<PAGE>
As filed with the Securities and Exchange Commission on February 12, 1999
Registration No. 333-59833
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 3
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 FEBRUARY 12, 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)
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<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 provides "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 5,527,920 shares of Common Stock with a weighted
average exercise price of $4.66 per share (assuming, with respect to
693,000 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>
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>
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 member(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 5,527,920 shares of Common
Stock under the Company's various option plans with a weighted average
exercise price of $4.66 per share (assuming, with respect to 693,000 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. Prior to the Offering, 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 the date of this Prospectus. In
order to facilitate the Offering, prior to the Offering, 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 5,527,920 shares of Common Stock under the Company's various
option plans with a weighted average exercise price of $4.66 per share
(assuming, with respect to 693,000 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>
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 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 membership(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 provides "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.
Although the Company anticipates that minimal business disruptions will
occur as a result of year 2000 issues, possible consequences include loss of
communications with members, inability to conduct marketing efforts and on-
site seminars as a result of travel and communications disruptions, delay in
the production and distribution of studies and reports, inability to conduct
research and surveys, and disruption of similar normal business activities.
The Company believes that the conversion and modification efforts by the
Company and its vendors will mitigate the risks associated with year 2000
issues. If, however, the Company or its essential vendors do not complete the
necessary modifications or conversions in a timely manner or if such
modifications or conversions fail to achieve the proper results, the Company's
operations may be adversely effected.
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 provides "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
26
<PAGE>
environment. In response to these trends, companies are exploring new business
strategies as well as reevaluating the performance of individual departments
within their organizations in order to maintain their competitive edge. The
pace of change is driving a greater interest in gaining access to leading
management practices and solutions to common business problems on a cross-
industry basis.
Capitalizing on the growing demand for information on business and
management issues, the professional information services industry has
experienced significant growth over the past few years. Industry participants
have approached the market for business-focused information by offering a
variety of products and services, including market research, strategic
planning, implementation services and educational programs. Services also
differ by the level of engagement, with some offering project-driven or long-
term consulting contracts, and others providing continuous research
publishing. Within this broad industry, management consulting and training and
development have emerged as key segments, representing $50 billion and $59
billion in 1997 revenues, respectively. Other entities, such as trade
associations, non-profit think-tanks and research and database companies, also
offer research, consulting and education services.
The Corporate Executive Board offers a distinctive approach that combines
many of the benefits of general management consulting and training and
development firms. The Company's research and analysis covers the same major
business issues generally addressed by management consulting firms, such as
issues concerning managing growth, cost reduction, outsourcing and strategy
development. The distinction is that the Corporate Executive Board provides
the same, standardized product to the whole of its membership at a fraction of
the cost to each individual member of consulting services. In common with
training and development firms, the Company offers education services both on-
site at member institutions and in large multi-company settings. Unlike
training and development firms, which typically invest only periodically in
new curriculum development, the Corporate Executive Board's curriculum is
constantly updated by its best practices research organization. A further
distinction is the seniority and breadth of the audience, with the Company
briefing executive and senior management staff drawn from a broad range of
industry sectors, business units and departments. Because of this unique
approach to the market, the Company believes that it offers its customers a
superior value proposition.
BUSINESS STRATEGY
The Company's goal is to research and analyze the most pertinent and timely
strategic and operational issues facing its membership, and to distribute the
results of this analysis to its membership in the most efficient, effective
and helpful manner. The Company's membership model allows it to draw upon a
large and growing universe of issues and solutions of relevance to today's
leading corporations. The Company actively engages its membership to help
focus its research on the challenges of the current business environment and
to maintain and enhance its position as the leading provider of best practices
research and analysis.
. Maintain Membership-Based Model. The Company believes that the
membership-based model is key to its success and continually strives to
increase the ties between its members and the Corporate Executive Board.
The Company encourages members to view the Corporate Executive Board as
their proprietary off-site research facility. The Company's fixed-fee
economic model promotes frequent use of the Company's products and
services. The Company believes that member satisfaction grows as members
access more of the Company's services, and that the growing roster of
satisfied members validates the Company's business model and induces new
members to join the Corporate Executive Board.
. Focus on Best Practices Research. The focus of the Company's work is
research on best demonstrated business and management practices. Many
large corporations believe that there are certain research economies and
other benefits that can be realized by learning from the experiences of
similar entities facing common business problems. The Company believes
that there will be a continuing desire on the part of progressive
corporations to access evolving solutions to these common business
problems. The Company believes that its success to date has uniquely
positioned it as a leading source for identifying, studying, evaluating
and communicating these evolving solutions.
. Continue Research and Analysis Excellence. The Company believes that the
quality of its research and analysis has driven the success of the
Corporate Executive Board. The Company regularly interacts with
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<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>
<S> <C> <C>
CHEMICALS CONSUMER PRODUCTS ENERGY
Bayer Corporation Anheuser-Busch Companies, Inc. British Petroleum Company p.l.c.
The Dow Chemical Company Cadbury Schweppes PLC Enron Corporation
Eastman Chemical Company The Coca-Cola Company Mobil Corporation
E.I. du Pont de Nemours & Co. The Gillette Company PacifiCorp
Imperial Chemical Industries p.l.c. NIKE, Inc. Shell Oil Company
Monsanto Company The Procter & Gamble Texaco Inc.
Company TransCanada Pipelines Limited
RJR Nabisco Holdings Corp.
FINANCIAL SERVICES Unilever PLC
MANUFACTURING
American Express Company
Barclays Bank PLC INSURANCE ABB Asea Brown Boveri
Charles Schwab & Co., Inc. The Boeing Company
The Chase Manhattan Corporation Aetna Inc. Ford Motor Company
Citigroup Inc. The Allstate Corporation General Electric Company
Deutsche Bank AG CIGNA Corp. Lockheed Martin Corporation
Fidelity Investment Co. John Hancock Mutual Life 3M
Merrill Lynch and Co., Inc. Insurance Company Philips Electronics NV
New York Life Insurance Siemens AG
Company
MEDIA AND PUBLISHING The Prudential Insurance
Company of America TECHNOLOGY
British Sky Broadcasting Group plc State Farm Mutual Automobile
Comcast Corporation Insurance Company America Online Inc.
Dow Jones & Company, Inc. Compaq Computer Corporation
The McGraw-Hill Companies Dell Computer Corp.
The New York Times Company RETAIL Electronic Data Systems Corp.
The Thomson Corporation Hewlett-Packard Company
Time, Inc. Best Buy Co., Inc. Intel Corporation
The Washington Post Company The Gap, Inc. Microsoft Corp.
The Home Depot, Inc. SAP AG
The Limited, Inc. Sun Microsystems, Inc.
TELECOMMUNICATIONS L.L. Bean, Inc.
McDonald's Corporation
AT&T Corporation Sears Roebuck and Co.
Bell Atlantic Corporation Starbucks Coffee Company
Bell Canada
Bell South Corporation
British Telecommunications p.l.c. INSTITUTIONAL
GTE Corporation
Lucent Technologies Inc. Department of Commerce
MCI WorldCom, Inc. Department of Treasury
Nokia Group Duke University
US WEST Inc. Harvard University
National Security Agency
University of Virginia
</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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<PAGE>
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>
33
<PAGE>
Research Briefs
Members of most subscription programs may assign short-answer, customized
research requests. Individual briefs can take the form of a literature search,
vendor profile, data retrieval or original primary and secondary research,
depending upon the need of the requesting member. 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.
35
<PAGE>
PRICING
Memberships in the Corporate Executive Board subscription programs are sold
as renewable one-year agreements. Agreements generally are paid in full within
three months of the start of the subscription period. At 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
election 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 District of Columbia, 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 District of
Columbia, 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 Principal Selling Stockholder and the Bradley Trust
approved the amendment and restatement of the Incentive Plan prior to the
Offering. 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, reverse 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
In February 1999, the Board of Directors adopted and the Principal Selling
Stockholder and the Bradley Trust 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 for the grant of stock options ("Options")
that qualify as incentive stock options under Section 422 of the Code as well
as 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, employees and prospective 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
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Incentive Plan (the maximum number of shares available for issuance under the
Incentive Plan is 5,504,000). 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 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, 693,000 shares of Common Stock will be
subject to Options granted under the 1999 Plan, which will be granted as 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 participant pays or foregoes compensation
in the amount of any discount. In the case of the grant of Options intended to
qualify as incentive stock options under Section 422 of the Code, the
Administrator may not grant Options with an exercise price of less than 110%
of the stock's fair market value on the date the Options are granted if the
participant owns stock of the Company representing more than 10% of the
combined voting power of all classes of stock of the Company. Unless the
Administrator provides otherwise, Options granted under the 1999 Plan
generally expire within ten years of the date of grant. Options granted under
the 1999 Plan that are intended to qualify as incentive plan options under
Section 422 of the Code, however, must expire within ten years of the date of
grant, unless such options are granted to a participant who owns more than 10%
of the combined voting power of all classes of stock of the Company, in which
case such Options must expire within five years of the date of grant. 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
the tenth anniversary of its effective date.
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Directors' Stock Plan
On December 14, 1998, the Board of Directors adopted and the Principal
Selling Stockholder and the Bradley Trust 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 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.
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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.
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 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 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 and that the sales and marketing materials
associated with such services make explicit the health care industry focus of
such services. 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.
52
<PAGE>
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, less shares of Common Stock
granted under the special bonus plan.
(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 5,527,920 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 5,527,920 shares of Common Stock will be
outstanding with a weighted average exercise price of $4.66 per share
(assuming, with respect to 693,000 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
International, Friedman, Billings, Ramsey International, Ltd. 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 International..................
Friedman, Billings, Ramsey International, Ltd...............
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.
57
<PAGE>
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 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.
58
<PAGE>
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
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
59
<PAGE>
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.
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>
The accompanying notes are an integral part of these statements.
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 693,000 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 FEBRUARY 12, 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 International, Ltd.
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 International, Ltd.
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.................................................. 350,000
Accounting fees and expenses....................................... 450,000
Legal fees and expenses............................................ 900,000
Blue Sky fees and expenses......................................... 5,000
Transfer agent's fees and expenses................................. 20,000
Miscellaneous...................................................... 300,000
---------
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 5,527,920 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 the effective date of the registration statement
(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 U.S. Underwriting Agreement.
1.2 --Form of International 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.**
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
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 in February 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 and Standard Terms and Conditions for
1999 Stock Option Plan Incentive Stock Options.
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.**
10.34 --Agreement of Lease, dated June 25, 1998, between the Company and
The George Washington University.**
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
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).**
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>
- --------
**Previously filed.
***Previously filed as Exhibit 10.8.
****Previously filed as Exhibit 10.9.
(B) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are either not required
under the related instructions or are inapplicable, and therefore have been
omitted, except for Schedule II--Valuation and Qualifying Accounts which is
provided on page F-21.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being
II-5
<PAGE>
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. 3 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
District of Columbia, on February 12, 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. 3 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 February 12, 1999
______________________________________ Officer and Director
James J. McGonigle (Principal Executive
Officer)
/s/ Clay M. Whitson Chief Financial Officer February 12, 1999
______________________________________ (Principal Financial and
Clay M. Whitson Principle Accounting
Officer)
/s/ Jeffrey D. Zients Director February 12, 1999
______________________________________
Jeffrey D. Zients
/s/ Harold L. Siebert Director February 12, 1999
______________________________________
Harold L. Siebert
/s/ Michael A. D'Amato Director February 12, 1999
______________________________________
Michael A. D'Amato
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
1.1 --Form of U.S. Underwriting Agreement.
1.2 --Form of International 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,
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.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No.
-------
<C> <S>
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 in February 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 and Standard Terms and Conditions for 1999
Stock Option Plan Incentive Stock Options.
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.**
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>
- --------
**Previously filed.
***Previously filed as Exhibit 10.8.
****Previously filed as Exhibit 10.9.
<PAGE>
[Revised--2/11/99]
The Corporate Executive Board Company
8,187,200 Shares/a/
Common Stock
($.01 par value)
U.S. Underwriting Agreement
New York, New York
February , 1999
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Friedman, Billings, Ramsey & Co., Inc.
Goldman, Sachs & Co.
As U.S. Representatives of the several U.S. Underwriters,
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
David G. Bradley (the "Principal Selling Stockholder") and the other
Selling Stockholders listed in Schedule II (the "Other Selling Stockholders"
and, together with the Principal Selling Stockholder, the "Selling
Stockholders") propose to sell to the several underwriters named in Schedule I
hereto (the "U.S. Underwriters"), for whom you are acting as representatives
(the "U.S. Representatives"), an aggregate of 6,549,760 shares of Common Stock,
$.01 par value (the "Common Stock," being hereinafter called the "U.S.
Underwritten Securities") of The Corporate Executive Board Company, a Delaware
corporation (the "Company"). The Principal Selling Stockholder also proposes to
grant to the U.S. Underwriters , together with the International Underwriters,
options to purchase up to an aggregate of 1,228,080 additional shares of Common
Stock to cover over-allotments (the "U.S. Option Securities"; the U.S. Option
Securities, together with the U.S. Underwritten Securities, being hereinafter
called the "U.S. Securities"). The shares of Common Stock to be sold by the
Other Selling Stockholders hereunder (the "Exercise Shares") shall be issued by
the Company to the Other Selling Stockholders pursuant to the exercise of
certain options (the "Selling Stockholder Options").
It is understood that the Company and the Selling Stockholders are
concurrently entering into the International Underwriting Agreement dated the
date hereof (the "International Underwriting Agreement") providing for the sale
by the Selling Stockholders of an aggregate of 1,637,440 shares of Common Stock
(said shares to be sold pursuant to the International
- -----------
/a/ Plus an option to purchase from the Principal Selling Stockholder up to
1,228,080 additional U.S. Securities to cover over-allotments.
<PAGE>
2
Underwriting Agreement being hereinafter called the "International Securities"
and, together with the U.S. Securities, the "Securities") and providing for the
grant to the International Underwriters, together with the International
Underwriters, of options to purchase from the Principal Selling Stockholder up
to an aggregate of 1,228,080 additional shares of Common Stock (the
"International Option Securities").
It is further understood and agreed that the U.S. Underwriters and the
International Underwriters have entered into an Agreement Between U.S.
Underwriters and International Underwriters dated the date hereof (the
"Agreement Between U.S. Underwriters and International Underwriters"), pursuant
to which, among other things, the International Underwriters may purchase from
the U.S. Underwriters a portion of the U.S. Securities to be sold pursuant to
this U.S. Underwriting Agreement and the U.S. Underwriters may purchase from the
International Underwriters a portion of the International Securities to be sold
pursuant to the International Underwriting Agreement.
To the extent there are no additional U.S. Underwriters listed on
Schedule I other than you, the term U.S. Representatives as used in this U.S.
Underwriting Agreement shall mean you, as U.S. Underwriters, and the terms U.S.
Representatives and U.S. Underwriters shall mean either the singular or plural
as the context requires. The use of the neuter in this U.S. Underwriting
Agreement shall include the feminine and masculine wherever appropriate.
Certain terms used in this U.S. Underwriting Agreement are defined in Section 17
hereof.
As part of the offering contemplated by this Agreement, Salomon Smith
Barney Inc. has agreed to reserve out of the Securities set forth opposite its
name on the Schedule II to this Agreement, up to 409,360 shares, for sale to
certain employees and directors of the Company, and their friends and family
members (collectively, "Participants"), as set forth in the Prospectus under the
heading "Underwriting" (the "Directed Share Program"). The Securities to be
sold by Salomon Smith Barney Inc. pursuant to the Directed Share Program (the
"Directed Shares") will be sold by Salomon Smith Barney Inc. pursuant to this
Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the business day on
which this Agreement is executed will be offered to the public by Salomon Smith
Barney Inc. as set forth in the Prospectuses.
1. Representations and Warranties.
-------------------------------
(i) The Company represents and warrants to, and agrees with, each
U.S. Underwriter as set forth below in this Section 1(i).
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (file
number 333-59833) on Form S-1, including related preliminary prospectuses,
for registration under the Act of the offering and sale of the Securities.
The Company may have filed one or more amendments thereto, including the
related preliminary prospectuses, each of which has previously been
furnished to you. The Company will next file with the Commission either
(1) prior to the Effective Date of such Registration Statement, a further
amendment to such Registration Statement (including the form of final
prospectuses) or (2) after the Effective Date of such Registration
Statement, final prospectuses in accordance with Rules 430A and 424(b). In
the case of clause (2), the Company has included in such Registration
Statement, as amended at the Effective Date, all information (other than
Rule 430A Information) required by the Act and the rules thereunder to be
included in the Registration Statement
<PAGE>
3
and the Prospectuses. As filed, such amendment and form of final
prospectuses, or such final prospectuses, shall contain all Rule 430A
Information, together with all other such required information, and, except
to the extent the U.S. Representatives shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to
you prior to the Execution Time or, to the extent not completed at the
Execution Time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary
Prospectuses) as the Company has advised you, prior to the Execution Time,
will be included or made therein.
It is understood that two forms of prospectuses are to be used in
connection with the offering and sale of the Securities: one form of
prospectus relating to the U.S. Securities, which are to be offered and
sold to United States and Canadian Persons, and one form of prospectus
relating to the International Securities, which are to be offered and sold
to persons other than United States and Canadian Persons. The U.S.
Prospectus and the International Prospectus are identical except for the
outside front cover page, the inside front cover page and the outside back
cover page.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectuses are first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as defined herein) and on any date on
which U.S. Option Securities are purchased, if such date is not the Closing
Date (a "settlement date"), each Prospectus (and any supplements thereto)
will, comply in all material respects with the applicable requirements of
the Act and the rules thereunder; on the Effective Date, the Registration
Statement did not or will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on
the Effective Date, each Prospectus, if not filed pursuant to Rule 424(b),
will not, and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date and any settlement date, each Prospectus (together with any
supplement thereto) will not, include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
-------- -------
representations or warranties as to the information contained in or omitted
from the Registration Statement, or the Prospectuses (or any supplement
thereto) in reliance upon and in conformity with information furnished in
the U.S. Underwriting Agreement and the International Underwriting
Agreement (together, the "Underwriting Agreements") or in writing to the
Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion in the Registration Statement or the
Prospectuses (or any supplement thereto).
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
full corporate power and authority to own or lease, as the case may be, and
to operate its properties and conduct its business as described in the
Prospectuses, and is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction which requires
such qualification, except where the failure to be so qualified would not
reasonably be expected to result in a material adverse effect on the
financial condition, prospects or results of operations of the Company.
(d) The Company's authorized equity capitalization is as set forth in
the Prospectuses; the capital stock of the Company conforms in all material
respects to the
<PAGE>
4
description thereof contained in the Prospectuses; the outstanding shares
of Common Stock (including the Securities being sold under the Underwriting
Agreements by the Principal Selling Stockholder) have been duly authorized
and validly issued and are fully paid and nonassessable and the Securities
being sold by the Other Selling Stockholders will, upon exercise of their
options, be validly issued, fully paid and nonassessable; the Securities
being sold by the Selling Stockholders have been approved for trading on
the Nasdaq National Market subject to official notice of issuance; the
certificates for the Securities are in valid and sufficient form; the
holders of outstanding shares of capital stock of the Company are not
entitled to preemptive or other rights to subscribe for the Securities;
and, except as set forth in the Prospectuses, no options, warrants or other
rights to purchase from the Company, agreements or other obligations of the
Company to issue, or rights to convert any obligations of the Company into
or exchange any securities of the Company for, shares of capital stock of
or ownership interests in the Company are outstanding;
(e) There is no franchise, contract or other document of a character
required to be described in the Registration Statement or Prospectuses, or
to be filed as an exhibit thereto, which is not described or filed as
required; and the statements in the Prospectuses under the heading "Certain
Tax Consequences to Non-U.S. Holders" fairly summarize the matters therein
described.
(f) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms.
(g) The Company is not an "investment company" required to be
registered under the Investment Company Act of 1940, as amended.
(h) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required to be obtained by the
Company in connection with the transactions contemplated herein, except
such as have been obtained under the Act, the filing of the Prospectuses
pursuant to Rule 424(b) and such as may be required under the blue sky laws
of any jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters in the manner contemplated herein and in the
Prospectuses.
(i) None of the exercise of the Selling Stockholder Options, the
issue of the Exercise Shares by the Company, the sale of the Securities by
the Selling Stockholders or the fulfillment by the Company and the Selling
Stockholders of the terms hereof will conflict with, result in a breach or
violation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, (i) the charter or by-laws
of the Company; (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which the Company is a
party or bound or to which its property is subject, or (iii) any statute,
law, rule, regulation, judgment, order or decree applicable to the Company
of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any
of its properties (excluding for purposes of this paragraph (i) federal and
state securities laws and regulations).
(j) Except as set forth in the Prospectuses, no holders of securities
of the Company
<PAGE>
5
have rights to the registration of such securities under the Registration
Statement.
(k) The consolidated historical financial statements and schedules of
the Company included in the Prospectuses and the Registration Statement
present fairly in all material respects the financial condition, results of
operations and cash flows of the Company as of the dates and for the
periods indicated, comply as to form in all material respects with the
applicable accounting requirements of the Act and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as otherwise noted
therein). The selected financial data, including the data under the column
"1998 Pro Forma", set forth under the caption "Selected Financial Data" in
the Prospectuses and Registration Statement fairly present, on the basis
stated in the Prospectuses and the Registration Statement, the information
included therein.
(l) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or its property is pending or, to the best knowledge of the
Company, threatened that (i) could reasonably be expected to have a
material adverse effect on the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or (ii) could
reasonably be expected to have a material adverse effect on the financial
condition, prospects or results of operations of the Company, whether or
not arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectuses (exclusive of any
supplement thereto).
(m) The Company owns or leases all such properties as are necessary
to the conduct of its operations as presently conducted.
(n) The Company is not in violation or default of (i) any provision
of its charter or bylaws, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which it is a party or
bound or to which its property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or any of its properties, as
applicable, which violation or default could reasonably be expected to have
a material adverse effect on the financial condition, prospects or results
of operations of the Company.
(o) To the best of the Company's knowledge, Arthur Andersen LLP, who
have certified certain financial statements of the Company and delivered
their report with respect to the audited consolidated financial statements
and schedules included in the Prospectuses, are independent public
accountants with respect to the Company within the meaning of the Act and
the applicable published rules and regulations thereunder.
(p) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
except in any case in which the failure so to file would not reasonably be
expected to have a material adverse effect on the financial condition,
prospects or results of operations of the Company, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto) and has paid all taxes required to be paid by it as shown on such
returns and any other assessment, fine or
<PAGE>
6
penalty levied against it, to the extent that any of the foregoing is due
and payable, except for any such assessment, fine or penalty that is
currently being contested in good faith or as would not reasonably be
expected to have a material adverse effect on the financial condition,
prospects or results of operations of the Company, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
(q) No labor problem or dispute with the employees of the Company
exists or is threatened or imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
principal suppliers, contractors or customers, that could reasonably be
expected to have a material adverse effect on the financial condition,
prospects or results of operations of the Company, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
(r) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the business in which it is engaged; all policies
of insurance insuring the Company or its business, assets, employees,
officers and directors are in full force and effect; the Company is in
compliance with the terms of such policies and instruments in all material
respects; and there are no material claims by the Company under any such
policy or instrument as to which any insurance company is denying liability
or defending under a reservation of rights clause; the Company has not been
refused any insurance coverage sought or applied for; and the Company has
no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not reasonably be expected to have a material adverse
effect on the financial condition, prospects or results of operations of
the Company, whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in the
Prospectuses (exclusive of any supplement thereto).
(s) The Company possesses all licenses, certificates, permits and
other authorizations issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct its business, and the Company
has not received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, could reasonably be expected to have a material
adverse effect on the financial condition, prospects or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in the
Prospectuses (exclusive of any supplement thereto).
(t) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
<PAGE>
7
(u) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(v) The Company has fulfilled its obligations, if any, under the
minimum funding standards of Section 302 of the United States Employee
Retirement Income Security Act of 1974 ("ERISA") and the regulations and
published interpretations thereunder with respect to each "plan" (as
defined in Section 3(3) of ERISA and such regulations and published
interpretations) in which employees of the Company are eligible to
participate and each such plan is in compliance with the presently
applicable provisions of ERISA and such regulations and published
interpretations, except for any failure to fulfill any such obligations, or
failure to comply, that singly or in the aggregate would not reasonably be
expected to have a material adverse effect on the financial condition,
prospects or results of operations of the Company. The Company has not
incurred any unpaid liability to the Pension Benefit Guaranty Corporation
(other than for the payment of premiums in the ordinary course) or to any
such plan under Title IV of ERISA, except for any such liability that would
not reasonably be expected to result in a material adverse effect on the
financial condition, prospects or results of operations of the Company.
