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, 1998
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)
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<S> <C>
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)
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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, 1998, was
approximately $1.2 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, 1998 was 101,647,503 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 28, 1999. 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 two business units: GartnerAdvisory
and GartnerMeasurement. GartnerAdvisory services encompass products which
provide research and analysis of significant IT industry trends and
developments. GartnerMeasurement 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 distributes such services through print and electronic
media. The Company's primary clients are business professional users, purchasers
and vendors of IT products and services. With more than 650 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 800 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 1998 investments and acquisitions include: Interpose
(1/98), a provider of total cost of ownership (TCO) measurement and analysis
tools and training; The Research Board (5/98), which compiles and provides IT
research on suppliers and new technologies; validated management practices and
IT best practices to its membership, which consist principally of senior IT
executives; and Vision Events International (9/98), which produces premiere
channel events that serve to bring information technology vendors, value-added
resellers, and system integrators together with vendors and distributors selling
through these channels.
Increase Market Penetration. The Company has made substantial investments
developing new markets and establishing a global network of direct sales
personnel, independent sales representatives and distributors. 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.
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GartnerAdvisory provides qualitative and quantitative research and analysis
that clarifies decision-making for IT buyers, users and vendors. GartnerAdvisory
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 323 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.
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 and measurement business
based on contract value. The Company calculates contract value as the annualized
value of all advisory and measurement 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, 1998, approximately 85 percent of the Company's clients had
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 advisory and measurement revenues or cash flows if the rate of renewal of
advisory and measurement 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 billed advisory and measurement
services and products plus unamortized revenues of certain other billed services
and products not included in advisory and measurement. 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 advisory and
measurement contracts without regard to the duration of such contracts, and
deferred revenues represents unamortized revenue remaining on all billed and
outstanding advisory and measurement contracts including certain other billed
services and products not included in advisory and measurement 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 advisory and measurement 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.
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EMPLOYEES
As of September 30, 1998, the Company employed 2,972 persons. Of the 2,972
employees, 915 are located at the Company's headquarters in the Stamford, CT
area, 1,132 are located at other domestic facilities and 925 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 40 domestic and 38 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.
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.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of November 30, 1998, there were approximately 271 holders of record of the
Company's Class A Common Stock. Since September 15, 1998, the Company's Class A
Common Stock has been listed for trading in the New York Stock Exchange under
the symbol "IT".
As of September 30, 1998, the Company has not paid any cash dividends on
its common stock. On November 12, 1998, the Company's Board of Directors
approved an agreement in principle with IMS Health Inc. ("IMS Health") which
owns 47.6 million or 47% of the Company's Class A Common Stock to undertake a
recapitalization of the Company and facilitate a tax-free spin-off by IMS Health
of its equity position in Gartner Group Inc. to its shareholders. As part of the
recapitalization, IMS Health will exchange 40.7 million shares of Class A Common
Stock for an equal number of shares of new Class B Common Stock of the Company
prior to the spin-off. This new class of common stock will be entitled to elect
at least 80% of the Company's Board of Directors, but will otherwise be
substantially identical to existing Class A Common Stock. The Class B Common
Stock will be distributed to IMS Health shareholders in a tax-free distribution.
IMS Health will continue to hold 6.9 million shares of Class A Common Stock
after the spin-off. It is the intention of IMS Health to sell these shares
within one year of the spin-off, subject to certain conditions. In addition, the
Company agreed that it would pay a one-time special cash dividend of $300.0
million to its shareholders of record immediately prior to the IMS Health
spin-off. Further, the Company also agreed that it would repurchase $300.0
million of its Class A Common Stock on the open market after the spin-off. The
exchange, spin-off and special cash dividend are expected to be completed in the
third quarter of fiscal 1999, subject to approval by the IRS of the tax-free
status of the spin-off and approval of the recapitalization plan by the non-IMS
Health shareholders of the Company. The share repurchase program will commence
after the spin-off and is expected to be completed within one year.
On September 30, 1998, the Company acquired all the assets and assumed the
liabilities of Mentis Corporation for $1.7 million in cash and 28,236 shares of
Class A Common Stock of the Company which had an approximate fair market value
of $0.7 million. The securities were not registered under the Securities Act of
1933 as amended (the "Act"), in reliance on the exemption from registration
provided by Rule 506 under the Act and Section 4(2) of the Act.
The quarterly market price information is included in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Common Stock Information.
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ITEM 6. Selected Consolidated Financial Data.
The table below summarizes recent financial information for the Company. For
further information, refer to the Company's Consolidated Financial Statements
and Notes thereto presented under Part II, Item 8 of this form 10K.
GARTNER GROUP, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
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FISCAL YEAR ENDED SEPTEMBER 30, 1998 1997 1996 1995 1994
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Advisory and measurement $494,701 $ 396,219 $ 306,542 $ 235,867 $177,821
Learning 18,076 21,314 12,219 1,301 --
Other, principally consulting and conferences 129,180 93,706 75,911 57,978 47,651
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Total revenues 641,957 511,239 394,672 295,146 225,472
Total costs and expenses 498,420 394,626 345,232 251,406 181,522
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Operating Income 143,537 116,613 49,440 43,740 43,950
Minority Interest -- -- 25 98 --
Loss on sale of GartnerLearning (1,973) -- -- -- --
Interest income, net 9,557 7,260 3,665 2,271 (2)
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Income before income taxes 151,121 123,873 53,130 46,109 43,948
Provision for income taxes 62,774 50,743 36,692 20,948 19,891
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Net Income $ 88,347 $ 73,130 $ 16,438 $ 25,161 $ 24,057
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NET INCOME PER COMMON SHARE:
Basic $ 0.88 $ 0.77 $ 0.18 $ 0.29 $ 0.29
Diluted $ 0.84 $ 0.71 $ 0.17 $ 0.26 $ 0.25
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, and marketable securities $218,684 $ 171,054 $ 126,809 $ 95,414 $ 52,855
Fees receivable, net 239,243 205,760 143,762 112,159 102,509
Other current assets 53,152 48,794 39,579 28,655 22,940
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Total current assets 511,079 425,608 310,150 236,228 178,304
Intangibles and other assets 321,792 219,704 133,958 96,678 87,619
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Total assets $832,871 $ 645,312 $ 444,108 $ 332,906 $265,923
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Current portion of long-term obligations -- -- -- $ 6,725 $ 5,877
Deferred revenues $288,013 $ 254,071 $ 198,952 161,001 131,031
Other current liabilities 126,822 118,112 92,456 87,483 62,829
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Total current liabilities 414,835 372,183 291,408 255,209 199,737
Long-term obligations, excluding current maturities -- -- -- -- 6,419
Long-term deferred revenues 3,098 3,259 2,465 3,446 5,880
Stockholders' equity 414,938 269,870 150,235 74,251 53,887
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Total liabilities and stockholders' equity $832,871 $ 645,312 $ 444,108 $ 332,906 $265,923
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September 30, 1998 1997 1996 1995 1994
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OTHER DATA:
Contract value(1) $596,736 $ 505,162 $ 387,228 $ 303,231 $224,390
Client organizations(2) 9,144 8,124 7,241 5,500 4,460
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(1) Contract value, as measured by the Company, represents the annualized value
of all advisory and measurement contracts in effect at a given point in
time, without regard to the duration of the contracts outstanding at such
time. Prior year contract value has been restated to exclude GartnerLearning
contracts.
(2) Information provided for fiscal 1994 and 1995 does not include Dataquest,
Inc. Information provided for 1997 and 1998 excludes Datapro. Prior year
client organizations have been restated to exclude GartnerLearning client
organizations.
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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
OVERVIEW
Total revenues for Gartner Group Inc. ("the Company") for fiscal 1998 were
$642.0 million, up 26% from $511.2 million for fiscal 1997. Current year revenue
growth consisted of a 25% increase in advisory (excluding consulting) and
measurement services, a 15% decrease in learning revenue and a 38% increase in
other revenue, principally from consulting services and conferences. Advisory
and measurement services 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. The Company enters into annually
renewable contracts for advisory and measurement services. Revenues from
advisory and measurement services and learning are recognized as products and
services are delivered and as the Company's obligation to the client is
completed over the contract period. Revenue increases in advisory and
measurement services and other revenue came from the combined successes of
numerous new product introductions and delivery platforms, sales penetration
into new and existing clients and incremental revenue from acquisitions. The
decrease in learning revenue is primarily the result of the sale of
GartnerLearning during the fourth quarter of fiscal 1998.
Contract value increased 18% to approximately $596.7 million at September
30, 1998 versus the same date last year (when excluding contract value related
to GartnerLearning). The Company believes that contract value, which is
calculated as the annualized value of all advisory and measurement contracts in
effect at a given point in time, without regard to the duration of such
contracts outstanding at such time, is a significant measure of the Company's
volume of business. 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, to date, annual revenues from these
services in any fiscal year have approximated contract value at the beginning of
the fiscal year. As of September 30, 1998, approximately 85% 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 advisory and measurement revenues or cash flows if the
rate of renewal of advisory and measurement services or the timing of new
business were to significantly change during the following twelve months
compared to historic patterns. Total deferred revenues of $291.1 million and
$257.3 million as of September 30, 1998 and 1997, respectively, as presented in
the Company's Consolidated Balance Sheets, represent unamortized revenues from
billed advisory and measurement (and including learning until GartnerLearning
was sold) plus unamortized revenues of certain other billed products and
services not included in advisory and measurement services. 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 and billed contracts including advisory and
measurement services and certain other products and services not included in
advisory and measurement revenue. Backlog at September 30, 1998 was
approximately $122.0 million and represents future revenues that will be
recognized on multi-year and early renewed advisory and measurement contracts
and 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 advisory
and measurement contract the entire amount of the contract billable as deferred
revenue and fees receivable. 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
advisory and measurement revenues are earned and amortized to income.
Historically, advisory and measurement revenues have increased in the first
quarter of the ensuing fiscal year over the immediately preceding quarter
primarily due to the amount of increase in contract value at the end of the
prior fiscal year. Other revenues have increased similarly due to annual
conferences and exhibition events held in the first quarter. Additionally,
operating income 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 income margin improvement in the
first quarter of the fiscal year is due in part by the increase in advisory and
measurement 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 income
margin generally is not as high in remaining quarters, especially the third and
fourth quarters of the fiscal year compared to the first quarter of the fiscal
year as the operating income margins from the ITxpo conferences in the first
fiscal quarter are higher than on conferences held
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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 income margin has generally been higher in the earlier
quarters of the fiscal year.
Operating income rose 23% to $143.5 million in fiscal 1998, or 22% of total
revenues, from $116.6 million, or 23% of total revenues in fiscal 1997. During
fiscal 1998, the Company recorded two one-time costs that reduced reported
operating income. The first was an acquisition-related charge of $4.5 million
from the write-off of purchased in-process research and development costs in
connection with the acquisition of Interpose Inc. The second was nonrecurring
charges of $2.8 million relating to costs associated with the relocation of
certain accounting and order processing functions to new facilities. Excluding
these charges, operating income for fiscal 1998 increased 29% to $150.8 million,
compared to the prior year and was 23% of total revenue for fiscal 1998.
Operating income, excluding the charges, 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. Diluted net income per common share was $0.84 in fiscal 1998 as
compared to last fiscal year's $0.71 per common share. Excluding
acquisition-related and nonrecurring charges and the loss on sale of
GartnerLearning, diluted net income per common share was $0.93, a 31% increase
compared to fiscal 1997. The Company's strong cash generation also continued in
fiscal 1998. The Company had $262.3 million in total cash, cash equivalents and
marketable securities at September 30, 1998, up $73.5 million from $188.7
million at September 30, 1997.
ANALYSIS OF OPERATIONS
The following table sets forth certain results of operations as a percentage of
revenues:
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FISCAL YEAR ENDED SEPTEMBER 30, 1998 1997 1996
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Percent of revenues:
Revenues:
Advisory and measurement 77% 78% 78%
Learning 3 4 3
Other, principally consulting and conferences 20 18 19
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Total revenues 100 100 100
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Costs and expenses:
Cost of services and product development 39 40 39
Selling, general and administrative 34 34 37
Acquisition-related charges 1 -- 9
Nonrecurring charges 0 -- --
Depreciation 3 2 2
Amortization of intangibles 1 1 1
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Total costs and expenses 78 77 88
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Operating income 22 23 12
Minority interest -- -- 0
Loss on sale of GartnerLearning 0 -- --
Interest income, net 2 1 1
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Income before income taxes 24 24 13
Provision for income taxes 10 10 9
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Net income 14% 14% 4%
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FISCAL YEAR ENDED SEPTEMBER 30, 1998
VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1997
Total revenues increased 26% to $642.0 million in fiscal 1998 as compared to
$511.2 million in fiscal 1997. Revenues from advisory (excluding consulting) and
measurement services increased 25% in fiscal 1998 to $494.7 million compared to
$396.2 million in fiscal 1997 and comprised approximately 77% and 78% of total
revenues in fiscal 1998 and 1997, respectively. Revenue from the learning
business decreased 15% in fiscal 1998 to $18.1 compared to $21.3 in fiscal 1997
and comprised approximately 3% of revenues in fiscal 1998 versus 4% in fiscal
1997. The increase in revenues from advisory and measurement services reflects
the continued client acceptance of new products and services, sales penetration
into new and existing clients and incremental revenue from acquisitions
completed in fiscal 1998 and fiscal 1997
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(primarily Datapro Information Services, Inc.). The decrease in learning
revenue is primarily the result of the sale of GartnerLearning in the fourth
quarter of fiscal 1998.
Other revenues, consisting principally of revenues from consulting services
and conferences increased 38% to $129.2 million in fiscal 1998 as compared to
$93.7 million in the prior year. The increase is primarily attributable to the
Company's Symposia conferences and ITxpo exhibition events held annually during
the first quarter of the fiscal year, revenue from new events and acquired
businesses as well as increased consulting revenues.
The rate of growth in advisory and measurement revenues has continued to be
strong in two of the three defined geographic market areas of the Company: the
United States and Europe. Revenues from sales to United States clients increased
21% to $403.0 million in fiscal 1998 from $333.0 million in fiscal 1997.
Revenues from sales to European clients increased 51% to $183.8 million in
fiscal 1998 from $122.0 million in fiscal 1997. Sales to other international
clients, primarily in the Asian and South American markets areas, have decreased
slightly by 2% to $55.2 million in fiscal 1998 from $56.2 million in fiscal
1997. This decrease was caused primarily by unfavorable exchange rate impact and
client concerns over the financial crisis in Asia. The Company's sales strategy
continues to be to extend the Company's sales channels to clients with revenues
ranging from $150 million to $2 billion, in addition to the Company's historic
focus on larger customers. In Europe and the other international markets,
additional investment in direct sales personnel and distributor relationships
has also contributed to overall revenue growth. The Company intends to continue
its expansion of operations outside of the United States in fiscal 1999.
Operating income increased 23% to $143.5 million in fiscal 1998 compared to
$116.6 million in fiscal 1997. Excluding acquisition-related and nonrecurring
charges, operating income in fiscal 1998 increased 29%. The United States and
Europe geographic areas experienced growth in operating income in fiscal 1998,
with an 18% and 44% increase, respectively. The other international geographic
areas experienced a slight decline in operating income in fiscal 1998 of 3%.
Operating income, as a percentage of total revenues was 23% for fiscal 1998 and
1997, after excluding the above mentioned 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.
Costs and expenses, excluding acquisition-related and nonrecurring charges,
increased to $491.1 million in fiscal 1998 from $394.6 million in fiscal 1997
and was 77% of total revenues in both fiscal years. Cost of services and product
development expenses were $247.9 million and $202.8 million for fiscal 1998 and
1997, respectively. This increase in expenses over the prior fiscal year
reflects the need to provide additional support to the growing client base,
costs associated with acquired business and continued product development costs.
