<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1999
Registration No. 333-59833
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 2
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)
Delaware 8732 52-2056410
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
----------------
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. Cravath, Swaine
Gibson, Dunn & Crutcher LLP & 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.
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<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 JANUARY 29, 1999
PROSPECTUS
8,187,200 Shares
[LOGO OF CORPORATED EXECUTIVE BOARD APPEARS HERE]
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 8,187,200 shares of Common Stock being offered hereby, a total of
6,549,760 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 1,637,440
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 409,360 shares of Common Stock are being reserved for sale to certain
employees and directors of the Company, and their friends and 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 $17 and $19. See "Underwriting" for a discussion of the factors to
be considered in determining the initial public offering price. The Common
Stock has been approved for listing 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.
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<TABLE>
<CAPTION>
Underwriting Proceeds to
Price Discounts and Selling
to Public Commissions(1) Stockholders(2)
- ---------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ---------------------------------------------------
Total(3) $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(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 $2.2 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 Underwriters
30-day options to purchase up to 1,228,080 additional shares of Common
Stock solely to cover over-allotments, if any. See "Underwriting." If such
options are 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 Salomon 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, adjusted to reflect reductions in membership
resulting from mergers and acquisitions of members) 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. Representative members include
American Express, British Airways, Citigroup, Coca-Cola, Dell, Hewlett-Packard,
Lucent, Merrill Lynch, Microsoft, Procter & Gamble and Xerox. No one member
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 two years 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 generally are renewable on a 12-month basis, and the average
price per subscription program at December 31, 1998 was approximately $27,500.
In 1998, the Company published 24 best practices research studies, completed
over 12,500 customized research briefs and provided executive education
services to 1,187 member corporations reaching approximately 25,000 executive
participants. The Company's 215 analysts and researchers have compiled a
proprietary database of 261 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 44.7% and 21.1%, respectively, from December 31, 1995 through
December 31 1998. 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 (the "Spin-Off") 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
<TABLE>
<S> <C>
Common Stock offered by the Selling
Stockholders(1)(2):
U.S. Offering...................... 6,549,760 shares
International Offering............. 1,637,440 shares
Total............................. 8,187,200 shares
Common Stock to be outstanding
after the Offering................. 13,188,960 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 $6.63
million of proceeds to repay a promissory
note made by him in favor of the Company.
Nasdaq symbol....................... EXBD
</TABLE>
- --------
(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.
(2) Assumes no exercise of the Underwriters' over-allotment options. See
"Underwriting."
(3) Does not include 7,826,000 shares of Common Stock reserved for issuance
under the Company's Stock-Based Incentive Plan (the "Incentive Plan"), the
Company's 1999 Stock Option Plan (the "1999 Plan") and the Company's
Directors' Stock Plan (the "Directors Plan"), pursuant to which options to
purchase an aggregate of 5,519,920 shares of Common Stock with a weighted
average exercise price of $4.64 per share (assuming, with respect to
685,000 of such shares to be issued at the Offering, an exercise price of
$18.00 per share, the mid-point of the initial public offering price range)
will be outstanding at the closing of the Offering.
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, 1997 and
1998, and for each of the years in the four-year period ended December 31,
1998, 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, 1994 and 1995 and for
the year ended December 31, 1994 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 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>
Year Ended December 31,
-------------------------------------------
1994 1995 1996 1997 1998
------- -------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues....................... $10,384 $ 17,547 $27,283 $38,669 $53,030
Costs and expenses:
Cost of services............. 7,698 10,849 15,078 20,036 26,069
Member relations and
marketing................... 2,807 5,275 6,677 8,106 10,980
General and administrative... 1,147 2,589 3,832 5,660 6,920
Depreciation................. 249 233 452 722 885
Stock option restructuring
and repurchase and special
bonus plan(1)............... -- 9,390 1,473 3,063 5,342
------- -------- ------- ------- -------
Total costs and expenses... 11,901 28,336 27,512 37,587 50,196
------- -------- ------- ------- -------
Income (loss) from
operations(1)................. (1,517) (10,789) (229) 1,082 2,834
Interest income................ -- -- -- 122 786
------- -------- ------- ------- -------
Income (loss) before provision
(benefit) for state income
taxes......................... (1,517) (10,789) (229) 1,204 3,620
Provision (benefit) for state
income taxes(2)............... (151) (1,076) (23) 120 361
------- -------- ------- ------- -------
Net income (loss).............. $(1,366) $ (9,713) $ (206) $ 1,084 $ 3,259
======= ======== ======= ======= =======
Pro forma net income
(loss)(2)..................... $ (887) $ (6,312) $ (134) $ 704 $ 2,118
======= ======== ======= ======= =======
Pro forma net income (loss) per
share--basic(3)............... $ (0.07) $ (0.50) $ (0.01) $ 0.06 $ 0.17
Pro forma weighted average
shares outstanding--basic(3).. 12,504 12,504 12,504 12,504 12,504
Pro forma net income (loss) per
share--diluted(3)............. $ (0.07) $ (0.50) $ (0.01) $ 0.05 $ 0.14
Pro forma weighted average
shares--diluted(3)............ 12,504 12,504 12,504 13,752 14,950
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------
1998 Pro
1994 1995 1996 1997 1998 forma(4)
------- ------- ------- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equiva-
lents................... $ -- $ -- $ -- $ 8,937 $12,232 $13,160
Working capital.......... 1,712 (3,530) (4,645) (5,005) (8,721) (8,299)
Total assets............. 13,154 18,568 23,107 39,868 48,928 51,215
Deferred revenues........ 9,578 15,382 21,696 31,474 39,061 39,061
Total stockholder's eq-
uity (deficit).......... 2,508 (7,205) (7,411) (5,042) (8,147) (3,160)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C> <C>
Other Operating Data:
Subscription programs(5).................... 7 9 10
Member institutions(5)(6)(7)................ 998 1,151 1,333
Total membership subscriptions(5)(7)........ 1,485 1,808 2,263
Average subscription programs per mem-
ber(5)(7).................................. 1.49 1.57 1.70
Program renewal rate(8)..................... 86% 85% 85%
</TABLE>
- --------
(1) Prior to the Spin-Off, The Advisory Board Company entered into agreements
with certain employees to repurchase outstanding stock options at fixed
amounts (the "Liquid Markets Agreements"). 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.
Furthermore, in the Spin-Off, there was a substitution of Company stock
options for Advisory Board Company stock options. In December 1998, the
Company and the Principal Selling Stockholder agreed to certain payments in
the aggregate amount of $2.4 million to selected employees under a special
bonus plan. The Company reflects charges relating to the Liquid Markets
Agreements as stock option repurchase expenses over the required employment
period ending December 31, 1998. 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 expenses over the
vesting period of the options. Lastly, the Company recorded the special
bonus plan charge of $2.4 million at the time of the commitment in December
1998. Excluding all of these expenses related to the Company's options and
special bonus plan, Income (Loss) From Operations for 1994, 1995, 1996,
1997 and 1998 would have been $(1.5) million, $(1.4) million, $1.2 million,
$4.1 million, and $8.2 million respectively. See "Certain Transactions
Prior to the Offering--Stock Option Restructuring and Repurchase and
Special Bonus Plan Charges."
(2) 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.
(3) 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. Diluted 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, including
dilutive securities, during the period. See Note 2 and Note 9 to Financial
Statements.
(4) Pro forma to give effect to (1) the distribution of $4.0 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 $4.5 million as of December 31, 1998, (3) the repayment by
the Principal Selling Stockholder to the Company of a promissory note in
the principal amount of $6.5 million, (4) payment of the special bonus of
$2.4 million, 60% in shares of Common Stock owned by the Principal Selling
Stockholder and 40% in cash paid by the Company, (5) the payment by the
Company of approximately $2.2 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,
and (6) the closing of the Offering. See "Certain Transactions Prior to the
Offering--Stock Option Restructuring and Repurchase and Special Bonus Plan
Charges."
(5) At the end of the period.
(6) The Company's members are primarily domestic and multinational corporations
and secondarily large subsidiaries of corporations and non-profit
institutions.
(7) Information presented with respect to the years ended December 31, 1996 and
1997 has been adjusted to eliminate members during such periods who
discontinued their membership prior to their annual renewal date in the
subsequent year. Information with respect to the year ended December 31,
1998 includes the Company's estimate of pending membership renewals and an
estimate of members who will discontinue their membership prior to their
annual renewal date in the subsequent year.
(8) Program renewal rate is defined as the percentage of memberships renewed,
adjusted to reflect reductions in memberships resulting from mergers and
acquisitions of members.
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."
Change in Senior Management
Although James J. McGonigle, the Chief Executive Officer of the Company,
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, who
served as the Executive Vice President of the Company until July 1998 and to
whom Mr. McGonigle reported until that date, 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 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. The Company's key personnel include Mr. McGonigle, Mr.
Whitson, Sally Chang, the General Manager, Sales and Marketing, Derek C. van
Bever, the Chief Research Officer, and those individuals identified under
"Management--Key Employees." 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
8
<PAGE>
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 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, among 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."
9
<PAGE>
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.
Financial Institution Industry Consolidation
At December 31, 1998, approximately 45.8% of the Company's Contract Value
was 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.
The Company calculates Contract Value as the aggregate annualized membership
revenue attributable to all membership agreements in effect at a given time,
without regard to the remaining duration of any such agreement, including an
estimate for 1998 of pending membership renewals and an estimate of members
who will discontinue their membership prior to their annual renewal date in
the subsequent year. 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 $8.1
million at December 31, 1998. There can be no assurance that the Company will
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 can 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
10
<PAGE>
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 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 13,188,960
shares of Common Stock and options to purchase 5,519,920 shares of Common
Stock under the Company's various option plans with a weighted average
exercise price of $4.64 per share (assuming, with respect to 685,000 of such
shares to be sold in the Offering, an exercise price of $18.00 per share, the
mid-point of the initial public offering price range). After the Offering, the
Principal Selling Stockholder, who will hold approximately 5,001,760 shares of
Common Stock (approximately 3,773,680 shares of Common Stock if the
Underwriters' over-allotment options are exercised in full), less shares of
Common Stock granted under the special bonus plan described under "Certain
Transactions Prior to the Offering--Stock Option Restructuring and Repurchase
and Special Bonus Plan Charges," 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. The Principal Selling
Stockholder 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 of 1933
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 approximately 5,001,760 outstanding shares
of Common Stock that will be held by the Principal Selling Stockholder after
the Offering (approximately 3,773,680 shares of Common Stock if the
Underwriters over-allotment options are exercised in
11
<PAGE>
full) 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, the Selling Stockholders, the executive officers, the directors
and the employees receiving shares of Common Stock under the special bonus
plan 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 (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 1999 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
1999 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 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 38% of the shares of Common Stock
(approximately 29% if the Underwriters' over-allotment options are exercised
in full), less shares of Common Stock granted under the special bonus plan.
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."
Potential Ability of the Principal Selling Stockholder to Hire Key Personnel
of the Company
The Noncompetition Agreement generally prohibits The Advisory Board Company,
the Principal Selling Stockholder and entities controlled by the Principal
Selling Stockholder from recruiting or employing the Company's employees or
persons who were employees 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. See "Certain Relationships and
Transactions -- Noncompetition Agreement." After the Offering, the Principal
Selling Stockholder will continue to own approximately 38% of the Common Stock
(approximately 29% if the Underwriters' over-allotment options are exercised
in full), less shares of Common Stock granted under the special bonus plan. As
a result, the Principal Selling Stockholder may be in a position to direct the
chief executive officer to consent to the employment of one or more key
employees of the Company by the Principal Selling Stockholder or The Advisory
Board Company. The recruitment of key employees could have a material adverse
effect on the Company's business and results of operations. In addition, the
Noncompetition Agreement permits The Advisory Board Company and the Principal
Selling Stockholder or entities controlled by him to hire Mr. van Bever at any
time after January 1, 2002.
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 a portion of 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 $4.0
million (the "Pre-Closing Distribution"). In addition, the expenses of the
Offering, estimated to be approximately $2.2 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
have entered 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 , 1999 the Board of Directors and the Principal Selling
Stockholder, approved a 17.2-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 100 million and the authorization of five
million shares of Preferred Stock (the "Authorized Share Increase"). The Stock
Split was effected on , 1999. In order to facilitate the Offering, on
, 1999, 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 a single class 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
13,188,960 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 and Special Bonus Plan 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 was charged to compensation expense over required employment
periods ending in December 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 $382,000 in 1999, $382,000 in 2000 and $189,000
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. In December 1998, the Company and the Principal
Selling Stockholder agreed to pay a special bonus to selected employees in an
amount totaling $2.4 million. The bonus is payable at the earlier of the date
of an initial public offering or December 31, 1999. If the amount is paid at
the date of an initial public offering, the obligation will be payable 60% in
shares of Common Stock owned by the Principal Selling Stockholder (valued for
this purpose at the initial price offered to the public) and 40% in cash by
the Company. If the amount is not paid in conjunction with an initial public
offering, then the obligation will be payable 100% in cash by the Company. The
Company recognized $2.4 million in expense related to this special bonus plan
in 1998.
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 $6.63 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 $10.9 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
$2.2 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 December
31, 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>
December 31, 1998
----------------------
Actual Pro Forma(1)
-------- ------------
(In thousands)
<S> <C> <C>
Cash and cash equivalents.............................. $ 12,232 $13,160
======== =======
Current stock option repurchase and special bonus plan
liability(2).......................................... $ 7,054 $ 4,654
-------- -------
Total current liabilities............................ $ 7,054 $ 4,654
======== =======
Long-term stock option repurchase liability(2)......... $ 3,140 $ 3,140
Preferred stock, par value $0.01; 5,000,000 shares
authorized, no shares issued and outstanding.......... -- --
Common stock, par value $0.01; 100,000,000 shares
authorized, and 12,504,400 shares issued and
outstanding (actual), 13,188,960 shares issued and
outstanding (pro forma)(3)............................ 125 132
Additional paid-in capital............................. 2,646 (2,339)
Deferred compensation.................................. (953) (953)
Accumulated deficit.................................... (9,965) --
-------- -------
Total capitalization................................. $ (5,007) $ (20)
======== =======
</TABLE>
- --------
(1) Assumes the following transactions took place as of December 31, 1998: (i)
the payment of the Pre-Closing Distribution in the amount of $4.0 million;
(ii) the Recapitalization; (iii) the payment of the expenses of the
Offering in the amount of approximately $2.2 million; (iv) the closing of
the Offering; (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; (vi)
payment of the special bonus of approximately $2.4 million, 60% in shares
of Common Stock owned by the Principal Selling Stockholder and 40% in cash
by the Company; and (vii) the termination of the Company's S corporation
election and a resulting increase in the Company's federal deferred income
tax asset of approximately $4.5 million. See "Certain Transactions Prior
to the Offering--S Corporation Distribution and Termination of S
Corporation Status;--The Recapitalization; and--Stock Option Restructuring
and Repurchase and Special Bonus Plan 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. 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. The Company has a $2.4 million commitment relating to a special
bonus plan, payable no later than December 31, 1999, classified as current
special bonus plan liability. See "Certain Transactions Prior to the
Offering--Stock Option Restructuring and Repurchase and Special Bonus Plan
Charges."
(3) Does not include options outstanding at the closing of the Offering to
purchase 5,519,920 shares of Common Stock under the Company's various
option plans with a weighted average exercise price of $4.64 per share
(assuming, with respect to 685,000 of such shares to be issued at the
Offering, an exercise price of $18.00 per share, the mid-point of the
initial public offering price range).
16
<PAGE>
DILUTION
The Principal Selling Stockholder currently is the sole beneficial owner of
the Company's outstanding stock. The Principal Selling Stockholder currently
beneficially owns 12,504,400 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 at the time of the Spin-Off. 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 $0.93 per
share, to purchase 684,560 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).................... 5,001,760 38% $ 2,908 --% $ --
New Investors........... 8,187,200 62% $147,369,600 100% $18.00(2)
---------- --- ------------ ---
Total................... 13,188,960 100% $147,372,508 100%
========== === ============ ===
</TABLE>
- --------
(1) The foregoing calculations (i) assume the shares of Common Stock owned by
the Principal Selling Stockholder, who is expected to be the only existing
stockholder who will continue to own shares of Common Stock after the
Offering, were acquired for $.01 per share, the par value of each share of
The Advisory Board Company underlying the shares of the Company
distributed to him in the Spin-Off, (ii) exclude 7,826,000 shares of
Common Stock reserved for issuance under the Company's Incentive Plan, the
1999 Plan and the Directors Plan, (iii) assume no exercise of the
Underwriters' over-allotment options and (iv) exclude 684,560 shares of
Common Stock acquired by Messrs. Zients and D'Amato, at a purchase price
of $0.93 per share as a result of the exercise of options immediately
prior to the Offering because Messrs. Zients and D'Amato will sell in the
Offering all of such shares of Common Stock and will not own any
outstanding shares of Common Stock immediately after the Offering.
(2) The mid-point of the estimated initial public offering price range set
forth on the cover page of this Prospectus.
Sales by the Selling Stockholders in the Offering will reduce the number of
shares of Common Stock held by the Principal Selling Stockholder, the only
existing stockholder, to approximately 5,001,760 shares or 38% (approximately
3,773,680 shares or 29% if the Underwriters' over-allotment option is
exercised in full) of the total number of shares of Common Stock outstanding
after the Offering, less shares of Common Stock granted under the special
bonus plan. As a result of the Offering, the number of shares of Common Stock
held by new investors will be 8,187,200 shares or 62% (9,415,280 shares or 71%
if the Underwriters' over-allotment options are 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, 1997
and 1998, and for each of the years in the four-year period ended December 31,
1998, 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, 1994 and 1995 and
for the year ended December 31, 1994 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 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>
Year Ended December 31,
-------------------------------------------
1994 1995 1996 1997 1998
------- -------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues....................... $10,384 $ 17,547 $27,283 $38,669 $53,030
Costs and expenses:
Cost of services............. 7,698 10,849 15,078 20,036 26,069
Member relations and
marketing................... 2,807 5,275 6,677 8,106 10,980
General and administrative... 1,147 2,589 3,832 5,660 6,920
Depreciation................. 249 233 452 722 885
Stock option restructuring
and repurchase and special
bonus plan(1)............... -- 9,390 1,473 3,063 5,342
------- -------- ------- ------- -------
Total costs and expenses... 11,901 28,336 27,512 37,587 50,196
------- -------- ------- ------- -------
Income (loss) from
operations(1)................. (1,517) (10,789) (229) 1,082 2,834
Interest income................ -- -- -- 122 786
------- -------- ------- ------- -------
Income (loss) before provision
(benefit) for state income
taxes......................... (1,517) (10,789) (229) 1,204 3,620
Provision (benefit) for state
income taxes(2)............... (151) (1,076) (23) 120 361
------- -------- ------- ------- -------
Net income (loss).............. $(1,366) $ (9,713) $ (206) $ 1,084 $ 3,259
======= ======== ======= ======= =======
Pro forma net income
(loss)(2)..................... $ (887) $ (6,312) $ (134) $ 704 $ 2,118
======= ======== ======= ======= =======
Pro forma net income (loss) per
share--basic(3)............... $ (0.07) $ (0.50) $ (0.01) $ 0.06 $ 0.17
Pro forma weighted average
shares outstanding--basic(3).. 12,504 12,504 12,504 12,504 12,504
Pro forma net income (loss) per
share--diluted(3)............. $ (0.07) $ (0.50) $ (0.01) $ 0.05 $ 0.14
Pro forma weighted average
shares--diluted(3)............ 12,504 12,504 12,504 13,752 14,950
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------
1998 Pro
1994 1995 1996 1997 1998 forma(4)
------- ------- ------- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equiva-
lents................... $ -- $ -- $ -- $ 8,937 $12,232 $13,160
Working capital.......... 1,712 (3,530) (4,645) (5,005) (8,721) (8,299)
Total assets............. 13,154 18,568 23,107 39,868 48,928 51,215
Deferred revenues........ 9,578 15,382 21,696 31,474 39,061 39,061
Total stockholder's eq-
uity (deficit).......... 2,508 (7,205) (7,411) (5,042) (8,147) (3,160)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Other Operating Data:
Subscription pro-
grams(5)............... 7 9 10
Member institu-
tions(5)(6)(7)......... 998 1,151 1,333
Total membership
subscriptions(5)(7).... 1,485 1,808 2,263
Average subscription
programs per member-
ship(5)(7)............. 1.49 1.57 1.70
Program renewal
rate(8)................ 86% 85% 85%
</TABLE>
- --------
(1) Prior to the Spin-Off, The Advisory Board Company entered into the Liquid
Markets Agreements. 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.
Furthermore, in the Spin-Off, there was a substitution of Company stock
options for Advisory Board Company stock options. In December 1998, the
Company and the Principal Selling Stockholder agreed to certain payments
in the aggregate amount of $2.4 million to selected employees under a
special bonus plan. The Company reflects charges relating to the Liquid
Markets Agreements as stock option repurchase expenses over the required
employment period ending December 31, 1998. 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
expenses over the vesting period of the options. Lastly, the Company
recorded the special bonus plan charge of $2.4 million at the time of the
commitment in December 1998. Excluding all of these expenses related to
the Company's options and special bonus plan, Income (Loss) From
Operations for 1994, 1995, 1996, 1997 and 1998 would have been $(1.5)
million, $(1.4) million, $1.2 million, $4.1 million, and $8.2 million
respectively. See "Certain Transactions Prior to the Offering--Stock
Option Restructuring and Repurchase and Special Bonus Plan Charges."
(2) The Company has elected to be taxed under subchapter S of 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.
(3) 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. Diluted 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, including
dilutive securities, during the period. See Note 2 and Note 9 to Financial
Statements.
(4) Pro forma to give effect to (1) the distribution of $4.0 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 $4.5 million as of December 31, 1998, (3) the
repayment by the Principal Selling Stockholder to the Company of a
promissory note in the principal amount of $6.5 million, (4) payment of
the special bonus of $2.4 million, 60% in shares of Common Stock owned by
the Principal Selling Stockholder and 40% in cash paid by the Company, (5)
the payment by the Company of approximately $2.2 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, and (6) the closing of the Offering. See "Certain
Transactions Prior to the Offering--Stock Option Restructuring and
Repurchase and Special Bonus Plan Charges."
(5) At the end of the period.
(6) The Company's members are primarily domestic and multinational
corporations and secondarily large subsidiaries of corporations and non-
profit institutions.
(7) Information presented with respect to the years ended December 31, 1996
and 1997 has been adjusted to eliminate members during such periods who
discontinued their membership prior to their annual renewal date in the
subsequent year. Information with respect to the year ended December 31,
1998 includes the Company's estimate of pending membership renewals and an
estimate of members who will discontinue their membership prior to their
annual renewal date in the subsequent year.
(8) Program renewal rate is defined as the percentage of memberships renewed,
adjusted to reflect reductions in memberships resulting from mergers and
acquisitions of members.
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 44.7% from $17.5 million in 1995 to $53.0 million in
1998, while costs have grown at a compound annual growth rate of 21.1% from
$28.3 million in 1995 to $50.2 million in 1998, resulting in operating losses
prior to 1997 and income from operations of $1.1 million and $2.8 million in
1997 and 1998, respectively. 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 any such agreement, including for
1998 an estimate of pending membership renewals and an estimate of members who
will discontinue their membership prior to their annual renewal date in the
subsequent year. 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 38.8% over the past three years and was $62.4 million at December 31, 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. The
Company reflected these charges as stock option repurchase
20
<PAGE>
expenses in the year ended December 1998. 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. In December 1998, the Company approved a special bonus
plan for selected employees. The terms of the plan resulted in compensation
expense being charged in 1998 for the full value of the plan, reflected as
special bonus plan expense. See "Certain Transactions Prior to the Offering--
Stock Option Restructuring and Repurchase and Special Bonus Plan Charges."
Results of Operations
The following table sets forth certain financial data as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Revenues:
Total revenues......................................... 100.0% 100.0% 100.0%
Costs and expenses:
Cost of services....................................... 55.2 51.8 49.2
Member relations and marketing......................... 24.5 21.0 20.7
General and administrative............................. 14.0 14.6 13.1
Depreciation........................................... 1.7 1.9 1.7
Stock option restructuring and repurchase and special
bonus plan............................................ 5.4 7.9 10.0
----- ----- -----
Total costs and expenses............................. 100.8% 97.2% 94.7%
----- ----- -----
Income (loss) from operations............................ (0.8)% 2.8% 5.3%
===== ===== =====
</TABLE>
Years Ended December 31, 1996, 1997 and 1998
Revenues. Total revenues increased 41.8% from $27.3 million for the year
ended December 31, 1996 to $38.7 million for the year ended December 31, 1997,
and 37.0% to $53.0 million for the year ended December 31, 1998. 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 two new subscription programs in 1997 and one new subscription
program in 1998.
The Company's program renewal rate, defined as the percentage of prior year
membership subscriptions renewed, was 86%, 85% and 85% for 1996, 1997 and
1998, respectively.
Cost of Services. Cost of services decreased as a percentage of revenue from
55.2% for the year ended December 31, 1996 to 51.8% for the year ended
December 31, 1997 and 49.2% for the year ended December 31, 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. The absolute cost of these services increased
32.5% from $15.1 million for the year ended December 31, 1996 to $20.0 million
for the year ended December 31, 1997 and 30.5% to $26.1 million for the year
ended December 31, 1998. 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 24.5% for the year ended
December 31, 1996 to 21.0% for the year ended December 31,
21
<PAGE>
1997 and to 20.7% for the year ended December 31, 1998. This decrease is
largely attributable to the Company's ability to leverage marketing personnel
to sell multiple subscription programs, offset in 1998 by the costs, largely
personnel and related, to increase marketing efforts for existing programs.
The absolute dollar costs of member relations and marketing increased 20.9%
from $6.7 million for the year ended December 31, 1996 to $8.1 million for the
year ended December 31, 1997, and 35.8% to $11.0 million for the year ended
December 31, 1998. 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.
General and Administrative. General and administrative expenses as a
percentage of total revenues were 14.0% for the year ended December 31, 1996,
14.6% for the year ended December 31, 1997 and 13.1% for the year ended
December 31, 1998. The percent changes reflect a higher level of investment in
new product development and human resources during 1997 to support the launch
of two additional subscription programs. The absolute dollar costs for general
and administrative expenses increased 50.0% from $3.8 million for the year
ended December 31, 1996 to $5.7 million for the year ended December 31, 1997,
and 21.1% to $6.9 million for the year ended December 31, 1998. 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 59.7% from $452,000 for the
year ended December 31, 1996 to $722,000 for the year ended December 31, 1997
and 22.6% to $885,000 for the year ended December 31, 1998. 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 and Special Bonus Plan
Charges. The Company recognized $1.5 million, $1.8 million and $2.4 million in
compensation expense related to the repurchase of certain stock options
pursuant to the Liquid Markets Agreements for the years ended December 31,
1996, 1997 and 1998, respectively. As of December 31, 1998, the Company has
recognized all of the compensation expense related to these agreements. 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 and $506,000 in 1998, with
$382,000 in charges scheduled in 1999, $382,000 in 2000 and $189,000 in 2001.
Lastly, the Company recorded a compensation charge of $2.4 million in 1998
related to a special bonus plan. There are no subsequent charges to be
incurred related to the special bonus plan. See "Certain Transactions Prior to
the Offering--Stock Option Restructuring and Repurchase and Special Bonus Plan
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
22
<PAGE>
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 practicable, 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 a portion of 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.
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 $5.5 million in cash
from operating activities during 1996, $13.6 million in 1997 and $16.8 million
in 1998.
The Company has obtained a commitment for a $10.0 million 12-month revolving
line of credit from a commercial bank. Borrowings under this line of credit
will be secured by the Company's assets. The Company has no explicit purpose
for the line of credit and does not expect to utilize it over the initial 12-
month term.
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 net
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 1998, the Company invested $2.1 million for
the purchase of property and equipment and $118,000 for the net purchase of
marketable securities.
In 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, prior to the
closing of the Offering, an additional $4.0 million to the Principal Selling
Stockholder and the Bradley Trust as the Pre-Closing Distribution. The Company
will also pay approximately $2.2 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 principal amount of $6.5 million
from the Principal Selling Stockholder. The note bears interest at an annual
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 December 31, 1998, the Company had cash and cash equivalents of $12.2
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 $5.0
million in leasehold improvements and related costs during 1999. The Company
has entered into a $1.3 million Letter of Credit Agreement with a commercial
bank to provide a
23
<PAGE>
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 $2.6 million related to these agreements in 1998,
and is obligated to pay $4.7 million in 1999, and $3.1 million in 2000. The
Company and the Principal Selling Stockholder have agreed to pay special
bonuses to selected employees in an aggregate amount totaling $2.4 million.
The bonus is payable at the earlier of the date of an initial public offering
or December 31, 1999. If the amount is paid at the date of an initial public
offering, the obligation will be payable 60% in shares of Common Stock owned
by the Principal Selling Stockholder (valued for this purpose at the initial
price offered to the public) and 40% in cash by the Company. If the amount is
not paid in conjunction with an initial public offering, then the obligation
will be payable 100% in cash by the Company. See "Certain Transactions Prior
to the Offering--Stock Option Restructuring and Repurchase and Special Bonus
Plan 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 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 currently does not have any components of "other
comprehensive income," reported net income is the same as "total comprehensive
income" for 1997 and 1998.
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. The Company has made the appropriate disclosures
required by SFAS No. 131.
The Company, since inception, has recognized revenue ratably over the term
of the related membership, generally 12 months. The Securities and Exchange
Commission has advised the Company that it is evaluating the accounting rules
and interpretations covering revenue recognition of membership fees. Until the
Securities and Exchange Commission staff issues these interpretative
guidelines, it is unclear what impact, if any, they will have on the Company's
current accounting policy. Any change could have a material effect on the
manner in which the Company recognizes revenue.
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 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 utilizes 382 distinct software programs in running
its computer operations. Of these systems, the Company has classified 64 as
mission-critical systems, defined as systems whose failure potentially could
have a significant adverse effect on the Company's ability to conduct its
business efficiently. These include end-user software applications, back-
office systems and embedded software in computer hardware systems. Of the
64 mission-critical systems, four are custom software systems developed for
the Company. Two of these four have been modified and tested to ensure their
year 2000 compliance and the Company expects that the two remaining custom
systems will be brought into compliance by May 1999. The rest of the Company's
24
<PAGE>
software systems are commercial off-the-shelf packages ("COTS"). The Company's
60 mission-critical COTS programs currently are under review for year 2000
compliance. The Company has determined that 31 of the mission-critical COTS
programs are fully compliant. The Company has made this determination by
reviewing official year 2000 compliance statements published by the
manufacturers of these programs and does not plan to conduct its own tests to
verify such statements. Of the remaining applications, manufacturers have made
available upgrades to bring the systems into compliance. The Company has
scheduled upgrades for each of these programs to be completed before June
1999. The non-information technology systems developed internally by the
Company are not sensitive to year 2000 issues.
The Company estimates the cost to complete the conversion to be $220,000.
The Company expects to be year 2000 compliant by June 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.
Vendors or other third parties that could affect the Company's operations
include suppliers of utility services, travel and hotel services, office
supply vendors, equipment and technology vendors and mail, telephone, Internet
and other communication services. 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 does not intend to develop any contingency plans to address
possible failures by the Company or its vendors to be year 2000 compliant with
respect to information technology systems. The Company does not believe that
such contingency plans are required because it believes that the Company and
its information technology suppliers will be year 2000 compliant before
January 2000. The Company currently does not have any contingency plans to
address possible failures by its vendors to be year 2000 compliant with
respect to non-information technology systems, but expects to develop such
plans by June 1999.
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, adjusted to reflect reductions in membership
resulting from mergers and acquisitions of members) 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. Representative members include American Express, British
Airways, Citigroup, Coca-Cola, Dell, Hewlett-Packard, Lucent, Merrill Lynch,
Microsoft, Procter & Gamble and Xerox. No one member 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 two years 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 generally are renewable on a 12-month basis, and
the average price per subscription program at December 31, 1998 was
approximately $27,500. In 1998, the Company published 24 best practices
research studies, completed over 12,500 customized research briefs and
provided executive education services to 1,187 member corporations reaching
approximately 25,000 executive participants. The Company's 215 analysts and
researchers have compiled a proprietary database of 261 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 44.7% and 21.1%, respectively, from December 31, 1995 through
December 31, 1998. 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
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<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
27
<PAGE>
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 200 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, which are directed at corporate
staff positions maintained by most major companies. These subscription
programs are: the Working Council for Chief Financial Officers, directed
at chief financial officers; the Sales Executive Council, directed at
senior sales executives; the Working Council for Chief Information
Officers, directed at chief information officers; the Corporate Strategy
Board, directed at senior corporate strategists; and the Corporate
Leadership Council, directed at senior human resources executives. 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. In 1998, the Company added 372 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 two years and has thus far identified 25 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.
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<PAGE>
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
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 December 31, 1998, the Corporate Executive Board included
1,333 members. The membership includes some of the largest companies in each
sector. Selected members that are representative of the Company's membership
base are identified in the following table:
<TABLE>
<CAPTION>
CHEMICALS CONSUMER PRODUCTS ENERGY
<S> <C> <C>
Bayer Corporation Anheuser-Busch Companies, British Petroleum
The Dow Chemical Company Inc. Company p.l.c.
Eastman Chemical Company Cadbury Schweppes PLC Enron Corporation
E.I. du Pont de Nemours The Coca-Cola Company Mobil Corporation
& Co. The Gillette Company PacifiCorp
Imperial Chemical NIKE, Inc. Shell Oil Company
Industries p.l.c. The Procter & Gamble Texaco Inc.
Monsanto Company Company TransCanada Pipelines
RJR Nabisco Holdings Corp. Limited
Unilever PLC
<CAPTION>
FINANCIAL SERVICES INSURANCE MANUFACTURING
<S> <C> <C>
American Express Company Aetna Inc. ABB Asea Brown Boveri
Barclays Bank PLC The Allstate Corporation The Boeing Company
Charles Schwab & Co., Inc. CIGNA Corp. Ford Motor Company
The Chase Manhattan John Hancock Mutual Life General Electric Company
Corporation Insurance Company Lockheed Martin
Citigroup Inc. New York Life Insurance Corporation
Deutsche Bank AG Company 3M
Fidelity Investment Co. The Prudential Insurance Philips Electronics NV
Merrill Lynch and Co., Company of America Siemens AG
Inc. State Farm Mutual
Automobile Insurance
Company
<CAPTION>
MEDIA AND PUBLISHING RETAIL TECHNOLOGY
<S> <C> <C>
British Sky Broadcasting Best Buy Co., Inc. America Online Inc.
Group plc The Gap, Inc. Compaq Computer
Comcast Corporation The Home Depot, Inc. Corporation
Dow Jones & Company, Inc. The Limited, Inc. Dell Computer Corp.
The McGraw-Hill Companies L.L. Bean, Inc. Electronic Data Systems
The New York Times Company McDonald's Corporation Corp.
The Thomson Corporation Sears Roebuck and Co. Hewlett-Packard Company
Time, Inc. Starbucks Coffee Company Intel Corporation
The Washington Post Microsoft Corp.
Company SAP AG
Sun Microsystems, Inc.
<CAPTION>
TELECOMMUNICATIONS INSTITUTIONAL
<S> <C>
AT&T Corporation Department of Commerce
Bell Atlantic Corporation Department of Treasury
Bell Canada Duke University
Bell South Corporation Harvard University
British National Security Agency
Telecommunications p.l.c. University of Virginia
GTE Corporation
Lucent Technologies Inc.
MCI WorldCom, Inc.
Nokia Group
US WEST Inc.
</TABLE>
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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>
Year Ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Subscription programs(1)........................ 7 9 10
Member institutions(1)(2)(3).................... 998 1,151 1,333
Total membership subscriptions(1)(3)............ 1,485 1,808 2,263
Average subscription programs per member
institution(1)(3).............................. 1.49 1.57 1.70
Program renewal rate(4)......................... 86% 85% 85%
</TABLE>
- --------
(1) At the end of the period.
(2) The Company's members are primarily domestic and multinational
corporations and secondarily large subsidiaries of corporations and non-
profit institutions.