(w) Except as set forth in or contemplated by the Registration
Statement and the Prospectuses (or any amendment or supplement thereto),
subsequent to the respective dates as of which such information is given in
the Registration Statement and the Prospectuses (or any amendment or
supplement thereto), (i) the Company has not incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in
the ordinary course of business, that is material to the Company, and (ii)
there has not been any change in the capital stock, or material increase in
the short-term debt or long-term debt, of the Company, or any material
adverse change, or any development having or which may reasonably be
expected to have a material adverse change, in the financial condition,
prospects or results of operations of the Company, whether or not arising
from transactions in the ordinary course of business.
(x) On the Effective Date and at the Execution Time, the material
appearing in the Prospectuses under the caption "Year 2000 Compliance" in
the section titled "Management's Discussion and Analysis of Financial
Condition and Results of Operation" did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein not misleading.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the U.S. Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each U.S. Underwriter.
<PAGE>
8
(ii) Each Selling Stockholder represents and warrants to, and agrees
with, each U.S. Underwriter that:
(a) This Agreement has been duly executed and delivered by such
Selling Stockholder and constitutes a valid and binding obligation of such
Selling Stockholder enforceable in accordance with its terms.
(b) Such Selling Stockholder is, or in the case of the Other Selling
Stockholders, will be upon the exercise of their options, the lawful owner
of the U.S. Securities to be sold by such Selling Stockholder under this
U.S. Underwriting Agreement and upon sale and delivery of, and payment for,
such U.S. Securities, as provided herein, such Selling Stockholder will
convey to the U.S. Underwriters title to such U.S. Securities, free and
clear of any adverse claims whatsoever.
(c) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the U.S. Securities.
(d) No consent, approval, authorization or order of any court or
governmental agency or body is required to be obtained or made by such
Selling Stockholder for the consummation by such Selling Stockholder of the
transactions contemplated herein, except such as may have been obtained
under the Act, the filing of the Prospectuses pursuant to Rule 424(b) and
such as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the U.S. Securities by the
U.S. Underwriters in the manner contemplated herein and in the U.S.
Prospectus and such other approvals as have been obtained.
(e) Neither the sale of U.S. Securities to the U.S. Underwriters by
such Selling Stockholder nor the fulfillment of the terms hereof by such
Selling Stockholder will conflict with, result in a breach or violation of,
or constitute a default under any law or the terms of any indenture or
other agreement or instrument to which such Selling Stockholder is a party
or bound, or any judgment, order or decree applicable to such Selling
Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder.
(iii) The Principal Selling Stockholder represents and warrants to,
and agrees with, each U.S. Underwriter that except as set forth in the
Prospectuses, no options, warrants or other rights to purchase from the
Principal Selling Stockholder, or agreements or other obligations of the
Principal Selling Stockholder to issue shares of capital stock of or ownership
interests in the Company are outstanding.
Any certificate signed by any Selling Stockholder and delivered to the
U.S. Representatives or counsel for the U.S. Underwriters in connection with the
offering of the U.S. Securities shall be deemed a representation and warranty by
such Selling Stockholder, as to matters covered thereby, to each U.S.
Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions and
------------------
in reliance upon the representations and warranties set forth herein, each
Selling Stockholder agrees, severally and not jointly, to sell to the U.S.
Underwriters the number of U.S. Underwritten Securities set forth
<PAGE>
9
opposite the name of such Selling Stockholder in Schedule II hereto, and each
U.S. Underwriter agrees, severally and not jointly, to purchase from the Selling
Stockholders, at a purchase price of $[ ] per share, the number of the U.S.
Underwritten Securities set forth opposite such U.S. Underwriter's name in
Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties set forth herein, the Principal Selling
Stockholder hereby grants an option to the several U.S. Underwriters to
purchase, severally and not jointly, up to an aggregate of [ ] U.S.
Option Securities at the same purchase price of [ ] per share as the
U.S. Underwriters shall pay for the U.S. Underwritten Securities. Said option
may be exercised only to cover over-allotments in the sale of the U.S.
Underwritten Securities by the U.S. Underwriters. Said option may be exercised
in whole or in part at any time (but not more than once) on or before the 30th
day after the date of the U.S. Prospectus upon written or telegraphic notice by
the U.S. Representatives to the Company and the Principal Selling Stockholder
setting forth the number of shares of the U.S. Option Securities as to which the
several U.S. Underwriters are exercising the option and the settlement date.
The number of U.S. Option Securities to be purchased by each U.S. Underwriter
shall be the same percentage of the total number of shares of the U.S. Option
Securities to be purchased by the several U.S. Underwriters as such U.S.
Underwriter is purchasing of the U.S. Underwritten Securities, subject to such
adjustments as you in your absolute discretion shall make to eliminate any
fractional shares.
3. Delivery and Payment. Delivery of and payment for the U.S.
---------------------
Underwritten Securities and the U.S. Option Securities (if the option provided
for in Section 2(b) hereof shall have been exercised on or before the third
Business Day prior to the Closing Date) shall be made at 10:00 AM, New York City
time, on [ ], 1999, or at such time on such later date not more than three
Business Days after the foregoing date as the U.S. Representatives shall
designate, which date and time may be postponed by agreement among the U.S.
Representatives, the Selling Stockholders and the Company or as provided in
Section 9 hereof (such date and time of delivery and payment for the U.S.
Securities being herein called the "Closing Date"). Delivery of the U.S.
Securities shall be made to the U.S. Representatives for the respective accounts
of the several U.S. Underwriters against payment by the several U.S.
Underwriters through the U.S. Representatives of the respective purchase prices
of the U.S. Securities being sold by each of the Selling Stockholders to or upon
the order of the Selling Stockholders by wire transfer payable in same-day funds
to the accounts specified by the Selling Stockholders. Delivery of the U.S.
Securities and the U.S. Option Securities shall be made through the facilities
of The Depository Trust Company unless the U.S. Representatives shall otherwise
instruct.
Each Selling Stockholder will pay all applicable state transfer taxes,
if any, involved in the transfer to the several U.S. Underwriters of the U.S.
Securities to be purchased by them from such Selling Stockholder, and the
respective U.S. Underwriters will pay any additional stock transfer taxes
involved in further transfers.
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Selling Stockholders will
deliver the U.S. Option Securities (at the expense of the Company) to the U.S.
Representatives, at 388 Greenwich Street, New York, New York, on the date
specified by the U.S. Representatives (which shall be within three Business Days
after exercise of said option) certificates for the U.S. Option Securities in
such name and denomination as the U.S. Representatives shall have requested for
the respective accounts of the several U.S. Underwriters, against payment by
the several U.S. Underwriters through the U.S. Representatives of the purchase
price thereof to or upon the order of the Selling Stockholders by
<PAGE>
10
wire transfer payable in same-day funds to the accounts specified by the Selling
Stockholders. If settlement for the U.S. Option Securities occurs after the
Closing Date, the Selling Stockholders will deliver to the U.S. Representatives
on the settlement date for the U.S. Option Securities, and the obligation of the
U.S. Underwriters to purchase the U.S. Option Securities shall be conditioned
upon receipt of, supplemental opinions, certificates and letters confirming as
of such date the opinions, certificates and letters delivered on the Closing
Date pursuant to Section 6 hereof.
It is understood and agreed that the Closing Date shall occur
simultaneously with the "Closing Date" under the International Underwriting
Agreement, and that the settlement date, if any, shall occur simultaneously with
the "settlement date" under the International Underwriting Agreement.
4. Offering by Underwriters. It is understood that the several U.S.
-------------------------
Underwriters propose to offer the U.S. Securities for sale to the public as set
forth in the U.S. Prospectus.
5. Agreements.
-----------
(i) The Company agrees with the several U.S. Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereto, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectuses or any Rule 462(b) Registration
Statement unless the Company has furnished you a copy for your review prior
to filing and will not file any such proposed amendment or supplement to
which you reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectuses is otherwise required under Rule
424(b), the Company will cause the Prospectuses, properly completed, and
any supplement thereto to be filed with the Commission, or transmitted by a
means reasonably calculated to result in filing with the Commission,
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the U.S.
Representatives of such timely filing. The Company will promptly advise the
U.S. Representatives (1) when the Registration Statement, if not effective
at the Execution Time, and any amendment thereto, shall have become
effective; (2) when the Prospectuses, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule 424(b)
or when any Rule 462(b) Registration Statement shall have been filed with
the Commission; (3) when, prior to termination of the offering of the
Securities, any amendment to the Registration Statement shall have been
filed or become effective; (4) of any request by the Commission or its
staff for any amendment of the Registration Statement, or any Rule 462(b)
Registration Statement, or for any supplement to the Prospectuses or for
any additional information; (5) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
the institution or threatening of any proceeding for that purpose; and (6)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the institution or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order or the suspension of any such qualification and, if
issued, to obtain as soon as possible the withdrawal thereof.
<PAGE>
11
(b) If, at any time prior to the expiration of nine months from the
date hereof when a prospectus relating to the U.S. Securities is required
to be delivered under the Act in connection with the offering of the U.S.
Securities, any event occurs as a result of which the Prospectuses as then
supplemented would include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it shall be necessary to amend the Registration Statement or supplement
either of the Prospectuses to comply with the Act or the rules thereunder,
the Company promptly will (1) notify the U.S. Representatives of any such
event; (2) prepare and file with the Commission, subject to the second
sentence of paragraph (i)(a) of this Section 5, an amendment or supplement
which will correct such statement or omission or effect such compliance;
and (3) supply any supplemented Prospectuses to you in such quantities as
you may reasonably request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the U.S. Representatives an earnings
statement or statements of the Company which will satisfy the provisions of
Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the U.S. Representatives and counsel
for the U.S. Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other U.S.
Underwriter a copy of the Registration Statement (without exhibits thereto)
and, so long as delivery of a prospectus by an U.S. Underwriter or dealer
may be required by the Act, as many copies of each U.S. Preliminary
Prospectus and the U.S. Prospectus and any supplement thereto as the U.S.
Representatives may reasonably request.
(e) The Company will arrange, if necessary, for the qualification of
the Securities for sale under the laws of such jurisdictions as the U.S.
Representatives reasonably may designate, will maintain such qualifications
in effect so long as required for the distribution of the Securities;
provided that in no event shall the Company be obligated to qualify to do
--------
business in any jurisdiction where it is not now so qualified or to take
any action that would subject it to service of process in suits, other than
those arising out of the offering or sale of the Securities, in any
jurisdiction where it is not now so subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney Inc., for a period of 180 days following the Execution
Time, offer, sell or contract to sell or otherwise dispose of (or enter
into any transaction which is designed to, or might reasonably be expected
to, result in the disposition (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise) by the Company or
any affiliate of the Company or any person in privity with the Company or
any affiliate of the Company) directly or indirectly, or announce the
offering of, or file a Registration Statement with the Commission in
respect of, any other shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, shares of Common Stock; provided,
--------
however, that the Company may file one or more registration statements on
-------
Form S-8 and may issue and sell Common Stock or make any awards pursuant to
any employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the Execution Time and the
Company may issue Common Stock issuable upon the conversion of securities
or the exercise of warrants outstanding at the Execution Time and the
Company may issue shares of Common Stock or securities convertible into, or
exercisable or exchangeable for, shares of Common Stock in
<PAGE>
12
connection with an acquisition of or merger with another corporation or the
acquisition of assets or properties thereof, provided, that the holders of
--------
any such securities shall be subject to the transfer restrictions set forth
in Section 5(iv) of (a) hereof.
(g) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the U.S. Securities.
(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and
filing with the Commission of the Registration Statement (including
financial statements and exhibits thereto), each Preliminary Prospectus,
each Prospectus, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage and air freight
charges) of such copies of the Registration Statement, each Preliminary
Prospectus, each Prospectus, and all amendments or supplements to any of
them, as may, in each case, be reasonably requested for use in connection
with the offering and sale of the Securities; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the
U.S. Securities, including any stamp or transfer taxes in connection with
the issuance of the Exercise Shares or the sale of the U.S. Securities by
the Selling Stockholders; (iv) the printing (or reproduction) and delivery
of this U.S. Underwriting Agreement and any blue sky memorandum and all
other agreements or documents printed (or reproduced) and delivered in
connection with the offering of the Securities; (v) the registration of the
Securities under the Exchange Act and the listing of the Securities on the
Nasdaq National Market; (vi) any registration or qualification of the
Securities for offer and sale under the securities or blue sky laws of the
several states (including filing fees and the reasonable fees and expenses
of counsel for the U.S. Underwriters relating to such registration and
qualification); (vii) any filings required to be made with the National
Association of Securities Dealers, Inc. (including filing fees); (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers
of the Securities; (ix) the fees and expenses of the Company's accountants
and the fees and expenses of counsel (including local and special counsel)
for the Company and the Selling Stockholders; and (x) all other costs and
expenses incident to the performance by the Company and the Selling
Stockholders of their obligations under the Underwriting Agreements.
(i) The Company will require each recipient of Directed Shares to
enter into an agreement [, substantially in the form of Exhibit B hereto,]
pursuant to which each such recipient will agree that the Directed Shares
received by such recipient may not be sold, transferred, assigned, pledged
or hypothecated for a period of three months following the Effective Date.
(ii) Each U.S. Underwriter agrees that (a) it is not purchasing any
of the U.S. Securities for the account of anyone other than a United States or
Canadian Person, (b) it has not offered or sold, and will not offer or sell,
directly or indirectly, any of the U.S. Securities or distribute any U.S.
Prospectus to any person outside the United States or Canada, or to anyone other
than a United States or Canadian Person, and (c) any dealer to whom it may sell
any of the U.S. Securities will represent that it is not purchasing for the
account of anyone other than a United States or Canadian Person and agree that
it will not offer or resell, directly or indirectly, any of the U.S. Securities
outside the United States or Canada, or to anyone other than a United
<PAGE>
13
States or Canadian Person or to any other dealer who does not so represent and
agree; provided, however, that the foregoing shall not restrict (1) purchases
-------- -------
and sales between the International Underwriters on the one hand and the U.S.
Underwriters on the other hand pursuant to the Agreement Between U.S.
Underwriters and International Underwriters, (2) stabilization transactions
contemplated under the Agreement Between U.S. Underwriters and International
Underwriters, conducted through Salomon Smith Barney Inc. (or through the U.S.
Representatives and International Representatives) as part of the distribution
of the Securities, and (3) sales to or through (or distributions of U.S.
Prospectuses or U.S. Preliminary Prospectuses to) United States or Canadian
Persons who are investment advisors, or who otherwise exercise investment
discretion, and who are purchasing for the account of anyone other than a United
States or Canadian Person.
(iii) The agreements of the U.S. Underwriters set forth in paragraph
(ii) of this Section 5 shall terminate upon the earlier of the following events:
(a) a mutual agreement of the U.S. Representatives and the
International Representatives to terminate the selling restrictions set
forth in paragraph (ii) of this Section 5 and in Section 5(ii) of the
International Underwriting Agreement; or
(b) the expiration of a period of 30 days after the Closing Date,
unless (1) the U.S. Representatives shall have given notice to the Company
and the International Representatives that the distribution of the U.S.
Securities by the U.S. Underwriters has not yet been completed, or (2) the
International Representatives shall have given notice to the Company and
the U.S. Representatives that the distribution of the International
Securities by the International Underwriters has not yet been completed.
If such notice by the U.S. Representatives or the International
Representatives is given, the agreements set forth in paragraph (ii) of
this Section 5 shall survive until the earlier of (A) the event referred to
in clause (a) of this paragraph (iii) or (B) the expiration of an
additional period of 30 days from the date of any such notice.
(iv) Each Selling Stockholder agrees with the several U.S.
Underwriters that:
(a) Each Selling Stockholder will not, without the prior written
consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, or file (or participate in
the filing of) a registration statement with the Commission in respect of,
or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Exchange
Act with respect to, any shares of Common Stock of the Company or any
securities convertible into or exercisable or exchangeable for such Common
Stock, or publicly announce an intention to effect any such transaction,
for a period of 180 days after the date of this U.S. Underwriting
Agreement, other than sales, transfers or other distributions in
transactions that are not required to be registered under the Act,
including charitable contributions, gifts and sales to third parties,
provided that the transferee agrees to be bound by a restriction on further
--------
transfers substantially similar to the restriction set forth in this
Section 5(iv)(a).
(b) Such Selling Stockholder will not take any action designed to or
which has constituted or which might reasonably be expected to cause or
result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the U.S. Securities.
<PAGE>
14
(c) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, so long as delivery
of a prospectus relating to the U.S. Securities by an underwriter or dealer
may be required under the Act, of any change in information in the
Registration Statement or the Prospectuses relating to the Selling
Stockholder.
6. Conditions to the Obligations of the U.S. Underwriters. The
-------------------------------------------------------
obligations of the U.S. Underwriters to purchase the U.S. Underwritten
Securities and the U.S. Option Securities, as the case may be, shall be subject
to the accuracy of the representations and warranties on the part of the Company
and the Selling Stockholders contained herein as of the Execution Time, the
Closing Date and any settlement date pursuant to Section 3 hereof, to the
accuracy of the statements of the Company and the Selling Stockholders made in
any certificates pursuant to the provisions hereof, to the performance by the
Company and the Selling Stockholders of their respective obligations hereunder
and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the U.S. Representatives and the International
Representatives agree in writing to a later time, the Registration Statement
will become effective not later than (i) 6:00 PM New York City time on the date
of determination of the public offering price, if such determination occurred at
or prior to 3:00 PM New York City time on such date or (ii) 9:30 AM on the
Business Day following the day on which the public offering price was
determined, if such determination occurred after 3:00 PM New York City time on
such date; if filing of the Prospectuses, or any supplement thereto, is required
pursuant to Rule 424(b), the Prospectuses, and any such supplement, will be
filed, or transmitted by a means reasonably calculated to result in filing with
the Commission, in the manner and within the time period required by Rule
424(b); and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or threatened by the Commission.
(b) The Company shall have caused Gibson, Dunn & Crutcher LLP,
counsel for the Company, to have furnished to the U.S. Representatives their
opinion, dated the Closing Date and addressed to the U.S. Representatives, to
the effect that:
(i) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the General Corporation Law of the
State of Delaware, with corporate power and authority to own or lease, as
the case may be, and to operate its properties and conduct its business as
described in the Prospectuses, and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of the States of
[ ];
(ii) the Company's authorized equity capitalization is as set forth in
the Prospectuses; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectuses; the
shares of Common Stock underlying the Selling Stockholder Options have been
duly authorized; the outstanding shares of Common Stock (including the
Securities being sold under the Underwriting Agreements by the Selling
Stockholders) have been duly authorized and validly issued and are fully
paid and nonassessable; the holders of outstanding Shares of Common Stock
are not entitled to preemptive or other rights to subscribe for the
Securities;
(iii) such counsel has not been engaged by the Company to give
substantive attention to, or to represent it in connection with, any
pending or threatened action, suit
<PAGE>
15
or proceeding by or before any court or governmental agency, authority or
body or any arbitrator involving the Company or its property of a character
required to be disclosed in the Registration Statement which is not
adequately disclosed in the Prospectuses;
(iv) the Registration Statement has become effective under the Act;
any required filing of the Prospectuses, and any supplements thereto,
pursuant to Rule 424(b) has been made, or the Prospectuses and any
supplements thereto have been transmitted by a means reasonably calculated
to result in filing with the Commission, in the manner and within the time
period required by Rule 424(b); to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has been
issued by the Commission and, to the best of such counsel's knowledge, no
proceedings for that purpose have been instituted or threatened;
(v) the Underwriting Agreements have been duly authorized, executed
and delivered by the Company;
(vi) the Company is not an "investment company" required to be
registered under the Investment Company Act of 1940, as amended;
(vii) no consent, approval, authorization, filing with or order of
any court or governmental agency or body is required to be obtained or made
by the Company under the laws of the United States of America in connection
with the sale of the Securities to the Underwriters in the manner
contemplated in the Underwriting Agreements, except such as have been
obtained under the Act and such as may be required under the blue sky laws
of any jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters in the manner contemplated in the
Underwriting Agreements and in the Prospectuses and such other approvals
(specified in such opinion) as have been obtained; and
(viii) none of the exercise of the Options, the issue of the Exercise
Shares, the sale of the Securities by the Selling Stockholders, or the
fulfillment by the Company and the Selling Stockholders of the terms of the
Underwriting Agreements will conflict with, result in a breach or violation
of or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or its subsidiaries pursuant to, (a) the charter or
by-laws of the Company, (b) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument identified to such counsel in
a certificate by the Company as being material to which the Company is a
party or bound or to which its property is subject, or (c) any statute,
law, rule, regulation, judgment, order or decree applicable to the Company
of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any
of its properties (excluding for purposes of this paragraph (viii) federal
and state securities laws and regulations).
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent auditors of the Company and your
representatives and counsel at which the contents of the Registration Statement
and the Prospectuses were discussed. Such counsel also may state that because
the purpose of their professional engagement was not to establish or confirm
factual matters and because the scope of their examination of the affairs of the
Company did not permit them to verify the accuracy, completeness or fairness of
the statements contained in the
<PAGE>
16
Registration Statement or the Prospectuses, they are not passing upon and do not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectuses, except
to the extent set forth in the last sentence of this paragraph. Such counsel
also shall state that, on the basis of the foregoing, except for the financial
statements and schedules and other financial and statistical data included
therein, as to which such counsel need express no opinion or belief: (a) such
counsel is of the opinion that the Registration Statement at the time it became
effective appeared on its face to comply as to form in all material respects
with the applicable requirements of the Act and the rules thereunder; and (b) no
facts have come to such counsel's attention that lead such counsel to believe
that (i) the Registration Statement at the time it became effective contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or (ii) the Prospectuses as of the date thereof and as of the date of such
opinion contained or contain an untrue statement of a material fact or omitted
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. On
the basis of the foregoing, no facts have come to our attention that lead us to
believe that (i) there are any outstanding options, warrants or other rights to
purchase, agreements or other obligations to issue, or rights to convert any
obligations into or exchange any securities for, shares of capital stock of or
ownership interests in the Company, except as set forth in the Prospectuses or
(ii) there is any franchise, contract or other document of a character required
to be described in the Registration Statement or Prospectuses, or to be filed as
an exhibit thereto, which is not described or filed as required. Such counsel
also shall state that, insofar as the statements contained in the Prospectuses
under the caption "Certain Tax Consequences to Non-U.S. Holders" purport to
describe specific provisions of the Internal Revenue Code, such descriptions are
accurate summaries of such provisions.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company
and public officials. Reference to the Prospectuses in this paragraph (b)
include any supplements thereto at the Closing Date.
(c) The Selling Stockholders shall have caused Covington & Burling,
counsel for the Selling Stockholders, to have furnished to the U.S.
Representatives their opinion dated the Closing Date and addressed to the U.S.
Representatives, to the effect that:
(i) to the knowledge of such counsel, the Underwriting Agreements have
been duly executed and delivered by the Selling Stockholders;
(ii) to the knowledge of such counsel, the delivery by each Selling
Stockholder to the several Underwriters of certificates for the Securities
being sold under the Underwriting Agreements by such Selling Stockholder
against payment therefor as provided in the Underwriting Agreements, will
pass title to such Securities to the several Underwriters, free and clear
of all adverse claims whatsoever;
(iii) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental agency or body is
required for the sale of the Securities by the Selling Stockholders to the
Underwriters pursuant to the Underwriting Agreements, except such as may
have been obtained under the Act and such as may be required under the blue
sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters and such other approvals
as have been obtained; and
<PAGE>
17
(iv) neither the sale of the Securities by the Selling Stockholders to
the Underwriters nor the fulfillment of the terms hereof by any Selling
Stockholder will conflict with, result in a breach or violation of, or
constitute a default under any law or the terms of any indenture or other
agreement or instrument known to such counsel and to which any Selling
Stockholder is a party or bound, or any judgment, order or decree known to
such counsel to be applicable to any Selling Stockholder of any court,
regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over any Selling Stockholder.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent they deem proper, on certificates of the Selling Stockholders and public
officials.
(d) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the U.S. Underwriters, such opinion or opinions, dated the
Closing Date and addressed to the Representatives, with respect to the issuance
and sale of the Securities, the Registration Statement, the Prospectuses
(together with any supplement thereto) and other related matters as the U.S.
Representatives may reasonably require, and the Company and each Selling
Stockholder shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.