The decrease in cost of services and product development expenses, as a
percentage of total revenues is primarily attributable to improved gross margins
on conferences, lower delivery cost per dollar of revenue due to increased
electronic delivery of products, as well as controlled discretionary spending
and reduced variable costs linked to financial performance. Selling, general and
administrative expenses, which were $215.9 million and $173.6 million for fiscal
1998 and 1997, respectively, increased as a result of the Company's continuing
expansion of worldwide distribution channels and resulting commissions earned on
the revenue generated. This increase is primarily the result of continued
expansion of worldwide distribution channels and the impact of acquisitions.
Although the Company has added general and administrative resources to support
the growing revenue base, selling, general and administrative expenses has
remained consistent at 34% of total revenues for fiscal 1998 and 1997,
respectively.
During fiscal 1998, the Company incurred one-time charges that were
reflected in costs and expenses. In February 1998, the Company acquired the net
assets of Interpose Inc. ("Interpose"), a provider of total cost of ownership
measurement and analysis tools and training. In connection with the acquisition,
the Company recorded an acquisition-related charge of $6.3 million for the
write-off of purchased in-process research and development costs. On December
10, 1998, the Company revised the amount of expensed purchased in-process
research and development costs from $6.3 million to $4.5 million. The change was
in response to recently developed guidance from the Securities and Exchange
Commission. In the second quarter of fiscal 1998, the Company recorded
nonrecurring charges, primarily consisting of relocation and severance costs,
totaling approximately $2.8 million related to the Company's relocation of
certain accounting and order processing operations from Stamford, Connecticut to
a new financial services center in Ft. Myers, Florida.
Depreciation expense increased to $17.9 million in fiscal 1998 from $11.8
million in fiscal 1997, primarily due to capital spending required to support
business growth. Additionally, amortization of intangibles increased by $2.9
million in fiscal 1998 as compared to fiscal 1997, reflecting primarily goodwill
associated with fiscal 1998 and 1997 acquisitions.
On September 1, 1998, the Company sold GartnerLearning, a division of the
Company that provided technology based training and services to Netg Inc.
("Netg"), a subsidiary of Harcourt Brace & Company, for $5.0 million in cash and
an 8% equity interest in Netg. In addition, the Company received a put option
which allows the Company to sell its 8% interest to an affiliate of Harcourt
Brace & Company for $48.0 million in cash. This put option may be exercised for
two years beginning on September 1, 2002 if certain conditions are met. The
Company's 8% interest in Netg has an
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independently appraised value of $42.5 million. Including related transaction
costs of $3.8 million, the pre-tax loss on sale of GartnerLearning was
approximately $2.0 million.
Interest income, net increased to $9.6 million in fiscal 1998, versus $7.3
million for fiscal 1997. This improvement resulted from interest income
accumulating on higher balances of cash, cash equivalents and marketable
securities ($262.3 million at September 30, 1998, versus $188.7 million at
September 30, 1997).
Provision for income taxes increased by 24% or $12.0 million to $62.8
million in fiscal 1998, from $50.7 million in fiscal 1997. The effective tax
rate was 42% and 41% for fiscal 1998 and 1997, respectively. As a result of the
sale of GartnerLearning, additional taxes of $4.2 million were incurred,
primarily due to the reversal of non-deductible goodwill. Excluding these
additional taxes, the Company's effective rate for fiscal 1998 was 39%, a
decrease of two percentage points from fiscal 1997. This decrease is due
primarily to on-going tax planning initiatives. A more detailed analysis of the
changes in the provision for income taxes is provided in Note 10 of the Notes to
Consolidated Financial Statements.
FISCAL YEAR ENDED SEPTEMBER 30, 1997
VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1996
Total revenues increased 30% to $511.2 million in fiscal 1997 as compared to
$394.7 million in fiscal 1996. Revenues from advisory (excluding consulting) and
measurement services increased 29% in fiscal 1997 to $396.2 million compared to
$306.5 million in fiscal 1996 and comprised approximately 78% of total revenues
in both fiscal 1997 and fiscal 1996. Revenue from learning increased 74% in
fiscal 1997 to $21.3 compared to $12.2 in fiscal 1996 and comprised
approximately 4% of revenues in fiscal 1997 versus 3% in fiscal 1996. The
increase in revenues from advisory measurement and learning services 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 Learning, Inc.).
Other revenues, consisting principally of revenues from conferences and
consulting services, increased 23% to $93.7 million in fiscal 1997 as compared
to $75.9 million in 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 advisory, measurement and learning revenues has
continued to be 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 31% to $333.0 million in fiscal 1997 from
$253.5 million in fiscal 1996. Revenues from sales to European clients increased
24% to $122.0 million in fiscal 1997 from $98.8 million in fiscal 1996, and
revenues from sales to Other International clients increased 33% to $56.2
million in fiscal 1997 from $42.4 million in 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 $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. The Company intends to continue its expansion of operations
outside of the United States.
Operating income was $116.6 million in fiscal 1997 compared to $49.4
million in fiscal 1996. 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 Learning
Corporation) operating income in fiscal 1997 increased 38%. All three 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,
increased to 23% of revenues for fiscal 1997 versus 21% for fiscal 1996,
revenues, after excluding the above mentioned 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 in fiscal 1997 from $310.3 million in fiscal 1996, such costs
decreased to 77% of total revenues from 79% in 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 primarily
attributable to improved gross margins on conferences as compared to the prior
year and lower delivery cost per dollar of revenue generated due to increased
electronic delivery of services and products. Selling, general and
administrative expenses, which were $173.6 million and $144.5 million for fiscal
1997 and 1996, respec-
9
<PAGE>
tively, increased as a result of the Company's continuing 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 in fiscal 1996 for the
acquisitions of Dataquest, Inc. ("Dataquest") and J3 were not recurring in
fiscal 1997. Depreciation expense increased to $11.8 million in fiscal 1997 from
$9.1 million in fiscal 1996, primarily due to capital spending required to
support business growth. Additionally, amortization of intangibles increased by
$2.6 million in fiscal 1997 as compared to fiscal 1996, reflecting primarily
goodwill associated with fiscal 1996 and 1997 acquisitions.
Interest income, net increased to $7.3 million in fiscal 1997, versus $3.7
million for fiscal 1996. This improvement resulted from interest income
accumulating on the Company's 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 of investments to higher yielding investments and from
reduced interest expense after remaining debt related to fiscal 1993 and 1994
acquisitions was paid during fiscal 1996. Interest rates were not a significant
factor in the increase in interest income earned in fiscal 1997 versus fiscal
1996.
Provision for income taxes increased by $14.0 million to $50.7 million in
fiscal 1997, up from $36.7 million in fiscal 1996. The effective 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 acquisition-related charges, 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 10 of the Notes to Consolidated Financial
Statements.
PROPOSED RECAPITALIZATION, SPECIAL CASH DIVIDEND AND SHARE REPURCHASE
On November 12, 1998, the Company's Board of Directors approved an agreement in
principle with IMS Health Inc. ("IMS Health") which owns 47.6 million or 47% of
the Company's Class A Common Stock to undertake a recapitalization of the
Company and facilitate a tax-free spin-off by IMS Health of its equity position
in Gartner Group Inc. to its shareholders. As part of the recapitalization, IMS
Health will exchange 40.7 million shares of Class A Common Stock for an equal
number of shares of new Class B Common Stock of the Company prior to the
spin-off. This new class of common stock will be entitled to elect at least 80%
of the Company's Board of Directors, but will otherwise be substantially
identical to existing Class A Common Stock. The Class B Common Stock will be
distributed to IMS Health shareholders in a tax-free distribution. IMS Health
will continue to hold 6.9 million shares of Class A Common Stock after the
spin-off. It is the intention of IMS Health to sell these shares within one year
of the spin-off, subject to certain conditions. In addition, the Company agreed
that it would pay a one-time special cash dividend of $300.0 million to its
shareholders of record immediately prior to the IMS Health spin-off. Further,
the Company also agreed that it would repurchase $300.0 million of its Class A
Common Stock on the open market after the spin-off. The exchange, spin-off and
special cash dividend are expected to be completed in the third quarter of
fiscal 1999, subject to approval by the IRS of the tax-free status of the
spin-off and approval of the recapitalization plan by the non-IMS Health
shareholders of the Company. The share repurchase program will commence after
the spin-off and is expected to be completed within one year.
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.
10
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily financed its operations to date through cash provided
by operating activities. The combination of revenue growth and operating margin
improvements have contributed to increases in cash provided by operating
activities in fiscal 1998, 1997 and 1996. 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 during fiscal 1998 was $97.8 million,
compared to $87.2 million in the prior fiscal year, reflecting primarily the
impact of increased operating income and changes in balance sheet accounts,
particularly fees receivable, deferred revenues, deferred commissions and
prepaid and other current assets.
Cash used for investing activities totaled $145.2 million for fiscal 1998,
compared to $84.3 million for fiscal 1997. During fiscal 1998, the Company used
$47.5 million in cash for acquisitions, primarily for the purchase of Vision
Events International Inc. for $20.5 million, Interpose for $7.5 million and the
Research Board Inc. for $6.4 million. Additionally, the Company used $15.0
million for investments in unconsolidated businesses. The Company also used
$24.3 million for the purchase of capital assets and had net purchases of
marketable securities for $58.2 million.
Cash provided by financing activities totaled $62.9 million in fiscal 1998,
compared to $44.6 million for fiscal 1997. The increase in fiscal 1998 is driven
primarily by a $47.3 million credit to additional paid-in capital for tax
benefits received from stock transactions with employees and $35.7 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, the volumes of option exercises
have increased, thereby resulting in significant tax benefits being realized in
both fiscal 1998 and 1997. 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 and $13.9 million for the purchase of treasury stock.
The effect of exchange rates reduced cash and cash equivalents by $0.2
million for the year ended September 30, 1998, and was due to the strengthening
of the U.S. dollar versus certain foreign currencies. In fiscal 1997 the effect
of exchange rates reduced cash and cash equivalents by $1.8 million. At
September 30, 1998, cash, cash equivalents and marketable securities totaled
$262.3 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 cancelled 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 $4.1 million and $2.0 million
with The Bank of New York at September 30, 1998. The Company believes that its
current cash balances and maturing marketable debt 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 cash needs of the Company, including possible acquisitions.
Additionally as mentioned above, the Company is seeking a recapitalization that
when completed would require a significant amount of cash to fund the special
dividend and the repurchase of common shares. The Company believes that current
cash balances and maturing marketable debt securities, expected cash to be
generated from operations and the Company's ability to borrow beyond the current
lines of credit, will be sufficient to provide the liquidity required. The
Company currently has no other material capital commitments.
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, rapid changing technology, regulatory requirements
and uncertainties of international trade as set forth under "Factors that May
Affect Future Performance".
COMMON STOCK INFORMATION
Since September 15, 1998 the Company's Class A Common Stock has been listed for
trading on the New York Stock Exchange under the symbol "IT". Prior to September
15, 1998, it was listed on the Nasdaq National Market. The Company effected
two-for-one stock splits by means of stock dividends on March 29, 1996, June 28,
1995 and August 26, 1994. All earnings per share and share data presented herein
have been restated retroactively to reflect such splits. As of
11
<PAGE>
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 required conversion when the Class B
Common Stockholder's voting equity fell below a certain ownership percentage
after considering all exercisable options and warrants outstanding. During
fiscal 1998, the Company's Class A Common Stock traded within a range of daily
closing prices of $21.94 to $40.81 per share.
Quarterly Common Stock Prices
<TABLE>
<CAPTION>
FISCAL YEAR 1998 FISCAL YEAR 1997
-----------------------------------------------------
HIGH LOW HIGH LOW
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter ended December 31 $ 37.25 $ 26.75 $ 38.88 $ 29.75
Second Quarter ended March 31 $ 40.81 $ 33.38 $ 42.06 $ 20.38
Third Quarter ended June 30 $ 35.19 $ 30.44 $ 35.94 $ 20.63
Fourth Quarter ended September 30 $ 35.19 $ 20.88 $ 36.63 $ 25.50
</TABLE>
As of September 30, 1998, the Company has not paid any cash dividends on its
common stock. As discussed above, the agreement in principal to recapitalize the
Company includes a special one-time cash dividend of $300.0 million which will
be paid to shareholders of record immediately prior to the planned spin-off by
IMS Health. Except for this proposed special one-time cash dividend, which is
subject to certain IRS and shareholder approvals, the Company currently intends
to retain future earnings for use in its business and does not anticipate that
any additional cash dividends will be declared or paid on the common stock in
the foreseeable future.
YEAR 2000 ISSUES
The Year 2000 problem results from the fact that many technology systems have
been designed using only a two-digit representation of the year portion of the
date. This has the potential to cause errors or failures in those systems that
depend on correct interpretation of the year, but cannot necessarily correctly
interpret "00" as the year "2000". There are two other issues that are generally
considered part of the Year 2000 problem: a) the fact that the year 2000 is a
special case leap year and b) certain dates over the next few years, such as
9/9/99, could be misinterpreted as codes with special meanings, such as 9999
means an invalid record (This is a simple description of the most common cause
of the Year 2000 problem. There are many complete descriptions, with examples,
such as the Year 2000 Guide for Practitioners.) The problem can manifest itself
before, on or after January 1, 2000. The Year 2000 problem has often been
described as a computer problem, but there is a growing recognition that the
issue extends far beyond conventional computers and affects virtually every
facet of a modern company's operations and interfaces with third parties.
The Company's Year 2000 efforts are organized around understanding and
addressing the business-critical functions in each of the six major areas that
could potentially be affected by Year 2000 issues (business-critical functions
are defined as those whose failure or significant disruption would have a
material adverse impact on the Company's business, financial condition or
results of operations or involve a safety risk to employees or customers):
Supply Chain--suppliers, customers, financial affiliates, and government
agencies
Products & Services--goods created by the Company for its customers
Information Technology ("IT") Applications--in-house and vendor business
computer programs
IT Infrastructure--computers, communications and call center systems Non-IT
Process Systems--systems used to create and deliver the Company's
products & services
Non-IT Facilities Systems--systems used to monitor and control the
Company's places of work and office equipment
While the potential ramifications of the Year 2000 issue are significant,
the Company believes that it is taking full advantage of its internal resources
and all necessary external resources to understand, identify and correct all
Year 2000 issues within its control. The Company recognizes that there are
significant unknowns, hence potential risks, that are outside its control and
will also take all reasonable steps to minimize the impact of those exposures.
The Company has made available timely information on the status of Year 2000
efforts to its employees and on the status of products to its customers. In the
absence of significant factors outside its control, the Company expects to be
fully prepared to meet the Year 2000 with minimal, if any, impact to its
employees and customers.
The Company expects to have made all essential IT and non-IT systems Year
2000 ready before their known failure dates or January 1, 2000, whichever is
sooner. All products of the Company are, or are expected to be, Year 2000 ready
before their known failure dates or by January 1, 2000, whichever is sooner, and
should any date-related problems be revealed after that point, they will be
fixed at no extra charge to the customer or replaced with a product of equal
value. The Company has established a global inquiry response process to ensure
timely, clear, consistent, accurate and documented responses to all requests for
information about its products and services.
The Company further expects to take all prudent and reasonable steps to
validate the Year 2000-readiness of its direct supply chain interfaces, but
believes that this area does and will continue to represent a significant level
of uncertainty and business risk at least through the first half of the year
2000. If a significant portion of the supply chain suffers Year 2000-related
business disruption, there could be a material impact on the Company's financial
condition and results
12
<PAGE>
of operations. The Company's definition for Year 2000 readiness is "A Definition
of Year 2000 Conformity Requirements" published by the British Standards
Institution (DISC PD 2000-1:1998).
Expectations for a successful outcome are based on the incorporation of a
number of "best practices" in addressing the Year 2000 problem. The Company has
a formal global Year 2000 program office, headed by the Chief Information
Officer who reports directly to the President and staffed by a core project team
of senior managers with representatives from key worldwide business units. Year
2000 remediation work is being performed by a combination of in-house and vendor
personnel, which is consistent with normal business operations. Year 2000
progress and issues are reviewed regularly with some or all of the Senior
Management Team, including legal counsel, and the Audit Committee to ensure
timely and appropriate management attention. General employee communication
programs are increasing. The program office is using a compliance-reporting and
risk-assessment methodology which provides a classification system and checklist
with domains including IT infrastructure, applications and procedures, process
systems, facilities and equipment, products and services, and supply chains. The
methodology uses the combined insights and knowledge bases from Gartner Group's
research, benchmarking and consulting organizations. The Company has established
standards for compliance, date testing, document retention and contingency
plans.
