name
Landlord, its management agent and mortgagee (if any) as additional insureds or
loss payees as applicable. Each policy of insurance shall contain a provision by
which the insurer agrees that such policy may not be canceled, refused for
renewal, reduced in amount of insurance or changed as to coverage (i) if due to
Tenant's action or failure to act, and (ii) without the insurer first giving
Landlord thirty (30) days prior written notice of such action. Tenant agrees to
provide to Landlord prior to taking possession of the Demised Premises the
certificates evidencing such insurance; Landlord may withhold delivery of the
Demised Premises without delaying the Lease Commencement Date or Mandatory
Expansion Space Lease Commencement Date, as applicable, or triggering any
abatement of rent, if Tenant fails to provide Landlord with these certificates.
All deductibility limits applicable to any policy of insurance must be
reasonably acceptable to Landlord.
(B.) Primacy of Insurance. Any insurance carried or to be carried by
--------------------
Tenant hereunder shall be primary over any policy that might be carried by
Landlord. If Tenant shall fail to perform any of its obligations regarding the
acquisition and maintenance of insurance, Landlord may perform the same and the
cost of same shall be deemed Additional Rent, payable upon Landlord's demand.
Tenant may satisfy any insurance obligation hereunder through blanket or
umbrella coverage, provided that in the event Tenant obtains blanket insurance
policies for liability or property damage coverage, then each such policy shall
have an agreed amount endorsement for the Tenant's activities and the Tenant's
property located at the Demised Premises.
24. DAMAGE BY FIRE OR OTHER CASUALTY
--------------------------------
(A.) Fire or Casualty of the Demised Premises. In the event of damage or
----------------------------------------
destruction of the Demised Premises by fire or any other casualty, except as
otherwise expressly provided in this Paragraph, this Lease shall not terminate,
but the Demised Premises shall be promptly and fully repaired and restored by
Landlord at its own cost and expense, subject however, to the following terms
and conditions. Landlord's obligation to repair and restore the Demised
Premises shall be limited and conditioned, at Landlord's option and absolute
discretion, to its receipt and availability of sufficient insurance proceeds to
cover all costs of such repairs and restoration including any related or
attendant work. Any such repairs and restoration to be performed by Landlord
under this Paragraph shall be limited to building standard levels and condition
as specified in Exhibit D attached hereto. Landlord shall have no obligation to
---------
restore or replace Alterations in excess of building standard levels and
conditions specified in Exhibit D, or Tenant's Property, or any of the personal
---------
property of Tenant or others.
(B.) Termination of Lease. Landlord reserves the right to elect not to
--------------------
repair, and instead to terminate this Lease, if: (i) damage to the Demised
Premises (but not including Alterations) is so extensive that, in Landlord's
reasonable judgment, such damage cannot be substantially repaired within one
hundred eighty (180) days from the date of the fire or other casualty, all as
more fully set forth in subparagraph D Mutual Rights to Terminate hereinbelow,
--------------------------
or (ii) if more than one-half (1/2) of the total rentable area of the Building
is rendered untenantable. Within thirty (30) days after the occurrence of any
fire or other casualty damage to the Demised Premises, Landlord shall notify
Tenant as to whether or not such damage can be repaired or restored within the
180 day period above-described or whether Landlord will terminate this Lease. In
the case of damage to the Building, Landlord shall notify Tenant within thirty
(30) days after the occurrence of a fire or other casualty affecting the
Building as to whether more than one-half (1/2) of the total
The Corporate Advisory Board Company Lease
June 23, 1998 Final
32
<PAGE>
rentable area of the Building has been rendered untenantable, and whether
Landlord will terminate this Lease. If Landlord elects to make any repairs or
restoration, then due allowance shall be given for the reasonable time required
for adjustment and settlement of insurance claims, time required to obtain
licenses and permits for the work, and for such other delays as may result from
government restrictions, and controls on construction, if any, and for strikes,
national emergencies and other conditions beyond the control of Landlord. If
Landlord elects to terminate this Lease in accordance with this paragraph, then
Landlord shall deliver a written notice to that effect to Tenant, specifying a
date, not less than twenty (20) nor more than sixty (60) days after the giving
of such notice, on which the Lease shall expire as fully and completely as if
such date were the date originally fixed for the expiration of the Lease.
(C.) Adjustment of Basic Monthly Rent. It is agreed that if Landlord does
--------------------------------
not elect to terminate this Lease pursuant to this Paragraph, this Lease shall
continue in full force and effect, but if the conditions are such so as to make
the entire Demised Premises untenantable, then all Basic Monthly Rent and
Adjustment Rent which Tenant is obligated to pay hereunder related to the period
from and after the date of the fire or casualty shall abate as of the date of
and after the fire or casualty until Landlord has substantially completed the
repairs and restoration work required to be performed by it under this Lease.
Any unpaid or prepaid Basic Monthly Rent and Adjustment Rent for the calendar
month in which said fire or casualty occurred making the Demised Premises
untenantable shall be prorated to the date of the fire or casualty giving rise
to the damage. If the Demised Premises are partially damaged or destroyed, then
during the period that Tenant is deprived of the use of the damaged portion of
the Demised Premises, Tenant shall be required to pay Basic Monthly Rent and
Adjustment Rent covering only that portion of the Demised Premises that is
tenantable, based on that portion of the Basic Monthly Rent and Adjustment Rent
which the amount of square foot area of the Demised Premises remaining that is
tenantable bears to the total square foot area of all of the Demised Premises
covered by this Lease.
(D.) Mutual Rights to Terminate. If the Demised Premises are damaged as a
--------------------------
result of fire or other casualty and if the damage to the Demised Premises (but
not including the Alterations) is so extensive that, in Landlord's reasonable
judgment, such damage cannot be substantially repaired within one hundred eighty
(180) days from the date of the fire or other casualty, Landlord shall give
written notice to Tenant of such reasonable judgment within thirty (30) days of
such casualty, and either Landlord or Tenant may within thirty (30) days of the
date of such notice from Landlord, terminate the Lease by written notice to the
other, specifying a date, not less than twenty (20) nor more than sixty (60)
days after the giving of such notice, on which the Lease shall expire as fully
and completely as if such date were the date originally fixed for the expiration
of the Lease. In the event that the Demised Premises are damaged by fire or
other casualty such that eighty percent (80%) of the Demised Premises or greater
are rendered untenantable and at the time of such damage, eighteen (18) months
or less remains of the Term of the Lease, then either Landlord or Tenant may
terminate this Lease after such casualty upon the giving to the other of ninety
(90) days prior notice, which notice shall specify the date upon which the party
giving such notice intends to terminate the Lease. No compensation, or claim,
or diminution of rent will be allowed or paid by Landlord by reason of
inconvenience, annoyance, or loss of or injury to business arising from the
necessity of or any delays in repairing the Demised Premises or any portion of
the Building, however the necessity may occur. Tenant shall notify Landlord of
any damage to the Demised Premises promptly upon occurrence thereof.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
33
<PAGE>
25. EMINENT DOMAIN
--------------
(A.) Major Condemnation. In the event that the whole or a substantial
------------------
portion of the Building shall be condemned in any manner for any public or
quasi-public use, this Lease and the term and estate hereby granted shall
forthwith cease and terminate as of the earlier of the date of vesting of title
in such condemnation, or the date of taking of possession by the condemning
authority (such earlier date, whether with reference to a complete or partial
taking of the Building, being referred to hereinafter as the "Taking Date"), and
Tenant shall have no claim against Landlord, except that Tenant's obligation for
Basic Monthly Rent and Adjustment Rent shall cease as of the Taking Date and any
such rent paid in advance by Tenant shall be prorated to the Taking Date, with
Tenant being entitled to a refund of any excess payment thereof.
(B.) Partial Condemnation. In the event that only a part of the Building
--------------------
shall be so condemned, then (i) if substantial alteration or reconstruction of
the Building shall, in the opinion of Landlord, be necessary or desirable as a
result of such condemnation (whether or not the Demised Premises be affected
thereby), this Lease and the term and estate hereby granted may be terminated,
effective as of the Taking Date, by and at the exclusive option of Landlord, by
giving notice of such termination to Tenant on or before the date which is
thirty (30) days following the Taking Date, and (b) if such condemnation shall
be of a substantial part of the Demised Premises or of a substantial part of all
means of access thereto, this Lease and the term and estate hereby granted may
be terminated by Tenant, effective as of the Taking Date, by its giving notice
of such termination to Landlord on or before the date which is thirty (30) days
after the Taking Date, or (c) if neither Landlord nor Tenant elects to terminate
this Lease, as aforesaid, this Lease shall be and remain unaffected by such
condemnation or taking, except that this Lease and the term and estate hereby
granted with respect to the part of the Demised Premises (if any) so condemned
shall expire on the Taking Date, and except that the Basic Monthly Rent and
Adjustment Rent payable hereunder shall be appropriately reduced as of the
Taking Date in proportion to the area of the Demised Premises, and this Lease
and the term and estate hereby granted with respect to the remaining portion of
the Demised Premises are not terminated as hereinbefore provided, Landlord shall
proceed with reasonable diligence to restore the remaining portion of the
Demised Premises (other than Alterations, Tenant's Property, or personal
property of Tenant or others) as nearly as practicable to building standard
condition as specified in Exhibit D attached hereto.
---------
(C.) Condemnation Award. In the event of any condemnation of all or a part
------------------
of the Building and/or the Land, Landlord shall be entitled to receive the
entire award in the condemnation proceeding, including also any award made for
the value of the estate vested by this Lease in Tenant, and Tenant hereby
assigns to Landlord any and all right, title and interest of Tenant now or
hereafter arising in or to any such award or any part thereof, and Tenant shall
be entitled to receive no part of such award. Notwithstanding the foregoing,
nothing in this Paragraph shall preclude Tenant at its own expense in a separate
action from Landlord's condemnation proceeding, to claim or receive from the
condemning authority any compensation to which Tenant may otherwise lawfully be
entitled in such case in respect of Tenant's personal property, the unamortized
amount of the cost of Tenant's Alterations, or for moving to a new location,
provided that such award to Tenant is not derived by the condemning authority by
a reduction of the award that would otherwise be made to Landlord for the taking
of Landlord's fee simple or leasehold interest in the Demised Premises and the
Building, the Land and Landlord's interest in this Lease.
26. SUBORDINATION
-------------
(A.) Subordination of Lease/General. This Lease and all rights of Tenant
------------------------------
hereunder are subject and subordinate to all first mortgages and first deeds of
trust, and to any other mortgages and deeds of trust junior in lien to such
first mortgage or first deed of trust if such subordination
The Corporate Advisory Board Company Lease
June 23, 1998 Final
34
<PAGE>
to such junior lien is approved by the party or parties secured under such first
mortgage or first deed of trust, and to all ground or underlying leases, which
may now or hereafter affect the Building and the Land of which the Demised
Premises form a part, and all renewals, modifications, consolidations, re-
castings, replacements and extensions thereof; provided however, that subject to
the provisions of Subparagraph (B) and (C) below, this Lease shall remain in
full force and effect following any foreclosure under any of the aforesaid
mortgages, deeds of trust, or ground leases; provided, further however, that
Tenant shall not be in default beyond any applicable cure period herein. It is
the intention of the parties that this Paragraph shall be self-operative and
that no further instrument of subordination, non-disturbance or attornment shall
be necessary to effectuate such subordination nondisturbance or attornment.
However, if confirmation of such subordination, nondisturbance or attornment is
required by any mortgagee or ground lessor, Tenant shall execute and deliver
promptly upon any request of Landlord or its mortgagee(s) or ground lessor any
certificate that may be requested confirming such subordination. Tenant may not
unreasonably delay or condition its delivery. Tenant hereby constitutes and
appoints Landlord as Tenant's attorney-in-fact to execute any such certificate
or certificates for and on behalf of Tenant if Tenant fails to execute and
deliver same within seven (7) days after any request. Also the failure of Tenant
to execute and deliver such certificate or certificates shall be a default under
this Lease and basis for Landlord to exercise its rights and remedies under the
provisions of the Paragraph of this Lease entitled "DEFAULTS AND REMEDIES." Upon
---------------------
the written request of Tenant given to Landlord, Landlord will endeavor to
obtain for Tenant a Subordination, Attornment and Non-Disturbance Agreement, on
lender's standard form, from any lender(s) placing a first mortgage or deed of
trust on the Building subsequent to the date of this Lease, other than a first
mortgage or deed of trust from Transamerica Occidental Life Insurance Company,
the current lender having an interest in the Building, which replaces, renews or
extends the currently existing first mortgage or deed of trust.
(B.) Attornment. The party secured by any such mortgage or deed of trust
----------
or the purchaser at foreclosure thereof or by deed in lieu thereof
(collectively, "Subsequent Purchaser") shall recognize this Lease, provided,
however, that Tenant shall not be in default beyond any applicable cure period
herein, and Tenant shall attorn to and recognize the Subsequent Purchaser as its
Landlord under this Lease, and will execute, acknowledge and deliver promptly
upon request of Landlord or such mortgagee or any other Subsequent Purchaser (at
or prior to the foreclosure) any instrument which in the opinion of such party
requesting same is necessary or appropriate to evidence such attornment by
Tenant and/or the subordination of such mortgage or deed of trust to this Lease.
Also, the failure of Tenant to execute and deliver such certificate or
certificates shall be a default under this Lease and basis for Landlord to
exercise its rights and remedies under the provisions of the Paragraph of this
Lease entitled "DEFAULTS AND REMEDIES". The Tenant hereby waives the provisions
of any statue or rule of law, now or hereafter existing, which may give or
purport to give Tenant any right to terminate or otherwise adversely affect this
Lease and Tenant's obligations hereunder in the event of any such foreclosure or
conveyance in lieu of foreclosure. Tenant agrees that neither the cancellation
nor termination of any ground or underlying lease to which this Lease is now or
may hereafter become subject or subordinate shall by operation of law or
otherwise result in cancellation or termination of this Lease, and in such event
this Lease shall continue as a direct lease between Tenant and such ground
lessor or its successor .
(C.) Effect of Attornment. Notwithstanding anything to the contrary in
--------------------
this Lease, any Subsequent Purchaser and any ground lessor (i) shall not be
bound by any prepayment by Tenant to any prior lessor (including Landlord) of
rent for more than one calendar month in advance (so that rent shall be payable
after the foreclosure, the purchase, or the termination of the ground lease, as
applicable in accordance with the terms of this Lease as if such prepayment of
rent for more than one calendar month in advance had not been made); (ii) shall
not be bound by any
The Corporate Advisory Board Company Lease
June 23, 1998 Final
35
<PAGE>
amendment or modification to this Lease made without its prior written consent,
or by any waiver or forbearance on the part of any prior lessor (including
Landlord) given without its consent; (iii) shall not be liable for any act or
omission of any prior lessor (including Landlord); and (iv) shall not be subject
to any offsets or defenses which Tenant might have against any prior lessor
(including Landlord). Additionally Landlord's mortgagee shall be discharged of
any responsibility hereunder to Tenant which may have arisen (by reason of the
mortgagee becoming a mortgagee in possession, a lessor or otherwise) after such
mortgagee disposes of its interest in the Building of which the Demised Premises
is a part.
(D.) First Amendment to Deed of Trust. Attached hereto as Exhibit H is
--------------------------------- ---------
a true, complete and correct copy of Amendment No. 1 To First Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing, dated as of January
12, 1998, (the "First Amendment to Deed of Trust") which has been filed of
record in the office of the Recorder of Deeds of the District of Columbia and
which affects the Building. Landlord represents to Tenant that this First
Amendment to Deed of Trust is currently in effect. Landlord agrees to request
from the Beneficiary under such First Amendment to Deed of Trust an agreement
setting forth provisions substantially in the form of the "SNDA Provisions", as
such term is defined in said First Amendment to Deed of Trust.