(3) Information presented with respect to the years ended December 31, 1996
and 1997 has been adjusted to eliminate members during such periods who
discontinued their membership prior to their annual renewal date in the
subsequent year. Information with respect to the year ended December 31,
1998 includes the Company's estimate of pending membership renewals and an
estimate of members who will discontinue their membership prior to their
annual renewal date in the subsequent year.
(4) Program renewal rate is defined as the percentage of memberships renewed,
adjusted to reflect reductions in memberships resulting from mergers and
acquisitions of members.
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. In 1998, the
Company published 24 best practices research studies, delivered over 12,500
customized research briefs and provided executive education services to 1,187
member corporations reaching approximately 25,000 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 in 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 two 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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<PAGE>
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 subscription programs. These topics were chosen because the Company
believes them to be representative of the agenda topics for the Company's
subscription 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
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
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
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.
In 1998, the Company delivered executive education services to 1,187 member
companies, reaching approximately 25,000 executive participants. Each
subscription program hosts a series of general membership
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<PAGE>
meetings, where the most important research findings from the annual agenda
are presented to groups of ten to 200 members. In 1998, the Company hosted 67
member meetings in North America, Europe and Australia/Asia.
As an example, the following table sets forth the 1998 schedule of general
membership meetings 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. The Corporate Leadership Council
was selected because the Company believes that the meetings hosted by this
subscription program are representative of the meetings hosted by 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, D.C. HR Executives
September 14-15 Washington, D.C. HR Executives
October 8-9 Washington, D.C. 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. In 1998, the
Company conducted 761 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. The Corporate Leadership Council was selected because the Company
believes that the executive education modules offered by this subscription
program are representative of the executive education modules offered by those
subscription programs that offer on-site education.
<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>
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<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. In 1998, the Company
completed over 12,500 customized assignments on behalf of over 1,250
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
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<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 261 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.
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<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 December 31, 1998,
the average price for a subscription program was approximately $27,500. 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 1996, 1997 and 1998, members requested
refunds for five, five and nine subscriptions (out of 1,490, 1,813 and 2,272
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 December 31, 1998, the Company's sales force consisted of 29 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 17 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, historically over 50% 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
36
<PAGE>
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 the Company 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."
Employees
At December 31, 1998, the Company employed approximately 411 persons. Of
these employees, approximately 391 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,
which space the Company occupied in October 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 L. Siebert................ 53 Chairman of the Board of Directors
James J. McGonigle............... 35 Chief Executive Officer and Director
Michael A. D'Amato............... 45 Executive Vice President--Finance,
Secretary and Director
Clay M. Whitson.................. 41 Chief Financial Officer
Sally Chang...................... 33 General Manager, Sales and Marketing
Derek C. M. 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.............. 44 Director Nominee
<CAPTION>
Key Employees
- -------------
<S> <C> <C>
Paul C. Amoruso.................. 33 Executive Director, Research, Information
Technology and Sales Practices
Peter Freire..................... 36 Executive Director, Research, Human
Resources and Finance Practices
Michael P. Kostoff............... 41 Executive Director, Research, Financial
Services Practices
William B. McKinnon.............. 30 Managing Director, Sales and Marketing
Thomas L. Monahan................ 31 Executive Director, Research, Financial
Services Practices
Matthew S. Olson................. 47 Executive Director, Research
</TABLE>
- --------
Directors and Executive Officers
Harold 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 healthcare 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 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 Committee. 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 Wesley Jessen
Visioncare, Inc., a publicly held contact lens company.
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 as 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. M. 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 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. From 1995 to January 1999, Mr. Hall served as
the Vice President of The Thomson Corporation, a publicly held information
publishing company. From 1990 to 1995, Mr. Hall was the Chief Executive
Officer of Thomson Information and Publishing Group, a division of The Thomson
Corporation involved in professional information and publishing. From 1985 to
1990, Mr. Hall was the President of Thomson Financial Services Group, another
publishing division of The Thomson 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. Since 1997, Mr. Kenny has been the Chief Executive
Officer of Bronner Slosberg Humphrey, a customer relationship and interactive
marketing company. From 1987 to 1997, Mr. Kenny was a Vice-President at Bain
39
<PAGE>
and Company, a management consulting firm. Mr. Kenny serves on the Board of
Directors of the Harvard Business School Publishing Corporation, a publishing
company. 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
Jessen Visioncare, Inc., a publicly held contact lens company, Coram
Healthcare, a publicly held provider of health care therapies, Dade Behring
Inc., a supplier of in vitro diagnostics products and services, 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.
Peter Freire has been an Executive Director, Research, of the Company since
the Spin-Off, focusing on the human resources and finance practices. 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 an Executive Director, Research, of the Company
since November 1998, focusing on the financial services practice. From the
Spin-Off until November 1998, Mr. Monahan served as the Managing Director,
Research of the Company. 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 approximately 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.
As of the closing of the Offering, the number of directors of the Company has
been set at eight. As of the closing of the Offering, however, the Company
will have seven directors. The Board of Directors of the Company intends to
elect an additional director soon after the Offering to fill the vacancy on
the Board of Directors. 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
After 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.
Compensation Committee
After 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
1999 Plan and the Directors Plan, of directors, officers, and other key
employees of the Company and will make recommendations to the Board of
Directors.
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 time such person commences service as a non-employee director, receive a
one-time grant of options to purchase 36,120 shares of Common Stock. Non-
employee directors will also receive an annual grant of options to purchase
5,000 shares of Common Stock and will be paid an annual retainer in the amount
of $20,000. Pursuant to the terms of the Directors Plan, the Board of
Directors or the Compensation 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, except that options may
not be granted with an exercise price below the Market Value of the Common
Stock (defined in the Directors Plan generally as the reported closing sale
price 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 initial price to the public). As of the closing of the
Offering, 180,600 shares will be subject to options previously granted under
the Directors Plan. As part of this grant, each of Messrs. D'Amato, Hall,
Kenny, Pagliuca and Zients has received options to purchase 36,120 shares of
Common Stock at a purchase price of $14.24 per share. 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.
41
<PAGE>
Executive Compensation
The following table presents certain information concerning compensation
earned for services rendered to the Company for the fiscal years ended
December 31, 1997 and 1998 by certain executive officers whose annual salary
and bonus during fiscal year 1998 exceeded $100,000 (the "Named Officers"):
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(4).... 1998 $413,849 $100,000(5) -- --
Chief Executive Officer 1997 400,000 19,254 490,200 --
Derek C. van Bever....... 1998 394,231 100,000(5) -- $850,000
Chief Research Officer 1997 375,004 -- 180,600 860,000
Michael A. D'Amato(6).... 1998 268,000 -- -- --
Executive Vice President
-- Finance 1997 136,000 -- 481,600 --
Sally Chang(7)........... 1998 175,961 100,000(5) 240,800 --
General Manager, Sales
and Marketing
Clay M. Whitson(8)....... 1998 31,730 100,000(9) 172,000 --
Chief Financial Officer
</TABLE>
- -------
(1) Salary and bonus for fiscal year 1997 consists of amounts paid by The
Advisory Board Company for services performed from January 1, 1997 through
the date of the Spin-Off and, except as noted otherwise, amounts paid by
the Company for services performed from the date of the Spin-Off through
December 31, 1997.
(2) The Company generally has not paid 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 $850,000 paid to Mr. van Bever during fiscal
years 1997 and 1998, respectively, in connection with the repurchase of
certain options of The Advisory Board Company prior to the time of the
Spin-Off.
(4) Mr. McGonigle was named the Chief Executive Officer of the Company in
July 1998. Prior to July 1998, the Company did not have a Chief Executive
Officer, although the Prinicipal Selling Stockholder held the position of
sole director and President of the Company for which he was not paid any
salary or bonus.
(5) Consists of a special bonus of $40,000 in cash payable by the Company and
$60,000 in shares of Common Stock (based on the initial price offered to
the public) owned by the Principal Selling Stockholder as of the date of
the Offering.
(6) With respect to the 1997 fiscal year, reported compensation represents
payments by The Advisory Board Company prior to the Spin-Off and, after
the Spin-Off, by DGB Enterprises, Inc., which amounts were allocated to
the Company in accordance with accounting rules prescribed for "carve-out"
financial statements. With respect to the 1998 fiscal year, reported
compensation represents payments by DGB Enterprises, Inc., which amounts
were allocated to 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.
(7) Ms. Chang joined the Company as General Manager, Sales and Marketing, in
June 1998.
(8) Mr. Whitson joined the Company as Chief Financial Officer in November
1998.
(9) Reflects a signing bonus of $100,000 paid to Mr. Whitson upon the
commencement of his employment with the Company.
42
<PAGE>
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, 1998:
Stock Option Grants in 1998 Fiscal Year
<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) Grant Date 5% 10%
---- ------------- ------------ ----------- -------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
James J. McGonigle...... -- -- -- -- -- -- --
Derek C. M. van Bever... -- -- -- -- -- -- --
Michael A. D'Amato...... -- -- -- -- -- -- --
Sally Chang............. 240,800 27.83% $ 6.98 $ 6.98 April 30, 2004 $ 562,226 $ 1,272,677
Clay M. Whitson......... 172,000 19.88 14.24 14.24 July 31, 2003 638,981 1,402,843
</TABLE>
- --------
(1) With respect to Ms. Chang, options become exercisable 50% one year
following the Offering, 30% two years following the Offering and 20% three
years following the Offering. With respect to Mr. Whitson, one-third of
the options become exercisable each year beginning one year following 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, 1998:
Aggregated Option Exercises in 1998 Fiscal Year
and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-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(2)... -- $ -- -- 490,200 $ -- $6,840,000
Derek C. M. van Bever... -- -- -- 180,600 -- 2,205,000
Michael A.
D'Amato(2)(3).......... -- -- -- 481,600 -- 6,359,028
Sally Chang............. -- -- -- 240,800 -- 1,748,208
Clay M. Whitson......... -- -- -- 172,000 -- --
</TABLE>
- --------
(1) Based upon a Fiscal Year-End value estimated at $14.24 per share.
(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
18,920,000 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, 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 20,640,000 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) Mr. D'Amato's options with respect to 168,560 shares will be exercised
immediately prior to the date of this Prospectus and such shares will be
sold as part of the Offering. See "Principal and Selling Stockholders."
43
<PAGE>
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. The employment agreement also provides that Mr. McGonigle will
receive an amount equal to 125% of one year's base salary and that all the
options granted to him will vest and become exercisable immediately if he is
terminated without cause. Cause is defined as the commission of a material act
of fraud, theft or dishonesty against the Company; conviction for any felony;
or willful non-performance of material duties which is not cured within sixty
days after receipt of written notice.
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 (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 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 172,000 shares of Common Stock at a purchase price
of $6.98 per share and, as of the pricing of the Offering, he will be granted
options to purchase 172,000 shares of Common Stock at the initial price
offered to the public. Mr. Siebert will also receive on an annual basis
options to purchase 10,000 shares of Common Stock, at such time as the Company
and Mr. Siebert shall agree, at a purchase price per share equal to the then
prevailing fair market value of such shares. The employment agreement also
provides that Mr. Siebert will receive $250,000 if he is terminated without
cause within one year after the Offering. Cause is defined as 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; or violation of
Company policy; willful or repeated non-performance or substandard performance
of duties; or violation of any state or federal laws, rules or regulations in
connection with or during performance of work.
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
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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 172,000 shares of Common Stock at a
purchase price of $14.24 per share. The employment agreement also provides
that Mr. Whitson will receive an amount equal to one year's annual base salary
and that all the options granted to him will vest immediately and become
exercisable immediately if he is terminated without cause. Cause is defined as
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 30 days after written notice; or violation of any material state or
federal laws, rules or regulations in connection with or during performance of
work which, if such violation is curable, is not cured within 30 days after
notice.
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, 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. These noncompetition agreements were executed at the
time of the Spin-off. The consideration for Messrs. Zients' and D'Amato's
execution of these agreements was their employment by the Company. The Company
does not believe that there is any significant risk that these agreements will
not be enforceable. Messrs. Zients and D'Amato are currently employees of The
Advisory Board Company, with which the Company has a noncompetition agreement.
See "Certain Relationships and Transactions--Noncompetition Agreement." If
Mr. Zients and Mr. D'Amato ceased to be employed by The Advisory Board Company
and their noncompetition agreements with the Company were deemed to be
unenforceable in any material respect, the Company believes that the cost of
recreating its research data base and the difficulty of hiring a large team of
qualified professionals would present significant barriers to the ability of
Messrs. Zients and D'Amato to compete effectively with the Company for at
least several years.
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.
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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 ("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 4,654,320 shares will have
been issued under or will be subject to Incentive Plan Options granted before
the closing of the Offering.
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. Options granted to
certain former executives and directors of the Company to purchase in the
aggregate 1,109,400 shares of Common Stock have expiration dates beyond April
30, 2003, extending to March 31, 2009. 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 5,504,000 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.
1999 Stock Option Plan
On , 1999, the Board of Directors adopted and the Principal Selling
Stockholder approved the Company's 1999 Plan. The purpose of the 1999 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 1999 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 aggregate number of shares of Common Stock issued pursuant to all
Options granted under the 1999 Plan may not exceed 1,892,000 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, the aggregate number of shares of Common Stock subject to Options
granted pursuant to the 1999 Plan during any calendar year to any one
participant may not exceed 430,000 shares. The aggregate number of shares of
Common Stock issued pursuant to the 1999 Plan at any time may equal only the
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<PAGE>
number of shares of Common Stock issued upon the exercise of Options and not
(i) returned to the Company upon cancellation, expiration or forfeiture of an
award or (ii) delivered (either actually or by attestation) in payment or
satisfaction of the purchase price or tax obligation with respect to an
Option. All references in the 1999 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.
As of the Closing of the Offering, 685,000 shares of Common Stock will be
subject to Options granted under the 1999 Plan, which will be granted as of
the closing of the Offering at the initial price offered to the public.
The 1999 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 1999 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 1999 Plan, on an individual basis, to be paid
for by cash or any other alternative means. Without limiting the foregoing,
the Company may extend a loan to the optionholder to pay the exercise price
and/or any taxes due in connection with the exercise of Options. Unless
otherwise provided by the Administrator, Options granted under the 1999 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 1999 Plan provides that, unless approved by the Company's stockholders,
the 1999 Plan may not be amended to materially 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 1999 Plan without further stockholder approval. Unless
earlier terminated by the Board of Directors, the 1999 Plan shall terminate on
May 1, 2009.
Directors' Stock Plan
On December 14, 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.
Any person who is, or is elected to be, 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
47
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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.
As of the closing of the Offering, 180,600 shares of Common Stock will be
subject to options previously granted under the Directors Plan. As part of
this grant, each of Messrs. D'Amato, Hall, Kenny, Pagliuca and Zients has
received options to purchase 36,120 shares of Common Stock at a purchase price
of $14.24 per share.
The maximum number of shares of the Company's Common Stock that can be
issued under the Directors Plan is 430,000. 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 transferability, 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 86,000
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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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.
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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 $130,000 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 a
portion of 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.
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
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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 predominantly 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 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
provided that they do not offer programs targeted to the same executives and
covering the same subjects as certain of the Company's current and
contemplated subscription programs. 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 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
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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 approximately 5,001,760 shares of Common Stock (approximately
3,773,680 shares if the Underwriters' overallotment options are exercised in
full), less shares of Common Stock granted under the special bonus plan. See
"Certain Transactions Prior to the Offering--Stock Option Restructuring and
Repurchase and Special Bonus Plan Charges." 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 five-year 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 but not to less than 20% of the shares included in such
registration.
Promissory Note
The Company holds a promissory note in the amount of $6.5 million from the
Principal Selling Stockholder. The Principal Selling Stockholder borrowed this
amount from the Company on October 31, 1997 in order to make personal
investments unrelated to the Company. This Note bears interest at an annual
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 January 21, 1999, 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.
Lease Guarantee
The Company recently signed a lease for a new headquarters facility in
Washington, D.C. The initial term of this lease will expire on June 30, 2009.
The Company's obligations under this lease are guaranteed by The Advisory
Board Company. The guarantee will expire on March 31, 2002 provided that
certain conditions regarding the financial condition of the Company have been
met.
Tax Reimbursement
DGB Enterprises, Inc., a company wholly owned by the Principal Selling
Stockholder, has agreed to reimburse the Company for taxes under the Federal
Insurance Contributions Act incurred as a result of the exercise of options by
Messrs. D'Amato and Zients immediately prior to the Offering and in the
future; and DGB Enterprises, Inc. or the Principal Selling Stockholder will
reimburse the Company for taxes under the Federal Insurance Contributions Act
incurred as a result of the special bonus plan.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of December 31, 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.
<TABLE>
<CAPTION>
Shares Beneficially
Owned Prior To Shares to Be Beneficially
Offering(1) Number Owned After Offering(1)(4)
-------------------------------------- of -----------------------------
Diluted Shares
Name Number(2) Percentage(2) Percentage(3) Offered Number Percent
- ---- ---------- ------------- ------------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David G. Bradley(5)..... 12,504,400 100.00% 88.97% 7,502,640 5,001,760 37.92%
Jeffrey D. Zients(6).... 1,032,000 7.62% 7.34% 516,000 516,000 3.77%
Michael A. D'Amato(6)... 517,720 3.98% 3.68% 168,560 349,160 2.58%
Harold L. Siebert....... -- 0.00% 0.00% -- -- 0.00%
James J. McGonigle(7)... -- 0.00% 0.00% -- -- 0.00%
Clay M. Whitson......... -- 0.00% 0.00% -- -- 0.00%
Sally Chang(7).......... -- 0.00% 0.00% -- -- 0.00%
Derek C. van Bever(7)... -- 0.00% 0.00% -- -- 0.00%
Robert C. Hall.......... -- 0.00% 0.00% -- -- 0.00%
David W. Kenny.......... -- 0.00% 0.00% -- -- 0.00%
Stephen G. Pagliuca..... -- 0.00% 0.00% -- -- 0.00%
All executive officers
and directors as a
group (11 persons)(7).. 1,549,720 11.03% 11.03% 684,560 865,160 6.16%
</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 12,504,400 issued and
outstanding shares beneficially owned by Mr. Bradley, Messrs. Zients and
D'Amato are treated as beneficially owning 1,032,000 and 517,720 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 options. 1,228,080
shares of Common Stock are subject to the over-allotment options. In the
event the over-allotment options are exercised in full by the
Underwriters, Mr. Bradley will beneficially own 3,773,680 shares of Common
Stock, or 29% of the outstanding Common Stock.
(5) Includes shares held by the Bradley Trust and also shares to be granted by
the Principal Selling Stockholder to selected employees under the special
bonus plan.
(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.
(7) Does not include shares with an aggregate value of $60,000 based on the
Offering Price of the Common Stock that each of Mr. McGonigle, Ms. Chang
and Mr. van Bever are entitled to receive pursuant to the special bonus
plan.
53
<PAGE>
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 100 million shares of Common Stock, par value $.01 per
share, and five million shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). Upon the closing of the Offering and giving effect to
the Recapitalization, there will be 13,188,960 shares of Common Stock
outstanding and no shares of Preferred Stock outstanding. In addition, an
aggregate of 7,826,000 shares of Common Stock will be reserved for issuance
under the Incentive Plan, the 1999 Plan and the Directors Plan, pursuant to
which options to purchase 5,519,920 shares of Common Stock will be outstanding
at the closing of the Offering.
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
54
<PAGE>
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 eight 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.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
13,188,960 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment options), and 7,826,000 shares of Common Stock will be reserved
for issuance upon the exercise of outstanding stock options pursuant to the
Incentive Plan, the 1999 Plan and the Directors Plan, pursuant to which
options to purchase an aggregate of 5,519,920 shares of Common Stock will be
outstanding with a weighted average exercise price of $4.64 per share
(assuming, with respect to 685,000 of such shares to be issued at the
Offering, an exercise price of $18.00 per share, the mid-point of the initial
public offering price range). 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 5,001,760 shares outstanding upon completion of the
Offering, which, other than the shares of Common Stock granted under the
special bonus plan, will be held by the Principal Selling Stockholder
(3,773,680 shares if the Underwriters' over-allotment options are 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. See "Certain Transactions Prior to the Offering--Stock Option
Restructuring and Repurchase and Special Bonus Plan Changes." 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 sales 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 the automated quotation system of a registered securities association or
the consolidated transaction reporting system 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 holds shares that were last purchased from the
Company or an Affiliate more than two years before the date the shares are
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 1999 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 1999 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."
56
<PAGE>
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"), for whom Salomon Smith Barney Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, Friedman, Billings,
Ramsey & Co., Inc. and Goldman, Sachs & Co. are acting as representatives (the
"Representatives"), 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..................................................... 6,549,760
=========
(1)
</TABLE>
- --------
(1) Includes 409,360 shares which is the maximum number of shares being
reserved for sale to certain employees and directors of the Company, and
their friends and family members at the initial public offering price.
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 Brothers International Limited, 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 Brothers International Limited......................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Friedman, Billings, Ramsey & Co., Inc.......................
Goldman Sachs International.................................
---------
Total..................................................... 1,637,440
=========
</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 options 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 Underwriters options,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of 1,228,080 additional shares of Common Stock at the price to
public set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions. The Underwriters may exercise such option to
purchase additional shares of Common Stock solely for the purpose of covering
over-allotments, if any, in connection with the sale of the shares of Common
Stock offered
57
<PAGE>
hereby. To the extent such option is exercised, the 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 of 1933.
The Company, the Selling Stockholders, the executive officers, the directors
and the employees receiving shares of Common Stock under the special bonus
plan 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 Inc. 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 1999 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 1999 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 6,549,760 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 1,637,440 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
Managers. As used herein, "U.S. or Canadian Person" means any resident or
58
<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 of Common Stock offered hereby 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.
59
<PAGE>
As part of the Offering, up to 409,360 shares of Common Stock are being
offered hereunder to certain employees and directors of the Company, and their
friends and 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.
60
<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
61
<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.
62
<PAGE>
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, 1997 and
1998, and for each of the three years in the period ended December 31, 1998
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 and will
make available copies of quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of December 31, 1997 and 1998 and Pro Forma as of
December 31, 1998........................................................ F-3
Statements of Operations for the years ended December 31, 1996, 1997 and
1998..................................................................... F-4
Statements of Changes in Stockholder's Deficit for the years ended
December 31, 1996, 1997 and 1998......................................... F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997, and
1998..................................................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
The financial statements included herein have been adjusted to give effect
to the anticipated increase in authorized shares at a 17.2 for 1 stock split
as described in Note 2 of the financial statements. We expect to be in a
position to render the following audit report on the effectiveness of such
events assuming that from January 22, 1999, to the effective date of such
event no other events will have occurred that would effect the accompanying
financial statements or notes thereto.
/s/ Arthur Andersen LLP
Washington, D.C.
January 22, 1999
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, 1997 and
1998, and the related statements of operations, stockholder's deficit and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
F-2
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(formerly The Corporate Advisory Board Company)
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, Pro Forma
---------------- December 31,
1997 1998 1998
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 8,937 $12,232 $ 7,272
Marketable securities......................... 3,754 3,872 3,872
Membership fees receivable, net............... 15,796 17,165 17,165
Deferred income taxes......................... 1,150 1,438 5,983
Deferred offering costs....................... -- 1,251 1,251
Deferred incentive compensation (Note 2)...... 1,096 2,023 2,023
Prepaid expenses and other current assets..... 122 383 383
Receivable from affiliate..................... -- 350 350
Receivable from stockholder (Note 10)......... 6,500 6,500 6,500
------- ------- -------
Total current assets........................ 37,355 45,214 44,799
------- ------- -------
PROPERTY AND EQUIPMENT, net..................... 2,513 3,714 3,714
------- ------- -------
Total assets................................ $39,868 $48,928 $48,513
======= ======= =======
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Deferred revenues............................. $31,474 $39,061 $39,061
Accounts payable and accrued liabilities...... 2,082 5,159 5,159
Accrued incentive compensation................ 1,899 2,661 2,661
Payable to affiliate.......................... 1,507 -- --
Stock option repurchase and special bonus plan
liability (Note 9)........................... 5,398 7,054 4,654
------- ------- -------
Total current liabilities................... 42,360 53,935 51,535
------- ------- -------
OTHER LIABILITIES:
Long-term stock option repurchase liability
(Note 9)..................................... 2,550 3,140 3,140
------- ------- -------
Total liabilities........................... 44,910 57,075 54,675
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDER'S DEFICIT (Note 2 and 9):
Preferred stock, par value $0.01; 5,000,000
shares authorized, no shares issued and
outstanding ................................. -- -- --
Common stock, par value $0.01; 100,000,000
shares authorized and 12,504,400 shares
issued and outstanding as of December 31,
1997 and 1998................................ 125 125 125
Additional paid-in capital.................... 2,646 2,646 (5,334)
Deferred compensation......................... (1,459) (953) (953)
Accumulated deficit........................... (6,354) (9,965) --
------- ------- -------
Total stockholder's deficit................. (5,042) (8,147) (6,162)
------- ------- -------
Total liabilities and stockholder's
deficit.................................... $39,868 $48,928 $48,513
======= ======= =======
</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>
Year Ended December 31,
------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
REVENUES.............................................. $27,283 $38,669 $53,030
COSTS AND EXPENSES:
Cost of services.................................... 15,078 20,036 26,069
Member relations and marketing...................... 6,677 8,106 10,980
General and administrative.......................... 3,832 5,660 6,920
Depreciation........................................ 452 722 885
Stock option restructuring and repurchase and
special bonus plan (Note 9)........................ 1,473 3,063 5,342
------- ------- -------
27,512 37,587 50,196
------- ------- -------
INCOME (LOSS) FROM OPERATIONS......................... (229) 1,082 2,834
INTEREST INCOME....................................... -- 122 786
------- ------- -------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR STATE
INCOME TAXES......................................... (229) 1,204 3,620
PROVISION (BENEFIT) FOR STATE INCOME TAXES............ (23) 120 361
------- ------- -------
NET INCOME (LOSS)..................................... $ (206) $ 1,084 $ 3,259
======= ======= =======
HISTORICAL NET INCOME (LOSS) PER SHARE-BASIC
(NOTE 2)............................................. $ (0.02) $ 0.09 $ 0.26
======= ======= =======
WEIGHTED-AVERAGE SHARES OUTSTANDING-BASIC (NOTE 2).... 12,504 12,504 12,504
======= ======= =======
HISTORICAL NET INCOME (LOSS) PER SHARE-DILUTED
(NOTE 2)............................................. $ (0.02) $ 0.08 $ 0.22
======= ======= =======
WEIGHTED-AVERAGE SHARES OUTSTANDING-DILUTED (NOTE 2).. 12,504 13,752 14,950
======= ======= =======
PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED)
(NOTE 2):
Income (loss) before provision (benefit) for income
taxes, as reported................................. $ (229) $ 1,204 $ 3,620
Pro forma income tax provision (benefit)............ (95) 500 1,502
------- ------- -------
Pro forma net income (loss)......................... $ (134) $ 704 $ 2,118
======= ======= =======
Pro forma net income (loss) per share-basic......... $ (0.01) $ 0.06 $ 0.17
======= ======= =======
Pro forma net income (loss) per share-diluted....... $ (0.01) $ 0.05 $ 0.14
======= ======= =======
</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 Ended December 31, 1996, 1997, and 1998
(In thousands)
<TABLE>
<CAPTION>
Preferred 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,
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).. -- -- 12,504,400 125 -- -- (7) 118
Deferred compensation
pursuant to substitution of
stock options.............. -- -- -- -- 2,646 (1,459) -- 1,187
Net income.................. -- -- -- -- -- -- 1,084 1,084
------- -------- ---------- ---- ------ ------ ------- -------
BALANCE AT DECEMBER 31,
1997....................... -- -- 12,504,400 125 2,646 (1,459) (6,354) (5,042)
Distributions to
stockholder................ -- -- -- -- -- -- (6,870) (6,870)
Amortization of deferred
compensation............... -- -- -- -- -- 506 -- 506
Net income.................. -- -- -- -- -- -- 3,259 3,259
------- -------- ---------- ---- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 1998
........................... -- $ -- 12,504,400 $125 $2,646 $ (953) $(9,965) $(8,147)
======= ======== ========== ==== ====== ====== ======= =======
</TABLE>
F-5
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(formerly The Corporate Advisory Board Company)
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ (206) $ 1,084 $ 3,259
Adjustments to reconcile net income (loss) to net
cash flows provided by operating activities--
Depreciation..................................... 452 722 885
Deferred income taxes............................ 144 (194) (288)
Stock option restructuring and repurchase and
special bonus plan.............................. 1,473 3,063 5,342
Changes in operating assets and liabilities:
Membership fees receivable, net................. (3,356) (1,902) (1,369)
Deferred offering costs......................... -- -- (1,251)
Deferred incentive compensation................. 218 (226) (927)
Prepaid expenses and other current assets....... -- (122) (261)
Deferred revenues............................... 6,314 9,778 7,587
Accounts payable and accrued liabilities........ 121 984 3,077
Accrued incentive compensation.................. 342 365 762
------- -------- -------
Net cash flows provided by operating
activities.................................... 5,502 13,552 16,816
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (776) (1,530) (2,086)
Purchases of marketable securities................ -- (3,754) (118)
Receivable from stockholder....................... -- (6,500) --
------- -------- -------
Net cash flows used in investing activities.... (776) (11,784) (2,204)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in payable to/receivable from affiliate.... (1,221) 7,189 (1,857)
Distributions to stockholder...................... -- (20) (6,870)
Stock option repurchases.......................... (3,505) -- (2,590)
------- -------- -------
Net cash flows (used in) provided by financing
activities.................................... (4,726) 7,169 (11,317)
------- -------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......... -- 8,937 3,295
Cash and cash equivalents, beginning of period..... -- -- 8,937
------- -------- -------
Cash and cash equivalents, end of period........... $ -- $ 8,937 $12,232
======= ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--
State income taxes............................... $ -- $ 90 $ 470
======= ======== =======
</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
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:
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 or 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.
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 February 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, 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
that period.
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 ended December 31, 1996 and 1997, were
calculated assuming that the capital structure established at the date of the
Spin-Off was in effect during those periods.
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Weighted-average common shares outstanding--basic..... 12,504 12,504 12,504
Dilutive effect of stock options...................... -- 1,248 2,446
------ ------ ------
Weighted-average common and equivalent shares
outstanding--diluted................................. 12,504 13,752 14,950
====== ====== ======
</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 41.5%.
Pro Forma Balance Sheet (Unaudited)
The unaudited pro forma balance sheet as of December 31, 1998, reflects (1)
a distribution to the Company's sole stockholder of $4.0 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 $4.5 million as of
December 31, 1998, (3) the reclassification of the accumulated deficit to
additional paid-in capital, and (4) a settlement of a special bonus commitment
to selected employees of $2.4 million, 60% in stock owned by the Principal
Selling Stockholder and 40% in cash by the Company (Note 9). The pro forma
adjustments give effect to transactions that will occur upon completion of the
Company's initial public offering. However, no effect has been given for the
exercise of stock options contemplated at the Offering or the payment of
expenses of the Offering.
Increase in Authorized Shares and Stock Split
In connection with the Company's proposed initial public offering, the
Company will amend and restate its certificate of incorporation to increase
the number of authorized shares of Class A Stock and Class B Stock to
17,200 shares and 99,982,800 shares, respectively, and to authorize
5,000,000 shares of Preferred Stock, each with a par value of $0.01 per share.
In addition, to facilitate the proposed initial public offering, the Company
will effect a 17.2-for-1 stock split of the shares of Class A Stock and
Class B Stock in form of a stock dividend. Pursuant to the Second Amended and
Restated Certificate of Incorporation of the Company, Class A Stock and
Class B Stock will be automatically converted into Common Stock upon the
transfer of any shares of Class A Stock or Class B Stock to the underwriters
in the proposed initial public offering. Accordingly, all shares and per share
amounts have been retroactively adjusted to give effect to these events. These
actions are subject to the effectiveness of the initial public offering
contemplated in the Prospectus.
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
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, security
investments, and its membership base and establishes allowances for potential
credit losses.
The Company generates revenues from customers located outside the United
States. For the years ending December 31, 1996, 1997, and 1998 approximately
29%, 31%, and 33% of revenues, respectively, were generated from customers
located outside the United States. Sales to customers in European countries
for the years ended December 31, 1996, 1997, and 1998 were approximately 12%,
13%, and 15%, respectively, with no other geographic area representing more
than 10% of revenues in any period. No one member 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 $2.7 million as
of December 31, 1998, 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, 1997 and 1998.
F-9
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(formerly The Corporate Advisory Board Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 eleven years.
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
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 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 year ended December 31, 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 all periods presented.
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. The Company has made the appropriate disclosures
as required by SFAS No. 131.
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>
Year Ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period.................. $ 4,461 $ 5,682 $(1,507)
Costs allocated to the Company--
The Advisory Board Company..................... (3,454) (5,502) (4,931)
DGB Enterprises, Inc........................... (1,404) (1,490) (1,211)
Cash transfers from the Company to The Advisory
Board Company.................................. 6,079 4,079 14,513
Cash transfers to the Company from The Advisory
Board Company.................................. -- (4,276) (6,514)
------- ------- -------
Balance at end of period........................ $ 5,682 $(1,507) $ 350
======= ======= =======
</TABLE>
4. Membership Fees Receivable:
Membership fees receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Billed fees receivable................................. $ 12,734 $ 13,339
Unbilled fees receivable............................... 4,062 5,059
--------- ---------
16,796 18,398
Allowance for doubtful accounts........................ (1,000) (1,233)
--------- ---------
Membership fees receivable, net...................... $ 15,796 $ 17,165
========= =========
</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. Unbilled fees
receivable represent fees due to be billed to members. Netted against revenues
are provisions for bad debt of $0.7 million, $1.2 million and $1.4 million,
for the years ended December 31, 1996, 1997, and 1998 respectively.
5. Property and Equipment:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Furniture, fixtures, and equipment..................... $ 3,606 $ 4,636
Leasehold improvements................................. 852 1,272
Accumulated depreciation............................... (1,945) (2,194)
--------- ---------
Property and equipment, net.......................... $ 2,513 $ 3,714
========= =========
</TABLE>
6. Income Taxes:
The provision (benefit) for state income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1997 1998
-------- -------- -------
<S> <C> <C> <C>
Current........................................ $ (167) $ 314 $ 649
Deferred....................................... 144 (194) (288)
-------- -------- -------
Provision (benefit) for state income taxes... $ (23) $ 120 $ 361
======== ======== =======
</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,
-------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred state income tax assets:
Deferred compensation agreements..................... $ 923 $ 1,167
Allowance for doubtful accounts...................... 100 123
Compensation accrued for financial reporting
purposes............................................ 189 265
Other................................................ 47 85
--------- ---------
Total deferred state income tax assets............. 1,259 1,640
--------- ---------
Deferred state income tax liabilities:
Deferred incentive compensation...................... 109 202
--------- ---------
Net deferred state income tax assets............... $ 1,150 $ 1,438
========= =========
</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 into 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>
1999................................................................ $ 2,776
2000................................................................ 2,500
2001................................................................ 2,926
2002................................................................ 2,984
2003................................................................ 3,087
Thereafter.......................................................... 18,511
-------
Total............................................................. $32,784
=======
</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 ended December
31, 1996, 1997, and 1998, was approximately $1.3 million, $1.6 million, and
$2.4 million, respectively.
Line-of-Credit
In September 1998, the Company obtained a commitment on a $10.0 million
revolving line-of-credit from a commercial bank. The line-of-credit bears
interest at the prime rate and is secured by substantially all of the
Company's assets. There have been no borrowings on the line-of-credit.
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, 1996, 1997, and 1998, were approximately $51,000,
$79,000 and $112,000, 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
F-13
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(formerly The Corporate Advisory Board Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
Liquid Markets Agreements
On March 31, 1995, The Advisory Board Company and existing optionees adopted
the Liquid Markets Agreements ("Liquid Markets 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 Liquid Markets 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 Liquid Markets
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.
In December 1998, the Company amended the Liquid Markets Agreements relating
to its employees by eliminating the future employment requirements.
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 $1.5 million, $1.8 million and $2.4
million in compensation expense related to the Liquid Markets Agreements in
years 1996, 1997, and 1998, respectively.