The Company has begun a formal prioritization and communication program
with all material suppliers to ascertain their readiness. All significant
Company products have or will undergo testing to determine their ability to
function correctly according to date testing standards. The core suite of
accounting, finance, and human resources applications have been replaced by Year
2000 compliant vendor packages. The remaining key in-house developed
applications have been analyzed for potential date problems and are in the
process of being remediated. Many components of the IT infrastructure, non-IT
process systems and non-IT facilities systems have been replaced or upgraded. It
is believed that all of the remaining non-compliant key components have been
identified and these are planned for replacement or upgrade in accordance with
normal maintenance schedules.
The Company has used standard cost accounting principles (where possible,
activity-based costing) to assign costs to Year 2000 activities. The Company
expects to establish a separate Year 2000 account to budget and track
significant fiscal 1999 Year 2000 expenditures. All maintenance and modification
costs are expensed as incurred, while the cost of new systems is being
capitalized according to generally accepted accounting principles. Identified
Year 2000 expenses amounted to $1.9 million in fiscal 1998 and are forecast to
be $5.2 million in fiscal 1999. These costs are predominantly for the budgeted
replacement or upgrades of IT and non-IT systems, but also include pro-rated
personnel standard unit costs. These estimates do not include the Company's
potential share of Year 2000 costs that may be incurred in relation to recent
acquisitions.
The need to replace or upgrade systems and applications subject to Year
2000 errors had been anticipated and factored into regular improvements of the
Company's IT and non-IT technological environment. As a result, the source of
funding for Year 2000 remediation efforts is expected to be predominantly from
cash flow from operations and, perhaps, in a few isolated incidences from the
short-term deferral of other discretionary projects. The Company has not
incurred and does not expect any material impact to future earnings or financial
condition as a result of Year 2000 repair or replacement activities.
The Company has examined the business impact associated with each of the
six major areas described above. The Company believes that it has limited
products and services exposure due to the nature of those products and services,
as well as efforts expended to-date. The area of potential greatest risk is the
Supply Chain. This risk is somewhat mitigated by the diverse and distributed
characteristics of both its Suppliers and Customers and the fact that the
Company has no material single vendor source suppliers. The Company has
contacted key suppliers and customers to ascertain Year 2000 readiness, through
questionnaires and/or personal follow-up, as appropriate. The Company has
developed a "reasonably likely worst case scenario" based on exploring a wide
range of possible results from Year 2000 problems (note: it is expected that
there is a relatively small probability that the reasonably likely worst case
scenario would actually occur). The Company believes that this scenario would be
the result of a general economic downturn coupled with sporadic problems with
basic infrastructure services. This scenario would probably affect the Company's
revenues and could change demand for services (note: there is also a possibility
for increased demand for the Company's services related to the Year 2000). The
Company has begun the process of identifying potential variants of this scenario
and expects to develop business contingencies to deal with these situations.
Other undiscovered issues related to the Year 2000 issue have the potential for
an adverse impact on the Company's financial condition.
The Company plans to carefully monitor developments with key third party
organizations, to identify alternatives as needed and to promote the integrity
of the supply chain through information sharing as appropriate. In addition, the
Company has begun the process of developing standards for Year 2000 contingency
plans and will use this to guide the process of preparing for the most likely
case and reasonably anticipated scenario.
The Company's plans to address the Year 2000 problem are based on
management's best judgments together with the information that is available to
date. Management's position is based on assumptions of future events including
the continued availability of certain resources, third party modification plans
and other factors. There can be no assurance that these estimates will prove to
be accurate, and actual results could differ materially from those currently
anticipated.
13
<PAGE>
Unanticipated failures resulting from, but not limited to: a) essential third
parties, b) the Company's ability to identify all date-sensitive systems, or c)
the Company's ability to execute its own remediation efforts, could materially
impact the Company's business and financial condition.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130") and No. 131, "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 stockholders 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 disclosure standards in the first quarter of
fiscal 1999.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
companies to capitalize certain costs of computer software developed or obtained
for internal use and amortize such costs over the software's estimated useful
life. The Company is required to adopt SOP 98-1 in fiscal 2000. The Company is
currently evaluating the effect of adoption of SOP 98-1 on the Company's
financial position and results of operations.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities " ("FAS 133") was
issued. FAS 133 establishes a new model for accounting for derivatives and
hedging activities. The Statement requires all derivatives be recognized in the
statement of financial position as either assets or liabilities and measured at
fair value. The Company is required to adopt FAS 133 in fiscal 2000. The Company
is currently evaluating the effect of adoption of FAS 133 on the Company's
financial position and results of operations.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.
Amounts invested in the Company's foreign operations are translated into U.S.
dollars at the exchange rates in effect at year end. The resulting translation
adjustments are recorded as cumulative translation adjustment, a component of
stockholders' equity, in the Consolidated Balance Sheets.
ITEM 8. Consolidated Financial Statements and Supplementary Data.
CONSOLIDATED FINANCIAL STATEMENTS
The Company's consolidated financial statements for the fiscal years ended
September 30, 1998 and 1997, together with the reports thereon of KPMG Peat
Marwick LLP, independent auditors, dated October 30, 1998, except as to note 18
which is as of November 12, 1998, and the eighth paragraph of note 3 (Interpose
acquisition), which is as of December 10, 1998, are included in this Report
beginning on Page F-1.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None in the fiscal years ended September 30, 1998 and 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 2 through 11 in the Proxy Statement for Annual
Meeting of Stockholders of Registrant to be held January 28, 1999 and is
incorporated herein by reference. Information relating to Section 16(a) of the
Exchange Act is set forth under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" on page 15 in the Proxy Statement for Annual Meeting of
Stockholders of Registrant to be held January 28, 1999 and is incorporated
herein by reference.
ITEM 11. Executive Compensation.
Information relating to Executive Compensation is set forth under the caption
"Compensation of Executive Officers" on pages 6 through 11 of the Proxy
Statement for Annual Meeting of Stockholders of Registrant to be held January
28, 1999 and is incorporated herein by reference.
14
<PAGE>
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 15 in the Company's Proxy Statement
for Annual Meeting of Stockholders of Registrant to be held January 28, 1999 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
28, 1999 on pages 15 and 16 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.
15
<PAGE>
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
3.1a(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 III, IV
and V of Restated Certificate of Incorporation (see Exhibit 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.
10.4(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 January 22, 1998
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 January 22, 1998
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
January 22, 1998
10.17* Employment Agreement by and between Manuel A. Fernandez and Gartner Group, Inc. as of
November 12, 1998
10.18* Employment Agreement by and between William T. Clifford and Gartner Group, Inc. as of
November 12, 1998
10.19* Employment Agreement by and between E. Follett Carter and Gartner Group, Inc. as of
November 12, 1998
10.20* Employment Agreement by and between John F. Halligan and Gartner Group, Inc. as of
November 12, 1998
10.21* Employment Agreement by and between Michael D. Fleisher and Gartner Group, Inc. as of
November 12, 1998.
10.22* Employment Agreement by and between Manuel A. Fernandez and Gartner Group, Inc. as of
February, 1998
10.23* Addendum to the Employment Agreement by and between Manuel A. Fernandez and Gartner
Group, Inc. entered into as of August 24, 1998
10.24* Employment Agreement by and between William T. Clifford and Gartner Group, Inc. as of
February 26, 1998
10.25* Employment Agreement by and between E. Follett Carter and Gartner Group, Inc. as of
February 20, 1998
10.26* Employment Agreement by and between John F. Halligan and Gartner Group, Inc. as of
February 20, 1998
10.27* Employment Agreement by and between Michael D. Fleisher and Gartner Group, Inc. as of
February 20, 1989.
13.1 Annual report to stockholders
21.1 Subsidiaries of Registrant
23.1 Independent Auditors' Consent
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.
</TABLE>
(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 May 8, 1998.
(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, 1998.
(c) Exhibits See (a) above.
(d) Financial Statement Schedule
See (a) above.
16
<PAGE>
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 15th and 16th day of December, 1998.
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>
<S> <C> <C>
Name Title Date
/s/ MANUEL A. FERNANDEZ Director, Chairman of the Board December 16, 1998
- -------------------------- and Chief Executive Officer
Manuel A. Fernandez (Principal Executive Officer)
/s/ JOHN F. HALLIGAN Executive Vice President and Chief December 15, 1998
- -------------------------- Financial Officer (Principal Financial
John F. Halligan and Accounting Officer)
/s/ MAX HOPPER Director December 15, 1998
- --------------------------
Max Hopper
/s/ JOHN P. IMLAY Director December 15, 1998
- --------------------------
John P. Imlay
/s/ STEPHEN G. PAGLIUCA Director December 15, 1998
- --------------------------
Stephen G. Pagliuca
/s/ DENNIS G. SISCO Director December 16, 1998
- --------------------------
Dennis G. Sisco
/s/ WILLIAM O. GRABE Director December 15, 1998
- --------------------------
William O. Grabe
/s/ ROBERT E. WEISSMAN Director December 16, 1998
- --------------------------
Robert E. Weissman
By: /s/ JOHN F. HALLIGAN December 15, 1998
-----------------------
John F. Halligan
Attorney-in-fact
</TABLE>
17
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
GARTNER GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report ............................................................. F-2
Consolidated Balance Sheets as of September 30, 1998 and 1997 ............................ F-3
Consolidated Statements of Operations for Fiscal Years Ended September 30, 1998 and 1997 . F-4
Consolidated Statements of Changes in Stockholders' Equity for Fiscal Years Ended
September 30, 1998, 1997 and 1996 ........................................................ F-5
Consolidated Statements of Cash Flows for Fiscal Years Ended September 30, 1998, 1997 and F-6
1996
Notes to the Consolidated Financial Statements ........................................... F-7
Independent Auditors' Report on Schedule ................................................. F-21
Schedule II--Valuation and Qualifying Accounts, Fiscal Years Ended September 30, 1998, F-22
1997 and 1996
</TABLE>
F-1
<PAGE>
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 subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended September 30, 1998.
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.
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 financial position of Gartner Group, Inc.
and subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
St. Petersburg, Florida
October 30, 1998, except as to note 18 which is as of November 12, 1998, and the
eighth paragraph of note 3 (Interpose acquisition), which is as of December
10, 1998
F-2
<PAGE>
GARTNER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................................... $ 157,744 $ 142,415
Marketable securities .............................................................. 60,940 28,639
Fees receivable, net of allowances of $4,125 and $5,340............................. 239,243 205,760
Deferred commissions ............................................................... 28,287 23,019
Prepaid expenses and other current assets .......................................... 24,865 25,775
--------- ---------
Total current assets .............................................................. 511,079 425,608
Long-term marketable securities ..................................................... 43,610 17,691
Property, equipment and leasehold improvements, net ................................. 50,801 44,102
Intangible assets, net .............................................................. 155,786 132,195
Other assets ........................................................................ 71,595 25,716
--------- ---------
Total assets ...................................................................... $ 832,871 $ 645,312
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ........................................... $ 96,151 $ 85,411
Commissions payable ................................................................ 20,422 16,979
Accrued bonuses payable ............................................................ 10,249 15,722
Deferred revenues .................................................................. 288,013 254,071
--------- ---------
Total current liabilities ......................................................... 414,835 372,183
--------- ---------
Long-term deferred revenues ......................................................... 3,098 3,259
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 113,719,037 shares of Class
A Common (108,334,601 in 1997) and 0 shares of Class B Common Stock .............. 57 54
Additional paid-in capital .......................................................... 262,776 179,017
Cumulative translation adjustment ................................................... (2,155) (1,098)
Accumulated earnings ................................................................ 193,485 105,138
Treasury stock, at cost, 12,540,576 and 11,624,805 shares ........................... (39,225) (13,241)
--------- ---------
Total stockholders' equity ........................................................ 414,938 269,870
--------- ---------
Total liabilities and stockholders' equity ....................................... $ 832,871 $ 645,312
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
GARTNER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Advisory and measurement .............................. $494,701 $ 396,219 $ 306,542
Learning .............................................. 18,076 21,314 12,219
Other, principally consulting and conferences ......... 129,180 93,706 75,911
-------- --------- ----------
Total revenues ....................................... 641,957 511,239 394,672
Costs and expenses:
Cost of services and product development .............. 247,913 202,815 152,982
Selling, general and administrative ................... 215,928 173,610 144,473
Acquisition-related charges ........................... 4,494 -- 34,898
Nonrecurring charges .................................. 2,819 -- --
Depreciation .......................................... 17,909 11,758 9,064
Amortization of intangibles ........................... 9,357 6,443 3,815
-------- --------- ----------
Total costs and expenses ............................. 498,420 394,626 345,232
-------- --------- ----------
Operating income ....................................... 143,537 116,613 49,440
Minority interest ...................................... -- -- 25
Loss on sale of GartnerLearning ........................ (1,973) -- --
Interest income, net ................................... 9,557 7,260 3,665
-------- --------- ----------
Income before provision for income taxes ............... 151,121 123,873 53,130
Provision for income taxes ............................. 62,774 50,743 36,692
-------- --------- ----------
Net income ............................................. $ 88,347 $ 73,130 $ 16,438
======== ========= ==========
Net income per common share:
Basic ................................................. $.88 $.77 $.18
======== ========= ==========
Diluted ............................................... $.84 $.71 $.17
======== ========= ==========
Weighted average shares outstanding:
Basic ................................................. 100,194 94,742 89,739
======== ========= ==========
Diluted ............................................... 105,699 102,751 98,854
======== ========= ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
GARTNER GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN
STOCK STOCK CAPITAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances at September 30, 1995 ............................ $ 0 $51 $ 73,278
Net income ................................................ -- -- --
Issuance of 3,036,403 shares of Class A Common
Stock upon exercise of stock options ..................... -- 1 5,752
Issuance of 199,648 shares of Class A Common
Stock from purchases by employees ........................ -- -- 2,407
Issuance from treasury stock of 117,470 shares
of Class A Common Stock from purchases
by employees ............................................. -- -- 2,140
Tax benefits of stock transactions with employees ......... -- -- 29,415
Net transfers to D&B by Dataquest ......................... -- -- --
Cumulative translation adjustment ......................... -- -- --
Acquisition of Dataquest, Inc. ............................ -- -- (15,000)
Acquisition of J3 Learning, Inc. .......................... -- -- 36,719
---- ---- ---------
Balances at September 30, 1996 ............................ 0 52 134,711
Net income ................................................ -- -- --
Issuance of 4,036,862 shares of Class A Common
Stock upon exercise of stock options ..................... -- 2 13,594
Issuance from treasury stock of 195,721 shares
of Class A Common Stock from purchases
by employees ............................................. -- -- 5,883
Conversion of 1,600,000 shares of Class B
Common Stock into Class A Common Stock ................... -- -- --
Tax benefits of stock transactions with employees ......... -- -- 36,833
Net share settlement of 449,932 shares of Class A
Common Stock on forward purchase agreement ............... -- -- --
Net cash settlement paid on forward purchase
agreement ................................................ -- -- (12,004)
Cumulative translation adjustment ......................... -- -- --
---- ---- ---------
Balances at September 30, 1997 ............................ 0 54 179,017
Net Income ................................................ -- -- --
Issuance of 5,370,690 shares of Class A Common
Stock upon exercise of stock options ..................... -- 3 35,727
Issuance from treasury stock of 195,904 shares
of Class A Common Stock from purchases
by employees ............................................. -- -- 5,885
Tax benefits of stock transactions with employees ......... -- -- 47,273
Net share settlement of 365,949 shares of Class A
Common Stock on forward purchase agreement ............... -- -- --
Net cash settlement paid on forward purchase
agreement ................................................ -- -- (12,045)
Acquisition of 655,800 shares of Class A Common
Stock .................................................... -- -- --
302,003 shares of Class A Common stock received
in settlement of officer loans ........................... -- -- --
Issuance of 225,927 shares of Class A Common
Stock related to acquisitions ............................ -- -- 6,919
Cumulative translation adjustment ......................... -- -- --
---- ---- ---------
Balances at September 30, 1998 ............................ $ 0 $57 $ 262,776
==== ==== ==========
<CAPTION>
CUMULATIVE TOTAL
TRANSLATION ACCUMULATED TREASURY STOCKHOLDERS'
ADJUSTMENT EARNINGS STOCK EQUITY
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at September 30, 1995 ............................ $ (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 ..................... -- -- -- 5,753
Issuance of 199,648 shares of Class A Common