(e) The Company shall have furnished to the U.S. Representatives a
certificate of the Company, signed by the Chairman of the Board and the
President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectuses, any supplements
to the Prospectuses and the Underwriting Agreements and that:
(i) the representations and warranties of the Company in this U.S.
Underwriting Agreement are true and correct in all material respects on and
as of the Closing Date with the same effect as if made on the Closing Date,
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened; and
(iii) since the date of the most recent financial statements included
in the Prospectuses (exclusive of any supplement thereto), there has been
no material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company whether or not
arising from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
(f) Each Selling Stockholder shall have furnished to the
Representatives a certificate, signed by such Selling Stockholder, dated the
Closing Date, to the effect that (i) the signer of such certificate has
carefully examined the Registration Statement, the Prospectuses, any supplement
to either of the Prospectuses, this U.S. Underwriting Agreement and the
International Underwriting Agreement, (ii) the representations and warranties of
each Selling Stockholder in this U.S. Underwriting Agreement and the
International Underwriting Agreement are true and correct in all material
respects on and as of the Closing Date to the same effect as if made on the
<PAGE>
18
Closing Date and (iii) the Selling Stockholder has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date.
(g) The Company shall have caused Arthur Andersen LLP to have
furnished to the Representatives, at the Execution Time and at the Closing Date,
letters, dated respectively as of the Execution Time and as of the Closing Date,
in form and substance satisfactory to the Representatives, confirming that they
are independent accountants within the meaning of the Act and the applicable
published rules and regulations thereunder, and stating in effect that:
(i) in their opinion the audited financial statements and financial
statement schedules and pro forma financial statements included in the
Registration Statement and the Prospectuses and reported on by them comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations;
(ii) on the basis of carrying out certain specified procedures (but
not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance with
respect to the comments set forth in such letter; a reading of the minutes
of the meetings of the stockholders, directors and any committees of the
Company; and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company as to
transactions and events subsequent to June 30, 1998, nothing came to their
attention which caused them to believe that:
(1) with respect to the period subsequent to June 30, 1998, there
were any changes, at a specified date not more than five days prior to
the date of the letter, in the long-term debt of the Company or
capital stock of the Company or decreases in the stockholder's equity
of the Company as compared with the amounts shown on the June 30,
1998, consolidated balance sheet included in the Registration
Statement and the Prospectuses, or for the period from July 1, 1998 to
such specified date there were any decreases, as compared with the
corresponding period in the preceding fiscal quarter, in net revenues
or income before income taxes or in total or per share amounts of net
income, income from operations and interest income of the Company,
except in all instances for changes or decreases set forth in such
letter, in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof unless said
explanation is not deemed necessary by the U.S. Representatives; and
(2) the information included in the Registration Statement and
Prospectuses in response to Regulation S-K, Item 301 (Selected
Financial Data), Item 302 (Supplementary Financial Information) and
Item 402 (Executive Compensation) is not in conformity with the
applicable disclosure requirements of Regulation S-K; and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
the Company) set forth in the Registration Statement and the Prospectuses,
including the information set forth under the captions "Prospectus
Summary", "Risk Factors","Capitalization", "Selected Financial Data",
"Management's
<PAGE>
19
Discussion and Analysis of Results of Financial Condition and Results of
Operation", "Business" and "Description of Capital Stock" in the
Prospectuses, agrees with the accounting records of the Company, excluding
any questions of legal interpretation.
References to the Prospectuses in this paragraph (g) include any supplement
thereto at the date of the letter.
(h) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectuses (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraph (g) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the financial
condition or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectuses (exclusive of any supplement thereto) the
effect of which, in any case referred to in clause (i) or (ii) above, is, in the
sole judgment of the U.S. Representatives, so material and adverse as to make it
impractical or inadvisable to proceed with the offering or delivery of the U.S.
Securities as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectuses (exclusive of any supplement thereto).
(i) The closing of the purchase of the International Securities
pursuant to the International Underwriting Agreement shall have occurred.
(j) The Securities shall have been listed and admitted and authorized
for trading on the Nasdaq National Market, and satisfactory evidence of such
actions shall have been provided to the Representatives.
(k) On or prior to the Execution Time, the National Association of
Securities Dealers, Inc. shall have approved the Underwriters' participation in
the distribution of the Securities to be sold by the Selling Stockholders.
(l) At the Execution Time, the Company shall have furnished to the
Representatives a letter substantially in the form of Exhibit A hereto from each
executive officer and director of the Company addressed to the Representatives
[24 recipients of special bonus to be locked up also].
(m) Prior to the Closing Date, the Company and the Selling
Stockholders shall have furnished to the Representatives such further
information, certificates and documents as the Representatives may reasonably
request.
(n) The Representatives shall be reasonably satisfied with the terms
of all stockholders agreements and other agreements between the Company and its
stockholders that (i) have not been received by or made available to the
Representatives prior to the Execution Time, (ii) are entered into after the
Execution Time or (iii) are amended after the Execution Time.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this U.S.
Underwriting Agreement and the International Underwriting Agreement, or if any
of the opinions and certificates mentioned above or elsewhere in this U.S.
Underwriting Agreement shall not be in all material respects reasonably
<PAGE>
20
satisfactory in form and substance to the U.S. Representatives and counsel for
the U.S. Underwriters, this U.S. Underwriting Agreement and all obligations of
the U.S. Underwriters under this U.S. Underwriting Agreement may be canceled at,
or at any time prior to, the Closing Date by the U.S. Representatives. Notice of
such cancelation shall be given to the Company and each Selling Stockholder in
writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019,
on the Closing Date.
7. Reimbursement of U.S. Underwriters' Expenses. If the sale of the
---------------------------------------------
U.S. Securities provided herein is not consummated because any condition to the
obligations of the U.S. Underwriters set forth in Section 6 hereof is not
satisfied, because of any termination pursuant to Section 10(i) hereof or
because of any refusal, inability or failure on the part of the Company or any
Selling Stockholder to perform any agreement herein or comply with any provision
hereof other than by reason of a default by any of the Underwriters, the Company
will reimburse the U.S. Underwriters severally through Salomon Smith Barney Inc.
on demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the U.S. Securities.
8. Indemnification and Contribution. (a) The Company agrees to
---------------------------------
indemnify and hold harmless each U.S. Underwriter, the directors, officers,
employees and agents of each U.S. Underwriter and each person who controls any
U.S. Underwriter within the meaning of either the Act or the Exchange Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement for the
registration of the Securities as originally filed or in any amendment thereof,
or in any U.S. or International Preliminary Prospectus or in either of the
Prospectuses, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
-------- -------
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any U.S. Underwriter through the U.S. Representatives specifically for inclusion
therein. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(b) Each Selling Stockholder severally agrees to indemnity and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, each U.S. Underwriter, the directors, officers,
employees and agents of each U.S. Underwriter and each person who controls the
Company or any Underwriter within the meaning of either the Act or the Exchange
Act and each other Selling Stockholder, if any, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to written information furnished to the Company by or on behalf of
such Selling Stockholder specifically for inclusion in the documents referred to
in the foregoing indemnity. This indemnity agreement will
<PAGE>
21
be in addition to any liability which any Selling Stockholder may otherwise
have.
(c) Each U.S. Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement, and each person who controls the
Company within the meaning of either the Act or the Exchange Act and each
Selling Stockholder, to the same extent as the foregoing indemnity to each U.S.
Underwriter, but only with reference to written information relating to such
U.S. Underwriter furnished to the Company by or on behalf of such U.S.
Underwriter through the U.S. Representatives specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any U.S. Underwriter may otherwise have.
The Company and each Selling Stockholder acknowledge that the statements set
forth in the last paragraph of the cover page regarding delivery of the U.S.
Securities, the legend in block capital letters on page 2 related to
stabilization, syndicate covering transactions and penalty bids and, under the
heading "Underwriting", (i) the sentences related to concessions and
reallowances and (ii) the paragraph related to stabilization, syndicate covering
transactions and penalty bids in any U.S. or International Preliminary
Prospectus and the Prospectuses constitute the only information furnished in
writing by or on behalf of the several U.S. Underwriters for inclusion in any
U.S. or International Preliminary Prospectus or the Prospectuses.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a), (b) or (c) above unless and to the extent it did
not otherwise learn of such action and such failure results in the forfeiture by
the indemnifying party of substantial rights and defenses and (ii) will not, in
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a), (b), or (c) above. The indemnifying party shall be entitled to
appoint counsel of the indemnifying party's choice at the indemnifying party's
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
- -------- -------
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party
<PAGE>
22
from all liability arising out of such claim, action, suit or proceeding.
(e) In the event that the indemnity provided in paragraph (a), (b) or
(c) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Selling Stockholders and
the U.S. Underwriters severally agree to contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending the same) (collectively
"Losses") to which the Company, each of the Selling Stockholders and one or more
of the U.S. Underwriters may be subject in such proportion as is appropriate to
reflect the relative fault of the Company, each of the Selling Stockholders and
the U.S. Underwriters in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations;
provided, however, that in no case shall any U.S. Underwriter (except as may be
- -------- -------
provided in any agreement among underwriters relating to the offering of the
U.S. Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such U.S.
Underwriter hereunder. Relative fault shall be determined by reference to,
among other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information provided by the Company, the Selling Stockholders or the
U.S. Underwriters, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The Company, the Selling Stockholders and the U.S.
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (e), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an U.S. Underwriter within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of an U.S.
Underwriter shall have the same rights to contribution as such U.S. Underwriter,
and each person who controls the Company within the meaning of either the Act or
the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (e).
(f) The liability of each Selling Stockholder under such Selling
Stockholder's representations and warranties contained in Section 1 hereof and
under the indemnity and contribution agreements contained in this Section 8
shall be limited to an amount equal to the initial public offering price of the
U.S. Securities sold by such Selling Stockholder to the U.S. Underwriters.
9. Default by a U.S. Underwriter. If any one or more U.S.
------------------------------
Underwriters shall fail to purchase and pay for any of the U.S. Securities
agreed to be purchased by such U.S. Underwriter or U.S. Underwriters hereunder
and such failure to purchase shall constitute a default in the performance of
its or their obligations under this U.S. Underwriting Agreement, the remaining
U.S. Underwriters shall be obligated severally to take up and pay for (in the
respective proportions which the amount of U.S. Securities set forth opposite
their names in Schedule I hereto bears to the aggregate amount of U.S.
Securities set forth opposite the names of all the remaining U.S. Underwriters)
the U.S. Securities which the defaulting U.S. Underwriter or U.S. Underwriters
agreed but failed to purchase; provided, however, that in the event that the
-------- -------
aggregate amount of U.S. Securities which the defaulting U.S. Underwriter or
U.S. Underwriters agreed but failed to purchase shall exceed 10% of the
aggregate amount of U.S. Securities set forth in
<PAGE>
23
Schedule I hereto, the remaining U.S. Underwriters shall have the right to
purchase all, but shall not be under any obligation to purchase any, of the U.S.
Securities, and if such nondefaulting U.S. Underwriters do not purchase all the
U.S. Securities, this U.S. Underwriting Agreement will terminate without
liability to any nondefaulting U.S. Underwriter, the Selling Stockholders or the
Company. In the event of a default by any U.S. Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the U.S. Representatives shall determine in order that
the required changes in the Registration Statement and the Prospectuses or in
any other documents or arrangements may be effected. Nothing contained in this
U.S. Underwriting Agreement shall relieve any defaulting U.S. Underwriter of its
liability, if any, to the Company, the Selling Stockholders and any
nondefaulting U.S. Underwriter for damages occasioned by its default hereunder.
10. Termination. This U.S. Underwriting Agreement shall be subject
------------
to termination in the absolute discretion of the U.S. Representatives, by notice
given to the Company prior to delivery of and payment for the U.S. Securities,
if at any time prior to such time (i) trading in the Company's Common Stock
shall have been suspended by the Commission, (ii) the Nasdaq National Market or
trading in securities generally on the New York Stock Exchange or the Nasdaq
National Market shall have been suspended or limited or minimum prices shall
have been established on such Exchange or National Market, (iii) a banking
moratorium shall have been declared either by Federal or New York State
authorities or (iv) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war, or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the sole judgment of the U.S. Representatives, impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the U.S. Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of each Selling Stockholder and of the U.S.
Underwriters set forth in or made pursuant to this U.S. Underwriting Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of any U.S. Underwriter, any Selling Stockholder or the Company or any
of the officers, directors or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the U.S. Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancelation of this U.S. Underwriting Agreement.
12. Notices. All communications under this U.S. Underwriting
--------
Agreement will be in writing and effective only on receipt, and, if sent to the
U.S. Representatives, will be mailed, delivered or telefaxed to the Salomon
Smith Barney Inc., General Counsel (fax no. (212) 816-7912) and confirmed to
such General Counsel at Salomon Smith Barney Inc., 388 Greenwich Street, New
York, New York, 10013, Attention: General Counsel; or, if sent to the Company
or any Selling Stockholder, will be mailed, delivered or telefaxed to (202) 672-
5700 and confirmed to it at The Watergate, 600 New Hampshire Avenue, N.W.,
Washington, D.C. 20037, Attention: Legal Department.
13. Successors. This U.S. Underwriting Agreement will inure to the
-----------
benefit of and be binding upon the parties hereto and their respective
successors and the officers and directors and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
14. Applicable Law. This U.S. Underwriting Agreement will be
---------------
governed by and
<PAGE>
24
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
15. Counterparts. This U.S. Underwriting Agreement may be signed in
------------
one or more counterparts, each of which shall constitute an original and all of
which together shall constitute one and the same agreement.
16. Headings. The section headings used in this U.S. Underwriting
---------
Agreement are for convenience only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this U.S.
------------
Underwriting Agreement, shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Agreement Between U.S. Underwriters and International Underwriters"
shall mean Agreement Between U.S. Underwriters and International
Underwriters dated the date hereof.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this U.S.
Underwriting Agreement is executed and delivered by the parties hereto.
"International Preliminary Prospectus" shall have the meaning set
forth under "U.S. Preliminary Prospectus."
"International Prospectus" shall mean such form of prospectus relating
to the International Securities as first filed pursuant to Rule 424(b)
after the Execution Time or, if no filing pursuant to Rule 424(b) is made,
such form of prospectus included in the Registration Statement at the
Effective Date.
"International Representative" shall mean the addressees of the
International Underwriting Agreement.
"International Securities" shall mean the International Securities and
the International Option Securities.
<PAGE>
25
"International Underwriters" shall mean the several underwriters named
in Schedule I to the International Underwriting Agreement.
"International Underwriting Agreement" shall mean the International
Underwriting Agreement dated the date hereof related to the sale of the
International Securities by the Selling Stockholders to the International
Underwriters.
"Losses" shall have the meaning set forth in 8(e).
"Option Securities" shall mean the U.S. Option Securities and the
International Option Securities.
"Other Selling Stockholders" shall mean all Selling Stockholders
listed in Schedule II other than David G. Bradley.
"Preliminary Prospectus" shall have the meaning set forth under "U.S.
Preliminary Prospectus."
"Principal Selling Stockholder" shall mean David G. Bradley.
"Prospectuses" and "each Prospectus" shall mean the U.S. Prospectus
and the International Prospectus.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(i)(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Representatives" shall mean the U.S. Representatives and the
International Representatives.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a)(i) hereof.
"Securities" shall mean the U.S. Securities and the International
Securities.
"Selling Stockholders" shall mean the persons named on Schedule II to
the U.S. Underwriting Agreement and the International Underwriting
Agreement.
<PAGE>
26
"Underwriter" and "Underwriters" shall mean the U.S. Underwriters and
the International Underwriters.
"Underwriting Agreements" still mean the U.S. Underwriting Agreement
and the International Underwriting Agreement.
"U.S. Preliminary Prospectus" and the "International Preliminary
Prospectus", respectively, shall mean any preliminary prospectus with
respect to the offering of the U.S. Securities and the International
Securities, as the case may be, referred to in paragraph 1(i)(a) above and
any preliminary prospectus with respect to the offering of the U.S.
Securities and the International Securities, as the case may be, included
in the Registration Statement at the Effective Date that omits Rule 430A
Information; and the U.S. Preliminary Prospectus and the International
Preliminary Prospectus are hereinafter collectively called the "Preliminary
Prospectuses".
"U.S. Prospectus" shall mean the prospectus relating to the Securities
that is first filed pursuant to Rule 424(b) after the Execution Time or, if
no filing pursuant to Rule 424(b) is required, shall mean the form of final
prospectus relating to the Securities included in the Registration
Statement at the Effective Date.
"U.S. Representatives" shall mean the addressees of the U.S.
Underwriting Agreement.
"U.S. Securities" shall mean the U.S. Underwritten Securities and the
U.S. Option Securities.
"U.S. Underwriting Agreement" shall mean this agreement relating to
the sale of the U.S. Securities by the Selling Stockholders to the U.S.
Underwriters.
"U.S. Underwriters" shall mean the several underwriters named in
Schedule I to the U.S. Underwriting Agreement.
"United States or Canadian Person" shall mean any person who is a
national or resident 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 of any political subdivision thereof, or any
estate or trust the income of which is subject to United States or Canadian
Federal income taxation, regardless of its source (other than any non-
United States or non-Canadian branch of any United States or Canadian
Person), and shall include any United States or Canadian branch of a person
other than a United States or Canadian Person.
"U.S." or "United States" shall mean the United States of America
(including the states thereof and the District of Columbia), its
territories, its possessions and other areas subject to its jurisdiction.
"Year 2000 Problem" shall have the meaning set forth in 1(i)(y).
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall
<PAGE>
27
represent a binding agreement among the Company and the several U.S.
Underwriters.
Very truly yours,
The Corporate Executive Board Company
By: ____________________________________
Name:
Title:
________________________________________
David G. Bradley
The David G. Bradley GRAT Trust Number 1
By: ____________________________________
Name:
Title:
________________________________________
Michael A. D'Amato
________________________________________
Jeffrey D. Zients
<PAGE>
28
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Friedman, Billings, Ramsey & Co., Inc.
Goldman, Sachs & Co.
By: Smith Barney Inc.
By:
............................
Name:
Title:
For themselves and the other
several U.S. Underwriters
named in Schedule I to the foregoing
Agreement.
<PAGE>
29
SCHEDULE I
----------
Number of U.S. Underwritten
---------------------------
Securities to be
----------------
Underwriters Purchased
- ------------ ---------
Salomon Smith Barney Inc. .......................
Donaldson, Lufkin & Jenrette
Securities Corporation........................
Friedman, Billings, Ramsey & Co., Inc............
Goldman, Sachs & Co .............................
__________
Total..................................
==========
<PAGE>
30
SCHEDULE II
-----------
<TABLE>
<CAPTION>
Number of International Maximum Number of
Underwritten Securities International Option
Selling Stockholders: to be Sold Securities to be Sold
- --------------------- ------------------------ ----------------------
<S> <C> <C>
David G. Bradley
[address, fax no.]......
The David G. Bradley
GRAT Trust Number 1
[address, fax no.]......
Michael A. D'Amato
[address, fax no.]......
Jeffrey D. Zients
[address, fax no.]......
------------------------ ----------------------
Total..............
======================== ======================
</TABLE>
<PAGE>
EXHIBIT A
[Letterhead of officer, director or major stockholder of Corporation]
The Corporate Executive Board Company
-------------------------------------
Public Offering of Common Stock
-------------------------------
January , 1999
Salomon Brothers International Limited and
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Friedman, Billings, Ramsey & Co., Inc.
Goldman, Sachs & Co.
As Representatives of the several U.S. Underwriters
and International Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
U.S. Underwriting Agreement and International Underwriting Agreement (together,
the "Underwriting Agreements"), between The Corporate Executive Board Company, a
Delaware corporation (the "Company"), and each of you as representatives of a
group of U.S. Underwriters and International Underwriters named therein,
relating to an underwritten public offering of Common Stock, $__________ par
value (the "Common Stock"), of the Company.
In order to induce you and the other U.S. Underwriters and
International Underwriters to enter into the Underwriting Agreements, the
undersigned will not, without the prior written consent of Smith Barney Inc.,
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file (or participate in the filing of) a registration statement
with the Securities and Exchange Commission in respect of, or establish or
increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder with respect to, any shares of capital stock
of the Company or any securities convertible into or exercisable or exchangeable
for such capital stock, or publicly announce an intention to effect any such
transaction, for a period of 180 days after the date of the Underwriting
Agreements, other than shares of Common Stock disposed of as bona fide gifts
approved by Salomon Smith Barney Inc.
If for any reason the Underwriting Agreements shall be terminated
prior to the Closing Date (as defined in the Underwriting Agreements), the
agreement set forth above shall likewise be terminated.
<PAGE>
2
Yours very truly,
By:_____________________________
Name:
Address:
<PAGE>
Exhibit 1.2
[Revised--2/11/99]
The Corporate Executive Board Company
8,187,200 Shares/a/
Common Stock
($ .01 par value)
International Underwriting Agreement
London, England
February , 1999
Salomon Brothers International Limited
Donaldson, Lufkin & Jenrette International
Friedman, Billings, Ramsey International, Ltd.
Goldman Sachs International
As International Representatives of the several
International Underwriters,
c/o Salomon Brothers International Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W 0SB ENGLAND
Ladies and Gentlemen:
David G. Bradley (the "Principal Selling Stockholder") and the other
Selling Stockholders listed in Schedule II (the "Other Selling Stockholders"
and, together with the Principal Selling Stockholder, the "Selling
Stockholders") propose to sell to the several international underwriters named
in Schedule I hereto (the "International Underwriters"), for whom you are acting
as representatives (the "International Representatives"), an aggregate of
1,637,440 shares of Common Stock, $.01 par value (the "Common Stock," being
hereinafter called the "International Underwritten Securities") of The Corporate
Executive Board Company, a Delaware corporation (the "Company"). The Principal
Selling Stockholder also proposes to grant to the International Underwriters,
together with the U.S. Underwriters, options to purchase up to an aggregate of
1,228,080 additional shares of Common Stock to cover over-allotments (the
"International Option Securities"; the International Option Securities, together
with the International Underwritten Securities, being hereinafter called the
"International Securities"). The shares of Common Stock to be sold by the Other
Selling Stockholders hereunder (the "Exercise Shares") shall be issued by the
Company to the Other Selling Stockholders pursuant to the exercise
- -----------
/a/ Plus an option to purchase from the Principal Selling Stockholder
up to 1,228,080 additional International Securities to cover over-allotments.
<PAGE>
2
of certain options (the "Selling Stockholder Options").
It is understood that the Company and the Selling Stockholders are
concurrently entering into the U.S. Underwriting Agreement dated the date hereof
(the "U.S. Underwriting Agreement") providing for the sale by the Selling
Stockholders of an aggregate of 6,549,760 shares of Common Stock (said shares
to be sold by the Selling Stockholders pursuant to the U.S. Underwriting
Agreement being hereinafter called the "U.S. Underwritten Securities"), in the
United States and Canada through arrangements with certain underwriters in the
United States and Canada (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 "U.S. Representatives"), and providing for the grant to the
U.S. Underwriters, together with the International Underwriters, of options to
purchase from the Principal Selling Stockholder up to an aggregate of 1,228,080
additional shares of Common Stock (the "U.S. Option Securities"; the U.S. Option
Securities, together with the U.S. Underwritten Securities, being hereinafter
called the "U.S. Securities," and the U.S. Securities, together with the
International Securities being hereinafter called the "Securities").
It is further understood and agreed that the U.S. Underwriters and the
International Underwriters have entered into an Agreement Between U.S.
Underwriters and International Underwriters dated the date hereof (the
"Agreement Between U.S. Underwriters and International Underwriters"), pursuant
to which, among other things, the International Underwriters may purchase from
the U.S. Underwriters a portion of the U.S. Securities to be sold pursuant to
the U.S. Underwriting Agreement and the U.S. Underwriters may purchase from the
International Underwriters a portion of the International Securities to be sold
pursuant to this International Underwriting Agreement.
To the extent there are no additional International Underwriters
listed on Schedule I other than you, the term International Representatives as
used herein shall mean you, as International Underwriters, and the terms
International Representatives and International Underwriters shall mean either
the singular or plural as the context requires. In addition, to the extent that
there is not more than one Selling Stockholder named in Schedule II, the term
Selling Stockholders shall mean the singular. The use of the neuter in this
Agreement shall include the feminine and masculine wherever appropriate.
Certain terms used in this International Underwriting Agreement are defined in
Section 17 hereof.
1. Representations and Warranties.
-------------------------------
(i) The Company represents and warrants to, and agrees with, each
International Underwriter as set forth below in this Section 1.