The Company's obligation under the Liquid Markets Agreements is reflected in
stock option repurchase and special bonus plan liability in the accompanying
balance sheets. There are no earnings charges subsequent to December 31, 1998,
related to this agreement. During the year ended December 31, 1998, the
Company paid $2.6 million in accordance with the Liquid Markets Agreements.
Future cash commitments related to the Liquid Markets Agreements are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1999.................................................................. $4,723
2000.................................................................. 3,140
------
Total............................................................... $7,863
======
</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
6,880,000 shares of Class B Nonvoting Common Stock. As of December 31, 1998, a
total of 1,541,120 shares were available for future awards under this plan.
The terms of the Substitution Agreement resulted in a new measurement date
for 1,855,880 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 and special bonus plan
in the accompanying statements of operations and was $1.3 and $0.5 million for
the years ending December 31, 1997 and 1998, respectively. The Company will
recognize the remaining $1.0 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
1,421,993 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 (Note: The Advisory
Board Company Original Options have not been restated to reflect the impact of
the stock split (See Note 2)):
<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 Liquid Markets Agreement........... (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 Liquid Markets Agreement........... (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, related substitution and recapitalization 3,277,873 $ 0.06-$1.28 $ 0.77
Options granted....................................... 1,407,407 $ 2.03-$2.73 $ 2.18
--------- ------------- ------
Outstanding at December 31, 1997........................ 4,685,280 $ 0.06-$2.73 $ 1.19
Options granted....................................... 865,160 $ 2.73-$14.24 $ 7.30
Options cancelled..................................... (211,560) $ 2.03-$2.73 $ 2.14
--------- ------------- ------
Outstanding at December 31, 1998........................ 5,338,880 $ 0.06-$14.24 $ 2.13
========= ============= ======
</TABLE>
F-15
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(formerly The Corporate Advisory Board Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Exercise prices for employee stock options outstanding at December 31, 1998,
are as follows:
<TABLE>
<CAPTION>
Number Outstanding Weighted-Average Weighted-
as of December 31,- Remaining Contractual Average
Range of Exercise Prices 1998 Life-Years Exercise Price
------------------------ ------------------- --------------------- --------------
<S> <C> <C> <C>
$0.06--$0.06 172,000 4.33 $ 0.06
$0.29--$0.41 696,600 4.33 $ 0.31
$0.58--$0.87 447,200 4.33 $ 0.75
$0.93--$1.28 1,962,073 6.87 $ 0.98
$2.03--$2.03 963,647 4.69 $ 2.03
$2.73--$3.11 476,440 4.33 $ 2.88
$6.98--$6.98 448,920 4.87 $ 6.98
$14.24--$14.24 172,000 4.58 $14.24
-------------- --------- ---- ------
$0.06--$14.24 5,338,880 5.38 $ 2.13
============== ========= ==== ======
</TABLE>
As of December 31, 1998, 110,527 options with a weighted average exercise
price of $0.98 are exercisable.
On December 14, 1998, the Company adopted the Directors' Stock Plan
("Directors' Plan"), which reserves 430,000 shares of Class B Nonvoting Common
Stock for issuance. The Directors' Plan provides for a maximum grant of 86,000
shares per year per director. The Company granted 144,480 shares at a weighted
average exercise price of $14.24 per share in 1998. These shares generally
vest one year from the date of grant and have a weighted average remaining
contractual life of 9.96 years.
Under the terms of their agreements, the Company's Chairman and other
management employees will receive stock options to purchase 685,000 shares of
Common Stock of the Company upon completion of an initial public offering,
which options will be priced at the then fair market value. The Chairman's
employment agreement provides for the payment of $1.0 million in the event of
a sale of the Company prior to an initial public offering.
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 year ended December 31, 1996, 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 years ended December 31, 1997 and 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.
F-16
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
(formerly The Corporate Advisory Board Company)
NOTES TO FINANCIAL STATEMENTS--(Concluded)
The weighted-average fair values of The Advisory Board Company original
options granted during the years ended December 31, 1995, 1996, and from
January 1 to the date of the Spin-Off in 1997, were $1.55, $1.98, and $2.16
per share, respectively. The weighted-average fair values of Company options
granted (including options granted under the Directors' Plan) from the date of
the Spin-Off to December 31, 1997, and the year ended December 31, 1998, were
$1.27 and $3.19, 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 $0.79 and $0.05 per share
(basic and diluted on a historical basis), respectively. Pro forma net income
for 1997 would have been approximately $1.6 million or $0.13 per share (basic
historical) and $0.11 per share (diluted-historical). Pro forma net income for
1998 would have been approximately $1.6 million or $0.13 per share (basic-
historical) and $0.10 per share (diluted-historical). The provisions of SFAS
No. 123 may not necessarily be indicative of future results.
Special Bonus Plan
In December 1998, the Company and the Principal Stockholder agreed to pay a
special bonus to selected employees in an amount totaling $2.4 million. The
bonus is payable the earlier of the date of an initial public offering or
December 31, 1999. If the amount is paid at the date of an initial public
offering, then the obligation will be payable 60% in stock owned by the
Principal Stockholder (at the offering price) and 40% in cash by the Company.
If the amount is not paid in conjunction with an initial public offering, then
the obligation will be payable 100% in cash by the Company. The Company
recognized $2.4 million in expense related to this plan in 1998.
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>
The financial statements included herein have been adjusted to give effect
to the anticipated increase in authorized shares at a 17.2 for 1 stock split
as described in Note 2 of the financial statements. We expect to be in a
position to render the following audit report on the effectiveness of such
events assuming that from January 22, 1999, to the effective date of such
event no other events will have occurred that would effect the accompanying
financial statements or notes thereto.
/s/ Arthur Andersen LLP
Washington, D.C.
January 22, 1999
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 January 22, 1999. 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.
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,
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
====== ====== ==== ====== ======
Year ending December 31,
1998
Allowance for
doubtful accounts.... $1,000 $1,409 $-- $1,176 $1,233
------ ------ ---- ------ ------
$1,000 $1,409 $-- $1,176 $1,233
====== ====== ==== ====== ======
</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................................... 50
Principal and Selling Stockholders....................................... 53
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 56
Underwriting............................................................. 57
Certain United States Federal Income Tax Considerations for Non-United
States Holders.......................................................... 61
Legal Matters............................................................ 63
Experts.................................................................. 63
Additional Information................................................... 63
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1999 (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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8,187,200 Shares
The Corporate Executive Board Company
Common Stock
[LOGO OF CORPORATE EXECUTIVE BOARD]
-------
PROSPECTUS
, 1999
-------
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 JANUARY 29, 1999
PROSPECTUS
8,187,200 Shares
[LOGO OF CORPORATE EXECUTIVE BOARD APPEARS HERE]
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 8,187,200 shares of Common Stock being offered hereby, a total of
1,637,440 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 6,549,760
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 409,360 shares of Common Stock are being reserved for sale to certain
employees and directors of the Company, and their friends and 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 $17 and $19. See "Underwriting" for a discussion of the factors to
be considered in determining the initial public offering price. The Common
Stock has been approved for listing 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 $2.2 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 Underwriters
30-day options to purchase up to 1,228,080 additional shares of Common
Stock solely to cover over-allotments, if any. See "Underwriting." If such
options are 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 Salomon 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
, 1999
<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................................... 50
Principal and Selling Stockholders....................................... 53
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 56
Underwriting............................................................. 57
Certain United States Federal Income Tax Considerations for Non-United
States Holders.......................................................... 61
Legal Matters............................................................ 63
Experts.................................................................. 63
Additional Information................................................... 63
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1999 (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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8,187,200 Shares
The Corporate Executive Board Company
Common Stock
[LOGO OF CORPORATE EXECUTIVE BOARD APPEARS HERE]
-------
PROSPECTUS
, 1999
-------
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................................................ 95,000
Printing expenses.................................................. 250,000
Accounting fees and expenses....................................... 350,000
Legal fees and expenses............................................ 800,000
Blue Sky fees and expenses......................................... 5,000
Transfer agent's fees and expenses................................. 20,000
State taxes and fees............................................... 400,000
Miscellaneous...................................................... 200,000
---------
Total............................................................ 2,197,525
=========
</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 upon the effectiveness
of the registration statement, the Registrant will sell 516,000 shares of
its Class B Non-Voting Common Stock to Jeffrey D. Zients for an aggregate
of $480,000;
(b) pursuant to the exercise of options under the Registrant's Stock-Based
Incentive Compensation Plan, which will be exercised upon the effectiveness
of the registration statement, the Registrant will sell 168,560 shares of
its Class B Non-Voting Common Stock to Michael A. D'Amato for an aggregate
of $156,800; and
(c) the Registrant has awarded to employees and directors options to
purchase 5,519,920 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 516,000 shares of Class B Non-Voting Common Stock, exercisable in whole
or in part at $1.02 per share (giving effect to the stock split in the form
of a dividend effected on , 1999 (the "Stock Split")), and
(ii) options held by Mr. D'Amato for 349,160 shares of Class B Non-Voting
Common Stock, exercisable in whole or in part at $2.46 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 January 21, 1999, between the
Company and James J. McGonigle.
10.2 --Employment Agreement, effective as of April 15, 1998, between
the Company and Harold L. Siebert.
10.3 --Employment Agreement, dated November 1, 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, effective as
of October 31, 1997, between the Company and James J.
McGonigle, as amended on January 21, 1999.
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 --[Omitted]
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, effective as
of October 31, 1997, between the Company and Derek C. van
Bever, as amended on July 21, 1998.
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 January 21, 1999, between
the Company and James J. McGonigle.
10.16 --Agreement Concerning Exclusive Services, Confidential
Information, Business Opportunities, Non-Competition, Non-
Solicitation and Work Product, effective as of April 15, 1998,
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.**
10.21.1 --The Corporate Executive Board Company Stock-Based Incentive
Compensation Plan, adopted on October 31, 1997, as amended and
restated on , 1999.*
10.22 --Directors' Stock Plan.**
10.22.1 --Amended Directors' Stock Plan and Standard Terms and Conditions
for Director Non-Qualified Stock Options.
10.23 --1998 Stock Option Plan.**
10.23.1 --1999 Stock Option Plan.*
10.24 --Cross-Indemnification Agreement, dated as of January 21, 1999,
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 David G.
Bradley and the Company.****
10.27 --Letter Agreement, dated January 18, 1999, 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, effective as of January 1, 1999,
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.**
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.34 --Agreement of Lease, dated June 25, 1998, between the Company and
The George Washington University.**
10.35 --Registration Rights Agreement, dated January 22, 1999, between
the Company and David G. Bradley.
10.36 --License Agreement, effective as of October 31, 1997, between the
Company and The Advisory Board Company.
10.37 --Letter agreement regarding the special bonus plan.
10.38 --Amended and Restated "Liquid Markets" Agreement, dated August
20, 1997, between the Company and Derek C. van Bever, as
amended on December 28, 1998.
10.39 --Letter to Michael A. D'Amato from the Chairman of the Company re
Accelerated Vesting of Options.
10.40 --Clarification Letter to Michael A. D'Amato from the Company re
Stock Option Agreements.
10.41 --Letter to Jeffrey Zients from David Bradley re Accelerated
Vesting of Options.
10.42 --Clarification Letter to Jeffrey Zients from the Company re Stock
Option Agreements.
10.43 --Term Sheet for Director Non-Qualified Stock Options between
Robert C. Hall and the Company.
10.44 --Term Sheet for Director Non-Qualified Stock Options between
David W. Kenny and the Company.
10.45 --Term Sheet for Director Non-Qualified Stock Options between
Stephen G. Pagliuca and Company.
10.46 --Term Sheet for Director Non-Qualified Stock Options between
Jeffrey D. Zients and the Company.
10.47 --Term Sheet for Director Non-Qualified Stock Options between
Michael A. D'Amato and the Company, as amended on January 27,
1999.
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 a Person to Become a Director for Robert C. Hall.
99.2 --Consent of a Person to Become a Director for David W. Kenny.
99.3 --Consent of a Person to Become a Director for Stephen G.
Pagliuca.
</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
II-5
<PAGE>
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-6
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
District of Columbia, on January 29, 1999.
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. 2 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>
/s/ James J. McGonigle President, Chief Executive January 29, 1999
______________________________________ Officer and Director
James J. McGonigle (Principal Executive
Officer)
/s/ Clay M. Whitson Chief Financial Officer January 29, 1999
______________________________________ (Principal Financial and
Clay M. Whitson Principle Accounting
Officer)
/s/ Jeffrey D. Zients Director January 29, 1999
______________________________________
Jeffrey D. Zients
/s/ Harold L. Siebert Director January 29, 1999
______________________________________
Harold L. Siebert
/s/ Michael A. D'Amato Director January 29, 1999
______________________________________
Michael A. D'Amato
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No.
-------
<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 January 21, 1999, between the Company
and James J. McGonigle.
10.2 --Employment Agreement, effective as of April 15, 1998, between the
Company and Harold L. Siebert.
10.3 --Employment Agreement, dated November 1, 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, effective as of
October 31, 1997, between the Company and James J. McGonigle, as
amended on January 21, 1999.
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 --[omitted]
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, effective as of
October 31, 1997, between the Company and Derek C. van Bever, as
amended on July 21, 1998.
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 January 21, 1999, between the Company and James J.
McGonigle.
10.16 --Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and Work
Product, effective as of April 15, 1998, 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.**
10.21.1 --The Corporate Executive Board Company Stock-Based Incentive
Compensation Plan, adopted on October 31, 1997, as amended and
restated on [ ], 1999.*
10.22 --Directors' Stock Plan.**
10.22.1 --Amended Directors' Stock Plan and Standard Terms and Conditions for
Director Non-Qualified Stock Options.
10.23 --1998 Stock Option Plan.**
10.23.1 --1999 Stock Option Plan.*
10.24 --Cross-Indemnification Agreement, dated as of January 21, 1999,
between David G. Bradley and the Company.
10.25 --Promissory Note, dated October 31, 1997, between David G. Bradley
and the Company.***
10.26 --Security Agreement, dated October 31, 1997, between David G. Bradley
and the Company.****
10.27 --Letter Agreement, dated January 18, 1999, 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, effective as of January 1, 1999, 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 25, 1998, between the Company and The
George Washington University.**
10.35 --Registration Rights Agreement, dated January 22, 1999, between the
Company and David G. Bradley.
10.36 --License Agreement, effective as of October 31, 1997, between the
Company and The Advisory Board Company.
10.37 --Letter agreement regarding the special bonus plan.
10.38 --Amended and Restated "Liquid Markets" Agreement, dated August 20,
1997, between the Company and Derek C. van Bever, as amended on
December 28, 1998.
10.39 --Letter to Michael A. D'Amato from the Chairman of the Company re
Accelerated Vesting of Options.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No.
-------
<C> <S>
10.40 --Clarification Letter to Michael A. D'Amato from the Company re Stock
Option Agreements.
10.41 --Letter to Jeffrey Zients from David Bradley re Accelerated Vesting
of Options.
10.42 --Clarification Letter to Jeffrey Zients from the Company re Stock
Option Agreements.
10.43 --Term Sheet for Director Non-Qualified Stock Options between Robert
C. Hall and the Company.
10.44 --Term Sheet for Director Non-Qualified Stock Options between David W.
Kenny and the Company.
10.45 --Term Sheet for Director Non-Qualified Stock Options between Stephen
G. Pagliuca and Company.
10.46 --Term Sheet for Director Non-Qualified Stock Options between Jeffrey
D. Zients and the Company.
10.47 --Term Sheet for Director Non-Qualified Stock Options between Michael
A. D'Amato and the Company, as amended on January 27, 1999.
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).**
27 --Financial Data Schedule
99.1 --Consent of a Person to Become a Director for Robert C. Hall.
99.2 --Consent of a Person to Become a Director for David W. Kenny.
99.3 --Consent of a Person to Become a Director for Stephen G. Pagliuca.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
***Previously filed as Exhibit 10.8.
****Previously filed as Exhibit 10.9.
<PAGE>
Exhibit 4.1
COMMON STOCK COMMON STOCK
---------
------ CORPORATE ------
NUMBER EXECUTIVE SHARES
CEB BOARD
------ --------- ------
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 21988R 10 2
THE CORPORATE EXECUTIVE BOARD COMPANY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE OF $.01 PER SHARE, OF
THE CORPORATE EXECUTIVE BOARD COMPANY, transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney, upon
surrender of this certificate properly endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to the laws of the State
of Delaware and the Certificate of Incorporation and the By-Laws of the
Corporation, as the same may be from time to time amended, to all of which the
holder by acceptance hereof assents. This certificate is not valid unless
countersigned by the Transfer Agent and Registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ JAMES J. MCGONIGLE /S/ CLAY M. WHITSON
CHIEF EXECUTIVE OFFICER [SEAL] CHIEF FINANCIAL OFFICER
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
(RIDGEFIELD PARK, N.J.)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
The Corporation will furnish without charge to each stockholder upon request
a copy of the full text of the powers, designations, preferences and relative,
participating, optional or other rights of the shares of each class of stock
(and any series thereof) authorized to be issued by the Corporation and the
qualifications, limitations or restrictions of such preferences and/or rights,
all as set forth in the Certificate of Incorporation and amendments thereto
filed with the Secretary of State of the State of Delaware.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with rights of
survivorship and not as
tenants in common
UNIF GIFT MIN ACT-___________Custodian___________
(Cust) (Minor)
under Uniform Gifts to Minors
Act________________________________
(State)
UNIF TRF MIN ACT-___________Custodian (until age)______________
(Cust)
__________under Uniform Transfers
(Minor)
to Minors Act________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received,___________________________________________hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE
______________________________________________________________________________
______________________________________________________________________________
________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated_______________________________________________
___________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed:
By___________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of the 21st of
January, 1999 and effective as of the Effective Date (as defined herein), is
made and entered into by and between The Corporate Executive Board Company
(hereinafter "the Company") and James J. McGonigle (hereinafter the
"Executive").
WHEREAS, the Company employs the Executive, among other things, as its
Chief Executive Officer; and
WHEREAS, the Executive and the Company desire to memorialize the terms and
conditions of the Executive's employment with the Company in a written 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 on the terms and
conditions stated herein, to perform and discharge such services and duties as
are reasonably required of the Chief Executive Officer, and such other
substantially similar services and duties as he may be assigned from time to
time by the Company's Board of Directors (the "Board") and such other persons as
they may designate. 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, provided, however, that the Executive may serve as a director
of any company that is not directly or indirectly in competition with the
Company, as long as such service as a director does not interfere with his
duties and obligations to the Company.
2. Term; Effective Date
--------------------
The term of this Agreement shall commence as of an Initial Public
Offering of any shares of capital stock of the Company (the "Effective Date")
and shall continue until this Agreement is terminated pursuant to Section 8
below. The Executive may be terminated by the Company at will at anytime.
However, a termination of the Executive shall be governed by the provisions of
Section 8 below. Until the Effective Date, the provisions of the Employment
Agreement, dated October 30, 1997, between the Company and the Executive (the
"Original Employment Agreement") shall continue in full force and effect in
accordance with its terms and conditions. In the event the Executive ceases to
be employed by the Company prior to the Effective Date, this Agreement shall
become null and void and of no further force and effect. For purposes of this
Agreement, the term "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 a sale of such
stock thereunder, if as a result of such
<PAGE>
sale (i) the Company 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 Market.
3. Compensation
------------
As compensation for services rendered by the Executive during his
employment under this Agreement, the Company shall, commencing with the
Effective Date, pay him a base salary at the rate of Four Hundred Forty Thousand
Dollars ($440,000.00) per annum, payable in installments in accordance with the
Company's policy governing salary payments to executive employees generally.
The Board will review the Executive's salary periodically and may, in its sole
discretion, grant increases to the Executive's salary rate.
4. 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.
Notwithstanding the foregoing, the Company agrees to maintain for the benefit of
the Executive short term and long term disability insurance with coverage
amounts at least equal to such coverage amounts maintained by the Company with
respect to the Executive on the Effective Date. In addition, the Company
agrees, subject to the Board's approval, to reimburse the Executive for
membership fees and other reasonable expenses incurred with respect to the
Executive's participation in community and business-related organizations.
5. 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 company
policy for the deduction of such expenses.
6. Compliance With Other Agreements
--------------------------------
The Executive represents and warrants that his performance hereunder
shall not conflict with any other agreements to which he 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 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.
2
<PAGE>
7. Exclusive Services, Confidential Information, Business Opportunities,
---------------------------------------------------------------------
Non-Competition, Non-Solicitation and Work Product
--------------------------------------------------
On or prior to the Effective Date, the Executive and the Company shall
execute the Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and Work Product, as
amended and restated (the "Non-Competition Agreement"), which is hereby
incorporated herein in its entirety by this reference.
8. Termination
-----------
If, for any reason, the Executive's employment by the Company is
terminated, the Executive immediately shall resign his position as a director of
the Company. The termination of the Executive's employment by the Company shall
be governed by the following:
(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 notice to the Executive. For purposes of this
Agreement, "Cause" for termination shall mean the commission of a material act
of fraud, theft or dishonesty against the Company; conviction for any felony; or
willful non-performance of material duties which is not cured within sixty (60)
days after receipt of written notice to the Executive from the Board of
Directors. In the event of a termination pursuant to this Section 8(a)(i), the
Company may at any time prior to the expiration of the notice period provided in
the immediately preceding sentence relieve the Executive of his duties and pay
him his salary for the remainder of such notice period. In the event of
termination pursuant to this Section 8(a)(i), the Executive shall not be
entitled to any further compensation or benefits from the Company except such
compensation or benefits which have been earned prior to the date of termination
pursuant to the express terms of this Agreement, the Stock Option Agreement, as
amended (the "Stock Option Agreement"), between the Company and the Executive or
the Non-Compete Agreement.
(ii) Termination Without Cause
-------------------------
The Company, in its sole discretion, may terminate the employment of
the Executive at any time without "Cause" as defined by Section 8(a)(i) or
without any other cause whatsoever. For purposes of this Section 8(a)(ii), a
termination without cause shall not include a death or disability (as defined in
Section 8(a)(iii) below) or a termination by the Executive (as defined in
Section 8(b) below), but a termination without cause shall include a significant
diminution of the Executive's employment duties or compensation, removal as
Chief Executive Officer of the Company or a material breach of this Agreement by
the Company. In addition, following the Initial Public Offering, 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, entity or person, the Executive shall be deemed to
have been terminated without Cause, if, after such transactions,
3
<PAGE>
there is a material reduction 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, a reduction in the base salary of the Executive or
the Executive is required to relocate his place of employment to a location that
is more than thirty-five (35) miles from the location of the Company's
headquarters at the time of such transactions. In the event of termination
pursuant to this Section 8(a)(ii), (A) (I) Company shall pay the Executive an
amount equal to 125% of one year's base salary of the Executive at the time of
such termination and (II) all of the options granted to the Executive shall vest
and immediately become exercisable and such options shall expire ninety (90)
days after such termination without Cause and (B) 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, the Stock Option
Agreement or the Non-Competition 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 termination under
this Section 8(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 which are provided pursuant to the express
terms of the Stock Option Agreement.
(c) By the Executive
----------------
The Executive may voluntarily terminate his employment at any time
upon three (3) months' written notice to the Company. A voluntary termination
by the Executive shall not include a date on which the Executive ceases to be
employed by the Company due to death or disability (as defined in Section 8(b)
above). 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 8(c), 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 which are
provided pursuant to the express terms of the Stock Option Agreement.
9. 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 Employment Agreement (excluding enforcement by the
Company of its rights under the Non-Competition 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
4
<PAGE>
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 9,
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 8 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.
10. 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.
11. 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
5
<PAGE>
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.
12. 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.
13. 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.
14. Survival
--------
The provisions of the Non-Competition Agreement and the Stock Option
Agreement (and any agreements incorporated therein by reference) shall survive
the termination and/or expiration of this Agreement.
15. Entire Agreement
----------------
This Agreement, including the agreements expressly incorporated by
reference herein pursuant to Sections 7 and 8(a)(i) 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.
16. 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.
17. 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 Chairman of the Board, 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.
6
<PAGE>
18. 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 hereto have duly executed this Agreement,
to be effective as of the Effective Date.
THE CORPORATE EXECUTIVE BOARD COMPANY
/s/ James J. McGonigle By: /s/ Harold L. Siebert
- ---------------------------- -----------------------------
James J. McGonigle Name: Harold L. Siebert
Title: Chairman
7
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective as of April 15, 1998 (the "Effective Date"), is
made and entered into by and between The Corporate Executive Board Company, a
Delaware corporation (hereinafter "the Company"), and Harold "Rusty" Siebert
(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 Chairman of the Board of
the Directors 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 such other
persons as they may designate. 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 best efforts, energies and abilities to the Company.
2. Term
----
The term of this Agreement shall commence as of the Effective Date and
shall continue until the Agreement is terminated pursuant to Section 7 below.
The Executive may be terminated by the company at will at anytime. However, a
termination of the Executive shall be governed by the provisions of Section 7
below.
3. Compensation
------------
a. 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 of Twenty-Five Thousand Dollars
($25,000.00) per annum and such
<PAGE>
other compensation as the parties shall mutually agree (including, but not
limited to, payments to cover reasonable living expenses).
b. Stock Options
-------------
As additional compensation for services rendered by the Executive during
his employment under this Agreement, the Company shall grant the Executive the
right and option to purchase shares of capital stock of the Company, subject to
the terms and conditions of the Company's Stock-Based Incentive Compensation
Plan or such other Company stock option plan as the Board of Directors of the
Company may designate (collectively the "Plan"), as follows:
(i) As of the Effective Date, the Company shall grant the Executive the
right and option to purchase 10,000 shares of Class B Nonvoting
Common Stock, $0.01 par value, of the Company ("Class B Stock"), at
the then prevailing fair market value of the Company, on the terms
and conditions as set forth in the Stock Option Agreement, dated as
of the date hereof, between the Company and the Executive (the
"Option Agreement"), and the Stockholders' Agreement, dated as of the
date hereof, between the Company and the Executive (the
"Stockholders' Agreement"). The Option Agreement and the
Stockholders' Agreement shall be executed contemporaneously with this
Agreement.
(ii) As of the pricing of an Initial Public Offering of the Company's
capital stock and provided the Executive is employed by the Company
at such time, the Company shall grant the Executive the right and
option to purchase shares of Class B Stock of the Company, equal to
one percent (1%) of the fully diluted equity of the Company, at a
purchase price per share equal to the offering price as reflected on
the prospectus issued in connection with the Initial Public Offering
(as determined by the Company in its sole and absolute discretion).
Such options shall vest twenty-five percent (25%) per year beginning
one year after an Initial Public Offering. The terms and conditions
of this grant shall be subject to the terms and conditions of the
Plan and a stock option agreement, if any, between the Company and
the Executive. Prior to an Initial Public Offering, if the
capitalization of the Company changes as a result of one or more
stock dividends, stock splits, reverse stock splits, combinations,
recapitalizations, reclassifications, mergers, consolidations or
similar events, an appropriate equitable adjustment in the number and
kind of shares or other securities provided by this Section 3(b)(ii)
shall be made.
(iii) At any time after an Initial Public Offering and provided the
Executive is employed by the Company at the time of grant, the
Company shall grant the Executive on an annual basis the right and
option to purchase 10,000 shares of Common Stock, at such time as the
Company and the Executive shall mutually agree, at a purchase price
per share equal to the fair market value of such shares on the date
of grant. Such options shall vest twenty-five percent (25%) per year
beginning one year after grant.
2
<PAGE>
For purposes of this Agreement, 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 of the Company, 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.
c. Approved Sale of the Company
----------------------------
Prior to an Initial Public Offering and prior to the Executive ceasing to
be employed by the Company for any reason, (i) in the event of an Approved Sale
by the Majority Shareholder of more than fifty percent (50%) of the Company's
outstanding stock held by such Majority Shareholder, or (ii) upon a Distribution
by the Company that is funded with the proceeds, after payment of related
expenses (the "Net Proceeds") from an Approved Sale of more than fifty percent
(50%) of the Company's assets, the Company shall make a one time payment to the
Executive of One Million Dollars ($1,000,000.00) within thirty (30) days of such
Approved Sale of stock or Distribution of proceeds (as appropriate). Such
payment shall be in lieu of any further compensation or benefits from the
Company (including, but not limited to, the receipt of any benefits with respect
to any stock options granted by the Company to the Executive) other than the
receipt of the Executive's base salary. For purposes of this Section 3(c), 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. For purposes of this Agreement, (i) 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
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); the term "Majority Shareholder" shall mean 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; the term
"Distribution" shall mean 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; and the term
"Undistributed Earnings" shall mean, 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.
3
<PAGE>
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 company
policy for the deduction of such expenses.
5. 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 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 or the Company
or future employers of the Executive.
6. 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.
7. Termination
-----------
If the Executive's employment by the Company is terminated by either the
Executive or the Company for any reason, the Executive shall immediately resign
his positions as Chairman of the Board of Directors of the Company and as a
Director of the Company. The Company's and the Executive's rights and
obligations regarding the termination of the Executive's employment by the
Company are as follows:
4
<PAGE>
a. By The Company
--------------
(i) Termination for Cause
---------------------
The Company may terminate the employment of the Executive at any time
for Cause. For purposes of this Agreement, "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 opinion, cause
embarrassment to the Company; misconduct; substance abuse; insubordination; or
violation of Company policy; willful or repeated non-performance or substandard
performance of duties; or violation of any District of Columbia, state or
federal laws, rules or regulations in connection with or during performance of
work. In the event of termination pursuant to this Section 7(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 any
stock option agreement between the Company and Executive.
(ii) Termination Without Cause
-------------------------
The Company may, in its sole discretion, without Cause or without any
other cause whatsoever, terminate the Executive's employment at any time. For
purposes of this Section 7(a)(ii), a termination without Cause shall not include
a death or Disability (as defined in Section 7(a)(iii) below) or a termination
by the Executive (as defined in Section 7(b) below), but a termination without
Cause shall include a significant diminution of the Executive's employment
duties or compensation, or a material breach of this Agreement by the Company.
Prior to one year after an Initial Public Offering and prior to an Approved
Sale, in the event of termination pursuant to this Section 7(a)(ii), the
Executive shall be paid within thirty (30) days of such termination Two Hundred
Fifty Thousand Dollars ($250,000.00) as severance compensation. Such severance
compensation shall be in lieu of any further compensation or benefits from the
Company (including, but not limited to, the receipt of any benefits with respect
to any stock options granted by the Company to the Executive) except for such
compensation or benefits which have been earned prior to the date of termination
pursuant to the express terms of this Agreement. In the event of termination
pursuant to this Section 7(a)(ii) and except as provided for in the preceding
two sentences, 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 any stock option agreement between the Company and Executive.
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 termination under
this Section 7(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 any stock option agreement between the
Company and Executive.
5
<PAGE>
c. By the Executive
----------------
The Executive may voluntarily terminate his employment at any time
upon one (1) month written notice to the Company. A voluntary termination by
the Executive shall not include a date on which the Executive ceases to be
employed by the Company due to death or disability (as defined in Section 7(b)
above). 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 7(c), 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 any stock
option agreement between the Company and Executive.
8. 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 Employment Agreement (excluding enforcement by the
Company of its rights under the Non-Competition 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
8, 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 Employment
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.
6
<PAGE>
(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 8 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.
9. 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.
10. 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 the
Agreement shall be construed to give full effect to the remaining provisions
thereof.
11. 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.
12. 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.
13. Survival
--------
The provisions of the Non-Competition Agreement and the Stock Option
Agreement (and any agreements incorporated therein by reference) shall survive
the termination and/or expiration of this Agreement.
14. Entire Agreement
----------------
This Agreement, including the agreements expressly incorporated by
reference herein pursuant to Sections 3(b), 6 and 7(a)(i) above (and any
agreements incorporated therein
7
<PAGE>
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.
15. 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.
16. 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 President, 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.
17. 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 hereto have duly executed this Agreement,
to be effective as of the Effective Date.
THE CORPORATE EXECUTIVE BOARD COMPANY
/s/ Harold L. Siebert By: /s/ Michael A. D'Amato
- -------------------------------- ------------------------------------
Harold "Rusty" Siebert Name: Michael A. D'Amato
Title: Executive Vice President
8
<PAGE>
Exhibit 10.4
STOCK OPTION AGREEMENT
PURSUANT TO
THE CORPORATE ADVISORY BOARD COMPANY
STOCK BASED INCENTIVE COMPENSATION PLAN
THIS STOCK OPTION AGREEMENT (this "Option Agreement") is made as of the
Effective Date, between The Corporate Advisory Board Company, a Maryland
corporation (the "Company"), and James J. McGonigle (the "Optionee"), granting
to the Optionee Options to purchase 28,500 Option Shares at a purchase price of
$5.00 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 StockBased Incentive Compensation
Plan (the "Plan"), a copy of which is attached hereto as Exhibit A, pursuant to
which the Company may grant on or before 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, among other things,
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
<PAGE>
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.
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 Company represents and the Optionee acknowledges and agree 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:
l. 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 726,000 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 7(a).
"Advisory Board" is defined in Recital A.
2
<PAGE>
"Agreement Not to Compete" means the Agreement Concerning Exclusive
Services, Confidential Information, Business Opportunities, Non-Competition,
Non-Solicitation and Work Product, by and between the Optionee and the Company
as attached hereto as Exhibit B.
"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,
except if such issuance is in connection with a redemption of stock of the
Company, or (ii) a gift of the stock of the Company.
"Base Stock Amount" shall mean the aggregate, on a given date, of (i) the
number of shares of capital stock of the Company issued and outstanding on the
Effective Date, (ii) the number of shares of Stock on a given date subject to
unexpired and unexercised options issued pursuant to the Plan, and (iii) the
number of shares of Stock outstanding on a given date which were issued by the
Company pursuant to the exercise of options granted under the Plan. Except as
specifically set forth above, Base Stock Amount shall not include any shares or
options to purchase shares issued after the Effective Date.
"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 obliteration of the Company to its
employees; (ii) maintain sufficient cash reserves for a reasonable estimate of
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; conviction for any felony; conviction for any
misdemeanor involving moral turpitude which might, in the Company's opinion,
cause embarrassment to the Company; willful misconduct; substance abuse; or,
after receipt of notice, willful or repeated (i) violation of Company policy, or
(ii) non-performance or substandard performance of duties.
"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.
3
<PAGE>
"Corporate Business" is defined in Recital B.
"Dilution Date" is defined in Section 10(c).
"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.
"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 Recital C.
"Employment Agreement" is defined in Recital C.
"Exercisability Date" is defined in Section 4(a).
"Exercise Date" is defined in Section 6(a).
"Exercise Price" is defined in Section 2.
"Expiration Date" is defined in Section 5.
"Expiration Event" is defined in Section 5.
"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 liquidity, or
other discounts as may be applicable to 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(h) or 12(g) of the
Securities Exchange Act of 1934, as amended, and (ii) such stock is traded or
quoted on a national stock exchange or national
4
<PAGE>
market system, such as the New York Stock Exchange, the American Stock Exchange,
or the NASDAQ National Market System.
"Majority Shareholder" means a holder of more than fifty percent (504) of
the outstanding stock of the Company, or if no person holds more than fifty
percent (504) 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 4(b)(ii).
"Non-Vested Options" is defined in Section 3(a).
"Note" is defined in Section 6(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.
"Plan" is defined in Recital C.
"Redemption Date" is defined in Section 11(a).
"Redemption Payment" is defined in Section 11(a).
"Redemption Payment Period" is defined in Section 11(a).
"Spin-off Transaction" is defined in Recital B.
"Stock" is defined in Recitals B 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
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 for Cause, for death or a
Disability, or upon a Voluntary Resignation Date.
5
<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.
"Vested Options" is defined in Section 3(a).
"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, or due to a significant diminution of his
or her employment duties or compensation, or a material breach of this Option
Agreement by the Company.
"Withholding Taxes" is defined in Section 12.
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 shall herein be 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. Vesting.