(E.) Entitlement to Notices. Any mortgagee or ground lessor shall be
----------------------
entitled to receive, and Tenant shall deliver to it concurrently with Landlord,
any notices given by Tenant under this Lease provided that Landlord shall have
given Tenant the name and address of such mortgagee or ground lessor. The
mortgagee (or purchaser therefrom), or ground lessor shall be given a reasonable
period of time following receipt of such written notice and the failure of
Landlord to cure the noticed default to cure any default(s) of Landlord which
may be claimed by Tenant.
27. ESTOPPEL CERTIFICATES
---------------------
(A.) Tenant agrees, at any time and from time to time, upon not more than
ten (10) business days' prior written notice by Landlord, to execute,
acknowledge and deliver to Landlord, or for its benefit, a statement in writing
certifying: (i) that this Lease is unmodified and in full force and effect (or
if there have been modifications, that the Lease is in full force and effect as
modified and stating the modifications), (ii) the date to which the rent and
other charges hereunder have been paid by Tenant, (iii) whether or not to the
best knowledge of Tenant, Landlord is in default in the performance of any
covenant, agreement or condition contained in this Lease, and if so, specifying
each such default of which Tenant may have knowledge, (iv) the address to which
notices to Tenant should be sent, and (v) such other matters as are shown on
Exhibit E or which Landlord may reasonably request from time to time related to
- ---------
factual matters of this Lease within Tenant's knowledge. If Landlord makes a
request for an estoppel certificate at the request of its mortgagee or future
landlord, then Tenant shall also speak to such other matters as such mortgagee
or future landlord customarily and consistently requires of tenants similarly
situated to Tenant leasing comparable space in a first class office building to
the Building. Any such statement delivered pursuant hereto may be relied upon
by any owner of the Building, any mortgagee or prospective mortgagee of the
Building or of Landlord's interest, or any prospective assignee of any such
mortgagee. Tenant's failure to timely execute and deliver any estoppel
certificate shall constitute a default under this Lease, subjecting Tenant to
Landlord's rights and remedies available under the provisions of the Paragraph
of this Lease entitled "DEFAULTS AND REMEDIES."
---------------------
The Corporate Advisory Board Company Lease
June 23, 1998 Final
36
<PAGE>
(B.) Landlord agrees to furnish to Tenant within ten (10) business days
after Tenant's written request therefor, a certificate executed by or on behalf
of Landlord containing the following statements: (i) that the Lease is
unmodified and in full force and effect (or if modified, that the Lease is in
full force and effect as modified and stating the modifications); (ii) the date
to which the rent and other charges due hereunder have been paid by Tenant;
(iii) whether or not, to Landlord's knowledge, Tenant is in default in the
performance of any covenant, agreement or condition contained in this Lease, and
if so, specifying such defaults; (iv) the address for Landlord; and (v) whether
Landlord has received written notice from Tenant claiming a default by Landlord
hereunder. Such certificate shall not be required of Landlord more than one
time in any calendar year without Tenant having a legitimate business purpose.
28. BANKRUPTCY
----------
(A.) Events of Bankruptcy. Each of the following shall be an Event of
--------------------
Bankruptcy under this Lease:
(i) Tenant's, a Guarantor's or a General Partner's becoming insolvent,
as that term is defined in Title 11 of the United States Code (the "Bankruptcy
Code"), or under the insolvency laws of any state, district, commonwealth or
territory of the United States (the "Insolvency Laws");
(ii) The appointment of a receiver or custodian for any or all of
Tenant's, a Guarantor's or a General Partner's property or assets, or the
institution of a foreclosure action upon so material a portion of the real or
personal property of Tenant or a Guarantor or a General Partner that Landlord in
its sole, but reasonable, discretion concludes that its security under the Lease
is materially impaired;
(iii) The filing of a voluntary petition by Tenant, a Guarantor or a
General Partner under the provisions of the Bankruptcy Code or Insolvency Laws;
(iv) The filing of an involuntary petition against Tenant, a Guarantor
or a General Partner as the subject debtor under the Bankruptcy Code or
Insolvency Laws, which either (a) is not dismissed within ninety (90) days of
filing, or (b) results in the issuance of an order for relief against the
debtor; or
(v) Tenant's, a Guarantor's or a General Partner's making or
consenting to an assignment for the benefit of creditors or a common law
composition of creditors.
(B.) Rights and Remedies. Upon the occurrence of an Event of Bankruptcy,
-------------------
Landlord shall have all of the rights and remedies available pursuant to the
Paragraph of this Lease entitled "DEFAULTS AND REMEDIES", provided that Landlord
---------------------
may not exercise any of those rights and remedies while a case in which Tenant
is the subject debtor under the Bankruptcy Code is pending, if the Bankruptcy
Code prohibits the exercise of those rights and remedies by Landlord.
(C.) Assumption or Assignment by Trustee. If pursuant to the Bankruptcy
-----------------------------------
Code this Lease shall become subject to the rights of the Trustee in Bankruptcy
(as such term is defined in the Bankruptcy Code and hereinafter called
"Trustee") to assume or assign this Lease, the Trustee shall not have the right
to assume or assign this Lease, unless the Trustee (i) promptly cures all
defaults under this Lease (other than the occurrence of the Event of
Bankruptcy), (ii) promptly compensates Landlord for any actual monetary losses
to Landlord as a result of such default, (iii) provides "adequate assurances for
future performance" under this Lease, (iv) complies with all of
The Corporate Advisory Board Company Lease
June 23, 1998 Final
37
<PAGE>
the provisions of this Lease, and (v) gives appropriate written notice to
Landlord of Trustee's election to assume or reject this Lease within sixty (60)
days (or such other applicable time as provided for in the Bankruptcy Code for
assumption or rejection of this Lease) after the commencement for the action in
Bankruptcy.
(D.) Definition of Phrase "adequate assurance of future performance". For
---------------------------------------------------------------
the purposes of the Bankruptcy Code and this Paragraph of the Lease, the phrase
"adequate assurance of future performance" shall mean that at least all of the
following criteria must have been met:
(i) the Trustee or Tenant must pay Landlord, at the time the next
payment of Basic Monthly Rent is due under this Lease, an amount equal to the
next three (3) months of Basic Monthly Rent due under this Lease, with such
amount to be held as in accordance with the provisions of the Paragraph of this
Lease entitled "SECURITY DEPOSIT;"
----------------
(ii) Tenant or the Trustee must agree to pay to Landlord, at any time
that Landlord is authorized to and does draw upon those funds held with Security
Deposit, the amount necessary to restore such funds to the original level
established by Subparagraph (D.)(i) above of this Paragraph;
(iii) Tenant or the Trustee must agree to timely pay Additional Rent
as and when due pursuant to the provisions for this Lease, and additionally
agree to pay in advance for performance of any services specially requested by
Tenant (or the Trustee) pursuant to this Lease;
(iv) the Trustee must agree that Tenant's business shall be conducted
in a first-class manner, with no liquidation sales, auctions or the like
conducted on the Demised Premises;
(v) the Trustee must agree that the use of the Demised Premises will
remain unchanged from that specifically permitted by this Lease; and
(vi) the Trustee must agree that the assumption or assignment of this
Lease will not violate or affect the rights of other tenants in the Building.
(E.) Failure to Satisfy Obligations. In the event Tenant is unable or
------------------------------
unwilling (i) to cure its default(s), (ii) to reimburse Landlord for Landlord's
actual monetary losses, (iii) to pay Basic Monthly Rent or Adjustment Rent when
due under this Lease, or any Additional Rent provided for when due under this
Lease, or (iv) to have the criteria imposed to establish "adequate assurance of
future performance" met, then Tenant agrees in advance that Tenant has not met
its burden of performance under this Paragraph, and this Lease and Tenant's
right to possession hereunder may be terminated by Landlord in accordance with
the provisions of the Paragraph of this Lease entitled "DEFAULTS AND REMEDIES".
----------------------
29. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
-----------------------------------------
If Tenant defaults in the making of any payment to any third party, or the
doing of any act required to be made or done by Tenant (including the
performances of Tenant's obligations under this Lease), relating to the Demised
Premises, and such failure continues for ten (10) days after notice to Tenant,
except in an emergency where no such notice shall be required, then Landlord
may, but shall not be required to, make such payment or do such act, and the
amount of the expense thereof, if made or done by Landlord, with interest
thereon at a rate equal to three (3) percentage points above the then applicable
base rate of interest (or comparable rate of interest) per annum as fixed by
NationsBank, National Association or such other federally chartered
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June 23, 1998 Final
38
<PAGE>
financial institution as reasonably selected by Landlord, accruing from the date
paid by Landlord, shall be paid by Tenant to Landlord and shall constitute
Additional Rent hereunder due and payable by Tenant upon receipt of a written
statement of costs from Landlord. The making of such payment or the doing of
such act by Landlord shall not operate as a waiver or cure of Tenant's default,
nor shall it prevent Landlord from the pursuit of any remedy to which Landlord
would otherwise be entitled.
30. DEFAULTS AND REMEDIES
---------------------
(A.) Events of Default. If Tenant shall (i) fail to pay the rent of any
-----------------
kind or nature provided for in this Lease, or any installments or payments
thereof as provided herein, at the time the same shall become due and payable,
or any Additional Rent when and as due as herein provided and in either case,
such failure continues for ten (10) days after notice from Landlord or
Landlord's agent of such failure; (ii) violate or fail or neglect to keep and
perform any of the other covenants, conditions and agreements herein contained
on the part of Tenant to be kept and performed and such failure continues for a
period of ten (10) days after notice to Tenant or such longer period of time as
is reasonably necessary to cure such failure, so long as Tenant commences to
cure within such ten (10) days, is diligently and continuously pursuing such
cure and such cure is completed to Landlord's satisfaction by a date not later
than forty-five (45) days after notice to Tenant of such failure, or (iii)
abandon, vacate or desert the Demised Premises for a period in excess of thirty
(30) business days, or if Tenant's estate hereby created shall be taken upon
execution or other process of law or if an Event of Bankruptcy shall occur,
then, and in each and every such event from thenceforth, and at all, times
thereafter, at the option of Landlord, (and in addition to and not in limitation
of Landlord's right to distrain for rent, and other remedies), this Lease and
Tenant's right of possession shall thereupon cease and terminate (subject to any
restrictions imposed by the Bankruptcy Code). Upon the termination of the
Lease, Landlord shall be entitled to possession of the Demised Premises and to
re-enter the same and remove all persons and property therefrom, without demand
of rent or demand of possession of said Demised Premises. Landlord may
forthwith proceed to recover possession of the Demised Premises with or without
process of law, any statutory or other notice to quit or of intention to re-
enter the same being hereby expressly waived by Tenant. In the event of such
re-entry by process of law or otherwise, Tenant nevertheless agrees to remain
answerable for any and all damage, deficiency of loss of rent which Landlord may
sustain by such re-entry, including also reasonable attorneys' fees and court
costs incurred by Landlord to enforce or defend its rights under this Lease
and/or pursuant to law. Landlord reserves full power, which is hereby acceded
to by Tenant, to re-let the Demised Premises for the benefit of Tenant, in
liquidation and discharge, in whole or in part, as the case may be, of the
liability of Tenant under the terms and provisions of this Lease. Any such re-
lettings may be of all or any part of the Demised Premises, and may be for a
term or terms less than or greater than the then remaining portion of the term
of this Lease, all at Landlord's exclusive discretion. Such re-lettings shall
be on such terms, rent and conditions as Landlord may determine, and in no event
will Tenant have any right to any excess of such net rents collected from re-
lettings over the sums payable by Tenant hereunder. Whether or not Landlord
elects to terminate this Lease pursuant to this Paragraph, Tenant shall remain
liable for all damages, deficiencies, loss, costs and expenses in rent,
reasonable attorney's fees, court costs, brokerage commissions, and expenses
incurred in preparing the Demised Premises for re-letting (including any
necessary alteration, none of which shall be deemed to release Tenant from
liability hereunder). Landlord shall not be liable for failure to re-let or to
collect rentals under re-lettings, nor shall Tenant be released from liability
by reason thereof. Any damage or loss of rent sustained by Landlord may be
recovered from Tenant, at Landlord's option, at time of re-letting, or in
separate actions as said damages become determinable from re-lettings, or in a
single action deferred until expiration of the term hereof (in which case the
cause of action shall not accrue until
The Corporate Advisory Board Company Lease
June 23, 1998 Final
39
<PAGE>
the stated expiration of the term hereof), or in a single action prior to the
re-letting or termination or expiration hereof. Nothing herein shall prevent
Landlord from proving in full damages for rent accrued prior to termination
hereof and not paid, and from proving under any applicable laws any amounts
allowed thereby, and recovering such sums.
(B.) No Waiver. It is further agreed that if under the provisions of this
---------
Paragraph, applicable summary process shall be served, and a compromise or
settlement thereof shall be made, such compromise or settlement shall not
constitute a waiver of any subsequent breach of any covenant, condition or
agreement herein contained shall operate as a waiver of any subsequent breach
thereof. No provision of this Lease shall be deemed to have been waived by
Landlord or Tenant unless such waiver shall be in writing signed by Landlord or
Tenant, as applicable. No payment by Tenant or receipt by Landlord of a lesser
amount than the amount of rent herein stipulated to be due and owing by Tenant
under this Lease shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
(C.) Late Charges. In the event Tenant defaults in payment of any
------------
installment or installments of Basic Monthly Rent or Additional Rent, and if
such event of default is not corrected within ten (10) days after the notice of
such nonpayment, Tenant shall pay to Landlord, in addition to the installment
of Basic Monthly Rent or Additional Rent in default, a late charge in an amount
equal to five cents ($0.05) for each one dollar ($1.00) in default, to
compensate Landlord for the additional expense resulting from Tenant's default.
(D.) INTENTIONALLY DELETED.
----------------------
(E.) Rights to Injunctive Relief. In addition to and not in limitation of
---------------------------
the other remedies in this Lease provided, Landlord shall be entitled to the
restraint by injunction of any violation or attempted or threatened violation of
any of the terms, covenants, conditions, provisions or agreements of this Lease
to the extent permitted by applicable law.
(F.) No Limitations on Landlord's Remedies. The remedies of Landlord
-------------------------------------
provided for in this Lease are cumulative and are not intended to be exclusive
of any other remedies to which Landlord may be lawfully entitled. The exercise
by Landlord of any remedy to which it is entitled shall not preclude or hinder
the exercise of any other such remedy, nor constitute an election of remedies.
(G.) Rights to Attorneys' Fees. In the event of any material default by
-------------------------
Tenant hereunder, Tenant shall reimburse Landlord all reasonable attorneys' fees
which Landlord may incur resulting therefrom, whether or not suit shall be
brought by Landlord, together with all court costs which may be incurred, as
well as any such fees incurred related to any re-letting of the Demised Premises
in whole or in part, provided that if Tenant shall be the prevailing party in
any legal action brought by Landlord against Tenant, upon the rendering of a
final non-appealable judgment, Tenant shall be entitled to recover for the fees
of its attorneys in such amount as the court may adjudge reasonable. All
obligations of Tenant under this provisions shall be deemed Additional Rent
hereunder.
(H.) Interest on Late Payments. In the event Tenant fails to pay any
--------------------------
installment or installments of Basic Monthly Rent or Additional Rent for a
period of more than ten (10) days after the due date thereof, such overdue
payment or payments shall bear interest at the lesser of
The Corporate Advisory Board Company Lease
June 23, 1998 Final
40
<PAGE>
(i) a rate per annum (the "Default Rate") which is three (3) whole percentage
points higher than the highest Prime Rate as published in the Wall Street
Journal's Money Rates Column, or if such rate is no longer published then the
rate which is three (3) whole percentage points in excess of the Prime Rate of
Nationsbank, N.A. (Washington, D.C.) or (ii) the highest non-usurious rate
permitted under the laws of the jurisdiction where the Building is located, from
the date incurred to the date of payment thereof by Tenant, which amount shall
constitute Additional Rent.