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (file
number 333-59833) on Form S-1, including related preliminary prospectuses,
for registration under the Act of the offering and sale of the Securities.
The Company may have filed one or more amendments thereto, including the
related preliminary prospectuses, each of which has previously been
furnished to you. The Company will next file with the Commission either
(1) prior to the Effective Date of such Registration Statement, a further
amendment to such Registration Statement (including the form of final
prospectuses) or (2) after the Effective Date of such Registration
Statement, final prospectuses in accordance with Rules 430A and 424(b). In
the case of clause (2), the Company has included in such Registration
Statement, as
<PAGE>
3
amended at the Effective Date, all information (other than Rule 430A
Information) required by the Act and the rules thereunder to be included in
such Registration Statement and the Prospectuses. As filed, such amendment
and form of final prospectuses, or such final prospectuses, shall contain
all Rule 430A Information, together with all other such required
information, and, except to the extent the International Representatives
shall agree in writing to a modification, shall be in all substantive
respects in the form furnished to you prior to the Execution Time or, to
the extent not completed at the Execution Time, shall contain only such
specific additional information and other changes (beyond that contained in
the latest Preliminary Prospectuses) as the Company has advised you, prior
to the Execution Time, will be included or made therein.
It is understood that two forms of prospectuses are to be used in
connection with the offering and sale of the Securities: one form of
prospectus relating to the U.S. Securities, which are to be offered and
sold to United States and Canadian Persons, and one form of prospectus
relating to the International Securities, which are to be offered and sold
to persons other than United States and Canadian Persons. The U.S.
Prospectus and the International Prospectus are identical except for the
outside front cover page, the inside front cover page and the outside back
cover page.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectuses are first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as defined in this International
Underwriting Agreement) and on any date on which Option Securities are
purchased, if such date is not the Closing Date (a "settlement date"), each
Prospectus (and any supplements thereto) will, comply in all material
respects with the applicable requirements of the Act and the rules
thereunder; on the Effective Date, the Registration Statement did not or
will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein not misleading; and, on the Effective Date,
each Prospectus, if not filed pursuant to Rule 424(b), will not, and on the
date of any filing pursuant to Rule 424(b) and on the Closing Date and any
settlement date, each Prospectus (together with any supplement thereto)
will not, include any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties
-------- -------
as to the information contained in or omitted from the Registration
Statement, or the Prospectuses (or any supplement thereto) in reliance upon
and in conformity with information furnished in the U.S. Underwriting
Agreement and the International Underwriting Agreement (together, the
"Underwriting Agreements") or in writing to the Company by or on behalf of
any Underwriter through the Representatives specifically for inclusion in
the Registration Statement or the Prospectuses (or any supplement thereto).
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
full corporate power and authority to own or lease, as the case may be, and
to operate its properties and conduct its business as described in the
Prospectuses, and is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction which requires
such qualification, except where the failure to be so qualified would not
reasonably be expected to result in a material adverse effect on the
financial condition, prospects or results of operations of the Company.
<PAGE>
4
(d) The Company's authorized equity capitalization is as set forth in
the Prospectuses; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectuses; the
outstanding shares of Common Stock (including the Securities being sold
under the Underwriting Agreements by the Principal Selling Stockholder)
have been duly authorized and validly issued and are fully paid and
nonassessable and the Securities being sold by the Other Selling
Stockholders will, upon exercise of their options, be validly issued, fully
paid and nonassessable; the Securities being sold by the Selling
Stockholders have been approved for trading on the Nasdaq National Market
subject to official notice of issuance; the certificates for the Securities
are in valid and sufficient form; the holders of outstanding shares of
capital stock of the Company are not entitled to preemptive or other rights
to subscribe for the Securities; and, except as set forth in the
Prospectuses, no options, warrants or other rights to purchase from the
Company, agreements or other obligations of the Company to issue, or rights
to convert any obligations of the Company into or exchange any securities
for, shares of capital stock of or ownership interests in the Company are
outstanding;
(e) There is no franchise, contract or other document of a character
required to be described in the Registration Statement or Prospectuses, or
to be filed as an exhibit thereto, which is not described or filed as
required; and the statements in the Prospectuses under the heading "Certain
Tax Consequences to Non-U.S. Holders" fairly summarize the matters therein
described.
(f) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms.
(g) The Company is not an "investment company" required to be
registered under the Investment Company Act of 1940, as amended.
(h) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required to be obtained by the
Company in connection with the transactions contemplated herein, except
such as have been obtained under the Act, the filing of the Prospectuses
pursuant to Rule 424(b) and such as may be required under the blue sky laws
of any jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters in the manner contemplated herein and in the
Prospectuses.
(i) None of the exercise of the Selling Stockholder Options, the
issue of the Exercise Shares by the Company, the sale of the Securities by
the Selling Stockholders or the fulfillment by the Company and the Selling
Stockholders of the terms hereof will conflict with, result in a breach or
violation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, (i) the charter or by-laws
of the Company; (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which the Company is a
party or bound or to which its property is subject, or (iii) any statute,
law, rule, regulation, judgment, order or decree applicable to the Company
of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any
of its properties (excluding for purposes of this paragraph (i) federal and
state securities laws and regulations).
<PAGE>
5
(j) Except as set forth in the Prospectuses, no holders of securities
of the Company have rights to the registration of such securities under the
Registration Statement.
(k) The consolidated historical financial statements and schedules of
the Company included in the Prospectuses and the Registration Statement
present fairly in all material respects the financial condition, results of
operations and cash flows of the Company as of the dates and for the
periods indicated, comply as to form in all material respects with the
applicable accounting requirements of the Act and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as otherwise noted
therein). The selected financial data, including the data under the column
"1998 Pro Forma", set forth under the caption "Selected Financial Data" in
the Prospectuses and Registration Statement fairly present, on the basis
stated in the Prospectuses and the Registration Statement, the information
included therein.
(l) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or its property is pending or, to the best knowledge of the
Company, threatened that (i) could reasonably be expected to have a
material adverse effect on the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or (ii) could
reasonably be expected to have a material adverse effect on the financial
condition, prospects or results of operations of the Company, whether or
not arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectuses (exclusive of any
supplement thereto).
(m) The Company owns or leases all such properties as are necessary
to the conduct of its operations as presently conducted.
(n) The Company is not in violation or default of (i) any provision
of its charter or bylaws, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which it is a party or
bound or to which its property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or any of its properties, as
applicable, which violation or default could reasonably be expected to have
a material adverse effect on the condition, prospects or results of
operations of the Company.
(o) To the best of the Company's knowledge, Arthur Andersen LLP, who
have certified certain financial statements of the Company and delivered
their report with respect to the audited consolidated financial statements
and schedules included in the Prospectuses, are independent public
accountants with respect to the Company within the meaning of the Act and
the applicable published rules and regulations thereunder.
(p) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
except in any case in which the failure so to file would not reasonably be
expected to have a material adverse effect on the financial condition,
prospects or results of operations of the Company, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto) and has paid all
<PAGE>
6
taxes required to be paid by it as shown on such returns and any other
assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable, except for any such assessment, fine or
penalty that is currently being contested in good faith or as would not
reasonably be expected to have a material adverse effect on the financial
condition, prospects or results of operations of the Company, whether or
not arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectuses (exclusive of any
supplement thereto).
(q) No labor problem or dispute with the employees of the Company
exists or is threatened or imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
principal suppliers, contractors or customers, that could reasonably be
expected to have a material adverse effect on the financial condition,
prospects or results of operations of the Company, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
(r) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the business in which it is engaged; all policies
of insurance insuring the Company or its business, assets, employees,
officers and directors are in full force and effect; the Company is in
compliance with the terms of such policies and instruments in all material
respects; and there are no material claims by the Company under any such
policy or instrument as to which any insurance company is denying liability
or defending under a reservation of rights clause; the Company has not been
refused any insurance coverage sought or applied for; and the Company has
no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not reasonably be expected to have a material adverse
effect on the financial condition, prospects or results of operations of
the Company, whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in the
Prospectuses (exclusive of any supplement thereto).
(s) The Company possesses all licenses, certificates, permits and
other authorizations issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct its business, and the Company
has not received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, could reasonably be expected to have a material
adverse effect on the financial condition, prospects or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in the
Prospectuses (exclusive of any supplement thereto).
(t) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
<PAGE>
7
(u) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(v) The Company has fulfilled its obligations, if any, under the
minimum funding standards of Section 302 of the United States Employee
Retirement Income Security Act of 1974 ("ERISA") and the regulations and
published interpretations thereunder with respect to each "plan" (as
defined in Section 3(3) of ERISA and such regulations and published
interpretations) in which employees of the Company are eligible to
participate and each such plan is in compliance with the presently
applicable provisions of ERISA and such regulations and published
interpretations, except for any failure to fulfill any such obligations, or
failure to comply, that singly or in the aggregate would not reasonably be
expected to have a material adverse effect on the financial condition,
prospects or results of operations of the Company. The Company has not
incurred any unpaid liability to the Pension Benefit Guaranty Corporation
(other than for the payment of premiums in the ordinary course) or to any
such plan under Title IV of ERISA, except for any such liability that would
not reasonably be expected to result in a material adverse effect on the
financial condition, prospects or results of operations of the Company.
(w) Except as set forth in or contemplated by the Registration
Statement and the Prospectuses (or any amendment or supplement thereto),
subsequent to the respective dates as of which such information is given in
the Registration Statement and the Prospectuses (or any amendment or
supplement thereto), (i) the Company has not incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in
the ordinary course of business, that is material to the Company, and (ii)
there has not been any change in the capital stock, or material increase in
the short-term debt or long-term debt, of the Company, or any material
adverse change, or any development having or which may reasonably be
expected to have a material adverse change, on the financial condition,
prospects or results of operations of the Company, whether or not arising
from transactions in the ordinary course of business.
(x) On the Effective Date and at the Execution Time, the material
appearing in the Prospectuses under the caption "Year 2000 Compliance" in
the section titled "Management's Discussion and Analysis of Financial
Condition and Results of Operation" did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein not misleading.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the International Underwriters in connection
with the offering of the Securities shall be deemed a representation and
warranty by the Company, as to matters covered thereby, to each International
Underwriter.
<PAGE>
8
(ii) Each Selling Stockholder represents and warrants to, and agrees
with, each International Underwriter that:
(a) This Agreement has been duly executed and delivered by such
Selling Stockholder and constitutes a valid and binding obligation of such
Selling Stockholder enforceable in accordance with its terms.
(b) Such Selling Stockholder is, or in the case of the Other Selling
Stockholders, will be upon the exercise of their options, the lawful owner
of the International Securities to be sold by such Selling Stockholder
under this International Underwriting Agreement and upon sale and delivery
of, and payment for, such International Securities, as provided in this
International Underwriting Agreement, such Selling Stockholder will convey
to the Underwriters title to such International Securities, free and clear
of all liens, encumbrances, equities and claims whatsoever.
(c) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the International Securities.
(d) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such
Selling Stockholder of the transactions contemplated in this International
Underwriting Agreement, except such as may have been obtained under the
Act, the filing of the Prospectus pursuant to Rule 424(b) and such as may
be required under the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the International Securities by the
International Underwriters and such other approvals as have been obtained.
(e) Neither the sale of the International Securities being sold by
the International Underwriters by such Selling Stockholder nor the
consummation of any other of the transactions in this International
Underwriting Agreement contemplated by such Selling Stockholder or the
fulfillment of the terms hereof by such Selling Stockholder will conflict
with, result in a breach or violation of, or constitute a default under any
law or the terms of any indenture or other agreement or instrument to which
such Selling Stockholder is a party or bound, or any judgment, order or
decree applicable to such Selling Stockholder of any court, regulatory
body, administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Stockholder.
(iii) The Principal Selling Stockholder represents and warrants to,
and agrees with, each International Underwriter that except as set forth in the
Prospectuses, no options, warrants or other rights to purchase from the
Principal Selling Stockholder, or agreements or other obligations of the
Principal Selling Stockholder to issue shares of capital stock of or ownership
interests in the Company are outstanding.
Any certificate signed by any Selling Stockholder and delivered to the
Representatives or counsel for the Underwriters in connection with the offering
of the Securities shall be deemed a representation and warranty by such Selling
Stockholder, as to matters covered thereby, to each International Underwriter.
<PAGE>
9
2. Purchase and Sale. (a) Subject to the terms and conditions and
------------------
in reliance upon the representations and warranties set forth in this
International Underwriting Agreement, each Selling Stockholder agrees, severally
and not jointly, to sell to the International Underwriters the number of
International Underwritten Securities set forth opposite the name of such
Selling Stockholder in Schedule II hereto and each International Underwriter
agrees, severally and not jointly, to purchase from the Selling Stockholders, at
a purchase price of $[ ] per share, the number of the International
Underwritten Securities set forth opposite such International Underwriter's name
in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties set forth in this International Underwriting
Agreement, the Principal Selling Stockholder hereby grants an option to the
several International Underwriters to purchase, severally and not jointly, up to
an aggregate of [ ] International Option Securities at the same
purchase price of [ ] per share as the International Underwriters shall pay
for the International Underwritten Securities. Said option may be exercised
only to cover over-allotments in the sale of the International Underwritten
Securities by the International Underwriters. Said option may be exercised in
whole or in part at any time (but not more than once) on or before the 30th day
after the date of the International Prospectus upon written or telegraphic
notice by the International Representatives to the Company and the Principal
Selling Stockholder setting forth the number of shares of the International
Option Securities as to which the several International Underwriters are
exercising the option and the settlement date. The number of International
Option Securities to be purchased by each International Underwriter shall be the
same percentage of the total number of shares of the International Option
Securities to be purchased by the several International Underwriters as such
International Underwriter is purchasing of the International Underwritten
Securities, subject to such adjustments as you in your absolute discretion shall
make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
---------------------
International Underwritten Securities and the International Option Securities
(if the option provided for in Section 2(b) hereof shall have been exercised on
or before the third Business Day prior to the Closing Date) shall be made at
10:00 AM, New York City time, on [ ] , 1999, or at such time on such
later date not more than three Business Days after the foregoing date as the
International Representatives and the U.S. Representatives shall designate,
which date and time may be postponed by agreement among the International
Representatives, the U.S. Representatives, the Selling Stockholders and the
Company or as provided in Section 9 hereof (such date and time of delivery and
payment for the International Securities being called in this International
Underwriting Agreement the "Closing Date"). Delivery of the International
Securities shall be made to the International Representatives for the respective
accounts of the several International Underwriters against payment by the
several International Underwriters through the International Representatives of
the respective purchase prices of the International Securities being sold by
each of the Selling Stockholders to or upon the order of the Selling
Stockholders by wire transfer payable in same-day funds to the accounts
specified by the Selling Stockholders. Delivery of the International
Underwritten Securities and the International Option Securities shall be made
through the facilities of The Depository Trust Company unless the International
Representatives shall otherwise instruct.
Each Selling Stockholder will pay all applicable state transfer taxes,
if any, involved in the transfer to the several International Underwriters of
the International Securities to be purchased by them from such Selling
Stockholder and the respective International Underwriters will pay any
additional stock transfer taxes involved in further transfers.
<PAGE>
10
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Selling Stockholders will
deliver the International Option Securities (at the expense of the Company) to
the International Representatives, at 388 Greenwich Street, New York, New York,
on the date specified by the International Representatives (which shall be
within three Business Days after exercise of said option) certificates for the
International Option Securities in such name and denomination as the
International Representatives shall have requested for the respective accounts
of the several International Underwriters, against payment by the several
International Underwriters through the International Representatives of the
purchase price thereof to or upon the order of the Selling Stockholders by wire
transfer payable in same-day funds to the accounts specified by the Selling
Stockholders. If settlement for the International Option Securities occurs
after the Closing Date, the Selling Stockholders will deliver to the
International Representatives on the settlement date for the International
Option Securities, and the obligation of the International Underwriters to
purchase the International Option Securities shall be conditioned upon receipt
of, supplemental opinions, certificates and letters confirming as of such date
the opinions, certificates and letters delivered on the Closing Date pursuant to
Section 6 hereof.
It is understood and agreed that the Closing Date shall occur
simultaneously with the "Closing Date" under the U.S. Underwriting Agreement,
and that the settlement date, if any, shall occur simultaneously with the
"settlement date" under the U.S. Underwriting Agreement.
4. Offering by Underwriters. It is understood that the several
-------------------------
International Underwriters propose to offer the International Securities for
sale to the public as set forth in the International Prospectus.
5. Agreements.
-----------
(i) The Company agrees with the several International Underwriters
that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereto, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectuses or any Rule 462(b) Registration
Statement unless the Company has furnished you a copy for your review prior
to filing and will not file any such proposed amendment or supplement to
which you reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectuses is otherwise required under Rule
424(b), the Company will cause the Prospectuses, properly completed, and
any supplement thereto to be filed with the Commission, or transmitted by a
means reasonably calculated to result in filing with the Commission,
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the International
Representatives of such timely filing. The Company will promptly advise
the International Representatives (1) when the Registration Statement, if
not effective at the Execution Time, and any amendment thereto, shall have
become effective, (2) when the Prospectuses, and any supplement thereto,
shall have been filed (if required) with the Commission pursuant to Rule
424(b) or when any Rule 462(b) Registration Statement shall have been filed
with the Commission, (3) when, prior to termination of the offering of the
Securities, any amendment to the Registration Statement shall have been
filed or become effective, (4) of any request by the Commission or its
staff for any amendment of the Registration
<PAGE>
11
Statement, or any Rule 462(b) Registration Statement, or for any supplement
to the Prospectuses or for any additional information, (5) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding
for that purpose and (6) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the institution or threatening of any
proceeding for such purpose. The Company will use its best efforts to
prevent the issuance of any such stop order or the suspension of any such
qualification and, if issued, to obtain as soon as possible the withdrawal
thereof.
(b) If, at any time prior to the expiration of nine months from the
date hereof when a prospectus relating to the Securities is required to be
delivered under the Act in connection with the offering of the U.S.
Securities, any event occurs as a result of which the Prospectuses as then
supplemented would include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein in the
light of the circumstances under which they were made not misleading, or if
it shall be necessary to amend the Registration Statement or supplement
either of the Prospectuses to comply with the Act or the rules thereunder,
the Company promptly will (1) notify the International Representatives of
any such event; (2) prepare and file with the Commission, subject to the
second sentence of paragraph (i)(a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect such
compliance; and (3) supply any supplemented Prospectuses to you in such
quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the International Representatives an
earnings statement or statements of the Company which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the International Representatives and
counsel for the International Underwriters, without charge, signed copies
of the Registration Statement (including exhibits thereto) and to each
other International Underwriter a copy of the Registration Statement
(without exhibits thereto) and, so long as delivery of a prospectus by an
International Underwriter or dealer may be required by the Act as many
copies of each International Preliminary Prospectus and the International
Prospectus and any supplement thereto as the International Representatives
may reasonably request.
(e) The Company will arrange, if necessary, for the qualification of
the Securities for sale under the laws of such jurisdictions as the
International Representatives may reasonably designate, will maintain such
qualifications in effect so long as required for the distribution of the
Securities; provided that in no event shall the Company be obligated to
--------
qualify to do business in any jurisdiction where it is not now so qualified
or to take any action that would subject it to service of process in suits,
other than those arising out of the offering or sale of the Securities, in
any jurisdiction where it is not now so subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney Inc., for a period of 180 days following the Execution
Time, offer, sell or contract to sell or otherwise dispose of (or enter
into any transaction which is designed to, or might reasonably be expected
to, result in the disposition (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise) by the Company or
any
<PAGE>
12
affiliate of the Company or any person in privity with the Company or any
affiliate of the Company) directly or indirectly, or announce the offering
of, or file a Registration Statement with the Commission in respect of, any
other shares of Common Stock or any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock; provided, however,
-------- -------
that the Company may file one or more registration statements on Form S-8
and may issue and sell Common Stock or make any awards pursuant to any
employee stock option plan, stock ownership plan or dividend reinvestment
plan of the Company in effect at the Execution Time and the Company may
issue Common Stock issuable upon the conversion of securities or the
exercise of warrants outstanding at the Execution Time, and the Company may
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 or the acquisition of
assets or properties thereof, provided, that the holders of any such
--------
securities shall be subject to the transfer restrictions set forth in
Section 5(iv) of (a) hereof.
(g) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and
filing with the Commission of the Registration Statement (including
financial statements and exhibits thereto), each Preliminary Prospectus,
each Prospectus, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage and air freight
charges) of such copies of the Registration Statement, each Preliminary
Prospectus, each Prospectus, and all amendments or supplements to any of
them, as may, in each case, be reasonably requested for use in connection
with the offering and sale of the Securities; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the
Securities, including any stamp or transfer taxes in connection with the
issuance of the Exercise Shares or the sale of the Securities by the
Selling Stockholders; (iv) the printing (or reproduction) and delivery of
the U.S. Underwriting Agreement and this International Underwriting
Agreement, any blue sky memorandum and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of
the Securities; (v) the registration of the Securities under the Exchange
Act and the listing of the Securities on the Nasdaq National Market; (vi)
any registration or qualification of the Securities for offer and sale
under the securities or blue sky laws of the several states (including
filing fees); (vii) any filings required to be made with the National
Association of Securities Dealers, Inc. (including filing fees and the
reasonable fees and expenses of counsel for the Underwriters relating to
such filings); (viii) the transportation and other expenses incurred by or
on behalf of Company representatives in connection with presentations to
prospective purchasers of the Securities; (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local
and special counsel) for the Company and the Selling Stockholders; and (x)
all other costs and expenses incident to the performance by the Company and
the Selling Stockholders of their obligations under the Underwriting
Agreements.
(ii) Each International Underwriter agrees that (a) it is not
purchasing any of the International Securities for the account of any United
States or Canadian Person, (b) it has not offered or sold, and will not offer or
sell, directly or indirectly, any of the International Securities
<PAGE>
13
or distribute any International Prospectus to any person in the United States or
Canada, or to any United States or Canadian Person, and (c) any dealer to whom
it may sell any of the International Securities will represent that it is not
purchasing for the account of any United States or Canadian Person and agree
that it will not offer or resell, directly or indirectly, any of the
International Securities in the United States or Canada, or to any United States
or Canadian Person or to any other dealer who does not so represent and agree;
provided, however, that the foregoing shall not restrict (1) purchases and sales
- -------- -------
between the U.S. Underwriters on the one hand and the International Underwriters
on the other hand pursuant to the Agreement Between U.S. Underwriters and
International Underwriters, (2) stabilization transactions contemplated under
the Agreement Between U.S. Underwriters and International Underwriters,
conducted through Salomon Smith Barney Inc. (or through the U.S. Representatives
and International Representatives) as part of the distribution of the
Securities, and (3) sales to or through (or distributions of International
Prospectuses or International Preliminary Prospectuses to) persons not United
States or Canadian Persons who are investment advisors, or who otherwise
exercise investment discretion, and who are purchasing for the account of any
United States or Canadian Person.
(iii) The agreements of the International Underwriters set forth in
paragraph (ii) of this Section 5 shall terminate upon the earlier of the
following events:
(a) a mutual agreement of the U.S. Representatives and the
International Representatives to terminate the selling restrictions set
forth in paragraph (ii) of this Section 5 and in Section 5(ii) of the U.S.
Underwriting Agreement; or
(b) the expiration of a period of 30 days after the Closing Date,
unless (1) the International Representatives shall have given notice to the
Company and the U.S. Representatives that the distribution of the
International Securities by the International Underwriters has not yet been
completed, or (2) the U.S. Representatives shall have given notice to the
Company and the International Underwriters that the distribution of the
U.S. Securities by the U.S. Underwriters has not yet been completed. If
such notice by the U.S. Representatives or the International
Representatives is given, the agreements set forth in such paragraph (ii)
shall survive until the earlier of (A) the event referred to in clause (a)
of this subsection (iii) or (B) the expiration of an additional period of
30 days from the date of any such notice.
(iv) Each International Underwriter severally represents and agrees
that:
(a) it has not offered or sold and, prior to six months from the
Closing Date, will not offer or sell in the United Kingdom any
International Securities other than to persons whose ordinary activities
involve them in acquiring, holdings, managing or disposing of investments,
(whether as principal or agent) for the purpose of their business or in
circumstances which an offer to the public within the meaning of the Public
Offers of Securities Regulations 1995;
(b) it has complied and will comply with all applicable provisions of
The Financial Services Act 1986 with respect to anything done by it in
relation to the International Securities, in, from or otherwise involving
the United Kingdom; and
(c) it has only issued or passed on and will only issue or pass on to
any person in the United Kingdom any document received by it in connection
with the issue of the
<PAGE>
14
International Securities if that person is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or a person to whom the document may otherwise
lawfully be issued or passed on.