-------
(a) Generally. The Options to purchase Stock of the Company shall
---------
vest according to the following schedule (the amount of unexercised and
unexpired Options vested as of a given date shall herein be referred to as the
"Vested Options"; the amount of unexercised and unexpired Options not vested as
of a given date shall herein be referred to as the "Non-Vested Options''):
<TABLE>
<CAPTION>
-------------------------------------------------------
CUMULATIVE NUMBER OF
DATE OPTIONS VESTED
-------------------------------------------------------
<S> <C>
The Effective Date 5,558
April 1, 1998 9,932
April 1, 1999 14,898
April 1, 2000 28,500
-------------------------------------------------------
</TABLE>
6
<PAGE>
(b) Approved Sale. Prior to the Exercisability Date and an Initial
--------------
Public Offering, in the event of either an Approved Sale pursuant to Section
4(b)(i) or a Distribution pursuant to Section 4(b)(ii) that does not permit the
exercise of all Option Shares, the Options exercisable pursuant to such sections
shall, first, be deemed Vested Options and shall, second, be deemed Non-Vested
Options (but only to the extent the number of Options exercisable pursuant to
Sections 4(b)(i) and (ii) exceeds the number of Vested Options). Any Non-Vested
Options that remain outstanding as of the end of the day on which any of the
events described in the foregoing sentence have occurred shall vest according to
the schedule set forth in Section 3(a) above as if the Approved Sale or
Distribution described in the foregoing sentence did not occur.
(c) Effect of Merger, Adjustments and Dilution. In the event the
-------------------------------------------
number of options are adjusted pursuant to Sections 9 or 10 below, the schedule
set forth in Section 3(a) above with respect to the cumulative number of Options
that vest on each of certain specified dates shall be proportionately modified
to reflect such adjustment in the number of Options. More particularly (without
limiting the generality of the foregoing), the Percentage of Options vested on
each of the dates specified on the schedule shall be the same before and after
any adjustments required by Sections 9 or 10 below.
(d) No Additional Rights. This Section 3 shall not confer on the
--------------------
Optionee any right, expressed or implied, other than those rights specifically
expressed in this Option Agreement.
4. Exercisability
--------------
(a) Exercisability Date. Prior to an Initial Public Offering, the
-------------------
Options shall be exercisable during the month of April beginning on April 1,
2000 (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 4(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 4(a) any later than the month of April beginning on April 1, 2001.
(b) Other Exercisable Events. Notwithstanding anything to the
------------------------
contrary in Section 4(a) above, the Options shall be exercisable upon the
occurrence of any of the following events prior to, on, or after the
Exercisability Date:
7
<PAGE>
(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 (1004) 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 4(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
he 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 he
exercisable as follows:
8
<PAGE>
(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,
fifths 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 4(h)(i) and (ii) above shall he binding upon
the Optionee.
5. Expiration. The number of Option Shares that the Options is entitled
----------
to purchase pursuant to the Options shall he 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 he
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, 2001 (the "Expiration Date"), the
---------------
Options shall expire. Notwithstanding the foregoing, in the event of an Initial
Public Offering prior to the Expiration Date, the Options shall expire the later
of two (2) years and thirty (30) days after the Initial Public Offering or the
April 30. 2003.
(b) Termination by the Company. Prior to an Initial Public Offering,
--------------------------
(i) the Options shall 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 that
are Non-Vested Options as of the Termination Date shall expire as of such
Termination Date.
(c) Voluntary Resignation by the Optionee. Prior to an Initial Public
-------------------------------------
Offering, (i) the Options shall expire on the Voluntary Resignation Date if the
Optionee resigns without providing the Company with twelve (12) months prior
notice; or (ii) as of a Voluntary Resignation Date, the Options that are Non-
Vested Options as of the Voluntary Resignation Date shall expire as of such
Voluntary Resignation Date.
(d) Approved Sale of Stock. Prior to an Initial Public Offering,
----------------------
unless exercised by the Optionee pursuant to Section 4(b)(i), 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, under Section 4(b)(i), 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
9
<PAGE>
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,
-----------------------
unless exercised by the Optionee pursuant to Section 4(b)(ii), 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 5(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, under Section 4(b)(ii), 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 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 5(a) above, if two (2) years has elapsed since the Initial Public
Offering, the Option shall expire as of the data thirty (30) days after the date
on which the Optionee ceases to he employed by the Company for any reason other
than death or a Disability.
6. 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:
10
<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 12 hereof.
(b) Notwithstanding anything in Section 6(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 he otherwise permissible
under the Continuing Plan and under any applicable law.
(c) If the Optionee provides payment as provided in Section
6(a)(iii)(B) above, the Optionee agrees to execute and deliver such other
documents as may he reasonably required by the Company to effectuate and secure
the Note. If a Voluntary Resignation Date occurs without the Optionee providing
the Company with six (6) months prior notice of his or her intention to resign,
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.
7. Compliance with Legal Requirements.
----------------------------------
(a) No Option Shares shall he 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.
11
<PAGE>
(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.
8. Nontransferability. Subject to Sections 9 and 11 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
he binding on and enforceable against any person who is a permitted transferee
of the Option pursuant to the first sentence of this Section.
9. 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 9(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
12
<PAGE>
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 interest.
10. 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 he 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 specifically provided in Section 10(c) below or another
provision of this Continuing 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.
(c) Notwithstanding Section 10(b) above, upon the first date (such
date hereinafter referred to as a "Dilution Date") in which the Base Stock
Amount equals or exceeds (i) one million one hundred thousand (1,100,000) shares
of capital stock of the Company, or (ii) one million two hundred thousand
(1,200,000) shares of capital stock of the Company, the number of Options
granted by this Option Agreement shall be increased, on each Dilution Date, to
grant to the Optionee the right and option to purchase 2,850 additional Option
Shares at a purchase price per additional Option Share equal to the Fair Market
Value of such Option Shares on the Dilution Date. These additional Options shall
vest in accordance with the provisions of Section 3(c) above and shall otherwise
be treated, for purposes of this Option Agreement, as if such options were
granted by the Company on the Effective Date.
11. Taxes. The Committee, as defined in the Plan, 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
13
<PAGE>
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 have 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 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 he 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.
14
<PAGE>
19. Entire Continuing Option Agreement. This Option Agreement, together
------------------------ ---------
with the Plan, 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 he 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 he 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 he 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.
15
<PAGE>
(b) An arbitration may he commenced by any party to this Continuing
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 sat forth below.
(c) All attorneys' fees and costs of the arbitration shall in the
first instance he 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 reordered 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 ADVISORY BOARD COMPANY
By: /s/ David G. Bradley
------------------------------
Name: David G. Bradley
------------------------------
Title: Chairman
------------------------------
Date: October 30, 1997
------------------------------
OPTIONEE
Signature: /s/ James J. McGonigle
--------------------------
Date: 10/30/98
------------------------------
16
<PAGE>
AMENDMENT TO STOCK OPTION AGREEMENT
This Amendment to the Stock Option Agreement (the "Amendment"), is made and
effective as of the 21st day of January, 1999 (the "Effective Date"), by and
between The Corporate Executive Board Company, a Delaware corporation (the
"Company") and James J. McGonigle (the "Optionee");
WITNESSETH:
-----------
WHEREAS, pursuant to that certain Stock Option Agreement, effective as of
October 31, 1997, between the Company and the Optionee (the "Option Agreement"),
the Company has granted the Optionee the right and option (the "Option") to
purchase a certain number of Option Shares at a certain purchase price, as more
fully described in the Option Agreement, on the terms and conditions set forth
in the Option Agreement; and
WHEREAS, the Company and Optionee have mutually agreed to modify certain
terms of the Option Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, and in accordance with the terms
of the Option Agreement, the Company and Optionee have agreed to amend the
Option Agreement as follows:
1. Section 1 is hereby amended by deleting the definition "Dilution Date."
2. Section 1 is hereby amended by adding the following definitions of the
following terms:
"First Dilution Date" is defined in Section 10(c).
"Second Dilution Date" is defined in Section 10(c).
3. Effective as of an Initial Public Offering, the definitions of "Cause" and
"Voluntary Resignation Date" set forth in Section 1 are hereby amended to
read in their entirety as follows:
"Cause" for termination is the commission of a material act of fraud,
theft or dishonesty against the Company; conviction for any felony; or
willful non-performance of material duties which is not cured within sixty
(60) days after receipt of written notice to the Optionee from the Board
of Directors. The Optionee shall be deemed to have been terminated without
Cause if (i) there is a significant diminution of his employment duties or
compensation, (ii) he is removed as the Chief Executive Officer of the
Company or (iii) the Company materially breaches the Employment Agreement;
in addition if, as a
<PAGE>
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, entity or person, the
Optionee shall be deemed to have been terminated without Cause, if, after
such transactions, there is a material reduction 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, a reduction in
the base salary of the Optionee or the Optionee is required to relocate
his place of employment to a location that is more than thirty-five (35)
miles from the location of the Company's headquarters at the time of such
transactions."
"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 (i) is terminated by
the Company without Cause or (ii) ceases to be employed by the Company due
to death or a Disability.
4. Section 4(b)(iii) is hereby amended to read in its entirety as follows
provided there is an Initial Public Offering of the Company's Stock on or
prior to December 31, 1999 and the Optionee (i) is not terminated by the
Company other than for Cause, and (ii) does not cease employment with the
Company as a result of death or a Disability:
(iii) 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).
5. Sections 5(c) and 6(c) are hereby amended by replacing all instances in
which the phrase "six (6) months" appears with the phrase "three (3)
months".
6. Section 10(c) is hereby amended to read in its entirety as follows:
(c) Notwithstanding Section 10(b) above, (i) upon the date, if ever,
(the "First Dilution Date") that the Base Stock Amount first equals or
exceeds one million one hundred thousand (1,100,000) shares of capital
stock of the Company, the number of Options granted by this Option
Agreement shall be increased by ten percent (10%) of the sum of the
number of shares that (A) remain subject to the Optionee's Options, and
2
<PAGE>
(B) have been issued under the Options and continue to be held by the
Optionee; and (ii) upon the date, if ever, (the "Second Dilution Date")
that the Base Stock Amount first equals or exceeds one million two
hundred thousand (1,200,000) shares of capital stock of the Company, the
number of Options granted by this Option Agreement shall be increased by
ten percent (10%) of the sum of the number of shares that (x) remain
subject to the Optionee's Options, and (y) have been issued under the
Options and continue to be held by the Optionee. The Exercise Price per
additional share of Stock on the First Dilution Date and Second Dilution
Date (as appropriate) shall equal the Fair Market Value of a share of
Stock on each such date. These additional Options shall vest in
accordance with the provisions of Section 3(c) above and shall otherwise
be treated, for purposes of this Option Agreement, as if such Options
were granted by the Company on the Effective Date.
7. All capitalized terms used in this Amendment, unless otherwise defined
herein, shall have the meaning given them in the Option Agreement.
8. As amended by this Amendment, the Option Agreement continues in full force
and effect. Except for the specific provisions amended by this Amendment,
the terms and conditions of the Option Agreement are unchanged.
9. This Amendment may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the dates
set forth below.
THE CORPORATE EXECUTIVE BOARD COMPANY
By: /s/ Harold L. Seibert
----------------------------------
Name: Harold L. Seibert
----------------------------------
Title: Chairman
----------------------------------
Date: 1/21/99
----------------------------------
OPTIONEE
Signature: /s/ James J. McGonigle
------------------------------
Date: 1/21/99
------------------------------
3
<PAGE>
Exhibit 10.5
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 April 15, 1998 (the "Effective Date"), between The Corporate Executive Board
Company, a Delaware corporation (the "Company"), and Harold "Rusty" Siebert (the
"Optionee"), granting to the Optionee Options to purchase 10,000 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 he 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
he or 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 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 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; or violation of any District
of Columbia, state or federal laws, rules or regulations in connection with or
during performance of work.
"Committee" is defined in the Plan.
"Company" is defined in the preamble.
2
<PAGE>
"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 Committee 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, effective as of
April 15, 1998, between the Company and the Optionee.
"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).
"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 December 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.
3
<PAGE>
"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 4(d).
"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.
"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 Recitals 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.
"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.
4
<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. As of the Effective Date, 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 April beginning on April 1, 2002 (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 Committee may, in its 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 Committee 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 1, 2003.
(b) Other Exercisable Events; Initial Public Offering. Notwithstanding
-------------------------------------------------
anything to the contrary in Section 3(a) above, the Options shall be exercisable
upon the occurrence of an Initial Public Offering of the Company's Stock prior
to, on, or after, the Exercisability Date as follows:
(i) as of the date one (1) year after the Initial Public Offering or
such earlier date(s) as the Committee shall designate in its sole and
absolute discretion, fifty percent (50%) of the Option Number as of the
date of the Initial Public Offering;
(ii) as of the date one (2) years after the Initial Public Offering or
such earlier date(s) as the Committee shall designate in its sole and
absolute discretion, thirty percent (30%) of the Option Number as of the
date of the Initial Public Offering; and
5
<PAGE>
(iii) as of the date three (3) years after the Initial Public
Offering or such earlier date(s) as the Committee shall designate in its
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) 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:
(a) Expiration Date. Upon April 30, 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
three (3) years and thirty (30) days after the Initial Public Offering or April
30, 2003.
(b) Cessation of Employment. Prior to an Initial Public Offering, the
-----------------------
Options shall all expire as of the date the Optionee ceases to be employed by
the Company for any reason other than upon his death or Disability.
(c) Approved Sale of Stock. Prior to an Initial Public Offering, the
----------------------
Options shall all expire upon an Approved Sale by the Majority Shareholder of
more than fifty percent (50%) of the Company's outstanding stock held by such
Majority Shareholder.
(d) 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
the proceeds, after payment of related expenses (the "Net Proceeds") from an
Approved Sale of more than fifty percent (50%) of the Company's assets. For
purposes of this Section 4(d), 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.
(e) 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 Termination Date or a
Voluntary Resignation Date, (A) any portion of the Option that is unexercisable
as of the Termination Date or Voluntary Resignation Date (whichever is
applicable) shall remain unexercisable and shall terminate as of such date, and
(B) any portion of the Option that is exercisable as of the Termination Date or
Voluntary Resignation Date (whichever is applicable) shall expire the earlier of
thirty (30) days after such date and the date provided in Section 4(a) above.
6
<PAGE>
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 Committee 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) 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 one (1) month 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.
7
<PAGE>
(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.
-----------------------------
(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.
8
<PAGE>
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 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 one (1) month prior to a Voluntary
Resignation Date, any portion of the
9
<PAGE>
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.
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 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
10
<PAGE>
the Company at its principal executive offices addressed to the attention of the
Committee, 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 Employment 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
11
<PAGE>
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.
(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.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Option Agreement to be
effective as of the date written above.
THE CORPORATE EXECUTIVE BOARD COMPANY
By: /s/ Michael A. D'Amato
------------------------------------
Name: Michael A. D'Amato
-------------------------------
Title: Executive Vice President
-------------------------------
OPTIONEE
Signature: /s/ Harold L. Siebert
----------------------------
13
<PAGE>
Exhibit 10.8
STOCK OPTION AGREEMENT #1
PURSUANT TO
THE CORPORATE EXECUTIVE BOARD COMPANY
STOCK-BASED INCENTIVE COMPENSATION PLAN
THIS STOCK OPTION AGREEMENT #1 (this "Option Agreement"), is made effective
as of October 31, 1997 (the "Effective Date"), between The Corporate Executive
Board Company, a Delaware corporation (the "Company"), and Michael D'Amato (the
"Optionee"), granting to the Optionee Options to purchase 25,212 Option Shares
at a purchase price of $16.00 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
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 Optionee will be an officer of the
Company.
C. The Company shall adopt, on or before the Effective Date, the
StockBased Incentive Compensation Plan (the "Plan"), a copy of which is attached
hereto as Exhibit A, pursuant to which the Company may grant on or before 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, among other things,
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
<PAGE>
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.
F. Optionee acknowledges that Optionee is an employee of the Advisory
Board with substantial knowledge concerning the performance, operations and
future opportunities relating to the Advisory Board and the Corporate Business.
Optionee further acknowledges that Optionee has been briefed on the past and
potential future performance of the Advisory Board and the Corporate Business by
senior executives of the Advisory Board and/or the Company, and that the
Optionee had the opportunity to ask 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 is 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 is as described below:
l. 1,000 authorized shares of Class A Common Stock, par value $0.01 per
share, of which 1,000 shares have been 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 have been
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 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 7(a).
"Advisory Board" is defined in the recitals.
"Agreement Not to Compete" means the Agreement Concerning Exclusive
Services, Confidential Information, Business Opportunities, Non-Competition,
Non-Solicitation and Work Product, by and between the Optionee and the Company.
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.
"Base Stock Amount" shall mean the aggregate, on a given date, of (i) the
number of shares of capital stock of the Company issued and outstanding on the
Effective Date, (ii) the number of shares of Stock on a given date subject to
unexpired and unexercised options issued pursuant to the Plan, and (iii) the
number of shares of Stock outstanding on a given date which were issued by the
Company pursuant to the exercise of options granted under the Plan. Except as
specifically set forth above, Base Stock Amount shall not include any shares or
options to purchase shares issued after the Effective Date.
"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 shall mean (i) the commission of an act of fraud,
theft or dishonesty against the company; or (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.
"Chairman of the Board" means the Chairman of the Board of Directors of the
Company.
"Change of Control" shall mean a transaction or series of transactions
pursuant to which David G. Bradley, or members of his family, or trusts
generally for the benefit of his family no longer, in the aggregate, own more
than 50% of the Class A Common Stock, par value $0.01 per share of the Company
or otherwise do not own or control over 50% of the voting stock of the Company.
"Committee" is defined in the Plan.
"Company" is defined in the preamble.
"Continuing Option" or "Continuing Options" is defined in the recitals.
"Corporate Business" is defined in the recitals.
"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
3
<PAGE>
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 4(a).
"Exercise Date" is defined in Section 6(a).
"Exercise Price" is defined in Section 2.
"Expiration Date" is defined in Section 5(a).
"Expiration Event" is defined in Section 5.
"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.
"First Dilution Date" is defined in Section 10(c).
"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.
4
<PAGE>
"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 4(b)(ii).
"Non-Vested Options" is defined in Section 3(a).
"Note" is defined in Section 6(a)(iii).
"Option" or "Options" is defined in Section 2.
"Option Agreement #2" means the Stock Option Agreement #2 between the
Optionee and the Company.
"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 C.
"Redemption Date" is defined in Section 11(a).
"Redemption Payment" is defined in Section 11(a).
"Redemption Payment Period" is defined in Section 11(a).
"Second Dilution Date" is defined in Section 10(c).
"Spin-off Transaction" is defined in the recitals.
"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,
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 serve as
an officer of the Company (or act in such other capacity with the Company as the
Chairman of the Board and the Optionee shall later mutually agree) for any
reason other than (i) for Cause, (ii) for death or a Disability, or (iii) upon a
Voluntary Resignation Date.
5
<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.
"Vested Options" is defined in Section 3(a).
"Voluntary Resignation Date" means the date on which the Optionee ceases to
serve as an officer of the Company (or act in such other capacity with the
Company as the Chairman of the Board and the Optionee shall later mutually
agree) for voluntary reasons. Voluntary Resignation Date shall not include the
date on which the Optionee ceases to be an officer of the Company (or act in
such other capacity with the Company as the Chairman of the Board and the
Optionee shall later mutually agree) due to death or a Disability.
"Withholding Taxes" is defined in Section 12.
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 shall herein be 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. Vesting.
-------
(a) Generally. The Options to purchase Stock of the Company shall vest
---------
according to the following schedule (the amount of unexercised and unexpired
Options vested as of a given date shall herein be referred to as the "Vested
Options"; the amount of unexercised and unexpired Options not vested as of a
given date shall herein be referred to as the "Non-Vested Options"):
<TABLE>
<CAPTION>
---------------------------------------------------------
DATE CUMULATIVE NUMBER
OF OPTIONS VESTED
---------------------------------------------------------
<S> <C>
The Effective Date 17,650
April 1, 1998 20,170
October 1, 1998 22,693
April 1, 1999 25,212
---------------------------------------------------------
</TABLE>
(b) Effect of an Approved Sale. Prior to the Exercisability Date and an
--------------------------
Initial Public Offering, in the event of either an Approved Sale pursuant to
Section 4(b)(i) or a Distribution pursuant to Section 4(b)(ii), the Options
exercisable pursuant to such sections shall, first, be
6
<PAGE>
deemed Vested Options and shall, second, be deemed Non-Vested Options (but only
to the extent the number of Options exercisable pursuant to the application of
Sections 4(b)(i) or (ii) exceed the number of Vested Options). Any Non-Vested
Options that are exercisable pursuant to the application of Sections 4(b)(i) or
(ii) shall be deemed vested as of the day on which any of the events described
in the foregoing sentence have occurred, and any Non-Vested Options that remain
outstanding as of the end of the day on which any of the events described in the
foregoing sentence have occurred shall vest according to the schedule set forth
in Section 3(a) above as if the Approved Sale or Distribution described in the
foregoing sentence did not occur.
(c) Change of Control. Upon a Change of Control, all Non-Vested Options
-----------------
shall become Vested Options.
(d) Effect of Merger, Adjustments and Dilution. In the event the number of
------------------------------------------
Options are adjusted pursuant to Sections 9 or 10 below, the schedule set forth
in Section 3(a) above with respect to the cumulative number of Options that vest
on each of certain specified dates shall be proportionately modified to reflect
such adjustment in the number of Options. More particularly (without limiting
the generality of the foregoing), the percentage of Options vested on each of
the dates specified on the schedule shall be the same before and after any
adjustments required by Sections 9 or 10 below.
(e) No Additional Rights. This Section 3 shall not confer on the Optionee
--------------------
any right, expressed or implied, other than those rights specifically expressed
in this Option Agreement.
4. Exercisability.
--------------
(a) Exercisability Date. Prior to an Initial Public Offering, the Options
-------------------
shall be exercisable during the month of April beginning on April 1, 1999 (the
"Exercisability Date") and during every month of July, October, January, and
April thereafter, or at such additional 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 4(a), the Chairman of the Board may, in his
sole and absolute discretion, make a reasonable 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 4(a) any later than the month of April beginning on
April 1, 2001.
(b) Other Exercisable Events. Notwithstanding anything to the contrary in
------------------------
Section 4(a) above, the Options shall be exercisable upon the occurrence of any
of the following events prior to, on, or after the Exercisability Date:
7
<PAGE>
(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 4(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 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.
(iv) Chance of Control. Upon a Change of Control, all Options shall
-----------------
become exercisable.
(c) Determination of Exercisable Options. Given the complexity of the
------------------------------------
mathematical formulas set forth in Sections 4(b)(i) and (ii) above for
determining the number of Options exercisable upon an Approved Sale or a
Distribution, the good faith determination by the
8
<PAGE>
Company (reasonably taking into account the interests of the Optionee) of the
number of Options that may be exercisable by the Optionee pursuant to Sections
4(b)(i) and (ii) above shall be rebuttably presumed to be correct and accurate.
5. 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, 2001 (the "Expiration Date"), the
---------------
Options shall expire. Notwithstanding the foregoing, in the event of an Initial
Public Offering prior to the Expiration Date, the Options shall expire the later
of two (2) 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 expire as of the date the Optionee is terminated by the
Company for Cause; or (ii) as of the Termination Date, the Options that are Non-
Vested Options as of the Termination Date and will not become Vested Options
within one (1) year after such Termination Date shall expire as of the
Termination Date provided that the Termination Date occurs prior to the
Exercisability Date. In the event of a Termination Date, the application of
this Section 5(b) shall not accelerate the vesting of any Non-Vested Options
except as expressly provided for in this Option Agreement.
(c) Voluntary Resignation by the Optionee. Prior to an Initial Public
-------------------------------------
Offering, (i) the Options shall expire on the Voluntary Resignation Date
provided that the Optionee resigns without providing the Company with three (3)
months prior notice; or (ii) the Options that are Non-Vested Options on the
Voluntary Resignation Date shall expire on the Voluntary Resignation Date
provided that the Voluntary Resignation Date occurs prior to the Exercisability
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 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
9
<PAGE>
assets. For purposes of this Section 5(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 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 5(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.
6. 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 manner, at the election of
Optionee: (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 reasonably 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,
10
<PAGE>
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 12 hereof.
(b) Notwithstanding anything in Section 6(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 6(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 Resignation Date occurs without the Optionee providing the Company
with three (3) months prior notice of his or her intention to resign, 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.
7. 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.
8. Death or Disability; Nontransferability.
---------------------------------------
(a) Death or Disability. Except as otherwise provided in this Option
-------------------
Agreement, in the event of the death or Disability of the Optionee, this Option
Agreement shall continue in full
11
<PAGE>
force and effect as if such death or Disability did not occur and the Optionee
continued his or her employment with the Company.
(b) Nontransferability. Subject to Sections 9 and 11 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(b) .
9. 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, provided such terms shall not, in the reasonable opinion of the
Company, diminish the value of the unexpired Options, 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 or otherwise treated as provided in such agreement or plan
of merger or reorganization.
(b) Subject to Section 9(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.
10. 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
12
<PAGE>
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 specifically provided in Section 10(c) below or another
provision of 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.
(c) Notwithstanding Section 10 (b) above, (i) upon the date, if ever, (the
"First Dilution Date") that the Base Stock Amount first equals or exceeds one
million one hundred thousand (1,100,000) shares of capital stock of the Company,
the number of Options granted by this Option Agreement shall be increased by ten
percent (10%) of the sum of the number of shares that (A) remain subject to the
Optionee's Options, and (B) have been issued under the Options and continue to
be held by the Optionee; and (ii) upon the date, if ever, (the "Second Dilution
Date") that the Base Stock Amount first equals or exceeds one million two
hundred thousand (1,200,000) shares of capital stock of the Company, the number
of Options granted by this Option Agreement shall be increased by ten percent
(10%) of the sum of the number of shares that (x) remain subject to the
Optionee's Options, and (y) have been issued under the Options and continue to
be held by the Optionee. The Exercise Price per additional share of Stock on
the First Dilution Date and Second Dilution Date (as appropriate) shall equal
the Fair Market Value of a share of Stock on each such date. These additional
Options shall vest in accordance with the provisions of Section 3(c) above and
shall otherwise be treated, for purposes of this Option Agreement, as if such
Options were granted by the Company on the Effective Date.
11. Right of Redemption of Options.
------------------------------
(a) Prior to an Initial Public Offering of the Stock of the Company and
notwithstanding anything in Section 8 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"). For purposes of this Section
11(a), the Fair Market Value of the redeemed Option shall be determined as of
the Redemption Date and no interest shall accrue on any portion of the
Redemption Payment due and outstanding during the Redemption Payment Period.
13
<PAGE>
(b) Notwithstanding anything to the contrary in Section 11(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 11(b).
(c) Notwithstanding anything in Sections 11(a) and (b) above to the
contrary, if a Voluntary Resignation Date occurs without the Optionee providing
the Company with three (3) months prior notice of his or her intention to
resign, then any portion of the Redemption Payment outstanding as of such
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.
(d) Notwithstanding anything in Section 11(a) above to the contrary, if a
Termination Date occurs prior to an Initial Public Offering and the
Exercisability Date, the Company shall have the right, in its sole and absolute
discretion, to redeem, in whole, on or after the end of the Fiscal Year
following the Fiscal Year in which the Termination Date occurs, the unexpired
Options (including any Non-Vested Options) granted by this Option Agreement, and
the Optionee shall be obligated to sell, in whole, such Options as required by
the Company's exercise of this right. The exercise of this right of redemption
shall be made in accordance with the provisions of Section 11(a), (b), and (c)
above.
(e) Notwithstanding anything in Section 11(a) above to the contrary, if a
Voluntary Resignation Date occurs prior to an Initial Public Offering and the
Exercisability Date, the Company shall have the right, in its sole and absolute
discretion, to redeem, in whole, on or after the end of the Fiscal Year in which
the Voluntary Resignation Date occurs, the unexpired Options (including any Non-
Vested Options) granted by this Option Agreement, and the Optionee shall be
obligated to sell, in whole, such Options as required by the Company's exercise
of this right. The exercise of this right of redemption shall be made in
accordance with the provisions of Section 11(a), (b), and (c) above.
12. Taxes. The Committee, as defined in the Plan, 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).
14
<PAGE>
13. 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.
14. Subject to Stockholders' Agreement. The Optionee acknowledges that
----------------------------------
the Option Shares are subject to the terms of the Stockholders' Agreement.
15. 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.
16. 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.
17. Subject to Agreement Not to Compete. The Optionee acknowledges that
-----------------------------------
the execution of the Agreement Not to Compete is a condition precedent to the
receipt of any rights or benefits conferred on the Optionee by this Option
Agreement.
18. 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).
19. 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.
20. Entire Option Agreement. This Option Agreement, together with the
-----------------------
Plan, Stockholders' Agreement, the Option Agreement #2, the Agreement Not to
Compete, and the Substitution Agreement between The Advisory Board Company and
the Optionee, 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.
21. 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.
15
<PAGE>
22. 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.
23. 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).
24. 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.
25. 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.
26. 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 26,
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.
16
<PAGE>
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 26 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 to be
effective as of the date set forth above.
THE CORPORATE EXECUTIVE BOARD COMPANY
By: /s/ Harold L. Siebert
--------------------------------------
Name: Harold "Rusty" Siebert
Title: Chairman of the Board of Directors
OPTIONEE
Signature: /s/ Michael D' Amato
-------------------------------
17
<PAGE>
Exhibit 10.9
STOCK OPTION AGREEMENT #2
PURSUANT TO
THE CORPORATE ADVISORY BOARD COMPANY
STOCK-BASED INCENTIVE COMPENSATION PLAN
THIS STOCK OPTION AGREEMENT #2 (this "Option Agreement"), is made effective
as of October 31, 1997 (the "Effective Date"), between The Corporate Executive
Board Company, a Delaware corporation (the "Company"), and Michael D'Amato (the
"Optionee"), granting to the Optionee Options to purchase 2,788 Option Shares at
a purchase price of $35.00 per Option Share, as further described in Section 2
hereinbelow.
R E C I T A L S
---------------
A. On the Effective Date, the Company adopted the Stock-Based Incentive
Compensation Plan (the "Plan") and, separately, granted the Optionee Options to
purchase shares of Class B Nonvoting Common Stock of the Company, par
value $0.01 per share (the "Stock").
B. The Company and the Optionee now desire to memorialize their
understanding with respect to the grant of Options made as of the Effective
Date.
C. The Optionee acknowledges that he is an employee of the Company with
substantial knowledge concerning the performance, operations and future
opportunities relating to the business of the Company. The Optionee further
acknowledges that he has been briefed on the past and potential future
performance of the Company and that the Optionee has had the opportunity to ask
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 initial capitalization of
the Company is as described below:
l. 1,000 authorized shares of Class A Common Stock, par value $0.01 per
share, of which 1,000 shares have been 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 have been
issued to David G. Bradley;
<PAGE>
3. The maximum number of shares of Stock that initially 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 7(a).
"Agreement Not to Compete" means the Agreement Concerning Exclusive
Services, Confidential Information, Business Opportunities, Non-Competition,
Non-Solicitation and Work Product, by and 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.
"Base Stock Amount" shall mean the aggregate, on a given date, of (i) the
number of shares of capital stock of the Company issued and outstanding on the
Effective Date, (ii) the number of shares of Stock on a given date subject to
unexpired and unexercised options issued pursuant to the Plan, and (iii) the
number of shares of Stock outstanding on a given date which were issued by the
Company pursuant to the exercise of options granted under the Plan. Except as
specifically set forth above, Base Stock Amount shall not include any shares or
options to purchase shares issued after the Effective Date.
"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 shall mean (i) the commission of an act of fraud,
theft or dishonesty against the company; or (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.
2
<PAGE>
"Chairman of the Board" means the Chairman of the Board of Directors of the
Company.
"Change of Control" shall mean a transaction or series of transactions
pursuant to which David G. Bradley, or members of his family, or trusts
generally for the benefit of his family no longer, in the aggregate, own more
than 50% of the Class A Common Stock, par value $0.01 per share of the Company
or otherwise do not own or control over 50% of the voting stock of the Company.
"Committee" is defined in the Plan.
"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 4(a).
"Exercise Date" is defined in Section 6(a).
"Exercise Price" is defined in Section 2.
"Expiration Date" is defined in Section 5(a).
"Expiration Event" is defined in Section 5.
"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.
"First Dilution Date" is defined in Section 10(c).
"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.
3
<PAGE>
"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 4(b)(ii).
"Non-Vested Options" is defined in Section 3(a).
"Note" is defined in Section 6(a)(iii).
"Option" or "Options" is defined in Section 2.
"Option Agreement #1" means the Stock Option Agreement #1 between the
Optionee and the Company.
"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 11(a).
"Redemption Payment" is defined in Section 11(a).
"Redemption Payment Period" is defined in Section 11(a).
"Second Dilution Date" is defined in Section 10(c).
"Stock" is defined in Recitals A and D.
"Stockholder" means a record holder of one or more shares of capital stock
of the Company.
4
<PAGE>
"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 serve as
an officer of the Company (or act in such other capacity with the Company as the
Chairman of the Board and the Optionee shall later mutually agree) 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.
"Vested Options" is defined in Section 3(a).
"Voluntary Resignation Date" means the date on which the Optionee ceases to
serve as an officer of the Company (or act in such other capacity with the
Company as the Chairman of the Board and the Optionee shall later mutually
agree) for voluntary reasons. Voluntary Resignation Date shall not include the
date on which the Optionee ceases to be an officer of the Company (or act in
such other capacity with the Company as the Chairman of the Board and the
Optionee shall later mutually agree) due to death or a Disability.
"Withholding Taxes" is defined in Section 12.
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 shall herein be 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. Vesting.
-------
(a) Generally. The Options to purchase Stock of the Company shall vest
---------
according to the following schedule (the amount of unexercised and unexpired
Options vested as of a given date shall herein be referred to as the "Vested
Options"; the amount of unexercised and unexpired Options not vested as of a
given date shall herein be referred to as the "Non-Vested Options"):
5
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------
DATE CUMULATIVE NUMBER
OF OPTIONS VESTED
---------------------------------------------------------
<S> <C>
The Effective Date 1,952
April 1, 1998 2,230
October 1, 1998 2,509
April 1, 1999 2,778
---------------------------------------------------------
</TABLE>
(b) Effect of an Approved Sale. Prior to the Exercisability Date and an
--------------------------
Initial Public Offering, in the event of either an Approved Sale pursuant to
Section 4(b)(i) or a Distribution pursuant to Section 4(b)(ii), the Options
exercisable pursuant to such sections shall, first, be deemed Vested Options and
shall, second, be deemed Non-Vested Options (but only to the extent the number
of Options exercisable pursuant to the application of Sections 4(b)(i) or (ii)
exceed the number of Vested Options). Any Non-Vested Options that are
exercisable pursuant to the application of Sections 4(b)(i) or (ii) shall be
deemed vested as of the day on which any of the events described in the
foregoing sentence have occurred, and any Non-Vested Options that remain
outstanding as of the end of the day on which any of the events described in the
foregoing sentence have occurred shall vest according to the schedule set forth
in Section 3(a) above as if the Approved Sale or Distribution described in the
foregoing sentence did not occur.
(c) Change of Control. Upon a Change of Control, all Non-Vested Options
-----------------
shall become Vested Options.
(d) Effect of Merger, Adjustments and Dilution. In the event the number of
------------------------------------------
Options are adjusted pursuant to Sections 9 or 10 below, the schedule set forth
in Section 3(a) above with respect to the cumulative number of Options that vest
on each of certain specified dates shall be proportionately modified to reflect
such adjustment in the number of Options. More particularly (without limiting
the generality of the foregoing), the percentage of Options vested on each of
the dates specified on the schedule shall be the same before and after any
adjustments required by Sections 9 or 10 below.
(e) No Additional Rights. This Section 3 shall not confer on the Optionee
--------------------
any right, expressed or implied, other than those rights specifically expressed
in this Option Agreement.
4. Exercisability.
--------------
(a) Exercisability Date. Prior to an Initial Public Offering, the Options
-------------------
shall be exercisable during the month of April beginning on April 1, 1999 (the
"Exercisability Date") and during every month of July, October, January, and
April thereafter, or at such additional 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 4(a), the Chairman of the Board may, in his
sole and absolute discretion, make a reasonable determination that such Options
shall
6
<PAGE>
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 4(a) any later than the month of April beginning on April 1, 2001.
