<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[X] THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-15144
GARTNER GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-3099750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 10212 06904-2212
56 Top Gallant Road (Zip Code)
Stamford, CT
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 316-1111
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Title of Class
Common Stock, Class A, $.0005 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by persons other
than those who may be deemed affiliates of the Company, as of November 30, 1997,
was approximately $1.5 billion. Shares of Common Stock held by each executive
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may under certain
circumstances be deemed to be affiliates. This determination of executive
officer or affiliate status is not necessarily a conclusive determination for
other purposes.
The number of shares outstanding of the Registrant's capital stock as
of November 30, 1997 was 97,565,408 shares of Common Stock, Class A.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement for the Annual Meeting of Stockholders of Registrant to
be held on January 20, 1998. Certain information therein is
incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS.
GENERAL
Gartner Group, Inc. ("Gartner Group" or the "Company"), founded in 1979, is the
world's leading independent provider of research and analysis on the computer
hardware, software, communications and related information technology ("IT")
industries. The Company is organized into three business units: GartnerAdvisory,
GartnerMeasurement and GartnerLearning. Advisory services encompass products
which provide research and analysis of significant IT industry trends and
developments. Measurement services encompass products which provide
comprehensive assessments of cost performance, efficiency and quality for all
areas of IT. The Company enters into annual renewable contracts for advisory and
measurement services and learning products, and distributes such services
through print and electronic media. GartnerLearning develops and publishes more
than 600 software education training products and services for computer desktop
and technical applications professionals. The Company's primary clients are
business professional users, purchasers and vendors of IT products and services.
With more then 600 sales professionals in 80 locations, Gartner Group product
offerings collectively provide comprehensive coverage of the IT industry to over
9,000 client organizations.
MARKET OVERVIEW
The explosion of complex IT products and services creates a growing demand for
independent research and analysis. Furthermore, IT is increasingly important to
organizations' business strategies as the pace of technological change has
accelerated and the ability of an organization to integrate and deploy new
information technologies is critical to its competitiveness. Companies planning
their IT needs must stay abreast of rapid technological developments in a
dynamic market where vendors continually introduce new products with a wide
variety of standards and ever-shorter life cycles. As a result, IT professionals
are making substantial financial commitments to IT systems and products and
require independent, third-party research in order to make purchasing and
planning decisions for their organization.
BUSINESS STRATEGY
The Company's objective is to maintain and enhance its market position as a
leading provider of in-depth, value-added, proprietary research and analysis of
the IT industry. The Company has adopted the following strategies to maintain
its market position and expand its core business:
Focus on the IT market. The Company targets as its clients corporate entities
and other large users and vendors of information technologies. Users of Gartner
Group's products and services include senior decision makers in information
systems organizations and other IT professionals such as purchasing and data
center managers. Vendors use market research data in order to evaluate
competitive products and market opportunities.
Maintain Research and Analysis Excellence. Gartner Group's global network of
research analysts is comprised of more than 750 professionals averaging ten
years of industry experience. Clients rely on Gartner Group's proven research
methodology to ensure consistent and comprehensive analysis in all areas of IT.
The Company maintains five primary research centers located in Stamford, CT,
Santa Clara, CA, Windsor, England, Brisbane, Australia, Tokyo, Japan and a
number of smaller, satellite research centers throughout the world.
Emphasize New Product Development and Strategic Acquisitions. The Company
introduces new research and advisory products each year. New product ideas
evolve from client inquiries, market need and through a multi-functional product
strategy committee. Fiscal 1997 investments and acquisitions include: Datapro
Information Services (7/97), a research firm specializing in products that
compare feature and functions of computer hardware, software and communications
products; Bouhot and Le Gendre (6/97), a publisher of French-based IT journals
and provider of conferences, events, custom consulting and IT executive
programs; and SPG Research and East Consulting (2Q97), strategic acquisitions in
the Asia/Pacific IT marketplace adding demand-side data and network and
telecommunications expertise, respectively, to the GartnerAdvisory product line.
Additionally, the Company has made minority investments in KnowledgeSoft (3/97),
whose products provide a tracking and administration system to GartnerLearning
training titles and in EC Cubed (12/96), a Web solutions and Internet content
provider.
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Increase Market Penetration. The Company has made substantial investments
developing new markets and establishing a global network of direct sales
personnel, independent sales representatives, distributors and joint venture
partners. This initiative is on-going and will continue to evolve with the
expansion of the Company's product and service offerings and delivery options.
Electronic delivery formats include CD-ROM, lotus Notes, intranets and the
Internet.
The Company believes that successful execution of these strategies will enable
the Company to expand its client base in domestic and international markets and
to penetrate its client base more effectively through a broader range of product
offerings.
PRODUCTS AND SERVICES
Advisory and Measurement services
The Company's principal products are annually renewable contracts for advisory
and measurement services, which encompass products which, on an ongoing basis,
highlight industry developments, review new products and technologies, provide
quantitative market research, analyze industry trends within a particular
technology or market sector and provide comparative analysis of the information
technology operations of organizations.
GartnerAdvisory provides qualitative and quantitative research and analysis that
clarifies decision-making for IT buyers, users and vendors. Advisory consists of
GartnerAnalytics, a provider of objective analysis that helps clients stay ahead
of IT trends, directions and vendor strategies; and GartnerMarketDynamics, a
provider of worldwide coverage of research, statistical analysis, growth
projections and market share rankings of suppliers and vendors to IT
manufacturers and the financial community. GartnerMeasurement provides
benchmarking, continuous improvement and best practices services. The Company
currently offers over 250 principal advisory and measurement services products.
Each service is supported by a team of research staff members with substantial
experience in the covered segment or topic of the IT industry. The Company's
staff researches and prepares published reports and responds to telephone and
E-mail inquiries from clients. Clients receive Gartner Group research and
analysis on paper and through a number of electronic delivery formats.
Learning
GartnerLearning publishes software education training products for computer
desktop and technical applications professionals. With more than 650 existing
titles, the Company will focus on the addition of training titles in the next
few years by investing significantly in product development and strategic
alliances with IT vendors and industry experts.
The Company provides a number of other complementary products and services
principally:
GartnerConsulting. Consulting services provide customized project
consulting on the delivery, deployment and management of high-tech
products and services. Principal practices of consulting services
include Technical Architecture, Outsourcing Decision Support, Evolving
High Technology Areas, Retainer Consulting Services and Vendor
Consulting.
GartnerEvents. Industry conferences and events provide comprehensive
coverage of IT issues and forecasts of key IT industry segments. The
conference season begins each year with Symposia, held in the United
States, Europe and the Asia/Pacific rim. These events are held in
conjunction with ITxpo(TM), a high technology learning lab.
Additionally, the Company sponsors other conferences, seminars and
briefings. Certain events are offered as part of a continuous services
subscription, however, the majority of events are individually paid for
prior to attendance.
The Company measures the volume of its advisory, measurement and learning
("AML") business based on contract value. The Company calculates contract value
as the annualized value of all AML contracts in effect at a given point in time,
without regard to the duration of the contracts outstanding at such time.
Historically, the Company has experienced that a substantial portion of client
companies have renewed these services for an equal or higher level of total
payments each year, and annual revenues from these services in any fiscal year
have closely correlated to contract value at the beginning of the fiscal year.
As of September 30, 1997, approximately 85 percent of the Company's clients have
renewed one or more of these services in the last twelve months. However, this
renewal rate is not necessarily indicative of the rate of retention of the
Company's revenue base, and contract value at any time may not be indicative of
future AML revenues or cash flows if the rate of renewal of AML services and
products or the timing of new business were to significantly change during the
following twelve months compared to historic patterns. Deferred revenues, as
presented in the Company's balance sheets, represent unamortized revenues from
AML services and products plus unamortized revenues of certain other services
and products not included in AML. Therefore, deferred revenues do not directly
correlate to contract value as of the same date since contract value represents
an annualized value of all outstanding AML contracts without regard to
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the duration of such contracts, and deferred revenues represents unamortized
revenue remaining on all outstanding AML contracts including AML services and
products and certain other services and products not included in AML revenue.
There can be no assurance that the Company will be able to sustain such high
renewal rates. Any deterioration in the Company's ability to generate
significant new business would impact future growth in the Company's business.
Moreover, a significant portion of the Company's new business in any given year
has historically been generated in the last portion of the fiscal year.
Accordingly, any such situation might not be apparent until late in the
Company's fiscal year.
COMPETITION
The Company believes that the principal competitive factors in its industry are
quality of research and analysis, timely delivery of information, customer
service, the ability to offer products that meet changing market needs for
information and analysis and price. The Company believes it competes favorably
with respect to each of these factors.
The Company experiences competition in the market for information products and
services from other independent providers of similar services as well as the
internal marketing and planning organizations of the Company's clients. The
Company also competes indirectly against other information technology providers,
including electronic and print media companies and consulting firms. The
Company's indirect competitors, many of whom have substantially greater
financial, information gathering and marketing resources than the Company, could
choose to compete directly against the Company in the future. In addition,
although the Company believes that it has established a significant market
presence, there are few barriers to entry into the Company's market and new
competitors could readily seek to compete against the Company in one or more
market segments addressed by the Company's AML services and products. Increased
competition, direct and indirect, 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 continue to provide the products and
services that meet client needs as the IT market rapidly evolves, or that the
Company can otherwise continue to compete successfully.
The Company has expanded its presence in the technology-based training industry
(GartnerLearning). The success of the Company in the technology-based training
industry will depend on its ability to compete with vendors of IT products and
services which include a range of education and training specialists, hardware
and system manufacturers, software vendors, system integrators, dealers,
value-added resellers and network/communications vendors, certain of whom have
significantly greater product breadth and market presence in the
technology-based training sector. There can be no assurance that the Company
will be able to provide products that compare favorably with new competitive
products or that competitive pressures will not require the Company to reduce
prices. Future success will also depend on the Company's ability to develop new
training products that are released timely with the introductions of the
underlying software products.
EMPLOYEES
As of September 30, 1997, the Company employed 2,885 persons. Of the 2,885
employees, 903 are located at the Company's headquarters in Stamford, CT area,
1,163 are located at other domestic facilities and 819 are located outside of
the United States. None of the Company's employees are represented by a
collective bargaining arrangement. The Company has experienced no work stoppages
and considers its relations with employees to be favorable.
The Company's future success will depend in large measure upon the continued
contributions of its senior management team, professional analysts, and
experienced sales personnel. Accordingly, future operating results will be
largely dependent upon the Company's ability to retain the services of these
individuals and to attract additional qualified personnel. The Company
experiences intense competition for professional personnel with, among others,
producers of IT products, management consulting firms and financial services
companies. Many of these firms have substantially greater financial resources
than the Company to attract and compensate qualified personnel. The loss of the
services of key management and professional personnel could have a material
adverse effect on the Company's business.
ITEM 2. PROPERTIES
The Company's headquarters are located in approximately 244,000 square feet of
leased office space in five buildings located in Stamford, CT. These facilities
accommodate research and analysis, marketing, sales, client support, production
and corporate administration. The leases on these facilities expire in 2010. The
Company also leases office space in 39 domestic and 36 international locations
to support its research and analysis, domestic and international sales efforts
and other functions. The Company believes its existing facilities and expansion
options are adequate for its current needs and that additional facilities are
available for lease to meet future needs.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in legal proceedings and litigation arising in the
ordinary course of business. The Company believes the outcome of all current
proceedings, claims and litigation will not have a material effect on the
Company's financial position or results of operations when resolved in a future
period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
Listed below are the executive officers of the Company as of November 30, 1997:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Manuel A. Fernandez 51 Chairman and Chief Executive Officer
William T. Clifford 51 President and Chief Operating Officer
E. Follett Carter 55 President, Gartner Group Distribution, Executive
Vice President, Sales and Marketing and
Chief Marketing Officer
John F. Halligan 50 Executive Vice President, Chief Financial
Officer, Treasurer and Corporate Secretary
Michael D. Fleisher 32 Executive Vice President and President,
Emerging Businesses
</TABLE>
Mr. Fernandez has served as Chairman of the Board since April 1996, as Chief
Executive Officer since April 1991, and as a Director since January 1991. Mr.
Fernandez also held the title of President from January 1991 through September
30, 1997. Prior to joining the Company, he was President and Chief Executive
Officer of Dataquest, Inc. Before joining Dataquest, Mr. Fernandez was President
and Chief Executive Officer of Gavilan Computer Corporation, a laptop computer
manufacturer, and Zilog, Incorporated, a semiconductor manufacturing company.
Mr. Fernandez holds a bachelor's degree in electrical engineering from
University of Florida, and completed post-graduate work in solid state
engineering at University of Florida and in business administration at the
Florida Institute of Technology. Mr. Fernandez is also on the board of directors
of the Brunswick Corporation, Getty Communications P.L.C., SACIA (The Business
Council of Southwestern Connecticut) and Norwalk Community Technical College
(Norwalk, Connecticut).
Mr. Clifford has been President of Gartner Group since October 1997, Chief
Operating Officer of the Company since April 1995 and Executive Vice President,
Operations of the Company since October 1993. From October 1995 to September
1997, Mr. Clifford was president Gartner Group Research. Prior to joining
Gartner Group, Mr. Clifford served as President, Central Division and Senior IT
Executive for Product Development for ADP Corp., a payroll service provider.
Previously, Mr. Clifford was Executive Vice President and Chief Operating
Officer of Applied Data Research, a supplier of computer software. Mr. Clifford
holds a bachelor's degree in economics from the University of Connecticut.
Mr. Carter has been with the Company since November 1988 and has been President,
Gartner Group Distribution since October 1995, Chief Marketing Officer since
April 1995 and Executive Vice President, Sales and Marketing since July 1993.
From April 1991 to July 1993, he was Senior Vice President, Sales and Marketing;
from May 1990 to March 1991, he was Vice President, Sales; and from November
1988 to April 1990, he was Vice President and Service Director of Electronic
Output Strategies. Mr. Carter holds a bachelor's degree from Case Western
Reserve, and an M.B.A. degree in finance and marketing from Columbia University.
Mr. Halligan has been Executive Vice President, Chief Financial Officer,
Treasurer and Corporate Secretary since September 1991. Prior to joining Gartner
Group, Mr. Halligan spent more than 22 years at General Electric Company in a
variety of financial management roles, including Staff Vice President, Finance
at GE Communications and Services from May 1988 to September 1991. Mr. Halligan
holds a bachelor's degree in economics from Providence College. Mr. Halligan
currently serves on the board of directors of the Stamford Chapter of the
American Red Cross.
Mr. Fleisher has been Executive Vice President of the Company and President,
Gartner Group Emerging Businesses since November 1996. From October 1995, he was
Senior Vice President, Emerging Businesses; from October 1994 to October
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1995, he was Vice President Worldwide Events; from April 1993 to October 1995 he
was Vice President of Business Development. Mr. Fleisher's previous business
experience includes working as an associate at Information Partners, a venture
capital firm, from 1990 to 1993. Mr. Fleisher holds a bachelor's degree in
economics from Wharton School of Business.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company effected an initial public offering of its Class A Common Stock in
October 1993 at a price to the public of $2.75 per share. As of November 30,
1997, there were approximately 234 holders of record of the Company's Class A
Common. The Company's Class A Common Stock is listed for quotation in the Nasdaq
National Market under the symbol "GART."
The Company has not paid any cash dividends on its common stock and currently
intends to retain any future earnings for use its business. Accordingly, the
Company does not anticipate that any cash dividends will be declared or paid on
the common stock in the foreseeable future.
The quarterly market price is included in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Common Stock
Information.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The presentation under "Selected Consolidated Financial Data" is included in
Item 8. Consolidated Financial Statements and Supplementary Data - Selected
Financial Data.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained on pages 13 through 19 of the 1997 Annual Report to
Stockholders of Registrant is incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED FINANCIAL STATEMENTS
The Company's consolidated financial statements for the fiscal years ended
September 30, 1997 and 1996, together with the report thereon of KPMG Peat
Marwick LLP, independent auditors, dated October 31, 1997, on page 35 of the
1997 Annual Report to Stockholders of Registrant is incorporated herein by
reference. The Company's consolidated financial statements for the fiscal year
ended September 30, 1995, together with the report thereon of Price Waterhouse
LLP, independent accountants, dated November 1, 1995, except as to the Dataquest
acquisition discussed in Note 3, which is as of January 25, 1996) and the stock
split discussed in Note 10, which is as of March 29, 1996, is included as
Exhibit 23.4 to this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None in the fiscal year ended September 30, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to Directors is set forth under the caption "Proposal One:
Election of Directors" on pages 3 through 10 in the Proxy Statement for Annual
Meeting of Stockholders of Registrant to be held January 20, 1998 and is
incorporated herein by reference. Certain information regarding Executive
Officers of the Registrant is presented after Item 4 in Part I of this 1997
Annual Report on Form 10-K.
Information relating to Section 16(a) of the Exchange Act is set forth under the
caption "Section 16(a) Reporting Delinquencies " on page 14 in the Proxy
Statement for Annual Meeting of Stockholders of Registrant to be held January
20, 1998 and is incorporated herein by reference.
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ITEM 11. EXECUTIVE COMPENSATION.
Information relating to Executive Compensation is set forth under the caption
"Executive Compensation" on pages 5 through 9 of the Proxy Statement for Annual
Meeting of Stockholders of Registrant to be held January 20, 1998 and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to Security Ownership of Certain Beneficial Owners and
Management is set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" on page 11 in the Company's Proxy Statement
for Annual Meeting of Stockholders of Registrant to be held January 20, 1998 and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to Certain Relationships and Related Transactions is set
forth under the caption "Certain Relationships and Transactions" of the Proxy
Statement for Annual Meeting of Stockholders of Registrant to be held January
20, 1998 on page 12 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The presentation under "Financial Statements" is included in
Item 8. Consolidated Financial Statements and Supplementary
Data.
2. Financial Statement Schedule
II. Valuation and qualifying accounts
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable
or is shown in the financial statements or notes thereto.
3. Exhibits
Exhibit
Number Description of Document
------ -----------------------
3.1(a)(2) Restated Certificate of Incorporation
3.1(b)(5) Amendment dated March 18, 1996 to Restated
Certificate of Incorporation
3.2(5) Amended Bylaws, as of April 24, 1997
4.1 Article IV and V of Restated Certificate
of Incorporation (see Exhibits 3.1(a)
and (b))
4.2(1) Form of Certificate for Common Stock
10.1(1) Form of Indemnification Agreement
10.2(1) Amended and Restated Registration Rights
Agreement dated March 19, 1993 among the
Registrant, Dun & Bradstreet Corporation
and D&B Enterprises, Inc.
10.3(1) Stockholder's Agreement dated as of March
19, 1993 by and between the Registrant
and Dun & Bradstreet Corporation
10.4(2) Lease dated December 29, 1994 by and between
Soundview Farms and the Registrant
related to premises at 56 Top Gallant
Road, 70 Gatehouse Road, and 88 Gatehouse
Road, Stamford, Connecticut
10.5 Lease dated May 16, 1997 by and between
Soundview Farms and the Registrant
related to premises at 56 Top Gallant
Road, 70 Gatehouse Road, 88 Gatehouse
Road and 10 Signal Road, Stamford,
Connecticut (amendment to lease dated
December 29, 1994, see exhibit 10.4)
10.6(1)* Long Term Incentive Plan (Tenure Plan),
including form of Employee Stock Purchase
Agreement
10.7(4)* 1991 Stock Option Plan, as amended and
restated on February 24, 1997
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10.8(1)* 1993 Director Stock Option Plan
10.9(1)* Employee Stock Purchase Plan
10.10(4)* 1994 Long Term Stock Option Plan, as amended
and restated on February 24, 1997
10.11(2) Forms of Master Client Agreement
10.12(1) Commitment Letter dated July 16, 1993 from
The Bank of New York
10.13(1) Indemnification Agreement dated April 16,
1993 by and among the Registrant, Cognizant
(as successor to the Dun & Bradstreet
Corporation) and the Information
Partners Capital Fund
10.15 (3) Commitment Letter dated September 30, 1996
from Chase Manhattan Bank
10.16(4)* 1996 Long Term Stock Option Plan, as amended
and restated on February 24, 1997
10.17* Promissory Note from Manuel A. Fernandez
dated June 4, 1997
10.18* Promissory Note from William T. Clifford
dated June 4, 1997
10.19* Promissory Note from E. Follett Carter dated
June 4, 1997
10.20* Promissory Note from John F. Halligan dated
June 4, 1997
10.21* Employment Agreement by and between
Manuel A. Fernandez and Gartner Group, Inc.
as of April 1, 1997
11.1 Computation of Net Income per Common Share
13.1 Annual report to stockholders
21.1 Subsidiaries of Registrant
23.1 Auditors' Report on Schedule and Consent
23.2 Accountants' Consent
23.3 Report of Independent Accountants
23.4 Report of Independent Accountants on
Financial Statement Schedule
24.1 Power of Attorney (see Signature Page)
27.1 Financial Data Schedules
* Management contract or compensation plan or
arrangement required to be filed as an exhibit to
this report on Form 10-K pursuant to Item 14(c) this
report.
(1) Incorporated by reference from the Registrant's
Registration Statement on Form S-1 (File No.
33-67576), as amended, effective October 4, 1993.
(2) Incorporated by reference from the Registrant's
Annual Report on Form 10-K as filed on December 21,
1995.
(3) Incorporated by reference from the Registrant's
Annual Report on Form 10-K as filed on December 17,
1996.
(4) Incorporated by reference from Registrant's Quarterly
Report on Form10-Q as filed on August 14, 1997.
(5) Incorporated by reference from Registrant's
Registration Statement on Form S-8 (File No.
333-35169) as filed on September 8, 1997.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the fiscal
quarter ended September 30, 1997.
(c) Exhibits
See (a) above.
(d) Financial Statement Schedule
See (a) above.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Stamford, State of Connecticut, on the 12th day of December, 1997.
GARTNER GROUP, INC.
By: /s/ MANUEL A. FERNANDEZ
--------------------------------
Manuel A. Fernandez
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Manuel A. Fernandez and John F. Halligan,
and each of them acting individually, as his attorney-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Report.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
on Form 10-K has been signed by the following persons in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ MANUEL A. FERNANDEZ Director, Chairman of the Board and December 12, 1997
- ------------------------ Chief Executive Officer (Principal
Manuel A. Fernandez Executive Officer)
/s/ JOHN F. HALLIGAN Executive Vice President and Chief December 12, 1997
- -------------------- Financial Officer (Principal Financial
John F. Halligan and Accounting Officer)
/s/ MAX HOPPER Director December 12, 1997
- ---------------
Max Hopper
/s/ JOHN P. IMLAY Director December 12, 1997
- ------------------
John P. Imlay
/s/ STEPHEN G. PAGLIUCA Director December 12, 1997
- ------------------------
Stephen G. Pagliuca
/s/ DENNIS G. SISCO Director December 12, 1997
- --------------------
Dennis G. Sisco
/s/ WILLIAM O. GRABE Director December 12, 1997
- ---------------------
William O. Grabe
/s/ ROBERT E. WEISSMAN Director December 12, 1997
- -----------------------
Robert E. Weissman
By:/s/ JOHN F. HALLIGAN December 12, 1997
--------------------
John F. Halligan
Attorney-in-fact
</TABLE>
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EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
3.1(a)(2) Restated Certificate of Incorporation
3.1(b)(5) Amendment dated March 18, 1996 to Restated
Certificate of Incorporation
3.2(5) Amended Bylaws, as of April 24, 1997
4.1 Article IV and V of Restated Certificate
of Incorporation (see Exhibits 3.1(a)
and (b))
4.2(1) Form of Certificate for Common Stock
10.1(1) Form of Indemnification Agreement
10.2(1) Amended and Restated Registration Rights
Agreement dated March 19, 1993 among the
Registrant, Dun & Bradstreet Corporation
and D&B Enterprises, Inc.
10.3(1) Stockholder's Agreement dated as of March
19, 1993 by and between the Registrant
and Dun & Bradstreet Corporation
10.4(2) Lease dated December 29, 1994 by and between
Soundview Farms and the Registrant
related to premises at 56 Top Gallant
Road, 70 Gatehouse Road, and 88 Gatehouse
Road, Stamford, Connecticut
10.5 Lease dated May 16, 1997 by and between
Soundview Farms and the Registrant
related to premises at 56 Top Gallant
Road, 70 Gatehouse Road, 88 Gatehouse
Road and 10 Signal Road, Stamford,
Connecticut (amendment to lease dated
December 29, 1994, see exhibit 10.4)
10.6(1)* Long Term Incentive Plan (Tenure Plan),
including form of Employee Stock Purchase
Agreement
10.7(4)* 1991 Stock Option Plan, as amended and
restated on February 24, 1997
<PAGE> 11
10.8(1)* 1993 Director Stock Option Plan
10.9(1)* Employee Stock Purchase Plan
10.10(4)* 1994 Long Term Stock Option Plan, as amended
and restated on February 24, 1997
10.11(2) Forms of Master Client Agreement
10.12(1) Commitment Letter dated July 16, 1993 from
The Bank of New York
10.13(1) Indemnification Agreement dated April 16,
1993 by and among the Registrant, Cognizant
(as successor to the Dun & Bradstreet
Corporation) and the Information
Partners Capital Fund
10.15 (3) Commitment Letter dated September 30, 1996
from Chase Manhattan Bank
10.16(4)* 1996 Long Term Stock Option Plan, as amended
and restated on February 24, 1997
10.17* Promissory Note from Manuel A. Fernandez
dated June 4, 1997
10.18* Promissory Note from William T. Clifford
dated June 4, 1997
10.19* Promissory Note from E. Follett Carter dated
June 4, 1997
10.20* Promissory Note from John F. Halligan dated
June 4, 1997
10.21* Employment Agreement by and between
Manuel A. Fernandez and Gartner Group, Inc.
as of April 1, 1997
11.1 Computation of Net Income per Common Share
13.1 Annual report to stockholders
21.1 Subsidiaries of Registrant
23.1 Auditors' Report on Schedule and Consent
23.2 Accountants' Consent
23.3 Report of Independent Accountants
23.4 Report of Independent Accountants on
Financial Statement Schedule
24.1 Power of Attorney (see Signature Page)
27.1 Financial Data Schedules
* Management contract or compensation plan or
arrangement required to be filed as an exhibit to
this report on Form 10-K pursuant to Item 14(c) this
report.
(1) Incorporated by reference from the Registrant's
Registration Statement on Form S-1 (File No.
33-67576), as amended, effective October 4, 1993.
(2) Incorporated by reference from the Registrant's
Annual Report on Form 10-K as filed on December 21,
1995.
(3) Incorporated by reference from the Registrant's
Annual Report on Form 10-K as filed on December 17,
1996.
(4) Incorporated by reference from Registrant's Quarterly
Report on Form10-Q as filed on August 14, 1997.
(5) Incorporated by reference from Registrant's
Registration Statement on Form S-8 (File No.
333-35169) as filed on September 8, 1997.
<PAGE> 1
Exhibit 10.5
TABLE OF CONTENTS
-----------------
Soundview Farms - Gartner Group, Inc.
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
- ------- ----- ----
<S> <C> <C>
I Landlord's Representations 2
II Construction 3
III Rent 3
IV Taxes and Utilities 4
V Use of the Premises 6
VI Repairs 6
VII Changes, Alternations and Improvements 6
VIII Compliance with Laws, Etc. 7
IX Net Lease; Non-Terminability 7
X Assignment 7
XI Insurance 7
XII Damage or Destruction 7
XIII Mechanics Liens 7
XIV Condemnation 8
XV Tenant's Trade Fixtures 8
XVI Signs 8
XVII Indemnity 8
XVIII Advances by the Landlord; Entry by Landlord 8
XIX Tenant's Default 8
XX Additional Rights of Parties 8
XXI Notices, Demands and Other Instruments 9
XXII Jury Waiver 9
XXIII Surrender 9
XXIV No Broker 9
XXV Separability 9
XXVI Binding Effect 9
XXVII Mortgage and Subordination 10
XXVIII Permitted Contest 10
XXIX Landlord Default 10
XXX Quiet Enjoyment 11
XXXI Notice of Lease 11
XXXII Counterpart Execution 11
XXXIII Headings 11
XXXIV Further Assurances 11
XXXV Approvals 11
XXXVI Estoppel Certificate 11
XXXVII Force Majeure 12
XXXVIII Arbitration 12
XXXIX Option to Renew 12
XXXX Environmental Representations 17
</TABLE>
<PAGE> 2
LEASE (the "Lease") made this 16 day of May 1997 by and between SOUNDVIEW
FARMS, a Connecticut partnership having a place of business in the city of
Stamford, county of Fairfield in said State, hereinafter called "Landlord" and
GARTNER GROUP, INC., a corporation organized and existing under the laws of the
State of Delaware and having a place of business in said Stamford, hereinafter
called "Tenant".
WHEREAS, Landlord and Tenant on December 29, 1994 entered into a lease
agreement (the "1994 Lease") of three tracts of land with the buildings thereon
situated in the said Stamford, and
WHEREAS, Landlord and Tenant now wish to lease certain premises and the
building thereon, hereinafter described, and to incorporate certain applicable
terms and conditions of said 1994 Lease by reference.