Stock from purchases by employees ........................ -- -- -- 2,407
Issuance from treasury stock of 117,470 shares
of Class A Common Stock from purchases
by employees ............................................. -- -- 264 2,404
Tax benefits of stock transactions with employees ......... -- -- -- 29,415
Net transfers to D&B by Dataquest ......................... -- (1,687) -- (1,687)
Cumulative translation adjustment ......................... (465) -- -- (465)
Acquisition of Dataquest, Inc. ............................ -- -- -- (15,000)
Acquisition of J3 Learning, Inc. .......................... -- -- -- 36,719
-------- -------- --------- ---------
Balances at September 30, 1996 ............................ (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 ..................... -- -- -- 13,596
Issuance from treasury stock of 195,721 shares
of Class A Common Stock from purchases
by employees ............................................. -- -- 330 6,213
Conversion of 1,600,000 shares of Class B
Common Stock into Class A Common Stock ................... -- -- -- --
Tax benefits of stock transactions with employees ......... -- -- -- 36,833
Net share settlement of 449,932 shares of Class A
Common Stock on forward purchase agreement ............... -- -- -- --
Net cash settlement paid on forward purchase
agreement ................................................ -- -- -- (12,004)
Cumulative translation adjustment ......................... 1,867 -- -- 1,867
-------- -------- --------- ---------
Balances at September 30, 1997 ............................ (1,098) 105,138 (13,241) 269,870
Net Income ................................................ -- 88,347 -- 88,347
Issuance of 5,370,690 shares of Class A Common
Stock upon exercise of stock options ..................... -- -- -- 35,730
Issuance from treasury stock of 195,904 shares
of Class A Common Stock from purchases
by employees ............................................. -- -- 184 6,069
Tax benefits of stock transactions with employees ......... -- -- -- 47,273
Net share settlement of 365,949 shares of Class A
Common Stock on forward purchase agreement ............... -- -- -- --
Net cash settlement paid on forward purchase
agreement ................................................ -- -- -- (12,045)
Acquisition of 655,800 shares of Class A Common
Stock .................................................... -- -- (16,187) (16,187)
302,003 shares of Class A Common stock received
in settlement of officer loans ........................... -- -- (9,985) (9,985)
Issuance of 225,927 shares of Class A Common
Stock related to acquisitions ............................ -- -- 4 6,923
Cumulative translation adjustment ......................... (1,057) -- -- (1,057)
-------- -------- --------- ---------
Balances at September 30, 1998 ............................ $ (2,155) $193,485 $ (39,225) $ 414,938
======== ======== ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
GARTNER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income ..................................................................... $ 88,347 $ 73,130 $ 16,438
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization of intangibles ................................... 27,266 18,201 12,879
Acquisition-related charges .................................................... 4,494 -- 34,898
Provision for doubtful accounts ................................................ 4,051 3,421 3,295
Equity in losses of minority owned company ..................................... 512 202 (25)
Deferred revenues .............................................................. 30,292 41,750 35,800
Deferred tax expense (benefit) ................................................. 906 1,554 (1,394)
Pre-acquisition tax benefit applied to reduce goodwill ......................... -- 275 517
Loss on sale of GartnerLearning ................................................ 1,973 -- --
Changes in assets and liabilities, net of effects of acquisitions:
Increase in fees receivable .................................................... (39,737) (60,378) (31,779)
Increase in deferred commissions ............................................... (5,132) (4,262) (1,154)
Increase in prepaid expenses and other current assets .......................... (10,645) (7,915) (1,995)
(Increase) decrease in other assets ............................................ (5,100) (2,707) 116
Increase (decrease) in accounts payable and accrued liabilities ................ 2,311 23,058 (5,414)
Increase in commissions payable ................................................ 3,566 1,785 2,160
(Decrease) increase in accrued bonuses payable ................................. (5,309) (957) 1,347
---------- --------- ---------
Cash provided by operating activities ........................................... 97,795 87,157 65,689
---------- --------- ---------
Investing activities:
Proceeds from sale of GartnerLearning .......................................... 5,000 -- --
Payment for businesses acquired (excluding cash acquired) ...................... (45,418) (33,306) (46,176)
Investments in unconsolidated subsidiaries ..................................... (19,814) (9,089) (750)
Addition of property, equipment and leasehold improvements ..................... (24,269) (21,513) (15,614)
Marketable securities purchased, net ........................................... (58,220) (13,229) (4,268)
Loans to officers .............................................................. (2,475) (7,163) --
---------- --------- ---------
Cash used for investing activities .............................................. (145,196) (84,300) (66,808)
---------- --------- ---------
Financing activities:
Principal payments on long-term debt and capital lease obligations ............. -- -- (6,725)
Issuance of common stock and warrants .......................................... 35,730 13,596 5,753
Proceeds from Employee Stock Purchase Plan offering ............................ 5,885 5,883 4,547
Tax benefits of stock transactions with employees .............................. 47,273 36,833 29,415
Distributions of capital between Dataquest and former parent ................... -- -- (1,687)
Net cash settlement on forward purchase agreement .............................. (12,045) (12,004) --
(Purchase) sale of treasury stock .............................................. (13,931) 330 264
---------- --------- ---------
Cash provided by financing activities ........................................... 62,912 44,638 31,567
---------- --------- ---------
Net increase in cash and cash equivalents ....................................... 15,511 47,495 30,448
Effect of exchange rates on cash and cash equivalents ........................... (182) (1,835) (274)
Cash and cash equivalents, beginning of period .................................. 142,415 96,755 66,581
---------- --------- ---------
Cash and cash equivalents, end of period ........................................ $ 157,744 $ 142,415 $ 96,755
========== ========= =========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest ....................................................................... -- -- $ 437
Income taxes ................................................................... $ 7,721 $ 6,597 $ 8,463
Supplemental schedule of non-cash investing and financing activities:
Stock received in settlement of officer loans and related interest ............. $ 9,985 -- --
Equity interest received in connection with sale of GartnerLearning ............ $ 42,500 -- --
Stock and options issued in connection with acquisitions ....................... $ 6,923 -- $ 36,719
Treasury stock transactions settled subsequent to year end ..................... $ 2,072 -- --
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
GARTNER GROUP, INC.
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 stockholder'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. Revenue from advisory, measurement
and learning ("AML") contracts is recognized as products and services are
delivered, and as the Company's obligation to the client is completed over the
contract, 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. Government contracts have not produced
material cancellations to date. All contracts are billable upon signing, absent
special terms granted on a limited basis. 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. Revenue from software
licensing fees is recognized when the products have been delivered,
collectibility is probable, and the related software license fees are fixed or
determinable. Components of revenues attributable to future service are deferred
and recognized as such services are performed. 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. The Company's marketable securities consist of marketable debt
securities which are classified as 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 have primarily consisted of finished goods
related to the Company's training business, GartnerLearning, 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 expenses and other current assets". Inventories were $0
and $2.1 million at September 30, 1998 and 1997, 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. Amortization of capitalized computer software development costs
begins when the products are available for general release to customers.
Software development costs, subsequent to technological feasibility and prior to
general release, have not been 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 being amortized on a straight-line basis over their estimated
useful lives ranging from four to thirty years. At the end of each quarter, the
Company reviews events and
F-7
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
changes in circumstances to determine whether the recoverability of the carrying
value of the intangible asset should be assessed. Should events or circumstances
indicate that the carrying value may not be recoverable based on undiscounted
future cash flows, an impairment loss 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 would be recognized by the
Company.
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. 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 $12.1 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 income per share of common stock. In February 1997, Statement of
Financial Accounting Standards No. 128 "Earning per Share" ("FAS 128") was
issued. The Statement sets forth guidance on the presentation of earnings per
share ("EPS") and requires dual presentation of basic and diluted earnings per
share on the face of the income statement. Basic EPS is computed by dividing
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in earnings, including stock options and
warrants. EPS amounts have been calculated and presented under the provisions of
FAS 128.
The following table sets forth the required disclosures of the
reconciliation of the basic and diluted net earnings per share computations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income ............................................................... $ 88,347 $ 73,130 $ 16,438
========= ========= ========
Denominator
Denominator for basic earnings per share--weighted average number of
common shares outstanding ............................................... 100,194 94,742 89,739
Effect of dilutive securities:
Weighted average number of common shares under warrant outstanding ...... 298 274 310
Weighted average number of option shares outstanding .................... 5,207 7,735 8,805
--------- --------- --------
Dilutive potential common shares ........................................ 5,505 8,009 9,115
--------- --------- --------
Denominator for diluted earnings per share--adjusted weighted average
number of common shares outstanding ................................... 105,699 102,751 98,854
========= ========= ========
Basic earnings per common share ........................................... $ 0.88 $ 0.77 $ 0.18
========= ========= ========
Diluted earnings per common share ......................................... $ 0.84 $ 0.71 $ 0.17
========= ========= ========
</TABLE>
For the fiscal year ended September 30, 1998, options to purchase 2.2
million shares of Class A Common Stock of the Company with exercise prices
greater than the average fair market value of the Company's stock for the period
of
F-8
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$32.67 were not included in the calculation because the effect would have been
antidilutive. All outstanding options for the fiscal years ended September 30,
1997 and 1996 were dilutive and were included in the calculation of diluted
earnings per share.
Recently issued accounting standards. In June 1997, Statement of Financial
Accounting Standards 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 stockholders 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 disclosure
standards in the first quarter of fiscal 1999.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
companies to capitalize certain costs of computer software developed or obtained
for internal use and amortize such costs over the software's estimated useful
life. The Company is required to adopt SOP 98-1 in fiscal 2000. The Company is
currently evaluating the effect of adoption of SOP 98-1 on the Company's
financial position and results of operations.
In June 1998, Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities " ("FAS 133") was
issued. FAS 133 establishes a new model for accounting for derivatives and
hedging activities. The Statement requires all derivatives be recognized in the
statement of financial position as either assets or liabilities and measured at
fair value. The Company is required to adopt FAS 133 in fiscal 2000. The Company
is currently evaluating the effect of adoption of FAS 133 on the Company's
financial position and results of operations.
Fair Value of Financial Instruments. Most of Company's financial instruments,
including cash, marketable securities, trade receivables and payables, and
accruals are short-term in nature. Accordingly, the carrying amount of these
financial instruments approximates its fair value (see Note 11 regarding forward
purchase agreements).
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.
Estimates are used when accounting for such items as allowance for doubtful
accounts, depreciation, amortization, income taxes and certain accrued
liabilities.
2--RELATED PARTIES
The Dun and Bradstreet Corporation ("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 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 30, 1998, Cognizant transferred its ownership in the Company to IMS
Health Incorporated, ("IMS Health"), a spin-off of Cognizant and an independent
public company. (See Note 18--Subsequent Event.)
F-9
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 loans proceeds
were not used to fund the option exercise price of the common stock acquired.
The loans were full recourse obligations to the officers and were secured by
shares of the Company's stock. The loans bore interest at an annual rate of
6.1%. The principal amount of the loans totaling $7.2 million are included in
other assets on the September 30, 1997 Consolidated Balance Sheets. On December
18, 1997, with the Board of Directors approval, the Company provided additional
loans for the same purpose to certain officers totaling $2.5 million. The loans
bore interest at an annual rate of 5.6%. On July 23, 1998, with Board of
Directors' approval, the Company received 302,003 shares of Class A Common Stock
in settlement of the loan balance and accrued interest due.
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 GGI 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 the Company and Dataquest during the
periods preceding the merger were as follows (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED) GGI DATAQUEST COMBINED
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues ................................... $76,005 $20,469 $96,474
Net income ....................................... $10,570 $ 923 $11,493
</TABLE>
There were no intercompany transactions between the two companies for the
period.
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 (collectively known
as "technology based 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 substantially all of
the remaining excess purchase price was allocated to goodwill and tradename.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company for the fiscal year ended September 30, 1996 as if
the acquisition of J3 had occurred at the beginning of the year and does not
purport to be indicative of what would have occurred had the acquisition been
made as of that date (in thousands, except per share data):
<TABLE>
<S> <C>
Total revenue ................................ $ 401,329
Net income ................................... $ 11,749
Net income per diluted common share ......... $ 0.12
</TABLE>
F-10
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 1, 1998, the Company sold its technology based training
business (see Note 4--Sale of GartnerLearning).
On August 1, 1997, the Company acquired all of the outstanding shares of
Datapro Information Services ("Datapro"), a unit of McGraw-Hill Companies for
consideration of approximately $25.0 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 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 the 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 year 1996, consolidated total revenues
on a pro forma basis would have been $536.6 million and $431.4 million for
fiscal years 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 net income and net income per common share for fiscal 1997 and
1996 is not material.
On October 22, 1997, the Company acquired a 32% membership interest in
Jupiter Communications, LLC ("Jupiter") for $8.0 million in cash. On September
16, 1998, the Company increased its membership interest in Jupiter to 37% for an
additional $1.3 million in cash. Jupiter is a provider of analyst-based research
and strategic planning services to the consumer and Internet and interactive
industries. This investment is accounted for under the equity method of
accounting. The excess of the cost of the investment over the underlying
proportionate share of net assets (goodwill) in Jupiter totaling $9.3 million is
being amortized over 30 years and is included in other assets in the
Consolidated Balance Sheets.
On January 30, 1998, the Company acquired all the assets and assumed the
liabilities of Interpose, Inc. ("Interpose"), for $7.5 million in cash and
13,746 shares of Class A Common Stock of the Company which had an approximate
fair market value of $0.5 million. Interpose is a provider of total cost of
ownership (TCO) measurement and analysis tools and 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 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 $7.5 million. Of such
amount, $6.3 million was expensed during the second quarter of 1998 as purchased
in-process research and development costs and is presented as the
acquisition-related charge in the Consolidated Statements of Operations. On
December 10, 1998, the Company revised the amount of expensed purchased
in-process research and development costs from $6.3 million to $4.5 million. The
change was in response to recently developed guidance from the Securities and
Exchange Commission. Of the remaining excess purchase price, $2.3 million was
allocated to goodwill which is being amortized over 12 years and $0.9 million
was allocated to a non-compete agreement which is being amortized over 5 years.
On May 18, 1998, the Company acquired all the assets and assumed the
liabilities of The Research Board, Inc., for $6.4 million in cash and 183,945
shares of Class A Common Stock of the Company which had an approximate fair
market value of $5.7 million. The Research Board compiles and provides
information technology ("IT") research on suppliers and new technologies,
validated management practices and IT best practices to its membership, which
consist principally of senior IT executives. The acquisition was accounted for
by the purchase method, and the purchase price has been allocated to the assets
acquired and the liabilities assumed, based upon 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 $13.5 million, of which $12.9
million has been recorded as goodwill, which is being amortized over 30 years.
In addition, $0.6 million of the purchase price was allocated to a non-compete
agreement which is being amortized over 5 years.
On September 4, 1998, the Company acquired all of the outstanding shares of
Vision Events International, Inc., for $20.5 million in cash. Vision Events
International, Inc. produces premiere channel events that serve to bring
information technology vendors, value-added resellers, and system integrators
together with vendors and distributors selling through these channels. The
acquisition was accounted for by the purchase method, and the purchase price has
been allocated to the assets acquired and the liabilities assumed, based upon
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 $24.0
million of which $23.6 million has been recorded as goodwill which is being
amortized over 30 years. In addition, $0.4 million of the purchase price was
allocated to a non-compete agreement which is being amortized over 3 years.
During fiscal 1998, the Company completed additional acquisitions for
consideration of $12.8 million in cash and 28,236 shares of Class A Common Stock
of the Company which had an approximate fair market value of $0.7 million.