(v) Each Selling Stockholder agrees with the several International
Underwriters that:
(a) Each Selling Stockholder will not, without the prior written
consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, or file (or participate in
the filing of) a registration statement with the Commission in respect of,
or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Exchange
Act with respect to, any shares of Common Stock of the Company or any
securities convertible into or exercisable or exchangeable for such Common
Stock, or publicly announce an intention to effect any such transaction,
for a period of 180 days after the date of this International Underwriting
Agreement, other than sales, transfers or other distributions in
transactions that are not required to be registered under the Act,
including charitable contributions, gifts and sales to third parties,
provided that the transferee agrees to be bound by a restriction on further
--------
transfers substantially similar to the restriction set forth in this
Section 5(v)(a).
(b) Such Selling Stockholder will not take any action designed to or
which has constituted or which might reasonably be expected to cause or
result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
(c) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, so long as delivery
of a prospectus relating to the Securities by an underwriter or dealer may
be required under the Act, of any change in information in the Registration
Statement or the Prospectuses relating to such Selling Stockholder.
6. Conditions to the Obligations of the International Underwriters.
----------------------------------------------------------------
The obligations of the International Underwriters to purchase the International
Underwritten Securities and the International Option Securities, as the case may
be, shall be subject to the accuracy of the representations and warranties on
the part of the Company and the Selling Stockholders contained in this
International Underwriting Agreement as of the Execution Time, the Closing Date
and any settlement date pursuant to Section 3 hereof, to the accuracy of the
statements of the Company and the Selling Stockholders made in any certificates
pursuant to the provisions hereof, to the performance by the Company and the
Selling Stockholders of their respective obligations under this International
Underwriting Agreement and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the U.S. Representatives and the International
Representatives agree in writing to a later time, the Registration Statement
will become effective not later than (i) 6:00 PM New York City time on the date
of determination of the public offering price, if such determination occurred at
or prior to 3:00 PM New York City time on such date or (ii) 9:30 AM on the
Business Day following the day on which the public offering price was
determined, if such determination occurred after 3:00 PM New York City time on
such date; if filing of the Prospectuses, or any supplement thereto, is required
pursuant to Rule 424(b), the Prospectuses, and any such
<PAGE>
15
supplement, will be filed, or transmitted by a means reasonably calculated to
result in filing with the Commission, in the manner and within the time period
required by Rule 424(b); and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened by the Commission.
(b) The Company shall have caused Gibson, Dunn & Crutcher LLP,
counsel for the Company, to have furnished to the International Representatives
their opinion, dated the Closing Date and addressed to the International
Representatives to the effect set forth in the U.S. Underwriting Agreement under
Section 6(b).
(c) The Selling Stockholders shall have caused Covington & Burling,
counsel for the Selling Stockholders, to have furnished to the International
Representatives their opinion dated the Closing Date and addressed to the
International Representatives, to the effect set forth in the U.S. Underwriting
Agreement under Section 6(c).
(d) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the Closing
Date and addressed to the Representatives, with respect to the issuance and sale
of the Securities, the Registration Statement, the Prospectuses (together with
any supplement thereto) and other related matters as the Representatives may
reasonably require, and the Company and each Selling Stockholder shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board and the
President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectuses, any supplements
to the Prospectuses and the Underwriting Agreements and that:
(i) the representations and warranties of the Company in this
International Underwriting Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as if made on
the Closing Date and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened; and
(iii) since the date of the most recent financial statements included
in the Prospectuses (exclusive of any supplement thereto), there has been
no material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, whether or not
arising from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
(f) Each Selling Stockholder shall have furnished to the
Representatives a certificate, signed by such Selling Stockholder, dated the
Closing Date, to the effect that (i) the signer of such certificate has
carefully examined the Registration Statement, the Prospectuses, any supplement
to either of the Prospectuses and the U.S. Underwriting Agreement and this
<PAGE>
16
International Underwriting Agreement, (ii) the representations and warranties of
each Selling Stockholder in the U.S. Underwriting Agreement and this
International Underwriting Agreement are true and correct in all material
respects on and as of the Closing Date to the same effect as if made on the
Closing Date and (iii) the Selling Stockholder has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date.
(g) The Company shall have caused Arthur Andersen LLP to have
furnished to the Representatives letters, at the Execution Time and at the
Closing Date, dated respectively as of the Execution Time and as of the Closing
Date, in form and substance satisfactory to the Representatives, to the effect
set forth in Section 6(g) of the U.S. Underwriting Agreement.
(h) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectuses (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraph (g) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the financial
condition or results of operations of the Company whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectuses (exclusive of any supplement thereto) the
effect of which, in any case referred to in clause (i) or (ii) above, is, in the
sole judgment of the International Representatives, so material and adverse as
to make it impractical or inadvisable to proceed with the offering or delivery
of the International Securities as contemplated by the Registration Statement
(exclusive of any amendment thereof) and the Prospectuses (exclusive of any
supplement thereto).
(i) The closing of the purchase of the U.S. Securities pursuant to
the U.S. Underwriting Agreement shall occur concurrently with the closing
described herein.
(j) The Securities shall have been listed and admitted and authorized
for trading on the Nasdaq National Market, and satisfactory evidence of such
actions shall have been provided to the Representatives.
(k) On or prior to the Execution Time, the National Association of
Securities Dealers, Inc. shall have approved the Underwriters' participation in
the distribution of the Securities to be sold by the Selling Stockholders.
(l) At the Execution Time, the Company shall have furnished to the
Representatives a letter substantially in the form of Exhibit A hereto from each
executive officer and director of the Company addressed to the Representatives
[24 recipients of special bonus to be locked up also].
(m) Prior to the Closing Date, the Company and the Selling
Stockholders shall have furnished to the Representatives such further
information, certificates and documents as the Representatives may reasonably
request.
(n) The Representatives shall be reasonably satisfied with the terms
of all stockholders agreements and other agreements between the Company and its
stockholders that (i) have not been received by or made available to the
Representatives prior to the Execution Time, (ii) are entered into after the
Execution Time or (iii) are amended after the Execution Time.
<PAGE>
17
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in the U.S.
Underwriting Agreement and this International Underwriting Agreement, or if any
of the opinions and certificates mentioned above or elsewhere in this
International Underwriting Agreement shall not be in all material respects
reasonably satisfactory in form and substance to the International
Representatives and counsel for the Underwriters, this International
Underwriting Agreement and all obligations of the International Underwriters
under this International Underwriting Agreement may be canceled at, or at any
time prior to, the Closing Date by the International Representatives. Notice of
such cancelation shall be given to the Company and each Selling Stockholder in
writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019,
on the Closing Date.
7. Reimbursement of International Underwriters' Expenses. If the
------------------------------------------------------
sale of the International Securities provided for in this International
Underwriting Agreement is not consummated because any condition to the
obligations of the International Underwriters set forth in Section 6 hereof is
not satisfied, because of any termination pursuant to Section 10(i) hereof or
because of any refusal, inability or failure on the part of the Company or any
Selling Stockholder to perform any agreement in this International Underwriting
Agreement or comply with any provision hereof other than by reason of a default
by any of the International Underwriters, the Company will reimburse the
International Underwriters severally through Salomon Smith Barney Inc. on demand
for all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the proposed
purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
---------------------------------
indemnify and hold harmless each International Underwriter, the directors,
officers, employees and agents of each International Underwriter and each person
who controls any International Underwriter within the meaning of either the Act
or the Exchange Act against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the Act,
the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement for the registration of the Securities as originally
filed or in any amendment thereof, or in any U.S. or International Preliminary
Prospectus or in either of the Prospectuses, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any International Underwriter through the
International Representatives specifically for inclusion therein. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
<PAGE>
18
(b) Each Selling Stockholder severally agrees to indemnity and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, each International Underwriter, the directors, officers,
employees and agents of each International Underwriter and each person who
controls the Company or any Underwriter within the meaning of either the Act or
the Exchange Act and each other Selling Stockholder, if any, to the same extent
as the foregoing indemnity from the Company to each Underwriter, but only with
reference to written information furnished to the Company by or on behalf of
such Selling Stockholder specifically for inclusion in the documents referred to
in the foregoing indemnity. This indemnity agreement will be in addition to any
liability which any Selling Stockholder may otherwise have.
(c) Each International Underwriter severally and not jointly agrees
to indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement, and each person who controls the
Company within the meaning of either the Act or the Exchange Act and each
Selling Stockholder, to the same extent as the foregoing indemnity to each
International Underwriter, but only with reference to written information
relating to such International Underwriter furnished to the Company by or on
behalf of such International Underwriter through the International
Representatives specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any International Underwriter may otherwise have. The Company
and each Selling Stockholder acknowledge that the statements set forth in the
last paragraph of the cover page regarding delivery of the International
Securities, the legend in block capital letters on page 2 related to
stabilization, syndicate covering transactions and penalty bids and, under the
heading "Underwriting", (i) the sentences related to concessions and
reallowances and (ii) the paragraph related to stabilization, syndicate covering
transactions and penalty bids in any U.S. or International Preliminary
Prospectus and the Prospectuses constitute the only information furnished in
writing by or on behalf of the several International Underwriters for inclusion
in any U.S. or International Preliminary Prospectus or the Prospectuses.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a), (b) or (c) above unless and to the extent it did
not otherwise learn of such action and such failure results in the forfeiture by
the indemnifying party of substantial rights and defenses and (ii) will not, in
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a), (b) or (c) above. The indemnifying party shall be entitled to
appoint counsel of the indemnifying party's choice at the indemnifying party's
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
- -------- -------
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the
<PAGE>
19
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought under this International
Underwriting Agreement (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(e) In the event that the indemnity provided in paragraph (a), (b) or
(c) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Selling Stockholders and
the International Underwriters severally agree to contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending the same)
(collectively "Losses") to which the Company, each of the Selling Stockholders
and one or more of the International Underwriters may be subject in such
proportion as is appropriate to reflect the relative fault of the Company, each
of the Selling Stockholders and the International Underwriters in connection
with the statements or omissions which resulted in such Losses as well as any
other relevant equitable considerations; provided, however, that in no case
-------- -------
shall any International Underwriter (except as may be provided in any agreement
among underwriters relating to the offering of the International Securities) be
responsible for any amount in excess of the underwriting discount or commission
applicable to the Securities purchased by such International Underwriter.
Relative fault shall be determined by reference to, among other things, whether
any untrue or any alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information provided by the
Company, the Selling Stockholders or the International Underwriters, the intent
of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
Company, the Selling Stockholders and the International Underwriters agree that
it would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (e), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls an International Underwriter within the
meaning of either the Act or the Exchange Act and each director, officer,
employee and agent of an International Underwriter shall have the same rights to
contribution as such International Underwriter, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each officer
of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (e).
(f) The liability of each Selling Stockholder under such Selling
Stockholder's representations and warranties contained in Section 1 hereof and
under the indemnity and contribution agreements contained in this Section 8
shall be limited to an amount equal to the initial public offering price of the
International Securities sold by such Selling Stockholder to the International
Underwriters.
<PAGE>
20
9. Default by an International Underwriter. If any one or more
----------------------------------------
International Underwriters shall fail to purchase and pay for any of the
International Securities agreed to be purchased by such International
Underwriter or International Underwriters under this International Underwriting
Agreement and such failure to purchase shall constitute a default in the
performance of its or their obligations under this International Underwriting
Agreement, the remaining International Underwriters shall be obligated severally
to take up and pay for (in the respective proportions which the amount of
International Securities set forth opposite their names in Schedule I hereto
bears to the aggregate amount of International Securities set forth opposite the
names of all the remaining International Underwriters) the International
Securities which the defaulting International Underwriter or International
Underwriters agreed but failed to purchase; provided, however, that in the event
-------- -------
that the aggregate amount of International Securities which the defaulting
International Underwriter or International Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of International Securities
set forth in Schedule I hereto, the remaining International Underwriters shall
have the right to purchase all, but shall not be under any obligation to
purchase any, of the International Securities, and if such nondefaulting
International Underwriters do not purchase all the International Securities,
this International Underwriting Agreement will terminate without liability to
any nondefaulting International Underwriter, the Selling Stockholders or the
Company. In the event of a default by any International Underwriter as set
forth in this Section 9, the Closing Date shall be postponed for such period,
not exceeding five Business Days, as the International Representatives shall
determine in order that the required changes in the Registration Statement and
the Prospectuses or in any other documents or arrangements may be effected.
Nothing contained in this International Underwriting Agreement shall relieve any
defaulting International Underwriter of its liability, if any, to the Company,
the Selling Stockholders and any nondefaulting International Underwriter for
damages occasioned by its default under this International Underwriting
Agreement.
10. Termination. This International Underwriting Agreement shall be
------------
subject to termination in the absolute discretion of the International
Representatives, by notice given to the Company prior to delivery of and payment
for the International Securities, if at any time prior to such time (i) trading
in the Company's Common Stock shall have been suspended by the Commission, (ii)
the Nasdaq National Market or trading in securities generally on the New York
Stock Exchange or the Nasdaq National Market shall have been suspended or
limited or minimum prices shall have been established on such Exchange or
National Market, (iii) a banking moratorium shall have been declared either by
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities, declaration by the United States of a
national emergency or war, or other calamity or crisis the effect of which on
financial markets is such as to make it, in the sole judgment of the
International Representatives, impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the International
Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of each Selling Stockholder and of the International
Underwriters set forth in or made pursuant to this International Underwriting
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any International Underwriter, any Selling Stockholder
or the Company or any of the officers, directors or controlling persons referred
to in Section 8 hereof, and will survive delivery of and payment for the
International Securities. The provisions of Sections 7 and 8 hereof shall
survive the termination or cancelation of this International Underwriting
Agreement.
<PAGE>
21
12. Notices. All communications under this International
--------
Underwriting Agreement will be in writing and effective only on receipt, and, if
sent to the International Representatives, will be mailed, delivered or
telefaxed to the Salomon Brothers International Limited, General Counsel (fax
no.: ( ) ) and confirmed to such General Counsel at Salomon Brothers
International Limited, Victoria Plaza, 111 Buckingham Palace Road, London SW1W
0SB ENGLAND, Attention: General Counsel; or, if sent to the Company or any
Selling Stockholder, will be mailed, delivered or telefaxed to (202) 672-5700
and confirmed to it at The Watergate, 600 New Hampshire Avenue, N.W.,
Washington, D.C. 20037, Attention: Legal Department.
13. Successors. This International Underwriting Agreement will inure
-----------
to the benefit of and be binding upon the parties hereto and their respective
successors and the officers and directors and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation under
this International Underwriting Agreement.
14. Applicable Law. This International Underwriting Agreement will
---------------
be governed by and construed in accordance with the laws of the State of New
York applicable to contracts made and to be performed within the State of New
York.
15. Counterparts. This International Underwriting Agreement may be
------------
signed in one or more counterparts, each of which shall constitute an original
and all of which together shall constitute one and the same agreement.
16. Headings. The section headings used in this International
---------
Underwriting Agreement are for convenience only and shall not affect the
construction hereof.
17. Definitions. The terms which follow, when used in this
------------
International Underwriting Agreement, shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Agreement Between U.S. Underwriters and International Underwriters"
shall mean the Agreement Between U.S. Underwriters and International
Underwriters dated the date hereof.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
State ment, any post-effective amendment or amendments thereto and any
Rule 462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this International
Underwriting Agreement is executed and delivered by the parties hereto.
<PAGE>
22
"International Preliminary Prospectus" shall have the meaning set
forth under "U.S. Preliminary Prospectus."
"International Prospectus" shall mean such form of prospectus relating
to the International Securities as first filed pursuant to Rule 424(b)
after the Execution Time or, if no filing pursuant to Rule 424(b) is made,
such form of prospectus included in the Registration Statement at the
Effective Date.
"International Representative" shall mean the addressees of the
International Underwriting Agreement.
"International Securities" shall mean the International Underwritten
Securities and the International Option Securities.
"International Underwriters" shall mean the several underwriters named
in Schedule I to the International Underwriting Agreement.
"International Underwriting Agreement" shall mean this agreement
relating to the sale of the International Securities by the Selling
Stockholders to the International Underwriters.
"Losses" shall have the meaning set forth in 8(e).
"Option Securities" shall mean the U.S. Option Securities and the
International Option Securities.
"Other Selling Stockholders" shall mean all Selling Stockholders
listed in Schedule II other than David G. Bradley.
"Preliminary Prospectus" shall have the meaning set forth under "U.S.
Preliminary Prospectus."
"Principal Selling Stockholder" shall mean David G. Bradley.
"Prospectuses" and "each Prospectus" shall mean the U.S. Prospectus
and the International Prospectus.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(i)(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Representatives" shall mean the U.S. Representatives and the
International Representatives.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
<PAGE>
23
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a)(i) hereof.
"Securities" shall mean the U.S. Securities and the International
Securities.
"Selling Stockholders" shall mean the persons named on Schedule II to
the U.S. Underwriting Agreement and the International Underwriting
Agreement.
"Underwriter" and "Underwriters" shall mean the U.S. Underwriters and
the International Underwriters.
"Underwriting Agreements" still mean the U.S. Underwriting Agreement
and the International Underwriting Agreement.
"U.S. Preliminary Prospectus" and the "International Preliminary
Prospectus", respectively, shall mean any preliminary prospectus with
respect to the offering of the U.S. Securities and the International
Securities, as the case may be, referred to in paragraph 1(i)(a) above and
any preliminary prospectus with respect to the offering of the U.S.
Securities and the International Securities, as the case may be, included
in the Registration Statement at the Effective Date that omits Rule 430A
Information; and the U.S. Preliminary Prospectus and the International
Preliminary Prospectus are hereinafter collectively called the "Preliminary
Prospectuses".
"U.S. Prospectus" shall mean the prospectus relating to the Securities
that is first filed pursuant to Rule 424(b) after the Execution Time or, if
no filing pursuant to Rule 424(b) is required, shall mean the form of final
prospectus relating to the Securities included in the Registration
Statement at the Effective Date.
"U.S. Representatives" shall mean the addressees of the U.S.
Underwriting Agreement.
"U.S. Securities" shall mean the U.S. Underwritten Securities and the
U.S. Option Securities.
"U.S. Underwriting Agreement" shall mean the U.S. Underwriting
Agreement dated the date hereof related to the sale of the U.S. Securities
by the Selling Stockholders to the U.S. Underwriters.
"U.S. Underwriters" shall mean the several underwriters named in
Schedule I to the U.S. Underwriting Agreement.
"United States or Canadian Person" shall mean any person who is a
national or resident 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 of any political subdivision thereof, or any
estate or trust the income of which is subject to United States
<PAGE>
24
or Canadian Federal income taxation, regardless of its source (other than
any non-United States or non-Canadian branch of any United States or
Canadian Person), and shall include any United States or Canadian branch of
a person other than a United States or Canadian Person.
"U.S." or "United States" shall mean the United States of America
(including the states thereof and the District of Columbia), its
territories, its possessions and other areas subject to its jurisdiction.
"Year 2000 Problem" shall have the meaning set forth in 1(i)(y).
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several International Underwriters.
Very truly yours,
The Corporate Executive Board Company
By:_____________________________
Name:
Title:
_____________________________
David G. Bradley
The David G. Bradley GRAT Trust Number 1
By:_____________________________
Name:
Title:
_____________________________
Michael A. D'Amato
_____________________________
Jeffrey D. Zients
<PAGE>
25
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers International Limited
Donaldson, Lufkin & Jenrette International
Friedman, Billings, Ramsey International, Ltd.
Goldman Sachs International
By: Salomon Brothers International Limited
By:
_____________________________
Name:
Title:
For themselves and the other
several International Underwriters
named in Schedule I to the foregoing
Agreement.
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
NUMBER OF INTERNATIONAL
UNDERWRITTEN SECURITIES TO BE
UNDERWRITERS PURCHASED
- ------------ -----------------------------
<S> <C>
Salomon Brothers International Limited..........................................
Donaldson, Lufkin & Jenrette International......................................
Friedman, Billings, Ramsey International, Ltd. .................................
Goldman Sachs International.....................................................
-----------------
Total...................................................................
=================
</TABLE>
<PAGE>
SCHEDULE II
-----------
<TABLE>
<CAPTION>
Number of International Maximum Number of
Underwritten Securities International Option
Selling Stockholders: to be Sold Securities to be Sold
- --------------------- ------------------------ ----------------------
<S> <C> <C>
David G. Bradley
[address, fax no.]......
The David G. Bradley
GRAT Trust Number 1
[address, fax no.]......
Michael A. D'Amato
[address, fax no.]......
Jeffrey D. Zients
[address, fax no.]......
------------------------ ----------------------
Total..............
======================== ======================
</TABLE>
<PAGE>
EXHIBIT A
[Letterhead of officer, director or major stockholder of Corporation]
The Corporate Executive Board Company
-------------------------------------
Public Offering of Common Stock
-------------------------------
January , 1999
Salomon Brothers International Limited and
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Friedman, Billings, Ramsey & Co., Inc.
Goldman, Sachs & Co.
As Representatives of the several U.S. Underwriters
and International Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
U.S. Underwriting Agreement and International Underwriting Agreement (together,
the "Underwriting Agreements"), between The Corporate Executive Board Company, a
Delaware corporation (the "Company"), and each of you as representatives of a
group of U.S. Underwriters and International Underwriters named therein,
relating to an underwritten public offering of Common Stock, $ par
value (the "Common Stock"), of the Company.
In order to induce you and the other U.S. Underwriters and
International Underwriters to enter into the Underwriting Agreements, the
undersigned will not, without the prior written consent of Smith Barney Inc.,
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file (or participate in the filing of) a registration statement
with the Securities and Exchange Commission in respect of, or establish or
increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder with respect to, any shares of capital stock
of the Company or any securities convertible into or exercisable or exchangeable
for such capital stock, or publicly announce an intention to effect any such
transaction, for a period of 180 days after the date of the Underwriting
Agreements, other than shares of Common Stock disposed of as bona fide gifts
approved by Salomon Smith Barney Inc.
<PAGE>
2
If for any reason the Underwriting Agreements shall be terminated
prior to the Closing Date (as defined in the Underwriting Agreements), the
agreement set forth above shall likewise be terminated.
Yours very truly,
By:
--------------------------
Name:
Address:
<PAGE>
Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THE CORPORATE EXECUTIVE BOARD COMPANY
The undersigned, for the purpose of amending and restating the Certificate
of Incorporation of The Corporate Executive Board Company, a Delaware
corporation (the "Corporation"), does hereby certify that:
(1) The name of the Corporation is The Corporate Executive Board Company.
(2) The Corporation was originally incorporated under the name The
Corporate Advisory Board Company. The date of filing of its original
Certificate of Incorporation with the Secretary of State of Delaware was
September 11, 1997.
(3) This Second Amended and Restated Certificate of Incorporation was duly
adopted as of February ___, 1999 pursuant to Section 242 and Section 245 of the
Delaware General Corporation Law.
(4) The Certificate of Incorporation of The Corporate Executive Board
Company is hereby amended and restated in its entirety as follows:
FIRST: Name. The name of the corporation is The Corporate Executive Board
----
Company (the "Corporation").
SECOND: Registered Office and Registered Agent. The address of the
--------------------------------------
Corporation's registered office in the State of Delaware is 9 East Loockerman
Street, in the City of Dover 19901, County of Kent. The name of the registered
agent of the Corporation at such address is National Registered Agents, Inc.
THIRD: Purpose. The purpose for which the Corporation is organized is to
-------
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: Capitalization.
--------------
Prior to the Conversion (as defined below), the total number of shares of
all classes of stock which the Corporation shall have authority to issue is one
hundred five million (105,000,000), consisting of seventeen thousand two hundred
(17,200) shares of Class A Voting Common Stock, par value one cent ($0.01) per
share (the "Voting Common Stock"), ninety-nine million nine hundred eighty-two
thousand eight hundred (99,982,800) shares of Class B Non-
<PAGE>
Voting Common Stock, par value one cent ($0.01) per share (the "Non-Voting
Common Stock"), and five million (5,000,000) shares of Preferred Stock, par
value one cent ($0.01) per share (the "Preferred Stock").