W I T N E S S E T H
NOW THEREFORE, in consideration of the rents, terms, covenants and
conditions hereinafter set forth, Landlord hereby leases to Tenant and Tenant
hereby hires from Landlord those certain premises described in Schedule A
hereto and made a part hereof, and all rights, covenants, privileges and
appurtenances thereto belonging or in any wise appertaining thereto (the
"Land") and the building (the "Building") located on the Land, the Land and
Building herein collectively called the "Premises".
TO HAVE AND TO HOLD, the Premises unto Tenant for a term commencing on
October 1, 1997 and expiring on the last day of September, 2010, or at such
earlier date by prior cancellation or termination pursuant to the provisions of
this Lease, or at such later termination date by extension of the term hereof.
<PAGE> 3
IT IS HEREBY mutually covenanted and agreed between Landlord and Tenant
as follows:
ARTICLE I. LANDLORD'S REPRESENTATIONS.
A. Landlord represents to Tenant:
i) that Landlord is the sole owner in fee simple of the Premises,
ii) that Landlord has the full right and authority to lease the
Premises and to otherwise enter into this Lease on the terms and conditions set
forth herein,
iii) that no other approval or consent of any other party is required
except for the consent of The Equitable Life Assurance Society of the United
States ("Equitable"), and
iv) that Landlord is not in default of its obligations to Equitable
and Landlord is current in all its payments to Equitable.
B. The use of the Premises, including inter alia, the use for any
Specified Use (hereinafter defined) shall be permitted as a matter of right
under current Stamford zoning ordinances and will not breach any applicable
covenant, condition, restriction or easement affecting the Premises.
C. Landlord has not received any notice of any condemnation proceeding
with respect to any portion of the Premises and to the best of Landlord's
knowledge no proceeding is contemplated by any governmental authority.
D. The Premises are free of all other tenancies except a lease dated
February 7, 1989, which lease by agreement shall terminate March 31, 1997, and
Tenant shall have sole
2
<PAGE> 4
and exclusive possession of the Premises from the commencement of the term
regardless of whether Tenant in fact takes occupancy of the entire Premises.
E. At the time of the commencement of the Lease term, all facilities and
mechanical systems serving the Premises shall be in good working order and
operative and the Building thereon structurally sound.
ARTICLE II. CONSTRUCTION.
The fit-up of the Building shall be done by Landlord's contractor, Bull
Finn Corp., pursuant to plans and specifications (the "Plans") prepared by
Tenant, at the expense of Tenant in accordance with a contract dated March 17,
1997, a copy of which contract is attached hereto as Schedule B.
Landlord shall direct the contractor, Bull Finn Corp., to commence such
fit-up on the Premises in accordance with said Plans within two (2) working
days of the issuance of the necessary building permit. The work shall be
processed and paid for pursuant to the terms of said contract by and between
Tenant and said contractor.
If, during the first year of the term, there are any necessary repairs or
corrections to the Premises caused by deficiency of workmanship or materials
used by Landlord's contractor or its suppliers in the fit-up of the Building,
Landlord shall repair or correct same at its sole cost and expense.
ARTICLE III. RENT.
A. A Lease Year shall mean the twelve (12) month period running from
October 1 through the last day of September in the next year.
3
<PAGE> 5
B. During the term hereof Tenant covenants to pay to Landlord for the
Premises an annual Basic Rent in each Lease Year of $247,000 payable in equal
monthly installments of $20,625 on the first day of each and every month, in
advance, commencing October 1, 1997 to and including September 1, 2010.
All of said Basic Rent payments shall be paid at the office of the
Landlord, 43 Gate House Road, Stamford, Connecticut or at such other place
Landlord may designate by notice.
C. Tenant covenants and agrees that all other amounts which Tenant assumes
and agrees to pay or discharge pursuant to this Lease, together with any fine,
penalty, interest or cost which may pursuant to the provisions of this Lease be
added for late payment, if late payment is the fault of Tenant thereof, shall
constitute additional rent hereunder and in case of failure of Tenant to pay or
discharge any of the foregoing, Landlord shall have all of the rights, powers
and remedies provided herein, or by law, in the case of nonpayment of Basic
Rent.
ARTICLE IV. TAXES AND UTILITIES.
A. During the term hereof, Tenant shall pay as additional rent all real
estate taxes, assessments and charges levied by any governmental authority upon
the Premises, together with all interest and penalties (imposed due to Tenant's
fault) thereon, or upon or against any Basic Rent or additional rent reserved or
payable hereunder, or upon or against this Lease or the leasehold estate hereby
created, or the gross receipts from the Premises, or the earnings arising from
the use thereof, other than (i) franchise, capital stock or similar
4
<PAGE> 6
taxes, if any, of Landlord, or (ii) income, estate, excess profits or other
similar taxes upon Landlord's receipts, and/or the receipts of any of the
persons who are partners in Landlord, if any (unless the taxes referred to in
clauses (i) and (ii) are in lieu of or a substitute for any other tax,
assessment or charge upon, or with respect to the Premises which, if such other
tax, assessment or charge were in effect, would be payable by Tenant, in which
event such taxes shall be computed as though the Premises were the only
property of Landlord and/or of each such partner and the Basic Rent payable
hereunder the only income of Landlord and/or of each such partner). Nothing
above is intended to require that Landlord and/or any of the persons who are
partners of Landlord submit any more documentation than is necessary to support
the receipts from the Premises. Tenant shall pay to Landlord said taxes,
assessments and charges not later than fifteen (15) days after Landlord
notifies Tenant of the amount of such tax, assessment and charge, provided the
same is then due and payable, and if not, then within fifteen (15) days after
the same become due and payable. The notification by Landlord to Tenant shall
include copies of the computation by Landlord and copies of bills received by
Landlord so as to afford Tenant the opportunity to verify any such tax,
assessment or charge. The amount of such tax, assessment or charge which Tenant
shall pay shall be based upon the Building on the Premises and the percentage
which the area of the Land bears to the entire area of property assessed and
taxed as one unit in Landlord's name.
B. In the event any governmental authority shall hereafter levy taxes on
the Premises which shall be for the purpose of providing services now provided
by the municipality and for which municipal real estate taxes are now levied
(e.g. education);
5
<PAGE> 7
Tenant shall also pay as additional rent that portion of such taxes which is
attributable to such services to the extent the same are in lieu of, or a
substitute for, the aforesaid municipal real estate taxes.
C. From and after the commencement of the term Tenant shall pay directly
to any municipal authority or to any public service company which shall furnish
the same, all the charges for sewage, water, gas, electricity or power consumed
at or supplied to the Premises and, subject to Landlord's maintenance
obligations, warranties and representations, will comply with all public
service and/or municipal authority requirements for the maintenance and
continuation of said services.
D. The customary adjustments and apportionments of real estate taxes and
assessments (customarily made with respect to a closing of title in Stamford,
Connecticut) shall be made between Landlord and Tenant as of October 1, 1997
and as of the date of the termination of this Lease.
ARTICLE V. USE OF THE PREMISES.
The terms of ARTICLE VII of the 1994 Lease are incorporated herein by
reference.
ARTICLE VI. REPAIRS.
The terms of ARTICLE VIII of the 1994 Lease are incorporated herein by
reference.
ARTICLE VII. CHANGES, ALTERATIONS AND IMPROVEMENTS.
The terms of ARTICLE IX of the 1994 Lease are incorporated herein by
6
<PAGE> 8
reference.
ARTICLE VIII. COMPLIANCE WITH LAWS, ETC.
The terms of ARTICLE X of the 1994 Lease are incorporated herein by
reference, except where the estimated cost in the 1994 Lease is $1,000,000, in
this Lease it is $200,000.
ARTICLE IX. NET LEASE; NON-TERMINABILITY.
The terms of ARTICLE XI of the 1994 Lease are incorporated herein by
reference.
ARTICLE X. ASSIGNMENT.
The terms of ARTICLE XII of the 1994 Lease are incorporated herein by
reference.
ARTICLE XI. INSURANCE.
The terms of ARTICLE XIII of the 1994 Lease are incorporated herein by
reference.
ARTICLE XII. DAMAGE OR DESTRUCTION.
The terms of ARTICLE XIV.A.B. of the 1994 Lease are incorporated herein by
reference.
ARTICLE XIII. MECHANICS LIENS.
The terms of ARTICLE XV of the 1994 Lease are incorporated herein by
reference.
7
<PAGE> 9
ARTICLE XIV. CONDEMNATION.
The terms of ARTICLE XVI.A. B. D. E. F. of the 1994 Lease are incorporated
herein as paragraphs A. B. C. D. E. of this Article.
ARTICLE XV. TENANT'S TRADE FIXTURES.
The terms of ARTICLE XVII of the 1994 Lease are incorporated herein by
reference.
ARTICLE XVI. SIGNS.
The terms of ARTICLE XVIII of the 1994 Lease are incorporated herein by
reference.
ARTICLE XVII. INDEMNITY.
The first two paragraphs of ARTICLE XIX of the 1994 Lease are incorporated
herein by reference.
ARTICLE XVIII. ADVANCES BY THE LANDLORD; ENTRY BY LANDLORD.
The terms of ARTICLE XX of the 1994 Lease are incorporated herein by
reference.
ARTICLE XIX. TENANT'S DEFAULT.
The terms of ARTICLE XXI of the 1994 Lease are incorporated herein by
reference.
ARTICLE XX. ADDITIONAL RIGHTS OF PARTIES.
The terms of ARTICLE XXII of the 1994 Lease are incorporated herein by
reference.
8
<PAGE> 10
ARTICLE XXI. NOTICES, DEMANDS AND OTHER INSTRUMENTS.
The terms of ARTICLE XXIII of the 1994 Lease are incorporated herein by
reference except that notice to the Tenant should be given to the attention of
the Director of Real Estate.
ARTICLE XXII. JURY WAIVER.
The terms of ARTICLE XXIV of the 1994 Lease are incorporated herein by
reference.
ARTICLE XXIII. SURRENDER.
The terms of ARTICLE XXV of the 1994 Lease are incorporated herein by
reference.
ARTICLE XXIV. NO BROKER.
Tenant represents that no broker showed the Premises to it or interested
it therein and agreed to hold Landlord harmless from the claims of any broker,
provided such claims are based upon having shown the Premises to Tenant or
interested it therein or was the procuring cause in this Lease.
ARTICLE XXV. SEPARABILITY.
The terms of ARTICLE XXVII of the 1994 Lease are incorporated herein by
reference.
ARTICLE XXVI. BINDING EFFECT.
The terms of ARTICLE XXVIII of the 1994 Lease are incorporated herein by
reference.
9
<PAGE> 11
ARTICLE XXVII. MORTGAGE AND SUBORDINATION.
A. This Lease shall, at such mortgagee's option, be subject and
subordinate to the lien of any mortgage or mortgages which may now or hereafter
affect or become a lien upon the Premises, provided that the mortgagee shall be
an insurance company, a real estate investment trust, a bank, a savings and
loan association or a pension fund or trust or a combination of the foregoing,
and provided further the conditions in paragraph C are met.
B. Tenant shall execute any instruments which may be required to
effectuate such subordination, consistent with the provisions of this Article,
including, but not limited to, an acknowledgement that the commencement date
has begun and the execution of an Estoppel Certificate, if required by the
mortgagee, but in no event shall the execution of said Estoppel Certificate
release Landlord from all of its obligations under this Lease.
C. The subordination of this Lease to the lien of mortgage or mortgages
as aforesaid is subject to the express condition (and Landlord agrees in all
events with respect to any mortgage affecting the Premises) that Landlord shall
provide to Tenant a Subordination, Non-Disturbance and Attornment Agreement
(the "Agreement") substantially in form as attached hereto as Schedule C.
ARTICLE XXVIII. PERMITTED CONTEST.
The terms of ARTICLE XXX of the 1994 Lease are incorporated herein by
reference.
ARTICLE XXIX. LANDLORD DEFAULT.
The terms of ARTICLE XXXI of the 1994 Lease are incorporated herein by
10
<PAGE> 12
reference.
ARTICLE XXX. QUIET ENJOYMENT.
The terms of ARTICLE XXXII of the 1994 Lease are incorporated herein
by reference.
ARTICLE XXXI. NOTICE OF LEASE.
The terms of ARTICLE XXXIII of the 1994 Lease are incorporated herein
by reference.
ARTICLE XXXII. COUNTERPART EXECUTION.
The terms of ARTICLE XXXIV of the 1994 Lease are incorporated herein
by reference.
ARTICLE XXXIII. HEADINGS.
The terms of ARTICLE XXXV of the 1994 Lease are incorporated herein
by reference.
ARTICLE XXXIV. FURTHER ASSURANCES.
The terms of ARTICLE XXXVI of the 1994 Lease are incorporated herein
by reference.
ARTICLE XXXV. APPROVALS.
The terms of ARTICLE XXXVII of the 1994 Lease are incorporated herein
by reference.
ARTICLE XXXVI. ESTOPPEL CERTIFICATE.
The terms of ARTICLE XXXVIII of the 1994 Lease are incorporated herein
by
11
<PAGE> 13
reference.
ARTICLE XXXVII. FORCE MAJEURE.
The terms of ARTICLE XXXIX of the 1994 Lease are incorporated herein by
reference.
ARTICLE XXXVIII. ARBITRATION.
The terms of ARTICLE XXXX of the 1994 Lease are incorporated herein by
reference.
ARTICLE XXXIX. OPTION TO RENEW.
A. Provided Tenant is not in default in the payment of rent, additional
rent or other material term of this Lease beyond any applicable cure period,
Tenant shall have the option of renewing the Lease (the "First Option to
Renew") for an additional term of five (5) years (the "First Renewal Term")
from October 1, 2010 to September 30, 2015, by sending to Landlord written
notice on or before six months prior to said October 1, 2010 that it is
extending the term. Upon receipt of such written notice the parties shall
attempt to agree upon a fair Annual Basic Rent which shall be based upon the
fair market rental of the Premises. In the event the parties cannot agree on
such fair market rental for the Premises by at least one hundred forty-five
(145) days before October 1, 2010, then Landlord and Tenant shall each appoint
a member of the American Institute of Appraisers who shall have at least five
years experience in appraising commercial property in Fairfield County,
Connecticut. Such appointments shall be made in writing by each party to the
other and to the appraisers so appointed. Said appointments shall be made at
least one hundred twenty-
12
<PAGE> 14
five (125) days before October 1, 2010. In the event said appraisers do not
agree upon a fair market rental prior to sixty (60) days before October 1,
2010, they shall promptly appoint a third appraiser with similar
qualifications, and said three appraisers shall determine the fair market
rental of the Premises prior to thirty (30) days before October 1, 2010. If
said three appraisers are unable jointly to agree prior to October 1, 2010 on
the fair market rental of the Premises, then in that event an average of the
three values for fair market rental shall be utilized, provided that the
variation between the high value and the low value does not exceed five (5)
percent, to determine the fair Annual Basic Rent. In the event of the failure
of the appraisers to agree upon a third appraiser as aforesaid, or in the event
the variation between the high rental and the low rental exceeds five (5)
percent, or in the event that either Landlord or Tenant shall fail to appoint
an appraiser as aforesaid within the time above set forth therefor, then either
Landlord or Tenant shall make an application to the American Arbitration
Association for the appointment of an appraiser, and such appraiser, together
with advice from the other appraisers, shall determine the fair Annual Basic
Rent as soon as possible after his appointment. Except for said Annual Basic
Rent change, all of the other covenants and agreements contained herein shall
remain in force and effect on the Premises during such First Renewal Term.
Notwithstanding the foregoing, Tenant shall have the right to rescind its
election to renew the term of this Lease, which rescission must be made prior
to October 1, 2010. If Tenant shall so rescind its election to renew, the Lease
shall terminate six (6) months after said October 1, 2010, during which six
month period Tenant shall pay Annual Basic Rent at the new rate fixed by the
process above described and shall
13
<PAGE> 15
reimburse Landlord for all reasonable costs and expenses incurred by Landlord in
connection with Tenant's exercise of the First Option to Renew.
B. Provided Tenant is not in default in payment of rent, additional rent
or other material matter, Tenant shall have the option of renewing the Lease
(the "Second Option to Renew") for an additional term of five (5) years (the
"Second Renewal Term") from October 1, 2015 to September 30, 2020 by sending to
Landlord written notice on or before six months prior to said October 1, 2015
that it is extending the term. Upon receipt of such written notice the parties
shall attempt to agree upon a fair Annual Basic Rent which shall be based upon
the fair market rental of the Premises. In the event the parties cannot agree on
such fair market rental for the Premises by at least one hundred forty-five
(145) days before October 1, 2015, then Landlord and Tenant shall each appoint a
member of the American Institute of Appraisers who shall have at least five
years experience in appraising commercial property in Fairfield County,
Connecticut. Such appointments shall be made in writing by each party to the
other and to the appraisers so appointed. Said appointments shall be made at
least one hundred twenty-five (125) days before October 1, 2015. In the event
said appraisers do not agree upon a fair market rental prior to sixty (60) days
before October 1, 2015, they shall promptly appoint a third appraiser with
similar qualifications, and said three appraisers shall determine the fair
market rental of the Premises prior to thirty (30) days before October 1, 2015.
If said three appraisers are unable jointly to agree prior to October 1, 2015 on
the fair market rental of the Premises, then in that event an average of the
three values for fair market rental shall be utilized, provided that the
variation between the high
14
<PAGE> 16
value and the low value does not exceed five (5) percent, to determine the fair
Annual Basic Rent. In the event of the failure of the appraisers to agree upon a
third appraiser as aforesaid, or in the event the variation between the high
rental and the low rental exceeds five (5) percent, or in the event that either
Landlord or Tenant shall fail to appoint an appraiser as aforesaid within the
time above set forth therefor, then either Landlord or Tenant shall make an
application to the American Arbitration Association for the appointment of an
appraiser, and such appraiser, together with advice from the other appraisers,
shall determine the fair Annual Basic Rent as soon as possible after his
appointment. Except for said Annual Basic Rent change, all of the other
covenants and agreements contained herein shall remain in force and effect
during such Second Renewal Term. Notwithstanding the foregoing, Tenant shall
have the right to rescind its election the renew the term of this Lease, which
rescission must be made prior to October 1, 2015. If Tenant shall so rescind its
election to renew, the lease shall terminate six (6) months after said October
1, 2015, during which six month period Tenant shall pay Annual Basic Rent at the
new rate fixed by the process above described and shall reimburse Landlord for
all reasonable costs and expenses incurred by Landlord in connection with
Tenant's exercise of the Second Option to Renew.
C. Provided Tenant is not in default in payment of rent, additional rent
or other material matter, Tenant shall have the option of renewing the Lease
(the "Third Option to Renew") for an additional term of five (5) years (the
"Third Renewal Term) from October 1, 2020 to September 30, 2025 by sending to
Landlord written notice on or before six months prior to said October 1, 2020
that it is extending the term. Upon receipt of such
15
<PAGE> 17
written notice the parties shall attempt to agree upon a fair Annual Basic Rent
which shall be based upon the fair market rental of the Premises. In the event
the parties cannot agree on such fair market rental for the Premises by at
least one hundred forth-five (145) days prior to October 1, 2020, then Landlord
and Tenant shall each appoint a member of the American Institute of Appraisers
who shall have at least five years experience in appraising commercial property
in Fairfield County, Connecticut. Such appointments shall be made in writing by
each party to the other and to the appraisers so appointed. Said appointments
shall be made at least one hundred twenty-five (125) days before October 1,
2020. In the event said appraisers do not agree upon fair market rental prior
to sixty (60) days before October 1, 2020, they shall promptly appoint a third
appraiser with similar qualifications, and said three appraisers shall
determine the fair market rental of the Premises prior to thirty (30) days
before October 1, 2020. If said three appraisers are unable jointly to agree
prior to October 1, 2020 on the fair market rental of the Premises, then in
that event an average of the three values for fair market rental shall be
utilized, provided that the variation between the high value and the low value
does not exceed five (5) percent, to determine the fair Annual Basic Rent. In
the event of the failure of the appraisers to agree upon a third appraiser as
aforesaid, or in the event the variation between the high rental and the low
rental exceeds five (5) percent, or in the event that either Landlord or Tenant
shall fail to appoint an appraiser as aforesaid within the time above set forth
therefor, then either Landlord or Tenant shall make an application to the
American Arbitration Association for the appointment of an appraiser, and such
appraiser, together with advice from the other appraisers, shall
16
<PAGE> 18
determine the fair Annual Basic Rent as soon as possible after his appointment.
Except for said Annual Basic Rent change, all of the other covenants and
agreements contained herein shall remain in force and effect during such Third
Renewal Term. Notwithstanding the foregoing, Tenant shall have the right to
rescind its election to renew the term of this Lease, which rescission must be
made prior to October 1, 2020. If Tenant shall so rescind its election to
renew, the lease shall terminate six (6) months after said October 1, 2020,
during which six month period Tenant shall pay Annual Basic Rent at the new
rate fixed by the process above described and shall reimburse Landlord for all
reasonable costs and expenses incurred by Landlord in connection with Tenant's
exercise of the Third Option to Renew.
ARTICLE XXXX. ENVIRONMENTAL REPRESENTATIONS.
--------------------------------------------
The terms of ARTICLE XXXXIV of the 1994 Lease are incorporated herein by
reference except that paragraph A(i) is revoked and the following substituted
therefor: "(i) that when Gartner enters into this lease, the Premises are free
from any hazardous, toxic or dangerous substance or material (collectively,
"Hazardous Material") defined as such (or meeting criteria so as to be defined
as such) in a federal, state, local or municipal law, ordinance, code, decree
or requirement regulating, relating to or imposing liability or standards of
conduct concerning any Hazardous Material, as now or at any time hereinafter be
in effect (collectively, Environmental Law")."
IN WITNESS WHEREOF, the parties have hereunto set their names and seals
17
<PAGE> 19
the day and year first above written.
Signed, Sealed and Delivered
in the presence of: SOUNDVIEW FARMS
By /s/ Herbert M. Meyer
_____________________________ _____________________________
Herbert M. Meyer
A Partner
_____________________________
_____________________________ GARTNER GROUP, INC.
By /s/ Paul S. Illegible
_____________________________ _____________________________
Its
STATE OF CONNECTICUT )
) ss. Stamford May 16, 1997
COUNTY OF FAIRFIELD )
Personally appeared SOUNDVIEW FARMS, by Herbert M. Meyer, a Partner,
hereunto duly authorized, signer and sealer of the foregoing instrument and
acknowledged the same to be his free act and deed and the free act and deed of
said SOUNDVIEW FARMS, before me.
/s/ Cathy J. Klein
_____________________________________
Cathy J. Klein
Notary Public
MY COMMISSION EXPIRES SEP. 30, 2001
STATE OF CONNECTICUT )
) ss. Stamford May 16, 1997
COUNTY OF FAIRFIELD )
Personally appeared GARTNER GROUP, INC., by Paul S. Parker its Vice Pres.,
hereunto duly authorized, signer and sealer of the foregoing instrument and
acknowledged the same to be his free act and deed and the free act and deed of
said GARTNER GROUP, INC., before me.
/s/ Cathy J. Klein
_____________________________________
Cathy J. Klein
Notary Public
MY COMMISSION EXPIRES SEP. 30, 2001
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SCHEDULE A
Soundview Farms - Gartner Group, Inc.
ALL THAT CERTAIN tract of land with the building thereon, bounded
northerly 230 feet by other land of Landlord, being Parcel 5 Map 9911 S.L.R.
southeasterly 222.74 feet and easterly 4.0 feet by Dolphin Cove Lagoon
southerly 178.97 feet more or less by other land of Landlord; westerly 220.01
feet by other land of Landlord, being a 25 foot right of way known as Signal
Road and northwesterly 133.03 feet by Gate House Road together with an easement
of way to and from said Premises to and from the public highway over and upon
Signal Road, Gate House Road, Top Gallant Road, and Cummings Point Road.
SAID PREMISES are subject to the rights of others to use any travelled
roads and ways crossing said Premises; governmental regulations, ordinances,
statues and laws applicable to said Premises, including, without limit, the
zoning and planning rules and regulations of the City of Stamford and the
Zoning Board conditions imposed at the time of approval of site plans for
improvements on the Premises; notes contained on a certain map entitled,
"Subdivision Showing Parcel 7 Prepared for Soundview Farms, Stamford CT" now on
file in the office of the Town Clerk of said Stamford and numbered 10145,
reference thereto being had; grants to public utility companies of record; the
rights of others (including Landlord) in and to any underground electric lines
and equipment, storm drains, water and sewage lines within or crossing the
Premises; the rights of others to use so much of said Premises as is located
within the confines of Dolphin Cove Lagoon and a mortgage to The Equitable Life
Assurance Society of the United States.
SAID PREMISES are shown and delineated on a certain map entitled, "Map
Showing a Portion of Parcel 7, Map 10145 S.L.R. Prepared for Soundview Farms
Stamford, Ct." by Parsons, Bromfield - Redniss & Mead Feb. 7, 1989 attached
hereto as Exhibit A.
<PAGE> 21
SCHEDULE 5
[AMERICAN INSTITUTE OF ARCHITECTS LOGO]
STANDARD FORM OF AGREEMENT BETWEEN
OWNER AND CONTRACTOR WHERE THE BASIS OF PAYMENT IS
THE COST OF THE WORK PLUS A FEE WITH OR
WITHOUT A GUARANTEED MAXIMUM PRICE
AIA DOCUMENT A111 - ELECTRONIC FORMAT
- --------------------------------------------------------------------------------
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES: CONSULTATION WITH AN ATTORNEY
IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHENTICATION OF
THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401.
The 1987 Edition of AIA Document A201, General Conditions of the Contract for
Construction, is adopted in this document by reference. Do not use with other
general conditions unless this document is modified. This document has been
approved and endorsed by The Associated General Contractors of America.
Copyright 1920, 1925, 1951, 1958, 1961, 1967, 1974, 1978, 1987 by The American
Institute of Architects, 1735 New York Avenue N.W., Washington, D.C.
20006-5292. Reproduction of the material herein or substantial quotation of its
provisions without written permission of the AIA violates the copyright laws of
the United States and will be subject to legal prosecution.
- --------------------------------------------------------------------------------
AGREEMENT
made as of the day of in the year of Nineteen Hundred and 3/17/97
BETWEEN the Owner: The Gartner Group
(Name and address) 56 Top Gallant Road
Stamford, Ct. 06902
and the Contractor: Bull Finn Corp.
(Name and address) 43 Gate House Road
Stamford, Ct. 06902
the Project is: Interior Demo and Alteration
(Name and address) 10 Signal Road
Stamford, Ct. 06902
the Architect is: Corporate Design LLC
(Name and address) 200 1st St.
Stamford, Ct. 06902
The Owner and Contractor agree as set forth below:
Contractor will obtain competitive quotes from subs whose work exceeds
$5,000.00. Contractor shall furnish Owner with proof of the existence of
Workmen's Compensation Insurance, employer's liability insurance, limited
liability per accident $1,000,000, and general liability insurance with limited
liability each occurrence $2,000,000.
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ARTICLE 1
THE CONTRACT DOCUMENTS
1.1 The Contract Documents consist of this Agreement, Conditions of the
Contract (General, Supplementary and other Conditions), Drawings,
Specifications, Addenda issued prior to execution of this Agreement, other
documents listed in this Agreement and Modifications issued after execution of
this Agreement; these form the Contract, and are as fully a part of the
Contract as if attached to this Agreement or repeated herein. The Contract
represents the entire and integrated agreement between the parties hereto and
supersedes prior negotiations, representations or agreements, either written or
oral. An enumeration of the Contract Documents, other than Modifications,
appears in Article 16. If anything in the other Contract Documents is
inconsistent with this Agreement, this Agreement shall govern.
ARTICLE 2
THE WORK OF THIS CONTRACT
2.1 The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract
Documents to be the responsibility of others, or as follows:
ARTICLE 3
RELATIONSHIP OF THE PARTIES
3.1 The Contractor accepts the relationship of trust and confidence
established by this Agreement and covenants with the Owner to cooperate with
the Architect and utilize the Contractor's best skill, efforts and judgment in
furthering the interests of the Owner; to furnish efficient business
administration and supervision; to make best efforts to furnish at all times an
adequate supply of workers and materials; and to perform the Work in the best
way and most expeditious and economical manner consistent with the interests of
the Owner. The Owner agrees to exercise best efforts to enable the Contractor
to perform the Work in the best way and most expeditious manner by furnishing
and approving in a timely way information required by the Contractor and making
payments to the Contractor in accordance with requirements of the Contract
Documents.
ARTICLE 4
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
4.1 The date of commencement is the date from which the Contract Time of
Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this Agreement
or, if applicable, state that the date will be fixed in a notice to proceed)
Unless the date of commencement is established by a notice to proceed issued by
the Owner, the Contractor shall notify the Owner in writing not less than five
days before commencing the Work to permit timely filing of mortgages,
mechanic's liens and other security interests.
4.2 The Contractor shall achieve Substantial Completion of the entire Work not
later than 60 working days after building permit, which time shall be
extended by a period equal to the number of days during which Contractor is
prevented from, or is unreasonably interfered with completion of such act,
matter or thing as a result of strike, labor troubles, agreed upon additional
work or delays resulting from arbitration governmental preemption in connection
with national emergency, any rule, order or regulation of any governmental
agencies, conditions of supply or demand which are affected by war or other
national, state or municipal emergency or other cause occurring without the
fault and beyond the reasonable control (but excluding price increases) of such
Contractor.