F-11
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During fiscal 1997, the Company completed additional acquisitions for $8.1
million in cash. These acquisitions have been accounted for under the purchase
method and substantially all of the purchase price has been assigned to
goodwill.
The pro forma results of operations for fiscal years 1998 and 1997,
assuming the fiscal 1998 acquisitions were made at the beginning of each year
would not differ significantly from the historical results.
On October 7, 1998, the Company acquired all the assets and assumed the
liabilities of Griggs-Anderson, Inc., for $10.9 million in cash and 306,475
shares of Class A Common Stock of the Company which had an approximate fair
market value of $7.3 million. Griggs-Anderson, Inc. provides custom market
research to vendors in the technology marketplace, research and surveys for the
evaluation of Web sites for effectiveness of content, technical performance,
ease of navigation, impact of graphics, and demographic profiles of users. The
acquisition was accounted for by the purchase method.
4--SALE OF GARTNERLEARNING
On September 1, 1998, the Company sold GartnerLearning, a division of the
Company that provides technology based training and services for information
technology professionals to Netg Inc. ("Netg"), a subsidiary of Harcourt Brace &
Company, for $5.0 million in cash and an 8% equity interest in Netg. In
addition, the Company received a put option which allows the Company to sell its
8% equity interest to an affiliate of Harcourt Brace & Company for $48.0 million
in cash. This put option may be exercised for two years beginning on September
1, 2002, if certain conditions are met. The Company's 8% interest in Netg has an
independently appraised fair value of $42.5 million and is included in other
assets in the Consolidated Balance Sheets. Including transaction costs related
to the sale of $3.8 million, the pre-tax loss on sale of GartnerLearning was
approximately $2.0 million (also see Note 10--Income Taxes for the impact of the
sale on the income tax provision).
5--NONRECURRING CHARGES
During fiscal 1998, the Company recorded nonrecurring charges, primarily
consisting of relocation and severance costs, totaling approximately $2.8
million related to the Company's relocation of certain accounting and order
processing operations from Stamford, Connecticut to a new financial services
center in Ft. Myers, Florida. These expenses are recorded as nonrecurring
charges in the Consolidated Statements of Operations.
6--PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and
leasehold improvements, carried at cost, less accumulated depreciation and
amortization consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
USEFUL
LIFE (YEARS) 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and equipment ................................. 3-8 $ 27,278 $ 25,568
Computer equipment ...................................... 2-3 60,809 56,979
Leasehold improvements .................................. 2-15 21,916 19,257
--------- ---------
110,003 101,804
Less--accumulated depreciation and amortization ......... (59,202) (57,702)
--------- ---------
$ 50,801 $ 44,102
========= =========
</TABLE>
7--INTANGIBLE ASSETS, NET
Intangible assets, net, carried at cost, less accumulated amortization consist
of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
AMORTIZATION
PERIOD (YEARS) 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill ................................................ 7-30 $ 168,936 $ 138,537
Non-compete agreements .................................. 3-5 5,489 3,462
Tradenames .............................................. 12 778 6,978
Title library ........................................... 4 -- 1,900
--------- ---------
175,203 150,877
Less--accumulated amortization .......................... (19,417) (18,682)
--------- ---------
$ 155,786 $ 132,195
========= =========
</TABLE>
F-12
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8--COMMITMENTS AND CONTINGENCIES
The Company leases various facilities, furniture and computer equipment under
lease arrangements expiring between fiscal 1999 and 2022.
Future minimum annual payments under operating lease agreements as of
September 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------
<S> <C>
1999 ................................. $ 16,259
2000 ................................. 13,973
2001 ................................. 11,140
2002 ................................. 8,546
2003 ................................. 7,225
Thereafter ........................... 52,840
--------
Total minimum lease payments ......... $109,983
========
</TABLE>
Rental expense for operating leases, net of sublease income, was $21.3
$16.8, and $11.0 million for the fiscal years ended September 30, 1998, 1997 and
1996, 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 $4.8 million for
fiscal 1998, 1999, and 2000, $4.2 million for fiscal 2001 and 2002, and $1.1
million for fiscal year 2003.
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.
9--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 .25% 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, 1998 and 1997.
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 $4.1 million and $2.0 million with The Bank of New York as of September
30, 1998.
10--INCOME TAXES
Following is a summary of the components of income before provision for income
taxes (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------
1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
U.S. ................. $113,589 $ 93,758 $40,650
Non-U.S. ............. 37,532 30,115 12,480
-------- -------- -------
Consolidated ......... $151,121 $123,873 $53,130
======== ======== =======
</TABLE>
F-13
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income on the above income consists of the following
components (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
U.S. federal .................................................. $ 2,081 $ 797 $ 1,775
State and local ............................................... 2,257 1,872 2,178
Foreign ....................................................... 8,927 8,208 3,164
------- ------- --------
Total current .................................................. 13,265 10,877 7,117
Deferred tax expense (benefit): ................................
U.S. federal .................................................. 921 434 58
State and local ............................................... 552 912 (1,347)
Foreign ....................................................... (567) 208 (105)
------- ------- --------
Total deferred ................................................. 906 1,554 (1,394)
------- ------- --------
Total current and deferred ..................................... 14,171 12,431 5,723
Benefit of stock transactions with employees allocated
to additional paid-in capital ................................. 48,603 38,037 30,452
Benefit of purchased tax benefits credited to goodwill ......... -- 275 517
------- ------- --------
Total provision for income taxes ............................... $62,774 $50,743 $ 36,692
======= ======= ========
</TABLE>
Current and long-term deferred tax assets and liabilities are comprised of
the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Depreciation ............................... $ 666 $ 895
Expense accruals for book purposes ......... 4,285 6,992
Loss and credit carryforwards .............. 11,456 9,380
Intangible assets .......................... 1,814 --
Other ...................................... 1,104 1,706
-------- --------
Gross deferred tax asset ................... 19,325 18,973
Intangible assets .......................... (2,299) (3,383)
Equity interest ............................ (2,477) --
Other ...................................... (89) (858)
-------- --------
Gross deferred tax liability ............... (4,865) (4,241)
Valuation allowance ........................ (6,444) (4,962)
-------- --------
Net deferred tax asset ..................... $ 8,016 $ 9,770
======== ========
</TABLE>
Current and long-term net deferred tax assets are $1.8 million and $6.2
million as of September 30, 1998 and $5.1 million and $4.7 million as of
September 30, 1997, respectively, and are included in Prepaid expenses and other
current assets and other assets, respectively, in the Consolidated Balance
Sheets.
The valuation allowance relates to domestic and foreign tax loss
carryforwards that more likely than not will expire unutilized. The net increase
in the valuation allowance of approximately $1.5 million in the current year
results primarily from the increase in state tax carryforwards of approximately
$2.0 million and the net utilization of foreign tax loss carryforwards of
approximately $0.5 million. The net decrease in the valuation allowance of
approximately $1.6 million in fiscal 1997 was due primarily from the utilization
of foreign tax loss carryforwards. The tax benefit from such tax loss
carryforwards was $1.2, $1.7, and $1.0 million for fiscal years 1998, 1997, and
1996, respectively. Approximately $3.4 million of the valuation allowance would
reduce paid-in-capital upon subsequent recognition of any related tax benefits.
F-14
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The differences between the U.S. federal statutory income tax rate and the
Company's effective rate are:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate ..................................................................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit ............................................. 4.3 4.5 5.3
Foreign income taxed at a different rate ............................................... 0.7 0.6 1.5
Non-deductible goodwill and direct acquisition costs ................................... 3.5 0.9 0.9
Non-taxable interest income ............................................................ (1.3) (0.9) (1.3)
Exempt foreign trading gross receipts .................................................. (1.4) (1.0) --
Other items ............................................................................ 0.7 1.9 1.6
---- ---- ----
Effective rate without write-off of purchased in-process research and development costs 41.5 41.0 43.0
Non-deductible write-off of purchased in-process research and development costs ........ -- -- 26.1
---- ---- ----
Effective tax rate ..................................................................... 41.5% 41.0% 69.1%
==== ==== ====
</TABLE>
The sale of GartnerLearning resulted in an additional tax provision of $4.2
million primarily due to the reversal of non-deductible goodwill. The effective
tax rate, less the impact of the sale of GartnerLearning, was 39%.
As of September 30, 1998, the Company had U.S. federal tax loss
carryforwards of $10.0 million which will expire in ten to twelve years and
state and local tax loss carryforwards of $57.6 million, the majority of which
will expire in three 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 $4.6 million, of
which $0.5 million will expire within three to five years, and $4.1 million can
be carried forward indefinitely.
11--CAPITAL STOCK AND STOCK REPURCHASE PROGRAM
The Company effected a two-for-one stock split of its Class A and Class B Common
Stock by means of a stock dividend 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 had
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.
Beginning in fiscal 1997, the Company has entered into a series of forward
purchase agreements on its Class A Common Stock. These agreements are settled
quarterly at the Company's option on a net basis in either shares of its own
Class A Common Stock or cash. To the extent that the market price of the
Company's Class A Common Stock on a settlement date is higher (lower) than the
forward purchase price, the net differential is received (paid) by the Company.
During fiscal 1997, two settlements resulted in the Company receiving 449,932
shares of Class A 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). During fiscal 1998, four settlements resulted in
the Company receiving 365,949 shares of Class A Common Stock and paying
approximately $12.0 million in cash. As of September 30, 1998, a forward
purchase agreement in place covered approximately $27.2 million or 984,119
shares of Class A Common Stock having forward purchase prices established at
$27.63 per share. If the market priced portion of this agreement was settled
based on the September 30, 1998 market price of Class A Common Stock ($21.94 per
share), the Company would settle under the terms of the forward purchase
agreement with a payment of either $5.6 million in cash or 255,142 shares of
Class A Common Stock.
On August 24, 1998, the Company's Board of Directors approved the
repurchase of up to 2,500,000 shares of Class A Common Stock. The stock
repurchase program is intended to offset the dilutive effect of the Company's
stock-based employee compensation plans. As of September 30, 1998, the Company
has repurchased 655,800 shares of Class A Common Stock at a cost of
approximately $16.2 million.
F-15
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12--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 NYSE at the
beginning or end of each offering period, whichever is lower. During fiscal year
1998, 195,904 shares were issued from treasury stock at an average purchase
price of $30.98 per share in conjunction with this plan. At September 30, 1998,
2,078,933 shares were available for offering under the plan.
13--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 options, entitling employees to
purchase shares of the Company's common stock at the fair market value on the
date of grant. The Board can determine the date on which options vest and become
exercisable. A total of 32,800,000 and 22,800,000 shares of Class A Common Stock
were reserved for issuance under the Option Plan as of September 30, 1998 and
1997, respectively. In April 1998, the Board of Directors adopted an amendment,
subject to final shareholder approval, to the Option Plan to increase the number
of shares reserved for issuance thereunder by 10,000,000 shares. At September
30, 1998 and 1997, 9,001,508 and 2,955,416 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, 1998 and 1997, 603,000 and 621,000
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 6,560,000 shares of Class A Common
Stock for issuance thereunder. The purpose of the plan is to provide to 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 timely 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
1996, 1997 and 1998 performance, 1,048,280 shares were exercisable on September
30, 1998. An additional 1,475,000 options became exercisable on October 10,
1998. At September 30, 1998 and 1997, 287,500 and 810,000 shares were available
for grant, respectively.
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. A total of 1,800,000 shares of Class A Common Stock was 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 achieve-
F-16
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ment of certain financial performance targets determined by the Board of
Directors. If all financial performance targets are met timely 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 1997 and 1998 performance, 815,250 options
will be exercisable on February 24, 2000. At September 30, 1998 and 1997,
169,500 and 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, 1998 follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER EXERCISE
OPTION PRICE
- -------------------------------------------------------------------------
<S> <C> <C>
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
Granted .................................. 5,060,949 $ 33.329
Exercised ................................ (5,370,690) $ 6.716
Canceled ................................. (1,380,577) $ 20.539
---------- --------
Outstanding at September 30, 1998 ......... 16,131,032 $ 19.086
========== ========
</TABLE>
Options for the purchase of 4,317,310 and 3,492,390 shares were exercisable
at September 30, 1998 and 1997, respectively.
The following table summarizes information about stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED REMAINING
RANGE OF AVERAGE CONTRACTUAL
EXERCISE PRICES NUMBER OUTSTANDING NUMBER EXERCISABLE EXERCISE PRICE LIFE (YEARS)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 0.63 - 0.94 401,673 401,673 $ 0.82 1.0
$ 1.13 - 4.83 1,144,180 625,140 $ 3.07 2.1
$ 5.84 - 9.50 4,500,270 1,563,750 $ 7.20 5.9
$10.28 - 13.88 361,798 361,798 $ 12.07 5.5
$16.63 - 21.09 3,957,508 950,173 $ 20.02 8.0
$25.15 - 38.44 5,765,603 414,776 $ 32.49 9.2
--------- ---------
16,131,032 4,317,310
========== =========
</TABLE>
F-17
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A warrant expiring December 1, 2000 to purchase 600,000 shares of Class A
Common Stock at $16.42 per share is held by IMS Health. 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 plans. Accordingly, no compensation cost
has been recognized for the fixed stock option plans. Pursuant to the
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", (FAS 123), the following are the pro forma net
income and net income per share for the years ended September 30, 1998, 1997 and
1996 had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant date for grants under those
plans:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income As reported $ 88,347 $ 73,130 $ 16,438
Pro forma $ 58,480 $ 62,497 $ 10,616
Net Income Per Diluted Common Share As reported $ 0.84 $ 0.71 $ 0.17
Pro forma $ 0.55 $ 0.61 $ 0.11
- --------------------------------------------------------------------------------------------------
</TABLE>
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 plans used to compute pro forma net
income and diluted 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 for stock options granted or modified:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life (in years) 2.4 - 6.4 2.4 - 6.4 2.4 - 6.4
Expected volatility .40 .40 .38
Risk free interest rate 4.22% - 4.39% 6.00% - 6.09% 6.00%
Expected dividend yield 0.00% 0.00% 0.00%
</TABLE>
The weighted average fair values of the Company's stock options granted in
fiscal 1998, 1997 and 1996 are $12.00, $12.32 and $5.56, respectively.
14--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 the 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 $5.4, $4.6, and $3.2 million for the years ended September 30,
1998, 1997 and 1996, respectively.
15--GEOGRAPHIC DATA
The Company's consolidated 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.
F-18
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized information by geographic location is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
United States:
Revenues $402,957 $333,038 $253,451
Operating Income $ 74,191 $ 62,884 $ 26,359
Identifiable tangible assets $551,030 $407,262 $282,201
Europe:
Revenues $183,803 $121,971 $ 98,789
Operating Income $ 52,879 $ 36,800 $ 15,968
Identifiable tangible assets $ 93,409 $ 73,974 $ 50,564
Other International:
Revenues $ 55,197 $ 56,230 $ 42,432
Operating Income $ 16,467 $ 16,929 $ 7,113
Identifiable tangible assets $ 31,888 $ 27,654 $ 18,199
</TABLE>
Excluding acquisition-related and nonrecurring charges, operating income in
the United States was $81.5 million for fiscal 1998 and $61.3 million for fiscal
1996.
16--SELECTED CONSOLIDATED BALANCE SHEET 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 as of September 30, 1995 ........... $ 115,849 $ 164,449 $237,168 $ 57,978 $295,146
Billings ................................... 420,037 340,474 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 as of 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 as of September 30, 1997 ........... 211,100 257,330 417,533 93,706 511,239
======== ======== ========
Billings ................................... 685,082 539,530 24,940 106,821
Acquisition balances ....................... 2,365 7,646 -- --
Cash collections ........................... (647,602) -- -- --
AML revenue amortization ................... -- (487,837) 487,837 --
Other service revenue amortization ......... -- (22,359) -- 22,359
Sale of GartnerLearning .................... (7,577) (3,199) -- --
---------- ---------- -------- --------
Balance as of September 30, 1998 ........... $ 243,368 $ 291,111 $512,777 $129,180 $641,957
========== ========== ======== ======== ========
</TABLE>
For a description of the Company's revenue recognition policies, see Note
1--Significant Accounting Policies. AML revenues shown above of $512.8, $417.5,
and $318.7 million for fiscal 1998, 1997 and 1996, respectively, are recognized
as services and products are delivered, and the Company's obligation to the
client is completed over the contract period. Included in AML revenue are
catch-up adjustments also shown above for the fiscal years 1998, 1997, and 1996
of $24.9,
F-19
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$18.2, and $22.1 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.