31. REPEATED DEFAULTS
-----------------
If Tenant is in material default of this Lease for the same or
substantially the same reason more than twice during any twelve (12) month
period during the term of this Lease, then Tenant shall not have any right to
notice of, or any cure periods for, such repeated defaults, the terms and
conditions of Paragraph of this Lease entitled "DEFAULTS AND REMEDIES,"
---------------------
notwithstanding. In such event, Landlord shall have available to it and may
exercise all remedies provided for in that Paragraph of this Lease for an
uncured default.
32. SUCCESSORS
----------
It is agreed that all rights, remedies and liabilities herein given to or
imposed upon either of the parties hereto, shall extend to their respective
heirs, executors, administrators, successors and assigns except where otherwise
specifically restricted or modified in this Lease.
33. AUTOMOBILE PARKING
------------------
(A.) Parking Rights. As of the Lease Commencement Date, Landlord agrees to
--------------
arrange that Tenant shall have available to it of an allocation of parking
contracts for the parking facility located in and serving the Building for use
by Tenant and its employees during the term of the Lease, at the ratio of one
(1) contract for each 1,500 square feet of rentable area leased from time to
time by Tenant, provided that within sixty (60) days after the respective Lease
Commencement Date for each portion of space being leased by Tenant, Tenant
notifies Landlord in writing of the number of such allocation Tenant desires and
enters into parking contracts with the parking operator or manager of the
parking facility. The parking contracts shall contain the same terms and
conditions as are usually contained in such contracts with other monthly parking
customers of the parking operator or manager, and the monthly rate to be paid by
Tenant shall be the prevailing monthly rate charged to other monthly parking
customers, said rate to increase and decrease as the prevailing monthly parking
rate for other monthly parking customers increases and decreases from time to
time. In the event Tenant fails to notify Landlord or fails to execute with the
parking operator or manager the monthly parking contracts for all of the
aforesaid allocation within the sixty (60) day period, or subsequently
relinquishes in any manner any parking contract, Landlord shall be under no
obligation to seek restoration of any relinquished contract or waive Tenant's
failure to notify or subsequently execute any contract prior to expiration of
the sixty (60) day period, provided, however, that such unused allotment shall
be available to Tenant if then available from the parking garage manager.
(B.) Use. The use of any parking facility serving the Building by Tenant,
---
and its employees, subtenants, licensees and invitees, shall be at the sole risk
and expense of such party. In no event shall Landlord have any liability for
any damage to, theft or loss of property of such party, suffered or sustained in
or about the parking facilities. Landlord shall not be responsible for the
actions of any operator of the parking facilities of the Building. Tenant
agrees for itself
The Corporate Advisory Board Company Lease
June 23, 1998 Final
41
<PAGE>
and others exercising rights by and through Tenant to comply with all rules and
regulations in effect from time to time governing the parking facilities of the
Building, and to timely pay all charges and fees related to the use of such
areas in accordance with the parking contracts entered into by Tenant or such
other parties.
(C.) Termination of Parking Rights. Upon expiration or any termination of
-----------------------------
any such parking contracts, Tenant will cause all of its automobiles and those
of its personnel to be immediately removed from the parking facility. If this
Lease is terminated or expires, then in any such event all parking contracts of
Tenant for parking in the parking facility shall thereupon also terminate.
34. ALTERNATIVE TELEPHONE OR TELECOMMUNICATIONS PROVIDER
----------------------------------------------------
(A.) Landlord Consent Required. In the event that Tenant wishes to utilize
-------------------------
the services of a telephone or telecommunications provider whose equipment is
not servicing the Building as of the date of Tenant's execution of this Lease
("Provider"), no such Provider shall be permitted to install its lines or other
equipment within the Building without first securing the prior written consent
of Landlord, which consent shall not be unreasonably withheld.
(B.) Condition to Consent. Unless all of the following conditions are
--------------------
satisfied to Landlord's satisfaction in a written agreement between Provider and
Landlord or by any other means acceptable to Landlord in its reasonable
judgment, it shall be reasonable for Landlord to refuse to give its consent:
(i) Landlord shall incur no expense whatsoever with respect to any
aspect of Provider's provision of its services, including, without limitation,
the costs of installation, materials, and service;
(ii) Prior to commencement of any work in or about the Building by
Provider, Provider shall supply Landlord with such written indemnities,
insurance verifications, financial statements, and such other items as Landlord
reasonably deems to be necessary to protect its financial interests and the
interest of the Building relating to the proposed activities of Provider;
(iii) Prior to the commencement of any work in or about the Building
by the Provider, the Provider shall agree to abide by such rules and
regulations, job site rules, and such other requirements as reasonably
determined by Landlord to be necessary to protect the interest of the Building,
the tenants in the Building, and Landlord, including, without limitation,
providing security in such form and amount as determined by Landlord;
(iv) Landlord reasonably determines that there is sufficient space in
the Building for the placement of all of Provider's equipment and materials;
(v) Provider is licensed and reputable;
(vi) Provider agrees to compensate Landlord for the reasonable amount
determined by Landlord for space used in the Building for the storage and
maintenance of the Provider's equipment and for all costs that may be incurred
by Landlord in arranging for: access by the Provider's personnel, security for
Provider's equipment, and any other such costs as Landlord may expect to incur.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
42
<PAGE>
(C.) Consent Is Not Landlord Warranty. Landlord's consent under this
--------------------------------
Paragraph shall not be deemed any kind of warranty or representation by
Landlord, including, without limitation, any warranty or representation as to
the suitability, competence, or financial strength of Provider.
(D.) Tenant Pays Expenses. Tenant acknowledges and agrees that all
--------------------
telephone and telecommunications services desired by Tenant shall be ordered and
utilized at the sole expense of Tenant.
(E.) Tenant Responsible for Service Interruptions. Tenant agrees that to
--------------------------------------------
the extent service by Provider is interrupted, curtailed, or discontinued
Landlord shall have no obligation or liability with respect thereto and it shall
be the sole obligation of Tenant at its expense to obtain substitute service.
(F.) Landlord's Refusal to Consent. Notwithstanding any provision in this
-----------------------------
Paragraph to the contrary, the refusal of Landlord to consent to any prospective
Provider shall not be deemed a default or breach by Landlord of its obligations
under this Lease unless and until Landlord is adjudicated in a final and
unappealable court decision to have acted recklessly or maliciously with respect
to its refusal.
(G.) No Third Party Rights. The provisions of this Paragraph may be
---------------------
enforced solely by the Tenant and Landlord, and are not for the benefit of any
other party, specifically, without limitation, no telephone or
telecommunications provider shall be deemed a third party beneficiary of the
Lease.
35. TENANT HOLDOVER
---------------
(A.) Holdover with Consent. If Tenant shall, with the knowledge and
---------------------
written consent of Landlord obtained prior to the expiration of the term of this
Lease, continue to remain in the Demised Premises after the expiration of the
specified term of this Lease, then and in that event, Tenant shall, by virtue of
this Lease become a tenant by the month, otherwise subject however to all of the
terms, covenants and conditions of this Lease except as otherwise noted in this
Paragraph. Landlord has no obligation to consent to the extension of the term
of this Lease and may refuse consent of any reason. Landlord shall be entitled
to a monthly rental equal to the monthly installment of Basic Monthly Rent in
effect and payable for the last full calendar month of the immediately preceding
expired term of this Lease, together with any amounts otherwise characterized by
this Lease as Additional Rent, including but not limited to Adjustment Rent.
This monthly tenancy shall commence with the first calendar day following the
end of the term of this Lease. Thereafter Tenant shall give to Landlord at
least thirty (30) days' written notice of any intention to quit the Demised
Premises, and Tenant shall be entitled to thirty (30) days' written notice from
Landlord to quit the Demised Premises, except in the event of nonpayment of rent
in advance or of the breach of any other covenant or condition of this Lease by
the Tenant, in which event the Tenant shall not be entitled to any notice to
quit, the statutory thirty (30) days' notice and all other notices to quit being
hereby expressly waived.
(B.) Hold Over without Consent. In the event Tenant shall wrongfully hold
-------------------------
over subsequent to the expiration of the term of this Lease, or after the
expiration of any duly given thirty (30) day notice without Landlord's prior
written consent, Tenant's occupancy shall be deemed that of a tenancy at
sufferance, and not one of month to month, but Tenant otherwise shall be subject
to all the terms, covenants and conditions of this Lease, except as modified by
this Subparagraph. Landlord shall be entitled, in lieu of rent provided for in
Subparagraph (A.) above of this Paragraph, to demand and receive from Tenant
monthly use and occupancy payments, for
The Corporate Advisory Board Company Lease
June 23, 1998 Final
43
<PAGE>
each month (or portion thereof) in which Tenant shall continue to wrongfully
holdover subsequent to the expiration of the term of this Lease or any expired
monthly tenancy period, in an amount equal to the greater of (X) one and one-
half times the sum of (i) the amount of Basic Monthly Rent payable in the last
full calendar month of the specified term of this Lease, plus (ii) the amount of
Adjustment Rent due and payable from Tenant for such month or (Y) the then
prevailing fair market rent, on a monthly basis, then being charged by Landlord
to third parties for comparable space in the Building. Landlord shall also be
entitled to all other Additional Rent, otherwise accruing under this Lease. Each
such use and occupancy payment shall be due on or before the first day of each
calendar month in which Tenant shall wrongfully hold over hereunder. In no event
shall Landlord's demand or acceptance of such use and occupancy payments be
considered to constitute an acquiescence by Landlord to the extension of the
term hereof, and Landlord shall be entitled to obtain immediate possession of
the Demised Premises irrespective of any such demand or acceptance. In the event
Tenant shall pay monthly use and occupancy payments for any calendar month
following expiration of the term hereof, such payment shall be prorated upon
Tenant's surrender of full and exclusive possession of the Demised Premises to
Landlord, free of all subtenants and any other parties claiming by, through or
under Tenant.
(C.) Tenant Liable for Damages. In addition to rent or payments in lieu of
-------------------------
rent provided in this Paragraph, Tenant shall be liable to Landlord for all
costs, losses, claims and liabilities (including reasonable attorneys' fees)
which Landlord may incur as a result of Tenant's failure to surrender possession
of the Demised Premises to Landlord upon the expiration or earlier termination
of the term of this Lease, or any extension thereof without Landlord's prior
consent, including costs to dispossess Tenant.
36. RIGHTS RESERVED BY LANDLORD
---------------------------
Landlord reserves the right at any time and from time to time, as often as
Landlord deems desirable, without the same constituting an actual or
constructive eviction and without incurring any liability to Tenant or otherwise
affecting Tenant's obligations under this Lease, to make changes, alterations,
additions, improvements, repairs, relocations or replacements in or to the
Building and the fixtures and equipment thereof, as well as in or to the street
entrances, halls, passages, stairways and other common facilities thereof, and
to change the name by which the Building is commonly known and/or the Building's
address. Landlord reserves the right from time to time to install, use,
maintain, repair and replace pipes, ducts, conduits, wires and appurtenant
meters and equipment for service to other parts of the Building, above the
ceiling surfaces, below the floor surfaces, within the walls and in the central
core areas of the Demised Premises, and to relocate any pipes, ducts, conduits,
wires and appurtenant meters and equipment included in the Demised Premises
which are located in the Demised Premises or located elsewhere outside the
Demised Premises. Landlord further reserves the right at any time to alter,
expand or reduce the parking facilities, to change the means of ingress thereto
and egress therefrom, and to impose charges for parking in such facilities.
Nothing contained herein shall be deemed to relieve Tenant of any duty,
obligation or liability with respect to making any repair, replacement or
improvement or complying with any law, order or requirement of any government or
other authority; and nothing contained herein shall be deemed or construed to
impose upon Landlord any obligation, responsibility or liability whatsoever, for
the care, supervision or repair of the Building, or any part thereof, other than
as expressly provided in this Lease. Landlord shall exercise reasonable efforts
to minimize any interference with Tenant's use and enjoyment of the Demised
Premises and reasonable means of access to the Demised Premises in exercising
Landlord's rights under this Paragraph.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
44
<PAGE>
37. JURY TRIAL WAIVER
-----------------
Landlord and Tenant hereby waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other on or in
respect of any matter whatsoever arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant hereunder, Tenant's use or
occupancy of the Demised Premises, and/or any claim of injury or damage.
38. NOTICES
-------
All notices required or desired to be given hereunder by either party to
the other shall be given in writing by hand or by registered or certified mail,
return receipt requested. Notices to the respective parties shall be addressed
as follows:
If to Landlord:
c/o LaSalle Partners Management Services, Inc.
Suite 2400
2000 Pennsylvania Ave., N.W.
Washington, DC 20006
with a copy to:
The George Washington University
Office of Vice President & Treasurer
2121 Eye Street, N.W.
Suite 701
Washington, DC 20052
If to Tenant: prior to occupancy:
The Corporate Advisory Board Company
The Watergate
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
Attention: Mr. Michael A. D'Amato
subsequent to occupancy:
c/o the Demised Premises
Attention: Mr. Michael A. D'Amato
Either party may by notice given in conformance with this Paragraph designate a
new address and/or recipient to which notices shall be directed, provided that
Landlord shall have no obligation to send any notice, request, demand, consent,
approval, or other communication required or permitted under this Lease to more
than two (2) addressees, including the Demised Premises.
39. LIEN FOR RENT
-------------
In consideration of the mutual benefits arising under this Lease, Tenant
hereby grants to Landlord a lien on all property of Tenant in or on the Demised
Premises, and such property shall
The Corporate Advisory Board Company Lease
June 23, 1998 Final
45
<PAGE>
be and remain subject to the lien of Landlord for the payment of all rent agreed
to be paid by Tenant herein. Said lien shall be in addition to any lien provided
to Landlord by law. The foregoing lien of Landlord as well as any lien provided
to Landlord by law shall be subordinate to the lien of any vendor or lender
providing financing for the purchase by Tenant of the following types of
property: office equipment and leasehold improvements, or any other lender to
Tenant and Landlord agrees to execute a waiver of such lien on Landlord's
standard form at the request of Tenant or such lenders.
40. LIMITATION ON LANDLORD'S LIABILITY
----------------------------------
Landlord may freely and fully assign its interest in this Lease. It is
expressly agreed that the obligations of the party signing this Lease as
Landlord shall only bind the party or parties from time to time owning the
Building during their respective periods of ownership thereof; the party signing
this Lease as Landlord and its successors in interest shall cease to have any
liability hereunder after they respectively cease to own the Building, and such
liability shall pass to and bind only the owner from time to time of said
Building as Landlord hereunder. Further, the liability of Landlord hereunder
shall be solely limited to the interest of Landlord in the Building and no other
assets of Landlord, any partner of Landlord, or any other person or entity shall
be available to satisfy, or be subject to, any claims by Tenant or one claiming
through Tenant. No partner of Landlord nor any other person or entity shall be
held to have personal liability for satisfaction of any claim or judgment
against Landlord or any partner of Landlord.
41. COVENANTS OF LANDLORD
---------------------
Landlord covenants that it has the right to make this Lease for the term
specified. Further Landlord covenants that, if Tenant shall pay all rent and
shall perform all of the covenants, agreements and conditions specified in this
Lease to be performed by Tenant, Tenant shall, for the term of the Lease,
freely, peaceably and quietly occupy and enjoy the full possession of the
Demised Premises without molestation or hindrance by Landlord, its agents or
employees. Entry in the Demised Premises for inspections, repairs, alterations,
improvements and installations by Landlord, its agents, employees or contractors
pursuant to the Paragraph of this Lease entitled "LANDLORD'S ACCESS" and the
-----------------
exercise by Landlord of Landlord's rights reserved in the Paragraph of this
Lease entitled "RIGHTS RESERVED BY LANDLORD" shall not constitute a breach by
---------------------------
Landlord of this covenant, nor entitle Tenant to any abatement or reduction of
rent. In addition, planned activities of Landlord, whether in the form of
renovation, redecoration or rehabilitation of any area of the Building,
including the lobby, and any of the surrounding public spaces by Landlord or in
the form of organized activities, public or private, shall not be deemed
violation by Landlord of Landlord's covenant of quiet enjoyment contained in
this Paragraph benefitting Tenant.