(Insert the calendar date or number of calendar days after the date
of commencement. Also insert any requirements for earlier Substantial Completion
of certain portions of the Work, if not stated elsewhere in the Contract
Documents), subject to adjustments of this Contract Time as provided in the
Contract Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time)
ARTICLE 5
CONTRACT SUM
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5.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum consisting of the Cost of the Work
as defined in Article 7 and the Contractor's Fee determined as follows: (State
a lump sum, percentage of Cost of the Work or other provision for determining
the Contractor's Fee, and explain how the Contractor's Fee is to be adjusted for
changes in the Work.) 15% of the cost of work
5.2 GUARANTEED MAXIMUM PRICE (IF APPLICABLE)
ARTICLE 6
CHANGES IN THE WORK
6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE
6.2 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE
6.2.1 Increased costs for the items set forth in Article 7 which result from
changes in the Work shall become part of the Cost of the Work, and the
Contractor's Fee shall be adjusted as provided in Paragraph 5.1.
6.3 ALL CONTRACTS
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ARTICLE 7
COSTS TO BE REIMBURSED
7.1 The term Cost of the Work shall mean costs necessarily incurred by
the Contractor in the proper performance of the Work. Such costs shall be at
rates not higher than the standard paid at the place of the Project except with
prior consent of the Owner. The Cost of the Work shall include only the items
set forth in this Article 7.
7.1.1 LABOR COSTS
7.1.1.1 Wages of construction workers directly employed by the Contractor to
perform the construction of the Work at the site or, with the Owner's agreement,
at off-site workshops.
7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative
personnel when stationed at the site with the Owner's agreement.
(If it is intended that the wages or salaries of certain personnel stationed at
the Contractor's principal or other offices shall be included in the Cost of
Work, identify in Article 14 the personnel to be included and whether for all or
only part of their time.)
7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative
personnel engaged, at factories, workshops or on the road, in expediting the
production or transportation of materials or equipment required for the Work,
but only for that portion of their time required for the Work.
7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance,
contributions, assessments and benefits required by law or collective bargaining
agreements and, for personnel not covered by such agreements, customary benefits
such as sick leave, medical and health benefits, holidays, vacations and
pensions, provided such costs are based on wages and salaries included in the
Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3.
7.1.2 SUBCONTRACT COSTS
Payments made by the Contractor to Subcontractors in accordance with the
requirements of the subcontracts.
7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED
CONSTRUCTION
7.1.3.1 Costs, including transportation, of materials and equipment
incorporated or to be incorporated in the completed construction.
7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess
of those actually installed but required to provide reasonable allowance for
waste and for spoilage. Unused excess materials, if any, shall be handed over to
the Owner at the completion of the Work or, at the Owner's option, shall be sold
by the Contractor, amounts realized, if any, from such sales shall be credited
to the Owner as a deduction from the Cost of the Work.
7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND
RELATED ITEMS
7.1.4.1 Costs, including transportation, installation, maintenance,
dismantling and removal of materials, supplies, temporary facilities, machinery,
equipment, and hand tools not customarily owned by the construction workers,
which are provided by the Contractor at the site and fully consumed in the
performance of the Work; and cost less salvage value on such items if not fully
consumed, whether sold to others or retained by the Contractor. Cost for items
previously used by the Contractor shall mean fair market value.
7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and
hand tools not customarily owned by the construction workers, which are provided
by the Contractor at the site, whether rented from the Contractor or others, and
costs of transportation, installation, minor repairs and replacements,
dismantling and removal thereof. Rates and quantities of equipment rented shall
be subject to the Owner's prior approval.
7.1.4.3 Costs of removal of debris from the site.
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7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and
parcel delivery charges, telephone service at the site and reasonable petty
cash expenses of the site office.
7.1.4.5 That portion of the reasonable travel and subsistence expenses of the
Contractor's personnel incurred while traveling in discharge of duties
connected with the Work.
7.1.5 MISCELLANEOUS COSTS
7.1.5.1 That portion directly attributable to this Contract of premiums for
insurance and bonds.
7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which
are related to the Work and for which the Contractor is liable.
7.1.5.3 Fees and assessments for the building permit and for other permits,
licenses and inspections for which the Contractor is required by the Contract
Documents to pay.
7.1.5.4 Fees of testing laboratories for tests required by the Contract
Documents, except those related to defective or nonconforming Work for which
reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or
other provisions of the Contract Documents and which do not fall within the
scope of Subparagraphs 7.2.2 through 7.2.4 below.
7.1.5.5 Royalties and license fees paid for the use of a particular design,
process or product required by the Contract Documents; the cost of defending
suits or claims for infringement of patent rights arising from such requirement
by the Contract Documents; payments made in accordance with legal judgments
against the Contractor resulting from such suits or claims and payments of
settlements made with the Owner's consent; provided, however, that such costs
of legal defenses, judgment and settlements shall not be included in the
calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any,
and provided that such royalties, fees and costs are not excluded by the last
sentence of Subparagraph 3.17.1 of the General Conditions or other provisions
of the Contract Documents.
7.1.5.6 Deposits lost for causes other than the Contractor's fault or
negligence.
7.1.6 OTHER COSTS
7.1.6.1 Other costs incurred in the performance of the Work if and to the
extent approved in advance in writing by the Owner.
7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK
The Cost of the Work shall also include costs described in Paragraph 7.1 which
are incurred by the Contractor;
7.2.1 In taking action to prevent threatened damage, injury or loss in case
of an emergency affecting the safety of persons and property, as provided in
Paragraph 10.3 of the General Conditions.
7.2.2 In repairing or correcting Work damaged or improperly executed by
construction workers in the employ of the Contractor, provided such damage or
improper execution did not result from the fault or negligence of the
Contractor or the Contractor's foremen, engineers or superintendents, or other
supervisory, administrative or managerial personnel of the Contractor.
7.2.3 In repairing damaged Work other than that described in Subparagraph
7.2.2, provided such damage did not result from the fault or negligence of the
Contractor or the Contractor's personnel, and only to the extent that the cost
of such repairs is not recoverable by the Contractor from others and the
Contractor is not compensated therefor by insurance or otherwise.
7.2.4 In correcting defective or nonconforming Work performed or supplied by
a Subcontractor or material supplier and not corrected by them, provided such
defective or nonconforming Work did not result from the fault or neglect of the
Contractor or the Contractor's personnel adequately to supervise and direct the
Work of the Subcontractor or material supplier, and only to the extent that the
cost of correcting the defective or nonconforming Work is not recoverable by
the Contractor from the Subcontractor or
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material supplier.
ARTICLE 8
COSTS NOT TO BE REIMBURSED
8.1 The Cost of the Work shall not include:
8.1.1 Salaries and other compensation of the Contractor's personnel
stationed at the Contractor's principal office or offices other than the site
office, except as specifically provided in Clauses 7.1.1.2 and 7.1.1.3 or as
may be provided in Article 14.
8.1.2 Expenses of the Contractor's principal office and offices other than
the site office.
8.1.3 Overhead and general expenses, except as may be expressly included in
Article 7.
8.1.4 The Contractor's capital expenses, including interest on the
Contractor's capital employed for the Work.
8.1.5 Rental costs of machinery and equipment, except as specifically
provided in Clause 7.1.4.2
8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph
13.5 of this Agreement, costs due to the fault or negligence of the Contractor,
Subcontractors, anyone directly or indirectly employed by any of them, or for
whose acts any of them may be liable, including but not limited to costs for
the correction of damaged, defective or nonconforming Work, disposal and
replacement of materials and equipment incorrectly ordered or supplied, and
making good damage to property not forming part of the Work.
8.1.7 Any cost not specifically and expressly described in Article 7.
8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be
exceeded.
ARTICLE 9
DISCOUNTS, REBATES AND REFUNDS
9.1 Cash discounts obtained on payments made by the Contractor shall
accrue to the Owner if (1) before making the payment, the Contractor included
them in an Application for Payment and received payment therefor from the
Owner, or (2) the Owner has deposited funds with the Contractor with which to
make payments; otherwise, cash discounts shall accrue to the Contractor. Trade
discounts, rebates, refunds and amounts received from sales of surplus
materials and equipment shall accrue to the Owner, and the Contractor shall
make provisions so that they can be secured.
9.2 Amounts which accrue to the Owner in accordance with the provisions of
Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of
the Work.
ARTICLE 10
SUBCONTRACTS AND OTHER AGREEMENTS
10.1 Those portions of the Work that the Contractor does not customarily
perform with the Contractor's own personnel shall be performed under
subcontracts or by other appropriate agreements with the Contractor. The
Contractor shall obtain bids from Subcontractors and from suppliers of
materials or equipment fabricated especially for the Work and shall deliver
such bids to the Architect. The Owner will then determine, with the advice of
the Contractor and the Owner may designate specific persons or entities from
whom the Contractor shall obtain bids; however, if a Guaranteed Maximum Price
has been established, the Owner may not prohibit the Contractor from obtaining
bids from others. The Contractor shall not be required to contract with anyone
to whom the Contractor has reasonable objection.
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10.3 Subcontracts or other agreements shall conform to the payment
provisions of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis
of cost plus a fee without the prior consent of the Owner.
ARTICLE 11
ACCOUNTING RECORDS
11.1 The Contractor shall keep full and detailed accounts and exercise
such controls as may be necessary for proper financial management under this
Contract; the accounting and control systems shall be satisfactory to the
Owner. The Owner and the Owner's accountants shall be afforded access to the
Contractor's records, books, correspondence, instructions, drawings, receipts,
subcontracts, purchase orders, vouchers, memoranda and other data relating to
this Contract, and the Contractor shall preserve these for a period of three
years after final payment, or for such longer period as may be required by law.
ARTICLE 12
PROGRESS PAYMENTS
12.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and the Owner shall make progress payments on account of the
Contract Sum to the Contractor as provided below and elsewhere in the Contract
Documents.
12.2 The period covered by each Application for Payment shall be one
calendar month ending on the last day of the month, or as follows:
12.3 Provided an Application for Payment is received by the Owner not
later than the third day of a month, the Owner shall make payment to the
Contractor not later than the fifthteenth day of the month. Application for
Payment.
12.4 With each Application for Payment the Contractor shall submit
payrolls, petty cash accounts, receipted invoices or invoices with check
vouchers attached, and any other evidence required by the Owner or Architect to
demonstrate that cash disbursements already made by the Contractor on account
of the Cost of the Work equal or exceed (1) progress payments already received
by the Contractor; less (2) that portion of those payments attributable to the
Contractor's Fee; plus (3) payrolls for the period covered by the present
Application for Payment; plus (4) retainage provided in Subparagraph 12.5.4, if
any, applicable to prior progress payments.
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12.5.4 Additional retainage, if any, shall be as follows:
(If it is intended to retain additional amounts from progress payments to the
Contractor beyond (1) the retainage from the Contractor's fee provided in
Clause 12.5.3.3. (2) the retainage from Subcontractors provided in Paragraph
12.7 below, and (3) the retainage, if any, provided by other provisions of the
Contract, insert provision for such additional retainage here. Such provision,
if made, should also describe any arrangement for limiting or reducing the
amount retained after the Work reaches a certain state of completion.)
12.6 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE
12.6.1 Applications for Payment shall show the Cost of the Work
actually incurred by the Contractor through the end of the period covered by
the Application for Payment and for which the Contractor has made or intends to
make actual payment prior to the next Application for Payment.
12.6.2 Subject to other provisions of the Contract Documents, the
amount of each progress payment shall be computed as follows:
12.6.2.1 Take the Cost of the Work as described in Subparagraph 12.6.1.
12.6.2.2 Add the Contractor's Fee, less retainage of ten percent (10%).
The Contractor's Fee shall be computed upon the Cost of the Work described in
the preceding Clause 12.6.2.1 at the rate stated in Paragraph 5.1, an amount
which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the
preceding Clause bears to a reasonable estimate of the probable Cost of the
Work upon its completion.
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12.6.2.3 Subtract the aggregate of previous payments made by the Owner.
12.6.2.4 Subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.4 or to substantiate prior Applications
for Payment or resulting from errors subsequently discovered by the Owner's
accountants in such documentation.
12.7 Except with the Owner's prior approval, payments to Subcontractors
included in the Contractor's Applications for Payment shall not exceed an amount
for each Subcontractor calculated as follows:
12.7.1 Take that portion of the Subcontract Sum properly allocable to
completed Work as determined by multiplying the percentage completion of each
portion of the Subcontractor's Work by the share of the total Subcontract Sum
allocated to that portion in the Subcontractor's schedule of values, less
retainage of percent (%).
12.7.2 Add that portion of the Subcontract Sum properly allocable to
materials and equipment delivered and suitably stored at the site for
subsequent incorporation in the Work or, if approved in advance by the Owner,
suitably stored off the site at a location agreed upon in writing, less
retainage of percent (%).
12.7.3 Subtract the aggregate of previous payments made by the Contractor
to the Subcontractor.
12.7.4 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment by the Owner to the Contractor for reasons
which are the fault of the Subcontractor.
12.7.5 Add, upon Substantial Completion of the entire Work of the
Contractor, a sum sufficient to increase the total payments to the
Subcontractor to percent (%) of the Subcontract Sum, less amounts, if any, for
incomplete Work and unsettled claims; and, if final completion of the entire
Work is thereafter materially delayed through no fault of the Subcontractor,
add any additional amounts payable on account of Work of the Subcontractor in
accordance with Subparagraph 9.10.3 of the General Conditions.
(If it is intended, prior to Substantial Completion of the entire Work of the
Contractor, to reduce or limit the retainage from Subcontractors resulting
from the percentages inserted in Subparagraphs 12.7.1 and 12.7.2 above, and this
is not explained elsewhere in the Contract Documents, insert here provisions for
such reduction or limitation.)
The Subcontract Sum is the total amount stipulated in the subcontract to be
paid by the Contractor to the Subcontractor for the Subcontractor's performance
of the subcontract.
12.8 Except with the Owner's prior approval, the Contractor shall not make
advance payments to suppliers for materials or equipment which have not been
delivered and stored at the site.
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ARTICLE 13
FINAL PAYMENT
13.1 Final payment shall be made by the Owner to the Contractor when (1) the
Contract has been fully performed by the Contractor except for the Contractor's
responsibility to correct defective or nonconforming Work, as provided in
Subparagraph 12.2.2 of the General Conditions, and to satisfy other
requirements, if any, which necessarily survive final payment; (2) a final
Application for Payment and a final accounting for the Cost of the Work have
been submitted by the Contractor and reviewed by the Owner's accountants; and
(3) a final Certificate for Payment has then been issued by the Architect; such
final payment shall be made by the Owner not more than 30 days after the
issuance of the Architect's final Certificate for Payment, or as follows:
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that
provision as amended or supplemented by other provisions of the Contract
Documents.
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14.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at the
legal rate prevailing from time to time at the place where the Project is
located.
(Insert rate of interest agreed upon, if any)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
14.3 Other provisions:
ARTICLE 15
TERMINATION OR SUSPENSION
15.1 The Contract may be terminated by the Contractor as provided in
Article 14 of the General Conditions; however, the amount to be paid to the
Contractor under Subparagraph 14.1.2 of the General Conditions shall not exceed
the amount the Contractor would be entitled to receive under Paragraph 15.3
below, except that the Contractor's Fee shall be calculated as if the Work had
been fully completed by the Contractor, including a reasonable estimate of the
Cost of the Work for Work not actually completed.
15.3 If no Guaranteed Maximum Price is established in Article 5, the Contract
may be terminated by the Owner for cause as provided in Article 14 of the
General Conditions; however, the Owner shall then pay the Contractor an amount
calculated as follows:
15.3.1 Take the Cost of the Work incurred by the Contractor to the date of
termination.
15.3.2 Add the Contractor's Fee computed upon the Cost of the Work to the date
of termination at the rate stated in Paragraph 5.1.
15.3.3 Subtract the aggregate of previous payments made by the Owner. The Owner
shall also pay the Contractor fair compensation, either by purchase or rental
at the election of the Owner, for any equipment owned by the Contractor which
the Owner elects to retain and which is not otherwise included in the Cost of
the Work under Subparagraph 15.3.1. To the extent that the Owner elects to take
legal assignment of subcontracts and purchase orders (including rental
agreements), the Contractor shall, as a condition of receiving the payments
referred to in this Article 15, execute and deliver all such papers and take
all such steps, including the legal assignment of such subcontracts and other
contractual rights of the Contractor, as the Owner may require for the purpose
of fully vesting in the Owner the rights and benefits of the Contractor under
such subcontracts or purchase orders.
15.4 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions; in such case, the Guaranteed Maximum Price, if any, shall
be increased as provided in Subparagraph 14.3.2 of the General Conditions
except that the term "cost of performance of the Contract" in that Subparagraph
shall be understood to mean the Cost of the Work and the term "profit" shall
be understood to mean the Contractor's Fee as described in Paragraphs 5.1 and
6.3 of this Agreement.
ARTICLE 16
ENUMERATION OF CONTRACT DOCUMENTS
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16.1 The Contract Documents, except for Modifications issued after execution
of this Agreement, are enumerated as follows:
16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A111, 1987 Edition.
Document Title Pages
16.1.4 The Specifications are those contained in the Project Manual dated as in
Paragraph 16.1.3, and are as follows:
(Either list the Specifications here or refer to an exhibit attached to this
Agreement.)
Section Title Pages
16.1.5 The Drawings are as follows, and are dated, unless a different date is
shown below:
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
Number Title Date
16.1.6 The Addenda, if any, are as follows:
Number Date Pages
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 16.
16.1.7 Other Documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents which are intended to form part of the
Contract Documents. The General Conditions provide that bidding requirements
such as advertisement or invitation to bid, Instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to be
part of the Contract Documents.)
This Agreement is entered into as of the day and year first written above and
is executed in at least three original copies of which one is to be delivered
to the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER CONTRACTOR
/s/ Paul S. Par /s/ (Signature illegible)
- --------------------------- -----------------------------
(Signature) (Signature)
(Printed name and title) (Printed name and title)
12
<PAGE> 1
EXHIBIT 10.17
PROMISSORY NOTE
$5,475,000 June 4, 1997
1. FOR VALUE RECEIVED, the undersigned, MANUEL A. FERNANDEZ (the
"Maker"), promises to pay to the order of GARTNER GROUP, INC. (the "Lender"), at
its office at 56 Top Gallant Road, Stamford, Connecticut, or at such other place
as the holder hereof (including the Lender, hereinafter referred to as the
"Holder") may designate, in lawful money of the United States, the principal sum
of FIVE MILLION FOUR HUNDRED SEVENTY FIVE THOUSAND AND NO/100 DOLLARS
($5,475,000), together with interest on the unpaid balance of this Note,
beginning as of the date hereof, before maturity, default or judgment, at an
annual rate of interest equal to 6.14%, which interest rate is the Applicable
Federal Rate (the "Note Rate").
2. Interest under this Note shall be compounded semi-annually and
payable in arrears on the basis of a 360-day year, and the actual days elapsed
together with (a) all taxes levied or assessed against the Holder on this Note
or the debt evidenced hereby, except for income or other similar taxes, however
designated, on income derived by the Holder herefrom, and (b) all costs,
expenses, attorneys' fees and professionals' fees incurred by the Holder in (i)
any action to collect this Note or to foreclose any security for this Note, or
(ii) in protecting or sustaining the lien of any security, or (iii) in any
litigation or controversy arising from or connected with any security agreement
or this Note.
3. The Maker shall repay the principal amount of this Note, together
with accrued interest on June 3, 1999) (the "Maturity Date"); however, the
Holder, in its sole and absolute discretion, may elect to accelerate the
indebtedness of this Note upon the occurrence of an "Event of Default" (as
defined below).
4. The Maker agrees that (i) if Maker shall cease to be employed by the
Lender, for any reason, (ii) if Maker shall suffer or permit the filing by or
against him of any petition for relief, arrangement, reorganization or the like
under any bankruptcy or insolvency law, make an assignment for the benefit of
creditors or suffer or permit the appointment of a receiver for any part of his
property; or (iii) if any Event of Default shall occur under any agreement
securing this Note or executed in connection with this Note; or (iv) if any
Event of Default shall occur under any other liability, indebtedness or
obligation of the Maker to the Holder; (each of the events and circumstances in
(i), (ii), (iii) and (iv) being an Event of Default), then, upon the happening
of any such Event of Default, the entire indebtedness with accrued interest due
under this Note and all other expenses, including, but not limited to,
attorneys' fees incurred by the Holder in collecting or enforcing payment
hereof, shall accelerate and become immediately due and payable at the option of
the Holder without notice and without regard to the Maturity Date and the Holder
may proceed to exercise any rights or remedies that it may have by law or at
equity under this Note or any other agreement relating to the loan evidenced by
this Note.
16
<PAGE> 2
5. Failure of the Holder to exercise its option to accelerate the
indebtedness of this Note shall not constitute a waiver of the Holder's right to
exercise the same in the event of any subsequent default.
6. The Maker agrees that the interest rate shall increase by 2% per
annum above the Note Rate from and after the date of an Event of Default or
after maturity, by acceleration or otherwise, or judgment, and such additional
rate shall remain in effect until all unpaid principal and interest are
satisfied in full.
7. The Maker may prepay the indebtedness of this Note in part or in
full at any time without the imposition of any penalty. Unless applicable law
provides otherwise, all payments received by the Holder under this Note shall,
at the option of the Holder, be applied (a) to the then outstanding charges and
expenses incurred by the Holder in sustaining and/or enforcing this Note or any
security granted for this Note; then (b) to any unpaid and accrued interest; and
finally, (c) to the outstanding principal indebtedness.
8. Notwithstanding any provisions of this Note, the maximum rate of
interest to be paid hereunder shall not exceed the maximum rate of interest
permissible to be charged by the Holder under applicable laws. Any amount paid
in excess of such rate shall be considered to have been payments in reduction of
principal.
9. The Maker gives the Holder a lien and right of setoff for all the
Maker's liabilities upon and against all the deposits, credits, collateral and
property of the Maker, now or hereafter in the possession or control of the
Holder or in transit to it. The Holder may, upon the occurrence of an Event of
Default, apply or set off the same, or any part thereof, to any liability of the
Maker even though unmatured.
10. The Holder's failure to insist upon the strict performance of any
term herein shall not be deemed to be a waiver, and the Holder shall retain the
right thereafter to insist upon strict performance by the Maker of all terms of
this Note or any agreement securing this Note or executed in connection
herewith.
11. All amounts due under this Note are secured by the Maker's pledge
to the Lender of this date of shares of the Lender's common stock.
12. THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION AND WAIVES HIS RIGHTS TO NOTICE AND HEARING AS ALLOWED BY
ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER
MAY DESIRE TO USE. THE MAKER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT,
NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF PROTEST, AND NOTICE OF ANY RENEWALS
OR EXTENSIONS OF THIS NOTE, AND ALL RIGHTS UNDER ANY STATUTES OF LIMITATIONS.
THE MAKER ACKNOWLEDGES THAT HE MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY
AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH HIS ATTORNEYS.
17
<PAGE> 3
13. THE MAKER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
TRANSACTION OF WHICH THIS NOTE IS A PART AND/OR TO THE DEFENSE OR ENFORCEMENT OF
ANY OF THE HOLDER'S RIGHTS AND REMEDIES, INCLUDING, WITHOUT LIMITATION, TORT
CLAIMS. THE MAKER ACKNOWLEDGES THAT HE MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY
AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH HIS
ATTORNEYS.
14. This Note and the provisions hereof shall inure to the benefit of
the Holder, its successors and assigns and shall be binding upon the undersigned
his heirs, executors, administrators and assigns.
15. This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut. The Maker submits to personal jurisdiction in
the State of Connecticut for the enforcement of the Maker's obligations
hereunder and under any agreement securing this Note, and the Maker waives all
rights under the laws of any other state to object to jurisdiction within the
State of Connecticut. If litigation is commenced, the Maker agrees that service
of process may be made and personal jurisdiction over the Maker obtained, by
service of a copy of the summons, complaint and other pleadings required to
commence such litigation upon the Maker by registered or certified mail to or by
personal service at the last known address of the Maker.
___________________________
MANUEL A. FERNANDEZ
18
<PAGE> 1
Exhibit 10.18
PROMISSORY NOTE
$375,000 June 4, 1997
1. FOR VALUE RECEIVED, the undersigned, WILLIAM CLIFFORD (the "Maker"),
promises to pay to the order of GARTNER GROUP, INC. (the "Lender"), at its
office at 56 Top Gallant Road, Stamford, Connecticut, or at such other place as
the holder hereof (including the Lender, hereinafter referred to as the
"Holder") may designate, in lawful money of the United States, the principal sum
of THREE HUNDRED SEVENTY FIVE THOUSAND AND NO/100 DOLLARS ($375,000), together
with interest on the unpaid balance of this Note, beginning as of the date
hereof, before maturity, default or judgment, at an annual rate of interest
equal to 6.14%, which interest rate is the Applicable Federal Rate (the "Note
Rate").
2. Interest under this Note shall be compounded semi-annually and
payable in arrears on the basis of a 360-day year, and the actual days elapsed
together with (a) all taxes levied or assessed against the Holder on this Note
or the debt evidenced hereby, except for income or other similar taxes, however
designated, on income derived by the Holder herefrom, and (b) all costs,
expenses, attorneys' fees and professionals' fees incurred by the Holder in (i)
any action to collect this Note or to foreclose any security for this Note, or
(ii) in protecting or sustaining the lien of any security, or (iii) in any
litigation or controversy arising from or connected with any security agreement
or this Note.
3. The Maker shall repay the principal amount of this Note, together
with accrued interest on June 3, 1999 (the "Maturity Date"); however, the
Holder, in its sole and absolute discretion, may elect to accelerate the
indebtedness of this Note upon the occurrence of an "Event of Default" (as
defined below).
4. The Maker agrees that (i) if Maker shall cease to be employed by the
Lender, for any reason, (ii) if Maker shall suffer or permit the filing by or
against him of any petition for relief, arrangement, reorganization or the like
under any bankruptcy or insolvency law, make an assignment for the benefit of
creditors or suffer or permit the appointment of a receiver for any part of his
property; or (iii) if any Event of Default shall occur under any agreement
securing this Note or executed in connection with this Note; or (iv) if any
Event of Default shall occur under any other liability, indebtedness or
obligation of the Maker to the Holder; (each of the events and circumstances in
(i), (ii), (iii) and (iv) being an Event of Default), then, upon the happening
of any such Event of Default, the entire indebtedness with accrued interest due
under this Note and all other expenses, including, but not limited to,
attorneys' fees incurred by the Holder in collecting or enforcing payment
hereof, shall accelerate and become immediately due and payable at the option of
the Holder without notice and without regard to the Maturity Date and the Holder
may proceed to exercise any rights or remedies that it may have by law or at
equity under this Note or any other agreement relating to the loan evidenced by
this
19
<PAGE> 2
Note.
5. Failure of the Holder to exercise its option to accelerate the
indebtedness of this Note shall not constitute a waiver of the Holder's right to
exercise the same in the event of any subsequent default.
6. The Maker agrees that the interest rate shall increase by 2% per
annum above the Note Rate from and after the date of an Event of Default or
after maturity, by acceleration or otherwise, or judgment, and such additional
rate shall remain in effect until all unpaid principal and interest are
satisfied in full.
7. The Maker may prepay the indebtedness of this Note in part or in
full at any time without the imposition of any penalty. Unless applicable law
provides otherwise, all payments received by the Holder under this Note shall,
at the option of the Holder, be applied (a) to the then outstanding charges and
expenses incurred by the Holder in sustaining and/or enforcing this Note or any
security granted for this Note; then (b) to any unpaid and accrued interest; and
finally, (c) to the outstanding principal indebtedness.
8. Notwithstanding any provisions of this Note, the maximum rate of
interest to be paid hereunder shall not exceed the maximum rate of interest
permissible to be charged by the Holder under applicable laws. Any amount paid
in excess of such rate shall be considered to have been payments in reduction of
principal.
9. The Maker gives the Holder a lien and right of setoff for all the
Maker's liabilities upon and against all the deposits, credits, collateral and
property of the Maker, now or hereafter in the possession or control of the
Holder or in transit to it. The Holder may, upon the occurrence of an Event of
Default, apply or set off the same, or any part thereof, to any liability of the
Maker even though unmatured.
10. The Holder's failure to insist upon the strict performance of any
term herein shall not be deemed to be a waiver, and the Holder shall retain the
right thereafter to insist upon strict performance by the Maker of all terms of
this Note or any agreement securing this Note or executed in connection
herewith.
11. All amounts due under this Note are secured by the Maker's pledge
to the Lender of this date of shares of the Lender's common stock.
12. THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION AND WAIVES HIS RIGHTS TO NOTICE AND HEARING AS ALLOWED BY
ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER
MAY DESIRE TO USE. THE MAKER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT,
NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF PROTEST, AND NOTICE OF ANY RENEWALS
OR EXTENSIONS OF THIS NOTE, AND ALL RIGHTS UNDER ANY STATUTES OF LIMITATIONS.
THE MAKER ACKNOWLEDGES THAT HE MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY
AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH HIS ATTORNEYS.