Upon the Conversion, the total number of shares of capital stock which the
Corporation shall have the authority to issue is one hundred five million
(105,000,000), consisting of one hundred million (100,000,000) shares of Common
Stock, par value one cent ($0.01) per share (the "Common Stock"), and five
million (5,000,000) shares of the Preferred Stock.
The designations, preferences, qualifications, limitations, restrictions
and the special or relative rights granted to or imposed upon the Common Stock
and Preferred Stock of the Corporation are as follows:
(a) Provisions Relating to the Common Stock
---------------------------------------
(1) Conversion. Each share of the Voting Common Stock and each share
----------
of the Non-Voting Common Stock shall automatically convert into one share
of Common Stock without the requirement of any further action upon the
transfer of any shares of Non-Voting Common Stock or Voting Common Stock to
one or more underwriters pursuant to one or more underwriting agreements in
connection with a public offering that is subject to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") (the "Conversion").
(2) Voting. Except as otherwise expressly required by law or
------
provided in this Second Amended and Restated Certificate of Incorporation,
and subject to any voting rights provided to holders of Preferred Stock at
any time outstanding, at each annual or special meeting of stockholders,
each holder of record of shares of Common Stock on the relevant record date
shall be entitled to cast one vote in person or by proxy for each share of
the Common Stock standing in such holder's name on the stock transfer
records of the Corporation. There shall be no cumulative voting. The
number of authorized shares of Common Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote, irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of the State of Delaware.
(3) Dividends. Subject to the rights of the holders of Preferred
---------
Stock, and subject to any other provisions of this Second Amended and
Restated Certificate of Incorporation, as it may be amended from time to
time, holders of shares of Common Stock shall be entitled to receive such
dividends and other distributions in cash, stock or property of the
Corporation when, as and if declared thereon by the Board of Directors from
time to time out of assets or funds of the Corporation legally available
therefor.
(4) Liquidation, Dissolution, etc. In the event of any liquidation,
-----------------------------
dissolution or winding up (either voluntary or involuntary) of the
Corporation, the holders of shares of Common Stock shall be entitled to
receive the assets and funds of the Corporation available for distribution
after payments to creditors and to the holders of any Preferred Stock of
the Corporation that may at the time be outstanding, in proportion to the
number of shares held by them.
2
<PAGE>
(5) No Preemptive, Subscription or Conversion Rights. No holder of
------------------------------------------------
shares of Common Stock shall be entitled to preemptive , subscription or
conversion rights.
(b) Provisions Relating to the Preferred Stock
------------------------------------------
The Board of Directors is hereby expressly authorized to provide for
the issuance of all or any shares of the Preferred Stock in one or more
classes or series, and to fix for each such class or series such voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by the Board
of Directors providing for the issuance of such class or series, including,
without limitation, the authority to provide that any such class or series
may be (i) subject to redemption at such time or times and at such price or
prices; (ii) entitled to receive dividends (which may be cumulative or non-
cumulative) at such rates, on such conditions, and at such times, and
payable in preference to, or in such relation to, the dividends payable on
any other class or classes or any other series; (iii) entitled to such
rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; or (iv) convertible into, or exchangeable for, shares of
any other class or classes of stock, or of any other series of the same or
any other class or classes of stock, of the Corporation at such price or
prices or at such rates of exchange and with such adjustments; all as may
be stated in such resolution or resolutions.
(c) Provisions Relating to Limitation on Stockholder Rights Plan
------------------------------------------------------------
Notwithstanding any other powers set forth in this Second Amended and
Restated Certificate of Incorporation, the Board of Directors shall not
adopt a stockholders "rights plan" (which for this purpose shall mean any
arrangement pursuant to which, directly or indirectly, Common Stock or
Preferred Stock purchase rights may be distributed to stockholders that
provide all stockholders, other than persons who meet certain criteria
specified in the arrangement, the right to purchase the Common Stock or
Preferred Stock at less than the prevailing market price of the Common
Stock or Preferred Stock), unless (i) such rights plan is ratified by the
affirmative vote of a majority of the votes cast of the capital stock of
the Corporation then outstanding and entitled to vote on the election of
directors and present in person or represented by proxy at the next meeting
(annual or special) of stockholders; (ii) by its terms, such rights plan
expires within thirty-seven (37) months from the date of its adoption,
unless extended by the affirmative vote of a majority of the voting power
of the shares of capital stock of the Corporation then entitled to vote at
an election of directors; and (iii) at any time the rights issued
thereunder will be redeemed by the Corporation upon the affirmative vote of
a majority of the voting power of the shares of capital stock of the
Corporation then entitled to vote at an election of directors.
FIFTH: Amendment of Bylaws. In furtherance and not in limitation of the
-------------------
powers conferred by statute, the Board of Directors is expressly authorized to
make, repeal, alter, amend and rescind the bylaws of the Corporation.
3
<PAGE>
SIXTH: Powers of the Corporation and of its Directors and Stockholders.
---------------------------------------------------------------
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
(a) Management of the Corporation
-----------------------------
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
(b) Directors
---------
(1) The number of directors which shall constitute the whole Board of
Directors shall be determined by resolution of a majority of the Board of
Directors, but in no event shall be less than one. The number of directors
may be decreased at any time and from time to time by a majority of the
directors then in office, but only to eliminate vacancies existing by
reason of death, resignation, removal or expiration of the term of one or
more directors.
(2) A director shall hold office until the succeeding annual meeting
(or special meeting in lieu thereof) and until his or her successor shall
be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.
(3) (i) Directors may be removed with or without cause by a vote of
the holders of shares entitled to vote at an election of
directors at a duly called meeting of such holders, provided that
no director shall be removed for cause except by the affirmative
vote of not less than a majority of the voting power of the
shares then entitled to vote at an election of directors.
(ii) Notwithstanding the foregoing, whenever the holders of any
one or more classes or series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies
and other features of such directorships shall be governed by the
terms of this Second Amended and Restated Certificate of
Incorporation applicable thereto.
(4) Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, may be
filled only by a vote of a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office, if applicable, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold
office until the next annual meeting (or special meeting in lieu thereof)
and until his or her successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or
removal from office.
4
<PAGE>
(5) Elections of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
(c) Stockholders
------------
(1) Stockholders of the Corporation may not act by written consent
without a meeting.
(2) Special meetings of stockholders of the Corporation may be called
by the Board of Directors pursuant to a resolution adopted by a majority of
the Directors then serving, by the Chairman of the Board, or by any holder
or holders of at least forty percent (40%) of the outstanding shares of
capital stock of the Corporation then entitled to vote on any matter for
which the respective special meeting is being called.
(3) Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the General Corporation Law
of the State of Delaware) outside the State of Delaware at such place or
places as may be designated from time to time by the Board of Directors or
in the bylaws of the Corporation.
SEVENTH: Duration. The duration of the Corporation shall be perpetual.
--------
EIGHTH: Section 203. Pursuant to Section 203(b)(1) of the General
-----------
Corporation Law of the State of Delaware, the Corporation hereby expressly opts
not to be governed by Section 203 of the General Corporation Law of the State of
Delaware.
NINTH: Liability and Indemnification.
-----------------------------
(a) Liability.
---------
A director of the Corporation shall not be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived any improper personal benefit.
If the General Corporation Law of the State of Delaware is amended after
approval by the stockholders of this Article Ninth to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the General Corporation Law of
the State of Delaware, as so amended. Any repeal or modification of this
Article Ninth by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at
the time of such repeal or modification with respect to acts or omissions
occurring prior to such repeal or modification.
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(b) Indemnification.
---------------
(1) Each person who was or is made 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
(hereinafter a "proceeding") (including an action by or in the right of the
Corporation), by reason of the fact that he is or was serving as a director
or officer of the Corporation (or is or was serving at the request of the
Corporation in a similar capacity with another entity, including employee
benefit plans), shall be indemnified and held harmless by the Corporation
to the fullest extent authorized by the General Corporation Law of the
State of Delaware. This indemnification will cover all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes
or penalties and settlement amounts) reasonably incurred by the director in
connection with a proceeding. All such indemnification shall continue as to
a director or officer who has ceased to be a director or officer and shall
continue to the benefit of such director's or officer's heirs, executors
and administrators. Except as provided in paragraph (b)(2) of this Article
Ninth with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such director or officer who initiates a
proceeding only if such proceeding was authorized by the Board of Directors
of the Corporation. The right to indemnification conferred by this Article
Ninth shall be a contract right and may include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of
expenses"). If the General Corporation Law of the State of Delaware
requires, an advancement of expenses incurred by a director or officer in
his capacity as a director or officer shall be made only upon delivery to
the Corporation of an undertaking by such director or officer to repay all
amounts so advanced if it is ultimately determined by final judicial
decision that such director or officer is not entitled to be indemnified
for such expenses under this Article Ninth or otherwise (hereinafter an
"undertaking").
(2) If a claim under paragraph (b)(1) of this Article Ninth is not
paid in full by the Corporation within ninety days after receipt of a
written claim, the director or officer may bring suit against the
Corporation to recover the unpaid amount. (In the case of a claim for
advancement of expenses, the applicable period will be twenty days.) If
successful in any such suit, the director or officer will also be entitled
to be paid the expense of prosecuting such suit. In any suit brought by
the director or officer to enforce a right to indemnification hereunder
(but not in a suit brought by the director or officer to enforce a right to
an advancement of expenses), it shall be a defense that the director or
officer has not met the applicable standard of conduct under the General
Corporation Law of the State of Delaware. In any suit by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, it shall be entitled to recover such expenses upon a final
adjudication that the director or officer has not met the applicable
standard of conduct set forth in the General Corporation Law of the State
of Delaware. Neither the failure of the Board of Directors of the
Corporation to determine prior to the commencement of such suit that the
director or officer has met the applicable standard of conduct for
indemnification set forth in the General Corporation Law of the State of
Delaware, nor an actual determination by the Board of Directors of the
Corporation that the director or officer has not met such applicable
standard of conduct, shall create a presumption that the director or
officer has not met the applicable standard of conduct, and, in the case of
such a suit brought by the director or officer to enforce a right hereunder
or by the Corporation to recover an advancement of expenses pursuant to the
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terms of an undertaking, the burden of proving that the director or officer
is not entitled to be indemnified or to such advancement of expenses under
this Article Ninth or otherwise shall be on the Corporation.
(3) The rights to indemnification and to the advancement of expenses
conferred in this Article Ninth are not exclusive of any other right which
any person may have or hereafter acquire under any statute, this Second
Amended and Restated Certificate of Incorporation, bylaw, agreement, vote
of stockholders or disinterested directors or otherwise.
(4) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
Corporation or other entity against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person under
the General Corporation Law of the State of Delaware.
(5) The Corporation may, if authorized by the Board of Directors,
grant rights to indemnification and to the advancement of expenses to any
employee or agent of the Corporation to the same extent as for directors of
the Corporation.
TENTH: Creditor Compromise or Arrangement. Whenever a compromise or
----------------------------------
arrangement is proposed between the Corporation and its creditors or any class
of them and/or between the Corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for the Corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for the Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
ELEVENTH: Corporate Power. The Corporation reserves the right to amend,
---------------
alter, change or repeal any provision contained in this Second Amended and
Restated Certificate of Incorporation, in the manner now or hereafter prescribed
by statute, and all rights conferred on stockholders herein are granted subject
to this reservation.
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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Second Amended and Restated Certification of
Incorporation to be executed by James J. McGonigle, its Chief Executive Officer,
this ___ day of February, 1999.
ATTEST:
By:_______________________________ __________________________________
Name: Michael A. D'Amato James McGonigle
Title: Secretary Chief Executive Officer
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Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
THE CORPORATE EXECUTIVE BOARD COMPANY
(a Delaware corporation)
ARTICLE I
OFFICES
The principal office of the Corporation shall be located in the City and
Jurisdiction as the Board of Directors may, from time to time, determine. The
Corporation may also have offices at such other places both within and without
the State of Delaware as the Board of Directors may from time to time determine.
ARTICLE II
STOCKHOLDERS
1. Certificates Representing Stock.
-------------------------------
(a) Form and Execution of Certificates. Certificates representing shares
----------------------------------
of stock or any bond, debenture or other corporate securities of the Corporation
shall be in such form as is consistent with the Certificate of Incorporation and
applicable law, and shall be signed by, or in the name of, the Corporation by
the Chairman of the Board of Directors, the Chief Executive Officer, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer
---
or the Secretary or an Assistant Secretary of the Corporation. Any or all of the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
(b) Legends and Restrictions. Whenever the Corporation shall be
------------------------
authorized to issue more than one class of stock or more than one series of any
class of stock, and whenever the Corporation shall issue any shares of its stock
as partly paid stock, the certificates representing shares of any such class or
series or of any such partly paid stock shall set forth
<PAGE>
thereon the statements prescribed by the Delaware General Corporation Law. Any
restrictions on the transfer or registration of transfer of any shares of stock
of any class or series shall be noted conspicuously on the certificate
representing such shares.
(c) Lost Certificates. The Board of Directors may direct a new
-----------------
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
2. Uncertificated Shares. Subject to any conditions imposed by the Delaware
---------------------
General Corporation Law, the Board of Directors of the Corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the Corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any uncertificated shares, the
Corporation shall send to the registered owner thereof any written notice
prescribed by the Delaware General Corporation Law.
3. Fractional Share Interests. The Corporation may, but shall not be
--------------------------
required to, issue fractions of a share.
4. Stock Transfers; Registered Stockholders. Upon compliance with provisions
----------------------------------------
restricting the transfer or registration of transfer of shares of stock, if any,
transfers or registration of transfers of shares of stock of the Corporation
shall be made only on the stock ledger of the Corporation by the registered
holder thereof or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation or with a transfer
agent or a registrar, if any, and, in the case of shares represented by
certificates, on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon. The
Corporation shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends, and to vote
as such owner, and shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by law.
5. Record Date for Stockholders.
----------------------------
(a) Notice and Voting. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders
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entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) Calling Special Meetings. Any stockholder of record seeking to have
the stockholders call a special meeting of stockholders shall deliver to the
Secretary of the Corporation a notice setting forth the information required
under Section 7(e) of this Article II respecting the action proposed to be taken
at such meeting and requesting the Board of Directors to fix a record date for
purposes of determining stockholders entitled to request such meeting in
writing, and the Board of Directors shall promptly, but in all events within ten
days after the date on which such a request is received, adopt a resolution
fixing the record date; provided that if no record date is set by the Board
within ten days of the date on which a notice and request meeting the
requirements under Section 7(e) of this Article II is received, the record date
for determining stockholders entitled to request such special meeting shall be
the first date on which the notice setting forth the information required under
Section 7(e) of this Article II respecting the action proposed to be taken at
such meeting and requesting the Board of Directors to fix a record date for
purposes of determining stockholders entitled to request such meeting was
delivered to the Secretary of the Corporation.
(c) Dividends and Other Rights. In order that the Corporation may
determine the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion, or exchange of stock, or for
the purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
6. Meaning of Certain Terms. As used herein in respect of the right to
------------------------
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat, as the case may be, the term "share" or "shares" or "share of
stock" or "shares of stock" or "stockholder" or "stockholders" refers to an
outstanding share or shares of stock and to a holder or holders of record of
outstanding shares of stock when the Corporation is authorized to issue only one
class of shares of stock, and said reference is also intended to include any
outstanding share or shares of stock and any holder or holders of record of
outstanding shares of stock of any class upon which or upon whom the Certificate
of Incorporation confers such rights where there are two or more classes or
series of shares of stock or upon which or upon whom the Delaware General
Corporation Law confers such rights notwithstanding that the Certificate of
Incorporation may provide for more than one class or series of shares of stock,
one or more of which are limited or denied such rights thereunder; provided,
however, that no such right shall vest in the event of an increase or a decrease
in the authorized number of shares of stock of any class or series which
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is otherwise denied voting rights under the provisions of the Certificate of
Incorporation, except as any provision of law may otherwise require.
7. Stockholder Meetings.
--------------------
(a) Place of Meetings. Meetings of the stockholders for the election of
-----------------
directors or for any other purpose shall be held at such time and place within
the continental United States, either within or without the State of Delaware,
as shall be designated from time to time by the Board of Directors or, in the
case of a special meeting called pursuant to Section 7(c) of this Article II at
the request in writing of the holders of at least forty percent of the capital
stock of the Corporation issued and outstanding and entitled to vote on any
matter for which the respective special meeting is being called, as shall be
designated by such stockholders or their representative, and stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
(b) Annual Meetings. The Annual Meetings of Stockholders shall be held
---------------
on such date and at such time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting, at which meetings
the stockholders shall elect by a plurality vote a Board of Directors, and
transact such other business as may properly be brought before the meeting.
Written notice of the Annual Meeting, stating the place, date and hour of the
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
(c) Special Meetings. Unless otherwise prescribed by law or by the
----------------
Certificate of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes, shall be called by the Secretary (i) at the direction of either (x)
the Chairman of the Board of Directors or (y) the Board of Directors by a
resolution of the Directors then serving, or (ii) at the request in writing of
the holder or holders of at least forty percent of the capital stock of the
Corporation issued and outstanding and entitled to vote on any matter for which
the respective special meeting is being called. Any such request shall state the
purpose or purposes of the proposed meeting. Written notice of a Special
Meeting, stating the place, date and hour of the meeting and purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the date
of the meeting.
(d) Stockholder List. The officer who has charge of the stock ledger of
----------------
the Corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof; and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote at any meeting of
stockholders.
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(e) Nominations and Stockholder Business.
------------------------------------
(i) To be properly brought before an annual meeting, nominations of
persons for election to the Board of Directors of the Corporation and the
proposal of business to be considered by the stockholders at an annual
meeting of stockholders must be either (x) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
Board of Directors (or any duly authorized committee thereof), (y) otherwise
properly brought before the annual meeting by or at the direction of the
Board of Directors (or any duly authorized committee thereof), or (z)
otherwise brought before the annual meeting by any stockholder of the
Corporation who is a stockholder of record on the date of the giving of the
notice provided for in Section 5 of this Article II, who is entitled to vote
at the meeting and who complied with the notice procedures set forth in this
Section 7(e).
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder under this Section 7(e), the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation and such business must be a proper subject for stockholder
action under the Delaware General Corporation Law. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than forty-five days nor more
than one hundred days prior to the first anniversary of the date on which
the Corporation first mailed its proxy materials for the prior year's annual
meeting of stockholders; provided, however, that in the event that the date
of the annual meeting is advanced by more than thirty days or delayed (other
than as a result of adjournment) by more than thirty days from the
anniversary of the previous year's annual meeting, then notice by the
stockholder to be timely must be delivered not later than the close of
business on the later of the ninetieth day prior to the annual meeting or
the tenth day following the day on which the date of the meeting is publicly
announced. Such stockholder's notice must set forth (x) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (y) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner, if
any, on whose behalf the proposal is made; and (z) as to the stockholder
giving the notice and the beneficial owners, if any, on whose behalf the
nomination or proposal is made (I) the name and address of such stockholder,
as they appear on the Corporation's books, and of such beneficial owner,
(II) the number of shares of the Corporation which are owned (beneficially
or of record) by such stockholder and such beneficial owner, (III) a
description of all arrangements or understandings
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between such stockholder and such beneficial owner and any other person or
persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder
and of such beneficial owner in such business, and (IV) a representation
that such stockholder or its agent or designee intends to appear in person
or by proxy at the annual meeting to bring such business before the meeting.
(iii) Notwithstanding anything in this Section 7(e) to the contrary,
if the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement specifying the
size of the increased Board of Directors made by the Corporation at least
forty-five days prior to the date on which the Corporation first mailed its
proxy materials for the prior year's annual meeting of stockholders, then a
stockholder's notice required by this Section 7(e) will also be considered
timely, but only with respect to nominees for any new positions created by
such increase, if it is delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the tenth day following the day on which such public announcement is first
made by the Corporation.
(iv) Only such business may be conducted at a special meeting of
stockholders as has been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting
(x) by or at the direction of the Board of Directors or (y) by any
stockholder of the Corporation who is a stockholder of record at the time of
giving the notice required by this Section 7(e), who is entitled to vote at
the meeting and who complies with the notice procedures set forth in this
Section 7(e). Nominations by stockholders of persons for election to the
Board of Directors may be made at such a special meeting of Stockholders if
the stockholder's notice required by this Section 7(e) is delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not earlier than the 120th day prior to such special meeting and
not later than the close of business on the later of the ninetieth day prior
to such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
(v) Only those persons who are nominated in accordance with the
procedures set forth in this Section 7(e) will be eligible for election as
directors at any meeting of stockholders. Only business brought before the
meeting in accordance with the procedures set forth in this Section 7(e) may
be conducted at a meeting of stockholders. The chairman of the meeting has
the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with the
procedures set forth in this Section 7(e) and, if any proposed nomination or
business is not in compliance with this Section 7(e), to declare that such
defective proposal shall be disregarded.
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(vi) For purposes of this Section 7(e), "public announcement" shall
include disclosure in a press release reported by the Dow Jones News
Service, Associated Press, Business Wire, PR Newswire or comparable
national news service or in a document publicly filed by the Corporation
with the Securities and Exchange Commission pursuant to the Exchange Act.
(vii) Notwithstanding the foregoing provisions of this Section 7(e),
a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 7(e). Nothing in this Section 7(e) may
be deemed to remove any obligation of stockholders to comply with the
requirements of Rule 14a-8 under the Exchange Act with respect to proposals
requested to be included in the Corporation's proxy statement pursuant to
said Rule 14a-8.
(f) Quorum. Except as otherwise provided by law or by the Certificate
------
of Incorporation, at all meetings of the stockholders, the holders of a majority
of the capital stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
(g) Voting. Except as otherwise expressly required by law or provided
------
in the Certificate of Incorporation, and subject to any voting rights provided
to holders of Preferred Stock at any time outstanding, each share of Common
Stock, par value $0.01 of the Company, shall entitle the holder thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority
of the votes cast except where the General Corporation Law prescribes a
different percentage of votes and/or a different exercise of voting power, and
except as may be otherwise prescribed by the provisions of the Certificate of
Incorporation and these Amended and Restated Bylaws. In the election of
directors, and for any other action, voting need not be by ballot.
(h) Conduct of Meetings. All meetings of stockholders shall be
-------------------
presided over by the Chairman of the Board of Directors, or in his absence, by
the Chief Executive Officer, or in his absence, by the President, if any, or in
his absence, by a Vice President, or in the absence of the foregoing persons, by
a chairman designated by the Board of Directors, or in the absence of such
designation, by a chairman chosen at the meeting. The Secretary of the
Corporation shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting. The chairman of the meeting shall determine the order of business and
the procedure at any meeting of the stockholders, including but not limited to,
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rules respecting the manner of voting, the time allotted to stockholders to
speak, determinations of whether business has been properly brought before the
meeting and the power to adjourn the meeting.
ARTICLE III
DIRECTORS
1. Election of Directors. Except as provided in Section 2 of this Article,
---------------------
directors shall be elected by a plurality of the votes cast at annual meetings
of stockholders, and each director so elected shall hold office until the
succeeding annual meeting (or special meeting in lieu thereof) and until his
successor is duly elected and qualified, or until his earlier resignation or
removal. Any director may resign at any time upon notice to the Corporation.
Such resignation shall take effect at the time specified therein or, if the time
be not specified, upon the receipt thereof and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. Directors need not be stockholders of the Corporation. The number
of directors of the Corporation shall be determined by resolution of a majority
of the Board of Directors of the Corporation.
2. Vacancies. Vacancies on the Board of Directors shall be filled in
---------
accordance with the provisions of the Corporation's Certificate of
Incorporation.
3. Duties and Powers. The business of the Corporation shall be managed
-----------------
by or under the direction of the Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Amended and Restated
Bylaws directed or required to be exercised or done by the stockholders.
4. Meetings.
--------
(a) Meetings. The Board of Directors of the Corporation may hold
--------
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors shall be called by the
Secretary (i) at the direction of (x) the Chairman of the Board of Directors or
(y) the Chief Executive Officer, if the Chief Executive Officer is a member of
the Board of Directors, or (ii) at the written request of a majority of the
entire Board of Directors. Notice of a meeting of the Board of Directors,
stating the place, date and hour of the meeting, shall be given to each director
either by mail not less than forty-eight hours before the date of such meeting,
by telephone or by telegram or facsimile transmission not less than twenty-four
hours before the date of such meeting. A waiver of such notice by any director
or directors, in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed the
equivalent of such notice. Attendance of any such person at a meeting shall
constitute a waiver of notice of such meeting except when he attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting
8
<PAGE>
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the directors need be
specified in any written waiver of notice.