42. MISCELLANEOUS
-------------
(A.) Governing Law. This Lease shall be governed by and construed in
-------------
accordance with the laws of the District of Columbia.
(B.) Severability. If any covenant or agreement of this Lease or the
------------
application thereof to any person or circumstance shall be held to be invalid or
unenforceable, then and in each such event the remainder of this Lease or the
application of such covenant or agreement to any other person or any other
circumstance shall not be thereby affected, and each covenant and agreement
hereof shall remain valid and enforceable to the fullest extent permitted by
law.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
46
<PAGE>
(C.) Captions. The captions and headings throughout this Lease are for
--------
convenience and reference only, and the words contained in such captions shall
in no way be held or deemed to define, limit, describe, explain, modify, amplify
or add to the interpretation, construction or meaning of any provision of this
Lease.
(D.) Pronouns. Feminine or neuter pronouns shall be substituted for those
--------
of masculine form, and the plural shall be substituted for the singular, in any
place or places herein in which the context may require such substitution or
substitutions. Landlord herein for convenience has been referred to in neuter
form.
(E.) Broker. Tenant represents that it has dealt with no broker or agent
------
in connection with this Lease other than Cushman & Wakefield of Washington,
D.C., Inc., ("Tenant's Broker"). Landlord has by separate agreement recognized
LaSalle Partners Management Services, Inc. as its agent for this Lease
("Landlord's Broker") and has agreed to compensate it for services rendered
therefor. Landlord and Tenant each represent and warrant to one another that
except as set forth herein neither of them has employed any broker, agent or
finder in carrying on the negotiations relating to this Lease. Landlord shall
indemnify and hold Tenant harmless, and Tenant shall indemnify and hold Landlord
harmless, from and against any claim or claims for brokerage or other commission
arising from or out of any breach of the foregoing representation and warranty
by the respective indemnitors.
(F.) Due Execution. Each of the individuals signing this Lease on behalf
-------------
of Tenant does hereby represent and warrant to Landlord that he, she or it has
the full right, power, capacity and authority to execute and deliver this Lease
as a binding and valid obligation of Tenant hereunder.
(G.) No Liability. Landlord shall not be liable to Tenant, its employees,
------------
agents, invitees, licensees, customers, clients, family members or guests for
any damages, compensation or claim arising from the necessity of repairing any
areas of the Demised Premises or the Building, the interruption of the use or
occupancy of the Demised Premises, accident or damage resulting from the use or
operation (by Landlord, Tenant, or any other person or persons whatsoever) of
elevators or heating cooling, electrical or plumbing equipment or apparatus; or
the termination of the Lease by reason of the destruction of the Demised
Premises; or from any fire, robbery, theft, mysterious disappearance and/or any
other casualty or from any leakage in all or any part of the Demised Premises or
the Building, or from water, rain or snow that may leak into or flow from any
part of the Demised Premises or the Building, or from drains, pipes, or plumbing
work in the Building, or from any other cause whatsoever. Any goods, property
or personal effect, stored or placed by Tenant in or about the Demised Premises
or Building, shall be there at the risk of Tenant; it being agreed that Landlord
shall not in any manner be held responsible therefor. The employees of Landlord
are prohibited from receiving any packages or other articles delivered to the
Building for Tenant, and if such employee receives any such package or articles,
such employee shall be the agent of Tenant for such purposes and not of
Landlord.
(H.) Rules of Construction. The parties acknowledge that each party and
---------------------
its counsel have reviewed and revised this Lease, and the parties hereby agree
that the normal rule of construction to the effect that any ambiguities are to
be resolved against the drafting party shall not be employed in the
interpretation of this Lease or any amendments thereto.
(I.) Joint and Several Liability. If two or more individuals,
---------------------------
corporations, partnerships or other business associations (or any combination of
two or more thereof) shall sign this Lease as Tenant, the liability of each of
them shall be joint and several. In like manner, if Tenant is a partnership or
other business association the members of which are, by virtue of statute or
general law, subject to personal liability, the liability of each individual who
was, is or becomes a member
The Corporate Advisory Board Company Lease
June 23, 1998 Final
47
<PAGE>
of such partnership or association at any time from the date of execution of
this Lease to and including the expiration or earlier termination of the term of
this Lease, shall be joint and several.
(J.) Corporate Tenant. If Tenant is or will be a corporation, the persons
----------------
executing this Lease on behalf of Tenant hereby consent, represent and warrant
that Tenant is a duly incorporated or a duly qualified (if a foreign
corporation) corporation and authorized to do business in the District of
Columbia; and that the person or persons executing this Lease on behalf of
Tenant is an officer or are officers of Tenant, and that he or they as such
officers are duly authorized to sign and execute this Lease. Upon request of
Landlord to Tenant, Tenant shall deliver to Landlord documentation satisfactory
to Landlord evidencing Tenant's compliance with the provisions of this
Paragraph. Further, Tenant agrees to promptly execute all necessary and
reasonable applications or documents confirming such registration as requested
by Landlord or its representatives, required by the jurisdiction in which the
Building is located to permit the issuance of necessary permits and certificates
for Tenant's use and occupancy of the Demised Premises. Any delay or failure by
Tenant in submitting such application or document so executed shall not serve to
delay the Lease Commencement Date or Mandatory Expansion Space Lease
Commencement Date, as applicable, or delay or waive Tenant's obligations to pay
rent hereunder.
(K.) Financial Statements. If required in connection with a sale or
--------------------
refinancing of the Building (alone or with other property of Landlord) Tenant
upon written request by Landlord (but not more frequently than three (3) times
during the term of this Lease) , will provide Landlord with a copy of its most
recent financial statements, consisting of a Balance Sheet, Earnings Statement,
Statement of Changes in Financial Position, Statement of Changes in Owner's
Equity, and related footnotes (other than footnotes relating to the repurchase
of employee stock options), prepared in accordance with generally accepted
accounting principles. Such financial statements must be either certified by a
certified public accountant or sworn to as to their accuracy by Tenant's chief
financial officer. The financial statements provided must be as of a date not
more than 12 months prior to the date of request. Landlord shall retain such
statements in confidence, but may provide copies to lenders and potential
lenders or purchasers or potential purchasers as required so long as the same
agree to maintain such financial statements in confidence.
(L.) No Conversion without Consent. Anything herein to the contrary
-----------------------------
notwithstanding, if Tenant is a limited or general partnership (or is comprised
of two (2) or more persons, individually or as co-partners), the change or
conversion of Tenant to (i) a limited liability company, (ii) a limited
liability partnership, (iii) a corporation, or (iv) any other entity which
possesses the characteristics of limited liability shall be prohibited unless
the prior written consent of Landlord is obtained, which consent may be withheld
in Landlord's sole discretion.
(M.) No Partnership. Landlord and Tenant shall not be deemed by virtue of
--------------
this Lease to be partners or joint venturers, and their relationship hereby
established is deemed to be only that of lessor and lessee, respectively.
(N.) Rule Against Perpetuities. If and to the extent that this Lease
-------------------------
would, in the absence of the limitation imposed by this Paragraph, be invalid or
unenforceable as being in violation of the rule against perpetuity or any other
rule of law relating to the vesting of interests in property or the suspension
of the power of alienation of property, then it is agreed that notwithstanding
any other provision of this Lease, this Lease and any and all options, rights
and privileges granted to Tenant thereunder, or on connection therewith shall
terminate if not previously terminated, on the date which is twenty-one (21)
years after the death of the last heir or issue, who are lives in being as of
the date of this Lease, of the following named persons: Mr. Michael D'Amato.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
48
<PAGE>
(O.) Lender Approval. INTENTIONALLY DELETED.
---------------
(P.) Time of the Essence. Time is of the essence regarding performance of
-------------------
all of Tenant's and Landlord's covenants and obligations under this Lease.
(Q.) Business Day/Working Day. The terms "business day" and "working day"
------------------------
are terms describing each calendar day Monday through Friday except any holiday
identified specifically or generically in the Paragraph of this Lease entitled,
"SERVICES" falling on one of such calendar days.
--------
(R.) Amendment or Modification of This Lease. This Lease may not be
---------------------------------------
modified or changed in whole or in part in any manner other than by an agreement
in writing duly signed by all parties hereto.
(S.) Entire Agreement. This Lease together with all noted Exhibits
----------------
referred to herein, attached hereto and made a part hereof, contains and
embodies the entire agreement of the parties hereto, and no representations,
inducements or agreements, oral or otherwise between the parties not contained
and embodied in this Lease and the exhibits hereto, shall be of any force or
effect.
(T.) No Recording. This Lease shall not be recorded. This Lease shall
-------------
not be recorded in any office legally established for the purpose of giving
public notice of real estate records and any attempt to record this Lease or any
memorandum thereof may be treated by Landlord as an immediate default under this
Lease not subject to any cure periods. In the event Tenant does record this
Lease or any memorandum thereof, Tenant by such act irrevocably constitutes and
appoints Landlord as its special attorney-in-fact to execute any and all
documents required to remove the Lease or any memorandum thereof from the public
records.
43. TENANT'S RIGHT TO RENEW
I. A. Tenant is hereby granted an option to renew or extend the term
for one (1) additional period commencing on the Lease Expiration Date and
expiring five consecutive Lease Years thereafter (the "Renewal Period").
Subject to the provisions of Subparagraph II below, such renewal option shall be
exercisable by Tenant by giving written notice of the exercise of such renewal
option to Landlord at least eighteen (18) months prior to the expiration of the
initial term. In the event that Tenant exercises the option to renew this Lease
in accordance with the provisions hereof, then the term shall be extended
accordingly. Except as otherwise expressly provided herein, the Renewal Period
shall be upon the same terms, covenants and conditions as set forth herein with
respect to the initial term, including without limitation, the provisions of
Paragraph 5 OPERATING EXPENSE INCREASES AND REAL ESTATE TAX ADJUSTMENTS (except
------------------------------------------------------------
the Operating Expense Base shall be the amount of Operating Expenses incurred,
and the Real Estate Tax Base shall be the amount of Real Estate Taxes incurred,
during the Fiscal Year in which the Renewal Period commences) except that there
shall be no abatement of any Basic Monthly Rent, there shall be no further
rights to renew, and there shall be no right to lease any Swing Space. In the
event that Tenant renews or extends the term of this Lease, Tenant shall provide
Landlord with successive letters of credit as a security deposit in accordance
with the provisions of Paragraph 6 SECURITY DEPOSIT, provided, however that each
----------------
such letter of credit shall not be less than one month's Basic Monthly Rent for
the Demised Premises as then configured and provided further that this
obligation to provide each such letter of credit shall not be affected by any
other provisions of this Lease relating to a reduction in the letter of credit
serving as a Security Deposit under this Lease. All references in this Lease to
the Term shall be construed to mean the initial term and the Renewal
The Corporate Advisory Board Company Lease
June 23, 1998 Final
49
<PAGE>
Period, unless the context clearly indicates that another meaning is intended.
For purposes of this Lease, no distinction is made between the terms "extend"
and "renew," or any variations thereof.
B. The Basic Annual Rent for the Demised Premises payable pursuant to
Paragraph 3 RENT/BASIC ANNUAL RENT during each Lease Year of each Renewal Period
----------------------
shall be equal to the Fair Market Value Rate (as defined below in subparagraph
D.) for such Lease Year as of the commencement of such Renewal Period multiplied
by the rentable area of the Demised Premises.
C. Within thirty (30) days after Tenant's exercise of the renewal
option, but no earlier than twelve (12) months prior to the expiration of the
then current term, Landlord shall send to Tenant a written notice specifying the
Fair Market Value Rates for each Lease Year during the Renewal Period as
determined by Landlord in accordance with Paragraph 43 D. Within thirty (30)
days after receipt of such notice from Landlord, Tenant shall send Landlord a
written notice of Tenant's acceptance or challenge of Landlord's determination
of the Fair Market Value Rates, provided, however, that in the event that Tenant
fails to respond within such thirty (30) day period, Tenant shall be deemed to
have accepted Landlord's determination of the Fair Market Value Rates. In the
event that Tenant challenges Landlord's determination of the Fair Market Value
Rates and Landlord and Tenant are not able to agree on such rates within thirty
(30) days (the "Negotiation Period") after Tenant notifies Landlord of Tenant's
challenge of Landlord's determination of such Fair Market Value Rates, then
Landlord and Tenant shall each, within fifteen (15) days after the expiration of
the Negotiation Period, select a representative, each of whom shall be a
licensed real estate broker with at least ten (10) years' experience in the
Washington, D.C. office market who shall determine the Fair Market Value Rates
in accordance with Subparagraph I.D. The representatives of Landlord and
Tenant, respectively, shall be instructed to complete the appraisal procedure
and to submit their written determinations to Landlord and Tenant within fifteen
(15) days after their meeting. In the event that the determination of the Fair
Market Value Rates submitted by Landlord's representative is equal to or less
than one hundred ten percent (110%) of the determination of the Fair Market
Value Rates submitted by Tenant's representative, the Fair Market Value Rates
shall be the average of such determinations. If the determination of the Fair
Market Value Rates submitted by Landlord's representative is greater than one
hundred ten percent (110%) of the determination of the Fair Market Value Rates
submitted by Tenant's representative, the Landlord's and Tenant's respective
representatives shall, within ten (10) days, appoint a third individual with
similar qualifications to make such determination of the Fair Market Value
Rates. In the event that the Landlord's representative and the Tenant's
representative cannot agree as to the selection of the third person to perform
the determination of Fair Market Value Rates within ten (10) days after Landlord
and Tenant are notified of the determination of their respective
representatives, either party may request that the President of the Greater
Washington Commercial Association of Realtors (or any successor organization)
appoint the third individual to determine the Fair Market Value Rates. This
third individual shall be instructed to complete the appraisal procedure and to
submit a written determination of the Fair Market Value Rates to Landlord and
Tenant within fifteen (15) days after such individual's appointment. The
determination which is neither the highest nor the lowest of the three
determinations shall be binding upon Landlord and Tenant as the Fair Market
Value Rates, provided, however, that in the event that the determination of the
third individual is exactly the same as the determination of Landlord's
representative or exactly the same as the determination of Tenant's
representative, then in such case, the determination of the third individual
appointed to determine the Fair Market Value Rates shall be binding upon
Landlord and Tenant as the Fair Market Value Rates. Landlord and Tenant shall
each bear the costs of their respective representatives. The expenses of the
third individual appointed to determine Fair Market Value Rates shall be borne
one-half (1/2) by Landlord and one-half (1/2) by Tenant.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
50
<PAGE>
D. For purposes of this Lease, the term "Fair Market Value Rate"
means the fair market rental rate per square foot of rentable area of the
Demised Premises that would be agreed upon between a landlord and a tenant
executing a lease in a comparable building of comparable quality in a comparable
location, assuming the following; (1) the landlord and tenant are typically
motivated; (2) the landlord and tenant are well informed and well advised and
each is acting in what it considers its own best interest; (3) the rental rate
takes into account all concessions, special financing amounts and/or terms,
unusual services, fees, costs and credits in connection with the leasing
transaction; (4) the Demised Premises are to be let with vacant possession and
subject to the provisions of this Lease, and (5) market rents then being charged
for comparable space in other similar office buildings in comparable locations
in Washington, D.C.