20
<PAGE> 3
13. THE MAKER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
TRANSACTION OF WHICH THIS NOTE IS A PART AND/OR TO THE DEFENSE OR ENFORCEMENT OF
ANY OF THE HOLDER'S RIGHTS AND REMEDIES, INCLUDING, WITHOUT LIMITATION, TORT
CLAIMS. THE MAKER ACKNOWLEDGES THAT HE MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY
AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH HIS
ATTORNEYS.
14. This Note and the provisions hereof shall inure to the benefit of
the Holder, its successors and assigns and shall be binding upon the undersigned
his heirs, executors, administrators and assigns.
15. This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut. The Maker submits to personal jurisdiction in
the State of Connecticut for the enforcement of the Maker's obligations
hereunder and under any agreement securing this Note, and the Maker waives all
rights under the laws of any other state to object to jurisdiction within the
State of Connecticut. If litigation is commenced, the Maker agrees that service
of process may be made and personal jurisdiction over the Maker obtained, by
service of a copy of the summons, complaint and other pleadings required to
commence such litigation upon the Maker by registered or certified mail to or by
personal service at the last known address of the Maker.
___________________________
WILLIAM CLIFFORD
21
<PAGE> 1
EXHIBIT 10.19
PROMISSORY NOTE
$750,000 June 4, 1997
1. FOR VALUE RECEIVED, the undersigned, E. FOLLETT CARTER, (the
"Maker"), promises to pay to the order of GARTNER GROUP, INC. (the "Lender"), at
its office at 56 Top Gallant Road, Stamford, Connecticut, or at such other place
as the holder hereof (including the Lender, hereinafter referred to as the
"Holder") may designate, in lawful money of the United States, the principal sum
of SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($750,000), together with
interest on the unpaid balance of this Note, beginning as of the date hereof,
before maturity, default or judgment, at an annual rate of interest equal to
6.14%, which interest rate is the Applicable Federal Rate (the "Note Rate").
2. Interest under this Note shall be compounded semi-annually and
payable in arrears on the basis of a 360-day year, and the actual days elapsed
together with (a) all taxes levied or assessed against the Holder on this Note
or the debt evidenced hereby, except for income or other similar taxes, however
designated, on income derived by the Holder herefrom, and (b) all costs,
expenses, attorneys' fees and professionals' fees incurred by the Holder in (i)
any action to collect this Note or to foreclose any security for this Note, or
(ii) in protecting or sustaining the lien of any security, or (iii) in any
litigation or controversy arising from or connected with any security agreement
or this Note.
3. The Maker shall repay the principal amount of this Note, together
with accrued interest on June 3, 1999 (the "Maturity Date"); however, the
Holder, in its sole and absolute discretion, may elect to accelerate the
indebtedness of this Note upon the occurrence of an "Event of Default" (as
defined below).
4. The Maker agrees that (i) if Maker shall cease to be employed by the
Lender, for any reason, (ii) if Maker shall suffer or permit the filing by or
against him of any petition for relief, arrangement, reorganization or the like
under any bankruptcy or insolvency law, make an assignment for the benefit of
creditors or suffer or permit the appointment of a receiver for any part of his
property; or (iii) if any Event of Default shall occur under any agreement
securing this Note or executed in connection with this Note; or (iv) if any
Event of Default shall occur under any other liability, indebtedness or
obligation of the Maker to the Holder; (each of the events and circumstances in
(i), (ii), (iii) and (iv) being an Event of Default), then, upon the happening
of any such Event of Default, the entire indebtedness with accrued interest due
under this Note and all other expenses, including, but not limited to,
attorneys' fees incurred by the Holder in collecting or enforcing payment
hereof, shall accelerate and become immediately due and payable at the option of
the Holder without notice and without regard to the Maturity Date and the Holder
may proceed to exercise any rights or remedies that it may have by law or at
equity under this Note or any other agreement relating to the loan evidenced by
this Note.
22
<PAGE> 2
5. Failure of the Holder to exercise its option to accelerate the
indebtedness of this Note shall not constitute a waiver of the Holder's right to
exercise the same in the event of any subsequent default.
6. The Maker agrees that the interest rate shall increase by 2% per
annum above the Note Rate from and after the date of an Event of Default or
after maturity, by acceleration or otherwise, or judgment, and such additional
rate shall remain in effect until all unpaid principal and interest are
satisfied in full.
7. The Maker may prepay the indebtedness of this Note in part or in
full at any time without the imposition of any penalty. Unless applicable law
provides otherwise, all payments received by the Holder under this Note shall,
at the option of the Holder, be applied (a) to the then outstanding charges and
expenses incurred by the Holder in sustaining and/or enforcing this Note or any
security granted for this Note; then (b) to any unpaid and accrued interest; and
finally, (c) to the outstanding principal indebtedness.
8. Notwithstanding any provisions of this Note, the maximum rate of
interest to be paid hereunder shall not exceed the maximum rate of interest
permissible to be charged by the Holder under applicable laws. Any amount paid
in excess of such rate shall be considered to have been payments in reduction of
principal.
9. The Maker gives the Holder a lien and right of setoff for all the
Maker's liabilities upon and against all the deposits, credits, collateral and
property of the Maker, now or hereafter in the possession or control of the
Holder or in transit to it. The Holder may, upon the occurrence of an Event of
Default, apply or set off the same, or any part thereof, to any liability of the
Maker even though unmatured.
10. The Holder's failure to insist upon the strict performance of any
term herein shall not be deemed to be a waiver, and the Holder shall retain the
right thereafter to insist upon strict performance by the Maker of all terms of
this Note or any agreement securing this Note or executed in connection
herewith.
11. All amounts due under this Note are secured by the Maker's pledge
to the Lender of this date of shares of the Lender's common stock.
12. THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION AND WAIVES HIS RIGHTS TO NOTICE AND HEARING AS ALLOWED BY
ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER
MAY DESIRE TO USE. THE MAKER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT,
NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF PROTEST, AND NOTICE OF ANY RENEWALS
OR EXTENSIONS OF THIS NOTE, AND ALL RIGHTS UNDER ANY STATUTES OF LIMITATIONS.
THE MAKER ACKNOWLEDGES THAT HE MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY
AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH HIS ATTORNEYS.
23
<PAGE> 3
13. THE MAKER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
TRANSACTION OF WHICH THIS NOTE IS A PART AND/OR TO THE DEFENSE OR ENFORCEMENT OF
ANY OF THE HOLDER'S RIGHTS AND REMEDIES, INCLUDING, WITHOUT LIMITATION, TORT
CLAIMS. THE MAKER ACKNOWLEDGES THAT HE MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY
AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH HIS
ATTORNEYS.
14. This Note and the provisions hereof shall inure to the benefit of
the Holder, its successors and assigns and shall be binding upon the undersigned
his heirs, executors, administrators and assigns.
15. This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut. The Maker submits to personal jurisdiction in
the State of Connecticut for the enforcement of the Maker's obligations
hereunder and under any agreement securing this Note, and the Maker waives all
rights under the laws of any other state to object to jurisdiction within the
State of Connecticut. If litigation is commenced, the Maker agrees that service
of process may be made and personal jurisdiction over the Maker obtained, by
service of a copy of the summons, complaint and other pleadings required to
commence such litigation upon the Maker by registered or certified mail to or by
personal service at the last known address of the Maker.
___________________________
E. FOLLETT CARTER
24
<PAGE> 1
EXHIBIT 10.20
PROMISSORY NOTE
$562,500 June 4, 1997
1. FOR VALUE RECEIVED, the undersigned, JOHN F. HALLIGAN (the "Maker"),
promises to pay to the order of GARTNER GROUP, INC. (the "Lender"), at its
office at 56 Top Gallant Road, Stamford, Connecticut, or at such other place as
the holder hereof (including the Lender, hereinafter referred to as the
"Holder") may designate, in lawful money of the United States, the principal sum
of FIVE HUNDRED SIXTY TWO THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($562,500),
together with interest on the unpaid balance of this Note, beginning as of the
date hereof, before maturity, default or judgment, at an annual rate of interest
equal to 6.14%, which interest rate is the Applicable Federal Rate (the "Note
Rate").
2. Interest under this Note shall be compounded semi-annually and
payable in arrears on the basis of a 360-day year, and the actual days elapsed
together with (a) all taxes levied or assessed against the Holder on this Note
or the debt evidenced hereby, except for income or other similar taxes, however
designated, on income derived by the Holder herefrom, and (b) all costs,
expenses, attorneys' fees and professionals' fees incurred by the Holder in (i)
any action to collect this Note or to foreclose any security for this Note, or
(ii) in protecting or sustaining the lien of any security, or (iii) in any
litigation or controversy arising from or connected with any security agreement
or this Note.
3. The Maker shall repay the principal amount of this Note, together
with accrued interest on June 3, 1999 (the "Maturity Date"); however, the
Holder, in its sole and absolute discretion, may elect to accelerate the
indebtedness of this Note upon the occurrence of an "Event of Default" (as
defined below).
4. The Maker agrees that (i) if Maker shall cease to be employed by the
Lender, for any reason, (ii) if Maker shall suffer or permit the filing by or
against him of any petition for relief, arrangement, reorganization or the like
under any bankruptcy or insolvency law, make an assignment for the benefit of
creditors or suffer or permit the appointment of a receiver for any part of his
property; or (iii) if any Event of Default shall occur under any agreement
securing this Note or executed in connection with this Note; or (iv) if any
Event of Default shall occur under any other liability, indebtedness or
obligation of the Maker to the Holder; (each of the events and circumstances in
(i), (ii), (iii) and (iv) being an Event of Default), then, upon the happening
of any such Event of Default, the entire indebtedness with accrued interest due
under this Note and all other expenses, including, but not limited to,
attorneys' fees incurred by the Holder in collecting or enforcing payment
hereof, shall accelerate and become immediately due and payable at the option of
the Holder without notice and without regard to the Maturity Date and the Holder
may proceed to exercise any rights or remedies that it may have by law or at
equity under this Note or any other agreement relating to the loan evidenced by
this Note.
25
<PAGE> 2
5. Failure of the Holder to exercise its option to accelerate the
indebtedness of this Note shall not constitute a waiver of the Holder's right to
exercise the same in the event of any subsequent default.
6. The Maker agrees that the interest rate shall increase by 2% per
annum above the Note Rate from and after the date of an Event of Default or
after maturity, by acceleration or otherwise, or judgment, and such additional
rate shall remain in effect until all unpaid principal and interest are
satisfied in full.
7. The Maker may prepay the indebtedness of this Note in part or in
full at any time without the imposition of any penalty. Unless applicable law
provides otherwise, all payments received by the Holder under this Note shall,
at the option of the Holder, be applied (a) to the then outstanding charges and
expenses incurred by the Holder in sustaining and/or enforcing this Note or any
security granted for this Note; then (b) to any unpaid and accrued interest; and
finally, (c) to the outstanding principal indebtedness.
8. Notwithstanding any provisions of this Note, the maximum rate of
interest to be paid hereunder shall not exceed the maximum rate of interest
permissible to be charged by the Holder under applicable laws. Any amount paid
in excess of such rate shall be considered to have been payments in reduction of
principal.
9. The Maker gives the Holder a lien and right of setoff for all the
Maker's liabilities upon and against all the deposits, credits, collateral and
property of the Maker, now or hereafter in the possession or control of the
Holder or in transit to it. The Holder may, upon the occurrence of an Event of
Default, apply or set off the same, or any part thereof, to any liability of the
Maker even though unmatured.
10. The Holder's failure to insist upon the strict performance of any
term herein shall not be deemed to be a waiver, and the Holder shall retain the
right thereafter to insist upon strict performance by the Maker of all terms of
this Note or any agreement securing this Note or executed in connection
herewith.
11. All amounts due under this Note are secured by the Maker's pledge
to the Lender of this date of shares of the Lender's common stock.
12. THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION AND WAIVES HIS RIGHTS TO NOTICE AND HEARING AS ALLOWED BY
ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER
MAY DESIRE TO USE. THE MAKER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT,
NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF PROTEST, AND NOTICE OF ANY RENEWALS
OR EXTENSIONS OF THIS NOTE, AND ALL RIGHTS UNDER ANY STATUTES OF LIMITATIONS.
THE MAKER ACKNOWLEDGES THAT HE MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY
AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH HIS ATTORNEYS.
26
<PAGE> 3
13. THE MAKER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
TRANSACTION OF WHICH THIS NOTE IS A PART AND/OR TO THE DEFENSE OR ENFORCEMENT OF
ANY OF THE HOLDER'S RIGHTS AND REMEDIES, INCLUDING, WITHOUT LIMITATION, TORT
CLAIMS. THE MAKER ACKNOWLEDGES THAT HE MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY
AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH HIS
ATTORNEYS.
14. This Note and the provisions hereof shall inure to the benefit of
the Holder, its successors and assigns and shall be binding upon the undersigned
his heirs, executors, administrators and assigns.
15. This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut. The Maker submits to personal jurisdiction in
the State of Connecticut for the enforcement of the Maker's obligations
hereunder and under any agreement securing this Note, and the Maker waives all
rights under the laws of any other state to object to jurisdiction within the
State of Connecticut. If litigation is commenced, the Maker agrees that service
of process may be made and personal jurisdiction over the Maker obtained, by
service of a copy of the summons, complaint and other pleadings required to
commence such litigation upon the Maker by registered or certified mail to or by
personal service at the last known address of the Maker.
___________________________
JOHN F. HALLIGAN
27
<PAGE> 1
Exhibit 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of April 1,
1997, by and between Manuel A. Fernandez, an individual ("Executive") and
Gartner Group, Inc., a Delaware corporation (the "Company").
RECITALS
A. Executive has served as President of the Company since January 21,
1991 and as President and Chief Executive Officer of the Company since April 1,
1991 and Chairman since April 1994.
B. The Company and Executive desire to provide for Executive's continued
employment with the Company upon and subject to the terms and conditions set
forth in this Agreement.
AGREEMENT
THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereby agree as follows:
1. Employment. Executive will continue to serve as Chairman, President
and Chief Executive Officer of the Company for the Employment Term specified in
Section 3. Executive will report to the Board of Directors and will render such
services consistent with the role of Chief Executive Officer of the Company as
the Board of Directors may from time to time direct.
2. Board of Directors. During the Employment Term, the Company shall
include Executive on the Company's slate of nominees to be elected to the Board
of Directors of the Company at each annual meeting of stockholders of the
Company, shall use its best efforts to cause Executive to be elected to the
Board of Directors at such meetings, and if elected shall use its best efforts
to cause Executive to continue to serve on the Board of Directors until
Executive's successor is duly elected and qualified. Upon termination of the
Employment Term for any reason, Executive shall promptly resign as a director of
the Company.
3. Term. The employment of Executive pursuant to this Agreement shall
commence as of April 1, 1997 and shall continue through October 1, 1999 (the
"Employment Term"), unless extended or earlier terminated as provided in this
Agreement. Following such initial term, the Agreement may be extended for
additional annual terms by the written consent of Executive and the Company not
less than sixty (60) days prior to the end of the initial term or any renewal
term.
4. Salary. As compensation for the services rendered by Executive under
this Agreement, the Company shall pay to Executive a base salary initially equal
to $29,167 per month ("Base Salary") for fiscal 1997, payable to Executive on a
monthly basis in accordance with the Company's payroll practices as in effect
from time to time during the Employment Term. The Base Salary shall be subject
to annual adjustments by the Board of Directors of the Company or the
Compensation Committee of the Board of Directors, in the sole discretion of the
Board or such Committee.
<PAGE> 2
5. Bonus. In addition to his Base Salary, Executive shall be entitled to
participate in the Company's executive bonus program. The annual target bonus
shall be established by the Board of Directors or its Compensation Committee, in
the discretion of the Board or such Committee, and shall be payable based on
achievement of specified Company and individual objectives. Executive's target
bonus for the fiscal year ending September 30, 1997 has previously been set at a
minimum bonus of $350,000, with a maximum bonus of $700,000.
6. Executive Benefits.
(a) Employee and Executive Benefits. Executive will be entitled to
receive all benefits provided to executives and employees of the Company
generally from time to time, including medical, dental, life insurance and
long-term disability, and the executive split-dollar life insurance and
executive disability plan, as well as Executive's auto benefit program (with the
full cost of operation not to exceed $15,000 per year) so long as and to the
extent the same exist; provided, that in respect to each such plan Executive is
otherwise eligible and insurable in accordance with the terms of such plans.
(b) Vacation, Sick Leave and Holidays. Executive shall be entitled to
vacation, sick leave and vacation in accordance with the policies of Gartner and
its subsidiaries as they exist from time to time. Executive understands that
under the current policy he will receive four (4) weeks vacation per calendar
year. Vacation which is not used during any calendar year will not roll over to
the following year.
7. Severance Benefits.
(a) Executive's employment shall be "at will." Either the Company or
Executive may terminate this agreement and Executive's employment at any time,
with or without Business Reasons (as defined in Section 8(a) below), in its or
his sole discretion, upon sixty (60) days' prior written notice of termination.
(b) If during the term of this Agreement the Company terminates the
employment of Executive involuntarily and without Business Reasons or a
Constructive Termination occurs, whether or not in connection with a Change of
Control, then Executive shall be entitled to receive the following: (A) salary
and vacation accrued through the Termination Date plus continued salary for a
period of two (2) years following the Termination Date, payable in accordance
with the Company's regular payroll schedule as in effect from time to time, (B)
at the Termination Date, 100% of Executive's target bonus for the fiscal year in
which the Termination Date occurs (plus any unpaid bonus from the prior fiscal
year), (C) following the end of the fiscal year in which the Termination Date
occurs and management bonuses have been determined, a pro rata share (based on
the proportion of the fiscal year during which Executive remained an employee of
the Company) of the bonus that would have been payable to Executive under the
bonus plan in excess of 100% of Executive's target bonus for the fiscal year,
(D) following the end of the first fiscal year following the fiscal year in
which the Termination Date occurs, 100% of Executive's target bonus for such
following fiscal year (or, if the target bonus for such year was not previously
set, then 100% of Executive's target bonus for the fiscal year in which the
Termination Date occurred), (E) acceleration in full of vesting of all
outstanding stock options held by Executive, (F) continuation of group health
benefits pursuant to the Company's standard programs as in
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<PAGE> 3
effect from time to time (or continuation by the Company of substantially
similar group health benefits as in effect at the Termination Date, through a
third party carrier, at the Company's election), for Executive, his spouse and
any children for so long as they are under the age of 19 (25, if a full time
student) and until such time as Executive reaches the age of 55, (G)
continuation of Executive's auto benefits for one year following the Termination
Date, and (H) no other compensation, severance or other benefits.
Notwithstanding the foregoing, however, the Company shall not be required to
continue to pay the salary or bonus specified in clauses (A), (B), (C) or (D)
hereof for any period following the Termination Date if Executive violates the
noncompetition agreement set forth in Section 12 during the two (2) year period
following the Termination Date.
(c) If during the term of this Agreement a "Change of Control" occurs
and Executive voluntarily resigns within the first six (6) months of such Change
in Control, then Executive shall be entitled to receive the following: (A)
salary and vacation accrued through the Termination Date plus continued salary
for a period of two (2) years following the Termination Date, payable in
accordance with the Company's regular payroll schedule as in effect from time to
time, (B) at the Termination Date, 100% of Executive's target bonus for the
fiscal year in which the Termination Date occurs (plus any unpaid bonus from the
prior fiscal year), (C) following the end of the fiscal year in which the
Termination Date occurs and management bonuses have been determined, a pro rata
share (based on the proportion of the fiscal year during which Executive
remained an employee of the Company) of the bonus that would have been payable
to Executive under the bonus plan in excess of 100% of Executive's target bonus
for the fiscal year, (D) following the end of the first fiscal year following
the fiscal year in which the Termination Date occurs, 100% of Executive's target
bonus for such following fiscal year (or, if the target bonus for such year was
not previously set, then 100% of Executive's target bonus for the fiscal year in
which the Termination Date occurred), (E) acceleration in full of vesting of all
outstanding stock options held by Executive, (F) continuation of group health
benefits pursuant to the Company's standard programs as in effect from time to
time (or continuation by the Company of substantially similar group health
benefits as in effect at the Termination Date, through a third party carrier, at
the Company's election), for Executive, his spouse and any children for so long
as they are under the age of 19 (25, if a full time student) and until such time
as Executive reaches the age of 55, (G) continuation of Executive's auto
benefits for one year following the Termination Date, and (H) no other
compensation, severance or other benefits. Notwithstanding the foregoing,
however, if Executive violates the non-competition agreement set forth in
Section 12 during the two (2) year period following the Termination Date, the
Company shall not be required to continue to pay the salary or bonus specified
in clauses (A), (B), (C) or (D) hereof for any period following the Termination
Date, and Executive shall be obligated to repay to the Company any amounts
previously received pursuant to clauses (A) and (B) hereof, to the extent the
same relate to any period following the Termination Date, and to repay the
Company any amounts previously received pursuant to clauses (C) and (D) hereof.
Upon a Change in Control, Executive may elect, in his sole discretion, not to
receive a cash payment or to have any portion of vesting restrictions lapse in
order to avoid any "parachute payment" under Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended.
(d) If during the term of this Agreement Executive shall become
unable to perform his duties as an employee as a result of incapacity, which
gives rise to termination of employment for Disability, then Executive shall be
entitled to receive the following: (A) salary and vacation accrued through the
Termination Date plus continued salary for a period of two (2) years following
the
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<PAGE> 4
Termination Date, payable in accordance with the Company's regular payroll
schedule as in effect from time to time, (B) at the Termination Date, 100% of
Executive's target bonus for the fiscal year in which the Termination Date
occurs (plus any unpaid bonus from the prior fiscal year), (C) following the end
of the fiscal year in which the Termination Date occurs and management bonuses
have been determined, any bonus that would have been payable to Executive under
the bonus plan in excess of Executive's target bonus, (D) acceleration in full
of vesting of all outstanding stock options held by Executive, (E) continuation
of group health benefits pursuant to the Company's standard programs as in
effect from time to time (or continuation by the Company of substantially
similar group health benefits as in effect at the Termination Date, through a
third party carrier, at the Company's election), for Executive, his spouse and
any children for so long as they are under the age of 19 (25, if a full time
student) and until such time as Executive reaches the age of 55, (F) all other
employee benefits specified in Section 6 until two years following the
Termination Date, and (G) no other compensation, severance or other benefits.
Notwithstanding the foregoing, however, the Company may deduct from the salary
specified in clause (A) hereof the amounts of any payments then received by
Executive under any disability benefit program maintained by the Company.
(e) If (i) Executive voluntarily terminates his employment, or (ii)
Executive is terminated involuntarily for Business Reasons, then in any such
event Executive or his representatives shall be entitled to receive the
following: (A) salary and accrued vacation through the Termination Date only,
(B) to the extent COBRA shall be applicable to the Company, continuation of
group health plan benefits for a period of 18 months (or such longer period as
may be applicable under the Company's policies then in effect) following the
Termination Date if Executive makes the appropriate conversion and payments, and
(C) no further severance, benefits or other compensation.
(f) If Executive's employment is terminated because of death, then
Executive's representatives shall be entitled to receive the following: (A)
salary and vacation accrued through the Termination Date, (B) a pro rata share
of Executive's target bonus for the year in which death occurs, based on the
proportion of the fiscal year during which Executive remained an Employee of the
Company (plus any unpaid bonus from the prior fiscal year), (C) acceleration in
full of vesting of all outstanding stock options held by Executive, (D)
continuation of group health benefits pursuant to the Company's standard
programs as in effect from time to time (or continuation by the Company of
substantially similar group health benefits as in effect at the Termination
Date, through a third party carrier, at the Company's election), for Executive's
spouse and any children for so long as they are under the age of 19 (25, if a
full time student), (E) any benefits payable to Executive or his representatives
upon death under insurance or other programs maintained by the Company for the
benefit of the Executive and (F) no further benefits or other compensation.
(g) The provisions of this Section 7 are intended to be and are
exclusive and in lieu of any other rights or remedies to which Executive or the
Company may otherwise be entitled, either at law, tort or contract, in equity,
or under this Agreement, in the event of any termination of Executive's
employment. Executive shall be entitled to no benefits, compensation or other
payments or rights upon termination of employment other than those benefits
expressly set forth in paragraph (b), (c), (d), (e) or (f) of this Section 7,
whichever shall be applicable.
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<PAGE> 5
8. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Business Reasons. "Business Reasons" means (i) gross negligence,
willful misconduct or other willful malfeasance by Executive in the performance
of his duties, (ii) Executive's commission of a felony or other offense
involving moral turpitude, (iii) Executive's material breach of this Agreement,
including without limitation any repeated breach of Sections 9 through 12
hereof.
(b) Disability. "Disability" shall mean that Executive has been
unable to perform his duties as an employee as the result of his incapacity due
to physical or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to Executive or Executive's legal
representative (such Agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least sixty (60) days written notice by the Company of its intention to
terminate Executive's employment. In the event that Executive resumes the
performance of substantially all of his duties hereunder before the termination
of his employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.
(c) Termination Date. "Termination Date" shall mean (i) if this
Agreement is terminated on account of death, the date of death; (ii) if this
Agreement is terminated for Disability, the date specified in Section 8(b);
(iii) if this Agreement is terminated by the Company, the date on which a notice
of termination is given to Executive; (iv) if the Agreement is terminated by
Executive, the date on which Executive delivers the notice of termination to the
Company; or (v) if this Agreement expires by its terms, then the last day of the
term of this Agreement.
(d) Constructive Termination. A "Constructive Termination" shall be
deemed to occur if (A)(1) Executive's position changes as a result of an action
by the Company such that Executive is no longer President and Chief Executive
Officer of the Company or no longer reports directly to the Company's Board of
Directors, (2) Executive is required to relocate his place of employment, other
than a relocation within 50 miles of Executive's current Connecticut home or a
relocation to the San Francisco Bay Area or South Florida, or (3) there is a
reduction of more than 20% of Executive's base salary or target bonus (other
than any such reduction consistent with a general reduction of pay across the
executive staff as a group, as an economic or strategic measure due to poor
financial performance by the Company) and (B) within the thirty day period
immediately following such material adverse change or reduction Executive elects
to terminate his employment voluntarily.
(e) Change in Control. "Change of Control" shall mean the occurrence
of any one of the following: (1) the sale, lease, conveyance or other
disposition of all or substantially all of the Company's assets as an entirety
or substantially as an entirety to any person, entity or group of persons acting
in concert, (2) any transaction or series of transactions that results in, or
that is in connection with, any person, entity or group acting in concert,
acquiring "beneficial ownership" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of such percentage of the
aggregate voting power of all classes of common equity stock of the Company as
shall equal fifty percent (50%) of such aggregate voting power, (3) the merger
or consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the
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<PAGE> 6
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power of the surviving entity immediately after such merger or
consolidation, or (4) a liquidation of the Company whether or not liquidated
into an affiliated entity. A transfer of shares of stock of the Company from
Cognizant Corporation to an affiliated company, subsidiary or spin-off entity of
Cognizant Corporation, or the reduction in ownership of capital stock of the
Company by Cognizant Corporation or any affiliated subsidiary or spin-off of
Cognizant Corporation by means of sales of shares to the public, shall not alone
be deemed to meet the requirements of clause (8)(e) hereof.
9. Confidential Information.
(a) Executive acknowledges that the Confidential Information (as
defined below) relating to the business of the Company and its subsidiaries
which Executive has obtained or will obtain during the course of his association
with the Company and subsidiaries and his performance under this Agreement are
the property of the Company and its subsidiaries. Executive agrees that he will
not disclose or use at any time, either during or after the Employment period,
any Confidential Information without the written consent of the Board of
Directors of the Company. Executive agrees to deliver to the Company at the end
of the Employment period, or at any other time that the Company may request, all
memoranda, notes, plans, records, documentation and other materials (and copies
thereof) containing Confidential Information relating to the business of the
Company and its subsidiaries, no matter where such material is located and no
matter what form the material may be in, which Executive may then possess or
have under his control. If requested by the Company, Executive shall provide to
the Company written confirmation that all such materials have been delivered to
the Company or have been destroyed. Executive shall take all appropriate steps
to safeguard Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft.
(b) "Confidential Information" shall mean information which is not
generally known to the public and which is used, developed, or obtained by the
Company or its subsidiaries relating to the businesses of any of the Company and
its subsidiaries or the business of any customer thereof including, but not
limited to: products or services; fees, costs and pricing structure; designs;
analyses; formulae; drawings; photographs; reports; computer software, including
operating systems, applications, program listings, flow charts, manuals and
documentation; databases; accounting and business methods; inventions and new
developments and methods, whether patentable or unpatentable and whether or not
reduced to practice; all copyrightable works; the customers of any of the
Company and its subsidiaries and the Confidential Information of any customer
thereof; and all similar and related information in whatever form. Confidential
Information shall not include any information which (i) was rightfully known by
Executive prior to the Employment Period; (ii) is publicly disclosed by law or
in response to an order of a court or governmental agency; (iii) becomes
publicly available through no fault of Executive or (iv) has been published in a
form generally available to the public prior to the date upon which Executive
proposes to disclose such information. Information shall not be deemed to have
been published merely because individual portions of the information have been
separately published, but only if all the material features comprising such
information have been published in combination.