(b) Other Exercisable Events. Notwithstanding anything to the contrary in
------------------------
Section 4(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 4(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.
7
<PAGE>
(iii) Initial Public Offering. In the event of an Initial Public
-----------------------
Offering of the Company's Stock, the Options shall be exercisable 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.
(iv) Chance of Control. Upon a Change of Control, all Options shall
-----------------
become exercisable.
(c) Determination of Exercisable Options. Given the complexity of the
------------------------------------
mathematical formulas set forth in Sections 4(b)(i) and (ii) above for
determining the number of Options exercisable upon an Approved Sale or a
Distribution, the good faith determination by the Company (reasonably taking
into account the interests of the Optionee) of the number of Options that may be
exercisable by the Optionee pursuant to Sections 4(b)(i) and (ii) above shall be
rebuttably presumed to be correct and accurate.
5. 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, 2001, (the "Expiration Date"), the
---------------
Options shall expire. Notwithstanding the foregoing, in the event of an Initial
Public Offering prior to the Expiration Date, the Options shall expire the later
of two (2) 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 expire as of the date the Optionee is terminated by the
Company for Cause; or (ii) as of the Termination Date, the Options that are Non-
Vested Options as of the Termination Date and will not become Vested Options
within one (1) year after such Termination Date shall expire as of the
Termination Date provided that the Termination Date occurs prior to the
Exercisability Date. In the event of a Termination Date, the application of
this Section 5(b) shall not accelerate the vesting of any Non-Vested Options
except as expressly provided for in this Option Agreement.
(c) Voluntary Resignation by the Optionee. Prior to an Initial Public
-------------------------------------
Offering, (i) the Options shall expire on the Voluntary Resignation Date
provided that the Optionee resigns without providing the Company with three (3)
months prior notice; or (ii) the Options that are Non-Vested Options on the
Voluntary Resignation Date shall expire on the Voluntary Resignation Date
provided that the Voluntary Resignation Date occurs prior to the Exercisability
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
8
<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
5(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 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 5(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.
6. 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:
9
<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 manner, at the election of
Optionee: (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 reasonably 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 12 hereof.
(b) Notwithstanding anything in Section 6(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 6(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 Resignation Date occurs without the Optionee providing the Company
with three (3) months prior notice of his or her intention to resign, 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.
7. 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
10
<PAGE>
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.
8. Death or Disability; Nontransferability.
---------------------------------------
(a) Death or Disability. Except as otherwise provided in this Option
-------------------
Agreement, in the event of the death or Disability of the Optionee, this Option
Agreement shall continue in full force and effect as if such death or Disability
did not occur and the Optionee continued his or her employment with the Company.
(b) Nontransferability. Subject to Sections 9 and 11 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(b) .
9. 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, provided such terms shall not, in the reasonable opinion of the
Company, diminish the value of the unexpired Options, 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 or otherwise treated as provided in such agreement or plan
of merger or reorganization.
(b) Subject to Section 9(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
-------- -------
11
<PAGE>
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.
10. 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 specifically provided in Section 10(c) below or another
provision of 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.
(c) Notwithstanding Section 10 (b) above, (i) upon the date, if ever, (the
"First Dilution Date") that the Base Stock Amount first equals or exceeds one
million one hundred thousand (1,100,000) shares of capital stock of the Company,
the number of Options granted by this Option Agreement shall be increased by ten
percent (10%) of the sum of the number of shares that (A) remain subject to the
Optionee's Options, and (B) have been issued under the Options and continue to
be held by the Optionee; and (ii) upon the date, if ever, (the "Second Dilution
Date") that the Base Stock Amount first equals or exceeds one million two
hundred thousand (1,200,000) shares of capital stock of the Company, the number
of Options granted by this Option Agreement shall be increased by ten percent
(10%) of the sum of the number of shares that (x) remain subject to the
Optionee's Options, and (y) have been issued under the Options and continue to
be held by the Optionee. The Exercise Price per additional share of Stock on
the First Dilution Date and Second Dilution Date (as appropriate) shall equal
the Fair Market Value of a share of Stock on each such date. These additional
Options shall vest in accordance with the provisions of Section 3(c) above and
shall otherwise be treated, for purposes of this Option Agreement, as if such
Options were granted by the Company on the Effective Date.
11. Right of Redemption of Options.
------------------------------
(a) Prior to an Initial Public Offering of the Stock of the Company and
notwithstanding anything in Section 8 above to the contrary, the Company shall
have the right,
12
<PAGE>
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"). For purposes of this Section 11(a), the Fair
Market Value of the redeemed Option shall be determined as of the Redemption
Date and 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 11(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 11(b).
(c) Notwithstanding anything in Sections 11(a) and (b) above to the
contrary, if a Voluntary Resignation Date occurs without the Optionee providing
the Company with three (3) months prior notice of his or her intention to
resign, then any portion of the Redemption Payment outstanding as of such
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.
(d) Notwithstanding anything in Section 11(a) above to the contrary, if a
Termination Date occurs prior to an Initial Public Offering and the
Exercisability Date, the Company shall have the right, in its sole and absolute
discretion, to redeem, in whole, on or after the end of the Fiscal Year
following the Fiscal Year in which the Termination Date occurs, the unexpired
Options (including any Non-Vested Options) granted by this Option Agreement, and
the Optionee shall be obligated to sell, in whole, such Options as required by
the Company's exercise of this right. The exercise of this right of redemption
shall be made in accordance with the provisions of Section 11(a), (b), and (c)
above.
(e) Notwithstanding anything in Section 11(a) above to the contrary, if a
Voluntary Resignation Date occurs prior to an Initial Public Offering and the
Exercisability Date, the Company shall have the right, in its sole and absolute
discretion, to redeem, in whole, on or after the end of the Fiscal Year in which
the Voluntary Resignation Date occurs, the unexpired Options (including any Non-
Vested Options) granted by this Option Agreement, and the Optionee shall be
obligated to sell, in whole, such Options as required by the Company's exercise
of this right. The exercise of this right of redemption shall be made in
accordance with the provisions of Section 11(a), (b), and (c) above.
13
<PAGE>
12. Taxes. The Committee, as defined in the Plan, 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).
13. 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.
14. Subject to Stockholders' Agreement. The Optionee acknowledges that
----------------------------------
the Option Shares are subject to the terms of the Stockholders' Agreement.
15. 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.
16. 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.
17. Subject to Agreement Not to Compete. The Optionee acknowledges that
-----------------------------------
the execution of the Agreement Not to Compete is a condition precedent to the
receipt of any rights or benefits conferred on the Optionee by this Option
Agreement.
18. 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).
14
<PAGE>
19. 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.
20. Entire Option Agreement. This Option Agreement, together with the
-----------------------
Plan, Stockholders' Agreement, the Option Agreement #1, the Agreement Not to
Compete, and the Substitution Agreement between The Advisory Board Company and
the Optionee, 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.
21. 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.
22. 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.
23. 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).
24. 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.
25. 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.
26. 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
15
<PAGE>
of arbitrators and their identity shall be final. Except as otherwise provided
in this Section 26, 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 26 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.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Option Agreement to be
effective as of the date set forth above.
THE CORPORATE EXECUTIVE BOARD COMPANY
By: /s/ Harold L. Siebert
------------------------------------
Name: Harold "Rusty" Siebert
Title: Chairman of the Board of Directors
OPTIONEE
Signature: /s/ Michael D'Amato
-----------------------------
17
<PAGE>
Exhibit 10.10
STOCK OPTION AGREEMENT #1
PURSUANT TO
THE CORPORATE EXECUTIVE BOARD COMPANY
STOCK-BASED INCENTIVE COMPENSATION PLAN
THIS STOCK OPTION AGREEMENT #1 (this "Option Agreement") is made effective
as of October 31, 1997 (the "Effective Date"), between The Corporate Executive
Board Company, a Delaware corporation (the "Company"), and Jeffrey D. Zients
(the "Optionee"), granting to the Optionee Options to purchase 57,462 Option
Shares at a purchase price of $16.00 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
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 Optionee will be an officer of the
Company.
C. The Company shall adopt, on or before the Effective Date, the
StockBased Incentive Compensation Plan (the "Plan"), a copy of which is attached
hereto as Exhibit A, pursuant to which the Company may grant on or before 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, among other things,
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
<PAGE>
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.
F. Optionee acknowledges that Optionee is an employee of the Advisory
Board with substantial knowledge concerning the performance, operations and
future opportunities relating to the Advisory Board and the Corporate Business.
Optionee further acknowledges that Optionee has been briefed on the past and
potential future performance of the Advisory Board and the Corporate Business by
senior executives of the Advisory Board and/or the Company, and that the
Optionee had the opportunity to ask 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 is 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 is as described below:
l. 1,000 authorized shares of Class A Common Stock, par value $0.01 per
share, of which 1,000 shares have been 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 have been
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 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 7(a).
"Advisory Board" is defined in the recitals.
"Agreement Not to Compete" means the Agreement Concerning Exclusive
Services, Confidential Information, Business Opportunities, Non-Competition,
Non-Solicitation, and Work Product between the Optionee and the Company.
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 the recitals.
"Corporate Business" is defined in the recitals.
"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.
"Exercise Date" is defined in Section 6(a).
3
<PAGE>
"Exercise Price" is defined in Section 2.
"Expiration Event" is defined in Section 5.
"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.
"First Vesting Date" is defined in Section 3(a).
"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.
"Fourth Vesting Date" is defined in Section 3(a).
"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.
"Last Vesting Date" is defined in Section 3(a).
"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 4(b)(ii).
"Non-Vested Options" is defined in Section 3(a).
"Note" is defined in Section 6(a)(iii).
"Option" or "Options" is defined in Section 2.
"Option Agreement #2" means the Stock Option Agreement #2 between the
Optionee and the Company.
4
<PAGE>
"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 11(a).
"Redemption Payment" is defined in Section 11(a).
"Redemption Payment Period" is defined in Section 11(a).
"Second Vesting Date" is defined in Section 3(a).
"Spin-off Transaction" is defined in the recitals.
"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
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 serve as
an officer of the Company (or act in such other capacity with the Company as the
Chairman of the Board and the Optionee shall later mutually agree) for any
reason other than (i) for Cause, (ii) for death or a Disability, or (iii) upon a
Voluntary Resignation Date.
"Third Vesting Date" is defined in Section 3(a).
"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
5
<PAGE>
"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.
"Vesting Dates" means the First Vesting Date, the Second Vesting Date, the
Third Vesting Date, the Fourth Vesting Date, and the Last Vesting Date,
collectively.
"Vested Options" is defined in Section 3(a).
"Voluntary Resignation Date" means the date on which the Optionee ceases to
serve as an officer of the Company (or act in such other capacity with the
Company as the Chairman of the Board and the Optionee shall later mutually
agree) for voluntary reasons. Voluntary Resignation Date shall not include the
date on which the Optionee ceases to serve as an officer of the Company (or act
in such other capacity with the Company as the Chairman of the Board and the
Optionee shall later mutually agree) due to death or a Disability.
"Withholding Taxes" is defined in Section 12.
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. Vesting.
(a) Generally. The Options to purchase Stock of the Company shall vest
---------
according to the following schedule (the amount of unexercised and unexpired
Options vested as of a given date shall herein be referred to as the "Vested
Options"; the amount of unexercised and unexpired Options not vested as of a
given date shall herein be referred to as the "Non-Vested Options"):
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
CUMULATIVE NUMBER OF
DATE OPTIONS VESTED
- --------------------------------------------------------------------------
<S> <C>
The Effective Date 3,077
- --------------------------------------------------------------------------
April 1, 1998
(the "First Vesting Date") 6,154
- --------------------------------------------------------------------------
April 1, 1999
(the "Second Vesting Date") 11,923
- --------------------------------------------------------------------------
April 1, 2000
(the "Third Vesting Date") 17,693
- --------------------------------------------------------------------------
April 1, 2001
(the "Fourth Vesting Date") 23,462
- --------------------------------------------------------------------------
April 1, 2006
(the "Last Vesting Date") 57,462
- --------------------------------------------------------------------------
</TABLE>
(b) Approved Sale. Prior to the Last Vesting Date and an Initial Public
-------------
Offering, in the event of either an Approved Sale pursuant to Section 4(b)(i) or
a Distribution pursuant to Section 4(b)(ii) that does not permit the exercise of
all Option Shares, the Options exercisable pursuant to such sections shall,
first, be deemed Vested Options and shall, second, be deemed Non-Vested Options
(but only to the extent the number of Options exercisable pursuant to Sections
4(b)(i) and (ii) exceeds the number of Vested Options). Any Non-Vested Options
that remain outstanding as of the end of the day on which any of the events
described in the foregoing sentence have occurred shall vest according to the
schedule set forth in Section 3(a) above as if the Approved Sale or Distribution
described in the foregoing sentence did not occur.
(c) Effect of Merger, Adjustments and Dilution. In the event the number of
------------------------------------------
Options are adjusted pursuant to Sections 9 or 10 below, the schedule set forth
in Section 3(a) above with respect to the cumulative number of Options that vest
on each of certain specified dates shall be proportionately modified to reflect
such adjustment in the number of Options. More particularly (without limiting
the generality of the foregoing), the percentage of Options vested on each of
the dates specified on the schedule shall be the same before and after any
adjustments required by Sections 9 or 10 below.
(d) Initial Public Offering. In the event of an Initial Public Offering,
-----------------------
the Options shall vest according to the provisions of Section 4(b)(iii) below.
(e) No Additional Rights. This Section 3 shall not confer on the Optionee
--------------------
any right, expressed or implied, other than those rights specifically expressed
in this Option Agreement.
4. Exercisability.
-----------------
(a) Generally. Prior to an Initial Public Offering, all unexpired and
---------
unexercised Vested Options as of a particular Vesting Date shall be exercisable
during the month of April beginning on such Vesting Date and during every month
of July, October, January, and April thereafter, or at such other times after
such Vesting 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
7
<PAGE>
and notwithstanding anything in this Section 4(a) to the contrary, 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
4(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 4(a) any later than the month
of March beginning on March 1, 2009.
(b) Other Exercisable Events. Notwithstanding anything to the contrary in
------------------------
Section 4(a) above, the Options shall be exercisable upon the occurrence of any
of the following events prior to, on, or after, the Vesting Dates:
(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 4(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
8
<PAGE>
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, all unexpired 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 David G. Bradley 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 David G. Bradley 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 4(b)(i), (ii) and (iii) above shall be binding upon the
Optionee.
5. 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) March 31, 2009. Upon March 31, 2009, the Options shall expire.
--------------
(b) Termination by the Company. Prior to an Initial Public Offering, (i)
--------------------------
the Options shall all expire as of the date the Optionee is terminated by the
Company for Cause; or (ii) as of the Termination Date, the Options that are Non-
Vested Options as of the Termination Date shall all expire as of such
Termination Date.
(c) Voluntary Resignation by the Optionee. Prior to an Initial Public
-------------------------------------
Offering, (i) the Options shall all expire on the Voluntary Resignation Date if
the Optionee resigns without providing the Company with twelve (12) months prior
notice; or (ii) as of a Voluntary Resignation Date, the Options that are Non-
Vested Options as of the Voluntary Resignation Date shall all expire as of such
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 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
9
<PAGE>
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
5(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 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 5(a) above, if two (2) years have 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.
6. 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;
10
<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) 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 12 hereof.
(b) Notwithstanding anything in Section 6(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 6(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 Resignation Date occurs without the Optionee providing the Company
with twelve (12) months prior notice of his or her intention to resign, 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.
7. 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
11
<PAGE>
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.
8. Nontransferability. Subject to Sections 9 and 11 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.
9. 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 9(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.
10. 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
12
<PAGE>
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.
11. Right of Redemption of Options.
------------------------------
(a) Prior to an Initial Public Offering of the Stock of the Company and
notwithstanding anything in Section 8 above to the contrary, the Company shall
have the right, on or after the First Vesting Date and in its sole and absolute
discretion, to redeem, in whole, the Options that are Vested Options as of the
date (the "Redemption Date") of the Company's exercise of this right of
redemption, and the Optionee shall be obligated to sell, in whole, such Vested
Options as required by the Company's exercise of this right. The redemption of
the Vested Options shall be effective as of the Redemption Date. Payment for
the redeemed Options (the "Redemption Payment") shall be made by means of the
payment to the Optionee by the Company of the Fair Market Value of such Options
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"). For purposes of this Section
11(a), the Fair Market Value of the redeemed Options shall be determined as of
the Redemption Date and 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 11(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 11(b).
(c) Notwithstanding anything in Sections 11(a) and (b) above to the
contrary, if a Voluntary Resignation Date occurs without the Optionee providing
the Company with twelve (12) months prior notice of his or her intention to
resign, then any portion of the Redemption Payment outstanding as of such
Voluntary Resignation Date, together with any accrued and
13
<PAGE>
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.
12. 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).
13. 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.
14. Subject to Stockholders' Agreement. The Optionee acknowledges that
----------------------------------
the Option Shares are subject to the terms of the Stockholders' Agreement.
15. 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.
16. 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.
17. Subject to Agreement Not to Compete. The Optionee acknowledges that
-----------------------------------
the execution of the Agreement Not to Compete is a condition precedent to the
receipt of any rights or benefits conferred on the Optionee by this Option
Agreement.
18. 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
14
<PAGE>
such other address as shall be given in writing by Optionee or his or her
permitted transferee to the Company).
19. 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.
20. Entire Option Agreement. This Option Agreement, together with the
-----------------------
Plan, Stockholders' Agreement, the Option Agreement #2, the Agreement Not to
Compete and the Substitution Agreement between The Advisory Board Company and
the Optionee, 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.
21. 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.
22. 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.
23. 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).
24. 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.
25. 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.
26. 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
15
<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 26, 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 26 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.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Option Agreement to be
effective as of the date set forth above.
THE CORPORATE EXECUTIVE BOARD COMPANY
By: /s/ Harold L. Siebert
--------------------------------------
Name: Harold "Rusty" Siebert
Title: Chairman of the Board of Directors
OPTIONEE
Signature: /s/ Jeffrey D. Zients
-------------------------------
Jeffrey D. Zients
17
<PAGE>
Exhibit 10.11
STOCK OPTION AGREEMENT #2
PURSUANT TO
THE CORPORATE ADVISORY BOARD COMPANY
STOCK-BASED INCENTIVE COMPENSATION PLAN
THIS STOCK OPTION AGREEMENT #2 (this "Option Agreement"), is made effective
as of October 31, 1997 (the "Effective Date"), between The Corporate Executive
Board Company, a Delaware corporation (the "Company"), and Jeffrey D. Zients
(the "Optionee"), granting to the Optionee Options to purchase 2,538 Option
Shares at a purchase price of $35.00 per Option Share, as further described in
Section 2 hereinbelow.
R E C I T A L S
- - - - - - - -
A. On the Effective Date, the Company adopted the Stock-Based Incentive
Compensation Plan (the "Plan") and, separately, granted the Optionee Options to
purchase hares of Class B Nonvoting Common Stock of the Company, par value $0.01
per share (the "Stock").
B. The Company and the Optionee now desire to memorialize their
understanding with respect to the grant of Options made as of the Effective
Date.
C. The Optionee acknowledges that he is an employee of the Company with
substantial knowledge concerning the performance, operations and future
opportunities relating to the business of the Company. The Optionee further
acknowledges that he has been briefed on the past and potential future
performance of the Company and that the Optionee has had the opportunity to ask
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 initial capitalization of
the Company is as described below:
l. 1,000 authorized shares of Class A Common Stock, par value $0.01 per
share, of which 1,000 shares have been 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 have been
issued to David G. Bradley;
<PAGE>
3. The maximum number of shares of Stock that initially 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 7(a).
"Agreement Not to Compete" means 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.
"Company" is defined in the preamble.
2
<PAGE>
"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.
"Exercise Date" is defined in Section 6(a).
"Exercise Price" is defined in Section 2.
"Expiration Event" is defined in Section 5.
"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.
"First Vesting Date" is defined in Section 3(a).
"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.
"Fourth Vesting Date" is defined in Section 3(a).
"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.
"Last Vesting Date" is defined in Section 3(a).
"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 4(b)(ii).
"Non-Vested Options" is defined in Section 3(a).
"Note" is defined in Section 6(a)(iii).
"Option" or "Options" is defined in Section 2.
"Option Agreement #1" means the Stock Option Agreement #1 between the
Optionee and the Company.
"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 11(a).
"Redemption Payment" is defined in Section 11(a).
"Redemption Payment Period" is defined in Section 11(a).
"Second Vesting Date" is defined in Section 3(a).
"Stock" is defined in Recitals A and 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
4
<PAGE>
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 serve as
an officer of the Company (or act in such other capacity with the Company as the
Chairman of the Board and the Optionee shall later mutually agree) for any
reason other than (i) for Cause, (ii) for death or a Disability, or (iii) upon a
Voluntary Resignation Date.
"Third Vesting Date" is defined in Section 3(a).
"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.
"Vesting Dates" means the First Vesting Date, the Second Vesting Date, the
Third Vesting Date, the Fourth Vesting Date, and the Last Vesting Date,
collectively.
"Vested Options" is defined in Section 3(a).
"Voluntary Resignation Date" means the date on which the Optionee ceases to
serve as an officer of the Company (or act in such other capacity with the
Company as the Chairman of the Board and the Optionee shall later mutually
agree) for voluntary reasons. Voluntary Resignation Date shall not include the
date on which the Optionee ceases to serve as an officer of the Company (or act
in such other capacity with the Company as the Chairman of the Board and the
Optionee shall later mutually agree) due to death or a Disability.
"Withholding Taxes" is defined in Section 12.
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. Vesting.
(a) Generally. The Options to purchase Stock of the Company shall vest
---------
according to the following schedule (the amount of unexercised and unexpired
Options vested as of a given date shall herein be referred to as the "Vested
Options"; the amount of unexercised and unexpired Options not vested as of a
given date shall herein be referred to as the "Non-Vested Options"):
5
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
CUMULATIVE NUMBER OF
DATE OPTIONS VESTED
- -------------------------------------------------------------------------
<S> <C>
The Effective Date 136
- -------------------------------------------------------------------------
April 1, 1998
(the "First Vesting Date") 272
- -------------------------------------------------------------------------
April 1, 1999
(the "Second Vesting Date") 527
- -------------------------------------------------------------------------
April 1, 2000
(the "Third Vesting Date") 781
- -------------------------------------------------------------------------
April 1, 2001
(the "Fourth Vesting Date") 1,036
- -------------------------------------------------------------------------
April 1, 2006
(the "Last Vesting Date") 2,538
- -------------------------------------------------------------------------
</TABLE>
(b) Approved Sale. Prior to the Last Vesting Date and an Initial Public
-------------
Offering, in the event of either an Approved Sale pursuant to Section 4(b)(i) or
a Distribution pursuant to Section 4(b)(ii) that does not permit the exercise of
all Option Shares, the Options exercisable pursuant to such sections shall,
first, be deemed Vested Options and shall, second, be deemed Non-Vested Options
(but only to the extent the number of Options exercisable pursuant to Sections
4(b)(i) and (ii) exceeds the number of Vested Options). Any Non-Vested Options
that remain outstanding as of the end of the day on which any of the events
described in the foregoing sentence have occurred shall vest according to the
schedule set forth in Section 3(a) above as if the Approved Sale or Distribution
described in the foregoing sentence did not occur.
(c) Effect of Merger, Adjustments and Dilution. In the event the number of
------------------------------------------
Options are adjusted pursuant to Sections 9 or 10 below, the schedule set forth
in Section 3(a) above with respect to the cumulative number of Options that vest
on each of certain specified dates shall be proportionately modified to reflect
such adjustment in the number of Options. More particularly (without limiting
the generality of the foregoing), the percentage of Options vested on each of
the dates specified on the schedule shall be the same before and after any
adjustments required by Sections 9 or 10 below.
(d) Initial Public Offering. In the event of an Initial Public Offering,
-----------------------
the Options shall vest according to the provisions of Section 4(b)(iii) below.
(e) No Additional Rights. This Section 3 shall not confer on the Optionee
--------------------
any right, expressed or implied, other than those rights specifically expressed
in this Option Agreement.
4. Exercisability.
-----------------
(a) Generally. Prior to an Initial Public Offering, all unexpired and
---------
unexercised Vested Options as of a particular Vesting Date shall be exercisable
during the month of April beginning on such Vesting Date and during every month
of July, October, January, and April thereafter, or at such other times after
such Vesting 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
6
<PAGE>
and notwithstanding anything in this Section 4(a) to the contrary, 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
4(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 4(a) any later than the month
of March beginning on March 1, 2009.
(b) Other Exercisable Events. Notwithstanding anything to the contrary in
------------------------
Section 4(a) above, the Options shall be exercisable upon the occurrence of any
of the following events prior to, on, or after, the Vesting Dates:
(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 4(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
7
<PAGE>
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, all unexpired 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 David G. Bradley 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 David G. Bradley 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 4(b)(i), (ii) and (iii) above shall be binding upon the
Optionee.
5. 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) March 31, 2009. Upon March 31, 2009, the Options shall expire.
--------------
(b) Termination by the Company. Prior to an Initial Public Offering, (i)
--------------------------
the Options shall all expire as of the date the Optionee is terminated by the
Company for Cause; or (ii) as of the Termination Date, the Options that are Non-
Vested Options as of the Termination Date shall all expire as of such
Termination Date.
(c) Voluntary Resignation by the Optionee. Prior to an Initial Public
-------------------------------------
Offering, (i) the Options shall all expire on the Voluntary Resignation Date if
the Optionee resigns without providing the Company with twelve (12) months prior
notice; or (ii) as of a Voluntary Resignation Date, the Options that are Non-
Vested Options as of the Voluntary Resignation Date shall all expire as of such
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 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
8
<PAGE>
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
5(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 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 5(a) above, if two (2) years have 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.
6. 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;
9
<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) 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 12 hereof.
(b) Notwithstanding anything in Section 6(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 6(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 Resignation Date occurs without the Optionee providing the Company
with twelve (12) months prior notice of his or her intention to resign, 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.
7. 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
10
<PAGE>
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.
8. Nontransferability. Subject to Sections 9 and 11 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.
9. 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 9(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.
10. 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
11
<PAGE>
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.
11. Right of Redemption of Options.
------------------------------
(a) Prior to an Initial Public Offering of the Stock of the Company and
notwithstanding anything in Section 8 above to the contrary, the Company shall
have the right, on or after the First Vesting Date and in its sole and absolute
discretion, to redeem, in whole, the Options that are Vested Options as of the
date (the "Redemption Date") of the Company's exercise of this right of
redemption, and the Optionee shall be obligated to sell, in whole, such Vested
Options as required by the Company's exercise of this right. The redemption of
the Vested Options shall be effective as of the Redemption Date. Payment for
the redeemed Options (the "Redemption Payment") shall be made by means of the
payment to the Optionee by the Company of the Fair Market Value of such Options
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"). For purposes of this Section
11(a), the Fair Market Value of the redeemed Options shall be determined as of
the Redemption Date and 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 11(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 11(b).
(c) Notwithstanding anything in Sections 11(a) and (b) above to the
contrary, if a Voluntary Resignation Date occurs without the Optionee providing
the Company with twelve (12) months prior notice of his or her intention to
resign, then any portion of the Redemption Payment outstanding as of such
Voluntary Resignation Date, together with any accrued and
12
<PAGE>
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.
12. 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).
13. 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.
14. Subject to Stockholders' Agreement. The Optionee acknowledges that
----------------------------------
the Option Shares are subject to the terms of the Stockholders' Agreement.
15. 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.
16. 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.
17. Subject to Agreement Not to Compete. The Optionee acknowledges that
-----------------------------------
the execution of the Agreement Not to Compete is a condition precedent to the
receipt of any rights or benefits conferred on the Optionee by this Option
Agreement.
18. 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
13
<PAGE>
such other address as shall be given in writing by Optionee or his or her
permitted transferee to the Company).
19. 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.
20. Entire Option Agreement. This Option Agreement, together with the
-----------------------
Plan, Stockholders' Agreement, the Option Agreement #1, the Agreement Not to
Compete and the Substitution Agreement between The Advisory Board Company and
the Optionee, 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.
21. 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.
22. 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.
23. 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).
24. 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.
25. 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.
26. 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
14
<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 26, 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 26 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.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Option Agreement to be
effective as of the date set forth above.
THE CORPORATE EXECUTIVE BOARD COMPANY
By: /s/ Harold L. Siebert
-----------------------------------
Name: Harold "Rusty" Siebert
Title: Chairman of the Board of Directors
OPTIONEE
Signature: /s/ Jeffrey D. Zients
------------------------------
Jeffrey D. Zients
16
<PAGE>
Exhibit 10.13
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 Derek C.M. van Bever (the "Optionee"), granting
--------------------
to the Optionee Options to purchase 10,500 Option Shares at a purchase price
--------
of $35.00 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 {not applicable}, 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
<PAGE>
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.
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 726,000 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.
2
<PAGE>
"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".
"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.
3
<PAGE>
"Effective Date" is defined in Recital C.
"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 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.
4
<PAGE>
"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 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.
5
<PAGE>
"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, the Options
-------------------
shall be exercisable during the month of April beginning on April 1, 2003 (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 1, 2004.
(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
6
<PAGE>
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 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
7
<PAGE>
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
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 April
1, 2004.
(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 the Company to effectuate and secure the Note. If a
Voluntary Notice Date occurs less than
9
<PAGE>
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.
10
<PAGE>
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 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.
13. Subject to Stockholders' Agreement. The Optionee acknowledges that
----------------------------------
the Option Shares are subject to the terms of the Stockholders' Agreement.
12
<PAGE>
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, conclusion, or determination of the Board of Directors of the
Company or its authorized representative(s).
13
<PAGE>
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.
(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
14
<PAGE>
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: /s/ David G. Bradley
----------------------------
Name: David G. Bradley
----------------------------
Title: Chairman
----------------------------
Date: October 1, 1997
----------------------------
OPTIONEE
Signature: /s/ Derek van Bever
-------------------------
Date: October 1, 1997
-------------------------
15
<PAGE>
AMENDMENT TO STOCK OPTION AGREEMENT
This Amendment, made and effective as of the 21st day of July, 1998 (the
"Effective Date"), by and between The Corporate Advisory Board Company, a
Delaware corporation (the "Company") and Derek van Bever (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: /s/ Michael D'Amato /s/ Derek van Bever
---------------------------- ----------------------------
Name: Michael D'Amato OPTIONEE OPTIONEE
Title: Executive Vice President
16
<PAGE>
Exhibit 10.15
AGREEMENT CONCERNING EXCLUSIVE SERVICES,
----------------------------------------
CONFIDENTIAL INFORMATION, BUSINESS OPPORTUNITIES,
-------------------------------------------------
NON-COMPETITION, NON-SOLICITATION AND WORK PRODUCT
--------------------------------------------------
This Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation, and Work Product
(this "Agreement") is effective the 21st day of January 1999 by and between The
Corporate Executive Board Company, including its affiliates, successors and
assigns (the "Company") and James J. McGonigle (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.
R4. On October 30, 1997, the Company and the Employee entered into that
certain Agreement Concerning Exclusive Services, Confidential Information,
Business Opportunities, Non-Competition, Non-Solicitation and Work Product (the
"Original Agreement").
R5. The Company and the Employee now desire to amend and restate the
Original Agreement as herein provided.
NOW, THEREFORE, in consideration of the recitals above, initial and/or
continued employment, participation in the Company's employee benefits programs
as reflected in the Stock Option Agreement between the Company and the Employee
and other good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the parties agree as follows:
<PAGE>
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 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, 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,
2
<PAGE>
custody or control, provided that the Employee may retain one copy of each
published study to which he contributed personally.
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) 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 five or more percent 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 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 notifies the Employee of its intention
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 Employee may, upon termination in the situations described above, work as a
consultant or for a consulting firm, provided he complies with all of the
provisions of this Section 5(a). The Company may release the Employee from some
or all of the
3
<PAGE>
restrictions in this section only in a written instrument signed by the Employee
and the Chairman of the Company.
For the purposes of this Agreement, "Cause" for termination shall have the
meaning given such term in the Employment Agreement between the Employee and the
Company (the "Employment Agreement") in effect at the time of termination of the
Employee's employment with the Company.
(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 (except in the event such issuance is combined with a redemption
by the Company of its own capital stock for the purpose of effecting such a
change of more than fifty percent (50%) of the economic beneficial ownership of
the Company, or a functional unit or division of the Company), 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 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 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
reasonably necessary to demonstrate his compliance with the terms and conditions
of this Agreement.
(d) Notwithstanding anything herein to the contrary, if the Employee is
terminated by the Company without Cause, in consideration for the severance
payment that the Employee is entitled to receive upon such termination pursuant
to the terms of the Employment Agreement, the Employee agrees to comply with the
provisions of Section 5(a) for a
4
<PAGE>
period of one (1) year from the date of such termination as if he were
terminated for Cause or voluntarily resigned. 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 (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 were 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 the First Additional Period. In the event
of an Approved Sale or an Initial Public Offering prior to the date of the
Employee's termination, if the Company notifies the Employee in writing within
thirty (30) 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 were 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 the Second Additional 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 shall be deemed to be an affiliate of the
Company.
6. Solicitation of Employees
-------------------------
The Employee agrees that during the term of his employment, and for a
period of two (2) 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. 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,
5
<PAGE>
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
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.
(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 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 employment.
(c) Any Work Product which the Employee may disclose to anyone within six
(6) months after the termination of his 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 rebuttably 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 can demonstrate that he, 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 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, to his best knowledge and reasonable
belief, 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, patented or copyrighted, which has been made
or conceived or first reduced to practice by the Employee alone or jointly prior
to the date of his employment with the Company or its affiliates. Such Work
Product shall be excluded from the operation of this Agreement.
6
<PAGE>
If there is no such list on Exhibit A, there shall be a rebuttable presumption
that no such Work Product exists at the time of signing this Agreement.
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. Injunctive Relief 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. If the Company or its
affiliates 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 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 obligations under this Agreement
without the express written consent of the Company and its successors and
assigns.
13. Entire Agreement
----------------
This Agreement sets forth the entire agreement and understanding between
the parties as to the subject matter hereof and supercedes all prior oral and
written and all contemporaneous oral discussions, agreements and understandings
of any kind or nature.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
7
<PAGE>
EMPLOYEE THE CORPORATE EXECUTIVE BOARD COMPANY
/s/ James J. McGonigle By: /s/ Harold L. Siebert
- ------------------------------- ----------------------------------
James J. McGonigle
Title: Chairman
-------------------------------
8
<PAGE>
Exhibit 10.16
AGREEMENT CONCERNING EXCLUSIVE SERVICES,
CONFIDENTIAL INFORMATION, BUSINESS OPPORTUNITIES,
NON-COMPETITION, NON-SOLICITATION AND WORK PRODUCT
This Agreement is made effective as of the 15th day of April, 1998, by and
between The Corporate Executive Board Company, including its affiliates,
successors and assigns (the "Company") and Harold "Rusty" Siebert (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
<PAGE>
any other capacity, on his 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 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, 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 contributed personally.
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
2
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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 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; or violation of any District
of Columbia, state or federal laws, rules or regulations in connection with or
during performance of work.
3
<PAGE>
(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 by the
provisions of this Section 5 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 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) Notwithstanding anything set forth above to the contrary, if the
Company notifies the Employee in writing within thirty (30) days of his
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 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 was terminated for Cause or
voluntarily resigned for a period of one (1) additional year, provided
4
<PAGE>
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 shall be deemed to be an affiliate of the
Company.
6. Solicitation of Employees
-------------------------
The Employee agrees that during the term of his employment, and for a
period of two (2) 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. 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, 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
5
<PAGE>
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 employment.
(c) Any Work Product which the Employee may disclose to anyone within six
(6) months after the termination of his 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
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 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 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.
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
6
<PAGE>
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 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 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 has received with
respect to the Employee Benefit Programs during the five-year period preceding
said breach and he shall forfeit 100% of the value of all such cash payments to
which he 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 assign his obligations under this Agreement
without the express written consent of the Company and its successors and
assigns.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
EMPLOYEE THE CORPORATE EXECUTIVE BOARD
COMPANY
/s/ Harold L. Siebert By: /s/ Michael A. D'Amato
- ----------------------------- ------------------------------------
Harold "Rusty" Siebert Name: Michael A. D'Amato
Title: Executive Vice President
8
<PAGE>
Exhibit 10.22.1
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 Class B Non-Voting Common Stock, par
value $.01 per share, 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.