II. The Renewal Option referred to in Subparagraph I above may not be
exercised by Tenant if, at the time specified for exercising such option, this
Lease shall not be in full force and effect, Tenant shall have sublet in excess
of 10,000 square feet of rentable area of the Demised Premises, or in the event
that Tenant, at the time Tenant exercises such option, shall be in default in
the performance of any obligations hereunder. If Tenant shall fail to exercise
such option during the time or in the manner provided in this Paragraph 43 for
the exercise thereof, or if at the time specified for the exercise of such
option, Tenant shall not be entitled to exercise such option because of the
provisions of this Subparagraph II, then, and in either such event, such option
shall be absolutely void and of no force and effect.
44. EXPANSION OPTIONS
-----------------
(a) Tenant shall have the option to lease the following:
1) approximately 21,661 square feet of net rentable area on the third
floor of the Building as shown on Exhibit A (the "Expansion Space A") on March
---------
23, 1999. Tenant shall have the option to lease all, but not less than all, of
such Expansion Space A on the terms and conditions hereinafter set forth;
2) approximately 4,958 square feet of net rentable area on the second
floor as shown on Exhibit A (the "Expansion Space B") on July 1, 1999. Tenant
---------
shall have the option to lease all, but not less than all, of such Expansion
Space B on the terms and conditions hereinafter set forth; and
3) approximately 9,936 square feet of net rentable area on the seventh
floor of the Building as shown on Exhibit A (the "Expansion Space C"), on
---------
January 1, 2004 or earlier, as provided hereinbelow. Tenant shall have the
option to lease all, but not less than all, of such Expansion Space C on the
terms and conditions hereinafter set forth. If such Expansion Space C becomes
available for lease prior to January 1, 2004, then Tenant's right to lease all,
but not less than all of such Expansion Space C shall take effect upon written
notice from Landlord that such Expansion Space C has become available to lease.
Landlord shall have no liability to Tenant in the event any or all of Expansion
Space A, Expansion Space B, or Expansion Space C are not available for lease on
the dates set forth hereinabove. If any existing tenant of Expansion Space A or
Expansion Space B or Expansion Space C or occupant of the foregoing expansion
spaces holds over in violation of its lease such that the respective expansion
space is not available for lease on the dates set forth hereinabove, Landlord
shall promptly initiate and pursue appropriate legal action to evict such tenant
or occupant from the affected expansion space.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
51
<PAGE>
(i) As to Expansion Space A, Tenant has exercised its option for
Expansion Space A by giving written notice thereof to Landlord not later than
June 22, 1998, time being of the essence. Tenant shall lease the Expansion
Space A on the same terms and conditions as the Demised Premises, including,
without limitation, the obligation to pay Additional Rent for Expansion Space A,
except that there shall be no rent abatement and the Basic Annual Rent shall be
Twenty-nine Dollars ($29.00) per rentable square foot for the first and second
Lease Years of the term of this Lease, subject to annual increases during the
term of the Lease, in accordance with the schedule set forth hereinbelow.
Tenant's Real Estate Tax Share after Expansion Space A has been added to the
Demised Premises will increase by an additional 5.9775% and Tenant's Operating
Expense Share after Expansion Space A has been added to the Demised Premises
shall be increased by an additional 7.4052%. Tenant and Landlord shall enter
into an amendment to this Lease at the time Tenant exercises its option for
Expansion Space A to reflect the terms and conditions for the lease of such
Expansion Space A, as set forth herein.
Tenant's Basic Rent for Expansion Space A shall be as follows:
<TABLE>
<CAPTION>
LEASE
YEAR BASIC ANNUAL BASIC BASIC
RENT PER ANNUAL MONTHLY
SQUARE FOOT RENT RENT
<S> <C> <C> <C>
1 and 2 $29.00 $628,169 $52,347.42
3 $29.58 $640,732.38 $53,394.37
4 $30.17 $653,512.37 $54,459.36
5 $30.77 $666,508.97 $55,542.41
6 $31.39 $679,938.79 $56,661.57
7 $33.39 $723,260.79 $60,271.73
8 $34.06 $737,773.68 $61,481.14
9 $34.74 $752,503.14 $62,708.60
10 $35.43 $767,449.23 $63,954.10
11 $36.14 $782,828.54 $65,235.71
</TABLE>
(ii) As to Expansion Space B, Tenant shall exercise its option for
Expansion Space B by giving written notice thereof to Landlord not later than
October 1, 1998. Tenant shall lease the Expansion Space B on the same terms and
conditions as the Demised Premises, including, without limitation, the
obligation to pay Additional Rent for Expansion Space B, except that there shall
be
The Corporate Advisory Board Company Lease
June 23, 1998 Final
52
<PAGE>
no rent abatement and Basic Annual Rent shall be an amount equal to the product
of the number of square feet of rentable area attributable to Expansion Space B,
multiplied by the then applicable per-square-foot Basic Annual Rent attributable
to Expansion Space A (whether or not Tenant elects to lease Expansion Space A)
in effect for each Lease Year of the remainder of the term of this Lease,
beginning with the Lease Year in which Expansion Space B is added to the Demised
Premises, and further, to pay that Annual Basic Rent in equal monthly
installments to Landlord with the Basic Monthly Rent paid for the Demised
Premises. Tenant's Real Estate Tax Share after Expansion Space B has been added
to the Demised Premises will increase by an additional 1.3682% and Tenant's
Operating Expense Share after Expansion Space B has been added to the Demised
Premises shall be increased by an additional 1.6950%. Tenant shall deliver to
Landlord an additional security deposit in the amount of one full month's Basic
Monthly Rent for Expansion Space B at the time Tenant exercises its option for
Expansion Space B notwithstanding any other provision of this Lease relating to
any reduction in the letter of credit serving as a Security Deposit hereunder.
Tenant and Landlord shall enter into an amendment to this Lease at the time
Tenant exercises its option for Expansion Space B to reflect the terms and
conditions for the lease of such Expansion Space B, as set forth herein. In the
event that Tenant does not exercise its option for Expansion Space B within the
applicable time period required by this Paragraph, Landlord shall be free to
lease all or any part of Expansion Space B to any other person or entity on such
terms and conditions that Landlord determines in Landlord's sole discretion, and
Tenant's rights under this Paragraph 44 with respect to the Expansion Space B
shall terminate.
(iii) As to Expansion Space C, Tenant shall exercise its option for
Expansion Space C by giving written notice thereof to Landlord not later than
January 1, 2003, provided however, that in the event Expansion Space C becomes
available for lease earlier than January 1, 2004, Tenant shall give Landlord
written notice of Tenant's election to lease Expansion Space C within the thirty
(30) day period hereinafter described. Tenant shall lease Expansion Space C on
the same terms and conditions as the Demised Premises, including, without
limitation, the obligation to pay Additional Rent for Expansion Space C, except
that there shall be no rent abatement and the Basic Annual Rent shall be an
amount equal to the product of the number of square feet of rentable area
attributable to Expansion Space C, multiplied by the then applicable per-square-
foot Basic Annual Rent attributable to the Initial Demised Premises in effect
for each Lease Year of the remainder of the term of this Lease beginning in the
Lease Year in which Expansion Space C is added to the Demised Premises, and
further, to pay that Annual Basic Rent in equal monthly installments to Landlord
with the Basic Monthly Rent paid for the Demised Premises. Tenant's Real Estate
Tax Share after Expansion Space C has been added to the Demised Premises will
increase by an additional 2.7419% and Tenant's Operating Expense Share after
Expansion Space C has been added to the Demised Premises shall be increased by
an additional 3.3968 %. Tenant shall deliver to Landlord an additional security
deposit in the amount of one full month's Basic Monthly Rent for Expansion Space
C at the time Tenant exercises its option for Expansion Space C notwithstanding
any other provision of this Lease relating to any reduction in the letter of
credit serving as a Security Deposit hereunder. Tenant and Landlord shall enter
into an amendment to this Lease at the time Tenant exercises its option for
Expansion Space C to reflect the terms and conditions for the lease of such
Expansion Space C, as set forth herein. In the event that Tenant does not
exercise its option for Expansion Space C within the applicable time period
required by this Paragraph, Landlord shall be free to lease all or any part of
Expansion Space C to any other person or entity on such terms and conditions
that Landlord determines in Landlord's sole discretion, and Tenant's rights
under this Paragraph 44 with respect to the Expansion Space C shall terminate.
In the event Expansion Space C becomes available to lease prior to the
anticipated availability date of January 1, 2004, then Landlord shall give
Tenant written notice of the earlier availability of Expansion Space C (the
"Notice of Early Availability") and Tenant shall thereupon have thirty (30) days
from the date of Landlord's Notice of Early Availability to exercise its option
to lease such Expansion Space C. The terms and conditions of the lease of such
The Corporate Advisory Board Company Lease
June 23, 1998 Final
53
<PAGE>
Expansion Space C under the Notice of Early Availability shall be the same as
those set forth above for Expansion Space C. In the event that Tenant does
not exercise its option for Expansion Space C under the Notice of Early
Availability within the applicable time period required by this Paragraph for
the exercise of such option after the Notice of Early Availability, Landlord
shall be free to lease all or any part of Expansion Space C to any other person
or entity on such terms and conditions that Landlord determines in Landlord's
sole discretion, and Tenant's rights under this Paragraph 44 with respect to the
Expansion Space C shall terminate.
(b) Effective as of the date of delivery of possession of the Expansion
Space A, Expansion Space B and/or Expansion Space C, (i) each such space shall
be added to and constitute a part of the Demised Premises for all purposes under
this Lease, (ii) the rentable area of the Demised Premises shall be increased by
the rentable area of the respective expansion space, and (iii) the Basic Annual
Rent shall be appropriately increased for the remainder of the then current
Lease Year and for each Lease Year thereafter by an amount equal to the net
rentable area of the respective Expansion Space multiplied by the Basic Annual
Rent per square foot then payable for the respective expansion space, as set
forth above in the tables shown in Subparagraph 44(a)(i) with respect to
Expansion Space A and Expansion Space B and as referenced in Subparagraph
44(a)(iii) for Expansion Space C, for each such Lease Year. Expansion Space
A, Expansion Space B and Expansion Space C shall be delivered in their
respective then "as is" condition. Tenant's obligation to pay rent with respect
to each of Expansion Space A, Expansion Space B and Expansion Space C shall
commence upon delivery of the respective expansion space by Landlord to Tenant.
Tenant shall not make any alterations, installations, additions or improvements
in or to any of Expansion Space A, Expansion Space B or Expansion Space C
unless Tenant complies with Paragraph 11 ALTERATIONS of this Lease .
-----------
(c) Tenant may not exercise its option with respect to Expansion Space A,
Expansion Space B or Expansion Space C if, at the time specified for exercising
such respective option, this Lease shall not be in full force and effect or in
the event that at the time Tenant exercises any one of the respective expansion
options, Tenant shall have sublet in excess of 10,000 square feet of rentable
area of the Demised Premises or Tenant shall be in default in the performance of
any obligations hereunder. If Tenant shall fail to exercise any of such options
during the time or in the manner provided in this Paragraph 44 for the exercise
thereof, or if at the time specified for the exercise of such options, Tenant
shall not be entitled to exercise such options, then, and in either such event,
such options shall be absolutely void and of no force and effect.
The Corporate Advisory Board Company Lease
June 23, 1998 Final
54
<PAGE>
IN WITNESS WHEREOF, Landlord has caused these presents to be signed and
sealed in its corporate name by its duly authorized officers and its corporate
seal to be hereto affixed and duly attested to by its Secretary, and Tenant has
hereunto set his hand and seal (or Tenant has caused these presents to be signed
in its corporate name by its duly authorized officer and attorney-in-fact, and
its corporate seal to be hereto affixed and duly attested by its Secretary), all
done as of the date first above written.
LANDLORD:
--------
ATTEST: THE GEORGE WASHINGTON UNIVERSITY
By:
- --------------------------- -------------------------------------
Name:
Title:
(Corporate Seal)
TENANT:
------
ATTEST: THE CORPORATE ADVISORY BOARD COMPANY
By:
- --------------------------- -------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
(Corporate Seal)
The Corporate Advisory Board Company Lease
June 23, 1998 Final
55
<PAGE>
DISTRICT OF COLUMBIA ) ss:
I, __________________________________________, a Notary Public in and for
the aforesaid jurisdiction, do hereby certify that ________________________, as
attorney-in-fact for ________________________________, party to the foregoing
Agreement, who is personally well known to me as (or satisfactorily proven to
be) the person named as the attorney-in-fact in the foregoing Agreement,
personally appeared before me, and as such attorney-in-fact acknowledged said
Agreement to be the act and deed of ______________________________, a party
therein.
Given under my hand and seal this ____ day of ____________, 1998.
-----------------------------
Notary Public
[Notarial Seal]
My Commission Expires:_________________
DISTRICT OF COLUMBIA ) ss:
I, __________________________________________, a Notary Public in and for
the aforesaid jurisdiction, do hereby certify that ________________________, as
attorney-in-fact for ______________________________________, party to the
foregoing Agreement, who is personally well known to me as (or satisfactorily
proven to be) the person named as the attorney-in-fact in the foregoing
Agreement, personally appeared before me, and as such attorney-in-fact
acknowledged said Agreement to be the act and deed of
______________________________, a party therein.
Given under my hand and seal this ____ day of ____________, 1998.
-----------------------------
Notary Public
[Notarial Seal]
My Commission Expires:_________________
The Corporate Advisory Board Company Lease
June 23, 1998 Final
56
<PAGE>
EXHIBIT A
---------
TO
AGREEMENT OF LEASE FOR
THE CORPORATE ADVISORY BOARD COMPANY
2000 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20006
FLOOR PLANS OF THE DEMISED PREMISES AND
---------------------------------------
EXPANSION SPACES
----------------
57
<PAGE>
EXHIBIT B
---------
TO
AGREEMENT OF LEASE FOR
THE CORPORATE ADVISORY BOARD COMPANY
2000 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20006
DECLARATION AS TO DATE OF DELIVERY
AND ACCEPTANCE OF POSSESSION OF
DEMISED PREMISES
Attached to and made a part of the Agreement of Lease (office), dated the
___ day of __________, 199__, entered into by and between The George Washington
University, as LANDLORD and The Corporate Advisory Board Company, as TENANT.
LANDLORD and TENANT do hereby declare and evidence that possession of the
Demised Premises was accepted by TENANT in its "as is" condition on the ___ day
of __________, 199__. The Lease is now in full force and effect. For the
purpose of this Lease, the Lease Commencement Date is established as the ___ day
of __________, 199__. As of the date of delivery and acceptance of possession
of the Demised Premises as herein set forth, there are no claims that TENANT has
against LANDLORD and there is no right of set off against rents claimed by
TENANT against LANDLORD.
TENANT, as a corporation, a limited liability company, or a partnership,
states that its registered agent in the District of Columbia is
_________________________, having an address at _______________________________,
and that it is duly qualified to transact business and is in good standing in
the District of Columbia pursuant to District of Columbia law as of the date of
this Declaration.
58
<PAGE>
LANDLORD:
THE GEORGE WASHINGTON UNIVERSITY
Attest:
By:
- --------------------------- -------------------------------------
TENANT:
By:
-------------------------------------
Name:
Title:
59
<PAGE>
EXHIBIT C
---------
RULES AND REGULATIONS
---------------------
(As of ______, 199__)
A. The sidewalks, entries, passages, elevators, public corridors and
staircases and other parts of the Building which are not occupied by Tenant
shall not be obstructed or used for any purpose other than ingress and egress.
B. Tenant shall not install or permit the installation of any awnings,
shades, or other window coverings and the like, other than those approved by
Landlord in writing.
C. No additional locks shall be placed upon any doors of the Demised
Premises; and the doors leading to the corridors or main halls shall be kept
closed during business hours except as they may be used for ingress or egress.
D. Tenant shall not construct, maintain, use or operate within the Demised
Premises or elsewhere in, on or about the Building, any equipment or machinery
which produces music, sound, or noise which is audible beyond the Demised
Premises.
E. Electric and telephone distribution boxes must remain accessible at all
times.