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<PAGE> 7
10. Inventions and Patents. In the event that Executive, as a part of
Executive's activities on behalf of the Company, generates, authors or
contributes to any invention, new development or method, whether or not
patentable and whether or not reduced to practice, any copyrightable work, any
trade secret, any other Confidential Information, or any information that gives
any of the Company and its subsidiaries an advantage over any competitor, or
similar or related developments or information related to the present or future
business of any of the Company and its subsidiaries (collectively "Developments
and Information"), Executive acknowledges that all Developments and Information
are the exclusive property of the Company. Executive hereby assigns to the
Company, its nominees, successors or assigns, all rights, title and interest to
Developments and Information. Executive shall cooperate with the Company's Board
of Directors to protect the interests of the Company and its subsidiaries in
Developments and Information. Executive shall execute and file any document
related to any Developments and Information requested by the Company's Board of
Directors including applications, powers of attorney, assignments or other
instruments which the Company's Board of Directors deems necessary to apply for
any patent, copyright or other proprietary right in any and all countries or to
convey any right, title or interest therein to any of the Company's nominees,
successors or assigns.
11. No Conflicts.
(a) Executive agrees that in his individual capacity he will not enter
into any agreement, arrangement or understanding, whether written or oral, with
any supplier, contractor, distributor, wholesaler, sales representative,
representative group or customer, relating to the business of the Company or any
of its subsidiaries, without the express written consent of the Board of
Directors of the Company.
(b) As long as Executive is employed by the Company or any of its
subsidiaries, Executive agrees that he will not, except with the express written
consent of the Board of Directors of the Company, become engaged in, render
services for, or permit his name to be used in connection with, any business
other than the business of the Company, any of its subsidiaries or any
corporation or partnership in which the Company or any of its subsidiaries have
an equity interest.
12. Non-Competition Agreement.
(a) Executive acknowledges that his services are of a special, unique
and extraordinary value to the Company and that he has access to the Company's
trade secrets, Confidential Information and strategic plans of the most valuable
nature. Accordingly, Executive agrees that for the period of two (2) years
following the Termination Date, Executive shall not directly or indirectly own,
manage, control, participate in, consult with, render services for, or in any
manner engage in any business competing with the businesses of the Company or
any of its subsidiaries as such businesses exist or are in the process of
development on the Termination Date, including without limitation the
publication of periodic research and analysis of the information technology
industries. Nothing herein shall prohibit Executive from being a passive owner
of not more than 1% of the outstanding stock of any class of a corporation which
is publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) In addition, for a period of two years commencing on the
Termination Date, Executive shall not (i) induce or attempt to induce any
employee of the Company or any subsidiary to leave the
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<PAGE> 8
employ of the Company or such subsidiary, or in any way interfere with the
relationship between the Company or any subsidiary and any employee thereof,
(ii) hire directly or through another entity any person who was an employee of
the Company or any subsidiary at any time during the Employment Period, or (iii)
induce or attempt to induce any customer, supplier, licensee or other business
relation of the Company or any subsidiary to cease doing business with the
Company or such subsidiary, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company or any subsidiary.
(c) Executive agrees that these restrictions on competition and
solicitation shall be deemed to be a series of separate covenants not-to-compete
and a series of separate non-solicitation covenants for each month within the
specified periods, separate covenants not-to-compete and non-solicitation
covenants for each state within the United States and each country in the world,
and separate covenants not-to-compete for each area of competition. If any court
of competent jurisdiction shall determine any of the foregoing covenants to be
unenforceable with respect to the term thereof or the scope of the subject
matter or geography covered thereby, such remaining covenants shall nonetheless
be enforceable by such court against such other party or parties or upon such
shorter term or within such lesser scope as may be determined by the court to be
enforceable.
(d) Because Executive's services are unique and because Executive has
access to Confidential Information and strategic plans of the Company of the
most valuable nature, the parties agree that the covenants contained in this
Section 12 are necessary to protect the value of the business of the Company
and that a breach of any such covenant would result in irreparable and
continuing damage for which there would be no adequate remedy at law. The
parties agree therefore that in the event of a breach or threatened breach of
this Agreement, the Company or its successors or assigns may, in addition to
other rights and remedies existing in their favor, apply to any court of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce, or prevent any violations of, the provisions hereof.
13. Miscellaneous Provisions.
(a) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing, shall be effective when given, and in any event
shall be deemed to have been duly given (i) when delivered, if personally
delivered, (ii) three (3) business days after deposit in the U.S. mail, if
mailed by U.S. registered or certified mail, return receipt requested, or (iii)
one (1) business day after the business day of deposit with Federal Express or
similar overnight courier, if so delivered, freight prepaid. In the case of
Executive, notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Corporate Secretary.
(b) Notice of Termination. Any termination by the Company or Executive
shall be communicated by a notice of termination to the other party hereto given
in accordance with paragraph (a) hereof. Such notice shall indicate the specific
termination provision in this Agreement relied upon.
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<PAGE> 9
(c) Successors.
(i) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall be entitled to assume the rights and shall be obligated to
assume the obligations of the Company under this Agreement and shall agree to
perform the Company's obligations under this Agreement in the same manner and to
the same extent as the Company would be required to perform such obligations in
the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (i) or which becomes bound by the terms of this Agreement by
operation of law.
(ii) Executive's Successors. The terms of this Agreement and all
rights of Executive hereunder shall inure to the benefit of, and be enforceable
by, Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
(iii) No Other Assignment of Benefits. Except as provided in this
Section 13(c), the rights of any person to payments or benefits under this
Agreement shall not be made subject to option or assignment, either by voluntary
or involuntary assignment or by operation of law, including (without limitation)
bankruptcy, garnishment, attachment or other creditor's process, and any action
in violation of this subsection (iii) shall be void.
(d) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by Executive and by an authorized officer of the Company
(other than Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(e) Entire Agreement. This Agreement shall supersede any and all prior
agreements, representations or undertakings (whether oral or written and whether
express or implied) between the parties with respect to the subject matter
hereof, including with all limitation that respective Executive Stock and
Employment Agreements effective as of January 21, 1991 and July 28, 1994.
(f) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(g) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Stamford, Connecticut, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. No party shall be entitled to seek or be awarded
punitive damages. All attorneys' fees and costs shall be allocated or
apportioned by the parties, and in the absence of any agreement or allocation or
apportionment shall be awarded to the prevailing party. This Agreement shall be
construed in accordance with and governed by the laws of the State of New York.
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<PAGE> 10
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(i) Indemnification. In the event Executive is made, or threatened to
be made, a party to any legal action or proceeding, whether civil or criminal,
by reason of the fact that Executive is or was a director or officer of the
Company or serves or served any other corporation fifty percent (50%) or more
owned or controlled by the Company in any capacity at Company's request,
Executive shall be indemnified by the Company, and the Company shall pay
Executive's related expenses when and as incurred, all to the full extent
permitted by law, pursuant to Executive's existing indemnification agreement
with the Company in the form made available to all Executive and all other
officers and directors.
(j) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
COMPANY
GARTNER GROUP, INC.
By: /s/ John F. Halligan
______________________________________________
John F. Halligan, Chief Financial Officer
EXECUTIVE
Manuel A. Fernandez
/s/ Manuel A. Fernandez
_______________________________________________
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EXHIBIT 11.1
GARTNER GROUP, INC.
COMPUTATION OF INCOME PER COMMON SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
September 30,
-------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Primary:
Net income: $ 73,130 $16,438 $25,161
======== ======= =======
Shares:
Weighted average number of common shares outstanding 94,742 89,739 87,808
Weighted average number of warrants outstanding 274 301 --
Weighted average number of option shares outstanding 7,443 8,572 6,954
-------- ------- ------
Weighted average number of common shares outstanding as adjusted 102,459 98,612 94,762
======== ======= =======
Net income per common share $ 0.71 $ 0.17 $ 0.27
======== ======= =======
Fully diluted:
Net income: $ 73,130 $16,438 $25,161
======== ======= =======
Shares:
Weighted average number of common shares outstanding 94,742 89,739 87,808
Weighted average number of warrants outstanding 274 301 --
Weighted average number of option shares outstanding 7,735 8,805 7,404
-------- ------- ------
Weighted average number of common shares outstanding as adjusted 102,751 98,854 95,212
======== ======= =======
Net income per common share $ 0.71 $ 0.17 $ 0.26
======== ======= =======
</TABLE>
10
<PAGE> 1
GARTNER GROUP 1997 ANNUAL REPORT
Smarter
<PAGE> 2
Because to help our clients make smarter decisions we have to
be smarter ourselves. In the business of information
technology, that means outpacing a field that already moves at
the speed of light. It means offering total product life cycle
solutions for analyzing, planning, implementing and measuring
new technologies. It means balancing the urgency of
competitive advantage with the imperative of clear thinking,
without compromising on either. It means providing --
consistently -- results that help our clients simplify their
decisions, measurably improve their effectiveness, and extract
the greatest value from their IT investments. To be number one
in a field that insists on such high standards of performance
under such highly demanding conditions, as Gartner Group
proudly is, there's only one way to be. Smarter.
<PAGE> 3
GARTNER GROUP FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
Fiscal Year Ended September 30, 1997 1996 1995
- --------------------------------------------------------------------------------
Total revenues $511,239 $394,672 $295,146
Operating contribution (1) $123,056 $ 88,153 $ 56,446
Net income (2) $ 73,130 $ 50,534 $ 30,001
Net income per common share (2) $ 0.71 $ 0.51 $ 0.32
September 30, 1997 1996 1995
- --------------------------------------------------------------------------------
Stockholders' equity $269,870 $150,235 $ 74,251
Total cash and marketable securities $188,745 $129,856 $ 95,414
Contract value (3) $525,901 $389,969 $303,231
- --------------------------------------------------------------------------------
(1) Represents operating income less amortization of intangibles, excluding
acquisition-related and nonrecurring charges in fiscal 1996 and 1995.
(2) Excludes acquisition-related and nonrecurring charges (net of tax impact)
in fiscal 1996 and 1995.
(3) Contract value, as measured by the company, represents the annualized
value of all advisory, measurement and learning contracts in effect at a
given point in time, without regard to the duration of the contracts
outstanding at such time.
TOTAL REVENUES NET INCOME (2) CONTRACT VALUE (3)
(Millions of dollars) (Millions of dollars) (Millions of dollars)
[Bar graph omitted] [Bar graph omitted] [Bar graph omitted]
TABLE OF CONTENTS
1 Financial Highlights
2 Letter to Shareholders
5 Smarter Service
8 Smarter Advice
12 Financial Statements and Other Information
38 Corporate Data
1
<PAGE> 4
GARTNER GROUP LETTER TO SHAREHOLDERS
1997 was a milestone year at Gartner Group. Total revenues exceeded $500
million, representing a compound annual growth rate of 35 percent since 1991,
more than a sixfold increase. Our 2,800 world wide associates in 80 locations
served more than 9,000 client enterprises, offering a record number of products
and services, and further consolidating our position as the world's leading
authority on information technology (IT).
Net income rose 45 percent to $73 million, and earnings per share were up
39 percent to 71 cents. Gross margins were maintained at 60 percent despite
considerable reinvestment in people, technology, and research and development.
Gartner Group's balance sheet remained strong with $189 million in cash and
marketable securities, enabling us to continue to invest and acquire decisively.
Contract value, a reliable measure of the company's renewable business, was $526
million, a 35 percent increase year over year.
By any measurement, these past six years have been remarkable. We exceeded
all of our own expectations.
I would like to take the opportunity to share our vision beyond the year
2000 -- and to map out the strategies your senior managers and I have planned
for further growth.
OUR KEY GOALS REMAIN THE SAME:
* Provide IT professionals with decision-making tools so their organizations can
succeed in a highly competitive business environment. * Focus on complete
solutions that help organizations through all phases of the IT decision life
cycle. * Bring clarity to a confusing and ambiguous IT decision-making process.
Simply put, our goal is to help our clients make smarter decisions.
We will accomplish this by continuing to leverage our core competencies in
research and distribution. We will continue to introduce new products that keep
pace with IT change. We will continue to expand into new market segments that
enhance our core businesses: GartnerAdvisory, GartnerMeasurement and
GartnerLearning.
Having assembled an industry-leading suite of products and services, our
job for the immediate future is to improve the value of those assets through
aggressive but calculated growth. We will focus on six fronts:
2
<PAGE> 5
Increase service to existing clients. Today, we have 80 GartnerAnalytics
Advisory Services products, 140 Gartner Market Dynamics Dataquest products, 25
GartnerMeasurement services, and more than 400 GartnerLearning titles. Going
forward, we will introduce our clients to new levels of integrated support and
many new options for delivery and customization including a migration to more
continuous, Web-based fulfillment and the delivery of personalized,
profile-driven research.
Identify and attract new clients. Within our target market of companies with
revenues greater than $100 million, Gartner Group has a penetration rate of 19
percent in the United States and 12 percent worldwide. That leaves tremendous
room for growth. The key is showing prospective clients how we can add value to
their IT budgets by maximizing results and minimizing risk, and how we can
extend their staff resources with customized solutions. To better serve clients
of every size we have augmented our 700-strong global sales force with product
specialists and global account management support.
Develop new products and services. Our product groups will continue to create a
number of new products annually based on emerging technologies and market
demand. Listening to clients is vital. Unquestionably, our single biggest
differentiation is our ability to keep in touch with the market through the more
than 35,000 calls received by clients each month. Inquiries are logged into a
shared database that establishes the true pulse of the market and the course of
our innovations. Two examples of new products introduced in 1997 are the
Web-delivered IT Journal(TM) -- which includes First Takes(TM), a daily,
up-to-the-minute analysis of important, late-breaking IT events -- and Business
Technology Journal(TM), a monthly Web-based service that explains technology
and its impact in clear, easy-to-understand language for a target audience of
nontechnical business professionals.
Provide more delivery options. Delivery choices broadened considerably in 1997,
with numerous electronic product enhancements delivered via the Internet,
intranet, Lotus Notes and CD-ROM. Individualized, automated profiling became
available to GartnerAnalytics Advisory Services and Gartner Market Dynamics
Dataquest clients. Internet access to nearly 100 GartnerLearning titles was
launched through the Internet Learning Center, and the intranet-based Enterprise
Learning Center was introduced. Even GartnerEvents became an online sensation.
At our U.S. Symposium conference held in October, we broadcast live keynote
interviews via the Internet, in real-time audio and video, to an online audience
of over 22,000 people.
[Photo]
MANNY FERNANDEZ
Chairman and Chief Executive Officer
3
<PAGE> 6
Expand Geographically. Today, we are in every major country in the world. In the
coming months and years we will continue to accelerate our growth in selected
markets such as Japan, Southeast Asia and Latin America, while establishing
strong footholds in the emerging markets of China, Russia, the Middle East and
Eastern Europe.
Enter New Markets. Our acquisition strategy is based on what our clients need to
succeed. GartnerMeasurement provides our clients with the tools to continuously
improve IT performance: Clients can now show their CEOs data on the actual
returns on their IT investment. With Gartner Market Dynamics' Dataquest, we
provide market research and forecasting. In response to client demand for
technology training, we entered that market with GartnerLearning. And through
Gartner Analytics' Datapro, we now provide side-by-side product and vendor
insight to help clients make more informed purchasing decisions. Acquisitions
have added to our full suite of products and provide a total solution to key
issues our clients face every day. In the future, our investment criteria will
be the same: leverage core capabilities; ensure corporate growth targets; add to
revenue, earnings or both in the short term; and, most importantly, help clients
make better decisions.
GREATER EFFICIENCIES
The majority of our revenues will continue to come from renewable businesses,
which leads to highly predictable earnings results. We will continue to find
ways to improve our ef1/2ciency and expand margins. In 1997, we announced that
our financial services would be relocated to Florida. This represents
cost-of-business savings of $25 million over the next 10 years. You can expect
continued improvements through the successful integration of acquisitions and
more ef1/2cient global operations. Managing costs is essential to our financial
success, and to the achievement of the best possible returns for you, our
shareholders.
AN INDUSTRY LEADER
What brings our clients back year after year is the quality of our research and
the expertise of our analysts. The high standards we have set for ourselves
require methodologies and processes that are unparalleled in the industry today.
We are the only firm that sets probabilities to our predictions, the only firm
that provides a global perspective to market supply, and the only firm with a
high degree of integrity in our measurement databases. The technology world will
continue to change rapidly and it is our job to be on the leading edge of that
evolution, delivering more products for more value, providing the best services
and support in the industry, and helping our clients make the best possible IT
decisions.
THE PEOPLE BEHIND THE BUSINESS
Gartner Group's success is attributable to a hard- working team of individuals,
at all levels of the organization, who are making smart business decisions every
day. To sustain our success, we will continue to focus on recruiting, retaining
and developing our associates. In October, Bill Clifford was promoted to
President of Gartner Group. With more than 30 years of experience in the IT
industry and a remarkably insightful perspective on its future, Bill anchors a
highly capable senior team.
I am confident that the many dedicated associates who work with us have
what it takes to guide Gartner Group to our intended levels of growth and
profitability. For all of the accomplishments achieved in 1997, my thanks to
Gartner Group associates worldwide, our loyal clients, our board of directors
and to you, our shareholders.
/s/ Manny Fernandez
MANNY FERNANDEZ
Chairman and Chief Executive Officer
4
<PAGE> 7
SMARTER SERVICE
Total product life cycle solutions.
To be the voice of information technology
requires leadership, intellect, energy and
an abiding willingness to turn on a dime.
It takes an aptitude for seeing through the clutter,
and knowing the limitations of technology
as well as the value. It takes cold objectivity,
and the capacity to speak to every client with an
understanding of its unique path to success.
Ultimately, it takes a company able to make
sense of the future. Long before it arrives.
5
<PAGE> 8
[Photo]
BILL CLIFFORD
President and
Chief Operating Officer
Gartner Group research helps clients understand their IT options and associated
risks. Independent and highly respected, we provide clients with the data and
qualitative insight they need to extract the greatest value from their IT
infrastructure. In 1997, our ability to identify and enhance that value
continued to improve. We introduced a record 70 new products and answered 98
percent of client inquiries within deadline. Our more than 750 analysts, who
average 10 to 15 years of industry experience, represent the largest aggregation
of industry expertise in the research and advisory services market. And client
confidence remains exceptional, with an 85 percent renewal rate, the highest in
the industry.
Although continuing to attract the best and brightest analysts in the
industry will remain a challenge in 1998, we are confident of our prospects. Our
culture itself is an important inducement to talent. Both intellectual and
entrepreneurial, it places a high value on the ability to spot IT trends in
advance, triangulate seemingly dissimilar data, and formulate original thinking.
In our business, there is no substitute for accurate predictions coupled with
great advice. That's what we do best.
================================================================================
Balancing growth and profitability is a chief priority at Gartner Group. In
1997, we continued to contain costs effectively by re-engineering processes,
carefully managing growth, and controlling expenditures. By deploying new and
upgraded technology, we made productivity improvements that enabled a fully
functional mobile sales force, greater research sharing, and a superior client
inquiry response system. Our continued attention to asset management has allowed
us to increase our cash generation capabilities and a focus on treasury
management has reduced our risk to currency fluctuations. In addition, we
successfully integrated four acquisitions, including Datapro Information
Services in the United States, Europe and Southeast Asia; Strategic Publishing
Group and East Consulting in Australia; and Bouhot and Le Gendre in France.
In 1998, we will continue to increase international sales and
profitability while providing seamless product fulfillment through our worldwide
distribution. You can also expect additional acquisition ef1/2ciencies and wider
profit margins from expense management. Finally, the effective tax rate will
continue to improve as a result of U.S. and state tax planning initiatives,
international activities, and greater utilization of benefits on export sales.
[Photo]
JOHN HALLIGAN
Executive Vice President and
Chief Financial Officer
6
<PAGE> 9
[Photo]
MICHAEL FLEISHER
Executive Vice President
and President,
Emerging Businesses
Gartner Group entered the technology-based training business because our clients
face an ongoing challenge in managing and upgrading the skills of their IT
staff. In an industry that changes platforms almost annually, the skills of IT
professionals must be constantly monitored and enhanced. Through the unique
GartnerLearning platform, content and services, our strategy is to provide
clients with a complete skills management solution. Platforms provide highly
effective solutions for training delivery via the Internet, intranet, LANs and
stand-alone workstations. Content is focused predominantly on the needs of IT
professionals, but we are offering an increasing stream of titles for end users.
In 1997, we augmented this learning technology with a full-fledged services
organization to help clients with the process of assessing their people,
developing job-based competencies, and creating effective skills management and
training programs.
GartnerLearning will continue to grow rapidly in 1998, as will our
conference and events business, GartnerEvents, which showed strong performance
in both revenue and attendance during 1997. Most notably, our Symposium/ITxpo,
which has become the premier strategic planning event for senior-level IT
decision makers around the world, hosted more than 12,000 attendees during the
year.
================================================================================
The distribution organization is a critical component of Gartner Group's
long-term growth strategy. In 1997, we increased our U.S. sales force by over 30
percent, integrated the GartnerLearning product line, and with an eye on the
future, invested in our management structure. In Europe, along with bringing
additional sales force growth, we added senior management in four key countries
and began marketing new localized products. In the Asia/Pacific region, we grew
the business over 200 percent, strengthening our management team and further
boosting investment in our Japanese and Chinese distribution networks. We also
undertook and completed a branding exercise for all Gartner Group products to
add clarity and market focus to our expanding product line.
As we enter 1998, a top priority has been the establishment of a major
global account organization to focus exclusively on our larger clients. By
offering continuous, high-level service and recommending ongoing solutions in
advisory services, measurement and learning, we will be stepping beyond the
industry's traditional transactional approach and delivering considerably
greater value. For the same reason, we are moving our smaller accounts to an
inside sales organization that can provide improved service through a variety of
innovative distribution methods.
[Photo]
FOLLETT CARTER
Executive Vice President
and President,
Gartner Distribution
7
<PAGE> 10
SMARTER ADVICE
Making sense of the future.
[Graphic omitted]
Our mission is to bring meaning and clarity
to the uncertainty of information technology
by integrating end-to-end client support through
the entire IT life cycle. Analyzing. Planning.
Implementing. Monitoring. And analyzing again.
Value for our clients is established in one phase
of the cycle, and then extended through the next.
Measured progress. Continuous
improvement. Optimum value.
Without missing a beat.
8
<PAGE> 11
SUPPORTING CHANGE WITH KNOWLEDGE
How Gartner Group met one client's needs in 1997 with a full-service range
of products and services.
PHASE NO.1
[GRAPHIC OMITTED]
CHANGE REQUIRES ASSESSING YOUR CURRENT SITUATION, UNDERSTANDING THE GOALS YOU
WANT TO ACHIEVE, AND EVALUATING THE FEASIBILITY OF THOSE GOALS. GARTNERANALYTICS
AND GARTNERCONSULTING HAVE THE ANSWERS TO THE QUESTIONS YOU SHOULD BE ASKING.
ANALYZE
In mid-1997, executives from a Fortune 500 consumer goods corporation met
with their Gartner Group sales manager to review strategic issues confronting
the company's IS organization. Of particular concern was the year 2000 problem.
Three key questions had to be answered: What was the company's exposure to the
problem? Could the problem be turned into an opportunity? What strategic and
tactical actions should be taken?
The company, a Gartner Group client for 10 years, started by thoroughly
assessing the situation at its annual executive briefing with GartnerAnalytics
research analysts. In addition to questioning the analysts on their opinions of
the year 2000 problem, the client reviewed best practices of similar-sized
companies in its industry and explored the implications of maintaining its
current IS infrastructure. The meeting was followed by a series of one-on-one
telephone consultations, ongoing analysis through Gartner Group research
delivered via the Internet, and audioconferences with peer organizations working
on the same problem.
After several months, the client's IS staff felt they had a comprehensive
grasp of the major issues. The next step was to measure the potential impact and
clarify a path to improvement.
================================================================================
MEASURE
Working with GartnerMeasurement, the client decided on two courses of action. In
the long term, it would implement a measurement program for its entire IT
environment to support a culture of continuous improvement. In the short term,
it would benchmark its applications development group and distributed computing
environment to determine immediate improvements that had to be made.
As the benchmarking progressed, the relative performance of the company's
IS organization was evaluated, as were cost structures and year 2000 exposure.
The company was compared with other Fortune 500 companies, competing companies,
and other organizations with a similar IT infrastructure. A clear understanding
emerged of key issues and the actions necessary to meet strategic goals.
PHASE NO.2
[GRAPHIC OMITTED]
TO GET TO WHERE YOU WANT TO GO, YOU HAVE TO KNOW WHERE YOU ARE.
GARTNERMEASUREMENT IS THE STARTING POINT FOR IMPROVING PROCESSES, CUTTING COSTS,
REDUCING CYCLE TIMES, AND DEMONSTRATING A RETURN ON YOUR IT INVESTMENT.
9
<PAGE> 12
PHASE NO.3
[GRAPHIC OMITTED]
GREAT ADVICE ALWAYS PAYS. ARMED WITH ANALYSIS AND AN ACCURATE BASELINE, YOU NEED
A GREAT PLAN. GARTNERANALYTICS' ADVISORY SERVICES, DATAPRO AND DECISION DRIVERS
WILL HELP YOU EVALUATE VENDORS, APPRAISE PURCHASE DECISIONS, SPECIFY TIMING, AND
AVOID PITFALLS.
PLAN
Having analyzed industry trends, measured its own organization relative to
others, and determined what various year 2000 solution suppliers were offering,
the client began working out its plan. In addition to correcting several legacy
systems for year 2000 compliance, the client decided that fundamental change was
required within the IT infrastructure -- that it should move rapidly to a
distributed environment. This would provide a competitive advantage by reducing
the time it took products to reach the market while linking the client more
closely to its customers. The cost would be $35 million in infrastructure and
applications.
This major investment had to be backed with knowledge. The company had to
evaluate vendors, assess the validity of proposed purchase decisions, map out
the most advantageous purchase timing plan, and clearly understand the economic
implications of each decision. Returning to GartnerAdvisory, the client obtained
tactical product opinion from GartnerAnalytics' Datapro and strategic advice
from Advisory Services. A Decision Drivers model was used to help create a
decision methodology in key areas of change.
================================================================================
IMPLEMENT
The scope of the proposed changes also required the company to look closely at
the skills of its IT staff. Clearly, a gap existed. Through GartnerLearning, the
size of the discrepancy was determined, and an action plan was created to
develop, maintain and amplify staff skills. The plan included GartnerLearning
technology-based titles, instructor-led training from Prosoft on
Internet-related technologies, and finally, the use of the LOIS (Learning
Organization Information System) intranet platform to manage the training
logistics, assessment and skills of individuals as they progressed through their
individual training programs.
================================================================================
RESULTS
By working with Gartner Group's Advisory, Measurement and Learning business
units, the client not only determined the extent of its year 2000 exposure and
developed a tactical plan to solve it, but in the process improved many other
aspects of its IT organization, which will increase profitability and contribute
to future business opportunities.
PHASE NO.4
[GRAPHIC OMITTED]
WHEN IT'S TIME TO "FLIP THE SWITCH," SUCCESS DEPENDS ON YOUR PEOPLE. THROUGH
GARTNERLEARNING THEY CAN UPGRADE THEIR SKILLS OR LEARN ENTIRELY NEW PROCESSES
AND TECHNOLOGIES, RIGHT AT THEIR OWN DESKS.
10
<PAGE> 13
To further explore the
depth and breadth of our products and services,
visit our interactive annual report at:
www.gartner.com/smarter
11
<PAGE> 14
FINANCIAL STATEMENTS AND OTHER INFORMATION
13 Management's Discussion and Analysis of Financial Conditions and Results
of Operations
20 Consolidated Balance Sheets
21 Consolidated Statements of Operations
22 Consolidated Statements of Change in Stockholders' Equity
23 Consolidated Statements of Cash Flows
24 Notes to Consolidated Financial Statements
35 Report by Management
35 Report of Independent Auditors
36 Selected Consolidated Financial Data
37 Quarterly Financial Data
12
<PAGE> 15
GARTNER GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Fiscal 1997 marked the eighteenth consecutive year of record revenue growth for
Gartner Group, Inc. (the "Company"). Total revenues for fiscal 1997 were $511.2
million, up 30% from $394.7 million for fiscal 1996. Current year revenue growth
consisted of a 29% increase in advisory (excluding consulting) and measurement
services, a 74% increase in learning revenue and a 23% increase in other revenue
(principally from consulting services and conferences). Advisory and measurement
services encompass services which, on an ongoing basis, highlight industry
developments, review new products and technologies, provide quantitative market
research, analyze industry trends within a particular technology or market
sector and provide comparative analysis of the information technology operations
of organizations. Learning represents technology-based training products and
related services. The Company enters into annual renewable contracts for
advisory and measurement services and learning products. Revenues from advisory
and measurement services as well as learning are recognized as services and
products are delivered and as the Company's obligation to the client is
completed over the contract period. Along with the increased penetration of the
existing client base, overall revenue increases in fiscal 1997 came from the
combined successes of numerous new product introductions, investments in
overseas distribution and incremental revenue from current and prior year
acquisitions.