17--QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
Fiscal Year 1998 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 162,667 $ 149,565 $ 160,992 $ 168,733
Operating Income $ 41,145 $ 31,083 $ 35,462 $ 35,847
Net Income $ 25,644 $ 20,099 $ 22,982 $ 19,622
Diluted earnings per common share(1) $ 0.25 $ 0.19 $ 0.22 0.19
<CAPTION>
Fiscal Year 1997 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
Diluted earnings per common share(1) $ 0.19 $ 0.18 $ 0.18 $ 0.17
</TABLE>
(1) The aggregate of the four quarters' diluted earnings per common share does
not total the reported full fiscal year amount due to rounding.
18--SUBSEQUENT EVENT
On November 12, 1998, the Company's Board of Directors approved an agreement in
principle with IMS Health Inc. ("IMS Health") which owns 47.6 million or 47% of
the Company's Class A Common Stock to undertake a recapitalization of the
Company and facilitate a tax-free spin-off by IMS Health of its equity position
in Gartner Group Inc. to its shareholders. As part of the recapitalization, IMS
Health will exchange 40.7 million shares of Class A Common Stock for an equal
number of shares of new Class B Common Stock of the Company prior to the
spin-off. This new class of common stock will be entitled to elect at least 80%
of the Company's Board of Directors, but will otherwise be substantially
identical to existing Class A Common Stock. The Class B Common Stock will be
distributed to IMS Health shareholders in a tax-free distribution. IMS Health
will continue to hold 6.9 million shares of Class A Common Stock after the
spin-off. It is the intention of IMS Health to sell these shares within one year
of the spin-off, subject to certain conditions. In addition, the Company agreed
that it would pay a one-time special cash dividend of $300.0 million to its
shareholders of record immediately prior to the IMS Health spin-off. Further,
the Company also agreed that it would repurchase $300.0 million of its Class A
Common Stock on the open market after the spin-off. The exchange, spin-off and
special cash dividend are expected to be completed in the third quarter of
fiscal 1999, subject to approval by the IRS of the tax-free status of the
spin-off and approval of the recapitalization plan by the non-IMS Health
shareholders of the Company. The share repurchase program will commence after
the spin-off and is expected to be completed within one year.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
Gartner Group, Inc.:
The audits referred to in our report dated October 30, 1998, except as to note
18, which is as of November 12, 1998, and the eighth paragraph of note 3
(Interpose acquisition), which is as of December 10, 1998, included the related
financial statement schedule as of and for the three-year period ended September
30, 1998, as contained in the 1998 annual report on Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audit. In our opinion, such financial statement schedule, 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
St. Petersburg, Florida
October 30, 1998
F-21
<PAGE>
GARTNER GROUP, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED CHARGED DEDUCTIONS DEDUCTIONS
BEGINNING TO COSTS TO OTHER FROM FOR SALE OF BALANCE AT
OF YEAR AND EXPENSES ACCOUNTS(1) RESERVE GARTNERLEARNING END OF YEAR
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1996
Allowance for doubtful accounts and
returns and allowances ........... $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
====== ====== ==== ====== ====== ======
YEAR ENDED SEPTEMBER 30, 1998
Allowance for doubtful accounts and
returns and allowances ........... $5,340 $4,051 $ -- $3,564 $1,702 $4,125
====== ====== ==== ====== ====== ======
</TABLE>
(1) Allowances of $319 and $121 assumed upon acquisitions of entities in fiscal
1997 and 1996, respectively.
F-22
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
November 12, 1998, by and between Manuel A. Fernandez, an individual
("Executive") and Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive is currently Chairman of the Board and Chief Executive
Officer of the Company. Executive has served as Chief Executive Officer since
April 1991 and as Chairman of the Board since April 1994, and also served as
President of the Company from January 1991 to September 30, 1997. The parties
have previously agreed that Executive shall cease to serve as Chief Executive
Officer of the Company commencing December 31, 1998.
B. The Company and Executive have previously entered into an Employment
Agreement dated as of February, 1998, as modified by the Addendum thereto dated
August 24, 1998 (the "Prior Agreement"). The Company and Executive desire to
amend the Prior Agreement as provided herein.
C. 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 herein.
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 and Chief
Executive Officer of the Company until December 31, 1998, and thereafter shall
continue to serve the Company as Chairman of the Board through the remainder of
the Employment Term specified in Section 3. Executive will report to the Board
of Directors and will render such services consistent with the respective
foregoing roles 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
continue through October 1, 2000 (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
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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 $33,333.33 per month ("Base Salary") for fiscal 1999, 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.
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, 1999 has previously been set at a
minimum bonus of $400,000, with a maximum bonus of $800,000.
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) At Will Employment. 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) Involuntary Termination. If during the term of this
Agreement the Company terminates the employment of Executive involuntarily and
without Business Reasons or a Constructive Termination occurs, 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 three (3)
years following the Termination Date (one (1) year in the case of any such
termination within one (1) year following a Change in Control to which Section
7(c) applies), 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
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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, TARPs and other equity
arrangements subject to vesting and held by Executive (and in this regard, all
options and other exercisable rights held by Executive shall remain exercisable
for ninety (90) days following the Termination Date (or such longer period as
may be provided in the applicable plan or agreement), (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, (H) in
the event of an involuntary termination without Business Reason or a
Constructive Termination, which in either such case occurs within twelve (12)
months following a Change in Control, forgiveness by the Company of all
outstanding principal and interest due to the Company under indebtedness
incurred by Executive to purchase shares of capital stock of the Company, and
(I) 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 three (3) year period following the
Termination Date.
(c) Change in Control. If during the term of this Agreement a
"Change in Control" occurs, then Executive shall be entitled to receive the
following: (A) salary and vacation accrued through the Termination Date plus an
amount equal to three (3) years of Executive's salary as then in effect, payable
immediately upon the Change in Control, (B) an amount equal to three times
Executive's maximum target bonus for the fiscal year in which the Change in
Control occurs (as well as any unpaid bonus from the prior fiscal year), all
payable immediately upon the Change in Control, (C) acceleration in full of
vesting of all outstanding stock options, TARPs and other equity arrangements
subject to vesting and held by Executive (and in this regard, all options and
other exercisable rights held by Executive shall remain exercisable for ninety
(90) days following any termination of employment of Executive (or such longer
period as may be provided in the applicable plan or agreement)), (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,
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, (E)
continuation of Executive's auto benefits for one year following the Termination
Date, (F) forgiveness by the Company of all outstanding principal and interest
due to the Company under indebtedness incurred by Executive to purchase shares
of capital stock of the Company, and (G) 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 three
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(3) year period following the Termination Date, 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 correspond to any period following the
Termination Date during which the non-competition agreement is violated. Upon a
Change in Control, Executive may elect, in his sole discretion, (i) not to
receive all or any portion of any cash payment provided herein, or to defer all
or any portion of any such payment to one or more payment tranches over a period
of up to 3 years, (ii) not to have all or any portion of indebtedness forgiven
or to defer such forgiveness or any portion thereof to one or more forgiveness
tranches over a period of up to 3 years, and/or (iii) not to have all or any
portion of vesting restrictions lapse, in each such case in order to avoid or
limit any "parachute payment" under Section 280G(b)(2) of the Internal Revenue
Code of 1986, as amended.
(d) Termination for Disability. 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 three (3) 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, 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 (and in this regard, all options held by
Executive shall remain exercisable for ninety (90) days following the
Termination Date (or such longer period as may be provided in the applicable
option plan or agreement)), (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 three years following the Termination Date, (G) forgiveness by
the Company of all outstanding principal and interest due to the Company under
indebtedness incurred by Executive to purchase shares of capital stock of the
Company, and (H) no other compensation, severance or other benefits.
Notwithstanding the foregoing, however, the Company may deduct from the salary
specified in clause (A) hereof the amount of any payments then received by
Executive under any disability benefit program maintained by the Company.
(e) Voluntary Termination or Involuntary Termination for
Business Reasons. 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) the right to exercise all stock options held by Executive for thirty (30)
days following the Termination Date (or such longer period as may be provided in
the applicable stock option plan or agreement), but only to the extent vested as
of the Termination Date, (C) 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 (D) no further severance, benefits or other
compensation.
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(f) Termination Upon Death. 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 (and in this regard, all options held by Executive
shall remain exercisable for ninety (90) days following the Termination Date (or
such longer period as may be provided in the applicable option plan or
agreement)), (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, (F) forgiveness by the Company of all outstanding
principal and interest due to the Company under indebtedness incurred by
Executive to purchase shares of capital stock of the Company, and (G) no further
benefits or other compensation.
(g) Exclusivity. 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.
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
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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 (i) prior to December 31, 1998 Executive
shall no longer be President and Chief Executive Officer of the Company, (ii)
after January, 1999 and prior to the end of the Employment Term Executive shall
no longer be Chairman of the Board of the Company, or (iii) Executive shall no
longer report directly to the Company's Board of Directors, (2) Executive is
required to relocate his place of employment, other than a relocation within
fifty (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 (30) day period
immediately following such material adverse change or reduction Executive elects
to terminate his employment voluntarily.
(e) Change in Control. A "Change in Control" shall be deemed
to have occurred if:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than (A) the Company, (B) IMS Health, Inc., a Delaware corporation,
or any wholly-owned subsidiary of IMS Health, Inc. (collectively, "IMS"), until
IMS shall cease to be the "Beneficial Owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
at least 15% of the combined voting power of the Company's then-outstanding
securities, (C) any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or IMS, or (D) any company owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then-outstanding securities; provided
that, in the case of any Person which (i) has filed and has in effect a report
of beneficial ownership on Schedule 13-G in which such Person is reported as a
"passive" investor for the purpose of such Schedule 13-G, for so long as such
person continues to be a passive investor thereunder in the Company, (ii) is the
Beneficial Owner of less than 15% of the combined voting power of the
outstanding securities of the Company immediately prior to the Proposed
Recapitalization (defined below) and immediately prior to the Proposal Spinoff
(defined below), (iii) is the Beneficial Owner of less than 15% of the combined
voting power of the outstanding securities of IMS Health, Inc. immediately prior
to the Proposed Recapitalization and immediately prior to the Proposed Spinoff,
and (iv) acquires more than 15% but less than [20%] of the combined voting power
of the Company's then-outstanding securities solely by virtue of the Proposed
Recapitalization and Proposed Spinoff, then a Change in Control shall not be
deemed to occur so long as (i) such Person remains a passive investor in the
Company under Schedule 13-G and (ii) such Person beneficially owns shares in the
Company representing no more than the combined voting power of the outstanding
securities of the Company beneficially owned by such Person immediately
following the Proposed Spinoff plus [five percent (5%)];
(ii) during any period of twenty-four months (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the
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Board, and any new director (other than (A) a director nominated by a Person who
has entered into an agreement with the Company to effect a transaction described
in Section (8)(e)(i), (iii) or (iv) hereof, (B) a director nominated by any
Person (including the Company) who publicly announces an intention to take or to
consider taking actions (including, but not limited to, an actual or threatened
proxy contest) which if consummated would constitute a Change in Control or (C)
a director nominated by any Person who is the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's securities) whose election by the Board
or nomination for election by the Company's stockholders was approved in advance
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at lease a majority thereof;
(iii) the stockholders of the Company approve any
transaction or series of transactions under which the Company is merged or
consolidated with any other company, other than a merger or consolidation (A)
which would result in the 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) more than 66 2/3% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation and (B) after which no Person holds 20% or more of the
combined voting power of the then-outstanding securities of the Company or such
surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or
(v) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
A transfer of shares of stock of the Company from IMS to an affiliated
company, subsidiary or spin-off entity of IMS, or the reduction in ownership of
capital stock of the Company by IMS by means of a spin-off of such shares to IMS
stockholders or sales of shares into the public market, shall not alone be
deemed to meet the requirements of clause (8)(e)(i) hereof.
For the purposes hereof, the "Proposed Recapitalization" refers to the
proposed recapitalization by the Company of its outstanding equity securities in
which a new class of Class B Common Stock having special voting rights will be
created and issued to IMS in exchange for the shares of Class A Common Stock of
the Company held by IMS, and the "Proposed Spinoff" refers to the proposed
spinoff by IMS to its shareholders on a tax-free basis of a significant portion
of the shares of Company Common Stock owned by IMS.
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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.
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,
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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 three
(3) 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
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 three (3) 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 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-
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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.
(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.
10
<PAGE>
(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 understandings (whether oral or written
and whether express or implied) between the parties with respect to the subject
matter hereof, including with all limitation the respective Executive Stock and
Employment Agreements effective as of January 21, 1991, July 28, 1994, April 1,
1997 and February __, 1998 (and related Addendum dated August 24, 1998).
(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.
(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.
11
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(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: _________________________________________
John F. Halligan, Chief Financial Officer
EXECUTIVE
MANUEL A. FERNANDEZ
_____________________________________________
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EXHIBIT 10.18
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
November 12, 1998, by and between William T. Clifford, an individual
("Executive") and Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive currently serves as President and Chief Operating Officer
of the Company, and from and after January 1, 1999 shall serve as President and
Chief Executive Officer of the Company.
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:
I. Employment. The Company shall employ Executive in the position of President
and Chief Operating Officer of the Company through December 31, 1998 and as
President and Chief Executive Officer of the Company from and after January 1,
1999, as such positions have been defined in terms of responsibilities as of the
effective date of this Agreement; provided, however, that the Board of Directors
of the Company (the "Board") shall have the right, at any time or from time to
time, to revise such responsibilities and compensation as the Board in its
discretion may deem necessary or appropriate. Executive shall comply with and be
bound by the Company's operating policies, procedures and practices from time to
time in effect during his employment. During the term of Executive's employment
with the Company, Executive shall continue to devote his full time, skill and
attention to his duties and responsibilities, and shall perform them faithfully,
diligently and competently, and Executive shall use his best efforts to further
the business of the Company and its affiliated entities.
From and after January 1, 1999 and 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.
I. Term. The employment of Executive pursuant to this Agreement shall continue
through October 1, 2000, provided that such term (the "Employment Term") shall
<PAGE>
automatically renew at the end of the initial term and each subsequent term
thereafter for a one (1) year period, unless Executive or the Company shall
elect to terminate the Agreement by written notice to the other party not less
than sixty (60) days prior to the end of the respective term.
I. Salary. As compensation for the services rendered by Executive under this
Agreement, the Company shall pay to Executive a base salary ("Base Salary")
initially equal to $375,000 per year for fiscal 1999, 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 periodic adjustments by the Board or the Compensation Committee of the Board,
in the sole discretion of the Board or such Committee.
I. 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 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, 1999 has previously been set at
$325,000, with a maximum bonus of $800,000.
I. 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, 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.
A. Vacation, Sick Leave and Holidays. Executive shall be entitled to vacation,
sick leave and vacation in accordance with the policies of the Company 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.
I. Employment Relationship. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under
applicable law. 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 fourteen (14) days'
prior written notice of termination. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and policies at the time of termination.