F. Tenant shall not perform or cause to be done any work, nor install or
operate anything in the Demised Premises, which causes vibration, noise, odors,
smoke or vapors to emanate therefrom, or which might injure the Building or
annoy or disturb other tenants or occupants. If Landlord consents to Tenant
performing any work, the same shall be done only in the evenings between 7:00
p.m. and 7:00 a.m. and not during usual business hours unless expressly approved
in advance in writing by Landlord.
G. No bicycles, motorcycles, motor scooters or other vehicles of any kind
shall be brought into, stored, operated or parked anywhere within the Building
or Demised Premises, or parked in front of or adjacent to or leaned against the
Building without the consent of Landlord.
H. Canvassing, soliciting and peddling in the Building are prohibited, and
each tenant shall cooperate to prevent same. No animals, reptiles, fish or
birds shall be kept in or about the Demised Premises or the Building, or brought
into the entries, elevators or stairways thereof other than tropical fish and
seeing eye dogs. All deliveries to, or shipments from, or service to, the
Demised Premises shall be conducted in such fashion and at such times as will
not unreasonably interfere with or obstruct the orderly flow of pedestrian
traffic into and out of the Building.
I. No cooking or baking (other than typical office cooking, e.g. cooking
in a microwave oven) shall be permitted in any portion of the Demised Premises.
J. Tenant covenants and agrees, at its sole cost and expense, to comply
with all present and future laws, orders, and regulations of the District of
Columbia, federal municipal and local governments, departments, commissions,
agencies and boards to the extent that they or this Lease impose on tenant
duties and responsibilities regarding the collection, sorting, separation and
recycling of trash.
60
<PAGE>
EXHIBIT D
---------
SPECIFICATIONS FOR OFFICE SPACE
2000 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC
BUILDING STANDARD SPECIFICATIONS
FOR OFFICE SPACE
----------------
The following items are considered building standard for insurance purposes
and for purposes of any restoration obligations of LANDLORD in the event a
casualty or condemnation and of TENANT at the end of the term of the Agreement
of Lease.
1. Partitioning: Adequate interior partitioning to replace TENANT's
------------
existing design. This partitioning is to be constructed of 22" steel
studs, and 2" gypsum wallboard, floor to ceiling.
2. Painting: Standard latex paint in standard building colors.
--------
3. Ceiling. Acoustical tile ceiling.
-------
4. Doors: One exterior door and frame per suite, to be constructed of
-----
solid wood. One complete interior door and frame with hardware will
be provided on a ratio of one door per 150 square feet of rentable
area. Interior doors will be wood with a painted finish, with painted
metal frames.
5. Window Covering: Building standard blinds substantially similar to
---------------
those theretofore in use.
6. Floor Covering: Building standard floor coverings substantially
--------------
similar to those theretofore in use.
7. Lighting: Fully recessed fluorescent light fixtures with glare
--------
reducing diffusers, in amounts to provide adequate lighting at desk
level.
8. Telephone and Electrical Outlets: One 120 V duplex wall electrical
--------------------------------
outlet per 150 square feet of rentable space, and one telephone wall
outlet per 200 square feet of rentable space.
9. Electrical System Capacity: Building standard electrical system
--------------------------
having a capacity of five (5) watts per square foot.
10. Heating and Cooling System: LANDLORD will provide base-building
--------------------------
standard heating and cooling equipment for normal office use.
61
<PAGE>
EXHIBIT E
---------
TO
AGREEMENT OF LEASE (OFFICE) FOR
THE CORPORATE ADVISORY BOARD COMPANY
2000 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20006
FORM OF TENANT ESTOPPEL CERTIFICATE
-----------------------------------
This Certification made this ___ day of _________________________, 19__, by
______________________________.
WITNESSETH:
WHEREAS, by Agreement of Lease (Office), dated _________________________
(hereinafter referred to as the "Lease") between The George Washington
University, as landlord, (hereinafter referred to as "LANDLORD"), and The
Corporate Advisory Board Company, as tenant, (hereinafter referred to as
"TENANT"), LANDLORD leased to TENANT certain space in an office building known
by street address as 2000 Pennsylvania Avenue, N.W., Washington, D.C., for a
term and upon the terms and conditions set forth in said Lease; and
WHEREAS, ____________________________________________________________
_________________________________________________________________ (hereinafter
called "__________") is about [to sell the Building and Land] [to disburse a
mortgage loan to LANDLORD to be secured by a first Deed of Trust covering the
Building and Land]; and
WHEREAS, ____________________________________________________________, as a
condition to [the sale] [making said loan], requires confirmation of lease terms
and provisions by TENANT.
NOW, THEREFORE, TENANT intending to be legally bound hereby, states as
follows:
1. That the above mentioned Lease has not been changed, modified, amended
or assigned by TENANT, and that the Lease is in full force and effect, and to
TENANT's knowledge neither LANDLORD nor TENANT is in default thereof.
2. That TENANT has accepted and taken possession of the Demised Premises
(as defined in the Lease) leased to it pursuant to said Lease; has commenced
payment of rent at the rate and upon the terms called for in said Lease, and
certifies that the term of the Lease commenced on the ___ day of __________,
19__, and subject to __________ option(s) to renew, the original term of the
Lease will terminate on the ___ day of __________, 19__.
3. That to TENANT's knowledge all improvements have been fully completed
by LANDLORD in accordance with plans and specifications approved by TENANT, and
TENANT is in full and complete possession and occupancy thereof, and TENANT is
paying rent under said Lease on a current basis.
4. That TENANT has made no advancements for or on behalf of LANDLORD for
which it has the right to deduct from or offset against future rentals as of the
date of this Certification.
62
<PAGE>
5. That the TENANT has not paid rent for more than the current month
during which this Certification is made.
6. That there are no offsets or claims to rent, nor defenses or other
offsets against or to enforcement of the Lease by LANDLORD.
7. That TENANT deposited with LANDLORD a Security Deposit in the form of a
letter of credit in the amount of $_______________ with LANDLORD as of the
Lease Commencement Date and that as of the date hereof the Security Deposit
amount is ..
----------------------
IN WITNESS WHEREOF, the undersigned has executed this Certification the day
and year first above written.
ATTEST/WITNESS: TENANT:
- ----------------------------- ----------------------------
63
<PAGE>
EXHIBIT F
---------
TO
AGREEMENT OF LEASE (OFFICE) FOR
THE CORPORATE ADVISORY BOARD COMPANY
2000 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20006
MINIMUM STANDARDS FOR CLEANING, JANITORIAL AND CHAR SERVICES
------------------------------------------------------------
CLEANING SPECIFICATIONS FOR 2000 PENNSYLVANIA AVENUE, N.W.
----------------------------------------------------------
OFFICE TOWER
- ------------
RESTROOMS
---------
Daily
-----
. Clean all mirrors
. Clean hand basins and bright work with a non-abrasive cleaner
. Clean toilet seats (both sides)
. Clean urinals and toilet bowls using a liquid bowl cleaner and a
toilet bowl brush, paying special attention to flush holes, under
the rim and passage traps
. Clean all bright work on urinals and toilet bowls
. Sweep and damp mop floor
. Replenish towels, tissues, handsoap and feminine supplies
. Walls and partitions are to be free of hand prints and dust
Weekly
------
. Damp wipe walls, partitions and louvers
. Pour one cup of liquid bowl cleaner solution into drains to
eliminate sewage odor
Monthly
-------
. Machine scrub floors with germicidal solution
64
<PAGE>
OFFICES AND HALLWAYS
--------------------
Daily
-----
. Empty and wipe clean wastepaper baskets and ashtrays
. Replace wastepaper basket plastic liners
. Dust all horizontal surfaces up to 84" in height (unobstructed
furniture, office equipment, appliances, window sills, etc.) with a
treated cloth or static wool duster
. Vacuum unobstructed areas of all rugs and carpets in office areas,
as well as public areas
. Inspect unobstructed areas of all carpeted areas for spots and/or
stains. Spots/stains should be removed immediately
. Dust mop all non-carpeted floor areas with a treated yarn dust mop,
with special attention given to unobstructed areas under desks and
furniture to prevent accumulation of dust and dirt
. Clean and polish all water coolers
. Remove all hand prints and spots from doors and light switches
. Dust a sufficient number of Venetian blinds so that all blinds are
dusted every 90 days.
Weekly
------
. Clean Wastebaskets
. Vacuum hard to reach and unobstructed places (under desks, chairs,
corners, edges)
Monthly
-------
. Clean all areas around air conditioning and return air grills
Quarterly
---------
. Dust and/or clean ledges, moldings and picture frames
As Necessary
------------
. Tile floors refinished and buffed. Care shall be exercised in
applying finish so as to keep it off furniture and walls. Floor
machines shall be used in a careful manner to avoid damage to the
walls, and furniture.
. Cigarette urns and ash receivers shall be cleaned and sanitized as
necessary, and where required, the sand level shall be maintained.
65
<PAGE>
. When floors require wet mopping, they shall be left in a streak
free condition. Extreme care shall be exercised in all mopping as
to avoid splashing walls and furniture.
LANDLORD SHALL NOT BE RESPONSIBLE FOR AND SHALL NOT CLEAN ANY KITCHENS
LOCATED IN THE DEMISED PREMISES.
66
<PAGE>
EXHIBIT "G"
GUARANTY
THIS GUARANTY (the "Guaranty"), is made as of the day of ____ of
_____________, 1998 by the undersigned party (the "Guarantor"), having a notice
address at The Watergate, 600 New Hampshire Avenue, N.W., Washington, D.C. 20037
Attention: Michael A. D'Amato to and for the benefit of The George Washington
University (the "Landlord"), having a notice address of c/o LaSalle Partners
Management Services, Inc., Suite 2400, 2000 Pennsylvania Avenue, N.W.,
Washington, D.C 20006 and Office of Vice President & Treasurer, 2121 Eye Street,
N.W., Suite 701, Washington, D.C 20052.
WHEREAS, the Landlord has leased to THE CORPORATE ADVISORY BOARD
COMPANY,a Delaware corporation, (the "Tenant"), under a lease dated June __,
1998 (herein called the "Lease"), certain space located in 2000 K Street, N.W.
(the "Property"),; and
WHEREAS, Guarantor and Tenant are both currently sharing space at The
Watergate, 600 New Hampshire Avenue, N.W. ("The Watergate") and are affiliated
corporations; and
WHEREAS, Guarantor and Tenant have exceeded the capacity of the space
at The Watergate and therefore, Guarantor has asked Tenant to relocate; and
WHEREAS, Tenant has agreed to relocate and has executed the Lease for
space in 2000 Pennsylvania Avenue, N.W. and the Landlord under such Lease is
willing to let space to Tenant only on the condition that Guarantor agree to
execute and deliver this guaranty.
WHEREAS, Guarantor will receive a benefit from the ability of Tenant to
relocate to the premises demised by the Lease in the form of additional space at
the site where Guarantor presently leases space, and Guarantor is therefore
willing to execute and deliver this Guaranty.
NOW THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged the Guarantor agrees with the Landlord as follows:
1. The Guarantor unconditionally and irrevocably guarantees that all
sums stated in the Lease to be payable by the Tenant or sums equal thereto will
be promptly paid in full when due in accordance with the Lease, and that the
Tenant will perform and
1
<PAGE>
observe each and every covenant, agreement, term, and condition in the Lease
required to be performed or observed by the Tenant. Guarantor further
unconditionally and irrevocably guarantees payment to Landlord on demand any
amounts which are paid to Landlord by the Tenant pursuant to the Lease and which
are subsequently set aside as preferential transfers under Section 547 of the
Bankruptcy Code. This Guaranty is irrevocable, unconditional and absolute, and
if for any reason any such sums shall not be paid promptly when due, the
Guarantor will, promptly after notice thereof and prior to the expiration of any
period of grace provided for in said instruments for the making of payment of
any such sums, pay the same to the person entitled thereto pursuant to the Lease
regardless of (a) any defenses or rights of set-off or counterclaims which the
Tenant may have or assert against the Landlord; provided, however, that any such
payment by the Guarantor shall not constitute a waiver of any defense or claim
which the Tenant may have against the Landlord, (b) whether the Landlord shall
have taken any steps to enforce any rights against the Tenant or any other
person to collect such sum or any part thereof, (c) the termination of the Lease
or the enforcement of any other remedy thereunder as a result of the default of
the Tenant thereunder, or (d) any other condition or contingency. The Guarantor
also agrees to pay to such person such further amount as shall be sufficient to
cover the cost and expense of collecting such sums or any part thereof or of
otherwise enforcing this Guaranty, including, in any case, reasonable
compensation to its attorneys for all services rendered in connection therewith.
Upon the Tenant's failure to perform or observe any covenant, agreement, term or
condition in the Lease to be performed or observed by the Tenant, the Guarantor
will, promptly after notice thereof and prior to the expiration of any period of
grace provided for in any said instrument for the performance or observance of
the same, perform and observe the same or cause the same promptly to be
performed and observed.
2. (a) The obligations, covenants, agreements and duties of the Guarantor under
this Guaranty shall in no way be affected or impaired by reason of the happening
from time to time of any of the following, although without notice to or further
consent of the Guarantor:
(i) the waiver by the Landlord of the performance or observance by the
Tenant, the Guarantor or any other party or parties of any of the agreements,
covenants, terms or conditions contained in the Lease or this Guaranty; or
(ii)the extension, in whole or in part, of the time for payment by the
Tenant or the Guarantor of any sums owing or payable under the Lease or this
Guaranty, or of any other sums or obligations under or arising out of or on
account of the Lease or this Guaranty, or the renewal of the Lease or this
Guaranty; or
(iii) any assignment of the Lease or subletting of the Property or any
part thereof; or
<PAGE>
(iv) the modification or amendment (whether material or otherwise) of
any of the obligations of the Tenant or the Guarantor under the Lease or this
Guaranty; or
(v) the doing or the omission of any of the acts referred to in the
Lease or this Guaranty (including, without limitation, the giving of any consent
referred to therein); or
(vi) any failure, omission or delay on the part of the Landlord to
enforce, assert or exercise any right, power or remedy conferred on or available
to the Landlord in or by the Lease or the Guaranty, or any action on the part of
the Landlord granting indulgence or extension in any form whatsoever; or
(vii) the voluntary or involuntary liquidation, dissolution, sale of all
or substantially all of the assets, marshaling of assets and liabilities,
receivership, conservatorship, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of, or other similar proceeding affecting the Tenant or the Guarantor or any of
their assets; or
(viii) the release of the Tenant or the Guarantor from the performance
or observance of any of the agreements, covenants, terms or conditions contained
in the Lease or this Guaranty by operation of law.
(b) Guarantor further covenants and agrees that neither its
obligation to make payment in accordance with the terms of this Guaranty nor
any remedy for the enforcement thereof shall be impaired, modified, changed,
released or limited in any manner whatsoever by any impairment, modification,
change, release or limitation of the liability of Tenant or its estate in
bankruptcy or any remedy for the enforcement thereof resulting from the
operation of any present or future provision of the Bankruptcy Reform Act of
1978 or other statute, or from the decision of any court, nor shall such
obligation or remedy for enforcement be impaired, modified, changed, released or
limited in any manner by such event of bankruptcy.
(c) The Guarantor hereby expressly waives, to the extent not prohibited
by law, for itself and all those claiming under the Guarantor (i) any right the
Guarantor may now or hereafter have to require the Landlord to proceed first
against the Tenant upon any obligation or liability of the Tenant that is
guaranteed by the Guarantor hereunder, (ii) any right the Guarantor may now or
hereafter have to any hearing prior to the attachment of any real or personal
property of the Guarantor to satisfy the obligations of the Guarantor hereunder,
and (iii) the benefits of any present or future constitution, statute or rule of
law which exempts property from liability for debt.