Contract value increased 35% to approximately $526 million at September
30, 1997 versus the same date last year. The Company believes that contract
value, which is calculated as the annualized value of all advisory, measurement
and learning ("AML") contracts in effect at a given point in time, without
regard to the duration of the contracts outstanding at such time, is a
significant measure of the Company's volume of business. Historically, a
substantial portion of client companies have renewed these services for an equal
or higher level of total value each year, and annual revenues from these
services in any fiscal year have approximated contract value at the beginning
of the fiscal year. Had contract value from the learning business been included
in contract value at September 30, 1996, the increase in fiscal 1997 contract
value would have been 33%. As of September 30, 1997, approximately 85% of the
Company's clients have renewed one or more services in the last twelve months.
However, this renewal rate is not necessarily indicative of the rate of
retention of the Company's revenue base, and contract value at any time may not
be indicative of future AML revenues or cash flows if the rate of renewal of AML
services and products or the timing of new business were to significantly change
during the following twelve months compared to historic patterns. Total
deferred revenues of $257.3 million and $201.4 million as of September 30, 1997
and 1996, respectively, as presented in the Company's Consolidated Balance
Sheets, represent unamortized revenues from AML services and products plus
unamortized revenues of certain other products and services not included in AML
services and products. Deferred revenues do not directly correlate to contract
value as of the same date since contract value represents an annualized value of
all outstanding contracts without regard to the duration of such contracts, and
deferred revenue represents unamortized revenue remaining on all outstanding
contracts including AML and certain other services and products not included in
AML revenue. Backlog at September 30, 1997 was approximately $95.1 million and
represents future revenues that will be recognized on multi-year and early
renewed AML contracts, plus in-process consulting engagements. Such revenues
will be recognized when services and products are delivered. Backlog is not
included in deferred revenues or contract value.
Historically, the Company has realized significant renewals and growth in
contract value at the end of quarters. The fourth quarter of the fiscal year
typically is the fastest growth quarter for contract value and the first quarter
of the fiscal year typically represents the slowest growth quarter as it is the
quarter in which the largest amount of contact renewals are due. As a result of
the quarterly trends in contract value and overall business volume, fees
receivable, deferred revenues, deferred commissions and commissions payable
reflect this activity and typically show substantial increases at quarter end,
particularly at fiscal year end. All contracts are billable upon signing, absent
special terms granted on a limited basis from time to time. All contracts are
non-cancelable and non-refundable, except for government contracts which have a
30-day cancellation clause, but have not produced material cancellations to
date. The Company's policy is to record at the time of signing of an AML
contract the fees receivable and related deferred revenues for the full amount
of the contract billable on that date. The Company also records the related
commission obligation upon the signing of the contract and amortizes the
corresponding deferred commission expense over the contract period in which the
related revenues are earned and amortized to income.
13
<PAGE> 16
Historically, AML revenues have increased significantly in the first
quarter of the ensuing fiscal year over the immediately preceding quarter and
other revenues have increased similarly due to annual conferences and exhibition
events held in the first quarter. Additionally, operating margin (operating
income as a percentage of total revenues) typically improves in the first
quarter of the fiscal year versus the immediately preceding quarter. The
operating margin improvement in the first quarter of the fiscal year is due to
the increase in revenue upon which the Company is able to further leverage its
selling, general and administrative expenses, plus operating income generated
from the first quarter Symposium and ITxpo exhibition events. Operating margin
generally is not as high in the second, third and fourth quarters of the fiscal
year compared to the first quarter of the fiscal year as the operating margins
on the ITxpo event in the first fiscal quarter are higher than on
conferences/events held later in the fiscal year. Additionally, the Company
historically does not increase its level of spending until after the first
quarter of the fiscal year, when the rate of growth in contract value becomes
known. As a result, growth in operating expenses has typically lagged behind
growth in revenues within a given year, and operating margin has generally been
higher in the earlier quarters of the fiscal year.
Operating income rose 136% to $116.6 million for fiscal 1997, or 23% of
total revenues, from $49.4 million, or 13% of total revenues for fiscal 1996.
Excluding acquisition-related charges of $34.9 million (consisting primarily of
a $32.2 million write-off of purchased, in-process research and development
costs in connection with the acquisition of J3 Learning, Inc. ("J3") in fiscal
1996), operating income for fiscal 1997 increased 38%. Operating income has
increased as a result of solid revenue growth coupled with controlled spending
that has allowed the Company to gain economies of scale through the leveraging
of its resources (additional revenues have been generated using essentially the
same resources). The Company's continued focus on margin improvement has
impacted favorably operating results. Net income per common share was $0.71 for
fiscal 1997 as compared to last fiscal year's $0.17 per common share ($0.51 per
common share for fiscal 1996 when excluding acquisition-related charges). The
Company's strong cash generation also continued in fiscal 1997. The Company had
$188.7 million in total cash, cash equivalents and marketable securities at
September 30, 1997, up $58.8 million from $129.9 million at September 30, 1996.
ANALYSIS OF OPERATIONS
The following table sets forth certain results of operations as a percentage of
revenues:
Fiscal Year Ended September 30, 1997 1996 1995
- --------------------------------------------------------------------------------
Percent of revenues:
Revenues:
Advisory and measurement 78% 78% 80%
Learning 4 3 --
Other 18 19 20
- --------------------------------------------------------------------------------
Total revenues 100 100 100
- --------------------------------------------------------------------------------
Costs and expenses:
Cost of services and
product development 40 39 38
Selling, general and
administrative 34 37 41
Acquisition-related charges -- 9 --
Depreciation 2 2 2
Amortization of intangibles 1 1 1
Nonrecurring charges -- -- 3
- --------------------------------------------------------------------------------
Total costs and expenses 77 88 85
- --------------------------------------------------------------------------------
Operating income 23 12 15
Minority interest -- -- --
Interest income, net 1 1 1
- --------------------------------------------------------------------------------
Income before income taxes 24 13 16
Provision for income taxes 10 9 7
- --------------------------------------------------------------------------------
Net income 14% 4% 9%
================================================================================
FISCAL YEAR ENDED SEPTEMBER 30, 1997 VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1996
Total revenues increased 30% to $511.2 million for fiscal 1997 as compared to
$394.7 million for fiscal 1996. Revenues from advisory (excluding consulting)
and measurement services increased 29% for fiscal 1997 to $396.2 million
compared to $306.5 million for fiscal 1996 and comprised approximately 78% of
total revenues in both fiscal 1997 and fiscal 1996. Revenue from learning
increased 74% for fiscal 1997 to $21.3 compared to $12.2 for fiscal 1996 and
comprised approximately 4% of revenues in fiscal 1997 versus 3% in fiscal 1996.
The increase in AML revenues reflects primarily strong market acceptance of new
services introduced in 1996 and the first half of 1997, volume increases as a
result of increased geographic and client penetration, continuation of a volume
pricing strategy that provides more value for the same dollars each year through
the expansion of electronic distribution within client companies and incremental
revenues from acquisitions completed in fiscal 1997 and fiscal 1996 (primarily
Datapro Information Services, Inc. ("Datapro") and J3).
14
<PAGE> 17
Other revenues, consisting principally of revenues from consulting and
conferences, increased 23% to $93.7 million for fiscal 1997 as compared to $75.9
million for the prior year. The increase is primarily attributable to additional
conferences held in fiscal 1997, increased revenue versus fiscal 1996 for
certain conferences and expansion of consulting services to new geographic
regions.
The rate of growth in total revenues has continued to be strong in the
three defined geographic market areas of the Company: the United States, Europe
and Other International. Total revenues from sales to United States clients
increased 31% to $333.0 million for fiscal 1997 from $253.5 million for fiscal
1996. Total revenues from sales to European clients increased 24% to $122.0
million for fiscal 1997 from $98.8 million for fiscal 1996, and total revenues
from sales to Other International clients increased 33% to $56.2 million for
fiscal 1997 from $42.4 million for fiscal 1996. These increases reflect
primarily the continued results of the Company's sales strategy to extend the
Company's sales channels to clients with revenues ranging from $100 million to
$2 billion (versus $500 million to $2 billion for fiscal 1996), in addition to
the Company's historic focus on larger customers. In Europe and Other
International markets, additional investment in direct sales personnel and
distributor relationships has also contributed to revenue growth. The Company
intends to continue its expansion of operations outside of the United States in
fiscal 1998.
Operating income was $116.6 million for fiscal 1997 compared to $49.4
million for fiscal 1996. Excluding acquisition-related charges of $34.9 mil-lion
for fiscal 1996, operating income for fiscal 1997 increased 38%. All three
defined geographic areas experienced growth in operating income in fiscal 1997,
with a 139%, 130% and 138% increase in the United States, Europe and Other
International geographic areas, respectively. Operating income, as a percentage
of total revenues, increased to 23% for fiscal 1997 versus 21% for fiscal 1996,
after excluding the above mentioned acquisition-related charges. Operating
income has increased as a result of solid revenue growth coupled with controlled
spending that has allowed the Company to gain economies of scale through the
leveraging of its resources (additional revenues have been generated using
essentially the same resources). The Company's continued focus on margin
improvement has favorably impacted operating results.
While costs and expenses, excluding acquisition-related charges, increased
to $394.6 million for fiscal 1997 from $310.3 million for fiscal 1996, such
costs decreased to 77% of total revenues for fiscal 1997, down from 79% for
fiscal 1996. Cost of services and product development expenses were $202.8
million and $153.0 million for fiscal 1997 and 1996, respectively. This increase
in expenses over the prior fiscal year reflects the need to provide additional
support to the growing client base, including investment in strategic areas such
as electronic and Internet distribution, costs associated with the
implementation of the Company's new client inquiry process (QuickPath) and
product development costs (particularly for technology-based training products).
The decrease in cost of services and product development expenses, as a
percentage of total revenues, is attributable primarily to improved gross
margins on conferences as compared to the prior fiscal year and lower delivery
cost per dollar of revenue generated due to increased electronic delivery of AML
services and products. Selling, general and administrative expenses, which were
$173.6 million and $144.5 million for fiscal 1997 and 1996, respectively,
increased primarily as a result of the Company's continued expansion of
worldwide distribution channels and resulting commissions earned on the revenue
generated. The increase in commission expense was offset partially by the
elimination and/or reduction of redundant general and administrative expenses,
including personnel reductions and facility rationalization relating to
acquisitions. Although the Company has added general and administrative
resources to support the growing revenue base, it has benefited from economies
of scale and leveraging of its general and administrative staff and facilities.
Consequently, selling, general and administrative expenses were 34% of total
revenues for fiscal 1997 as compared to 37% for fiscal 1996.
Acquisition-related charges of $34.9 million for fiscal 1996 for the
acquisitions of Dataquest, Inc. and J3 were not recurring for fiscal 1997.
Depreciation expense increased to $11.8 million for fiscal 1997 from $9.1
million for fiscal 1996, due primarily to capital spending required to support
business growth. Additionally, amortization of intangibles increased by $2.6
million for fiscal 1997 as compared to fiscal 1996, reflecting primarily
goodwill associated with fiscal 1996 and 1997 acquisitions.
15
<PAGE> 18
Interest income, net, increased to $7.3 million for fiscal 1997, versus
$3.7 million for fiscal 1996. This improvement resulted from interest income
accumulating on the Company's total cash, cash equivalents and marketable
securities ($188.7 million at September 30, 1997 versus $129.9 million at
September 30, 1996), changes in the mix to higher yielding investments and from
reduced interest expense after remaining debt related to fiscal 1993 and 1994
acquisitions was paid during fiscal 1996.
Provision for income taxes increased by $14.1 million to $50.7 million for
fiscal 1997, up from $36.7 million for fiscal 1996. The effective tax rate was
41% and 69% for fiscal 1997 and 1996, respectively. Absent the non-deductible
write-off for purchased in-process research and development costs, the effective
tax rate for fiscal 1996 was 43%. The decrease in the effective tax rate from
fiscal 1996, excluding the above mentioned non-deductible write-off, is due to
on-going tax planning initiatives. A more detailed analysis of the changes in
the provision for income taxes is provided in Note 9 of the Notes to
Consolidated Financial Statements.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1995
Total revenues increased 34% to $394.7 million for fiscal 1996 as compared to
$295.1 million for fiscal 1995. Revenues from advisory (excluding consulting)
and measurement services increased 30% for fiscal 1996 to $306.5 million
compared to $235.9 million for fiscal 1995 and comprised approximately 78% of
total revenues for fiscal 1996 versus 80% for fiscal 1995. Revenue from learning
increased 839% for fiscal 1996 to $12.2 million compared to $1.3 million for
fiscal 1995. The increase in AML revenues reflects primarily strong market
acceptance of new services introduced in fiscal 1996, volume increases as a
result of increased geographic and client penetration, a volume pricing strategy
that provides more value for the same dollars each year through the expansion of
electronic distribution within client companies and incremental revenues from
the acquisition of J3 in July 1996. In addition, the Company launched a number
of Internet-based products during fiscal 1996 that are designed to expand the
distribution channels for the Company's products in future fiscal years.
Other revenues, consisting principally of revenues from consulting and
conferences, increased 31% to $75.9 million for fiscal 1996 as compared to $58.0
million for the prior year. This increase was attributable primarily to
additional conferences held in fiscal 1996.
The rate of growth in total revenues has continued strong in the three
defined geographic market areas of the Company: the United States, Europe and
Other International. Revenues from sales to United States clients increased 37%
to $253.5 million for fiscal 1996 from $184.6 million for fiscal 1995. Revenues
from sales to European clients increased 37% to $98.8 million for fiscal 1996
from $71.9 million for fiscal 1995, and revenues from sales to Other
International clients increased 10% to $42.4 million for fiscal 1996 from $38.6
million for fiscal 1995. These increases reflect primarily the continued results
of the Company's sales strategy to extend the Company's sales channels to
clients with revenues ranging from $500 million to $2 billion, in addition to
the Company's historic focus on larger customers. In Europe and Other
International markets, additional investment in direct sales personnel and
distributor relationships has also contributed to revenue growth.
Operating income was $49.4 million for fiscal 1996, compared to $43.7
million for fiscal 1995. Excluding $34.9 million in acquisition-related charges
(consisting primarily of a $32.2 million write-off of purchased in-process
research and development costs in connection with the acquisition of J3) and
$8.8 million of nonrecurring charges in fiscal 1995, operating income for fiscal
1996 increased 61% to $84.3 million compared to $52.5 million for fiscal 1995.
Excluding the above mentioned charges, all three geographic areas experienced
growth in operating income for fiscal 1996, with a 47%, 200% and 31% increase in
the United States, Europe and Other International geographic areas,
respectively. Operating income, as a percentage of total revenues, after
excluding the above mentioned charges, increased to 21% of revenues for fiscal
1996 versus 18% for fiscal 1995. As revenues have grown, the Company has been
able to take advantage of economies of scale and has leveraged its resources
(additional revenues have been generated using essentially the same resources),
thereby improving margins. These measures include electronic distribution,
improved productivity of the sales force resulting from a significant investment
in new technologies, and the utilization of new sales channels to reach more
organizations. These measures have had a greater incremental impact on Europe's
operating income relative to the other geographic areas mainly due to the prior
year distribution improvements being in place for all of fiscal 1996, combined
with significant revenue growth.
16
<PAGE> 19
The total dollar amount of costs and expenses, excluding
acquisition-related and nonrecurring charges, increased $67.7 million to $310.3
million. The dollar increase in cost growth reflected primarily the need to
provide additional support to the growing client base, including investment in
strategic areas such as electronic and Internet distribution and information
systems infrastructure. Additionally, cost of services and product development,
as a percentage of total revenues increased, reflecting a shift in the Company's
total revenues as higher direct cost businesses such as consulting and
conferences contributed to a greater portion of the total revenues for fiscal
1996. For fiscal 1996, these factors resulted in a $40.3 million increase in
cost of services and product development and a $24.8 million increase in
selling, general and administrative expenses compared to the prior fiscal year.
However, expressed as a percentage of revenues, costs of services and product
development increased only 1% from 38% to 39% and selling, general and
administrative decreased from 41% to 37% of total revenues in comparing fiscal
1996 to fiscal 1995.
Interest income, net, increased to $3.7 million for fiscal 1996, versus
$2.3 million for fiscal 1995. This increase in interest income is attributable
to an increase in the Company's average available investable funds and the
decrease in debt related to prior years' acquisitions. Rates earned on the
average available investable funds for fiscal 1996 were consistent with the
rates earned for fiscal 1995.
Provision for income taxes increased by $15.8 million to $36.7 million for
fiscal 1996, up from $20.9 million for fiscal 1995. The effective rate was 69%
and 46% for fiscal 1996 and 1995, respectively. This increase reflects the
non-deductible write-off for purchased in-process research and development costs
in fiscal 1996. Absent this charge, the effective tax rate for fiscal 1996 was
43%. A more detailed analysis of the changes in the provision for income taxes
is provided in Note 9 of the Notes to Consolidated Financial Statements.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
The Company's future operating results will depend upon the Company's ability to
continue to compete successfully in the market for information products and
services. The Company faces competition from a significant number of independent
providers of similar services, as well as the internal marketing and planning
organizations of the Company's clients. The Company also competes indirectly
against other information providers, including electronic and print media
companies and consulting firms. In addition, there are limited barriers to entry
into the Company's market and additional new competitors could readily emerge.
There can be no assurance that the Company will be able to continue to provide
the products and services that meet client needs as the Information Technology
("IT") market rapidly evolves, or that the Company can otherwise continue to
compete successfully. In this regard, the Company's ability to compete is
largely dependent upon the quality of its staff of IT analysts. Competition for
qualified analysts is intense. There can be no assurance that the Company will
be able to hire additional qualified IT analysts as may be required to support
the evolving needs of customers or any growth in the Company's business. Any
failure to maintain a premier staff of IT analysts could adversely affect the
quality of the Company's products and services, and therefore its future
business and operating results. Additionally, there may be increased business
risk as the Company expands product and service offerings to smaller domestic
companies.
The Company's operating results are subject to the risks inherent in
international sales, including changes in market demand as a result of exchange
rate fluctuations, tariffs and other barriers, challenges in staffing and
managing foreign sales operations, and higher levels of taxation on foreign
income than domestic income. Further expansion would also require additional
management attention and financial resources.
The Company has expanded its presence in the technology-based training
industry. The success of the Company in the technology-based training industry
will depend on its ability to compete with vendors of these products and
services which include a range of education and training specialists, hardware
and system manufacturers, software vendors, system integrators, dealers,
value-added resellers and network/ communications vendors, certain of whom have
significantly greater product breadth and market presence in the
technology-based training sector. There can be no assurance that the Company
will be able to provide products that compare favorably with new competitive
17
<PAGE> 20
products or that competitive pressures will not require the Company to reduce
prices. Future success will also depend on the Company's ability to develop new
training products that are released timely with the introductions of the
underlying software products.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through cash provided
by operating activities. The combination of revenue growth and operating margin
improvements have contributed to positive cash provided by operating activities
for fiscal 1997, 1996 and 1995. In addition, cash flow has been enhanced by the
Company's continuing management of working capital requirements to support
increased sales volumes from growth in the pre-existing businesses and growth
due to acquisitions.
Cash provided by operating activities for fiscal 1997 was $87.2 million
compared to $65.7 million for the prior fiscal year. This increase reflected
primarily the impact of increased revenues and operating margins and related
changes in the balance sheet accounts, particularly fees receivable, deferred
revenues, deferred commissions, commissions payable and bonuses payable.
Cash used for investing activities totaled $84.3 million for the fiscal
year ended September 30, 1997. During fiscal 1997, the Company used $33.3
million in cash for acquisitions, primarily for the purchase of Datapro for $25
million, and $9.0 million for investments in unconsolidated businesses. The
Company also used $21.5 million for the purchase of capital assets, loaned
officers $7.2 million to facilitate the purchase of common stock arising out of
the exercise of stock options (the loan proceeds were not used to fund the
option exercise price of the common stock acquired) and had net purchases of
marketable securities for $13.2 million.
Cash provided by financing activities totaled $44.6 million for fiscal
1997, versus $31.6 million for fiscal 1996. The increase for fiscal 1997 was
driven primarily by a $36.8 million credit to additional paid-in capital for tax
benefits received from stock transactions with employees and $13.6 million from
the issuance of common stock upon the exercise of employee stock options. The
tax benefit of stock transactions with employees is due to a reduction in the
corporate income tax liability based on an imputed compensation deduction equal
to employees' gain upon the exercise of stock options at an exercise price below
fair market. As additional stock options have become exercisable each fiscal
year under the Company's stock option plans, both the volumes of option
exercises and gains on those exercises have increased, thereby resulting in
significant tax benefits being realized in both fiscal 1997 and 1996. These
increases were partially offset by a net cash settlement of $12.0 million on a
forward purchase agreement on the Company's common stock.
The effect of exchange rates reduced cash and cash equivalents by $1.8
million for the year ended September 30, 1997, and was due to the strengthening
of the U.S. dollar versus certain foreign currencies. In fiscal 1996, the
foreign denominated cash balances were significantly less and the exchange rate
fluctuations were not as significant as in the current fiscal year, thereby
resulting in a reduction of $0.3 million in cash. At September 30, 1997, cash,
cash equivalents and marketable securities totaled $188.7 million. In addition,
the Company has available two unsecured credit lines with The Bank of New York
and Chase Manhattan Bank for $5.0 million and $25.0 million, respectively. These
lines may be canceled by the banks at any time without prior notice or penalty.
Additionally, the Company issues letters of credit in the ordinary course of
business. The Company had outstanding letters of credit with Chase Manhattan
Bank of $4.0 million and $2.0 million with The Bank of New York at September 30,
1997. The Company currently has no material capital commitments.
The Company believes that its current cash balances and marketable
securities, together with cash anticipated to be provided by operating
activities and borrowings available under the existing lines of credit, will be
sufficient for the expected short-term and foreseeable long-term cash needs of
the Company, including possible acquisitions.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Portions of the foregoing discussion include descriptions of the Company's
expectations regarding future trends affecting its business. The forward-looking
statements made in this annual report, as well as all other forward-looking
statements or information provided by the Company or its employees, whether
written or oral, are made in reliance upon the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements and
future results are subject to, and should be considered in light of risks,
uncertainties and other factors which may affect future results including, but
not limited to: competition, rapidly changing technology, regulatory
requirements and uncertainties of international trade.
18
<PAGE> 21
COMMON STOCK INFORMATION
The Company's Class A Common Stock is listed for quotation in the Nasdaq
National Market under the symbol "GART." The Company effected two-for-one stock
splits by means of stock dividends in March 1996, June 1995 and August 1994. All
earnings per share and share data presented herein have been restated
retroactively to reflect such splits. As of September 30, 1997, the Company
recorded the conversion of all Class B Common Stock into Class A Common Stock on
a one for one basis, pursuant to a provision of the Articles of Incorporation
which requires conversion when the Class B Common Stockholder's voting equity
falls below a certain ownership percentage after considering all exercisable
options and warrants outstanding. During fiscal 1997, the Company's Class A
Common Stock traded within a range of daily closing prices of $20.38 to $42.06
per share.
- --------------------------------------------------------------------------------
QUARTERLY COMMON STOCK PRICES
- --------------------------------------------------------------------------------
Fiscal Year 1997 Fiscal Year 1996
----------------- -----------------
High Low High Low
- --------------------------------------------------------------------------------
First Quarter ended
December 31 $38.88 $29.75 $23.94 $16.25
Second Quarter ended
March 31 $42.06 $20.38 $33.00 $20.25
Third Quarter ended
June 30 $35.94 $20.63 $42.50 $30.88
Fourth Quarter ended
September 30 $36.63 $25.50 $38.63 $27.38
- --------------------------------------------------------------------------------
The Company has not paid any cash dividends on its common stock and
currently intends to retain any future earnings for use in its business.
Accordingly, the Company does not anticipate that any cash dividends will be
declared or paid on the common stock in the foreseeable future.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, Statement of Financial Accounting Standard No. 128, "Earnings
per Share" was issued. This statement sets forth guidance on the presentation of
earnings per share and requires dual presentation of basic and diluted earnings
per share on the face of the income statement. Basic earnings per share is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if all common stock
equivalents were exercised (similar to fully diluted earnings per share under
Accounting Principles Board Opinion No. 15). If the new standard was in effect
during fiscal 1997, basic net income per common share for the fiscal year ended
September 30, 1997 would have been $0.77 and diluted income per common share
would have been $0.71. The Company is required to adopt the new standard in the
first quarter of fiscal 1998.
In June 1997, Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income ("FAS 130") and "Disclosures about Segments of
an Enterprise and Related Information" ("FAS 131") were issued. FAS 130
establishes standards for reporting and disclosure of comprehensive income and
its components in a full set of general-purpose financial statements. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. FAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders, which is currently not required. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company is required to adopt both new standards in the first
quarter of fiscal 1999.