(f) "Stock Grant" shall mean the award of shares of Common Stock to a
Participant pursuant to the terms of this Plan.
<PAGE>
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
25,000. 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, or is elected to be, 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 5,000 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 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
2
<PAGE>
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 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 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
3
<PAGE>
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 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
4
<PAGE>
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
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.
5
<PAGE>
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 stockholders. 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>
THE CORPORATE EXECUTIVE BOARD COMPANY
STANDARD TERMS AND CONDITIONS FOR
DIRECTOR NON-QUALIFIED STOCK OPTIONS
1. TERMS OF OPTION
THE CORPORATE EXECUTIVE BOARD COMPANY, a Delaware corporation (the
"Company"), has granted to the Optionee named in the Term Sheet provided to
said Optionee herewith (the "Term Sheet") a non-qualified stock Option (the
"Option") to purchase any part or all of the number of shares of the
Company's Class B Common Stock, $0.01 par value per share (the "Common
Stock"), set forth in Term Sheet, at the purchase price per share and upon
the other terms and subject to the conditions set forth in the Term Sheet,
these Standard Terms and Conditions (as amended from time to time), and the
Plan specified in the Term Sheet (the "Plan"). The Option is granted in
consideration for Optionee's service as a director of the Company.
2. NON-QUALIFIED STOCK OPTION
The Option is not intended to be an incentive stock Option under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") and will
be interpreted accordingly.
3. CONTINUED SERVICE
Except as otherwise provided in these Standard Terms and Conditions and the
Plan, the Option shall be exercisable only if Optionee serves as a director
of the Company on the date that the Option becomes vested, as set forth in
the Term Sheet.
4. OPTION EXERCISE PRICE
The exercise price (the "Exercise Price") of the Option is set forth in the
Term Sheet.
5. TERM OF OPTION AND EXERCISE OF OPTION
To the extent not previously exercised, and subject to termination or
acceleration as provided in these Standard Terms and Conditions, the Option
shall be fully exercisable on and after it becomes vested, as described in
the Term Sheet, to purchase up to that number of shares of Common Stock as
set forth in the Term Sheet. Notwithstanding anything to the contrary in
Sections 6 through 9 hereof, no part of the Option may be exercised after
ten (10) years from the grant date set forth in the Term Sheet.
To exercise the Option (or any part thereof), Optionee shall deliver a
"Notice of Exercise" to the Company specifying the number of whole shares
of Common Stock Optionee wishes to purchase and how Optionee's shares of
Common Stock should be registered (in Optionee's name only or in Optionee's
and Optionee's spouse's names as community property or as joint tenants
with right of survivorship). The Company shall not be obligated to issue
any shares of Common Stock until Optionee shall have paid the total
Exercise Price for that number of shares of Common Stock. The Exercise
Price may be paid (a) in cash, (b) 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, (c) by tendering (either physically or by
attestation) shares of Common Stock owned by Optionee and having a Market
Value (defined in the Plan) on the date of exercise equal to the Exercise
Price but only if such will
7
<PAGE>
not result in an accounting charge to the Company, or (d) by any
combination of the foregoing. In addition, the Exercise Price may be
payable in such other form(s) of consideration as the Committee (defined in
the Plan) in its discretion shall specify, including without limitation by
loan or by techniques that may result in an accounting charge to the
Company. Fractional shares may not be exercised. Shares of Common Stock
will be issued as soon as practical after exercise. Optionee will have the
rights of a stockholder only after the shares of Common Stock have been
issued.
Notwithstanding the above, the Company shall not be obligated to deliver
any shares of Common Stock during any period when the Company determines
that the exercisability of the Option or the delivery of shares hereunder
would violate any federal, state or other applicable laws.
6. TERMINATION OF RELATIONSHIP
After the effective date of his or her election as a director, if Optionee
ceases to be a director of the Company for any reason other than death,
Disablement (defined below) or Retirement (defined below), Optionee may at
any time within ninety (90) days from the date of such termination exercise
the Option to the extent it was exercisable on the date of termination.
After such ninetieth (90th) day, the Option shall terminate to the extent
that it is unexercised.
7. DEATH
If Optionee ceases to be a director of the Company on account of Optionee's
death while in the service of the Company as a director, the executor of
Optionee's will, administrator of Optionee's estate or any successor
trustee of a grantor trust may exercise Optionee's rights during the twelve
(12) months next succeeding the date of death. The number of shares
exercisable by Optionee's estate or beneficiary will be the total number of
unexercised shares under the Option were exercisable on the date of
Optionee's death. If Optionee dies within thirty (30) days of ceasing
service with the Company as a director, the executor of Optionee's will,
administrator of Optionee's estate or any successor trustee of a grantor
trust may exercise within twelve (12) months from the date of Optionee's
termination those outstanding options which were exercisable on the date of
Optionee's termination.
After either twelve (12) month period described in this Section 7, the
Option shall terminate to the extent that it is unexercised.
8. DISABILITY
If Optionee ceases to be a director of the Company on account of Optionee's
Disablement, Optionee may within twelve (12) months from the date of
Optionee's Disablement exercise the Option to the extent it was exercisable
on the date of Optionee's Disablement. After such twelve (12) month
period, the Option shall terminate to the extent that it is unexercised.
For purposes of these Standard Terms and Conditions, "Disablement" means a
physical condition arising from an illness or injury which renders an
individual incapable of performing work. The determination of the
Committee as to an individual's Disablement shall be conclusive on all of
the parties.
8
<PAGE>
9. RETIREMENT
If Optionee ceases to be a director of the Company on account of Optionee's
retirement from the Board of Directors, the Option, to the extent it was
exercisable on the date of Retirement, may be exercised by Optionee for a
period of twelve (12) months following the date of Optionee's Retirement.
After such twelve (12) month period, the Option shall terminate to the
extent that it is unexercised. "Retirement" means ceasing from service as
a director of the Company at or after age 60.
10. INCOME TAXES WITHHOLDING
The Company shall not be obligated to issue any shares of Common Stock
pursuant to the exercise of the Option until the Optionee has satisfied in
full any and all taxes and tax withholding requirements as may be
applicable. Such taxes may be paid in the manner provided for payment of
the Exercise Price of the Option. 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 issuance or
exercise of the Option including, but not limited to, deducting the amount
of any such withholding taxes from any amount then or thereafter payable to
the Optionee.
11. NON-TRANSFERABILITY OF OPTION
Unless otherwise provided by the Committee, Optionee may not assign or
transfer the Option to anyone other than by will or the laws of descent and
distribution and Options shall be exercisable only by Optionee during his
or her lifetime. The Company may cancel Optionee's Option if Optionee
attempts to assign or transfer it in a manner inconsistent with this
Section 11.
12. DISPUTES
Any disagreement concerning Optionee's Option shall be finally and
conclusively determined as provided in the Plan.
13. THE PLAN AND OTHER AGREEMENTS
The provisions of the Plan are incorporated into these Standard Terms and
Conditions by this reference. In the event of a conflict between the terms
and conditions of these Standard Terms and Condition and the Plan, the Plan
controls. Certain capitalized terms not otherwise defined herein are
defined in the Plan.
The Term Sheet, these Standard Terms and Conditions and the Plan constitute
the entire understanding between Optionee and the Company regarding the
Option. Any prior agreements, commitments or negotiations concerning the
Option are superseded.
14. NO INTEREST IN SHARES SUBJECT TO OPTION.
Neither Optionee (individually or as a member of a group) nor any
beneficiary or other person claiming under or through Optionee shall have
any right, title, interest, or privilege in or to any shares of Common
Stock allocated or reserved for the purpose of the Plan or subject to the
Term Sheet or these Standard Terms and Conditions except as to such shares
of Common Stock, if any, as shall have been issued to such person upon
exercise of the Option or any part of it.
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<PAGE>
15. NOT A CONTRACT FOR SERVICES.
Nothing in the Plan, in the Term Sheet, these Standard Terms and Conditions
or any other instrument executed pursuant the Plan shall confer upon
Optionee any right to continue to serve as a director of the Company or
shall affect the right of the Company to terminate Optionee with or without
cause.
16. NOTICES.
All notices, requests, demands and other communications pursuant to these
Standard Terms and Conditions 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 at the following addresses (or
at such other address as shall be given in writing by either party to the
other):
If to the Company to:
The Corporate Executive Board Company
The Watergate
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
Attention: Chairman of the Board
If to the Optionee, to the address set forth below the Optionee's signature
on the Term Sheet.
17. SEPARABILITY.
In the event that any provision of these Standard Terms and Conditions is
declared to be illegal, invalid or otherwise unenforceable by a court of
competent jurisdiction, such provision shall be reformed, if possible, to
the extent necessary to render it legal, valid and enforceable, or
otherwise deleted, and the remainder of these Standard Terms and Conditions
shall not be affected except to the extent necessary to reform or delete
such illegal, invalid or unenforceable provision.
18. HEADINGS.
The headings preceding the text of the sections hereof are inserted solely
for convenience of reference, and shall not constitute a part of these
Standard Terms and Conditions, nor shall they affect its meaning,
construction or effect.
19. 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 these Standard Terms and Conditions.
20. BINDING EFFECT.
These Standard Terms and Conditions shall inure to the benefit of and be
binding upon the parties hereto and their respective permitted heirs,
beneficiaries, successors and assigns.
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<PAGE>
Exhibit 10.24
CROSS-INDEMNIFICATION AGREEMENT
THIS CROSS-INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of this
21st day of January, 1999, is entered into by and among THE CORPORATE EXECUTIVE
BOARD COMPANY (the "Company"), DAVID G. BRADLEY (the "Principal Selling
Stockholder") and THE DAVID G. BRADLEY GRAT TRUST NUMBER 1 (the "Trust") (the
Principal Selling Stockholder and the Trust individually, a "Stockholder" and
collectively, the "Stockholders");
RECITALS:
WHEREAS, the Stockholders hold all of the outstanding shares of the
Company's capital stock (the "Common Stock"); and
WHEREAS, the Company has elected to be taxed as an S Corporation under the
Code; and
WHEREAS, the Stockholders are now contemplating offering and selling their
shares of Common Stock to the public (the "Initial Public Offering"); and
WHEREAS, the Company plans, effective prior to the closing of the Initial
Public Offering, to terminate its S Corporation election (the "Termination
Date"); and
WHEREAS, after the Termination Date, the Stockholders separately will
continue to be liable for their own federal, state, and local income taxes on
the Company's Tax Items that pass through to the Stockholders under the
provisions of Subchapter S of the Code and any similar provisions of state and
local law for all periods prior to the time the Company ceases to be an S
Corporation, and the Company will be subject to a corporate level tax under
Subchapter C of the Code and certain state and local taxing statutes for periods
thereafter; and
WHEREAS, the purpose of this Agreement is to set forth the agreement of the
Company and the Stockholders with respect to certain adjustments to the federal,
state and local personal income tax liability of the Stockholders attributable
to Tax Items of the Company that pass through to the Stockholders under the
provisions of Subchapter S of the Code and any similar provisions of state and
local law for periods during which the Company is an S Corporation;
NOW, THEREFORE, for good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 For purposes of this Agreement the following definitions shall
-----------
apply:
"Accounting Firm" is defined in Section 4.1.
---------------
"Adjustment" shall mean any final change in any Tax Item initiated by the
----------
IRS, state or local taxing authority or any other relevant taxing authority.
"Agreement" is defined in the preamble.
---------
"C Corporation" shall mean an "C corporation" within the meaning of Section
-------------
1361 of the Code and any similar provisions of state and local law.
"C Corporation Tax Benefit" shall mean a Tax Benefit of the Company with
-------------------------
respect to any Post-Closing Period.
"C Corporation Tax Detriment" shall mean a Tax Detriment of the Company
---------------------------
with respect to any Post-Closing Period.
"Code" shall mean the Internal Revenue Code of 1986, as amended and in
----
effect for the taxable period in question.
"Common Stock" is defined in the recitals.
------------
"Company" is defined in the preamble.
-------
"Final Determination" shall mean the final resolution of any Income Tax
-------------------
liability (including all related interest and penalties) for a taxable period.
A Final Determination shall result from the first to occur of:
(i) the expiration of thirty (30) days after IRS acceptance of a
Waiver, unless, within such period, the taxpayer gives notice to the other
party of the taxpayer's intention to attempt to recover all or part of any
amount paid pursuant to the Waiver by the filing of a timely claim for
refund;
(ii) a decision, judgment, decree or other order by a court of
competent jurisdiction that is not subject to further judicial review (by
appeal or otherwise) and has become final;
(iii) the execution of a closing agreement under section 7121 of the
Code or the acceptance by the IRS or its counsel of an offer in compromise
under section 7122 of the Code or comparable agreements under the laws of
other jurisdictions;
(iv) the expiration of the time for filing a claim for refund or for
instituting suit in respect of a claim for refund disallowed in whole or
part by the IRS or other relevant taxing authority;
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<PAGE>
(v) any other final disposition of the tax liability for such period
by reason of the expiration of the applicable statute of limitations; or
(vi) any other event that the parties agree is a final and
irrevocable determination of the liability at issue.
"Income Tax" shall mean federal income taxes and state and local taxes
----------
imposed upon, or measured by, income. Income Tax includes interest, penalties,
and related additions to tax.
"Indemnitor" is defined in Section 3.2.
----------
"IRS" shall mean the United States Internal Revenue Service or any
---
successor, including, but not limited to, its agents, representatives and
attorneys.
"Party" shall mean either the Company, the Principal Selling Stockholder or
-----
the Trust (as the case may be).
"Pre-Closing Period" shall mean any taxable period ending on or prior to
------------------
the Termination Date.
"Pro Rata Share" shall mean each Stockholder's proportionate share of
--------------
Common Stock owned on the relevant date or held during the relevant period,
which proportionate share shall be determined based on, among other things, (i)
the number of shares of Common Stock held by the Stockholder on the relevant
date or during the relevant period in comparison to the number of shares of
Common Stock held by all Stockholders as of the relevant date or during the
relevant period, and (ii) whether, and the extent to which, the Stockholder held
shares of Common Stock on the relevant date or during the relevant period.
"Post-Closing Period" shall mean any taxable period that is not a Pre-
-------------------
Closing Period.
"Principal Selling Stockholder" is defined in the preamble.
-----------------------------
"S Corporation" shall mean an "S corporation" within the meaning of Section
-------------
1361 of the Code and any similar provisions of state and local law.
"S Corporation Tax Benefit" shall mean the aggregate Tax Benefit of the
-------------------------
Stockholders resulting from an Adjustment to a Tax Item of the Company with
respect to any Pre-Closing Period.
"S Corporation Tax Detriment" shall mean the aggregate Tax Detriment of the
---------------------------
Stockholders resulting from an Adjustment to a Tax Item of the Company with
respect to any Pre-Closing Period.
"Stockholder" and "Stockholders" are defined in the preamble.
----------- ------------
"Tax Benefit" shall mean any decrease in the Income Tax liability of a
------------
Party for any taxable period as a result of an Adjustment. An Adjustment shall
be deemed to result in a Tax
3
<PAGE>
Benefit to a Party only if, when and to the extent that such Party's Income Tax
liability for a taxable period is less than it would have been if such liability
were determined without regard to such Adjustment.
"Tax Detriment" shall mean any increase in the Income Tax liability of a
-------------
Party for any taxable period as a result of an Adjustment. An Adjustment shall
be deemed to result in a Tax Detriment to a Party only if, when and to the
extent that such Party's Income Tax liability for a taxable period is greater
than it would have been if such liability were determined without regard to such
Adjustment.
"Tax Item" shall mean any tax item (including, but not limited to, items of
--------
income, gain, loss, deduction, credit, recapture of credit, basis or adjusted
basis) which affects the Income Taxes paid or payable by a Party.
"Termination Date" is defined in the recitals.
----------------
"Trust" is defined in the preamble.
-----
"Waiver" shall mean a Waiver of Restrictions on Assessment and Collection
------
of Deficiency in Tax and Acceptance of Overassessment on Federal Revenue Form
870 or 870-AD (or any successor comparable form or the expiration of a
comparable period with respect to any comparable agreement or form under the
laws of other jurisdictions).
ARTICLE II
INDEMNIFICATION FOR CERTAIN TAXES
Section 2.1 If, based on a Final Determination, the Company is deemed to
-----------
have been a C Corporation during any Pre-Closing Period, each Stockholder
severally, but not jointly, agrees to contribute to the capital of the Company
its Pro Rata Share of the amount necessary to hold the Company harmless from any
Income Taxes (net of any refunds) arising from such Final Determination.
Notwithstanding the foregoing, each Stockholder's obligation under this Section
2.1 shall be limited to the total distributions to the Stockholder made by the
Company through and including the Termination Date, reduced by any Income Taxes
(net of any refunds) of the Stockholders attributable to such distributions.
Section 2.2 If there is an Adjustment with respect to a Tax Item of the
-----------
Company which results in an S Corporation Tax Detriment and a corresponding C
Corporation Tax Benefit, the Company shall pay to the Stockholders in proportion
to their relative Tax Detriments (which collectively gave rise to the S
Corporation Tax Detriment) an amount equal to the lesser of (i) such S
Corporation Tax Detriment and (ii) such C Corporation Tax Benefit.
Section 2.3 If there is an Adjustment with respect to a Tax Item of the
-----------
Company which results in an C Corporation Tax Detriment and a corresponding S
Corporation Tax Benefit, each Stockholder severally, but not jointly, shall pay
to the Company in proportion to their relative Tax Benefits (which collectively
gave rise to the S Corporation Tax Benefit) an amount equal to the lesser of (i)
such C Corporation Tax Detriment and (ii) such S Corporation Tax Benefit.
4
<PAGE>
Section 2.4 Each Party must take all reasonable steps to secure in a
-----------
timely manner any Tax Benefit to which they are entitled and which corresponds
to a Tax Detriment covered by Sections 2.2 or 2.3 above.
Section 2.5 Any payment required under this Article II shall be made
-----------
within thirty (30) days after the date on which both the Tax Detriment and the
corresponding Tax Benefit (as covered by Sections 2.2 or 2.3 above,
respectively) have been recognized by the Parties except, if the Parties are
unable to agree that such payment is due, such payment shall be made within
thirty (30) days after a determination regarding such payment is made by the
Accounting Firm pursuant to the procedures set forth in Article IV.
Notwithstanding the foregoing, in the case of a deferred Tax Benefit which may
be reasonably measured and calculated and which there is a reasonable
expectation of recognition by the benefited Party, the Parties agree to deem
such deferred Tax Benefit as currently recognized in an amount equal to the
present value of such deferred Tax Benefit for purposes of any payment required
under this Article II.
ARTICLE III
TAX FILINGS, COOPERATION AND EXCHANGE OF INFORMATION
Section 3.1 With respect to any Pre-Closing Period, Arthur Andersen LLP
-----------
(or such other accounting firm as the Stockholders and the Company shall
mutually agree to in writing) shall prepare and file all tax returns of the
Company for such taxable periods under the direction of the Stockholders. The
Company shall be permitted to review and comment on each such tax return
described in the preceding sentence prior to filing and to make revisions to
such tax returns as the Parties agree after full, good faith consultation, or
pursuant to the dispute resolution provisions set forth in Article IV hereof.
Section 3.2 Whenever a Party becomes aware of an issue which could give
-----------
rise to payment or indemnification from the other Party under Article II, such
Party shall promptly give notice of the issue to the other Party (the
"Indemnitor"). The Indemnitor and its representatives, at the Indemnitor's
expense, shall be entitled to participate in all conferences, meetings or
proceedings with the IRS or other taxing authority with respect to the issue.
If the Indemnitor is more than one Stockholder, the Principal Selling
Stockholder shall participate in such conferences, meetings and proceedings with
the Company, the IRS or the applicable taxing authority on behalf of all
Stockholders, but shall not be permitted to settle any litigation or agree to
any Adjustment or indemnification payment without the prior written consent of
the Trust.
Section 3.3 The Parties agree to consult and cooperate fully with each
-----------
other, as and to the extent reasonably requested by the other Party, in
connection with the preparation and filing of any tax returns pursuant to this
Article III and the audit, negotiation, settlement or litigation of any
Adjustment that may give rise to any payment or an indemnification obligation
under this Agreement. Such cooperation shall include the retention and (upon
the other Party's request) the provision of records and information which are
reasonably relevant to any such filing, audit, negotiation, settlement or
litigation and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. All decisions with respect to such filing, audit, negotiation,
settlement or litigation shall be made by the Parties after full, good faith
consultation or pursuant to the dispute resolution provisions set
5
<PAGE>
forth in Article IV hereof. Notwithstanding anything in this Article III to the
contrary, the Stockholders, in their sole discretion, may elect to direct and
control, at their own expense, any audit, negotiation, settlement or litigation
of any issue which could give rise to payment or indemnification from the
Stockholders under Article II or otherwise adversely affect the Stockholders;
provided, however, no final decision with respect to such audit, negotiation,
settlement or litigation shall be made by the Stockholders without first
complying with the provisions of the preceding sentence.
Section 3.4 The Company agrees (i) to retain all books and records for any
-----------
Pre-Closing Period in which the Company was taxable as an S Corporation until
the expiration of the applicable statute of limitations (and, to the extent
notified by the Stockholders, any extensions thereof), and (ii) to give the
Stockholders reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the Stockholders so request, they
shall be allowed to take possession of such books and records.
Section 3.5 The Company shall not amend any Pre-Closing Period tax return
-----------
of the Company without the prior written consent of the Stockholders, and shall
not take a position with respect to a Tax Item of the Company reflected on any
Post-Closing Period tax return of the Company that is inconsistent with a
position taken on a Pre-Closing Period tax return of the Company unless the
Company either receives the prior written consent of the Principal Selling
Stockholder or such position will not result in an S Corporation Tax Detriment.
ARTICLE IV
DISPUTES
Section 4.1 If the Parties are, after negotiation in good faith, unable to
-----------
agree upon the appropriate application of this Agreement, the controversy shall
be settled by the accounting firm (the "Accounting Firm") remaining on the list
of firms set forth on Schedule A hereto after the Company and the Principal
Selling Stockholder, commencing with the Principal Selling Stockholder, shall
have objected seriatim to the other firms on the list. The decision of the
Accounting Firm shall be final, and each of the Company and the Stockholders
agree immediately to pay to the other any amount due under this Agreement
pursuant to such decision or otherwise follow the decision or instructions of
the Accounting Firm. The expenses of the Accounting Firm shall be borne one-
half by the Company and one-half by the Stockholders (on a Pro Rata Share
basis), unless the Accounting Firm specifies otherwise.
ARTICLE V
MISCELLANEOUS
Section 5.1 Term of Agreement. This Agreement shall become effective as
----------- -----------------
of the date of its execution and shall continue in full force and effect
indefinitely.
Section 5.2 Severability. If any term of this Agreement is held by a
----------- ------------
court of competent jurisdiction to be unenforceable, the remainder of the terms
set forth herein shall remain in full force and effect and shall in no way be
impaired. The Parties stipulate that they would have executed the remaining
terms without including any which may hereafter be declared
6
<PAGE>
unenforceable. In the event that any term is held to be unenforceable, the
Parties shall use their best efforts to find an alternative means to achieve the
same or substantially the same result as that contemplated by such term.
Section 5.3 Assignment. Except by operation of law or in connection with
----------- ----------
the sale of all or substantially all the assets of the Company, this Agreement
shall not be assignable, in whole or in part, directly or indirectly, by one
Party without the prior written consent of the other Parties. Any attempt to
assign any right or obligations arising under this Agreement without such
consent shall be void. However, the provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the Parties and
their respective successors and permitted assigns.
Section 5.4 Further Assurances. Subject to the provisions of this
----------- ------------------
Agreement, the parties shall acknowledge such other instruments and documents,
and take all other actions, as may be reasonably required in order to effectuate
the purposes of this Agreement.
Section 5.5 Parties in Interest. Except as herein otherwise specifically
----------- -------------------
provided, nothing in this Agreement expressed or implied is intended to confer
any right or benefit upon any person, firm or corporation other than the Parties
and their respective successors and permitted assigns.
Section 5.6 Waivers, Etc. No failure or delay on the part of any Party in
----------- ------------
exercising any power or right under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure by any party therefrom shall in any event be
effective unless it shall be in writing, and then such waiver or consent shall
be effective only in the specific instance and for the purpose which given.
Section 5.7 Set-off. All payments to be made by any Party under this
----------- -------
Agreement shall be made without set-off, counterclaim or withholding, all of
which are expressly waived.
Section 5.8 Change of Law. If, due to any change in applicable law or
----------- -------------
regulation or the interpretation thereof by any court or other governing body
having jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement shall be impracticable or impossible, the Parties
shall use their best efforts to find alternative means to achieve the same or
substantially the same results as are contemplated by such provision.
Section 5.9 Headings. Descriptive headings are for convenience only and
----------- --------
shall not control or affect the meaning of any provision of this Agreement.
Section 5.10 Counterparts. For the convenience of the Parties, any number
------------ ------------
of counterparts of this Agreement may be executed by the Parties and each
executed counterpart shall be an original instrument.
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<PAGE>
Section 5.11 Notices. All notices provided for in this Agreement shall be
------------ -------
validly given if in writing and (i) delivered personally or (ii) sent by
registered mail, postage prepaid, return receipt registered to the address set
forth below:
If to the Company:
The Corporate Executive Board Company
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
Attn.: James J. McGonigle
If to the Principal Selling Stockholder:
David G. Bradley
2211 30th Street N.W.
Washington, DC 20008
If to the Trust:
The David G. Bradley GRAT Trust Number 1
c/o David G. Bradley, Trustee
2211 30th Street N.W.
Washington, DC 20008
or to such other address as the parties may, from time to time, designate in a
written notice given in a like manner to the other parties hereto. Notice given
in person shall be deemed delivered when received (or when delivery is first
refused) and notice given by mail shall be deemed delivered five (5) calendar
days after the date mailed.
Section 5.12 Governing Law. This Agreement shall be governed by the
------------ -------------
domestic substantive laws of the State of Delaware without regard to any choice
or conflict of laws rule or provision that would cause the application of the
domestic substantive laws of any other jurisdiction.
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IN WITNESS WHEREOF, the undersigned have caused this Cross-Indemnification
Agreement to be duly executed as of the day and year first written above.
The Corporate Executive Board Company
By: /s/ James J. McGonigle
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Name: James J. McGonigle
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Title: Chief Executive Officer
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/s/ David G. Bradley
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David G. Bradley
Principal Selling Stockholder
The David G. Bradley GRAT Trust Number 1
By: /s/ David G. Bradley
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Name: David G. Bradley
Title: Trustee
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Schedule A
ACCOUNTING FIRMS
----------------
Arthur Andersen LLP
Deloitte & Touche LLP
Ernst & Young LLP
KPMG Peat Marwick LLP
PriceWaterhouseCoopers LLP
<PAGE>
Exhibit 10.31
NON-COMPETITION AGREEMENT
This Agreement is entered into effective January 1, 1999, by and among The
Corporate Executive Board Company, a Delaware corporation, including its
subsidiaries, successors and assigns (collectively, "CEB"), The Advisory Board
Company, a Maryland corporation, including its subsidiaries, successors and
assigns (collectively, "ABC") and David G. Bradley, including his successors,
assigns and any entity controlled by him (collectively, "Bradley").
Whereas, CEB, ABC and Bradley desire to enter into an agreement to place
certain limitations on competition between CEB, on the one hand, and, on the
other hand, ABC and Bradley (ABC and Bradley together are referred to herein as
the "Bradley Parties").
Now, Therefore, in consideration of the premises and covenants contained
herein and intending to be legally bound hereby, CEB, ABC and Bradley agree as
follows:
1. Definitions.
(a) "Covered Services" shall mean membership based subscription services
substantially similar to the services provided by ABC and CEB as of
the date of this agreement, in which members receive a bundle of
services incorporating a meaningful combination of the following:
multi-client syndicated studies, meetings focused on discussions of
syndicated studies, short answer custom research, and on site
seminars.
(b) "Health Care Provider Company" shall mean any company or institution,
or any division or subsidiary of any company or institution, that is
principally engaged in the health care provider business, which shall
include providers of patient care (such as hospitals, outpatient
facilities, home health agencies and relevant government agencies) and
providers of medical professional services (such as physician and
nursing services and physician practice management companies).
(c) "Other Health Care Company" shall mean any company or institution, or
any division or subsidiary of any company or institution, that is not
a Health Care Provider Company and which is principally engaged in
other types of health care business, including: pharmaceuticals
companies; medical supply companies; medical equipment companies;
technology, software, communications, financing and services vendors
selling predominantly to Health Care Provider Companies; companies
providing health insurance; and managed care companies.
(d) "Non-Health Care Company" shall mean any company or institution, or
any division or subsidiary of any company or institution, that is not
a Health Care Provider Company or an Other Health Care Company.
<PAGE>
2. Non-Competition.
(a) The Bradley Parties. The Bradley Parties shall not offer or sell
Covered Services to any Non-Health Care Companies. Notwithstanding
the forgoing, the Bradley Parties may:
(i) sell products and services to any company or institution, or any
division or subsidiary of any company or institution, that is a
Health Care Provider Company;
(ii) sell products and services to divisions and subsidiaries of
companies other than Health Care Provider Companies, if such
divisions or subsidiaries themselves are Health Care Provider
Companies; and
(iii) continue to renew pre-existing subscriptions with respect to
those products and services that it has sold as of the closing
date of the initial public offering of shares of Common Stock of
CEB (the "Offering Date") to any then existing client, if such
client was a subscriber to such products or services immediately
prior to such subscription renewal and such products and
services specifically address health care provider industry
issues; and
(iv) offer and sell to any entity:
(A) magazines, newspapers and news services;
(B) advertising for its publications, news or on-line services;
and
(C) products and services that are specifically addressed to
and deal with advertising and promotion 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;
(D) 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.
(b) CEB. CEB shall not offer or sell Covered Services to Health Care
Provider Companies. Notwithstanding the forgoing, CEB may:
(i) sell its products and services to Non-Health Care Companies;
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(ii) sell its products and services to divisions and subsidiaries of
companies other than Non-Health Care Companies, if such
divisions or subsidiaries are themselves Non-Health Care
Companies; and
(iii) continue to renew pre-existing subscriptions with respect to
those products and services that it has sold as of the Offering
Date to any then existing client, if such client was a
subscriber to such products or services immediately prior to
such subscription renewal and such products and services do not
specifically address health care provider industry issues.
(c) Provision of Services to Other Health Care Companies. Notwithstanding
the forgoing:
(i) the Bradley Parties may sell Covered Services to Other Health
Care Companies provided that Bradley Parties do not offer
programs targeted to the same executives and covering the same
subjects as that of CEB's Human Resources, Chief Financial
Officer or General Counsel programs; and also provided that all
research agendas, brochures and any other sales and marketing
materials associated with such services make explicit the health
care industry focus of such services.
(ii) CEB may sell Covered Services to Other Health Care Companies,
only if such services are of a general business nature and are
also sold by CEB principally to Non-Health Care Companies.
3. Employees.
(a) Except as provided in Section 3(c) of this Agreement, the Bradley
Parties shall not recruit or employ any person who is at the time of
such recruitment an employee of CEB, or who was employed by CEB at any
time during the 24-month period preceding the date of such recruitment
or employment, unless CEB's chief executive officer consents to such
recruitment and employment.
(b) CEB shall not recruit or employ any person who is at the time of such
recruitment an employee of ABC or Bradley, or who was employed by ABC
or Bradley at any time during the 24-month period preceding the date
of such recruitment or employment, unless ABC's chief executive
officer or Bradley, as the case may be, consents to such recruitment
and employment.
(c) Bradley or ABC may hire Derek C. van Bever, the Chief Research Officer
of CEB, at any time after January 1, 2002.
(d) Each of CEB and ABC shall incorporate in each of the noncompetition
agreements that it has entered into, or will enter into, with its
current or future employees provisions (the "Noncompetition
Provision") that would prohibit such employee from competing with CEB
or ABC, as the case may be, to the same extent and under the same
terms and conditions that similar level employees
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generally are prohibited from competing with the company employing
such employee, and that would impose similar restrictions on the use
of confidential information. Neither CEB nor ABC shall waive any
rights under, or agree to any settlements in connection with the
enforcement of, the Noncompetition Provision contained in any
noncompetition agreement without the prior written consent of the
other company, but only to the extent that such waiver or such
settlement relates to the rights of such other company. Each of CEB
and ABC shall use its best efforts to enforce the Noncompetition
Provision promptly upon being notified or becoming aware of a breach
of such provision by any of its current or previous employees who are
subject to the Noncompetition Provision; provided, however, that the
company for whose benefit the Noncompetition Provision is being
enforced shall pay all reasonable costs and expenses incurred in
connection with such enforcement. In addition, each company may assert
directly its own rights under the Noncompetition Provision with
respect to current or previous employees of the other company to the
maximum extent permitted by law.
4. Name License.
(a) ABC continues to own all rights, title, interest and any other
intellectual property or proprietary right in the name "The Advisory
Board Company" and all derivations thereof, including but not limited
to, "The Corporate Advisory Board Company" and CEB has no right or
interest therein, except for the license granted in Section 4(b)
below.
(b) ABC hereby grants an exclusive, non-transferable, royalty-free, paid-
up license to CEB to use the derivative name "The Corporate Advisory
Board Company" for a period of two years from the date of this
Agreement only for Transitional Purposes, provided that, the name "The
Corporate Advisory Board Company" may be used for recruiting of
prospective employees only if CEB receives prior written approval from
ABC. "Transitional Purposes" shall mean for purposes of this Section,
use of the name to inform the general public that The Corporate
Advisory Board Company has changed its name to The Corporate Executive
Board Company. Upon the expiration of the two year period, all
rights, title and interest in the name "The Corporate Advisory Board
Company" will revert back to ABC.
(c) ABC shall not use the name "The Corporate Advisory Board Company" or
any other derivation of its name with the word "Corporate" during the
term of this agreement.
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5. Term.
The term of this Agreement will commence on the date first written in the
preamble above and will end on the date that is five years from such date.
6. Further Assurances.
CEB, ABC and Bradley 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 Agreement and the transactions contemplated
hereby.
7. Governing Law.
This Agreement will be governed by and construed in accordance with the
internal laws of the State of Delaware (excluding its choice of law rules).
8. Arbitration.
The parties shall endeavor to settle all disputes by amicable negotiations.
Any claim, dispute, disagreement or controversy that arises among the parties
("Disputed Matter") relating to this Agreement that is not amicably settled
shall be referred to and settled by arbitration administered by the American
Arbitration Association in accordance with the Expedited Procedures of the
Commercial Arbitration Rules of the American Arbitration Association (the "AAA
Rules") by a single arbitrator who is mutually agreeable to the parties. If the
parties are unable to agree upon an arbitrator, one arbitrator shall be selected
in accordance with the AAA Rules. All proceedings in any such arbitration shall
be conducted in Washington, D.C. Each party to such arbitration proceeding
shall bear its respective costs, fees and expenses in connection with such
arbitration. Upon a final determination by the arbitrator with respect to the
Disputed Matter, the arbitrator shall notify the parties (such notice being the
"Arbitration Order"). Any judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Jurisdiction of such
arbitrator shall be exclusive as to disputes among the parties relating to this
Agreement and each of the parties agrees that this Agreement to arbitrate shall
be specifically enforceable under the laws of the respective domiciliary
jurisdictions of the parties. None of the parties shall have the right to
appeal the Arbitration Order or otherwise to submit a dispute relating to this
Agreement to a court of law.
9. Counterparts.
This Agreement may be executed in counterparts, each of which will
constitute an original and all of which will be one and the same document.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first written above.
THE CORPORATE EXECUTIVE BOARD COMPANY
/s/ James J. McGonigle
------------------------------
By: James J. McGonigle
Its: Chief Executive Officer
THE ADVISORY BOARD COMPANY
/s/ Jeffrey D. Zients
------------------------------
By: Jeffrey D. Zients
Its: Chief Executive Officer
/s/ David G. Bradley
------------------------------
David G. Bradley
6
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Exhibit 10.35
Registration Rights Agreement
This Registration Rights Agreement (this "Agreement") is made and
entered into, as of January 22, 1999 and effective as of the date of the closing
of the Initial Public Offering (the "Effective Date"), by and between The
Corporate Executive Board Company (the "Company") and David G. Bradley
("Bradley").