<PAGE>
I. Severance Benefits.
A. Change in Control. If during the term of this Agreement the Company shall be
subject to a Change in Control (as defined below), then Executive shall be
entitled to receive the following: (A) Base Salary and vacation accrued through
the Termination Date, (B) an amount equal to three (3) years of Executive's Base
Salary then in effect, payable immediately upon the Change in Control, (C) an
amount equal to three (3) times Executive's target bonus for the fiscal year in
which the Change in Control occurs (as well as any unpaid bonus from the prior
fiscal year), all payable immediately upon the Change in Control, (D)
acceleration in full of vesting of all outstanding stock options, TARPs and
other equity arrangements subject to vesting and held by Executive (and in this
regard all options and other exercisable rights held by Executive shall remain
exercisable for ninety (90) days following any termination of Executive's
employment (or such longer period as may be provided in the applicable stock
option plan or agreement)), (E) forgiveness by the Company of all outstanding
principal and interest due to the Company under indebtedness incurred by
Executive to purchase shares of capital stock of the Company, (F) continuation
of group health benefits pursuant to the Company's standard programs as in
effect from time to time (or continuation of substantially similar benefits
through a third party carrier, at the Company's election) for a period of not
less than 18 months (or such longer period as may be required by COBRA),
provided that Executive makes the necessary conversion, with the cost of such
coverage to be paid by the Company for 18 months and by Executive for any period
beyond 18 months, (G) in the event of termination of Executive's employment
within 12 months following the Change in Control, outplacement support at the
Company's expense up to $15,000 and (H) no other compensation, severance or
other benefits. Notwithstanding the foregoing, however, Executive shall be
obligated to repay to the Company any amounts previously received pursuant to
clauses (B) and (C) hereof, to the extent the same correspond to any period
following the Termination Date during which Executive violates the
noncompetition agreement set forth in Section 13. Upon a Change in Control,
Executive may elect, in his sole discretion, (i) not to receive all or any
portion of any cash payment provided herein, or to defer all or any portion of
any such payment to one or more payment tranches over a period of up to 3 years,
(ii) not to have all or any portion of indebtedness forgiven or to defer such
forgiveness or any portion thereof to one or more forgiveness tranches over a
period of up to 3 years, and/or (iii) not to have all or any portion of vesting
restrictions lapse, in each such case in order to avoid or limit any "parachute
payment" under Section 280G(b)(2) of the Internal Revenue Code of 1986, as
amended.
A. Involuntary Termination. If during the term of this Agreement the Company
terminates the employment of Executive involuntarily and without Business
Reasons or a Constructive Termination occurs, then Executive shall be entitled
to receive the following: (A) Base Salary and vacation accrued through the
Termination Date plus continued Base Salary for a period of twelve (12) months
following the Termination Date, payable in accordance with the Company's regular
payroll schedule as in effect from time to time, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement) but only to the extent vested as of
the Termination Date, (D) continuation of group health benefits pursuant to the
Company's standard programs as in effect from time to time (or continuation of
substantially similar benefits, through a third party carrier, at the Company's
election), for a period of not less than 18 months (or such longer period as may
be required by COBRA), provided that Executive
<PAGE>
makes the necessary conversion, with the cost of such benefits to be paid by the
Company for 18 months and by Executive for any period beyond 18 months, and (E)
no other compensation, severance or other benefits. Notwithstanding the
foregoing, however, if Executive violates the non-competition agreement set
forth in Section 13 during the three (3) year period following the Termination
Date, the Company shall not be required to continue to pay the salary or bonus
specified in clause (A) hereof for any period following the Termination Date,
and in such event Executive shall be obligated to repay to the Company any
amounts previously received pursuant to clause (A) hereof, to the extent the
same relate to any period following the Termination Date.
A. Termination for Death or Disability. If during the term of this Agreement
Executive's employment shall be terminated by reason of death or 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) Base Salary and vacation accrued
through the Termination Date only, (B) any bonus payment previously fixed and
declared by the Board or its Compensation Committee on behalf of Executive and
not previously paid to Executive, (C) continuation of group health benefits
pursuant to the Company's standard programs as in effect from time to time (or
continuation of substantially similar benefits, through a third party carrier,
at the Company's election), for a period of not less than 18 months (or such
longer period as may be required by COBRA), provided that Executive makes the
necessary conversion, with the cost of such benefits to be paid by the Company
for 18 months and by Executive for any period beyond 18 months, (D) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement), but only to the extent vested as of
the Termination Date, (E) such other benefits upon death or Disability, as the
case may be, as may then be established under the Company's then-existing
severance and benefit plans and policies at the time of such Disability or
death, and (F) no other compensation, severance or other benefits.
A. Voluntary Termination or Termination for Business Reasons. 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) Base Salary and
accrued vacation through the Termination Date only, (B) the right to exercise
all outstanding stock options held by Executive for thirty (30) days following
the Termination Date (or such longer period as may be provided in the applicable
stock option plan or agreement), but only to the extent vested as of the
Termination Date, (C) to the extent COBRA shall be applicable to the Company,
continuation of group health benefits pursuant to the Company's standard
programs as in effect from time to time (or continuation of substantially
similar benefits through a third party carrier, at the Company's election), 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 provided that
Executive makes the appropriate conversion and payments, and (D) no further
severance, benefits or other compensation.
A. Exclusivity. 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
<PAGE>
those benefits expressly set forth in paragraph (a), (b), (c), or (d) of this
Section 7, whichever shall be applicable.
I. Limitation on Payments.
A. In the event that the severance and other benefits provided for in this
Agreement or otherwise payable to Executive (i) constitute "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) but for this Section 8 would be subject to the
excise tax imposed by Section 4999 of the Code, then Executive's severance
benefits under Section 7 shall be payable either (i) in full, or (ii) as to such
lesser amount which would result in no portion of such severance benefits being
subject to excise tax under Section 4999 of the Code, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the excise tax imposed by Section 4999, results in the receipt by
Executive on an after-tax basis, of the greatest amount of severance benefits
under this Agreement, notwithstanding that all or some portion of such severance
benefits may be taxable under Section 4999 of the Code.
A. If a reduction in the payments and benefits that would otherwise be paid or
provided to Executive under the terms of this Agreement is necessary to comply
with the provisions of Section 8(a), Executive shall be entitled to select which
payments or benefits will be reduced and the manner and method of any such
reduction of such payments or benefits (including but not limited to the number
of options that would accelerate as to vesting under Section 7), subject to
reasonable limitations (including, for example, express provisions under the
Company's benefit plans) (so long as the requirements of Section 8(a) are met).
Within thirty (30) days after the amount of any required reduction in payments
and benefits is finally determined in accordance with the provisions of Section
8(c), Executive shall notify the Company in writing regarding which payments or
benefits are to be reduced. If no notification is given by Executive, the
Company will determine which amounts to reduce. If, as a result of any reduction
required by Section 8(a), amounts previously paid to Executive exceed the amount
to which Executive is entitled, Executive will promptly return the excess amount
to the Company.
A. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Company for
all purposes. For purposes of making the calculations required by this Section
8, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 8.
I. Definition of Terms. The following terms referred to in this Agreement shall
have the following meanings:
<PAGE>
A. Business Reasons. "Business Reasons" shall mean (i) any act of personal
dishonesty taken by Executive in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of Executive,
(ii) commission of a felony or other offense which involves moral turpitude or
is otherwise injurious to the Company, (iii) a willful act by Executive which
constitutes gross misconduct and which is injurious to the Company, (iv)
material breach of this Agreement by Executive, including (A) any material
breach of the provisions of Section 10, 11, or 12 or 13 hereof, or (B) continued
violation by Executive of Executive's obligations under Section 1 of this
Agreement that are demonstrably willful and deliberate on Executive's part after
there has been delivered to Executive a written demand for performance from the
Company which describes the basis for the Company's belief that Executive has
not substantially performed his duties.
A. Disability. "Disability" shall mean that Executive has been unable to perform
his duties as an employee as the result of Executive's 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). 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.
A. 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 9(b); (iii) if this
Agreement is terminated by the Company, the termination date specified in the
notice of termination given by the Company to Executive; (iv) if the Agreement
is terminated by Executive, the termination date specified in the notice of
termination given by Executive to the Company; or (v) if this Agreement expires
by its terms, then the last day of the term of this Agreement.
A. Constructive Termination. A "Constructive Termination" shall be deemed to
occur if (A) without the consent of Executive, (i) there is a significant
reduction in Executive's duties, authorities and responsibilities, (ii)
Executive is required to relocate his place of employment, other than a
relocation within 50 miles of Executive's current business location or to Fort
Myers, Florida, or (iii) 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 (30) day period immediately following such material adverse
change or reduction Executive elects to terminate his employment voluntarily.
A. Change in Control. A "Change in Control" shall be deemed to have occurred if:
1. any "Person," as such term is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
(A) the Company, (B) IMS Health, Inc., a Delaware corporation, or any
wholly-owned subsidiary of IMS Health, Inc. (collectively, "IMS"), until IMS
shall cease to be the "Beneficial Owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of
<PAGE>
the Company representing at least 15% of the combined voting power of the
Company's then-outstanding securities, (C) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or IMS, or (D)
any company owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
becomes the Beneficial Owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then-outstanding securities; provided
that, in the case of any Person which (i) has filed and has in effect a report
of beneficial ownership on Schedule 13-G in which such Person is reported as a
"passive" investor for the purpose of such Schedule 13-G, for so long as such
person continues to be a passive investor thereunder in the Company, (ii) is the
Beneficial Owner of less than 15% of the combined voting power of the
outstanding securities of the Company immediately prior to the Proposed
Recapitalization (defined below) and immediately prior to the Proposal Spinoff
(defined below), (iii) is the Beneficial Owner of less than 15% of the combined
voting power of the outstanding securities of IMS Health, Inc. immediately prior
to the Proposed Recapitalization and immediately prior to the Proposed Spinoff,
and (iv) acquires more than 15% but less than [20%] of the combined voting power
of the Company's then-outstanding securities solely by virtue of the Proposed
Recapitalization and Proposed Spinoff, then a Change in Control shall not be
deemed to occur so long as (i) such Person remains a passive investor in the
Company under Schedule 13-G and (ii) such Person beneficially owns shares in the
Company representing no more than the combined voting power of the outstanding
securities of the Company beneficially owned by such Person immediately
following the Proposed Spinoff plus [five percent (5%)];
1. during any period of twenty-four months (not including any period prior to
the execution of this Agreement), individuals who at the beginning of such
period constitute the Board, and any new director (other than (A) a director
nominated by a Person who has entered into an agreement with the Company to
effect a transaction described in Sections (2)(a)(i), (iii) or (iv) hereof, (B)
a director nominated by any Person (including the Company) who publicly
announces an intention to take or to consider taking actions (including, but not
limited to, an actual or threatened proxy contest) which if consummated would
constitute a Change in Control or (C) a director nominated by any Person who is
the Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by the
Company's stockholders was approved in advance by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at lease a majority
thereof;
1. the stockholders of the Company approve any transaction or series of
transactions under which the Company is merged or consolidated with any other
company, other than a merger or consolidation (A) which would result in the
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) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
<PAGE>
1. the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets; or
1. the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.
A transfer of shares of stock of the Company from IMS to an affiliated
company, subsidiary or spin-off entity of IMS, or the reduction in ownership of
capital stock of the Company by IMS by means of a spin-off of such shares to IMS
stockholders or sales of shares into the public market, shall not alone be
deemed to meet the requirements of clause (8)(e)(i) hereof.
For the purposes hereof, the "Proposed Recapitalization" refers to the
proposed recapitalization by the Company of its outstanding equity securities in
which a new class of Class B Common Stock having special voting rights will be
created and issued to IMS in exchange for the shares of Class A Common Stock of
the Company held by IMS, and the "Proposed Spinoff" refers to the proposed
spinoff by IMS to its shareholders on a tax-free basis of a significant portion
of the shares of Company Common Stock owned by IMS.
I. 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.
A. "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
<PAGE>
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.
I. 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.
I. 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.
A. 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.
<PAGE>
I. 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 three (3) 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 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.
A. In addition, for a period of three (3) 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 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.
A. 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.
A. 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 13 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.
<PAGE>
I. 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.
A. 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.
A. Successors.
1. 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.
1. 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.
1. No Other Assignment of Benefits. Except as provided in this Section 14(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.
A. 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
<PAGE>
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.
A. Entire Agreement. This Agreement shall supersede any and all prior
agreements, representations or understandings (whether oral or written and
whether express or implied) between the parties with respect to the subject
matter hereof.
A. 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.
A. Governing Law; Arbitration. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York as they apply to
contracts entered into and wholly to be performed within such state by residents
of such state. 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.
A. Employment Taxes. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes.
A. 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: ____________________________________
Manuel A. Fernandez
President and Chief Executive Officer
EXECUTIVE
William T. Clifford
________________________________________
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
November 12, 1998, by and between E. Follett Carter, an individual ("Executive")
and Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive currently serves as the Executive Vice President and
President, Gartner Distribution Services of the Company.
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:
I. Employment. The Company shall employ Executive in the position of Executive
Vice President and President, Gartner Distribution Services, as such position
has been defined in terms of responsibilities and compensation as of the
effective date of this Agreement; provided, however, that the Board of Directors
of the Company (the "Board") shall have the right, at any time or from time to
time, to revise such responsibilities and compensation as the Board in its
discretion may deem necessary or appropriate. Executive shall comply with and be
bound by the Company's operating policies, procedures and practices from time to
time in effect during his employment. During the term of Executive's employment
with the Company, Executive shall continue to devote his full time, skill and
attention to his duties and responsibilities, and shall perform them faithfully,
diligently and competently, and Executive shall use his best efforts to further
the business of the Company and its affiliated entities.
I. Term. The employment of Executive pursuant to this Agreement shall continue
through October 1, 1999, provided that such term (the "Employment Term") shall
automatically renew at the end of the initial term and each subsequent term
thereafter for a one (1) year period, unless Executive or the Company shall
elect to terminate the Agreement by written notice to the other party not less
than sixty (60) days prior to the end of the respective term.
I. Salary. As compensation for the services rendered by Executive under this
Agreement, the Company shall pay to Executive a base salary ("Base Salary")
initially equal to $255,000 per year for fiscal 1999, 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.
<PAGE>
The Base Salary shall be subject to periodic adjustments by the Board or the
Compensation Committee of the Board, in the sole discretion of the Board or such
Committee.
I. 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 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, 1999 has previously been set at
$220,000, with a maximum bonus of $550,000.
I. 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, 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.
A. Vacation, Sick Leave and Holidays. Executive shall be entitled to vacation,
sick leave and vacation in accordance with the policies of the Company 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.
I. Employment Relationship. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under
applicable law. 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 fourteen (14) days'
prior written notice of termination. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and policies at the time of termination.
I. Severance Benefits.
A. Change in Control. If during the term of this Agreement the Company shall be
subject to a Change in Control (as defined below), then Executive shall be
entitled to receive the following: (A) Base Salary and vacation accrued through
the Termination Date, (B) an amount equal to two (2) years of Executive's Base
Salary then in effect, payable immediately upon the Change in Control, (C) an
amount equal to two (2) times Executive's target bonus for the fiscal year in
which the Change in Control occurs (as well as any unpaid bonus from the prior
fiscal year), all payable immediately upon the Change in Control, (D)
acceleration in full of vesting of all outstanding stock options, TARPs and
other equity arrangements subject to vesting and held by Executive (and in this
regard all options and other exercisable rights held by Executive shall remain
exercisable for ninety (90) days following any termination of
<PAGE>
Executive's employment (or such longer period as may be provided in the
applicable stock option plan or agreement)), (E) forgiveness by the Company of
all outstanding principal and interest due to the Company under indebtedness
incurred by Executive to purchase shares of capital stock of the Company, (F)
continuation of group health benefits pursuant to the Company's standard
programs as in effect from time to time (or continuation of substantially
similar benefits through a third party carrier, at the Company's election) for a
period of not less than 18 months (or such longer period as may be required by
COBRA), provided that Executive makes the necessary conversion, with the cost of
such coverage to be paid by the Company for 18 months and by Executive for any
period beyond 18 months, (G) in the event of termination of Executive's
employment within 12 months following the Change in Control, outplacement
support at the Company's expense up to $15,000 and (H) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, Executive
shall be obligated to repay to the Company any amounts previously received
pursuant to clauses (B) and (C) hereof, to the extent the same correspond to any
period following the Termination Date during which Executive violates the
noncompetition agreement set forth in Section 13. Upon a Change in Control,
Executive may elect, in his sole discretion, (i) not to receive all or any
portion of any cash payment provided herein, or to defer all or any portion of
any such payment to one or more payment tranches over a period of up to 3 years,
(ii) not to have all or any portion of indebtedness forgiven or to defer such
forgiveness or any portion thereof to one or more forgiveness tranches over a
period of up to 3 years, and/or (iii) not to have all or any portion of vesting
restrictions lapse, in each such case in order to avoid or limit any "parachute
payment" under Section 280G(b)(2) of the Internal Revenue Code of 1986, as
amended.