19
<PAGE> 22
GARTNER GROUP CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share data)
September 30, 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 142,415 $ 96,755
Marketable securities 28,639 30,054
Fees receivable, net of allowances of $5,340 and $4,460 205,760 143,762
Deferred commissions 23,019 17,539
Prepaid expenses and other current assets 25,775 22,040
- -------------------------------------------------------------------------------------------------------
Total current assets 425,608 310,150
Long-term marketable securities 17,691 3,047
Property, equipment and leasehold improvements, net 44,102 32,818
Intangible assets, net 132,195 93,144
Other assets 25,716 4,949
- -------------------------------------------------------------------------------------------------------
Total assets $ 645,312 $ 444,108
=======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 85,411 $ 60,527
Commissions payable 16,979 15,148
Accrued bonuses payable 15,722 16,781
Deferred revenues 254,071 198,952
- -------------------------------------------------------------------------------------------------------
Total current liabilities 372,183 291,408
- -------------------------------------------------------------------------------------------------------
Long-term deferred revenues 3,259 2,465
Commitments and contingencies
Stockholders' equity:
Preferred stock:
$.01 par value, authorized 2,500,000 shares; none issued or outstanding -- --
Common stock:
$.0005 par value, authorized 200,000,000 shares of Class A Common
Stock and 1,600,000 shares of Class B Common Stock; issued
108,334,601 shares of Class A Common (102,697,739 in 1996) and 0
shares of Class B Common Stock
(1,600,000 in 1996) 54 52
Additional paid-in capital 179,017 134,711
Cumulative translation adjustment (1,098) (2,965)
Accumulated earnings 105,138 32,008
Treasury stock, at cost, 11,624,805 and 11,370,594 shares (13,241) (13,571)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 269,870 150,235
- -------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 645,312 $ 444,108
=======================================================================================================
</TABLE>
See notes to consolidated financial statements
20
<PAGE> 23
GARTNER GROUP CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Fiscal Year Ended September 30, 1997 1996 1995
- --------------------------------------------------------------------------------
REVENUES:
Advisory and measurement $396,219 $306,542 $235,867
Learning 21,314 12,219 1,301
Other, principally consulting and conferences 93,706 75,911 57,978
- --------------------------------------------------------------------------------
Total revenues 511,239 394,672 295,146
- --------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of services and product development 202,815 152,982 112,675
Selling, general and administrative 173,610 144,473 119,626
Acquisition-related charges -- 34,898 --
Depreciation 11,758 9,064 6,399
Amortization of intangibles 6,443 3,815 3,906
Nonrecurring charges -- -- 8,800
- --------------------------------------------------------------------------------
Total costs and expenses 394,626 345,232 251,406
- --------------------------------------------------------------------------------
Operating income 116,613 49,440 43,740
Minority interest -- 25 98
Interest income, net 7,260 3,665 2,271
- --------------------------------------------------------------------------------
Income before provision for income taxes 123,873 53,130 46,109
Provision for income taxes 50,743 36,692 20,948
- --------------------------------------------------------------------------------
Net income $ 73,130 $ 16,438 $ 25,161
================================================================================
NET INCOME PER COMMON SHARE:
Primary $ .71 $ .17 $ .27
================================================================================
Fully diluted $ .71 $ .17 $ .26
================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 102,459 98,612 94,762
================================================================================
Fully diluted 102,751 98,854 95,212
================================================================================
See notes to consolidated financial statements
21
<PAGE> 24
GARTNER GROUP CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Cumulative Total
Preferred Common Paid-in Translation Accumulated Treasury Stockholders'
(In thousands, except share data) Stock Stock Capital Adjustment Earnings Stock Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 $0 $50 $ 59,709 $ 250 $ 7,699 $(13,821) $ 53,887
Net income - -- -- -- 25,161 -- 25,161
Issuance of 1,838,902 shares of Class A
Common Stock upon exercise of stock options - 1 1,259 -- -- -- 1,260
Issuance of 345,644 shares of Class A
Common Stock from purchases by employees - 0 1,659 -- -- -- 1,659
Issuance from treasury stock of 172,594 shares of
Class A Common Stock - -- 1,410 -- -- 3 1,413
Purchase of 152,624 of Class A Common Stock - -- -- -- -- (17) (17)
Tax benefits of stock transactions with employees - -- 9,241 -- -- -- 9,241
Net transfers to D&B by Dataquest - -- -- -- (15,603) -- (15,603)
Cumulative translation adjustment - -- -- (2,750) -- -- (2,750)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 0 51 73,278 (2,500) 17,257 (13,835) 74,251
Net income - -- -- -- 16,438 -- 16,438
Issuance of 3,036,403 shares of Class A
Common Stock upon exercise of stock options - 1 5,752 -- -- -- 5,753
Issuance of 199,648 shares of Class A Common
Stock from purchases by employees - 0 2,407 -- -- -- 2,407
Issuance from treasury stock of 117,470 shares of
Class A Common Stock from purchases
by employees - -- 2,140 -- -- 264 2,404
Tax benefits of stock transactions with employees - -- 29,415 -- -- -- 29,415
Net transfers to D&B by Dataquest - -- -- -- (1,687) -- (1,687)
Cumulative translation adjustment - -- -- (465) -- -- (465)
Acquisition of Dataquest, Inc. - -- (15,000) -- -- -- (15,000)
Acquisition of J3 Learning, Inc. - 0 36,719 -- -- -- 36,719
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 0 52 134,711 (2,965) 32,008 (13,571) 150,235
Net income - -- -- -- 73,130 -- 73,130
Issuance of 4,036,862 shares of Class A
Common Stock upon exercise of stock options - 2 13,594 -- -- -- 13,596
Issuance from treasury stock of 195,721 shares of
Class A Common Stock from purchases
by employees - -- 5,883 -- -- 330 6,213
Conversion of 1,600,000 shares of Class B
Common Stock into Class A Common Stock - 0 -- -- -- -- 0
Tax benefits of stock transactions with employees - -- 36,833 -- -- -- 36,833
Net share settlement of 449,932 shares of
Class A Common Stock received on forward
purchase agreement - -- -- -- -- 0 0
Net cash settlement paid on forward
purchase agreement - -- (12,004) -- -- -- (12,004)
Cumulative translation adjustment - -- -- 1,867 -- -- 1,867
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $0 $54 $ 179,017 $(1,098) $ 105,138 $(13,241) $ 269,870
=================================================================================================================================
</TABLE>
See notes to consolidated financial statements
22
<PAGE> 25
GARTNER GROUP CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
Fiscal Year Ended September 30, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 73,130 $ 16,438 $ 25,161
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization of intangibles 18,201 12,879 9,703
Acquisition-related charges -- 34,898 --
Provision for doubtful accounts 3,421 3,295 1,862
Equity in losses of minority owned company 202 -- --
Deferred revenues 41,750 35,800 25,479
Deferred tax expense (benefit) 1,554 (1,394) (2,690)
Pre-acquisition tax benefit applied to reduce goodwill 275 517 1,257
Minority interest -- (25) (98)
Provision for nonrecurring charges -- -- 8,800
Payments for nonrecurring charges (724) (7,691) (408)
Changes in assets and liabilities, net of effects of acquisitions:
Increase in fees receivable (60,378) (31,779) (10,136)
Increase in deferred commissions (4,262) (1,154) (4,216)
Increase in prepaid expenses and other current assets (7,915) (1,995) (1,138)
(Increase) decrease in other assets (2,707) 116 (242)
Increase in accounts payable and accrued liabilities 23,782 2,277 10,001
Increase in commissions payable 1,785 2,160 1,248
(Decrease) increase in accrued bonuses payable (957) 1,347 2,383
- ---------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 87,157 65,689 66,966
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Payment for businesses acquired (excluding cash acquired) (33,306) (46,176) (9,749)
Investments in unconsolidated subsidiaries (9,089) (750) (180)
Addition of property, equipment and leasehold improvements (21,513) (15,614) (18,183)
Proceeds from disposal of property, equipment and leasehold improvements -- -- 11,826
Marketable securities purchased, net (13,229) (4,268) (24,783)
Loans to Officers (7,163) -- --
Other investing -- -- (341)
- ---------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (84,300) (66,808) (41,410)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease obligations -- (6,725) (5,825)
Issuance of common stock and warrants 13,596 5,753 1,260
Proceeds from Employee Stock Purchase Plan offering 5,883 4,547 3,069
Tax benefits of stock transactions with employees 36,833 29,415 9,241
Distributions of capital between Dataquest and its former parent -- (1,687) (15,731)
Net cash settlement on forward purchase agreement (12,004) -- --
Sale (purchase) of treasury stock 330 264 (14)
- ---------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 44,638 31,567 (8,000)
- ---------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 47,495 30,448 17,556
Effect of exchange rates on cash and cash equivalents (1,835) (274) 220
Cash and cash equivalents, beginning of period 96,755 66,581 48,805
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 142,415 $ 96,755 $ 66,581
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest -- $ 437 $ 225
Income taxes $ 6,597 $ 8,463 $ 7,265
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock and options issued in connection with J3 acquisition -- $ 36,719 --
</TABLE>
See notes to consolidated financial statements
23
<PAGE> 26
GARTNER GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The consolidated financial statements include the
accounts of Gartner Group, Inc. ("GGI" or the "Company") and its majority-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated. Minority interest represents the minority shareholder's
proportionate share of the equity in businesses owned less than 100%. The
results of operations for acquisitions of companies accounted for using the
purchase method have been included in the Consolidated Statements of Operations
beginning on the effective date of acquisition. The Company's investments in 20%
to 50% owned companies in which it has the ability to exercise significant
influence over operating and financial policies are accounted for on the equity
method. Investments of less than 20% are carried at cost.
Revenue and commission expense recognition. Revenues from advisory, measurement
and learning ("AML") contracts are recognized as services and products are
delivered, and as the Company's obligation to the client is completed over the
contract period, generally twelve months. The Company's policy is to record at
the time of signing of an AML contract the fees receivable and related deferred
revenues, for the full amount of the contract billable on that date. All such
contracts are non-cancelable and non-refundable, except for government contracts
which have a 30-day cancellation clause, but have not produced material
cancellations to date. All contracts are billable upon signing, absent special
terms granted on a limited basis from time to time. The Company also records the
related commission obligation upon the signing of the contract and amortizes the
corresponding deferred commission expense over the contract period in which the
related revenues are earned and amortized to income. Other revenues consist
principally of revenues recognized as earned from consulting services and
conferences.
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. Marketable securities are considered "held-to-maturity" and valued
at amortized cost, which approximates market. It is management's intent to hold
all investments to maturity.
Inventories. Inventories, which consist primarily of finished goods relating to
the Company's learning business (technology-based training products), are stated
at the lower of cost or market. Cost is determined on a first-in, first-out
basis. Inventories consist primarily of material costs, and are included in the
balance sheet caption "Prepaid and other current assets." Inventories were $2.1
million and $1.3 million at September 30, 1997 and 1996, respectively.
Property, equipment and leasehold improvements. Property, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Property and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized using the straight-line method over the shorter of the estimated
useful lives of the asset or the remaining term of the related leases.
Software Development Costs. Under Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," capitalization of computer software development costs is to
begin upon the establishment of technological feasibility, limited to the net
realizable value of the software product, and cease when the software product is
available for general release to clients. Until these products reach
technological feasibility, all costs related to development efforts are charged
to expense. Software development costs, subsequent to technological feasibility
and prior to general release, were not material and have been expensed.
Intangible Assets. Intangible assets include goodwill, non-compete agreements,
tradenames and other intangibles. Goodwill represents the excess of the purchase
price of acquired businesses over the estimated fair value of the tangible and
identifiable intangible net assets acquired. Amortization is recorded using the
straight-line method over periods ranging from seven to thirty years. These
amounts have been and are subject to adjustment in accordance with the
provisions of the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("FAS 109") (see Note 9. Income Taxes).
Non-compete agreements are being amortized on a straight-line basis over the
period of the agreement ranging from three to five years. Tradenames and other
intangibles are amortized using the straight-line method over their estimated
useful lives ranging from four to thirty years. At the
24
<PAGE> 27
end of each quarter, the Company reviews the recoverability of all intangibles
based on estimated undiscounted future cash flows from operating activities
compared with the carrying value of the intangible asset. Should the aggregate
of such future cash flows be less than the carrying value, a writedown would be
required, measured by the difference between the discounted future cash flows
(or another acceptable method for determining fair value) and the carrying value
of the intangible.
Foreign currency translation. All assets and liabilities of foreign subsidiaries
are translated into U.S. dollars at fiscal year-end exchange rates. Income and
expense items are translated at average exchange rates prevailing during the
fiscal year. The resulting translation adjustments are recorded as a component
of stockholders' equity.
Income taxes. Income taxes are provided using the asset and liability method in
accordance with FAS 109. Deferred tax assets and liabilities are recognized
based on differences between the book and tax bases of assets and liabilities
using presently enacted tax rates. The provision for income taxes is the sum of
the amount of income tax paid or payable for the year as determined by applying
the provisions of enacted tax laws to taxable income for that year and the net
changes during the year in the Company's deferred tax assets and liabilities.
Undistributed earnings of subsidiaries outside of the U.S. amounted to
approximately $4.2 million and will either be indefinitely reinvested or
remitted substantially free of tax. Accordingly, no material provision has been
made for taxes that may be payable upon remittance of such earnings, nor is it
practicable to determine the amount of this liability. The Company credits
Additional paid-in capital for realized tax benefits arising from stock
transactions with employees. The tax benefit on a non-qualified stock option is
equal to the tax effect of the difference between the market price of a share of
the Company's common stock on the exercise and grant dates. To the extent the
Company incurs employment taxes as a direct result of the exercise of such stock
options, this cost is charged to Additional paid-in capital.
Computations of net income per share of common stock. Primary and fully diluted
net income per share of common stock is computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. The computation includes the weighted average
number of shares issued in connection with the Dataquest, Inc. ("Dataquest")
acquisition (see Note 3. Acquisitions), on December 1, 1995, as if they had been
issued at the beginning of fiscal 1996 and fiscal 1995. The warrant issued in
connection with the Dataquest acquisition has been excluded from primary and
fully diluted weighted average shares outstanding for fiscal 1995 due to its
anti-dilutive effect.
Stock based compensation. In October 1995, Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS 123") was
issued. This statement defines a fair value based method of accounting for an
employee stock option. Companies may, however, elect to adopt this new
accounting rule through a pro forma disclosure option, while continuing to use
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." As permitted by FAS 123, the Company has adopted the disclosure
provisions and continues accounting for its employee stock compensation plans
under APB 25 (see Note 12 for the fair value disclosures required under FAS
123).
Recently issued accounting standards. In February 1997, Statement of Financial
Accounting Standard No. 128, "Earnings per Share", was issued. The statement
sets forth guidance on the presentation of earnings per share and requires dual
presentation of basic and diluted earnings per share on the face of the income
statement. Basic earnings per share is computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if all common stock equivalents were exercised
(similar to fully diluted earnings per share under APB Opinion No. 15). If the
new standard was in effect during fiscal 1997, basic net income per common share
for the fiscal year ended September 30, 1997 would have been $0.77 and diluted
net income per common share would have been $0.71. The Company is required to
adopt the new standard in the first quarter of fiscal 1998.
25
<PAGE> 28
In June 1997, Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income"("FAS 130") and "Disclosures about Segments of
an Enterprise and Related Information" ("FAS 131"), were issued. FAS 130
establishes standards for reporting and disclosure of comprehensive income and
its components in a full set of general-purpose financial statements. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. FAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders which is currently not required. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company is required to adopt both new standards in the first
quarter of fiscal 1999.
Expense Allocations. Prior to the Company's acquisition of Dataquest, Dataquest
was a wholly-owned subsidiary of The Dun and Bradstreet Corporation ("D&B"). D&B
provided certain services to and incurred certain costs on behalf of its
wholly-owned subsidiaries and divisions. These costs, which included employee
benefit and executive compensation programs, payroll processing and
administration, general treasury services and various business insurance
coverages, were allocated on a pro rata basis to Dataquest when it was a
wholly-owned subsidiary of D&B and were $0.3 and $1.9 million during the fiscal
years 1996 and 1995, respectively. The costs of D&B's general corporate
overheads were not allocated, as such costs related to Dataquest were deemed to
be immaterial.
Distributions of capital between Dataquest and its former parent. Dataquest
transfers to D&B included historical investments and advances from D&B, as well
as current period income or losses, net transfers to/from D&B, and current
income taxes payable or receivable.
Fair Value of Financial Instruments. Most of the Company's financial
instruments, including cash, marketable securities, trade receivables and
payables and accruals, are short-term in nature. Accordingly, the carrying
amount of the Company's financial instruments approximates its fair value.
Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash,
marketable securities and fees receivable. The Company invests its cash
primarily in a diversified portfolio of highly-rated municipal and government
bonds. Concentrations of credit risk with respect to fees receivables are
limited due to the large number of customers comprising the Company's customer
base and their dispersion across many different industries and geographic
regions.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
disclosures, if any, of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
Reclassifications. Certain reclassifications have been made in the prior years
financial statements to conform with the fiscal 1997 presentation.
2. RELATED PARTIES
D&B, an investor in Information Partners Capital Fund, L.P. ("the Fund"),
provided a portion of the financing in connection with the acquisition of the
Company in October 1990. In April 1993, D&B acquired a majority of the
outstanding voting securities of the Company in transactions among the Company,
D&B and persons and entities associated with the Fund. On November 1, 1996, D&B
transferred ownership of its Class A and Class B Common Stock of the Company to
Cognizant Corporation ("Cognizant"), a spin-off of D&B and an independent public
company. At the date of transfer, these shares represented approximately 51% of
the Company's outstanding common stock. During fiscal 1997, Cognizant's
ownership of the Company's outstanding common stock fell below 50%.
On June 4, 1997, with the Board of Directors approval, the Company
provided loans totaling $7.2 million to certain Officers to facilitate the
purchase of common stock arising out of the exercise of stock options. The loan
proceeds were not used to fund the option exercise price of the common stock
acquired. The loans are full recourse obligations to the Officers and are also
secured by shares of the Company's common stock held by the Officers. The loans
bear interest at an annual rate of 6.14% and mature on June 3, 1999. The
principal amount of
26
<PAGE> 29
the loans totaling $7.2 million are included in Other assets on the September
30, 1997 Consolidated Balance Sheet.
3. ACQUISITIONS
On December 1, 1995, the Company acquired all the outstanding shares of
Dataquest, a wholly-owned subsidiary of D&B, for consideration of $15.0 million
in cash, 3,000,000 shares of Class A Common Stock with an approximate fair
market value of $60.0 million, and a five year warrant to purchase 600,000
shares of Class A Common Stock at $16.42 per share. Dataquest is a provider of
information technology ("IT") market research and consulting for the IT vendor
manufacturer and financial communities which complements the Company's end user
focus. The Company has accounted for the acquisition as a transfer and exchange
between companies under common control and the 3,000,000 shares have been
assumed to be outstanding for all periods presented. Accordingly, the accounts
of Dataquest have been combined with the Company's at historical cost in a
manner similar to a pooling of interests. Transaction costs of $1.7 million
relating to the acquisition have been included in acquisition-related charges in
the Consolidated Statement of Operations for fiscal 1996.
Combined and separate results of GGI and Dataquest during the periods
preceding the merger were as follows (in thousands):
Three months ended
December 31, 1995 (Unaudited) GGI Dataquest Combined
- --------------------------------------------------------------------------------
Total revenues $76,005 $20,469 $96,474
Net income $10,570 $923 $11,493
- --------------------------------------------------------------------------------
Fiscal year ended
September 30, 1995 GGI Dataquest Combined
- --------------------------------------------------------------------------------
Total revenues $229,152 $65,994 $295,146
Net income (loss) $25,539 $ (378) $25,161
- --------------------------------------------------------------------------------
There were no intercompany transactions between the two companies for the
periods presented.
On July 31, 1996, the Company acquired all of the outstanding shares of J3
Learning Corporation ("J3") for consideration of approximately $8.0 million in
cash, 1,065,290 shares of Class A Common Stock which had an approximate fair
market value of $35.4 million and options to purchase Class A Common Stock which
had a value of $1.3 million. J3 publishes, markets and distributes software
educational materials for corporate and individual training. The acquisition was
accounted for by the purchase method, and the purchase price has been allocated
to the assets acquired and liabilities assumed, based upon the estimated fair
values at the date of acquisition. The excess purchase price over the fair value
of amounts assigned to the net tangible assets acquired was $51.1 million. Of
such amount, $32.2 million was expensed at acquisition as purchased in-process
research and development costs and is included in acquisition-related charges in
the Consolidated Statement of Operations for fiscal 1996, and the remaining
excess purchase price was allocated as follows (in thousands):
Amortization
Period (years) Amount
- --------------------------------------------------------------------------------
Existing title library 4 $ 1,900
Tradename 12 4,200
Goodwill 12 12,787
- --------------------------------------------------------------------------------
$18,887
================================================================================
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the acquisition of J3 had occurred at
the beginning of fiscal 1995 and does not purport to be indicative of what would
have occurred had the acquisition been made as of that date or of results which
may occur in the future (in thousands, except per share data):
Fiscal Year Ended September 30, 1996 1995
- --------------------------------------------------------------------------------
Total revenues $401,329 $310,150
Net income $ 11,749 $ 16,360
Net income per common share $ 0.12 $ 0.17
- --------------------------------------------------------------------------------
On August 1, 1997, the Company acquired all of the outstanding shares of
Datapro Information Services, Inc. ("Datapro"), a unit of the McGraw-Hill
Companies for consideration of approximately $25 million in cash. Datapro is a
provider of information on product specifications and pricing, product
comparisons, technology reports, market overviews, case studies and user ratings
surveys. Datapro's services and products provide feature and side-by-side
27
<PAGE> 30
comparisons of computer hardware, software and communications products. The
acquisition was accounted for by the purchase method, and the purchase price has
been allocated to the assets acquired and liabilities assumed, based upon the
estimated fair values at the date of acquisition. The excess purchase price over
the fair value of amounts assigned to the net tangible assets acquired was $33.5
million and has been recorded as goodwill which is being amortized over 30
years. In addition, $2.5 million of the purchase price was allocated to a
non-compete agreement which is being amortized over 4 years. If the acquisition
of Datapro had occurred at the beginning of fiscal 1996, consolidated total
revenues would have been $536.6 million and $431.4 for fiscal 1997 and 1996,
respectively. This revenue does not purport to be indicative of what would have
occurred had the acquisition been made as of that date or of total revenues
which may occur in the future. The pro forma effect on the Company's fiscal 1997
and 1996 net income and net income per common share is not material.
During fiscal 1997 and 1996, the Company completed additional acquisitions
for consideration of $8.1 and $23.2 million in cash, respectively. These
acquisitions have been accounted for under the purchase method and substantially
all of the purchase price has been assigned to goodwill. The results of these
acquired operations individually and collectively, had they occurred at the
beginning of fiscal 1997, 1996 or 1995 are not material.
During fiscal 1997 and 1996 the Company made several investments totaling
$7.1 million and $0.9 million, respectively, that are accounted for on the cost
method. The Company also made an investment totaling $1.9 million in 1997 that
is accounted for on the equity method. These investments totaled $9.4 million
and $0.9 million and are included in Other assets on the Consolidated Balance
Sheets as of September 30, 1997 and 1996, respectively.
In October 1997, the Company acquired a 32% membership interest in Jupiter
Communications, LLC ("Jupiter") for $8.0 million in cash. Jupiter is a provider
of analyst-based research and strategic planning services to the consumer
Internet and interactive industry.
4. NONRECURRING CHARGES
During fiscal 1995, Dataquest closed certain operations of its subsidiary in
Japan for a $0.6 million pre-tax charge, and initiated workforce reduction
actions resulting in a pre-tax charge of $8.2 million. These charges were
recorded as a nonrecurring charge in the Consolidated Statement of Operations.
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, are carried at cost less
accumulated depreciation and amortization, and consist of the following (in
thousands):
Useful September 30,
-------------------
Life (years) 1997 1996
- --------------------------------------------------------------------------------
Furniture and equipment 3-8 $ 25,568 $ 19,801
Computer equipment 2-3 56,979 34,843
Leasehold improvements 2-15 19,257 14,293
- --------------------------------------------------------------------------------
101,804 68,937
Less - accumulated depreciation
and amortization (57,702) (36,119)
- --------------------------------------------------------------------------------
$ 44,102 $ 32,818
================================================================================
6. INTANGIBLE ASSETS
Intangible assets, net, are carried at cost less accumulated amortization, and
consist of the following (in thousands):
Amortization September 30,
-------------------
Period (years) 1997 1996
- --------------------------------------------------------------------------------
Goodwill 7-30 $138,537 $ 97,535
Non-compete agreements 3-5 3,462 --
Tradenames 12 6,978 6,200
Title library 4 1,900 1,900
- --------------------------------------------------------------------------------
150,877 105,635
Less - accumulated amortization (18,682) (12,491)
- --------------------------------------------------------------------------------
$132,195 $ 93,144
================================================================================
7. COMMITMENTS
The Company leases various facilities, furniture and computer equipment under
lease arrangements expiring between fiscal 1998 and 2010.
Future minimum annual payments under operating lease agreements as of
September 30, 1997 are as follows (in thousands):
Fiscal Year Ending September 30,
- --------------------------------------------------------------------------------
1998 $12,346
1999 10,326
2000 9,312
2001 7,743
2002 6,220
Thereafter 52,350
- --------------------------------------------------------------------------------
Total minimum lease payments $98,297
================================================================================
28
<PAGE> 31
Rental expense for operating leases, net of sublease income, was $16.8,
$11.0 and $10.4 million for the fiscal years ended September 30, 1997, 1996 and
1995, respectively. The Company has commitments with two facilities management
companies for printing, copying, mail room and other related services. The
minimum annual obligations under these service agreements are $3.8 million for
fiscal 1998 and 1999, $1.3 million for fiscal 2000, and $0.4 million for fiscal
2001.
The Company is involved in legal proceedings and litigation arising in the
ordinary course of business. The Company believes the outcome of all current
proceedings, claims and litigation will not have a material effect on the
Company's financial position or results of operations when resolved in a future
period.
8. LONG-TERM OBLIGATIONS
The Company has available two unsecured credit lines with The Bank of New York
and Chase Manhattan Bank for $5.0 million and $25.0 million, respectively.
Borrowings under The Bank of New York line accrue interest charges at LIBOR plus
2%. Alternatively, the rate shall be the higher of the prime commercial lending
rate of the bank or the Federal Funds Rate plus 1/2 of 1% in the event LIBOR is
unavailable. The Chase Manhattan Bank line carries an interest rate equal to
either the prime rate of Chase Manhattan Bank, LIBOR plus 2.5% for periods of
30, 60 or 90 days as the Company may choose, or a "fixed option" rate. There are
no commitment fees associated with these lines. These lines may be canceled by
the banks at any time without prior notice or penalty. No borrowings were
outstanding under either line at September 30, 1997 and 1996.
Letters of credit are issued by the Company in the ordinary course of
business. The Company had outstanding letters of credit with Chase Manhattan
Bank of $4.0 million and $2.0 million with The Bank of New York at September 30,
1997.
9. INCOME TAXES
Following is a summary of the components of income before provision for income
taxes (in thousands):
Fiscal Year Ended September 30, 1997 1996 1995
- --------------------------------------------------------------------------------
U.S. $ 93,758 $40,650 $38,588
Non-U.S. 30,115 12,480 7,521
- --------------------------------------------------------------------------------
Consolidated $123,873 $53,130 $46,109
================================================================================
The provision for income taxes on the above income consists of the
following components (in thousands):
Fiscal Year Ended September 30, 1997 1996 1995
- --------------------------------------------------------------------------------
Current tax expense:
U.S. federal $ 797 $ 1,775 $ 9,282
State and local 1,872 2,178 2,051
Foreign 8,208 3,164 1,807
- --------------------------------------------------------------------------------
Total current 10,877 7,117 13,140
- --------------------------------------------------------------------------------
Deferred tax expense (benefit):
U.S. federal 434 58 (1,967)
State and local 912 (1,347) (678)
Foreign 208 (105) (45)
- --------------------------------------------------------------------------------
Total deferred 1,554 (1,394) (2,690)
- --------------------------------------------------------------------------------
Total current and deferred 12,431 5,723 10,450
- --------------------------------------------------------------------------------
Benefit of stock transactions
with employees credited
to additional paid-in capital 38,037 30,452 9,241
Benefit of purchased tax benefits
credited to goodwill 275 517 1,257
- --------------------------------------------------------------------------------
Total provision for
income taxes $50,743 $ 36,692 $ 20,948
================================================================================
Current and long-term deferred tax assets and liabilities are comprised of
the following (in thousands):
September 30,
--------------------------
1997 1996
- --------------------------------------------------------------------------------
Depreciation $ 895 $ 749
Expense accruals for book purposes 6,992 8,528
Loss and credit carryforwards 9,380 9,698
Other 1,706 1,767
- --------------------------------------------------------------------------------
Gross deferred tax asset 18,973 20,742
- --------------------------------------------------------------------------------
Intangible assets (3,383) (1,919)
Other (858) (895)
- --------------------------------------------------------------------------------
Gross deferred tax liability (4,241) (2,814)
- --------------------------------------------------------------------------------
Valuation allowance (4,962) (6,580)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 9,770 $ 11,348
================================================================================
29
<PAGE> 32
Current and long-term net deferred tax assets are $5.1 million and $4.7
million as of September 30, 1997 and $8.8 million and $2.5 million as of
September 30, 1996, respectively, and are included in Prepaid and other current
assets and Other assets, respectively, in the Consolidated Balance Sheets.
The valuation allowance relates to domestic and foreign tax loss
carryforwards. The net decrease in the valuation allowance of approximately $1.6
million in the current year results primarily from the utilization of foreign
tax loss carryforwards. The tax benefit from such tax loss carryforwards was
$1.7, $1.0 and $1.7 million for fiscal years 1997, 1996 and 1995, respectively.
Approximately $1.8 million and $1.4 million of the valuation allowance would
reduce goodwill and additional paid-in capital, respectively, upon subsequent
recognition of any related tax benefits.
The differences between the U.S. federal statutory income tax rate and the
Company's effective rate are:
Fiscal Year Ended September 30, 1997 1996 1995
- --------------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 4.5 5.3 5.4
Foreign income taxed at a
different rate 0.6 1.5 (0.7)
Non-deductible goodwill and
direct acquisition costs 0.9 0.9 2.1
Non-taxable interest income (0.9) (1.3) (1.7)
Exempt foreign trading gross
receipts (1.0) -- --
Other items 1.9 1.6 5.4
- --------------------------------------------------------------------------------
Effective rate without write-off
of purchased in-process research
and development costs 41.0 43.0 45.5
Non-deductible write-off of
purchased in-process research
and development costs -- 26.1 --
- --------------------------------------------------------------------------------
Effective tax rate 41.0% 69.1% 45.5%
================================================================================
As of September 30, 1997, the Company had U.S. federal tax loss
carryforwards of $10.0 million which will expire in eleven to fifteen years and
state and local tax loss carryforwards of $35.4 million the majority of which
will expire in four to five years. The U.S. federal tax loss carryforwards are
subject to limitations on their use under the Internal Revenue Code. In
addition, the Company has foreign tax loss carryforwards of $6.6 million, of
which $1.1 million will expire within three to four years, and $5.5 million can
be carried forward indefinitely.
10. CAPITAL STOCK AND STOCK REPURCHASE PROGRAM
The Company effected two-for-one stock splits of its Class A and Class B Common
Stock by means of stock dividends in March 1996, June 1995 and August 1994. All
earnings per share and share data presented herein have been restated
retroactively to reflect such splits. As of September 30, 1997, the Company has
recorded the conversion of all Class B Common Stock into Class A Common Stock on
a one for one basis, pursuant to a provision of the Articles of Incorporation
which requires conversion when the Class B Common Stockholder's voting equity
falls below a certain ownership percentage after considering all exercisable
options and warrants outstanding. Class A Common Stock stockholders are entitled
to one vote per share on all matters to be voted by stockholders, other than the
election of directors. Prior to the conversion of the Class B Common Stock,
Class B Common stockholders had certain preferential voting rights with respect
to the election of members of the Board of Directors.
During fiscal 1997, the Company entered into a series of forward purchase
agreements on its common stock. These agreements are settled at the Company's
option on a net basis in either shares of its own common stock or in cash. To
the extent that the market price of the Company's common stock on a settlement
date is higher (lower) than the forward purchase price, the net differential is
received (paid) by the Company. As of September 30, 1997, an agreement in place
cover approximately $36.9 million or 1,350,068 shares of the Company's stock
having forward purchase prices established at $27.31 per share. If the market
priced portion of this agreement was settled based on the September 30, 1997
market price of the Company's common stock ($30.00 per share), the Company would
be entitled to receive approximately 100,081 shares. During fiscal 1997, two
settlements resulted in the Company receiving 449,932 shares of common stock
(recorded in Treasury stock at no cost) and paying approximately $12.0 million
in cash (recorded as a reduction of Additional paid-in capital).
30
<PAGE> 33
11. EMPLOYEE STOCK PURCHASE PLANS
In January 1993, the Company adopted an employee stock purchase plan (the "1993
Employee Stock Purchase Plan"), and reserved an aggregate of 4,000,000 shares of
Class A Common Stock for issuance under this plan. The plan permits eligible
employees to purchase Class A Common Stock through payroll deductions, which may
not exceed 10% of an employee's compensation (or $21,250 in any calendar year),
at a price equal to 85% of Class A Common Stock price as reported by NASDAQ at
the beginning or end of each offering period, whichever is lower. During fiscal
1997, 195,721 shares were issued from treasury stock at an average purchase
price of $31.76 per share in connection with this plan. At September 30, 1997,
2,272,316 shares were avail-able for offering under the plan.