WHEREAS, Bradley (together with The David G. Bradley GRAT Trust
Number 1, of which Bradley is the trustee and the beneficiary) was the sole
stockholder of the Company prior to the Initial Public Offering; and
WHEREAS, in order to induce Bradley to consent to the Initial Public
Offering, the Company desires to enter into this Agreement to provide the
registration rights set forth in this Agreement.
NOW, THEREFORE, in consideration of the recitals above and the
agreements and covenants contained in this Agreement, the Company and Bradley
agree as follows:
1. Definitions. As used in this Agreement, the following
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capitalized terms shall have the following meanings:
(a) The term "1933 Act" means the Securities Act of 1933, as
amended;
(b) The term "1934 Act" means the Securities Exchange Act of
1934, as amended;
(c) the term "Common Stock" means shares of common stock, par
value $.01 per share, of the Company;
(d) the term "Holder" means Bradley and any other person holding
Registrable Securities to whom the registration rights under this Agreement have
been transferred in accordance with Section 10 hereof;
(e) the term "Initial Public Offering" means the public offering
pursuant to the first registration covering any capital stock of the Company;
(f) the term "Lock-Up Agreements" means the lock-up agreements
entered into by the Company and Bradley with the underwriters managing the
Initial Public Offering in connection with the Initial Public Offering;
(g) the term "Misstatement" means an untrue statement of a
material fact or an omission to state a material fact required to be stated in a
registration statement or
<PAGE>
prospectus or necessary to make the statements in a registration statement,
prospectus or preliminary prospectus not misleading;
(h) the terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing with the SEC a registration
statement in compliance with the 1933 Act and the declaration or ordering by the
SEC of effectiveness of such registration statement;
(i) the term "Registrable Securities" refers to (i) any and all
of the shares of Common Stock held by Bradley as of the Effective Date, and
(ii) any and all securities of the Company issued as a dividend or other
distribution with respect to, or in exchange or replacement of any such shares,
except that any such Common Stock or securities shall cease to be Registrable
Securities when and to the extent (i) a registration statement with respect to
the sale of such Common Stock has become effective under the 1933 Act and such
Common Stock has been disposed of in accordance with such registration
statement; (ii) such Common Stock has been sold to the public pursuant to Rule
144 or any successor provision under the 1933 Act; (iii) such Common Stock shall
have been otherwise transferred, new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of such Common Stock does not require registration or
qualification under the 1933 Act or any similar state law then in force in the
opinion of legal counsel for the Company and Bradley; or (iv) such Common Stock
shall have ceased to be outstanding; and
(j) the term "SEC" means the Securities and Exchange Commission.
2. Request for Registration.
------------------------
(a) Commencing on the Effective Date, if the Company shall
receive a written request (specifying that it is being made pursuant to this
Section 2) from the Holders of more than twenty-five percent (25%) of the
Registrable Securities that the Company file a registration statement under the
1933 Act, or a similar document pursuant to any other statute then in effect
corresponding to the 1933 Act, covering the Registrable Securities that are the
subject of such request, then the Company shall file a registration statement
under the 1933 Act on an appropriate form (which form shall be available for the
sale of the Registrable Securities in accordance with the intended method or
methods of distribution) covering such Registrable Securities and shall use its
best efforts to cause all Registrable Securities that the Holders have requested
be registered to be registered under the 1933 Act; provided, however, that
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(i) the Company shall not be obligated to prepare, file and cause to become
effective pursuant to this Section 2(a) a registration statement unless the
proposed aggregate public offering price of the securities to be included in
such registration statement is at least five million Dollars ($5,000,000) and
(ii) the rights of the Holders under this Section 2(a) shall be subject to the
provisions of the Lock-Up Agreements.
(b) Notwithstanding the foregoing, if the Company shall furnish
to such Holders a certificate signed by the President or Chief Executive Officer
of the Company stating that, in the reasonable determination of the Board of
Directors of the Company, there exists circumstances not yet disclosed to the
public which would be required to be disclosed in a
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registration statement filed pursuant to Section 2(a) and the disclosure of
which would be materially harmful to the Company or its stockholders, then the
Company's obligation to file such a registration statement shall be deferred for
a period not to exceed three (3) months; provided, however, that the Company's
-----------------
right to defer the registration rights provided hereunder pursuant to this
Section 2(b) may be exercised only once.
(c) The Company shall be obligated to effect only two
registrations pursuant to Section 2(a). Any request for registration under
Section 2(a) must be for a firmly underwritten public offering to be managed by
an underwriter or underwriters of recognized national standing selected by such
Holders, subject to the approval of the Board of Directors of the Company, which
approval shall not be unreasonably withheld.
3. Piggy-back Registration.
-----------------------
(a) If at any time the Company proposes to register any shares of
its capital stock under the 1933 Act in connection with the public offering of
such securities solely for cash on a form that would also permit the
registration of the Registrable Securities (other than a registration statement
on Form S-4 or Form S-8 or any successor form thereof), the Company shall, each
such time, promptly give the Holders written notice of such determination. Upon
the written request of any Holders given within twenty (20) calendar days after
the delivery of any such notice by the Company, the Company shall include in
such registration statement all of the Registrable Securities that such Holder
has requested to be registered.
(b) The Company may decline to file a registration statement
after giving notice to the Holders pursuant to Section 3(a) above, or withdraw a
registration statement after filing and after such notice, but prior to the
effectiveness thereof; provided that the Company shall promptly notify the
Holders in writing of any such action and provided further that the Company
shall bear all expenses incurred by any Holder in connection with such withdrawn
registration statement.
(c) In connection with any offering involving an underwriting of
shares being issued by the Company, the Company shall not be required under this
Section 3 to include any of the Holders' Registrable Securities in such
underwriting unless each such Holder expressly accepts in writing the terms of
the underwriting as agreed upon between the Company and the underwriters
selected by it; provided that the underwriting agreement shall be in customary
form. If in the judgment of the managing underwriter of such offering the
inclusion of all of the Registrable Securities requested to be registered would
interfere with the successful marketing of shares in such offering, then the
number of Registrable Securities to be included in the offering shall be reduced
to such smaller number with the participation in such offering to be in the
following order of priority: (i) first, the shares of capital stock which the
Company proposes to sell for its own account and (ii) second, the Registrable
Securities requested to be included (to be allocated pro rata among such Holders
requesting such registration based upon the number of Registrable Securities
owned by such Holders); provided that the Registrable Securities included shall
not be reduced to less than 20% of the securities in such offering. All
Registrable Securities so excluded from the underwritten public offering shall
be withheld from the market by such Holders, for a period (not to exceed 30 days
prior to the effective date of such
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public offering and 120 days thereafter) that the managing underwriter
reasonably determines is necessary, in order to effect the underwritten public
offering.
4. Obligations of the Company. If and whenever the Company is
--------------------------
required to register Registrable Securities under Section 2 or Section 3 above,
the Company shall use its best efforts to effect such registration to permit the
sale of such Registrable Securities in accordance with the intended plan of
distribution thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and file with the SEC as soon as practicable a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective and remain
continuously effective until the earlier to occur of (i) the date six months
from the date such registration statement was declared effective, and (ii) the
date the last of the Registrable Securities covered by such registration
statement have been sold, provided that before filing a registration statement
or prospectus or any amendments or supplements thereto, the Company shall
furnish to the Holders of the Registrable Securities covered by such
registration statement as well as the underwriters, if any, draft copies of all
such documents proposed to be filed at least 48 hours prior to filing, which
documents will be subject to the review of such Holders and underwriters, and
the Company shall not file any registration statement or amendment thereto or
any prospectus or any supplement thereto to which such Holders or the
underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-
effective amendments to the registration statement, and such supplements to the
prospectus, as may be requested by any Holder of Registrable Securities covered
by such registration statement or any underwriter of Registrable Securities or
as may be required by the rules, regulations or instructions applicable to the
registration form used by the Company or by the 1933 Act or rules and
regulations thereunder to keep the registration statement effective until all
Registrable Securities covered by such registration statement are sold in
accordance with the intended plan of distribution set forth in such registration
statement or supplement to the prospectus;
(c) promptly notify in writing the selling Holders of Registrable
Securities and the managing underwriter, if any,
(1) when the prospectus or any supplement or post-effective
amendment has been filed, and, with respect to the registration statement or any
post-effective amendment, when the same has become effective,
(2) of any request by the SEC for amendments or supplements
to the registration statement or the prospectus or for additional information,
(3) of the issuance by the SEC of any stop order suspending
the effectiveness of the registration statement or the initiation of any
proceedings for that purpose,
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(4) if at any time the representations and warranties of the
Company contemplated by clause (1) of Section 4(o) below cease to be accurate in
all material respects,
(5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and
(6) of the existence of any fact which results in the
registration statement, the prospectus or any document incorporated therein by
reference to contain a Misstatement.
(d) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the registration statement at the earliest
possible time;
(e) if requested by the managing underwriter or a Holder of
Registrable Securities being sold in an underwritten offering, immediately
incorporate in a supplement or post-effective amendment such information as the
managing underwriter and the Holders of a majority of Registrable Securities
being sold agree should be included therein relating to the sale of the
Registrable Securities, including, without limitation, information with respect
to the number of shares of Registrable Securities being sold to underwriters,
the purchase price being paid therefor by such underwriters and with respect to
any other terms of the underwritten offering of the Registrable Securities to be
sold in such offering, and make all required filings of such supplement or post-
effective amendment as soon as notified of the matters to be incorporated in
such supplement or post-effective amendment;
(f) promptly prior to the filing of any document which is to be
incorporated by reference into the registration statement or the prospectus
provide copies of such document to counsel to the selling Holders of Registrable
Securities and to the managing underwriter, if any, and make the Company's
representatives available for discussion of such document and make such changes
in such document prior to the filing thereof as counsel for the selling Holders
of Registrable Securities or underwriters may reasonably request;
(g) furnish to each selling Holder of Registrable Securities and
the managing underwriter, without charge, at least one signed copy of the
registration statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(h) deliver to each selling Holder of Registrable Securities and
the underwriters, if any, without charge, as many copies of each prospectus (and
each preliminary prospectus) as such persons may reasonably request (the Company
hereby consenting to the use of each such prospectus (or preliminary prospectus)
by each selling Holder of Registrable Securities and the underwriters, if any,
in connection with the offering and sale of the Registrable Securities covered
by such prospectus (or preliminary prospectus);
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(i) prior to any public offering of Registrable Securities,
register or qualify or cooperate with the selling Holders of Registrable
Securities, the underwriters, if any, and their respective counsel in connection
with the registration or qualification of such Registrable Securities for offer
and sale under the securities or blue sky laws of such jurisdictions as such
selling Holder of Registrable Securities or underwriters may designate in
writing and do anything else necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the registration
statement, provided that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(j) cooperate with the selling Holders of Registrable Securities
and the managing underwriter, if any, to facilitate the timely preparation and
delivery of certificates not bearing any restrictive legends representing the
Registrable Securities to be sold and cause such Registrable Securities to be in
such denominations and registered in such names as the managing underwriter may
request at least three business days prior to any sale of Registrable Securities
to the underwriters;
(k) use its best efforts to cause the Registrable Securities
covered by the registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(l) if the registration statement or the prospectus contains a
Misstatement, prepare a supplement or post-effective amendment to the
registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the prospectus will
not contain a Misstatement;
(m) cause all Registrable Securities covered by the registration
statement to be listed on any national securities exchange or authorized for
quotation on NASDAQ or in the National Market System if requested by the Holders
of a majority of such Registrable Securities or the managing underwriter, if
any;
(n) provide a CUSIP number for all Registrable Securities not
later than the effective date of the Registration Statement;
(o) enter into such agreements (including an underwriting
agreement) and do anything else necessary or advisable in order to execute or
facilitate the disposition of such Registrable Securities, and in such
connection, whether or not the registration is an underwritten registration:
(1) make such representations and warranties to the selling
Holders of Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
primary underwritten offerings;
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(2) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriter, if any, and the Holders of
a majority of Registrable Securities being sold) addressed to each selling
Holder and the underwriter, if any, covering the matters customarily covered in
opinions delivered to underwriters in primary underwritten offerings and such
other matters as may be reasonably requested by such Holders or underwriters.
(3) obtain "cold comfort" letters and updates thereof from
the Company's independent certified accountants addressed to the selling Holders
of such Registrable Securities and the underwriters, if any, such letters to be
in customary form and covering matters of the type customarily covered in "cold
comfort" letters by underwriters in connection with the primary underwritten
offerings;
(4) if an underwriting agreement is entered into, cause the
same to include the indemnification and contribution provisions and procedures
of Section 7 hereof with respect to all parties to be indemnified pursuant to
said Section 7 (or, with respect to the indemnification of such underwriters,
such similar indemnification and contribution provisions as such underwriters
shall customarily require); and
(5) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority of Registrable Securities
being sold and the managing underwriter, if any, to evidence compliance with
clause (1) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
Each of the actions to be taken under this Section 4(o) shall be taken at each
closing under such underwriting or similar agreement or as and to the extent
otherwise reasonably requested by the Holders of a majority of Registrable
Securities being sold,
(p) make available for inspection by representatives of the
Holders of a majority of Registrable Securities being sold, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney or accountant retained by the selling Holders or any such
underwriter, all financial and other records and pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with the
registration; provided that any records, information or documents that are
designated by the Company in writing as confidential shall be kept confidential
by such persons unless disclosure of such records, information or documents is
required by a court or administrative order; and
(q) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC.
5. Condition Precedent. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant hereto that the Holders
shall furnish to the Company such information regarding them, the Registrable
Securities held by them, and the intended
7
<PAGE>
method of disposition of such Registrable Securities as the Company shall
reasonably request and as shall be required in connection with the action to be
taken by the Company.
6. Expenses of Registration. All expenses incurred in connection
------------------------
with any registrations pursuant to Section 2 hereof, including without
limitation all registration and qualification fees, printers' and accounting
fees, reasonable fees and disbursements of counsel for the Company, and fees and
disbursements of counsel for the selling Holders shall be borne by such Holders.
All expenses incurred in connection with any registrations pursuant to Section 3
hereof, including without limitation all registration and qualification fees,
printers' and accounting fees and fees and disbursements of counsel for the
Company shall be borne by the Company, except that the selling Holders shall be
responsible for the fees and disbursements of their counsel and the underwriting
discounts and commissions and transfer taxes in connection with any Registrable
Securities included in a registration statement pursuant to Section 3 hereof.
7. Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement hereunder:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder requesting or joining in a registration, any
underwriter (as defined in the 1933 Act) for the Holders, and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933 Act
(the "Holder Indemnified Parties"), against any losses, claims, damages, or
liabilities, joint or several, to which any Holder Indemnified Party may become
subject under the 1933 Act, the 1934 Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based on any Misstatement in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of any violation by the Company of any rule
or regulation promulgated under the 1933 Act or 1934 Act applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration. The Company will reimburse each such Holder
Indemnified Party for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action. Notwithstanding anything to the contrary contained in this
Section 7(a), the indemnity agreement contained in this paragraph 7(a) shall not
(i) apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld); (ii) apply to any
such case for any such loss, claim, damage, liability, or action to the extent
that it (A) arises out of or is based upon a Misstatement made in connection
with such registration statement, preliminary prospectus, final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder Indemnified Party, or (B) arises out of any
violation by any such Holder Indemnified Party of any rule or regulation
promulgated under the 1933 Act or the 1934 Act applicable to such Holder
Indemnified Party, and relating to action or inaction required of such Holder
Indemnified Party, in connection with any such registration; or (iii) inure to
the benefit of any underwriter from whom the person asserting any such loss,
claim, damage or liability purchased the Registrable Securities which are the
subject thereof (or to the benefit of any person controlling such underwriter)
with respect to a preliminary prospectus or final prospectus if such underwriter
(if
8
<PAGE>
required by the 1933 Act or the 1934 Act) failed to send or give a copy of
the most recent prospectus, if the most recent prospectus furnished by the
Company corrected the Misstatement or alleged Misstatement which is the basis of
the loss, claim, damage, liability, or action for which indemnification is
sought, to such person at or prior to the written confirmation of the sale of
such Registrable Securities to such person. This indemnity will be in addition
to any liability which the Company may otherwise have.
(b) To the extent permitted by law, each Holder requesting or
joining in a registration will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration statement,
each person, if any, who controls the Company within the meaning of the 1933
Act, and each agent and any underwriter for the Company (within the meaning of
the 1933 Act) (the "Company Indemnified Parties") against any losses, claims,
damages, or liabilities to which any Company Indemnified Party may become
subject, under the 1933 Act, the 1934 Act, or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) (A) arise out of
or are based upon any Misstatement in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, in each case to the extent, but only to the extent,
that such Misstatement or alleged Misstatement was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such registration, or
(B) arise out of any violation by such Holder of any rule or regulation
promulgated under the 1933 Act or the 1934 Act applicable to such Holder and
relating to action or inaction required of such Holder in connection with any
such registration. Each such Holder will reimburse any legal or other expenses
reasonably incurred by such Company Indemnified Party in connection with
investigating or defending any such loss, claim, damage, liability, or action.
Notwithstanding anything to the contrary contained in this Section 7(b), the
indemnity agreement contained in this Section 7(b) shall not (i) apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of such Holder (which consent
shall not be unreasonably withheld); or (ii) inure to the benefit of any
underwriter from whom the person asserting any such loss, claim, damage or
liability purchased the Registrable Securities which are the subject thereof (or
to the benefit of any person controlling such underwriter) with respect to a
preliminary prospectus or final prospectus if such underwriter (if required by
the 1933 Act or 1934 Act) failed to send or give a copy of the most recent
prospectus, if the most recent prospectus furnished by the Company corrected the
Misstatement or alleged Misstatement which is the basis of the loss, claim,
damage, liability, or action for which indemnification is sought, to such person
at or prior to the written confirmation of the sale of such Registrable
Securities to such person. This indemnity will be in addition to any liability
which each Holder may otherwise have.
(c) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under Section 7(a) or Section 7(b) above
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, or liabilities referred to in such Sections, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, or liabilities in such proportion
as is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party
9
<PAGE>
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages, or liabilities as well as any other relevant
equitable considerations. The amount paid or payable by a party as a result of
the losses, claims, damages, or liabilities referred to above shall be deemed to
include, subject to the limitations set forth in Section 7(d), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The relative fault of the
indemnified party on the one hand and of the indemnifying party on the other
shall be determined by reference to, among other things, whether the
Misstatement or alleged Misstatement relates to information supplied by the
indemnified party or the indemnifying party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
Misstatement or alleged Misstatement. The Company and Bradley agree that it
would not be just and equitable if contribution pursuant to this Section 7(c)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 7(c), a Holder Indemnified Party
shall not be required to contribute any amount in excess of the amount by which
(i) the total price at which the securities that were sold by such Holder
Indemnified Party and distributed to the public were offered to the public
exceeds (ii) the amount of any damages which such Holder Indemnified Party has
otherwise been required to pay by reason of such Misstatement. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(d) Any person entitled to indemnification hereunder will:
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification; and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled or elects not to assume the defense of a
claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other such
indemnified parties with respect to such claim. The failure to notify an
indemnifying party promptly of the commencement of any such action, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not relieve
him of any liability that he may have to any indemnified party otherwise than
under this Section.
8. Termination of the Company's Obligations. The Company shall have
----------------------------------------
no obligations pursuant to Section 2 or Section 3 with respect to any request or
requests made by a Holder of Registrable Securities more than five (5) years
after the Effective Date.
9. Reports Under the 1934 Act. With a view to making available to
--------------------------
the Holders the benefits of Rule 144 promulgated under the 1933 Act and any
other rule or
10
<PAGE>
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration, the Company agrees to use its
best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times subsequent to ninety (90)
days after the Effective Date;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act; and
(c) Furnish to any Holder forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144 (at any time after ninety (90) days after the Effective Date), and of
the 1933 Act and the 1934 Act (at any time after it has become subject to such
reporting requirements), (ii) a copy of the most recent annual or quarterly
report of the Company, and (iii) such other reports and documents so filed by
the Company as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC permitting the selling of any such securities without
registration.
10. Transfer of Registration Rights. The registration rights of the
-------------------------------
Holders hereunder may be transferred to any transferee who is (i) a nominee of
such Holder or a trust of which such Holder is the Trustor so long as the
beneficial owner of the Registrable Securities being transferred remains the
same, (ii) an entity controlled by such Holder, or (iii) a shareholder or
partner, as the case may be, of any Holder, if such shareholder or partner
receives Registrable Securities from such Holder as a dividend or other
distribution. The Company shall be given written notice by the Holder at the
time of any transfer stating the name and address of any transferee and
identifying the securities with respect to which the rights hereunder are being
transferred.
11. No Inconsistent Agreements. Other than the Lock-Up Agreements,
--------------------------
the Company shall not on or after the date of this Agreement enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof.
12. Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, without the prior written consent of the Company and at least
the Holders of a majority of the Registrable Securities. The foregoing
notwithstanding, a waiver or consent to departure from the provisions hereof
that relates exclusively to the rights of Holders of Registrable Securities
whose Registrable Securities are being sold pursuant to a registration statement
and that does not directly or indirectly affect the rights of other Holders of
Registrable Securities may be given by the Holders of a majority of Registrable
Securities being sold.
13. Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telecopier or air courier guaranteeing overnight delivery:
11
<PAGE>
(a) if to a Holder of Registrable Securities, at the most current
address given by such Holder to the Company in accordance with the provisions
hereof, which address initially is, with respect to Bradley, 600 New Hampshire
Avenue , NW, Washington, D.C. 20037, with a copy to Covington & Burling, 1201
Pennsylvania Avenue, NW, Washington, D.C. 20004, Attention: Ralph C. Voltmer,
Jr.; and
(b) if to the Company, initially at 600 New Hampshire Avenue, NW,
Washington, D.C. 20037, Attention James J. McGonigle, and thereafter at such
other address, notice of which is given in accordance with the provisions
hereof, with a copy to Gibson, Dunn & Crutcher LLP, 1050 Connecticut Ave., NW,
Washington, D.C. 20036, Attention: Howard B. Adler, Esq.
All such notices and communications shall be deemed to have been dully
given at the time delivered by hand, if personally delivered; five (5) business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery. The Company shall promptly
provide a list of the most current addresses of the Holders of Registrable
Securities given to it in accordance with the provisions hereof to any such
Holder for the purpose of enabling such Holder to communicate with other Holders
in connection with this Agreement.
14. Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties.
15. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
16. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware without giving effect to
the conflict of laws provisions thereof.
17. Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby, but only
to the extent that giving effect to such provision and the remainder of the
terms and provisions hereof shall be in accordance with the intent of the
parties.
18. Forms. All references in this Agreement to particular forms of
-----
registration statements are intended to include all successor forms which are
intended to replace, or to apply to similar transactions as, the forms herein
referenced.
19. Entire Agreement. This Agreement is intended by the parties as
----------------
the final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained
12
<PAGE>
herein. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein with respect to the registration
rights granted by the Company with respect to the Registrable Securities. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
[signature page follows]
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
THE CORPORATE EXECUTIVE BOARD COMPANY
By: /s/ James J. McGonigle
------------------------------
Name: James J. McGonigle
Title: Chief Executive Officer
/s/ David G. Bradley
---------------------------------
David G. Bradley
14
<PAGE>
Exhibit 10.36
LICENSE AGREEMENT
This License Agreement ("Agreement"), made as of January 19, 1999 and
effective as of October 31, 1997 (the "Effective Date"), by and between The
Advisory Board Company, a Maryland corporation (the "Advisory Board"), and The
Corporate Executive Board Company, a Delaware corporation (the "Company"),
WITNESSETH:
-----------
WHEREAS, prior to October 31, 1997, the Company was operated as a division
of the Advisory Board, and on October 31, 1997, all of the outstanding shares of
capital stock of the Company were distributed to David G. Bradley, the sole
stockholder of the Advisory Board;
WHEREAS, the Advisory Board owns certain intellectual property which the
Company wishes to use for internal purposes in conducting its business in the
ordinary course; and
WHEREAS, the Company desires to obtain a license from the Advisory Board
for such purposes, and the Advisory Board is willing to grant the Company such a
license, on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants hereinafter set forth, the parties hereto agree as follows:
SECTION 1
Definitions
-----------
The following capitalized terms used in this Agreement shall have the following
meanings:
1.1 "Materials" shall mean the Public Materials and the Non-Public
Materials.
1.2 "Non-Public Materials" shall mean, collectively, the following
materials, whether in written or other formats or media, to the extent
that the copyright therein is owned by the Advisory Board:
(a) Materials intended for use in the orientation and professional
training of employees, including without limitation, course outlines,
syllabi, "hand-outs" and videotaped presentations;
(b) Materials describing Advisory Board employment policies and practices
and employee directives and guidelines, including without limitation
employee handbooks;
(c) Certain computer software, as more specifically described in Annex A
hereto;
<PAGE>
(d) Forms prepared for use by Advisory Board employees in connection with
various administrative functions, including without limitation, the
interviewing of applicants, the evaluation of other employees, and the
reimbursement of travel expenses; and
(e) Any other materials which are used by the Advisory Board in performing
internal administrative functions, copies of which have been provided
to the Company;
provided, however, that the Non-Public Materials shall not include any materials
- -------- -------
the content of which is specific to the health care industry.
1.3 "Public Materials" shall mean, collectively, the following materials,
whether in written or other formats or media, to the extent that copyright
therein is owned by the Advisory Board:
(a) Materials prepared for use in marketing and promoting the Company's
products and services;
(b) The graphic design and lay-out of the Web page of the Advisory Board;
(c) The graphic design and lay-out of the advertisements placed by the
Advisory Board for the purpose of recruiting new employees;
(d) The templates for written correspondence used by the Advisory Board in
communicating with (i) current and past members, (ii) prospective
members, and (iii) vendors; and
(e) Any similar materials, copies of which have been provided to the
Company;
provided, however, that the Public Materials shall not include any materials the
- -------- -------
content of which is specific to the health care industry.
1.4 "Derivative Work" shall mean any work based on one or more of the
Materials, as defined in Section 1. A Derivative Work consists of any
modification wherein a Material is recast, transformed, or adapted, if the
changes in the Material, as a whole, represents an original work of authorship.
SECTION 2
License Grant
-------------
2.1 Subject to the terms and conditions hereof, the Advisory Board hereby
grants to the Company a perpetual, royalty-free, non-exclusive, worldwide
license (without right to sublicense) (i) to use and make reproductions of the
Non-Public Materials, and Derivative Works thereof, solely for the purposes of
orienting and training Company employees and performing internal administrative
functions of the Company, and (ii) to use and make reproductions of the Public
Materials, and Derivative Works thereof, solely for the purpose of advertising,
marketing and promoting the Company's products and services, recruiting new
employees, and
2
<PAGE>
communicating with the Company's current, past and prospective members, vendors,
and applicants.
2.2 The Company agrees to include the following Copyright Notice on Public
Materials to the extent that copyright therein is owned by the Advisory Board:
(C)Copyright [year date] by The Advisory Board Company. All rights
reserved. Use of The Advisory Board Company's copyrighted work in
this [publication] appears with their permission.
2.3 The Company agrees not to grant to any third party any license to use
any of the Materials or any Derivative Works of the Materials for any purpose
whatsoever.
SECTION 3
Ownership and Enforcement of Intellectual Property
--------------------------------------------------
3.1 Subject to the rights granted under Section 2, the Advisory Board
shall retain all rights and title to and interest in the Materials, including
without limitation all proprietary rights and copyrights therein, and the
Company agrees not to dispute the Advisory Board's ownership thereof.
3.2 All rights, title and interest in all Derivative Works of the
Materials, including without limitation all proprietary rights and copyrights
therein, which the Company may create during the term of this Agreement shall be
the sole and exclusive property of the Advisory Board. The Company agrees to
assign, and upon creation of each Derivative Work, automatically assigns, to the
Advisory Board ownership of all copyrights in each and every Derivative Work.
From time to time, upon the Advisory Board's request, the Company and/or its
authorized personnel shall confirm such assignment by execution and delivery of
such assignments or other written instruments as the Advisory Board may request.
3.3 The Advisory Board, in its sole discretion, shall have the exclusive
right to file for, obtain and maintain copyright, patent, and/or other forms of
intellectual property protection for the Materials and Derivative Works anywhere
in the world, at its own expense.
3.4 The Company shall promptly notify the Advisory Board of any
infringement or suspected infringement by a third party on the Advisory Board's
rights or title to or interest in the Materials or any Derivative Works of the
Materials of which the Company has knowledge. The Advisory Board shall have the
exclusive right (but not the obligation) to pursue at its own expense any and
all injunctive, compensatory and other remedies and relief against such third
party, and all such proceedings shall be exclusively under the direction and
control of the Advisory Board.
3
<PAGE>
SECTION 4
Representation and Warranties
-----------------------------
4.1 Each party hereby represents and warrants to the other party that it
has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, and that the execution, delivery and
performance of this Agreement will not contravene, result in any breach of, or
constitute a default under, any order, judgment, decree or award of any court or
other governmental body to which it is subject, or any agreement or instrument
by which it is bound.
4.2 The Advisory Board represents and warrants that (i) it is the owner of
all Materials, including without limitation all proprietary rights and
copyrights therein, licensed under this Agreement; (ii) it has the right to
licenses the Materials pursuant to this Agreement; and (iii) none of the
Materials infringe any intellectual property rights, including but not limited
to copyrights, of any third party, nor has any claim of such infringement been
threatened or asserted, nor is such a claim pending, against the Advisory Board.
4.3 EXCEPT AS SET FORTH IN SECTIONS 4.1 AND 4.2, THE ADVISORY BOARD HEREBY
DISCLAIMS ANY AND ALL WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR
IMPLIED, WITH RESPECT TO THE MATERIALS, INCLUDING WITHOUT LIMITATION ANY
WARRANTY OF QUALITY, PERFORMANCE, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
USE OR PURPOSE.
SECTION 5
Confidentiality
---------------
5.1 The Company acknowledges that the Non-Public Materials are
confidential, proprietary information of the Advisory Board, and agrees not to
disclose any of them to any third party without the prior written permission of
the Advisory Board, unless such information (i) becomes publicly available
through no act of the Company, or (ii) is disclosed in accordance with the
requirements of law, any regulation or regulatory body or any judgment, order or
requirement of any court or other competent authority. Further, the Company
agrees to exercise the same degree of care in safeguarding the confidentiality
of the Non-Public Materials as it exercises with respect to its own confidential
information, but in any event not less than reasonable care.
5.2 In furtherance of its obligations pursuant to Section 5.1, the Company
agrees not to disclose any Non-Public Materials to any employee of the Company
other than those who have been informed of Licensee's confidentiality
obligations with respect thereto.
5.3 The obligations of the Company under this Section 5 shall survive
termination or expiration of this Agreement.
4
<PAGE>
SECTION 6
Indemnification
---------------
6.1 The Company agrees to indemnify and hold harmless the Advisory Board
and its officers, directors, employees and agents, from and against all
threatened or pending claims, demands, causes of action, losses, damages,
penalties, fines, expenses and judgments, including, without limitation,
reasonable attorneys' fees and legal costs, incurred or suffered by any of them,
that arise out of a breach by the Company of this Agreement.
6.2 The Advisory Board shall notify the Company promptly of any claim for
which the Advisory Board intends to seek indemnification pursuant to Section
6.1. The Company shall have the exclusive right to control the defense of any
such claim, including the right to select counsel, and to settle any such claim;
provided, however, that the Company shall not settle any such claim against the
- -------- -------
Advisory Board to the extent such claim will result in the Advisory Board's
becoming subject to injunctive or other equitable relief or otherwise adversely
affecting the business of the Advisory Board in any manner, without the prior
written consent of the Advisory Board, which consent shall not be unreasonably
withheld, delayed or denied. At the request of the Company, the Advisory Board
shall cooperate in the defense of any such action, at the expense of the
Company.
SECTION 7
Term and Termination
--------------------
7.1 This Agreement shall take effect as of the Effective Date first above
written and shall remain in effect through the third anniversary thereof.
7.2 This Agreement shall be subject to termination by the Advisory Board
in the event of a material breach hereof by the Company, which breach is not
cured within thirty (30) days following notice thereof.
7.3 The termination or expiration of this Agreement shall be without
prejudice to any rights or obligations of the parties that may have accrued
prior to such termination or expiration. The rights and obligations of the
parties under Sections 3, 5, 6, 7.3, 8.1, 8.2, 8.5, 8.10 and 8.11 shall survive
the expiration and termination hereof.
SECTION 8
Miscellaneous
-------------
8.1 All notices, requests, demands and other communications which are
required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed given as of the date personally delivered, or five
(5) days after posting when mailed by registered or certified airmail, postage
prepaid, and addressed to the address of the recipient party written below, or
to such other address as may hereafter be communicated to the other party in
accordance with this Section 8.1, or twenty-four (24) hours after dispatch if
sent by facsimile during business hours of the receiving party to the facsimile
number indicated below, or to such
5
<PAGE>
other facsimile number as may hereafter be communicated to the other party in
accordance with this Section 8.1:
(a) If to the Advisory Board:
The Advisory Board Company
Attn.: Jeffrey D. Zients
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
Facsimile: (202) 339-6570
(b) If to the Company:
The Corporate Executive Board
Attn.: James J. McGonigle
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
Facsimile: (202) 672-5695
8.2 No waiver of any provision of this Agreement shall be effective as
against the waiving party unless such waiver is in writing signed by the waiving
party. Waiver by a party in respect of specific matter shall not be construed
as or constitute either a continuing waiver or a waiver of any other matter.
8.3 This Agreement may be modified, supplemented or amended only by a
written instrument executed by the parties hereto.
8.4 This Agreement (together with the Annex hereto) constitutes the entire
agreement of the parties with respect to its subject matter, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect thereto.
8.5 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the choice of law
provisions thereof.
8.6 The headings contained in this Agreement are for convenience of
reference only and shall not in any way limit or affect the meaning or
interpretation of any of the terms or provisions of this Agreement.
8.7 This Agreement may not be assigned by any party hereto without the
prior written consent of the other party.
8.8 This Agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors, legal representatives and
permitted assigns. Nothing contained in this Agreement is intended to confer
upon any person other than the parties hereto and their respective successors,
legal representatives and permitted assigns, any rights or remedies under or by
reason of this Agreement.
6
<PAGE>
8.9 In the event that any one or more of the provisions of this Agreement
or any application thereof shall be held to be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby, unless a manifest injustice or inequity would result from the
applicability or enforceability of such remaining provisions.
8.10 The parties agree that irreparable harm will result in a breach of
Section 2.3 or 5.1 and that such a breach could not be adequately compensated by
monetary damages. Therefore, the parties agree that the Advisory Board shall be
entitled, in addition to any other right or remedy available to it, to
injunctive relief restraining such breach or threatened breach and to specific
performance, and in either case, no bond or other security shall be required in
connection therewith. Such remedies and all other remedies provided for in this
Agreement or available under law shall be cumulative and not exclusive.
8.11 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 Agreement ("Disputed Matter") that is not amicably
settled shall be referred to and settled by arbitration administered by the
American Arbitration Association in accordance with the Expedited Procedures of
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") by a single arbitrator who is mutually agreeable to the parties.
If the parties are unable to agree upon an arbitrator, one arbitrator shall be
selected in accordance with the AAA Rules. All proceedings in any such
arbitration shall be conducted in Washington, D.C. Each party to such
arbitration proceeding shall bear its respective costs, fees and expenses in
connection with such arbitration. Upon a final determination by the arbitrator
with respect to the Disputed Matter, the arbitrator shall notify the parties
(such notice being the "Arbitration Order"). Any judgment on the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.
Jurisdiction of such arbitrator shall be exclusive as to disputes among the
parties relating to this Agreement and each of the parties agrees that this
agreement to arbitrate shall be specifically enforceable under the laws of the
respective domiciliary jurisdictions of the parties. None of the parties shall
have the right to appeal the Arbitration Order or otherwise to submit a Disputed
Matter to a court of law.