(b) Quorum and Action. Except as may be otherwise specifically provided
-----------------
by law, the Certificate of Incorporation or these Amended and Restated Bylaws,
at all meetings of the Board of Directors, a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business, and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. Unless otherwise provided by the
Certificate of Incorporation or these Amended and Restated Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all of the members of
the Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings, setting forth the action so taken, are
filed with the minutes of proceedings of the Board of Directors or committee.
5. Meetings by Means of Conference Telephone. Unless otherwise provided by
-----------------------------------------
the Certificate of Incorporation or these Amended and Restated Bylaws, members
of the Board of Directors of the Corporation, or of any committee thereof, may
participate in a meeting of the Board of Directors or such committee by means of
a conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 5 shall constitute presence in person at such
meeting.
6. Committees. The Board of Directors shall adopt resolutions establishing
----------
an audit committee and a compensation committee. In addition, the Board of
Directors may, by resolution passed by a majority of the entire Board of
Directors, designate one or more additional committees. Each committee shall
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee, to the extent allowed by law and provided
in the resolution establishing such committee, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation. Each committee shall keep regular
minutes and report to the Board of Directors as requested or required.
7. Compensation. The directors may be paid their expenses, if any, of
------------
attendance at each meeting of the Board of Directors and may be paid a fixed sum
and/or an amount of shares of the Corporation's stock (or options or other
rights to purchase or obtain shares of the Corporation's stock) for attendance
at each meeting of the Board of Directors and/or as
9
<PAGE>
compensation for service as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
1. General. The officers of the Corporation shall be chosen by the Board
-------
of Directors and shall be a Chairman of the Board (who must be a director), a
Chief Executive Officer, a Secretary and a Treasurer. The Board of Directors,
in its discretion, may also choose a President and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these Bylaws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
2. Election. The Board of Directors at its first meeting held after each
--------
annual meeting of stockholders shall elect the officers of the Corporation who
shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors and/or the Compensation Committee thereof.
3. Voting Securities Owned by the Corporation. Powers of attorney,
------------------------------------------
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the Chief Executive Officer or such other
authorized officer of the Corporation, and any such officer may, in the name of
and on behalf of the Corporation, take all such action as any such officer may
deem advisable to vote in person or by proxy at any meeting of security holders
of any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and powers incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
4. Chairman of the Board of Directors. The Chairman of the Board of
----------------------------------
Directors shall preside at all meetings of the stockholders and of the Board of
Directors. The Chairman of the Board of Directors shall also perform such other
duties and may exercise such other powers as from time to time may be assigned
to him by these Amended and Restated Bylaws or by the Board of Directors.
10
<PAGE>
5. Chief Executive Officer. The Chief Executive Officer shall, subject to
-----------------------
the control of the Board of Directors and the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute all bonds, mortgages, contracts and other instruments
of the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these Amended and Restated Bylaws, the Board of Directors
or the Chief Executive Officer. In the absence or disability of the Chairman of
the Board of Directors, the Chief Executive Officer shall preside at all
meetings of the stockholders and, if a member of the Board of Directors, of the
Board of Directors. The Chief Executive Officer shall also perform such other
duties and may exercise such other powers as from time to time may be assigned
to him by these Amended and Restated Bylaws or by the Board of Directors.
6. President. The President, who may be the same person as the Chief
---------
Executive Officer, shall have such powers and duties as generally pertain to the
office of President and as the Board of Directors may from time to time
prescribe, subject generally to the direction of the Board of Directors and the
Executive Committee, if any. If the Chief Executive Officer and the President
are not the same individual, at the request of the Chief Executive Officer or in
his absence, or in the event of his inability or refusal to act, the President
shall perform the duties of the Chief Executive Officer, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer. If there be no President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the Chief
Executive Officer, or in the event of the inability or refusal of the Chief
Executive Officer to act, shall perform the duties of the Chief Executive
Officer, and when so acting, such officer shall have all the powers of and be
subject to all the restrictions upon the Chief Executive Officer.
7. Vice Presidents. Each Vice President shall have such powers and
---------------
perform such duties as the Board may from time to time prescribe.
8. Secretary. The Secretary shall attend all meetings of the Board of
---------
Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties, when required, for the committees of the Board of
Directors. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or Chief Executive Officer, under whose supervision he shall be. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of Directors or the
Chief Executive Officer may choose another officer to cause such notice to be
given. The Secretary shall have custody of the seal of the Corporation and the
Secretary or any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it, and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
11
<PAGE>
9. Treasurer. The Treasurer shall have the custody of the corporate funds
---------
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chief Executive Officer and the Board of Directors, at its regular meetings,
or when the Board of Directors so requires, an account of all his transactions
as Treasurer and of the financial condition of the Corporation.
10. Assistant Secretaries. Except as may be otherwise provided in these
---------------------
Amended and Restated Bylaws, Assistant Secretaries, if there be any, shall
perform such duties and have such powers as from time to time may be assigned to
them by the Board of Directors, the Chief Executive Officer, or the Secretary,
and in the absence of the Secretary or in the event of his disability or refusal
to act, shall perform the duties of the Secretary, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Secretary.
11. Assistant Treasurers. Assistant Treasurers, if there be any, shall
--------------------
perform such duties and have such powers as from time to time may be assigned to
them by the Board of Directors, the Chief Executive Officer, or the Treasurer,
and in the absence of the Treasurer or in the event of his disability or refusal
to act, shall perform the duties of the Treasurer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Treasurer.
12. Other Officers. Such other officers as the Board of Directors may
--------------
choose shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
13. Outside or Private Employment. No officer or employee shall have any
-----------------------------
outside or private employment or affiliation with any firm or organization
incompatible with his concurrent employment by the Corporation, nor shall he
accept or perform any outside or private employment which the Chief Executive
Officer of the Corporation determines will interfere with the efficient
performance of his official duties.
ARTICLE V
NOTICES
1. Notices. Whenever written notice is required by law, the Certificate
-------
of Incorporation or these Bylaws, to be given to any director, member of a
committee or stockholder, such notice may be given by mail, addressed to such
director, member of a committee or stockholder, at his address as it appears on
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Written notice may also be given personally or by
facsimile, telegram, telex or cable.
12
<PAGE>
2. Waivers of Notice. Whenever any notice is required by law, the
-----------------
Certificate of Incorporation or these Amended and Restated Bylaws, to be given
to any director, member of a committee or stockholder, a waiver thereof in
writing, signed, by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
GENERAL PROVISIONS
1. Dividends. Dividends upon the capital stock of the Corporation,
---------
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
2. Disbursements. All checks or demands for money and notes of the
-------------
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
3. Fiscal Year. The fiscal year of the Corporation shall be fixed, and
-----------
shall be subject to change, by the Board of Directors.
4. Corporate Seal. The corporate seal shall have inscribed thereon the
--------------
name of the Corporation, the year of its organization and the word "Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
ARTICLE VII
AMENDMENTS
Subject to the provisions of the Certificate of Incorporation, as such may
be amended from time to time, and the provisions of the Delaware General
Corporation Law, these Amended and Restated Bylaws may be altered, amended,
changed, added to or repealed in whole or in part, or new Bylaws may be adopted,
by the stockholders or the Board of Directors, provided, however, that notice of
such alteration, amendment, repeal or adoption of new Bylaws is provided before
the date on which the meeting of stockholders at which such shall become
effective or be voted on, as the case may be. For purposes of this Article VII,
filing such alteration, amendment, repeal or new Bylaws with the Securities and
Exchange Commission and/or the principal securities exchange on which the common
stock of the Corporation is traded shall be deemed to provide notice thereof.
All such amendments must be approved by either the holders of a majority of the
outstanding capital stock of the Corporation entitled to vote thereon or by a
majority of the entire Board of Directors.
13
<PAGE>
ARTICLE VIII
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS
1. Power to Indemnify in Actions, Suits or Proceedings other than those by
-----------------------------------------------------------------------
or in the Right of the Corporation. Subject to Section 3 of this Article VIII,
- ----------------------------------
the Corporation shall 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 he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director or officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
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
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---------------
presumption that the person did not act in good faith and in a manner which he
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
reasonable cause to believe that his conduct was unlawful.
2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right
----------------------------------------------------------------------
of the Corporation. Subject to Section 3 of this Article VIII, the Corporation
- ------------------
shall 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
he is or was a director or officer of the Corporation, or is or was a director
or officer of the Corporation serving at the request of the Corporation as a
director or officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall 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 of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
3. Authorization of Indemnification. Any indemnification under this
--------------------------------
Article VIII (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case
14
<PAGE>
upon a determination that indemnification of the director or officer is proper
in the circumstances because he has met the applicable standard of conduct set
forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (a) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(b) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (c) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
4. Good Faith Defined. For purposes of any determination under Section 3
------------------
of this Article VIII, a person shall be deemed to have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, or, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe his conduct was unlawful, if his action
is based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him by the officers of the Corporation
or another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall
not be deemed to be exclusive or to limit in any way the circumstances in which
a person may be deemed to have met the applicable standard of conduct set forth
in Sections 1 or 2 of this Article VIII, as the case may be.
5. Indemnification by a Court. Notwithstanding any contrary determination
--------------------------
in the specific case under Section 3 of this Article VIII, and notwithstanding
the absence of any determination thereunder, any director or officer may apply
to any court of competent jurisdiction in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because he has met the applicable standards of
conduct set forth in Sections 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
15
<PAGE>
6. Expenses Payable in Advance. Expenses incurred by a director or
---------------------------
officer in defending or investigating a threatened or pending action, suit or
proceeding may be paid by the Corporation, upon the determination by the Board
of Directors, in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article
VIII, provided the Corporation approves in advance counsel selected by the
director or officer (which approval shall not be unreasonably withheld).
7. Non-exclusivity of Indemnification and Advancement of Expenses. The
--------------------------------------------------------------
indemnification and advancement of expenses provided by or granted pursuant to
this Article VIII shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
the Certificate of Incorporation or any Bylaws, agreement, contract, vote of
stockholders or disinterested directors or pursuant to the direction (howsoever
embodied) of any court of competent jurisdiction or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the Delaware General Corporation
Law, or otherwise.
8. Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of any person who is or was a director or officer of the Corporation, or
is or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power or the obligation to indemnify him against such liability
under the provisions of this Article VIII.
9. Certain Definitions. For purposes of this Article VIII, references to
-------------------
"the Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers, so that any
person who is or was a director or officer of such constituent corporation, or
is or was a director or officer of such constituent corporation serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall stand in the same position under the
provisions of this Article VIII with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued. For purposes of this Article VIII, references
to "fines" shall include any excise taxes assessed on a person with respect to
an employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director or officer with respect to an employee benefit plan, its participants
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VIII.
16
<PAGE>
10. Survival of Indemnification and Advancement of Expenses. The
-------------------------------------------------------
indemnification and advancement of expenses provided by the Corporation pursuant
to this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
11. Limitation on Indemnification. Notwithstanding anything contained in
-----------------------------
this Article VIII to the contrary, except for proceedings to enforce rights to
indemnification (which shall be governed by Section 5 of this Article VIII), the
Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
12. Indemnification of Employees and Agents. The Corporation may, to the
---------------------------------------
extent authorized from time to time by the Board of Directors, provide rights to
indemnification and to the advancement of expenses to employees and agents of
the Corporation similar to those conferred in this Article VIII to directors and
officers of the Corporation.
13. Severability. If this Bylaw or any portion thereof shall be
------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each person as provided above as to the
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including a grand jury proceeding and
an action by the Corporation, to the full extent permitted by any applicable
portion of this Bylaw that shall not have been invalidated or by any other
applicable law.
17
<PAGE>
Exhibit 5.1
February 12, 1999
(202) 955-8500 C 18815-00002
The Corporate Executive Board Company
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
Re: The Corporate Executive Board Company -
Registration Statement on Form S-1 (File No. 333-59833)
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1, File No. 333-59833
(the "Registration Statement"), of The Corporate Executive Board Company, a
Delaware corporation (the "Company"), filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), in connection with the public offering (i) by David G.
Bradley and The David G. Bradley GRAT Trust No. 1 of up to 8,730,720 shares
(including shares to cover the underwriters' over-allotment options) (the
"Bradley Shares") of the Company's Common Stock, par value $0.01 per share (the
"Common Stock"), and (ii) by Jeffrey D. Zients and Michael A. D'Amato of 684,560
shares (the "Other
<PAGE>
February 12, 1999
Page 2
Selling Stockholders' Shares") of the Common Stock to be issued by the Company
upon the exercise of options by Messrs. Zients and D'Amato.
We have examined the originals, or photostatic or certified copies, of such
records of the Company and certificates of officers of the Company and of public
officials and such other documents as we have deemed relevant and necessary as
the basis for the opinions set forth below. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies.
Based upon the foregoing examination and in reliance thereon, and subject
to the assumptions stated and in reliance on statements of fact contained in the
documents that we have examined, we are of the opinion that (i) the Bradley
Shares, when issued, will be validly issued fully paid and non-assessable, and
(ii) the Other Selling Stockholders' Shares, when issued, sold and delivered
against payment therefor, will be validly issued, fully paid and non-assessable.
We render no opinion herein as to matters involving the laws of any
jurisdiction other than the laws of the United States of America and the General
Corporation Law of the State of Delaware. In rendering this opinion, we assume
no obligation to revise or supplement this opinion should current laws, or the
interpretations thereof, be changed.
<PAGE>
February 12, 1999
Page 3
We consent to the filing of this opinion as an exhibit to the Registration
Statement, and we further consent to the use of our name under the caption
"Legal Matters" in the Registration Statement and the prospectus which forms a
part thereof. In giving these consents, we do not thereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
SRF/HBA/SR/PAN
<PAGE>
EXHIBIT 10.21.1
THE CORPORATE EXECUTIVE BOARD COMPANY
STOCK-BASED INCENTIVE COMPENSATION PLAN
l. Establishment and Purpose of the Plan. The Stock-Based Incentive
-------------------------------------
Compensation Plan (the "Original Plan") was established by The Corporate
Executive Board Company, a Delaware corporation (the "Company"), as of October
31, 1997, to provide certain employees of the Company with an increased economic
and proprietary interest in the Company in order to encourage those employees'
contributions to the success and progress of the Company. This Stock-Based
Incentive Compensation Plan (the "Plan") was amended and restated in its
entirety on _______, 1999. The Plan is designed to provide for the grant of
options ("Options") that will not qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended.
2. Stock Subject to the Plan. The maximum number of shares of stock that
-------------------------
may be subject to Options granted hereunder shall not exceed 320,000 shares of
the Class B Non-Voting Common Stock, one cent ($0.01) par value (the "Stock"),
of the Company, subject to adjustment under Section 10 hereof. The Stock that
may be subject to Options granted may be authorized and unissued Stock or Stock
reacquired by the Company and held as treasury stock. Except as provided in
Section 13 hereof, if any Option granted under the Plan is canceled without the
Optionee having received any benefit of ownership, the number of shares subject
to such Option that have not been exercised prior to the Option's cancellation
may not again be optioned hereunder.
3. Eligibility. Persons who shall be eligible for grants of Options
-----------
hereunder ("Eligible Employees") shall be those employees of the Company who are
members of a select group of management or other key employees that the
Committee may from time to time designate to participate under the Plan (
"Optionees") through grants of Options.
4. Optionee's Agreement. The terms upon which Options are granted shall
--------------------
be evidenced by a written agreement executed by the Company and the Optionee to
whom Options are granted (the "Optionee's Agreement"). The Options shall be
subject to the terms and restrictions contained in the Optionee's Agreement.
5. Stockholders' Agreement. Prior to a public offering, Stock issued
-----------------------
pursuant to Options shall also be subject to the terms and restrictions
contained in a Stockholders' Agreement related to the Company. The
Stockholders' Agreement may contain such terms, provisions, and conditions as
may be determined by the Committee as long as such terms, conditions and
provisions are not inconsistent with the Plan. A copy of the Stockholders
Agreement shall be delivered to the Optionee at the time of grant.
<PAGE>
6. Administration of the Plan. The Plan shall be administered by the
--------------------------
compensation committee of the Board of Directors of the Company (the "Board") or
by the Board itself (if no Committee exists) (any such plan administrator, the
"Committee").
All actions of the Committee shall be authorized by a majority vote thereof
at a duly called meeting or by unanimous written consent. The Committee shall
have the sole authority, in its absolute discretion, to adopt, amend, and
rescind such rules and regulations as, in its opinion, may be advisable in the
administration of the Plan, in construing and interpreting the Plan, the rules
and regulations, and the agreements and other instruments evidencing Options
granted under the Plan, and in making all other determinations deemed necessary
or advisable for the administration of the Plan. All decisions, determinations,
and interpretations of the Committee shall be final and conclusive upon the
Eligible Employees. Notwithstanding the foregoing, any dispute arising under
any Optionee's Agreement shall be resolved pursuant to the dispute resolution
mechanism set forth in such Agreement.
Subject to the express provisions of the Plan, the Committee shall
determine the number of shares of Stock subject to grants or issuances and the
terms thereof, including but not limited to the provisions relating to the
exercisability of Options, vesting of Options and the termination and/or
forfeiture of Options under the Plan.
7. Terms and Conditions of Options. No Option shall be granted for a term
-------------------------------
beyond May 1, 2009. The Committee shall have full and sole discretion to
determine the exercisability of the Options under the Plan. The Optionee's
Agreement may contain such other terms, provisions, and conditions as may be
determined by the Committee (including, but not limited to, exercise price,
exercisability, expiration date and vesting) as long as such terms, conditions
and provisions are not inconsistent with the Plan.
8. Exercise Price of Options. The exercise price for each Option granted
-------------------------
hereunder shall be set forth in the applicable Optionee's Agreement. Payment
for Stock purchased upon exercise of any Option granted hereunder shall be in
cash at the time of exercise. At its sole discretion on an individual basis,
the Committee may permit payment or agree to permit payment by such other
alternative means as may be lawful, including (but not limited to) the
acceptance of a promissory note secured by the number of shares of Stock then
issuable upon the exercise of the Option.
9. Non-transferability. Unless provided otherwise in the Optionee's
-------------------
Agreement, any Option granted under this Plan shall, by its terms, be
nontransferable by the Optionee other than by will or the laws of descent and
distribution (in which case such descendant or beneficiary shall be subject to
all terms of the Plan applicable to Optionees), and is exercisable during the
Optionee's lifetime only by the Optionee.
10. Adjustments. If at any time the Stock subject to this Plan is changed
-----------
into, or outstanding Stock is exchanged for, a different number or kind of
shares or securities, as the result of any one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends or
similar events, an appropriate adjustment shall be made in the number, exercise
or sale price and/or type of shares or securities for which Options may
thereafter be
2
<PAGE>
granted under the Plan unless waived in writing by the Optionee. The Committee
also shall designate the appropriate changes that shall be made in Options under
the Plan, and the Committee may do so either at the time the Option is granted
or at the time of the event causing the adjustment. Any such adjustment in
outstanding Options shall be made without changing the aggregate exercise price
applicable to the unexercised portions of such Options.
11. Amendment and Termination of the Plan. Unless earlier terminated by
-------------------------------------
the Board of Directors of the Company, the Plan shall terminate on May 1, 2009.
The Committee may amend the Plan or any agreement issued hereunder to the
extent necessary for any Option granted under the Plan to comply with applicable
tax or securities laws.
No Option may be granted during any suspension or after the termination of
the Plan. No amendment, suspension or termination of the Plan or of any
Optionee's Agreement issued hereunder shall, without the consent of the affected
holder of such Option alter or impair any rights or obligations in any Option
theretofore granted or issued to such holder under the Plan.
12. Nature of Plan. This Plan is intended to qualify as a compensatory
--------------
benefit plan within the meaning of Rule 701 under the Securities Act of 1933.
This Plan is intended to constitute an unfunded arrangement for a select group
of management or other key employees.
13. Cancellation of Options. Any Option granted under the Plan may be
-----------------------
canceled at any time with the consent of the holder and a new Option may be
granted to such holder in lieu thereof.
14. Withholding Taxes. The Committee may in its discretion require the
-----------------
Optionee to remit to the Company, prior to the delivery of any certificate or
certificates for such Stock or the payment of any such amounts, all or any part
of the amount determined in the Committee's discretion to be sufficient to
satisfy federal, state and local withholding tax obligations (the "Withholding
Obligation") that the Company or its counsel determines may arise with respect
to such exercise, issuance or payment. At the sole discretion of the Committee
on an individual basis, the Optionee may (i) request the Company to withhold
delivery of a sufficient number of shares of Stock or a sufficient amount of the
Optionee's compensation or (ii) deliver a sufficient number of previously-issued
shares of Stock, to satisfy the Withholding Obligation.
15. Right of Redemption. The Committee, in its sole discretion and on an
-------------------
individual basis, may provide within any agreement issued hereunder the right of
the Company to redeem the Options and/or the shares of Stock issued under the
Plan (the "Right of Redemption"). The Right of Redemption shall be subject to
such terms, provisions, and conditions as may be determined by the Committee as
long as such terms, conditions and provisions are not inconsistent with the
Plan.
16. Right of Sale. The Committee, in its sole discretion and on an
-------------
individual basis, may provide within any agreement issued hereunder the right of
the Optionee to sell his or her Options and/or shares of Stock issued under the
Plan to the Company (the "Right of Sale"). The Right of Sale shall be subject
to such terms, provisions, and conditions as may be determined by the Committee
as long as such terms, conditions and provisions are not inconsistent with the
Plan.
3
<PAGE>
Exhibit 10.23.1
THE CORPORATE EXECUTIVE BOARD COMPANY
1999 STOCK OPTION PLAN
1. PURPOSE
The purpose of The Corporate Executive Board Company 1999 Stock Option Plan
(the "Plan") is to provide Participants with an increased economic and
proprietary interest in the Company in order to encourage those
Participants to contribute to the success and progress of the Company. The
Plan provides for the grant of Options which shall qualify as incentive
stock options, as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and for the grant of Options which shall not
qualify as incentive stock options pursuant to Section 422 of the Code.
2. DEFINITIONS
(a) "Administrator" means the Administrator of the Plan in accordance with
Section 11.
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Common Stock" means the Company's Class B Non-Voting Common Stock,
par value $.01, subject to adjustment as provided in Section 8.
(d) "Company" means The Corporate Executive Board Company, a Delaware
corporation.
(e) "ISOs" shall mean Options which qualify as incentive stock options
within the meaning of Section 422 of the Code.
(f) "Options" shall mean stock options granted pursuant to the Plan.
(g) "Participants" shall mean those individuals described in Section 3 to
whom Options have been granted from time to time by the Administrator
and any authorized transferee of such individuals.
(h) "Plan" means The Corporate Executive Board Company 1999 Stock Option
Plan.
(i) "Retirement" shall have the meaning specified by the Administrator in
the terms of an option grant or, in the absence of any such term,
shall mean retirement from active employment with the Company or its
Subsidiaries (i) at or after age 55 and with the approval of the
Administrator or (ii) at or after age 65. The determination of the
Administrator as to an individual's Retirement shall be conclusive on
all parties.
1
<PAGE>
(j) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company where each
of the corporations in the unbroken chain other than the last
corporation owns stock possessing at least 50 percent or more of the
total combined voting power of all classes of stock in one of the
other corporations in the chain.
(k) "Total and Permanent Disablement" shall have the meaning specified by
the Administrator in the terms of an option grant or, in the absence
of any such term or in the case of an Option intending to qualify as
an ISO, the inability to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12 months.
The determination of the Administrator as to an individual's Total and
Permanent Disablement shall be conclusive on all parties.
3. PARTICIPANTS
Options may only be granted to officers, independent contractors, employees
and prospective employees of the Company and its Subsidiaries as selected
by the Administrator, except that Options intending to qualify as ISOs may
only be granted to employees of the Company and its Subsidiaries as
selected by the Administrator. For purposes of this Plan, the Chairman of
the Board's status as an employee shall be determined by the Board of
Directors. Options may not be granted to directors of the Company or its
Subsidiaries unless such directors otherwise qualify for participation in
the Plan.
4. EFFECTIVE DATE AND TERMINATION OF PLAN
This Plan was adopted by the Board of Directors and approved by the
stockholders of the Company on ________, 1999 (the "Effective Date"). The
Plan shall remain available for the grant of Options until the tenth
anniversary of the Effective Date. Notwithstanding the foregoing, the Plan
may be terminated at such earlier time as the Board of Directors may
determine. Termination of the Plan will not affect the rights and
obligations of the Participants and the Company arising under Options
theretofore granted and then in effect.