12. STOCK OPTIONS AND WARRANTS
Under the terms of the 1991 Stock Option Plan, (the "Option Plan"), the Board of
Directors may grant non-qualified and incentive stock options, entitling
employees to purchase shares of the Company's common stock at the fair market
value determined by the Board on the date of grant. The Board can determine the
date on which options vest and become exercisable. A total of 22,800,000 shares
of Class A Common Stock were reserved for issuance under the plan. At September
30, 1997 and 1996 2,955,416 and 4,152,381 options were available for grant,
respectively.
In January 1993, the Company adopted a stock option plan for directors
(the "1993 Director Option Plan") and reserved an aggregate of 1,200,000 shares
of Class A Common Stock for issuance under this plan. The plan provided for the
automatic grant of 120,000 options to purchase shares of Class A Common Stock to
each non-employee director upon first becoming a director on or after February
1, 1993, and the automatic grant of an option to purchase an additional 24,000
options to purchase shares of Class A Common Stock annually based on continuous
service as a director. In January 1996, the plan was amended to provide for the
automatic grant of 15,000 options to purchase shares of Class A Common Stock to
each non-employee director upon first becoming a director and the automatic
grant of an option to purchase an additional 3,000 options to purchase shares of
Class A Common Stock annually based on continuous service as a director. The
exercise price of each option granted under the plan is equal to the fair value
of the Class A Common Stock at the date of grant. Options granted are subject to
cumulative yearly vesting over a three year period after the date of grant and
the number of shares to be granted under the amended terms will not be adjusted
for any future stock splits. At September 30, 1997 and 1996, 621,000 and 648,000
options were available for grant, respectively.
In October 1994, the Board of Directors and stockholders of the Company
approved the adoption of a Long-Term Stock Option Plan ("the 1994 Long-Term
Plan") and the reservation of an aggregate of 7,200,000 shares of Class A Common
Stock for issuance thereunder. The purpose of the plan is to provide senior
personnel long-term equity participation in the Company as an incentive to
promote the long-term success of the Company. The exercise price of each option
granted under the plan is equal to the fair value of the Class A Common Stock at
the date of grant. All options granted under the plan vest and become fully
exercisable five years following the date of grant, based on continued
employment, and have a term of ten years from the date of grant assuming
continued employment. Vesting and exercisability accelerates upon achievement of
certain financial performance targets determined by the Board of Directors. If
all financial performance targets are met in accordance with parameters as set
by the Board in its sole discretion, 25% of the shares granted become
exercisable on the first anniversary date following the date of grant and, if
subsequent financial performance targets are met for both the first and second
fiscal years following the date of grant, a second 25% become exercisable three
years following the date of grant. If financial performance targets are met
consecutively for all three fiscal years following the date of grant, a third
25% become exercisable on the fourth anniversary date following the date of
grant and the final 25% become exercisable on the fifth anniversary following
the date of grant. Failure to achieve the specified target or targets for any
one fiscal year or consecutive fiscal years can be remedied by achievement of
the cumulative target in a succeeding fiscal year or years. Based on fiscal year
1995, 1996 and 1997 performance, 1,597,500 options were exercisable on September
30, 1997. An additional 1,543,750 options became exercisable on October 10,
1997. At September 30, 1997 and 1996, 810,000 and 750,000 shares were available
for grant, respectively.
31
<PAGE> 34
In October 1996, the Company adopted the 1996 Long-Term Stock Option Plan
("the 1996 Long-Term Plan"). Under the terms of the plan, the Board of Directors
may grant non-qualified and incentive options, entitling employees to purchase
shares of the Company's common stock at the fair market value at the date of
option grant. An aggregate of 1,800,000 shares of Class A Common Stock were
reserved for issuance under this plan. All options granted under the plan vest
and become fully exercisable six years following the date of grant, based on
continued employment, and have a term of ten years from the date of grant
assuming continued employment. Vesting and exercisability accelerates upon
achievement of certain financial performance targets determined by the Board of
Directors. If all financial performance targets are met in accordance with
parameters as set by the Board in its sole discretion, 25% of the shares granted
become exercisable on the third anniversary date following the date of grant
and, if subsequent financial performance targets are met for both the first and
second years following the date of grant, a second 25% become exercisable four
years following the date of grant. If financial performance targets are met
consecutively for all three years following the date of grant, a third 25%
become exercisable on the fifth anniversary date following the date of grant and
the final 25% become exercisable on the sixth anniversary following the date of
grant. Based on fiscal year 1997 performance, 451,250 options will be
exercisable on February 24, 2000. At September 30, 1997, 25,000 options to
purchase common stock were available for grant.
On April 4, 1997, the Company repriced certain stock options granted from
October 1995 through January 1997 under the 1991 Option Plan and the 1994
Long-Term Plan. In total, options to purchase 1,647,000 shares of common stock
were repriced at an exercise price of $23.875 per share. The original vesting
schedules and expiration dates associated with these stock options were also
amended to coincide with the stock option repricing date. These amounts have
been included as granted and canceled options during fiscal 1997 in the summary
activity table shown below.
A summary of stock option activity under the plans and agreement through
September 30, 1997 follows:
Weighted
Shares under Average
Option Price
- --------------------------------------------------------------------------------
Outstanding at September 30, 1994 12,806,072 $ 1.540
Granted 8,707,672 $ 7.860
Exercised (1,838,902) $ 0.811
Canceled (548,688) $ 3.653
- --------------------------------------------------------------------------------
Outstanding at September 30, 1995 19,126,154 $ 4.439
Granted 3,665,506 $21.943
Exercised (3,036,403) $ 1.994
Canceled (968,660) $ 9.809
- --------------------------------------------------------------------------------
Outstanding at September 30, 1996 18,786,597 $ 6.922
Granted 5,694,814 $23.023
Exercised (4,036,862) $ 3.385
Canceled (2,623,199) $26.416
- --------------------------------------------------------------------------------
Outstanding at September 30, 1997 17,821,350 $11.462
================================================================================
Options for the purchase of 3,492,390 and 4,295,277 shares were
exercisable at September 30, 1997 and 1996, respectively.
Shares purchased under the terms of the plans are subject to repurchase by
the Company at the fair market value of the shares as determined by the Board of
Directors at the repurchase date based on the circumstances as outlined in the
option agreements.
The following table summarizes information about stock options outstanding
at September 30, 1997:
Weighted
average
Weighted remaining
Range of Number Number average contractual
exercise prices outstanding exercisable exercise price life (years)
- --------------------------------------------------------------------------------
$ 0.02 - .94 1,299,751 965,191 $ 0.57 1.9
$ 1.13 - 4.83 2,495,746 1,066,786 $ 2.87 3.3
$ 5.03 - 9.50 7,130,592 522,312 $ 7.25 6.9
$10.28 - 13.88 564,268 342,650 $12.27 7.7
$16.63 - 21.09 5,059,046 545,796 $19.93 9.0
$25.15 - 35.38 1,271,947 49,655 $28.91 9.5
- --------------------------------------------------------------------------------
A warrant expiring December 1, 2000 to purchase 600,000 shares of Class A
Common Stock at $16.42 per share is held by Cognizant. The warrant was issued in
connection with the acquisition of Dataquest.
The Company has chosen to continue applying APB No. 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized for the fixed stock option plans. Had
compensation cost for the
32
<PAGE> 35
Company's stock-based compensation plans been determined based on the fair value
at the grant dates under those plans, consistent with the method prescribed
under FAS 123, the Company's net income and net income per common share would
have been reduced to the pro forma amounts indicated below:
Fiscal Year Ended September 30, 1997 1996
- --------------------------------------------------------------------------------
Net income As reported $73,130 $16,438
Pro forma $62,497 $10,616
Net income per
common share As reported $0.71 $0.17
Pro forma $0.61 $0.11
- --------------------------------------------------------------------------------
The pro forma disclosures shown above reflect options granted after fiscal
1995 and are not likely to be representative of the effects on net income and
net income per common share in future years.
The fair value of the Company's stock options used to compute pro forma
net income and earnings per share disclosures is the estimated fair value at
grant date using the Black-Scholes option pricing model. The following
weighted-average assumptions were used for stock options granted or modified:
Fiscal Year Ended September 30, 1997 1996
- --------------------------------------------------------------------------------
Expected life (in years) 2.4 - 6.4 2.4 - 6.4
Expected volatility .40 .38
Risk free interest rate 6.00% - 6.09% 6.00%
Expected dividend yield 0.00% 0.00%
- --------------------------------------------------------------------------------
The weighted average fair values of the Company's stock options granted in
1997 and 1996 are $12.32 and $5.56, respectively.
13. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS
The Company has a savings and investment plan covering substantially all
domestic employees. The Company contributes amounts to this plan based upon the
level of employee contributions.
In addition, the Company also contributes fixed and discretionary amounts
based on employee participation and attainment of operating margins specified by
the Board. Amounts expensed in connection with the plan totaled $4.6, $3.2, and
$2.0 million for the years ended September 30, 1997, 1996 and 1995,
respectively.
14. GEOGRAPHIC DATA
The Company's consolidated total revenues are generated primarily through direct
sales to clients by domestic and international sales forces, a network of
independent international distributors, and to a lesser extent by international
joint venture partners. The Company defines "Europe Revenues" as revenues
attributable to clients located in England and the European region and "Other
International Revenues" as revenues attributable to all other areas located
outside of the United States.
European identifiable tangible assets consist primarily of the assets of
the European subsidiaries and include the accounts receivable balances carried
directly by the subsidiaries located in England, France and Germany. All other
European customer receivables are maintained by and therefore are included as
identifiable assets of the U.S. operations.
Summarized information by geographic location is as follows (in
thousands):
Fiscal Year Ended September 30, 1997 1996 1995
- --------------------------------------------------------------------------------
United States:
Revenues $333,038 $253,451 $184,615
Operating income $ 62,884 $ 26,359 $ 33,600
Identifiable tangible assets $407,262 $282,201 $222,262
Europe:
Revenues $121,971 $ 98,789 $ 71,946
Operating income $ 36,800 $ 15,968 $ 5,330
Identifiable tangible assets $ 73,974 $ 50,564 $ 36,474
Other International:
Revenues $ 56,230 $ 42,432 $ 38,585
Operating income $ 16,929 $ 7,113 $ 4,810
Identifiable tangible assets $ 27,654 $ 18,199 $ 8,481
- --------------------------------------------------------------------------------
Excluding acquisition-related and nonrecurring charges, operating income
in the United States was $61.3, and $41.8 million for the fiscal years ended
September 30, 1996 and 1995, respectively.
33
<PAGE> 36
15. SELECTED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS DATA
A summary of Selected Consolidated Balance Sheets and Statements of Operations
data is set forth below (in thousands):
<TABLE>
<CAPTION>
Balance Sheets Data Statements of Operations Data
------------------------ --------------------------------
Total
Gross Fees Deferred AML Other Fiscal Year
Receivable Revenues Revenue Revenues Revenues
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 $ 105,940 $ 136,911
Billings 322,169 234,065 $ 36,163 $52,211
Acquisition balances 997 243 --
Cash collections (313,257) -- -- --
AML revenue amortization -- (201,005) 201,005 --
Other service revenue amortization -- (5,767) -- 5,767
- --------------------------------------------------------------------------------------------------
Balance at September 30, 1995 115,849 164,447 $237,168 $57,978 $295,146
================================
Billings 420,037 340,476 $ 22,071 $67,432
Acquisition balances 3,976 1,663 -- --
Cash collections (391,640) -- -- --
AML revenue amortization -- (296,690) 296,690 --
Other service revenue amortization -- (8,479) -- 8,479
- --------------------------------------------------------------------------------------------------
Balance at September 30, 1996 148,222 201,417 $318,761 $75,911 $394,672
================================
Billings 574,588 452,271 $ 18,160 $80,723
Acquisition balances 4,297 15,998 -- --
Cash collections (516,007) -- -- --
AML revenue amortization -- (399,373) 399,373 --
Other service revenue amortization -- (12,983) -- 12,983
- --------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $ 211,100 $ 257,330 $417,533 $93,706 $511,239
==================================================================================================
</TABLE>
For a description of the Company's revenue recognition policies, see Note
1 - Significant Accounting Policies. AML revenues shown above of $417.5, $318.8,
and $237.2 million for fiscal years 1997, 1996 and 1995, respectively, are
recognized as services and products are delivered, and as the Company's
obligation to the client is completed over the contract period. Included in AML
revenues are catch-up adjustments also shown above for the fiscal years 1997,
1996 and 1995 of $18.2, $22.1, and $36.2 million, respectively, to account for
certain renewals. Catch-up adjustments occur when there is a lag between the
month that a contract expires and the month that it is renewed. The Company
continues to provide services for a certain period of time after expiration,
based on the Company's historical experience that most clients who do not renew
prior to expiration do so on a retroactive basis. The Company recognizes no
revenues, however, during this period. When a client renews the service on a
retroactive basis, the Company records the previously unrecognized revenue as a
catch-up adjustment.
34
<PAGE> 37
GARTNER GROUP REPORTS BY MANAGEMENT AND INDEPENDENT AUDITORS
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Management has prepared and is responsible for the integrity and objectivity of
the consolidated financial statements and related information included in the
Annual Report. The consolidated financial statements, which include amounts
based on management's best judgments and estimates, were prepared in conformity
with generally accepted accounting principles. Financial information elsewhere
in this Annual Report is consistent with that in the consolidated financial
statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance at reasonable cost that assets are safeguarded and
transactions are properly executed and recorded for the preparation of financial
information. The internal control system is augmented with an organizational
structure providing division of responsibilities, careful selection and training
of qualified financial people and a program of internal audits.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets regularly with management, internal auditors and our
independent accountants to ensure that each is meeting its responsibilities and
to discuss matters concerning internal controls and financial reporting. Both
the independent and internal auditors have unrestricted access to the Audit
Committee.
The independent auditors for fiscal 1997 and 1996, KPMG Peat Marwick LLP,
and the independent accountants for fiscal years prior to 1996, Price Waterhouse
LLP, audit and render an opinion on the financial statements in accordance with
general accepted auditing standards. These standards include an assessment of
the systems of internal controls and tests of transactions to the extent
necessary by them to support their opinion.
/s/ Manuel A. Fernandez
MANUEL A. FERNANDEZ
Chairman and Chief Executive Officer
/s/ John F. Halligan
JOHN F. HALLIGAN
Executive Vice President, Chief Financial Officer,
Treasurer and Corporate Secretary
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Gartner Group, Inc.:
We have audited the accompanying consolidated balance sheets of Gartner Group,
Inc. and its subsidiaries as of September 30, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. The
consolidated financial statements of Gartner Group, Inc. and its subsidiaries
for the year ended September 30, 1995 were audited by other auditors whose
report, dated November 1, 1995, except as to the Dataquest acquisition discussed
in Note 3, which is as of January 25, 1996 and the stock split discussed in Note
10, which is as of March 29, 1996, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Gartner Group, Inc. and its subsidiaries as of September 30, 1997 and 1996 and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Stamford, Connecticut
October 31, 1997
35
<PAGE> 38
GARTNER GROUP SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except per share data)
Fiscal Year Ended September 30, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Advisory and measurement $396,219 $306,542 $235,867 $ 177,821 $ 143,591
Learning 21,314 12,219 1,301 -- --
Other, principally consulting and conferences 93,706 75,911 57,978 47,651 31,731
- -----------------------------------------------------------------------------------------------------------
Total revenues 511,239 394,672 295,146 225,472 175,322
Total costs and expenses 394,626 345,232 251,406 181,522 161,704
- -----------------------------------------------------------------------------------------------------------
Operating income 116,613 49,440 43,740 43,950 13,618
Minority interest 0 25 98 0 0
Interest income, net 7,260 3,665 2,271 (2) (4,395)
- -----------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item 123,873 53,130 46,109 43,948 9,223
Provision for income taxes 50,743 36,692 20,948 19,891 5,979
- -----------------------------------------------------------------------------------------------------------
Income before extraordinary item 73,130 16,438 25,161 24,057 3,244
Extraordinary item - loss from early extinguishment of
long-term debt (net of tax benefits of $350) -- -- -- -- (765)
- -----------------------------------------------------------------------------------------------------------
Net income $ 73,130 $ 16,438 $ 25,161 $ 24,057 $ 2,479
===========================================================================================================
NET INCOME (LOSS) PER COMMON SHARE:
Primary:
Income before extraordinary item $ .71 $ .17 $ .27 $ .25 $ .04
Extraordinary item -- -- -- -- (.01)
- -----------------------------------------------------------------------------------------------------------
Net income $ .71 $ .17 $ .27 $ .25 $ .03
===========================================================================================================
Fully diluted:
Income before extraordinary item $ .71 $ .17 $ .26 $ .25 $ .04
Extraordinary item -- -- -- -- (01)
- -----------------------------------------------------------------------------------------------------------
Net income $ .71 $ .17 $ .26 $ .25 $ .03
===========================================================================================================
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, marketable securities $171,054 $126,809 $ 95,414 $ 52,855 $ 8,214
Fees receivable, net 205,760 143,762 112,159 102,509 65,699
Other current assets 48,794 39,579 28,655 22,940 15,224
- -----------------------------------------------------------------------------------------------------------
Total current assets 425,608 310,150 236,228 178,304 89,137
Intangibles and other assets 219,704 133,958 96,678 87,619 81,962
- -----------------------------------------------------------------------------------------------------------
Total assets $645,312 $444,108 $332,906 $ 265,923 $ 171,099
===========================================================================================================
Current portion of long-term obligations -- -- $ 6,725 $ 5,877 $ 952
Deferred revenues $254,071 $198,952 161,001 131,031 94,399
Other current liabilities 118,112 92,456 87,483 62,829 45,735
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 372,183 291,408 255,209 199,737 141,086
Long-term obligations, excluding current maturities -- -- -- 6,419 4,952
Long-term deferred revenues 3,259 2,465 3,446 5,880 3,239
Stockholders' equity 269,870 150,235 74,251 53,887 21,822
- -----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $645,312 $444,108 $332,906 $ 265,923 $ 171,099
===========================================================================================================
September 30, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
Contract value (1) $525,901 $389,969 $303,231 $ 224,390 $ 172,481
Client organizations (2) 9,084 7,463 5,500 4,460 3,639
</TABLE>
(1) Contract value, as measured by the Company, represents the annualized
value of all advisory, measurement and learning contracts in effect at a
given point in time, without regard to the duration of the contracts
outstanding at such time.
(2) Information provided for fiscal 1993, 1994, and 1995 does not include
Dataquest, Inc.
36
<PAGE> 39
GARTNER GROUP QUARTERLY FINANCIAL DATA
(In thousands, except per share data)
Unaudited
Fiscal Year 1997 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------
Revenues $125,367 $119,125 $126,349 $ 140,398
Operating income $ 31,519 $ 29,620 $ 28,842 $ 26,632
Net income $ 19,042 $ 18,200 $ 18,455 $ 17,433
Primary net income per common share (1) $ .19 $ .18 $ .18 $ .17
Fiscal Year 1996 1st 2nd 3rd 4th (2)
- -------------------------------------------------------------------------------
Revenues $ 96,474 $ 90,834 $ 97,406 $ 109,957
Operating income $ 19,335 $ 19,722 $ 21,203 ($ 10,821)
Net income $ 11,493 $ 11,712 $ 12,621 ($ 19,388)
Primary net income per common share (1) $ .12 $ .12 $ .13 $ (0.19)
- -------------------------------------------------------------------------------
(1) The aggregate of the four quarters' primary net income per common share
does not total the reported full fiscal year amount due to rounding.
(2) Includes $33.2 million of charges related to the acquisition of J3
Learning, Inc.
37
<PAGE> 40
GARTNER GROUP CORPORATE DIRECTORY
BOARD OF DIRECTORS
Manuel A. Fernandez
Chairman and Chief Executive Officer
Gartner Group, Inc.
William O. Grabe (2)(3)
General Partner
General Atlantic Partners
Max D. Hopper (1)(3)
Principal
Max D. Hopper
Associates, Inc.
Retired Chairman
SABRE Technology Group
John P. Imlay, Jr. (1)
Chairman
Imlay Investments, Inc.
Stephen G. Pagliuca (2)(3)
Managing Director
Information Partners
Capital Fund
Dennis G. Sisco (2)
President
Storm Ridge Capital
Robert E. Weissman (1)
Chairman and Chief Executive Officer
Cognizant Corporation
(1) Audit committee
(2) Compensation committee
(3) Corporate Governance
committee
EXECUTIVE OFFICERS
E. Follett Carter
Executive Vice President
and President,
Gartner Distribution
William T. Clifford
President and Chief Operating Officer
Manuel A. Fernandez
Chairman and Chief Executive Officer
Michael D. Fleisher
Executive Vice President
and President,
Emerging Businesses
John F. Halligan
Executive Vice President,
Chief Financial Officer,
Treasurer and Corporate
Secretary
CORPORATE HEADQUARTERS
56 Top Gallant Road
Stamford, CT 06904
U.S.A.
Phone (203) 316-1111
EUROPE
Tamesis, The Glanty
Egham, Surrey
TW20 9AW
United Kingdom
Phone (44) 1784-431611
JAPAN
Aobadai Hills, 4F
7-7, Aobadai, 4-chome
Meguro-ku, Tokyo 153
Japan
Phone (81) 3-3481-3670
ASIA
Suite 5904-7
Central Plaza
18 Harbour Road
Wanchai
Hong Kong
Phone (852) 2824-6168
PACIFIC
424 Upper Roma Street
Third Floor
Brisbane, QLD 4006
Australia
Phone (61) 7-3405-2525
ANNUAL MEETING
Gartner Group's annual
meeting for shareholders
will be held at 4:00 p.m.
(EST) on January 20, 1998
at the the company's
headquarters in Stamford, CT.
INVESTOR RELATIONS
Requests for financial
information should
be sent to:
Gartner Group Inc.
Investor Relations Dept.
56 Top Gallant Road
Stamford, CT 06904
Phone (203) 316-6537
Fax (203) 316-6878
INTERNET
Additional corporate
information is available on
the World Wide Web:
http://www.gartner.com
STOCK LISTING AND
TRADING SYMBOL
The company's common
stock is listed on the
NASDAQ National Market
System. The trading symbol
is GART.
LEGAL COUNSEL
Wilson, Sonsini,
Goodrich & Rosati
Palo Alto, CA
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Stamford, CT
TRANSFER AGENT
BankBoston, N.A.
Boston, MA
Phone (617) 575-3120
Entire contents (C) by Gartner Group, Inc. All rights reserved. Reproduction of
this publication in any form without prior written permission is forbidden. This
annual report includes trademarks of Gartner Group, Inc. and other companies.
Design: Meyer Design Associates, Inc. Wilton, CT
38
<PAGE> 41
be smart
www.gartner.com
[LOGO]GartnerGroup
56 Top Gallant Road
P.O. Box 10212
Stamford, CT 06904-2212
1232-AR-97
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
SUBSIDIARIES OF REGISTRANT STATE/COUNTRY OF INCORPORATION
<S> <C>
Bouhot & LeGendre, S.A. France
Computer & Communications Group, Inc. (d.b.a. Datapro Information Services) New Jersey
Dataquest (Korea), Inc. Delaware
Dataquest Asia Pacific Limited Hong Kong
Dataquest Australia Pty. Ltd. Australia
Dataquest Research (Thailand) Limited Thailand
Dataquest Taiwan, Limited Taiwan
Dataquest, Inc. California
Decision Drivers, Inc. Delaware
DQ Research Pte. Ltd. Singapore
G.G. Canada, Inc. Delaware
G.G. Credit, Inc. Delaware
G.G. Global Holding, Inc. Delaware
G.G. Investment Management, Inc. Delaware
G.G. Properties, Inc. Delaware
G.G. West Corporation Delaware
Gartner Credit Corporation Delaware
Gartner Enterprises, Ltd. Delaware
Gartner Group Asia, Inc. Delaware
Gartner Group Canada, Inc. Canada
Gartner Group Europe Holdings B.V. The Netherlands
Gartner Group Europe, Inc. Delaware
Gartner Group France S.A.R.L. France
Gartner Group FSC, Inc. Virgin Islands
Gartner Group Italia S.r.l. Italy
Gartner Group Japan KK Japan
Gartner Group Learning, Inc. Minnesota
Gartner Group Learning (Europe), Ltd. Ireland
Gartner Group Nederland B.V. The Netherlands
Gartner Group Norge A/S Norway
Gartner Group Pacific Pty Limited Australia
Gartner Group Sales, Inc. Delaware
Gartner Group Scandinavia A/S Denmark
Gartner Group Sverige AB Sweden
Gartner Group Switzerland AG Switzerland
Gartner Group UK Ltd. United Kingdom
Gartner Group, GmbH Germany
GG Hong Kong, Inc. Delaware
J3 Learning Limited United Kingdom
Mindware Training Technologies, Ltd. Ireland
New Science Associates, Ltd. United Kingdom
New Science Limited United Kingdom
Nomos Ricerca S.r.l. Italy
Nomos Ricerca Services S.r.l. Italy
Nomos Ricerca Telecomunicazioni S.r.l. Italy
View Acquisition Company Delaware
3010092 Nova Scotia Company Canada
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
Gartner Group, Inc.:
The audits referred to in our report dated October 31, 1997, included the
related financial statement schedule as of and for the years ended September 30,
1997 and 1996, as contained in the annual report on Form 10-K for the year 1997.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule which, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
KPMG Peat Marwick LLP
Stamford, Connecticut
October 31, 1997
<PAGE> 1
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
Gartner Group, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-85926, No. 33-92486 and No. 333-35169) on Form S-8 of Gartner Group, Inc. of
our report dated October 31, 1997, relating to the consolidated balance sheets
of Gartner Group, Inc. and its subsidiaries as of September 30, 1997 and 1996,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended, which report appears in the
1997 Annual Report to Stockholders on Form 10-K of Gartner Group Inc. We also
consent to incorporation by reference of our report on the related financial
statement schedule included elsewhere herein.
KPMG Peat Marwick LLP
Stamford, Connecticut
December 12, 1997
<PAGE> 1
EXHIBIT 23.3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
GARTNER GROUP, INC.
In our opinion, the consolidated statements of operations, of changes in
stockholders' equity and of cash flows for the year ended September 30, 1995
present fairly, in all material respects, the results of operations and cash
flows of Gartner Group, Inc. and its subsidiaries, for the year ended September
30, 1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Gartner
Group, Inc. for any period subsequent to September 30, 1995.
PRICE WATERHOUSE LLP
Stamford, Connecticut
November 1, 1995, except as to the
Dataquest acquisition discussed in
Note 3, which is as of January 25, 1996
and the stock split discussed in
Note 10, which is as of March 29, 1996
<PAGE> 1
EXHIBIT 23.4
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of GARTNER GROUP, INC.
Our audit of the consolidated statements of operations, of changes in
stockholders' equity and of cash flows referred to in our report dated
November 1, 1995, except as to the Dataquest acquisition discussed in Note 3,
which is as of January 25, 1996 and the stock split discussed in Note 10, which
is as of March 29, 1996, appearing in this Annual Report on Form 10-K also
included an audit of the Financial Statement Schedule listed in Item 14(a) of
this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements. We have not
audited the consolidated financial statements of Gartner Group, Inc. for any
period subsequent to September 30, 1995.
PRICE WATERHOUSE LLP
Stamford, Connecticut
November 1, 1995, except as to the
Dataquest acquisition discussed in
Note 3, which is as of January 25, 1996
and the stock split discussed in
Note 10, which is as of March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 142,415
<SECURITIES> 28,639
<RECEIVABLES> 211,100
<ALLOWANCES> 5,340
<INVENTORY> 0
<CURRENT-ASSETS> 425,608
<PP&E> 101,804
<DEPRECIATION> 57,702
<TOTAL-ASSETS> 645,312
<CURRENT-LIABILITIES> 372,183
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 269,312
<TOTAL-LIABILITY-AND-EQUITY> 645,312
<SALES> 511,239
<TOTAL-REVENUES> 511,239
<CGS> 202,815
<TOTAL-COSTS> 202,815
<OTHER-EXPENSES> 188,390
<LOSS-PROVISION> 3,421
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 123,873
<INCOME-TAX> 50,743
<INCOME-CONTINUING> 73,130
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,130
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
</TABLE>
<PAGE> 1
GARTNER GROUP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(all amounts in thousands)
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged Charged Deductions
Beginning to Costs to Other From Balance at
of Year and Expenses Accounts(1) Reserve End of Year
---------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1995
Allowance for doubtful accounts and returns
and allowances ............................ $3,431 $1,862 $ 27 $1,630 $3,690
------ ------ ---- ------ ------
$3,431 $1,862 $ 27 $1,630 $3,690
====== ====== ==== ====== ======
YEAR ENDED SEPTEMBER 30, 1996
Allowance for doubtful accounts and returns
and allowances ............................ $3,690 $3,295 $121 $2,646 $4,460
------ ------ ---- ------ ------
$3,690 $3,295 $121 $2,646 $4,460
====== ====== ==== ====== ======
YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts and returns
and allowances ............................ $4,460 $3,421 $319 $2,860 $5,340
------ ------ ---- ------ ------
$4,460 $3,421 $319 $2,860 $5,340
====== ====== ==== ====== ======
</TABLE>
(1) Allowances of $319,000, $121,000 and $27,000 assumed upon acquisitions of
entities in fiscal 1997, 1996 and 1995, respectively.