8.12 This Agreement shall be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THE ADVISORY BOARD COMPANY THE CORPORATE EXECUTIVE BOARD
COMPANY
By: /s/ Jeffrey D. Zients By: /s/ Michael A. D'Amato
------------------------------ -------------------------------
Name: Jeffrey D. Zients Name: Michael A. D'Amato
Title: Chief Executive Officer Title: Executive Vice President
7
<PAGE>
[THE CORPORATE EXECUTIVE BOARD COMPANY LETTERHEAD]
Exhibit 10.37
December 28, 1998
Mr. James J. McGonigle
Chief Executive Officer
The Corporate Executive Board Company
The Watergate, 8th Floor
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
Dear Jay:
This letter sets forth the terms of the special 1998 bonus, as we have agreed,
effective today. They are as follows:
. $100,000 bonus to each of the 24 most senior people in the Corporate
Executive Board Company. See attached list.
. Payable the earlier of the date of an initial public offering or December
31, 1999.
. If paid at the date of an initial public offering, payable 60% in stock,
40% in cash. Consistent with our Underwriters' lock-up agreement, stock
granted must be held by participants for at least six months.
Participants receiving stock will be required to execute any documents
reasonably required by the Company.
. If not paid in conjunction with an initial public offering, then payable
100% in cash.
. No employment requirements or other conditions imposed on participants
other than those set forth herein.
Please review these terms and indicate your acceptance below.
Sincerely,
/s/ David G. Bradley
David G. Bradley
/s/ James J. McGonigle
- --------------------------------------
James J. McGonigle, CEO
/s/ Rusty Siebert
- --------------------------------------
Rusty Siebert, Chairman
/s/ David G. Bradley
- --------------------------------------
David G. Bradley, Stockholder
<PAGE>
Participants
- ------------
1998 Corporate Executive Board Special Bonus Award
- --------------------------------------------------
Amoruso, P.
Baker, J.
Buer, P.
Capoor, V.
Chang, S.
DeConti, C.
Freire, P.
Gess, J.
Giammo, L.
Kostoff, M.
Lauer, P.
McGonigle, J.
McKinnon, W.
Miller, C.
Monahan, T.
Olson, M.
Smith, E.
Sorkin, J.
Stauch, U.
Sweeney, J.
Van Bever, D.
Walinsky, C.
Ward, P.
Winslow, S.
<PAGE>
Exhibit 10.38
AMENDED AND RESTATED
"LIQUID MARKETS" AGREEMENT
THIS AMENDED AND RESTATED "LIQUID MARKETS" AGREEMENT (this "Agreement") is
made as of August 20, 1997 (the "Effective Date"), between The Advisory Board
Company, a Maryland corporation (the "Company"), and Derek C.M. van Bever (the
--------------------
"Optionee").
R E C I T A L S
---------------
A. The Company adopted the Stock-Based Incentive Compensation Plan (the
"Original Plan"), as of March 1, 1994, to provide for the grant to certain
employees of the Company ("Participants") of options ("Original Options") to
purchase shares of Class B Nonvoting Stock, $0.01 par value, of the Company (the
"Stock").
B. As a Participant, Optionee was granted Original Options as reflected in
the stock option agreement between the Optionee and the Company (the "Original
Option Agreement").
C. The Original Options are not transferable. None of the Original
Options have vested. As a result, it has been impossible for the Optionee to
liquidate the Original Options.
D. In order to create greater liquidity for the Optionee, to reward the
Optionee for past and continuing contributions to the Company or its Affiliate,
and to provide further incentives for the Optionee to remain with the Company or
its Affiliate and continue making such contributions in the future, the Company
offered the Optionee, pursuant to the "Liquid Markets" Agreement between the
Company and the Optionee dated March 31, 1995 (the "Existing LM Agreement") an
opportunity to (i) sell all or part of the Original Options to the Company
immediately, and/or (ii) with respect to those Original Options which are not
sold, to modify all or part of such Original Options (such modified Original
Options are hereinafter referred to as "Continuing Options"), as described in
the Continuing Stock Option Agreement (the "Continuing Option Agreement") and
the Continuing Stock-Based Incentive Compensation Plan (the "Continuing Option
Plan") attached hereto as Exhibits A and B, respectively.
E. The number of Original Options granted that the Optionee owned was
45,000 (the "Number of Options Granted") which, pursuant to the Existing LM
- ------
Agreement, the Optionee desired to treat as follows:
1. 45,000 Original Options sold as provided in the Existing LM
------
Agreement (the "Number of Options Sold"); and
2. 0 Original Options modified as Continuing Options as
-------
provided in the Existing LM Agreement (the "Number of Options
Modified").
<PAGE>
In addition, as of the Effective Date, the Optionee owns 0 Continuing
-------
Options which shall remain in full force and effect following the execution of
this Agreement until substituted for new options pursuant to the terms and
conditions of the Substitution Agreement between the Company and the Optionee.
F. The Company and Optionee now desire to amend and restate the Existing
LM Agreement on the terms and conditions hereinafter set forth.
G. The Optionee acknowledges that he or 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
he or 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.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Optionee hereby
agree to amend and restate the Existing LM Agreement in its entirety as follows:
AGREEMENTS
----------
1. Definitions. Capitalized terms used herein shall have the following
-----------
meanings:
"Affiliate" 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.
"Aggregate Payment" is defined in Section 3(b).
"Agreement" is defined in the preamble.
"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 attached as
Exhibit C.
"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, continuing options
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 Agreement.
2
<PAGE>
"Cause" for termination is the commission of an act of fraud, theft or
dishonesty against the Company or its Affiliate; 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 or its
Affiliate; misconduct; substance abuse; insubordination; violation of Company
policy or the policy of its Affiliate (depending on with whom the Optionee is
employed); 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.
"Company" is defined in the preamble.
"Continuing Options" is defined as "Options" in the Continuing Option
Agreement.
"Continuing Option Agreement" is the agreement between Optionee and the
Company defined in Recital D and attached hereto as Exhibit A.
"Continuing Option Plan" is the employee stock-based incentive compensation
plan of the Company defined in Recital D and attached hereto as Exhibit 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 of Directors of the Company
reserves the right to define Disability in a more liberal manner.
"Effective Date" is defined in the preamble.
"Exercise Price" is defined in the Original Option Agreement.
"Existing LM Agreement" is defined in Recital D.
"Fiscal Year" or "FY" is 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.
"Income from Operations" means the aggregate of the income from operations
(or similar entry) shown on the audited financial statements of the Company and
each of the Company's Affiliates for each Fiscal Year, not including any
compensation income or expense relating to any payments made in connection with
the sale of any Original Options pursuant to this Agreement.
"Initial Payment" is defined in Section 3(a).
"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.
"Number of Options Granted" is defined in Recital E.
3
<PAGE>
"Number of Options Modified" is defined in Recital E.
"Number of Options Sold" is defined in Recital E.
"Optionee" is defined in the preamble.
"Original Option Agreement" is defined in Recital B.
"Original Options" is defined in Recital A.
"Original Plan" is defined in Recital A.
"Participants" is defined in Recital A.
"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 or its Affiliate 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 or the rules or regulations of its Affiliate
(depending on with whom the Optionee is employed).
"Purchase Price" is defined in Section 3.
"Restrictions for Protecting the Company" is defined in Section 4.
"Stock" is defined in Recital A.
"Stockholders' Agreement" means the Continuing Stockholders' Agreement of
the Company setting forth, inter alia, certain rights, preferences and
----------
privileges of and restrictions on any shares that may be received pursuant to
exercise of the Continuing Options.
"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 or its Affiliate for voluntary reasons. Voluntary
Resignation Date shall not include the date on which the Optionee ceases to be
employed by the Company or its Affiliate due to death or a Disability.
2. Number of Options Sold and Modified and Continuing Options. Optionee
was granted the Number of Options Granted pursuant to the Original Plan.
Optionee hereby agrees to the following regarding those Original Options:
a. Optionee hereby agrees to sell to the Company the Number of Options
Granted, in exchange for the Purchase Price, as defined below, to be paid to
Optionee according to the terms of Section 3 below, subject to the Restrictions
for Protecting the Company, as defined below; and
4
<PAGE>
b. With respect to the Number of Options Modified, Optionee agrees to
forfeit as of the Effective Date all interest in, and rights to, any and all of
those Continuing Options granted to the Optionee with respect to the Original
Options pursuant to the Continuing Plan and the Continuing Stock Option
Agreement, between the Company and the Optionee.
c. Optionee hereby acknowledges and agrees that the execution of the
Agreement Not to Compete, attached hereto as Exhibit C, is additional
consideration for this Agreement. No payments under Section 3 shall be paid
unless Optionee has executed the Agreement Not to Compete.
3. Payments to be Made by the Company. The Company has paid, or agrees to
----------------------------------
pay, to the Optionee an Initial Payment and an Aggregate Payment with respect to
the Number of Options Sold and the Number of Options Modified (together, the
"Purchase Price"), as described below.
a. Initial Payment. The Company and the Optionee hereby acknowledge and
agree that an initial payment (the "Initial Payment") in the amount of
$l,260,000 has been paid by the Company to the Optionee.
b. Aggregate Payment. With respect to the Number of Options Sold and the
Number of Options Modified and in additional to the Initial Payment, the Company
shall pay to Optionee an additional payment (the "Aggregate Payment") in the
amounts and according to the schedule set forth in Section 3(c). The Aggregate
Payment shall be subject to the terms and restrictions set forth in Section
3(d).
c. Payment Schedule. Except as provided in Section 3(d), the Aggregate
Payment, shall be paid to the Optionee according to, and in the amounts
specified in, the following schedule:
December 1997 $850,000
December 1998 $850,000
December 1999 $850,000
December 2000 $1,700,000
d. Restrictions on the Aggregate Payment. The Aggregate Payment shall
-------------------------------------
be paid as provided in Section 3(c), unless either of the two following
circumstances occur:
(i) If Optionee is terminated by the Company or its Affiliate for
Cause before December 31, 2000 or a Voluntary Resignation Date occurs
before December 31, 2000, the Optionee will forfeit the right to any
portion of the Aggregate Payment that has not been paid to Optionee as of
such termination or resignation date. In addition, if at anytime a
Voluntary Notice Date occurs less than twelve months prior to a Voluntary
Resignation Date, the Optionee shall be required to repay the Company
immediately upon demand any portion of the Aggregate Payment paid to the
Optionee within the twelve
5
<PAGE>
(12) months prior to (and including) the Voluntary Resignation Date. If the
Optionee is terminated by the Company or its Affiliate without Cause or the
Optionee ceases to be employed by the Company or its Affiliate as the
result of death or a Disability, the Optionee will not forfeit the right to
the Aggregate Payment as a result of that termination.
(ii) If one or more of the circumstances resulting in Restrictions for
Protecting the Company, as enumerated in Section 4, occurs, the Aggregate
Payment shall be delayed to the extent provided in Section 4. Except as
provided in Section 3(d)(i), the Aggregate Payment shall not be forfeited
as a result of a Restriction for Protecting the Company.
4. Restrictions for Protecting the Company. The following two (2)
restrictions ("Restrictions for Protecting the Company") will result in delay of
payment of all or part of the Purchase Price under the circumstances described
below:
a. No payment under Section 3 above shall be made in any Fiscal Year in
which the Income from Operations for the immediately prior Fiscal Year is less
than Fifteen Million Dollars ($15,000,000). No interest shall accrue during the
period of delay due to this restriction. Any payment delayed due to this
restriction shall be made by December 31 of the first Fiscal Year after the
Fiscal Year in which the Income from Operations satisfy the criteria of this
subsection a., unless such payment is further delayed pursuant to another
Restriction for Protecting the Company.
b. No payment under Sections 3 above shall be made if the Company
determines it is suffering from a Cash Shortage. Any payment that would
otherwise be made 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 payments
that had 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
solely due to this restriction.
5. Nontransferability. The right to all or any portion of the Purchase
Price 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 right to all or any portion of the Purchase Price 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 right to all or any portion of the
Purchase Price contrary to the provisions hereof, and the levy of any attachment
or similar process upon such right to the Purchase Price that would otherwise
effect a change in the ownership of the right to all or any portion of the
Purchase Price, shall terminate any further obligation the Company has with
respect to any unpaid portion of the Purchase Price; 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 Company's obligation with
respect to the Purchase Price
6
<PAGE>
terminates. This Agreement shall be binding on and enforceable against any
person who is a permitted transferee pursuant to the first sentence of this
Section.
6. Taxes. The Company 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 payment of the Purchase Price, 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 withholding
obligations, or any other reasonable means.
7. Notices. All notices, requests, demands and other communications
-------
pursuant to this 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 Company's Chairman of the Board of
Directors, 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).
8. Amendments and Waivers. This Agreement may be amended, and any
----------------------
provision hereof may be waived, only by a writing signed by the party to be
charged.
9. Entire Agreement. This Agreement, together with the Continuing Option
----------------
Plan, the Continuing Option Agreement, the Agreement Not to Compete, and the
Stockholders' 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.
10. 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 Agreement, nor shall they affect its meaning, construction or effect.
11. 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 Agreement.
12. Governing Law. All terms of and rights under this Agreement shall be
-------------
governed by and construed in accordance with the internal law of the State of
Maryland, without giving effect to principles of conflicts of law.
13. 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 Agreement (excluding enforcement by
the Company of its rights under the
7
<PAGE>
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 13,
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 above.
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 13 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.
14. Actions by the Company. Any reference within this 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).
15. Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their respective permitted successors and
assigns.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
THE ADVISORY BOARD COMPANY
By: /s/ Michael D'Amato
----------------------------------
Name: Michael D'Amato
--------------------------------
Title: Chief Financial Officer
-------------------------------
/s/ Derek van Bever
-------------------------------
OPTIONEE
9
<PAGE>
AMENDMENT TO AMENDED AND RESTATED
"LIQUID MARKETS" AGREEMENT
This Amendment to the Amended and Restated "Liquid Markets" Agreement (the
"Amendment"), made and effective as of December 28, 1998, by and between The
Corporate Executive Board Company, a Delaware corporation (the "Company") and
Derek van Bever (the "Optionee");
WITNESSETH:
-----------
WHEREAS, The Advisory Board Company ("ABC") and the Optionee entered into
that certain "Liquid Markets" Agreement on March 31, 1995, (the "LM Agreement")
which was designed to create greater liquidity for the Optionee, to reward the
Optionee for past and continuing contributions to the Company or its affiliate,
and to provide further incentives for the Optionee to remain with the Company or
its affiliate and to continue making such contributions in the future; and
WHEREAS, ABC and the Optionee amended and restated the LM Agreement on
August 20, 1997, pursuant to that certain Amended and Restated "Liquid Markets"
Agreement, by and between ABC and the Optionee (the "Restated LM Agreement");
and
WHEREAS, pursuant to the spin-off of the business of the Company from ABC
on October 31, 1997, the obligations of ABC with respect to the Restated LM
Agreement were transferred to the Company at such time; and
WHEREAS, the Company and the Optionee have mutually agreed that Sections
3(d) and 4 of the Restated LM Agreement, which place certain restrictions on
payments that are to be made by the Company, shall be deleted in their entirety.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, and in accordance with the terms
of the Restated LM Agreement, the Company and Optionee have agreed to amend the
Restated LM Agreement as follows:
1. Sections 3(d) and 4 are deleted in their entirety and all reference to such
sections shall be deleted accordingly.
2. As amended by this Amendment, the Restated LM Agreement continues in full
force and effect. Except for the provisions amended by this Amendment, the
terms and conditions of the Restated LM Agreement are unchanged and
unmodified.
3. All capitalized terms used in this Amendment, unless otherwise defined
herein, shall have the meaning given them in the Restated LM Agreement.
4. This Amendment may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the dates set
forth below.
THE CORPORATE EXECUTIVE BOARD COMPANY
By: /a/ Michael A. D'Amato
------------------------------------
Name: Michael A. D'Amato
Title: Executive Vice President
OPTIONEE
Signature: /s/ Derek van Bever
----------------------------------
11
<PAGE>
Exhibit 10.39
The Corporate Executive Board Company
The Watergate
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
January 18, 1999
Mr. Michael A. D'Amato
c/o The Corporate Executive Board Company
600 New Hampshire Avenue, NW
Washington, D.C. 20037
Re: Stock Option Agreement #1 and Stock Option Agreement #2, between
The Corporate Executive Board Company and Michael D'Amato
(collectively, the "Agreements")
Dear Mr. D'Amato
Pursuant to Section 4(b)(iii) of the above referenced Agreements, which
provides me, as Chairman of the Board of The Corporate Executive Board Company,
with sole and absolute discretion to accelerate the dates on which Options
granted to you pursuant to the Agreements become exercisable in the event of an
Initial Public Offering, I hereby designate the date immediately before the
Initial Public Offering as the date on which you may first exercise all of your
Options.
Capitalized terms used but not defined in this letter have the meanings
given them in the Agreement.
Very truly yours,
/s/ Harold L. Siebert
Harold "Rusty" Siebert
Chairman of the Board
The Corporate Executive Board
Company
<PAGE>
Exhibit 10.40
The Corporate Executive Board Company
The Watergate
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
January 18, 1999
Mr. Michael A. D'Amato
c/o The Corporate Executive Board Company
600 New Hampshire Avenue, NW
Washington, D.C. 20037
Re: Stock Option Agreement #1 and Stock Option Agreement #2
(collectively, the "Agreements"), between The Corporate Executive
Board Company (the "Company") and Michael A. D'Amato (the
"Optionee")
Dear Mike:
The purpose of this letter is to clarify certain mutual understandings with
respect to the interpretation of the above-referenced Agreements. Capitalized
terms used but not defined in this letter have the meanings given them in the
Agreements.
First, if the Optionee serves as a director of the Company, such service
shall be considered continued employment with the Company for purposes of the
Agreements. Specifically, a date on which the Optionee ceases to hold any
position with the Company except for serving as a director of the Company, shall
not, for purposes of the Agreements, be deemed a Termination Date, a Voluntary
Resignation Date or a date in which the Optionee ceases to be employed by the
Company for Cause.
Second, if the Optionee serves the Company solely as a director, and
subsequently ceases to serve as a director for any reason other than upon death
or a Disability, such cessation shall be treated as a termination without Cause
for purposes of the Agreements.
Third, in the event of an Initial Public Offering, the Options shall
terminate on the earlier of (A) April 30, 2001 and (B) the later of (i) thirty
(30) days after the expiration of any lockup period applicable to the Option
Shares and (ii) the date specified by Section 5(f) of the Agreements.
<PAGE>
If the foregoing accurately reflects our mutual understanding with respect
to the interpretation of the Agreements, please so indicate by signing below.
Very truly yours,
THE CORPORATE EXECUTIVE
BOARD COMPANY
By: /s/ Harold L. Siebert
----------------------------
Name: Harold "Rusty" Siebert
Title: Chairman of the Board
SO AGREED:
/s/ Michael A. D' Amato
- ---------------------------
Michael A. D'Amato
2
<PAGE>
Exhibit 10.41
January 18, 1999
Mr. Jeffrey D. Zients
c/o The Corporate Executive Board Company
600 New Hampshire Avenue, NW
Washington, D.C. 20037
Re: Stock Option Agreement #1 and Stock Option Agreement #2, between
The Corporate Executive Board Company and Jeffrey D. Zients
(collectively, the "Agreements")
Dear Mr. Zients:
Pursuant to Section 4(b)(iii) of the above referenced Agreements, which
provides me with sole and absolute discretion to accelerate the dates on which
Options granted to you pursuant to the Agreements become exercisable in the
event of an Initial Public Offering, I hereby designate the date immediately
before the Initial Public Offering as the date on which you may first exercise
all of your Options.
Capitalized terms used but not defined in this letter have the meanings
given them in the Agreement.
Very truly yours,
/s/ David G. Bradley
David G. Bradley
SO AGREED:
THE CORPORATE EXECUTIVE
BOARD COMPANY
By: /s/ Harold L. Siebert
---------------------------
Name: Harold "Rusty" Siebert
Title: Chairman of the Board
<PAGE>
Exhibit 10.42
The Corporate Executive Board Company
The Watergate
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
January 18, 1999
Mr. Jeffrey D. Zients
c/o The Corporate Executive Board Company
600 New Hampshire Avenue, NW
Washington, D.C. 20037
Re: Stock Option Agreement #1 and Stock Option Agreement #2 (collectively,
the "Agreements"), between The Corporate Executive Board Company
(the "Company") and Jeffrey D. Zients (the "Optionee")
Dear Jeff:
The purpose of this letter is to clarify certain mutual understandings with
respect to the interpretation of the above-referenced Agreements. Capitalized
terms used but not defined in this letter have the meanings given them in the
Agreements.
First, if the Optionee serves as a director of the Company, such service
shall be considered continued employment with the Company for purposes of the
Agreements. Specifically, a date on which the Optionee ceases to hold any
position with the Company except for serving as a director of the Company, shall
not, for purposes of the Agreements, be deemed a Termination Date, a Voluntary
Resignation Date or a date in which the Optionee ceases to be employed by the
Company for Cause.
Second, if the Optionee serves the Company solely as a director, and
subsequently ceases to serve as a director for any reason other than upon death
or a Disability, such cessation shall be treated as a termination without Cause
for purposes of the Agreements.
Third, in the event of an Initial Public Offering, the Options shall
terminate on the earlier of (A) March 31, 2009 and (B) the later of (i) thirty
(30) days after the expiration of any lockup period applicable to the Option
Shares and (ii) the date specified by Section 5(f) of the Agreements.
<PAGE>
If the foregoing accurately reflects our mutual understanding with respect
to the interpretation of the Agreements, please so indicate by signing below.
Very truly yours,
THE CORPORATE EXECUTIVE
BOARD COMPANY
By: /s/ Harold L. Siebert
------------------------------
Name: Harold "Rusty" Siebert
Title: Chairman of the Board
SO AGREED:
/s/ Jeffrey D. Zients
- ----------------------------------
Optionee
2
<PAGE>
Exhibit 10.43
THE CORPORATE EXECUTIVE BOARD COMPANY
TERM SHEET FOR
DIRECTOR NON-QUALIFIED STOCK OPTIONS
FOR GOOD AND VALUABLE CONSIDERATION, The Corporate Executive Board Company, a
Delaware corporation (the "Company"), hereby grants to Optionee named below the
non-qualified stock option (the "Option") to purchase any part or all of the
number of shares of its $0.01 par value Class B Nonvoting Common Stock (the
"Common Stock") that are covered by this Option, as specified below, at the
Exercise Price per share specified below and upon the terms and subject to the
conditions set forth in this Term Sheet, the Plan specified below (the "Plan")
and the Standard Terms and Conditions (the "Standard Terms and Conditions")
promulgated under such Plan, each as amended from time to time. This Option is
granted pursuant to the Plan and is subject to and qualified in its entirety by
the Standard Terms and Conditions.
- --------------------------------------------------------------------------------
The Plan: This Option is granted pursuant to the Company's
Directors' Stock Plan.
- --------------------------------------------------------------------------------
Name of Optionee: Robert C. Hall
- --------------------------------------------------------------------------------
Social Security Number:
- --------------------------------------------------------------------------------
Grant Date: December 14, 1998
- --------------------------------------------------------------------------------
Number of Shares of Common
Stock covered by Option: 2,100
- --------------------------------------------------------------------------------
Exercise Price Per Share: $245.00
- --------------------------------------------------------------------------------
Expiration Date: December 14, 2008
- --------------------------------------------------------------------------------
Vesting Schedule: The number of shares of Common Stock covered by
Option shall vest in full as of the date one (1)
year after the Grant Date set forth above,
subject to the Standard Terms and Conditions.
- --------------------------------------------------------------------------------
This Option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended. By accepting this
Term Sheet, Optionee acknowledges that he or she has received and read, and
agrees that this Option shall be subject to, the terms of this Term Sheet, the
Plan and the Standard Terms and Conditions.
THE CORPORATE EXECUTIVE BOARD COMPANY /s/ Robert C. Hall
-----------------------------------------
Optionee Signature
By /s/ Harold L. Siebert
--------------------------
Title: Chairman Address (please print):
--------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE>
Exhibit 10.44
THE CORPORATE EXECUTIVE BOARD COMPANY
TERM SHEET FOR
DIRECTOR NON-QUALIFIED STOCK OPTIONS
FOR GOOD AND VALUABLE CONSIDERATION, The Corporate Executive Board Company, a
Delaware corporation (the "Company"), hereby grants to Optionee named below the
non-qualified stock option (the "Option") to purchase any part or all of the
number of shares of its $0.01 par value Class B Nonvoting Common Stock (the
"Common Stock") that are covered by this Option, as specified below, at the
Exercise Price per share specified below and upon the terms and subject to the
conditions set forth in this Term Sheet, the Plan specified below (the "Plan")
and the Standard Terms and Conditions (the "Standard Terms and Conditions")
promulgated under such Plan, each as amended from time to time. This Option is
granted pursuant to the Plan and is subject to and qualified in its entirety by
the Standard Terms and Conditions.
- --------------------------------------------------------------------------------
The Plan: This Option is granted pursuant to the Company's
Directors' Stock Plan.
- --------------------------------------------------------------------------------
Name of Optionee: David W. Kenny
- --------------------------------------------------------------------------------
Social Security Number:
- --------------------------------------------------------------------------------
Grant Date: December 14, 1998
- --------------------------------------------------------------------------------
Number of Shares of Common
Stock covered by Option: 2,100
- --------------------------------------------------------------------------------
Exercise Price Per Share: $245.00
- --------------------------------------------------------------------------------
Expiration Date: December 14, 2008
- --------------------------------------------------------------------------------
Vesting Schedule: The number of shares of Common Stock
covered by Option shall vest in full as of the
date one (1) year after the Grant Date set forth
above, subject to the Standard Terms and
Conditions.
- --------------------------------------------------------------------------------
This Option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended. By accepting this
Term Sheet, Optionee acknowledges that he or she has received and read, and
agrees that this Option shall be subject to, the terms of this Term Sheet, the
Plan and the Standard Terms and Conditions.
THE CORPORATE EXECUTIVE BOARD COMPANY /s/ David W. Kenny
-----------------------------------------
Optionee Signature
By /s/ Harold L. Siebert
--------------------------
Title: Chairman Address (please print):
--------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE>
Exhibit 10.45
THE CORPORATE EXECUTIVE BOARD COMPANY
TERM SHEET FOR
DIRECTOR NON-QUALIFIED STOCK OPTIONS
FOR GOOD AND VALUABLE CONSIDERATION, The Corporate Executive Board Company, a
Delaware corporation (the "Company"), hereby grants to Optionee named below the
non-qualified stock option (the "Option") to purchase any part or all of the
number of shares of its $0.01 par value Class B Nonvoting Common Stock (the
"Common Stock") that are covered by this Option, as specified below, at the
Exercise Price per share specified below and upon the terms and subject to the
conditions set forth in this Term Sheet, the Plan specified below (the "Plan")
and the Standard Terms and Conditions (the "Standard Terms and Conditions")
promulgated under such Plan, each as amended from time to time. This Option is
granted pursuant to the Plan and is subject to and qualified in its entirety by
the Standard Terms and Conditions.
- --------------------------------------------------------------------------------
The Plan: This Option is granted pursuant to the Company's
Directors' Stock Plan.
- --------------------------------------------------------------------------------
Name of Optionee: Stephen G. Pagliuca
- --------------------------------------------------------------------------------
Social Security Number:
- --------------------------------------------------------------------------------
Grant Date: December 14, 1998
- --------------------------------------------------------------------------------
Number of Shares of Common
Stock covered by Option: 2,100
- --------------------------------------------------------------------------------
Exercise Price Per Share: $245.00
- --------------------------------------------------------------------------------
Expiration Date: December 14, 2008
- --------------------------------------------------------------------------------
Vesting Schedule: The number of shares of Common Stock
covered by Option shall vest in full as of the
date one (1) year after the Grant Date set forth
above, subject to the Standard Terms and
Conditions.
- --------------------------------------------------------------------------------
This Option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended. By accepting this
Term Sheet, Optionee acknowledges that he or she has received and read, and
agrees that this Option shall be subject to, the terms of this Term Sheet, the
Plan and the Standard Terms and Conditions.
THE CORPORATE EXECUTIVE BOARD COMPANY /s/ Stephen G. Pagliuca
-----------------------------------------
Optionee Signature
By /s/ Harold L. Siebert
--------------------------
Title: Chairman Address (please print):
--------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE>
Exhibit 10.46
THE CORPORATE EXECUTIVE BOARD COMPANY
TERM SHEET FOR
DIRECTOR NON-QUALIFIED STOCK OPTIONS
FOR GOOD AND VALUABLE CONSIDERATION, The Corporate Executive Board Company, a
Delaware corporation (the "Company"), hereby grants to Optionee named below the
non-qualified stock option (the "Option") to purchase any part or all of the
number of shares of its $0.01 par value Class B Nonvoting Common Stock (the
"Common Stock") that are covered by this Option, as specified below, at the
Exercise Price per share specified below and upon the terms and subject to the
conditions set forth in this Term Sheet, the Plan specified below (the "Plan")
and the Standard Terms and Conditions (the "Standard Terms and Conditions")
promulgated under such Plan, each as amended from time to time. This Option is
granted pursuant to the Plan and is subject to and qualified in its entirety by
the Standard Terms and Conditions.
- --------------------------------------------------------------------------------
The Plan: This Option is granted pursuant to the Company's
Directors' Stock Plan.
- --------------------------------------------------------------------------------
Name of Optionee: Jeffrey D. Zients
- --------------------------------------------------------------------------------
Social Security Number:
- --------------------------------------------------------------------------------
Grant Date: December 14, 1998
- --------------------------------------------------------------------------------
Number of Shares of Common
Stock covered by Option: 2,100
- --------------------------------------------------------------------------------
Exercise Price Per Share: $245.00
- --------------------------------------------------------------------------------
Expiration Date: December 14, 2008
- --------------------------------------------------------------------------------
Vesting Schedule: The number of shares of Common Stock
covered by Option shall vest in full as of the
date one (1) year after the Grant Date set forth
above, subject to the Standard Terms and
Conditions.
- --------------------------------------------------------------------------------
This Option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended. By accepting this
Term Sheet, Optionee acknowledges that he or she has received and read, and
agrees that this Option shall be subject to, the terms of this Term Sheet, the
Plan and the Standard Terms and Conditions.
THE CORPORATE EXECUTIVE BOARD COMPANY /s/ Jeffrey D. Zients
-----------------------------------------
Optionee Signature
By /s/ Harold L. Siebert
--------------------------
Title: Chairman Address (please print):
--------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE>
Exhibit 10.47
THE CORPORATE EXECUTIVE BOARD COMPANY
TERM SHEET FOR
DIRECTOR NON-QUALIFIED STOCK OPTIONS
FOR GOOD AND VALUABLE CONSIDERATION, The Corporate Executive Board Company, a
Delaware corporation (the "Company"), hereby grants to Optionee named below the
non-qualified stock option (the "Option") to purchase any part or all of the
number of shares of its $0.01 par value Class B Nonvoting Common Stock (the
"Common Stock") that are covered by this Option, as specified below, at the
Exercise Price per share specified below and upon the terms and subject to the
conditions set forth in this Term Sheet, the Plan specified below (the "Plan")
and the Standard Terms and Conditions (the "Standard Terms and Conditions")
promulgated under such Plan, each as amended from time to time. This Option is
granted pursuant to the Plan and is subject to and qualified in its entirety by
the Standard Terms and Conditions.
- --------------------------------------------------------------------------------
The Plan: This Option is granted pursuant to the Company's
Directors' Stock Plan.
- --------------------------------------------------------------------------------
Name of Optionee: Michael A. D'Amato
- --------------------------------------------------------------------------------
Social Security Number:
- --------------------------------------------------------------------------------
Grant Date: January 4, 1999
- --------------------------------------------------------------------------------
Number of Shares of Common
Stock covered by Option: 2,100
- --------------------------------------------------------------------------------
Exercise Price Per Share: $245.00
- --------------------------------------------------------------------------------
Expiration Date: January 4, 2009
- --------------------------------------------------------------------------------
Vesting Schedule: The number of shares of Common Stock
covered by Option shall vest in full as of the
date one (1) year after the Grant Date set forth
above, subject to the Standard Terms and
Conditions.
- --------------------------------------------------------------------------------
This Option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended. By accepting this
Term Sheet, Optionee acknowledges that he or she has received and read, and
agrees that this Option shall be subject to, the terms of this Term Sheet, the
Plan and the Standard Terms and Conditions.
THE CORPORATE EXECUTIVE BOARD COMPANY /s/ Michael A. D'Amato
-----------------------------------------
Optionee Signature
By /s/ Harold L. Siebert
--------------------------
Title: Chairman Address (please print):
--------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE>
January 27, 1999
Michael A. D'Amato
c/o The Corporate Executive Board Company
600 New Hampshire Avenue NW
Washington, D.C. 20037
Re: The Corporate Executive Board Company Term Sheet For Director Non-
Qualified Stock Options (the "Term Sheet") between Michael A. D'Amato
("Optionee") and The Corporate Executive Board Company (the "Company).
Dear Mr. D'Amato:
The Term Sheet is hereby amended by deleting the text set forth adjacent to
the Vesting Schedule and replacing such text with the following:
The number of shares of Common Stock covered by Option shall vest in
full as of the closing of the initial public offering of the capital
stock of the Company, subject to the Standard Terms and Conditions.
Optionee hereby acknowledges and agrees that the Option shall be subject to
the terms of the Term Sheet as amended by this letter agreement, the Plan and
the Standard Terms and Conditions.
<PAGE>
January 27, 1999
Page 2
Capitalized terms used but not defined in this letter have the meanings
given them in the Agreement.
Sincerely,
/s/ Harold L. Siebert
--------------------------------------------------
Harold L. Siebert
Chairman of the Board
The Corporate Executive Board Company
Agreed and accepted as of the date of this letter:
/s/ Michael A. D'Amato
- --------------------------------------------------
Michael A. D'Amato
<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.
January 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 8,937 12,232
<SECURITIES> 3,754 3,872
<RECEIVABLES> 16,796 18,398
<ALLOWANCES> 1,000 1,233
<INVENTORY> 0 0
<CURRENT-ASSETS> 37,355 45,214
<PP&E> 4,458 5,908
<DEPRECIATION> 1,945 2,194
<TOTAL-ASSETS> 39,868 48,928
<CURRENT-LIABILITIES> 42,360 53,935
<BONDS> 0 0
0 0
0 0
<COMMON> 125 125
<OTHER-SE> (5,167) (8,272)
<TOTAL-LIABILITY-AND-EQUITY> 39,868 48,928
<SALES> 38,669 53,030
<TOTAL-REVENUES> 38,669 53,030
<CGS> 20,036 26,069
<TOTAL-COSTS> 37,587 50,196
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,204 3,620
<INCOME-TAX> 120 361
<INCOME-CONTINUING> 1,084 3,259
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,084 3,259
<EPS-PRIMARY> 0.09 0.26
<EPS-DILUTED> 0.07 0.20
</TABLE>
<PAGE>
Exhibit 99.1
CONSENT
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 (and the Prospectus included therein) of The Corporate Executive
Board Company (the "Company") as a person appointed as a director of the Company
as of the closing of the Offering (as defined in the Prospectus) and to serve as
a director of the Company effective as of such time.
Dated: January 21, 1999 /s/ Robert C. Hall
--------------------------------------
Robert C. Hall
<PAGE>
Exhibit 99.2
CONSENT
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 (and the Prospectus included therein) of The Corporate Executive
Board Company (the "Company") as a person appointed as a director of the Company
as of the closing of the Offering (as defined in the Prospectus) and to serve as
a director of the Company effective as of such time.
Dated: January 21, 1999 /s/ David W. Kenny
--------------------------------------------
David W. Kenny
<PAGE>
Exhibit 99.3
CONSENT
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 (and the Prospectus included therein) of The Corporate Executive
Board Company (the "Company") as a person appointed as a director of the Company
as of the closing of the Offering (as defined in the Prospectus) and to serve as
a director of the Company effective as of such time.
Dated: January 21, 1999 /s/ Stephen G. Pagliuca
---------------------------------------
Stephen G. Pagliuca