5. SHARES SUBJECT TO THE PLAN AND TO OPTIONS
The aggregate number of shares of Common Stock issuable pursuant to all
Options granted under the Plan will not exceed 110,000 shares of the
Company's Common Stock, or the number and kind of shares of stock or other
securities which shall be substituted or adjusted for such shares as
provided in Section 8. Notwithstanding the foregoing, in the event that
shares of Common Stock subject to the Company's Stock-Based Incentive
Compensation Plan, as amended and restated on ______________, 1999 (the
"Incentive Plan"), are canceled, expire or terminate or that otherwise are
available for issuance but for any other reason are not issued under the
Incentive Plan, then the number of shares of
2
<PAGE>
Common Stock authorized for issuance under the Plan shall be increased
accordingly (the maximum number of shares available for issuance under the
Incentive Plan is 320,000). Such shares may be authorized and unissued
shares of the Company's Common Stock. The aggregate number of shares of
Common Stock issued pursuant to the Plan at any time shall equal only the
number of shares of Common Stock issued upon the exercise of Options and
not returned to the Company upon the cancellation, expiration or forfeiture
of an award or delivered (either actually or by attestation) in payment or
satisfaction of the purchase price or tax obligation with respect to an
Option. All shares of Common Stock available for issuance under the Plan
may be subject to Options which intend to qualify as ISOs.
6. GRANT, TERMS AND CONDITIONS OF OPTIONS
Options may be granted at any time and from time to time prior to the
termination of the Plan, to Participants selected by the Administrator.
The aggregate number of shares of Common Stock subject to Options granted
pursuant to the Plan during any calendar year to any one Participant shall
not exceed 25,000 shares. No Participant shall have any rights as a
stockholder with respect to any shares of stock subject to Option hereunder
until said shares have been issued. Each Option shall be evidenced by a
written stock option agreement and/or such other written arrangements as
may be approved from time to time by the Administrator. Options granted
pursuant to the Plan need not be identical but each Option must contain and
be subject to the following terms and conditions:
(a) Price: The purchase price under each Option shall be established by
-----
the Administrator. In no event will the purchase price be less than
the fair market value of the Common Stock on the date of grant unless
such Options are granted in substitution of options granted by a new
employee's previous employer or the Participant pays or foregoes
compensation in the amount of any discount. Notwithstanding the
foregoing, in the case of the grant of an Option intending to qualify
as an ISO, if the Participant owns stock possessing more than 10
percent of the combined voting power of all classes of stock of the
Company or its Subsidiaries (after applying the ownership attribution
rules set forth under Section 422(d) of the Code and any successor
provision), the purchase price of such Option must be no less than 110
percent of the fair market value of the Common Stock on the date of
grant.
The purchase price of any Option may be paid in cash or any
alternative means acceptable to the Administrator, including an
irrevocable commitment by a broker to pay over such amount from a sale
of the shares issuable under an Option and the acceptance of a
promissory note secured by the number of shares of Common Stock then
issuable upon exercise of the Options.
(b) Duration and Exercise or Termination of Option: Unless the
----------------------------------------------
Administrator provides otherwise, Options shall become exercisable 25
percent per year beginning one year after the date of the grant.
Unless the Administrator provides otherwise, or if the Option is
intending to qualify as an ISO, each Option granted
3
<PAGE>
must expire within a period of not more than ten (10) years from the
date of grant. Notwithstanding the foregoing, in the case of the grant
of an Option intending to qualify as an ISO, if the Participant owns
stock possessing more than 10 percent of the combined voting power of
all classes of stock of the Company or its Subsidiaries (after
applying the ownership attribution rules set forth under Section
422(d) of the Code and any successor provision), the Option must
expire within a period of not more than five (5) years from the date
of grant.
(c) Suspension or Termination of Option: Except as otherwise provided by
-----------------------------------
the Administrator, if at any time (including after a notice of
exercise has been delivered) the Chief Executive Officer or any other
person designated by the Administrator (each such person, an
"Authorized Officer") reasonably believes that a Participant has
committed an act of misconduct as described in this Section, the
Authorized Officer may suspend the Participant's rights to exercise
any Option pending a determination of whether an act of misconduct has
been committed.
Except as otherwise provided by the Administrator, if the
Administrator or an Authorized Officer determines a Participant has
committed an act of embezzlement, fraud, dishonesty, nonpayment of any
obligation owed to the Company or its Subsidiaries, breach of
fiduciary duty or deliberate disregard of the Company or Subsidiary
rules resulting in loss, damage or injury to the Company or its
Subsidiaries, or if a Participant makes an unauthorized disclosure of
any Company or Subsidiary trade secret or confidential information,
engages in any conduct constituting unfair competition, induces any
Company or Subsidiary customer to breach a contract with the Company
or its Subsidiaries, or induces any principal for whom the Company or
its Subsidiaries acts as agent to terminate such agency relationship,
neither the Participant nor his or her estate nor transferee shall be
entitled to exercise any Option whatsoever. In making such
determination, the Administrator or an Authorized Officer shall act
fairly and shall give the Participant an opportunity to appear and
present evidence on his or her behalf at a hearing before the
Administrator or the Board of Directors. For any Participant who is
an "executive officer" for purposes of Section 16 of the Securities
Exchange Act of 1934, the determination of the Authorized Officer
shall be subject to the approval of the Administrator.
(d) Termination of Employment: Subject to Section 6(b), unless the
-------------------------
Administrator specifies otherwise, upon the termination of the
Participant's employment, his or her rights to exercise an Option then
held shall be only as follows:
(1) Death. Upon the death of a Participant while in the employ of the
Company or its Subsidiaries, all of the Participant's Options
then held shall be exercisable by his or her estate, heir or
beneficiary at any time during the twelve (12) months next
succeeding the date of death. Any and all Options that are
unexercised during the twelve (12) months next succeeding the
date of death shall terminate as of the end of such twelve (12)
month period.
4
<PAGE>
If a Participant should die within thirty (30) days of his or her
termination of employment with the Company or its Subsidiaries,
an Option shall be exercisable by his or her estate, heir or
beneficiary at any time during the twelve (12) months succeeding
the date of termination, but only to the extent of the number of
shares as to which such Option was exercisable as of the date of
such termination. Any and all Options that are unexercised
during the twelve (12) months succeeding the date of termination
shall terminate as of the end of such twelve (12) month period.
A Participant's estate shall mean his or her legal representative
or other person who so acquires the right to exercise the Option
by bequest or inheritance or by reason of the death of the
Participant.
(2) Total and Permanent Disablement. Upon termination as a result of
-------------------------------
the Total and Permanent Disablement of any Participant, all of
the Participant's Options then held shall be exercisable for a
period of twelve (12) months after termination. Any and all
Options that are unexercised during the twelve (12) months
succeeding the date of termination shall terminate as of the end
of such twelve (12) month period.
(3) Retirement. Upon Retirement of a Participant, the Participant's
----------
Options then held shall be exercisable for a period of twelve
(12) months after Retirement, except in the case of Options
intending to qualify as ISOs, such Options shall be exercisable
for a period of three (3) months after Retirement. The number of
shares with respect to which the Options shall be exercisable
shall equal the total number of shares which were exercisable
under the Participant's Option on the date of his or her
Retirement. Any and all Options that are unexercised during the
twelve (12) months or three (3) months (as appropriate)
succeeding the date of termination shall terminate as of the end
of such twelve (12) or three (3) month period.
(4) Other Reasons. Upon the date of a termination of a Participant's
-------------
employment for any reason other than those stated above in
Sections 6(d)(1), (d)(2) and (d)(3) or as described in Section
6(c) above, (A) any Option that is unexercisable as of such
termination date shall remain unexercisable and shall terminate
as of such date, and (B) any Option that is exercisable as of
such termination date shall expire the earlier of (i) thirty (30)
days following such date or (ii) the expiration date of such
Option.
(e) Transferability of Option: Unless the Administrator specifies
-------------------------
otherwise, each Option shall be nontransferable by the Participant
other than by will or the laws of descent and distribution and shall
only be exercisable by the Participant during his or her lifetime.
5
<PAGE>
(f) Cancellation: The Administrator may, at any time prior to exercise
------------
and subject to consent of the Participant, cancel any Options
previously granted and may or may not substitute in their place
Options at a different price and different type under different terms
or in different amounts.
(g) Conditions and Restrictions Upon Securities Subject to Options: The
--------------------------------------------------------------
Administrator may provide that the shares of Common Stock issued upon
exercise of an Option shall be subject to such further conditions or
agreements as the Administrator in its discretion may specify prior to
the exercise of such Option, including without limitation, conditions
on vesting or transferability, forfeiture or repurchase provisions and
method of payment for the shares issued upon exercise (including the
actual or constructive surrender of Common Stock already owned by the
Participant). The Administrator may establish rules for the deferred
delivery of Common Stock upon exercise of an Option with the deferral
evidenced by use of "Stock Units" equal in number to the number of
shares of Common Stock whose delivery is so deferred. A "Stock Unit"
is a bookkeeping entry representing an amount equivalent to the fair
market value of one share of Common Stock. Unless the Administrator
specifies otherwise, Stock Units represent an unfunded and unsecured
obligation of the Company. Settlement of Stock Units upon expiration
of the deferral period shall be made in Common Stock or otherwise as
determined by the Administrator. The amount of Common Stock, or other
settlement medium, to be so distributed may be increased by an
interest factor or by dividend equivalents. Until a Stock Unit is so
settled, the number of shares of Common Stock represented by a Stock
Unit shall be subject to adjustment pursuant to Section 8. Any Stock
Units that are settled after the holder's death shall be distributed
to the holder's designated beneficiary(ies) or, if none was
designated, the holder's estate.
(h) Other Terms and Conditions: Options may also contain such other
--------------------------
provisions, which shall not be inconsistent with any of the foregoing
terms, as the Administrator shall deem appropriate. No Option,
however, nor anything contained in the Plan shall confer upon any
Participant any right to continue in the Company's or its
Subsidiaries' employ or service nor limit in any way the Company's or
its Subsidiaries' right to terminate his or her employment at any
time. In the case of Options intending to qualify as ISOs, Section 422
of the Code provides that Options shall not be treated as ISOs if and
to the extent that the aggregate fair market value of shares of Common
Stock (determined as of the time of grant) with respect to which such
Options are exercisable for the first time by the Participant during
any calendar year (under all plans of the Company and its
subsidiaries) exceeds $100,000, taking Options into account in the
order in which they were granted.
7. LOANS
The Company may make loans, at the request of the Participant and in the
sole discretion of the Administrator, for the purpose of enabling the
Participant to exercise Options
6
<PAGE>
granted under the Plan and to pay the tax liability resulting from an
Option exercised under the Plan. The Administrator shall have full
authority to determine the terms and conditions of such loans. Such loans
may be secured by the shares received upon exercise of such Option.
8. ADJUSTMENT OF AND CHANGES IN THE STOCK
In the event that the number of shares of Common Stock of the Company shall
be increased or decreased through reorganization, reclassification,
combination of shares, stock splits, reverse stock splits, spin-offs, or
the payment of a stock dividend, (other than regular, quarterly cash
dividends) or otherwise, then each share of Common Stock of the Company
which has been authorized for issuance under the Plan, whether such share
is then currently subject to or may become subject to an Option under the
Plan, may be proportionately adjusted to reflect such increase or decrease,
unless the terms of the transaction provide otherwise. Outstanding Options
may also be amended as to price and other terms if necessary to reflect the
foregoing events.
In the event there shall be any other change in the number or kind of the
outstanding shares of Common Stock of the Company, or any stock or other
securities into which such Common Stock shall have been changed, or for
which it shall have been exchanged, whether by reason of merger,
consolidation or otherwise, then the Administrator shall, in its sole
discretion, determine the appropriate adjustment, if any, to be effected.
In addition, in the event of such change described in this paragraph, the
Administrator may accelerate the time or times at which any Option may be
exercised and may provide for cancellation of such accelerated Options
which are not exercised within a time prescribed by the Administrator in
its sole discretion. Notwithstanding anything to the contrary herein, any
adjustment to Options granted pursuant to this Plan, particularly Options
intending to qualify as ISOs, shall comply with the requirements,
provisions and restrictions of the Code.
No right to purchase fractional shares shall result from any adjustment in
Options pursuant to this Section 8. In case of any such adjustment, the
shares subject to the Option shall be rounded down to the nearest whole
share. Notice of any adjustment shall be given by the Company to each
Participant which shall have been so adjusted and such adjustment (whether
or not notice is given) shall be effective and binding for all purposes of
the Plan.
9. LISTING OR QUALIFICATION OF STOCK
In the event that the Board of Directors or the Administrator determines in
its discretion that the listing or qualification of the Plan shares on any
securities exchange or quotation or trading system or under any applicable
law or governmental regulation is necessary as a condition to the issuance
of such shares under the Option, the Option may not be exercised in whole
or in part unless such listing, qualification, consent or approval has been
unconditionally obtained.
7
<PAGE>
10. WITHHOLDING
To the extent required by applicable federal, state, local or foreign law,
a Participant shall make arrangements satisfactory to the Company for the
satisfaction of any withholding tax obligations that arise by reason of an
Option exercise. The Company shall not be required to issue shares or to
recognize the disposition of such shares until such obligations are
satisfied. The Administrator may permit these obligations to be satisfied
by having the Company withhold a portion of the shares of stock that
otherwise would be issued to him or her upon exercise of the Option, or to
the extent permitted, by tendering shares previously acquired, provided
that such will not result in an accounting charge to the Company or its
Subsidiaries.
11. ADMINISTRATION AND AMENDMENT OF THE PLAN
The Plan shall be administered by the Administrator who shall be the
Compensation Committee of the Board of Directors or, in the absence of a
Compensation Committee, the Board of Directors itself. Subject to the
express provisions of this Plan, the Administrator shall be authorized and
empowered to do all things necessary or desirable in connection with the
administration of this Plan, including, without limitation: (a) to
prescribe, amend and rescind rules and regulations relating to this Plan
and to define terms not otherwise defined herein; (b) to determine which
persons are Participants (as defined in Section 3 hereof) and to which of
such Participants, if any, an Option shall be granted hereunder and the
timing of any such Option grants; (c) to determine the number of shares of
Common Stock subject to an Option and the exercise or purchase price of
such shares; (d) to establish and verify the extent of satisfaction of any
conditions to exercisability applicable to an Option; (e) to waive
conditions to and/or accelerate exercisability of an Option, either
automatically upon the occurrence of specified events (including in
connection with a change of control of the Company) or otherwise in its
discretion; (f) to prescribe and amend the terms of Option grants made
under this Plan (which need not be identical); (g) to determine whether,
and the extent to which, adjustments are required pursuant to Section 8
hereof; and (h) to interpret and construe this Plan, any rules and
regulations under the Plan and the terms and conditions of any Option
granted hereunder, and to make exceptions to any such provisions in good
faith and for the benefit of the Company or its Subsidiaries.
All decisions, determinations and interpretations by the Administrator
regarding the Plan, any rules and regulations under the Plan and the terms
and conditions of any Option granted hereunder, shall be final and binding
on all Participants and optionholders. The Administrator shall consider
such factors as it deems relevant, in its sole and absolute discretion, to
making such decisions, determinations and interpretations including,
without limitation, the recommendations or advice of any officer or other
employee of the Company and such attorneys, consultants and accountants as
it may select.
The Administrator may, from time to time, delegate some of its
responsibilities with respect to the administration of the Plan to such
persons as it may designate in its sole
8
<PAGE>
discretion but may not delegate authority to grant options to a person who
is not a member of the Board of Directors.
The interpretation and construction of any provision of the Plan by the
Board of Directors shall be final and conclusive. The Board of Directors
may periodically adopt rules and regulations for carrying out the Plan, and
amend the Plan as desired, without further action by the Company's
stockholders except to the extent required by applicable law. Any
amendment to the Plan will not affect the rights and obligations of the
Participants and the Company arising under Options theretofore granted and
then in effect. Notwithstanding the foregoing, and subject to adjustment
pursuant to Section 8, the Plan may not be amended to materially increase
the number of shares of Common Stock authorized for issuance, unless
approved by the Company's stockholders.
12. TIME OF GRANTING OPTIONS
The effective date of such Option shall be the date on which the grant was
made by the Administrator. Within a reasonable time thereafter, the
Company will deliver the Option to the Participant.
9
<PAGE>
THE CORPORATE EXECUTIVE BOARD COMPANY
STANDARD TERMS AND CONDITIONS FOR
1999 STOCK OPTION PLAN INCENTIVE STOCK OPTIONS
1. TERMS OF OPTION
1. 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") an incentive stock option (the
"Option") to purchase any part or all of the number of shares of the
Company's Class B Non-Voting 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"). For purposes
of these Standard Terms and Conditions and the Term Sheet, any reference to
the Company shall include a reference to any Subsidiary, as such term is
defined in the Plan.
2. INCENTIVE STOCK OPTION
The Option is intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and will be interpreted accordingly. Section 422 of the Code provides,
among other things, that the Optionee shall not be taxed upon the exercise
of a stock option that qualifies as an incentive stock option provided the
Optionee does not dispose of the shares of Common Stock acquired upon
exercise of such option until the later of two years after such option is
granted to the Optionee and one year after such option is exercised.
Notwithstanding anything to the contrary herein, Section 422 of the Code
provides that incentive stock options (including, possibly, the Option)
shall not be treated as incentive stock options if and to the extent that
the aggregate fair market value of shares of Common Stock (determined as of
the time of grant) with respect to which such incentive stock options are
exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and its subsidiaries) exceeds $100,000,
taking options into account in the order in which they were granted. Thus,
if and to the extent that any shares of Common Stock issued under a portion
of the Option exceeds the foregoing $100,000 limitation, such shares shall
not be treated as issued under an incentive stock option pursuant to
Section 422 of the Code.
3. OPTION EXERCISE PRICE
The exercise price (the "Exercise Price") of the Option is set forth in the
Term Sheet. In no event may the Exercise Price be less than the fair
market value of the Common Stock on the date of grant unless the Option is
granted in substitution of stock options granted by the Optionee's previous
employer or the Optionee pays or foregoes compensation in the amount of any
discount. Notwithstanding the foregoing, if the Optionee owns stock
possessing more than 10 percent of the combined voting power of all classes
of stock of the Company (after applying the ownership attribution rules set
forth under Section 422(d) of the Code and any successor provision), the
purchase price of such Option must
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be no less than 110 percent of the fair market value of the Common Stock on
the date of grant.
4. 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 and the
Plan, the Option shall be exercisable to the extent 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 5 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 or, if the Optionee owns stock possessing more than 10 percent of the
combined voting power of all classes of stock of the Company (after
applying the ownership attribution rules set forth under Section 422(d) of
the Code and any successor provision), no part of the Option may be
exercised after five (5) 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 commitment by a
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 fair
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 (d) by
any combination of the foregoing. In addition, the Exercise Price may be
payable in such other form(s) of consideration as the Administrator
(defined in the Plan) in its discretion shall specify, including without
limitation the acceptance of a promissory note secured by the number of
shares then issuable upon the exercise of the Option. Fractional shares
may not be exercised. Shares of Common Stock will be issued as soon as
practical after exercise.
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.
5. TERMINATION OF RELATIONSHIP
Upon the date of a termination of the Optionee's employment with the
Company for any reason other than those stated below in Sections 6 through
9, (A) any part of the Option that is unexercisable as of such termination
date shall remain unexercisable and shall
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<PAGE>
terminate as of such date, and (B) any part of the Option that is
exercisable as of such termination date shall expire the earlier of (i)
thirty (30) days following such date or (ii) the expiration date of the
Option.
6. DEATH
Upon the death of the Optionee while in the employ of the Company, the
Option shall be fully exercisable by his or her estate, heir or beneficiary
at any time during the twelve (12) months next succeeding the date of
death. Any part of the Option that is unexercised during the twelve (12)
months next succeeding the date of death shall terminate as of the end of
such twelve (12) month period.
If the Optionee should die within thirty (30) days of his or her
termination of employment with the Company, the Option shall be exercisable
by his or her estate, heir or beneficiary at any time during the twelve
(12) months succeeding the date of termination, but only to the extent of
the number of shares as to which such Option was exercisable as of the date
of such termination. Any part of the Option that is unexercised during the
twelve (12) months succeeding the date of termination shall terminate as of
the end of such twelve (12) month period. The Optionee's estate shall mean
his or her legal representative or other person who so acquires the right
to exercise the Option by bequest or inheritance or by reason of the death
of the Optionee.
7. TOTAL AND PERMANENT DISABLEMENT
Upon termination as a result of the Total and Permanent Disablement of the
Optionee, the Option shall be exercisable for a period of twelve (12)
months after such termination. Any part of the Option that is unexercised
during the twelve (12) months succeeding the date of termination shall
terminate as of the end of such twelve (12) month period.
For purposes of these Standard Terms and Conditions, "Total and Permanent
Disablement" of an individual shall mean the inability to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than 12 months. The determination of the Administrator as to the
Optionee's Total and Permanent Disablement shall be conclusive on all
parties.
8. RETIREMENT
Upon Retirement of the Optionee, the Option shall be exercisable for a
period of three (3) months after Retirement. The number of shares with
respect to which the Option shall be exercisable shall equal the total
number of shares which were exercisable under the Option on the date of his
or her Retirement. Any and all Options that are unexercised during the
three (3) months succeeding the date of termination shall terminate as of
the end of such three (3) month period.
For purposes of these Standard Terms and Conditions, "Retirement" shall
mean retirement from active employment with the Company (i) at or after age
55 and with the
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<PAGE>
approval of the Administrator or (ii) at or after age 65. The determination
of the Administrator as to an individual's Retirement shall be conclusive
on all parties.
9. ACT OF MISCONDUCT
If, at any time (including after a Notice of Exercise has been delivered),
the Chief Executive Officer or any other person designated by the
Administrator (each such person, an "Authorized Officer") reasonably
believes that the Optionee has committed an act of misconduct as described
in this Section 9, the Authorized Officer may suspend the Optionee's rights
to exercise his or her Option pending a determination of whether an act of
misconduct has been committed.
If the Administrator or an Authorized Officer determines the Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of any
obligation owed to the Company, breach of fiduciary duty or deliberate
disregard of the Company rules resulting in loss, damage or injury to the
Company, or if the Optionee makes an unauthorized disclosure of any Company
trade secret or confidential information, engages in any conduct
constituting unfair competition, induces any Company customer to breach a
contract with the Company or induces any principal for whom the Company
acts as agent to terminate such agency relationship, neither the Optionee
nor his or her estate nor any permitted transferee shall be entitled to
exercise the Option. In making such determination, the Administrator or an
Authorized Officer shall act fairly and shall give the Optionee an
opportunity to appear and present evidence on his or her behalf at a
hearing before the Administrator or the Board of Directors of the Company.
If the Optionee is an "executive officer" for purposes of Section 16 of the
Securities Exchange Act of 1934, the determination of the Authorized
Officer shall be subject to the approval of the Administrator.
10. INCOME TAXES WITHHOLDING
To the extent required by applicable federal, state, local or foreign law,
the Optionee shall make arrangements satisfactory to the Company for the
satisfaction of any withholding tax obligations that arise by reason of an
Option exercise. The Company shall not be required to issue shares or to
recognize the disposition of such shares until such obligations are
satisfied. The Administrator may permit these obligations to be satisfied
by having the Company withhold a portion of the shares of Common Stock that
otherwise would be issued to him or her upon exercise of the Option, or to
the extent permitted, by tendering shares previously acquired, provided
that such will not result in an accounting charge to the Company.
11. NON-TRANSFERABILITY OF OPTION
Unless otherwise provided by the Administrator, Optionee may not assign or
transfer the Option to anyone other than by will or the laws of descent and
distribution and the Option shall be exercisable only by Optionee during
his or her lifetime. The Company may
4
<PAGE>
cancel Optionee's Option if Optionee attempts to assign or transfer it in a
manner inconsistent with this Section 11.
12. 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.
13. 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.
14. 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 in the Company's employ or service nor limit
in any way the Company's right to terminate Optionee's employment at any
time for any reason.
15. 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: Administrator of 1999 Stock Option Plan
5
<PAGE>
If to the Optionee, to the address set forth below the Optionee's signature
on the Term Sheet.
16. 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.
17. 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.
18. 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.
19. 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.
20. ARBITRATION AND APPLICABLE LAW
Any claim, dispute or other matter in question of any kind relating to the
Option 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. The Plan, these Standard
Terms and Conditions, the Term Sheet and any rights thereunder shall be
interpreted and construed in accordance with the laws of the State of
Delaware and applicable federal law.
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<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.
February 10, 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>