3. In the event of the rejection or disaffirmance of the Lease by the Tenant
or the Tenant's trustee in bankruptcy pursuant to bankruptcy law or any other
law affecting creditors' rights, the Guarantor will, and does hereby (without
the necessity of any further
3
<PAGE>
agreement or act), assume all obligations and liabilities of the Tenant under
the Lease to the same extent as if (a) Guarantor were originally named the
Tenant under the Lease, and (b) there had been no such rejection or
disaffirmance, and the Guarantor will confirm such assumption in writing at the
request of the Landlord upon or after such rejection or disaffirmance; the
Guarantor shall, upon such assumption (to the extent permitted by law), have all
rights of the Tenant under the Lease.
4. Notice of acceptance of this Guaranty and notice of any obligations
or liabilities contracted or incurred by the Tenant are hereby waived by the
Guarantor.
5. The Guaranty may not be modified or amended except by a written
agreement duly executed by the Guarantor with the consent in writing of the
Landlord.
6. The Guarantor hereby covenants and represents that (a) neither the
execution, delivery or performance of this Guaranty or the Lease, nor the
consummation of the transactions herein or therein contemplated, nor compliance
with the terms and provisions hereof or thereof conflicts or will conflict with
or result or will result in a breach of or constitutes or will constitute a
default under (i) the organizational documents or other charter documents or by-
laws, if any, of the Tenant, (ii) any law or any order, writ, injunction or
decree of any court or governmental authority or (iii) any agreement or
instrument to which the Guarantor or the Tenant is a party or by which Guarantor
or the Tenant is bound; (b) the Guarantor is not engaged in any litigation which
will or may adversely affect its ability to carry out any of the terms and
provisions of this Guaranty.
7. This is an unconditional guaranty of payment, not merely of
collection. The Guarantor's liability hereunder shall be primary and not
secondary, and shall be joint and several with that of the Tenant. The Landlord
may proceed against the Guarantor under this Guaranty without initiating or
exhausting its remedy or remedies against the Tenant, and may proceed against
the Tenant and/or the Guarantor separately or concurrently. If more than one
party constitutes Guarantor, then all obligations and covenants set forth herein
shall be the joint and several obligations and covenants of the undersigned
parties collectively constituting Guarantor.
8. The Guarantor hereby warrants and represents that as of the date
hereof, there has been no material change in its financial condition from that
reflected in any financial statements previously submitted to Landlord, and
since the date of such statement, if any, the business, property and assets of
the Guarantor have not been adversely affected in any way.
9. If any term or provision of this Guaranty shall be determined to be
illegal or unforceable, all other terms and provisions hereof shall nevertheless
remain effective and shall be enforced to the fullest extent permitted by law.
10. Any notice which the Landlord may elect to send to the Guarantor
shall be binding upon the Guarantor if mailed to it at the address set forth
above or its last address
4
<PAGE>
known to the Landlord, by United States Certified or Registered Mail, Return
Receipt Requested.
11. This Guaranty shall be construed in accordance with the laws of
the District of Columbia. Guarantor agrees that any litigation arising out of,
or related to, this Guaranty or the Lease shall be brought in the courts of the
District of Columbia or in the United States District Court for the District of
Columbia, and the Guarantor hereby consents to the venue of such courts.
Guarantor consents to service of process and any pleading relating to any action
between Landlord and Guarantor at the Demised Premises, as defined in the Lease,
provided however, that nothing herein shall be construed as requiring such
service at the Demised Premises.
12. This Guaranty shall be binding upon, Guarantor, its heirs,
personal representatives, successors and assigns and shall inure to the benefit
of, Landlord, its successors and assigns.
13. This Guaranty shall expire on March 31, 2002 provided the
following conditions have been met:
a. The Tenant is not then in default under the Lease.
b. Guarantor has provided to Landlord audited financial
statements for The Corporate Advisory Board Company prepared by Arthur Anderson
or other national accounting firm acceptable to Landlord in its reasonable
discretion for two (2) consecutive Fiscal Years ending December 31 which show
for each such Fiscal Year that the lesser of operating income or income before
provision of income taxes (after option repurchase and non-recurring
compensation and interest income as shown on such financial statements) exceeds
ten million dollars ($10,000,000).
c. The second of the two (2) consecutive Fiscal Years referred
to above ends on December 31, 2001.
d. Landlord has confirmed, within ten (10) business days of the
submission of the financial statements referenced in b. above that for each
Fiscal year shown on such financial statements that the lesser of operating
income or income before provision of income taxes (after option repurchase and
non-recurring compensation and interest income as shown on such financial
statements) exceeds ten million dollars ($10,000,000) and that the Tenant is not
in default under the Lease.
f. The financial statements are delivered to Landlord no later
than March 15, 2002.
In the event that the financial statements required under subparagraph b. are
submitted for years subsequent to Fiscal Year 2001, then the Guaranty will
expire on the first day of
<PAGE>
the month following the month in which Landlord confirms the information in such
financial statements as required in subparagraph d. above. In the event that
the financial statements for Fiscal Years 2000 and 2001 are submitted to
Landlord later than March 15, 2002, then the Guaranty will not expire until the
first day of the month following the month in which Landlord confirms the
information in the financial statements required by subparagraph d. above.
The date of the expiration of this Guaranty is referred to herein and in the
Lease as the "Burnoff Date".
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed
as of the date first above written.
GUARANTOR:
Attest/Witness: THE ADVISORY BOARD COMPANY
By: (SEAL)
- ----------------------------- ---------------------------------------
Assistant Secretary President
6
<PAGE>
DISTRICT OF COLUMBIA ) ss:
I, ____________________________________, a Notary Public in and for the
aforesaid jurisdiction, do hereby certify that _______________________________
_________________________________, as attorney-in-fact for ___________________
_________________________________, party to the foregoing Agreement, who is
personally well known to me as (or satisfactorily proven to be) the person named
as the attorney-in-fact in the foregoing Agreement, personally appeared before
me, and as such attorney-in-fact acknowledged said Agreement to be the act and
deed of ___________________________________________, a party therein.
Given under my hand and seal this ____ day of ___________________, 1998.
________________________________________
Notary Public
[Notarial Seal]
My Commission Expires: _______________________________
7
<PAGE>
EXHIBIT H
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
McDermott, Will & Emery
600 13th Street, N.W.
Suite 1200
Washington, DC 20005
Attn: Sean P. McGuinness, Esq.
- --------------------------------------------------------------------------------
(Space Above For Recorder's Use Only)
AMENDMENT NO. 1 TO
FIRST DEED OF TRUST, ASSIGNMENT
OF RENTS, SECURITY AGREEMENT AND
FIXTURE FILING
This AMENDMENT NO. 1 TO FIRST DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING (this "Amendment No. 1"), dated as of
January 12, 1998, by and among THE GEORGE WASHINGTON UNIVERSITY, a corporation
created by Act of Congress ("Trustor"), having an office at 2121 I Street, N.W.,
Rice Hall, 7th floor, Washington, DC 20052, TRANSAMERICA OCCIDENTAL LIFE
INSURANCE COMPANY, a California corporation ("Beneficiary"), having an office at
c/o Transamerica Realty Services, Inc., 1150 South Olive Street, Suite 2200, Los
Angeles, California 90015, and Elizabeth M. Conahan ("Trustee"), having an
office at 7500 Old Georgetown Road, Suite 800, Bethesda, Maryland 20814-6133, as
trustee for the benefit of Beneficiary.
W I T N E S S E T H :
WHEREAS, pursuant to a certain FIRST DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING (the "Deed of Trust") made as of June 26,
1997, by Trustor to Trustee, for the benefit of Beneficiary, for the purpose of
securing (a) the payment of an indebtedness in the amount of FORTY MILLION AND
00/100 DOLLARS ($40,000,000.00), to be paid in accordance with the terms and
with interest as set forth in a certain Secured Promissory Note dated June 26,
1997 made by Trustor to the order of Beneficiary, and all modifications,
extensions and/or renewals thereof (such Secured Promissory Note and all
additional notes referred to in (c) below are hereinafter individually and
collectively referred to as the "Note"), (b) the payment and performance of all
indebtedness and
CERTIFIED TRUE COPY
Tri-State Commercial Closings, Inc.
By: /s/ Barb H. Kemp
--------------------------------
<PAGE>
obligations of Trustor arising under the Deed of Trust, and (c) payment of any
money advanced by Beneficiary to Trustor, or its successors, with interest
thereon, evidenced by additional notes (indicating that they are so secured) or
by endorsement of the original Note, executed by Trustor or its successor,
Trustor granted, mortgaged, chattel mortgaged, bargained, sold, alienated,
enfeoffed, released, conveyed and confirmed unto Trustee, in trust, with power
of sale, all its estate, right, title and interest in, to and under certain
Mortgaged Property (as defined in the Deed of Trust), including without
limitation the real property identified on Exhibit "A" hereto; and
WHEREAS, Trustor and Beneficiary each wish to amend the Deed of Trust as
provided herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which the parties hereby
acknowledge, the parties hereby agree as follows:
1. Section 1.16(a) of the Deed of Trust is amended and restated in its
entirety to provide as follows:
(a) With respect to the leases of the Mortgaged Property
Trustor shall (i) observe and perform faithfully every obligation which
Trustor is required to perform under the leases; (ii) use commercially
reasonable efforts to enforce or secure the performance of, at its sole
cost and expense, every obligation to be performed by the tenants under
the leases, (iii) promptly give notice to Beneficiary of any notice of
default received by Trustor from any lessee under the leases, together
with a copy of such notice; (iv) not collect any Rents under any of the
leases in advance of the time when the same shall be due, or anticipate
any payments under any of the leases, except for bona fide security
deposits not in excess of an amount equal to two (2) months' rent;
(v) not purport or attempt to further assign any of the leases or the
Rents (except as expressly permitted by the last sentence of the first
paragraph of Section 1.8 hereof); (vi) except with Beneficiary's prior
-----------
written consent, not waive, condone or in any manner discharge any
tenants from their obligations under the leases other than in the
ordinary course of business in accordance with good business practice
for properties of the type and quality as the Mortgaged Property in the
District of Columbia; (vii) deliver copies of all leases to Beneficiary
within thirty (30) days of execution; (viii) appear in and defend
against, at Trustor's sole cost and expense, any action or proceeding
arising under, and in any manner connected with the leases, the Rents or
the obligations, duties or liabilities of the lessor, tenants or
guarantors thereunder; and (ix) not execute any lease for all or any
portion of the Mortgaged Property without the prior written consent of
Lender, unless the lease contains subordination, nondisturbance and
attornment provisions
2
<PAGE>
substantially in the form attached hereto as Exhibit "B" (the "SNDA
-----------
Provisions") (provided, any such lease with an affiliate of Borrower
shall include only such subordination and attornment provisions as
specifically directed by Lender as provided in Section 1.16(b) hereof).
---------------
Provided that the lease between Trustor and any tenant contains
provisions substantially in the form of the SNDA Provisions, such
provisions shall be self-operative and shall be binding upon the
Beneficiary without the necessity of executing any additional document
or agreement. However, if confirmation of the subordination,
nondisturbance or attornment pursuant to the SNDA Provisions is required
by a tenant of Trustor, Beneficiary shall execute and deliver, upon the
request of Trustor, an agreement with such tenant setting forth
provisions substantially in the form of the SNDA Provisions.
2. Section 1.16(b) of the Deed of Trust is amended and restated in its
entirety to provide as follows:
(b) Trustor will not enter into any lease of the Mortgaged
Property with any affiliate of Trustor unless (i) such lease contains
only such of those subordination and attornment provisions set forth in
Exhibit "C" hereto, if any, as specifically directed by Lender and at
-----------
Lender's sole option and (ii) such lease provides that following the
occurrence of an Event of Default hereunder Beneficiary may terminate
such lease upon thirty (30) days' notice to the affiliate tenant
thereunder.
3. A new Section 2.13 is added to the Deed of Trust providing as follows:
SECTION 2.13 Access to Rear Entrance. Trustor acknowledges that
-----------------------
access to and from the rear entrance of the Building is located on adjoining
lands of Trustor, and Trustor agrees to maintain over such adjoining lands a
pedestrian walkway from either 21st Street, N.W., or H Street, N.W. to the
existing rear entrance of the building commonly known as 2000 Pennsylvania
Avenue, N.W. (the "Building") along the south side of the Mortgaged
Property. Such walkway shall be reasonably similar to the existing such
walkway. Upon the occurrence and during the continuance of an Event of
Default, Beneficiary may, at its option, give notice to Trustor demanding
that Trustor cause to be recorded in the Land Records of the District of
Columbia a covenant permanently granting access over Trustor's adjoining
lands for such walkway. If Trustor fails for whatever reason (including
Trustor's inability at such time to control such adjoining lands) to cause
such covenant to be so recorded within fifteen (15) days after receipt of
such notice, then, notwithstanding anything in Section 3.20 to the contrary,
------------
Trustor shall be personally liable to Beneficiary for any loss incurred by
Beneficiary as a result of the diminution in value of the Mortgaged Property
resulting from the failure of the Mortgaged Property to have access to or
from the rear entrance of the Building.
3
<PAGE>
4. Section 3.2(b) of the Deed of Trust is amended and restated in its
entirety to provide as follows:
(b) Any notice given pursuant to Section 1.6(f), Section 1.14(b)
-------------------------------
or Section 1.14(d) hereof which requests Beneficiary's consent to the
---------------
matters referred to in such Sections shall contain the following legend
(and shall be ineffective if it fails to contain such legend):
THIS NOTICE IS GIVEN PURSUANT TO SECTION ____ OF THAT CERTAIN
FIRST DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
DATED AS OF JUNE 26, 1997 GIVEN BY THE GEORGE WASHINGTON
UNIVERSITY TO TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY.
THE CONSENT REQUESTED HEREBY WILL BE DEEMED TO HAVE GRANTED BY
TRANSAMERICA IF TRANSAMERICA FAILS TO RESPOND IN WRITING TO THIS
REQUEST WITHIN SEVEN (7) BUSINESS DAYS OF TRANSAMERICA'S RECEIPT
HEREOF, AS MORE FULLY PROVIDED IN THE DEED OF TRUST.
5. Section 3.20 of the Deed of Trust is amended and restated in its
entirety to provide as follows:
SECTION 3.20. Limited Recourse. Beneficiary agrees that the
------------ ----------------
assets and property available to it to collect the principal and
interest due under the Note shall be limited to the Mortgaged Property
and other collateral now or hereafter encumbered to secure the repayment
of the Note, and the rents, profits, issues and proceeds thereof. No
other asset of Trustor shall be seized or attached to satisfy any
monetary judgment rendered on the Note. Nevertheless, the foregoing
shall not release or impair the obligations evidenced by the Note or any
other Loan Document or any collateral now or hereafter given to secure
such obligations, nor shall it prevent Beneficiary from exercising any
right or remedy available to it under the Note or any other Loan
Document or applicable law except as expressly set out in the first
sentence above. Furthermore, Trustor shall be fully liable to
Beneficiary for (i) all damages suffered by Beneficiary on account of
fraud or material misrepresentation, (ii) all liabilities of Trustor
under that certain Environmental Indemnity Agreement of even date
herewith given by Trustor to Beneficiary, (iii) the distribution or
misapplication of any rental income or other income arising with respect
to the Mortgaged Property collected by Trustor after
4
<PAGE>
the occurrence of a Default or Event of Default (as those terms are
defined herein) to the full extent of the rental income or other income
collected by Trustor with respect to the Mortgaged Property thereafter,
(iv) the replacement cost of any personal property or fixtures which are
encumbered by the Deed of Trust or any other Loan Document which are
removed or disposed of by Trustor and not replaced as required hereunder
or by such other Loan Document, and then to the extent of the
replacement cost of such personal property or fixtures, (v) the
misapplication of any proceeds to the full extent of said misapplied
proceeds under any insurance policies or awards resulting from
condemnation or the exercise of the power of eminent domain or by reason
of damage or destruction to any portion of the Mortgaged Property, (vi)
any loss to Beneficiary occasioned by (A) Trustor's failure to insure
the Mortgaged Property or pay real estate taxes as required hereby or by
any other Loan Document, (B) Trustor's act or omission impairing the
validity or priority of Beneficiary's lien on the Mortgaged Property (as
distinguished from the value of the security for the Note), or (C) a
willful failure of Trustor to protect and preserve the security for the
Note as provided herein and in the other Loan Documents, (vii) any loss,
cost or expense, including attorneys' fees, incurred by Beneficiary as a
result of Trustor's bankruptcy, (viii) the misapplication of any
security deposits attributable to the Mortgaged Property in violation of
any law, governmental regulation or contractual obligation applicable to
Trustor, (ix) the collection in advance or use of any rents, issues or
profits in violation of any covenant contained herein or in any other
Loan Document to the full extent of such collections, (x) any loss or
damage to Beneficiary occasioned by any other violation of law suffered
or committed by Trustor or its agents and (xi) any amount for which
Trustor is liable as provided in Section 2.13 hereof. Nothing in the
------------
foregoing sentence shall in any manner release, affect or impair the
existence of the indebtedness evidenced by the Note or the obligations
of Trustor under this Deed of Trust or the other Loan Documents, or the
enforceability hereof or thereof. This paragraph shall survive
foreclosure of the Deed of Trust or repayment of the Note.
5
<PAGE>
IN WITNESS WHEREOF, Trustor and Beneficiary have caused this Amendment
No. 1 to the Deed of Trust to be executed by their duly authorized officers as
of the date first above written.
TRUSTOR:
THE GEORGE WASHINGTON UNIVERSITY
a corporation created by Act of
Congress
By: /s/ Louis H. Katz
-------------------------------------
Name: Louis H. Katz
-----------------------------------
Title: Vice President and Treasurer
----------------------------------
BENEFICIARY:
TRANSAMERICA OCCIDENTAL LIFE
INSURANCE COMPANY
By: /s/ Matthew A. Palmer
-------------------------------------
Name: Matthew A. Palmer
-----------------------------------
Title: Investment Officer
----------------------------------
TRUSTEE:
/s/ Elizabeth M. Conahan
-----------------------------------------
Elizabeth M. Conahan
6
<PAGE>
EXHIBIT "A"
BORROWER AND INDEMNITOR: THE GEORGE WASHINGTON UNIVERSITY
PROPERTY ADDRESS: 2000 Pennsylvania Avenue, N.W.
Washington, DC 20006
LEGAL DESCRIPTION OF PROPERTY:
Lot 58 in Square 101 in the combination of lots and part of alley closed
made by The George Washington University, as per plat recorded in Liber 173 at
folio 83 of the Records of the Office of the Surveyor for the District of
Columbia.
<PAGE>
EXHIBIT "B"
NONAFFILIATE SUBORDINATION,
NONDISTURBANCE AND ATTORNMENT PROVISIONS
(A.) Subordination and Nondisturbance. This Lease and all rights of
--------------------------------
Tenant hereunder are subject and subordinate to all first mortgages and first
deeds of trust, and to any other mortgages and deeds of trust junior in lien to
such first mortgage or first deed of trust if such subordination to such junior
lien is approved by the party or parties secured under such first mortgage or
first deed of trust, and to all ground or underlying leases, which may now or
hereafter affect the Building and the Land of which the Demised Premises form a
part, and all renewals, modifications, consolidations, recastings, replacements
and extensions thereof; provided, however, that subject to the provisions of
Subparagraphs (B.) and (C.) below this Lease shall remain in full force and
effect following and foreclosure under any of the aforesaid mortgages, deeds of
trust or ground leases; provided further, however, that Tenant shall not be in
default beyond any applicable cure period herein. It is the intention of the
parties that this Subparagraph (A.) shall be self-operative and that no further
instrument of subordination, nondisturbance or attornment shall be necessary to
effectuate such subordination, nondisturbance or attornment. However, if
confirmation of such subordination, nondisturbance or attornment is required by
any mortgagee or ground lessor, Tenant shall execute and deliver promptly upon
any request of Landlord or its mortgagee(s) or ground lessor any certificate
that may be requested confirming such subordination. Tenant may not unreasonably
delay or condition its delivery. Tenant hereby constitutes and appoints Landlord
as Tenant's attorney-in-fact to execute any such certificate or certificates for
and on behalf of Tenant if Tenant fails to execute and deliver same within seven
(7) days after any request. Also the failure of Tenant to execute and deliver
such certificate or certificates shall be a default under this Lease and basis
for Landlord to exercise its rights and remedies under the provisions of the
Paragraph of this Lease entitled "DEFAULTS AND REMEDIES."
(B.) Attornment. The party secured by any such mortgage or deed of
----------
trust or the purchaser at foreclosure thereof or by deed in lieu thereof
(collectively "Subsequent Purchaser") shall recognize this Lease, provided,
however, that Tenant shall not be in default beyond any applicable cure period
herein, and Tenant shall attorn to and recognize the Subsequent Purchaser as its
landlord under this Lease, and will execute, acknowledge and deliver promptly
upon request of Landlord or such mortgagee or any other Subsequent Purchaser (at
or prior to the foreclosure) any instrument which in the opinion of such party
requesting same is necessary or appropriate to evidence such attornment by
Tenant and/or the subordination of such mortgage or deed of trust to this Lease.
Also the failure of Tenant to execute and deliver such certificate or
certificates shall be a default under this Lease and basis for Landlord to
exercise its rights and remedies under the provisions of the Paragraph of this
Lease entitled "DEFAULTS AND REMEDIES." The Tenant hereby waives the provisions
of any statute or
<PAGE>
rule of law, now or hereafter existing, which may give or purport to give Tenant
any right to terminate or otherwise adversely affect this Lease and Tenant's
obligations hereunder in the event of any such foreclosure or conveyance in lieu
of foreclosure. Tenant agrees that neither the cancellation nor termination of
any ground or underlying lease to which this Lease is now or may hereafter
become subject or subordinate shall by operation of law or otherwise result in
cancellation or termination of this Lease, and in such event this Lease shall
continue as a direct lease between Tenant and such ground lessor or its
successor.
(C). Effect of Attornment. Notwithstanding anything to the contrary in
--------------------
this Lease, any Subsequent Purchaser and any ground lessor (i) shall not be
bound by any prepayment by Tenant to any prior lessor (including Landlord) of
rent for more than one calendar month in advance (so that rent shall be payable
after the foreclosure, the purchase, or the termination of ground lease as
applicable in accordance with the terms of this Lease as if such prepayment of
rent for more than one calendar month in advance had not been made); (ii) shall
not be bound by any amendment or modification to this Lease or by any waiver or
forbearance on the part of any prior lessor (including Landlord) which violates
the terms of Landlord's first mortgage or deed of trust; (iii) shall not be
liable for any act or omission of any prior lessor (including Landlord); and
(iv) shall not be subject to any offsets or defenses which Tenant might have
against any prior lessor (including Landlord). Additionally Landlord's
mortgagee shall be discharged of any responsibility hereunder to Tenant which
may have arisen (by reason of the mortgagee becoming a mortgagee in possession,
a lessor or otherwise) after such mortgagee disposes of its interest in the
Building of which the Demised Premises is a part.
(D). Entitlement to Notice. Any mortgagee or ground lessor shall be
---------------------
entitled to receive, and Tenant shall deliver to it concurrently with Landlord,
any notices given by Tenant under this Lease. The mortgagee (or purchaser
therefrom), or ground lessor shall be given a reasonable period of time
following receipt of such written notice and the failure of Landlord to cure the
noticed default to cure any default(s) of Landlord which may be claimed by
Tenant.
<PAGE>
EXHIBIT "C"
AFFILIATE SUBORDINATION
AND ATTORNMENT PROVISIONS
-------------------------
(A.) Subordination of Lease/General. This Lease and all rights of
------------------------------
Tenant hereunder are subject and subordinate to all first mortgages and first
deeds of trust, and to any other mortgages and deeds of trust junior in lien to
such first mortgage or first deed of trust if such subordination to such junior
lien is approved by the party or parties secured under such first mortgage or
first deed of trust, and to all ground or underlying leases, which may now or
hereafter affect the Building and the Land of which the Demised Premises form a
part, and all renewals, modifications, consolidations, recasting, replacements
and extensions thereof. It is the intention of the parties that this
Subparagraph (A.) shall be self-operative and that no further instrument of
subordination shall be necessary to effectuate such subordination of this Lease.
However, if confirmation of such subordination is required by any mortgagee or
ground lessor, Tenant shall execute and deliver promptly upon any request of
Landlord or its mortgagee(s) or ground lessor any certificate that may be
requested confirming such subordination. Tenant may not reasonably delay or
condition its delivery. Tenant hereby constitutes and appoints Landlord as
Tenant's attorney-in-fact to execute any such certificate or certificates for
and on behalf of Tenant if Tenant fails to execute and deliver same within seven
(7) days after any request. Also the failure of Tenant to execute and deliver
such certificate or certificates shall be a default under this Lease and basis
for Landlord to exercise its rights and remedies under the provisions of the
Paragraph of this Lease entitled "DEFAULTS AND REMEDIES."
(B.) Attornment. The party secured by any such mortgage or deed of
----------
trust or the purchaser at foreclosure thereof or by deed in lieu thereof
(collectively "Subsequent Purchaser") shall have the right to recognize this
Lease and, in the event of any sale under such mortgage or deed of trust, such
Subsequent Purchaser may at its option require that this Lease remain in force
thereafter. In such event, Tenant agrees that when any foreclosure of any such
mortgage or deed of trust or conveyance in lieu of foreclosure occurs, Tenant
will attorn to and recognize the Subsequent Purchaser therefrom as its landlord
under this Lease, and will execute, acknowledge and deliver promptly upon
request of Landlord or such Subsequent Purchaser at or prior to foreclosure or
sale, any instrument which in the opinion of such party aforesaid requesting
same is necessary to evidence or confirm such attornment by Tenant and/or the
subordination of this Lease to such mortgage or deed of trust of this Lease.
Tenant may not unreasonably delay or condition its delivery of such instrument.
Tenant hereby waives the provisions of any statute or rule of law, now or
thereafter existing, which may give or purport to give Tenant any right to
terminate or otherwise adversely affect this Lease and Tenant's obligations
hereunder in the event of any such foreclosure or conveyance in lieu of
foreclosure. Also the failure of Tenant to execute and deliver such certificate
or certificates shall be a default under this Lease and basis for Landlord to
exercise its rights and remedies under the provisions
<PAGE>
of the Paragraph of this Lease entitled "DEFAULTS AND REMEDIES."
(C.) Effect of Attornment. Notwithstanding anything to the contrary in
--------------------
this Lease, any Subsequent Purchaser and any ground lessor or its successor
under any such ground lease who requests such attornment, (i) shall not be
bound by any prepayment by Tenant to any prior lessor (including Landlord) of
rent for more than one calendar month in advance (so that rent shall be payable
after the foreclosure, the purchase, or the termination of ground lease as
applicable in accordance with the terms of this Lease as if such prepayment of
rent for more than one calendar month in advance had not been made); (ii) shall
not be bound by any amendment or modification to this Lease or by any waiver or
forbearance on the part of any prior lessor (including Landlord) made or given
without the written consent of Landlord's first mortgagee or ground lessor;
(iii) shall not be liable for any act or omission of any prior lessor (including
Landlord); and (iv) shall not be subject to any offsets or defenses which Tenant
might have against any prior lessor (including Landlord). Additionally
Landlord's mortgagee shall be discharged of any responsibility hereunder to
Tenant which may have arisen (by reason of the mortgagee becoming a mortgagee in
possession, a lessor or otherwise) after such mortgagee disposes of its interest
in the Building of which the Demised Premises is a part.
(D.) Entitlement to Notices. Any mortgagee or ground lessor shall be
----------------------
entitled to receive, and Tenant shall deliver to it concurrently with Landlord,
any notices given by Tenant under this Lease. The mortgagee (or purchaser
therefrom), or ground lessor shall be given a reasonable period of time
following receipt of such written notice and the failure of Landlord to cure the
noticed default to cure any default(s) of Landlord which may be claimed by
Tenant.
<PAGE>
DISTRICT OF )
) ss.
COLUMBIA )
The foregoing instrument was acknowledged before me this 12th day of
----
January, 1998, by Louis H. Katz , Vice President & Treasurer of The George
----------------- --------------------------
Washington University, a corporation by Act of Congress, on behalf of said
corporation.
WITNESS my hand and official seal.
/s/ Lisa Porcher
---------------------------------------
Notary Public
My commission expires: October 31, 2002
------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT No.
- -----------------------------------------------------------------------------------------------------------------------------------
| -------- OPTIONAL SECTION ---------
State of CALIFORNIA ) | CAPACITY CLAIMED BY SIGNER
----------------------------------------- ) | Though statute does not require the
) | Notary to fill in the data below,
County of Los Angeles ) | doing so may prove invaluable to
---------------------------------------- ) | persons relying on the document.
|
On Jan 16, 1998 before me, Karen L. Klein, Notary Public , | [ ] INDIVIDUAL
---------------- ------------------------------------------------------- | [ ] CORPORATE OFFICER(S)
DATE NAME, TITLE OF OFFICER - E.G., "JANE DOE, NOTARY PUBLIC | Investment Officer
| -------------------------------
personally appeared Matthew A. Palmer , | TITLE(S)
------------------------------------------------------------------ | [ ] PARTNER(S) [ ] LIMITED
NAME(S) OF SIGNER(S) | [ ] GENERAL
| [ ] ATTORNEY-IN-FACT
[X] personally known to me - OR - [ ] proved to me on the basis of satisfactory | [ ] TRUSTEE(S)
evidence to be person whose name is subscribed | [ ] GUARDIAN/CONSERVATOR
to the within instrument and acknowledged | [ ] OTHER:
to me that he executed the same in his | ------------------------
NOTARY SEAL OF authorized capacity and that by his signature | -------------------------------
KAREN L. KLEIN on the instrument the person, or the entity | -------------------------------
APPEARS HERE upon behalf of which the person acted, exe- |
cuted the instrument. | SIGNER IS REPRESENTING:
| NAME OF PERSON(S) OR ENTITY(IES)
|
WITNESS my hand and official seal. | Transamerica Occidental
| -----------------------------------
/s/ Karen L. Klein | Life Insurance Company
---------------------------------------------- | -----------------------------------
SIGNATURE OF NOTARY |
----------------------------------------------------- OPTIONAL SECTION --------------------------------------------------------
THIS CERTIFICATE MUST BE ATTACHED TO TITLE OR TYPE OF DOCUMENT
THE DOCUMENT DESCRIBED AT RIGHT: -------------------------------------------------------------
NUMBER OF PAGES DATE OF DOCUMENT
------------------------------------- ------------------------ -----------------------------
Though the data requested here is not SIGNER(S) OTHER THAN NAMED ABOVE
required by law, it could prevent ------------------------------------------------------
fraudulent reattachment of this form.
- -----------------------------------------------------------------------------------------------------------------------------------
(COPYRIGHT) 1993 NATIONAL NOTARY ASSOCIATION - 8236 Remmet Ave., P.O. Box 7184 - Canoga Park, CA 91309
</TABLE>
<PAGE>
STATE OF MARYLAND )
) ss.
COUNTY OF MONTGOMERY )
On this 14th day of January, 1998, before me, the undersigned officer,
------
personally appeared Elizabeth M. Conahan, known to me (or satisfactorily proven)
to be the person whose name subscribed to the within instrument and acknowledged
that she executed the same for the purposes therein contained.
WITNESS my hand and official seal.
/s/ Cullum D. Anthony (?)
--------------------------------------
Notary Public
My commission expires: 1/1/2000
------------
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
December 11, 1998