A. Involuntary Termination. If during the term of this Agreement the Company
terminates the employment of Executive involuntarily and without Business
Reasons or a Constructive Termination occurs, then Executive shall be entitled
to receive the following: (A) Base Salary and vacation accrued through the
Termination Date plus continued Base Salary for a period of twelve (12) months
following the Termination Date, payable in accordance with the Company's regular
payroll schedule as in effect from time to time, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement) but only to the extent vested as of
the Termination Date, (D) continuation of group health benefits pursuant to the
Company's standard programs as in effect from time to time (or continuation of
substantially similar benefits, through a third party carrier, at the Company's
election), for a period of not less than 18 months (or such longer period as may
be required by COBRA), provided that Executive makes the necessary conversion,
with the cost of such benefits to be paid by the Company for 18 months and by
Executive for any period beyond 18 months, and (E) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, if
Executive violates the non-competition agreement set forth in Section 13 during
the three (3) year period following the Termination Date, the Company shall not
be required to continue to pay the salary or bonus specified in clause (A)
hereof for any period following the Termination Date, and in such event
Executive shall be obligated to repay to the Company any amounts previously
received pursuant to clause (A) hereof, to the extent the same relate to any
period following the Termination Date.
<PAGE>
A. Termination for Death or Disability. If during the term of this Agreement
Executive's employment shall be terminated by reason of death or 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) Base Salary and vacation accrued
through the Termination Date only, (B) any bonus payment previously fixed and
declared by the Board or its Compensation Committee on behalf of Executive and
not previously paid to Executive, (C) continuation of group health benefits
pursuant to the Company's standard programs as in effect from time to time (or
continuation of substantially similar benefits, through a third party carrier,
at the Company's election), for a period of not less than 18 months (or such
longer period as may be required by COBRA), provided that Executive makes the
necessary conversion, with the cost of such benefits to be paid by the Company
for 18 months and by Executive for any period beyond 18 months, (D) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement), but only to the extent vested as of
the Termination Date, (E) such other benefits upon death or Disability, as the
case may be, as may then be established under the Company's then-existing
severance and benefit plans and policies at the time of such Disability or
death, and (F) no other compensation, severance or other benefits.
A. Voluntary Termination or Termination for Business Reasons. 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) Base Salary and
accrued vacation through the Termination Date only, (B) the right to exercise
all outstanding stock options held by Executive for thirty (30) days following
the Termination Date (or such longer period as may be provided in the applicable
stock option plan or agreement), but only to the extent vested as of the
Termination Date, (C) to the extent COBRA shall be applicable to the Company,
continuation of group health benefits pursuant to the Company's standard
programs as in effect from time to time (or continuation of substantially
similar benefits through a third party carrier, at the Company's election), 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 provided that
Executive makes the appropriate conversion and payments, and (D) no further
severance, benefits or other compensation.
A. Exclusivity. 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 (a), (b), (c), or (d) of this Section 7,
whichever shall be applicable.
<PAGE>
I. Limitation on Payments.
A. In the event that the severance and other benefits provided for in this
Agreement or otherwise payable to Executive (i) constitute "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) but for this Section 8 would be subject to the
excise tax imposed by Section 4999 of the Code, then Executive's severance
benefits under Section 7 shall be payable either (i) in full, or (ii) as to such
lesser amount which would result in no portion of such severance benefits being
subject to excise tax under Section 4999 of the Code, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the excise tax imposed by Section 4999, results in the receipt by
Executive on an after-tax basis, of the greatest amount of severance benefits
under this Agreement, notwithstanding that all or some portion of such severance
benefits may be taxable under Section 4999 of the Code.
A. If a reduction in the payments and benefits that would otherwise be paid or
provided to Executive under the terms of this Agreement is necessary to comply
with the provisions of Section 8(a), Executive shall be entitled to select which
payments or benefits will be reduced and the manner and method of any such
reduction of such payments or benefits (including but not limited to the number
of options that would accelerate as to vesting under Section 7), subject to
reasonable limitations (including, for example, express provisions under the
Company's benefit plans) (so long as the requirements of Section 8(a) are met).
Within thirty (30) days after the amount of any required reduction in payments
and benefits is finally determined in accordance with the provisions of Section
8(c), Executive shall notify the Company in writing regarding which payments or
benefits are to be reduced. If no notification is given by Executive, the
Company will determine which amounts to reduce. If, as a result of any reduction
required by Section 8(a), amounts previously paid to Executive exceed the amount
to which Executive is entitled, Executive will promptly return the excess amount
to the Company.
A. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Company for
all purposes. For purposes of making the calculations required by this Section
8, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 8.
I. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
A. Business Reasons. "Business Reasons" shall mean (i) any act of personal
dishonesty taken by Executive in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of Executive,
(ii) commission of a
<PAGE>
felony or other offense which involves moral turpitude or is otherwise injurious
to the Company, (iii) a willful act by Executive which constitutes gross
misconduct and which is injurious to the Company, (iv) material breach of this
Agreement by Executive, including (A) any material breach of the provisions of
Section 10, 11, or 12 or 13 hereof, or (B) continued violation by Executive of
Executive's obligations under Section 1 of this Agreement that are demonstrably
willful and deliberate on Executive's part after there has been delivered to
Executive a written demand for performance from the Company which describes the
basis for the Company's belief that Executive has not substantially performed
his duties.
A. Disability. "Disability" shall mean that Executive has been unable to perform
his duties as an employee as the result of Executive's 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). 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.
A. 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 9(b); (iii) if this
Agreement is terminated by the Company, the termination date specified in the
notice of termination given by the Company to Executive; (iv) if the Agreement
is terminated by Executive, the termination date specified in the notice of
termination given by Executive to the Company; or (v) if this Agreement expires
by its terms, then the last day of the term of this Agreement.
A. Constructive Termination. A "Constructive Termination" shall be deemed to
occur if (A) without the consent of Executive, (i) there is a significant
reduction in Executive's duties, authorities and responsibilities, (ii)
Executive is required to relocate his place of employment, other than a
relocation within 50 miles of Executive's current business location or to Fort
Myers, Florida, or (iii) 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 (30) day period immediately following such material adverse
change or reduction Executive elects to terminate his employment voluntarily.
A. Change in Control. A "Change in Control" shall be deemed to have occurred if:
1. any "Person," as such term is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
(A) the Company, (B) IMS Health, Inc., a Delaware corporation, or any
wholly-owned subsidiary of IMS Health, Inc. (collectively, "IMS"), until IMS
shall cease to be the "Beneficial Owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
at least 15% of the combined voting power of the Company's then-outstanding
securities, (C) any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or IMS, or (D) any company owned, directly
or indirectly, by the
<PAGE>
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), becomes the Beneficial Owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
then-outstanding securities; provided that, in the case of any Person which (i)
has filed and has in effect a report of beneficial ownership on Schedule 13-G in
which such Person is reported as a "passive" investor for the purpose of such
Schedule 13-G, for so long as such person continues to be a passive investor
thereunder in the Company, (ii) is the Beneficial Owner of less than 15% of the
combined voting power of the outstanding securities of the Company immediately
prior to the Proposed Recapitalization (defined below) and immediately prior to
the Proposal Spinoff (defined below), (iii) is the Beneficial Owner of less than
15% of the combined voting power of the outstanding securities of IMS Health,
Inc. immediately prior to the Proposed Recapitalization and immediately prior to
the Proposed Spinoff, and (iv) acquires more than 15% but less than [20%] of the
combined voting power of the Company's then-outstanding securities solely by
virtue of the Proposed Recapitalization and Proposed Spinoff, then a Change in
Control shall not be deemed to occur so long as (i) such Person remains a
passive investor in the Company under Schedule 13-G and (ii) such Person
beneficially owns shares in the Company representing no more than the combined
voting power of the outstanding securities of the Company beneficially owned by
such Person immediately following the Proposed Spinoff plus [five percent (5%)];
1. during any period of twenty-four months (not including any period prior to
the execution of this Agreement), individuals who at the beginning of such
period constitute the Board, and any new director (other than (A) a director
nominated by a Person who has entered into an agreement with the Company to
effect a transaction described in Sections (2)(a)(i), (iii) or (iv) hereof, (B)
a director nominated by any Person (including the Company) who publicly
announces an intention to take or to consider taking actions (including, but not
limited to, an actual or threatened proxy contest) which if consummated would
constitute a Change in Control or (C) a director nominated by any Person who is
the Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by the
Company's stockholders was approved in advance by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at lease a majority
thereof;
1. the stockholders of the Company approve any transaction or series of
transactions under which the Company is merged or consolidated with any other
company, other than a merger or consolidation (A) which would result in the
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) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
<PAGE>
1. the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets; or
1. the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.
A transfer of shares of stock of the Company from IMS to an affiliated
company, subsidiary or spin-off entity of IMS, or the reduction in ownership of
capital stock of the Company by IMS by means of a spin-off of such shares to IMS
stockholders or sales of shares into the public market, shall not alone be
deemed to meet the requirements of clause (8)(e)(i) hereof.
For the purposes hereof, the "Proposed Recapitalization" refers to the
proposed recapitalization by the Company of its outstanding equity securities in
which a new class of Class B Common Stock having special voting rights will be
created and issued to IMS in exchange for the shares of Class A Common Stock of
the Company held by IMS, and the "Proposed Spinoff" refers to the proposed
spinoff by IMS to its shareholders on a tax-free basis of a significant portion
of the shares of Company Common Stock owned by IMS.
I. 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.
A. "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
<PAGE>
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.
I. 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.
I. 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.
A. 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.
<PAGE>
I. 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 three (3) 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 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.
A. In addition, for a period of three (3) 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 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.
A. 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.
A. 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 13 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.
<PAGE>
I. 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.
A. 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.
A. Successors.
1. 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.
1. 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.
1. No Other Assignment of Benefits. Except as provided in this Section 14(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.
A. 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
<PAGE>
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.
A. Entire Agreement. This Agreement shall supersede any and all prior
agreements, representations or understandings (whether oral or written and
whether express or implied) between the parties with respect to the subject
matter hereof.
A. 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.
A. Governing Law; Arbitration. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York as they apply to
contracts entered into and wholly to be performed within such state by residents
of such state. 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.
A. Employment Taxes. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes.
A. 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: ____________________________________
Manuel A. Fernandez
President and Chief Executive Officer
EXECUTIVE
E. FOLLETT CARTER
EVP & President, Gartner Distribution
________________________________________
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
November 12, 1998, by and between John F. Halligan, an individual ("Executive")
and Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive currently serves as the Executive Vice President and
Chief Financial Officer of the Company.
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:
I. Employment. The Company shall employ Executive in the position of Executive
Vice President and Chief Financial Officer, as such position has been defined in
terms of responsibilities and compensation as of the effective date of this
Agreement; provided, however, that the Board of Directors of the Company (the
"Board") shall have the right, at any time or from time to time, to revise such
responsibilities and compensation as the Board in its discretion may deem
necessary or appropriate. Executive shall comply with and be bound by the
Company's operating policies, procedures and practices from time to time in
effect during his employment. During the term of Executive's employment with the
Company, Executive shall continue to devote his full time, skill and attention
to his duties and responsibilities, and shall perform them faithfully,
diligently and competently, and Executive shall use his best efforts to further
the business of the Company and its affiliated entities.
I. Term. The employment of Executive pursuant to this Agreement shall continue
through October 1, 1999, provided that such term (the "Employment Term") shall
automatically renew at the end of the initial term and each subsequent term
thereafter for a one (1) year period, unless Executive or the Company shall
elect to terminate the Agreement by written notice to the other party not less
than sixty (60) days prior to the end of the respective term.
I. Salary. As compensation for the services rendered by Executive under this
Agreement, the Company shall pay to Executive a base salary ("Base Salary")
initially equal to $250,000 per year for fiscal 1999, 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.
<PAGE>
The Base Salary shall be subject to periodic adjustments by the Board or the
Compensation Committee of the Board, in the sole discretion of the Board or such
Committee.
I. 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 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, 1999 has previously been set at
$180,000, with a maximum bonus of $450,000.
I. 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, 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.
A. Vacation, Sick Leave and Holidays. Executive shall be entitled to vacation,
sick leave and vacation in accordance with the policies of the Company 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.
I. Employment Relationship. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under
applicable law. 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 fourteen (14) days'
prior written notice of termination. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and policies at the time of termination.
I. Severance Benefits.
A. Change in Control. If during the term of this Agreement the Company shall be
subject to a Change in Control (as defined below), then Executive shall be
entitled to receive the following: (A) Base Salary and vacation accrued through
the Termination Date, (B) an amount equal to two (2) years of Executive's Base
Salary then in effect, payable immediately upon the Change in Control, (C) an
amount equal to two (2) times Executive's target bonus for the fiscal year in
which the Change in Control occurs (as well as any unpaid bonus from the prior
fiscal year), all payable immediately upon the Change in Control, (D)
acceleration in full of vesting of all outstanding stock options, TARPs and
other equity arrangements subject to vesting and held by Executive (and in this
regard all options and other exercisable rights held by Executive shall remain
exercisable for ninety (90) days following any termination of
<PAGE>
Executive's employment (or such longer period as may be provided in the
applicable stock option plan or agreement)), (E) forgiveness by the Company of
all outstanding principal and interest due to the Company under indebtedness
incurred by Executive to purchase shares of capital stock of the Company, (F)
continuation of group health benefits pursuant to the Company's standard
programs as in effect from time to time (or continuation of substantially
similar benefits through a third party carrier, at the Company's election) for a
period of not less than 18 months (or such longer period as may be required by
COBRA), provided that Executive makes the necessary conversion, with the cost of
such coverage to be paid by the Company for 18 months and by Executive for any
period beyond 18 months, (G) in the event of termination of Executive's
employment within 12 months following the Change in Control, outplacement
support at the Company's expense up to $15,000 and (H) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, Executive
shall be obligated to repay to the Company any amounts previously received
pursuant to clauses (B) and (C) hereof, to the extent the same correspond to any
period following the Termination Date during which Executive violates the
noncompetition agreement set forth in Section 13. Upon a Change in Control,
Executive may elect, in his sole discretion, (i) not to receive all or any
portion of any cash payment provided herein, or to defer all or any portion of
any such payment to one or more payment tranches over a period of up to 3 years,
(ii) not to have all or any portion of indebtedness forgiven or to defer such
forgiveness or any portion thereof to one or more forgiveness tranches over a
period of up to 3 years, and/or (iii) not to have all or any portion of vesting
restrictions lapse, in each such case in order to avoid or limit any "parachute
payment" under Section 280G(b)(2) of the Internal Revenue Code of 1986, as
amended.
A. Involuntary Termination. If during the term of this Agreement the Company
terminates the employment of Executive involuntarily and without Business
Reasons or a Constructive Termination occurs, then Executive shall be entitled
to receive the following: (A) Base Salary and vacation accrued through the
Termination Date plus continued Base Salary for a period of twelve (12) months
following the Termination Date, payable in accordance with the Company's regular
payroll schedule as in effect from time to time, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement) but only to the extent vested as of
the Termination Date, (D) continuation of group health benefits pursuant to the
Company's standard programs as in effect from time to time (or continuation of
substantially similar benefits, through a third party carrier, at the Company's
election), for a period of not less than 18 months (or such longer period as may
be required by COBRA), provided that Executive makes the necessary conversion,
with the cost of such benefits to be paid by the Company for 18 months and by
Executive for any period beyond 18 months, and (E) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, if
Executive violates the non-competition agreement set forth in Section 13 during
the three (3) year period following the Termination Date, the Company shall not
be required to continue to pay the salary or bonus specified in clause (A)
hereof for any period following the Termination Date, and in such event
Executive shall be obligated to repay to the Company any amounts previously
received pursuant to clause (A) hereof, to the extent the same relate to any
period following the Termination Date.
<PAGE>
A. Termination for Death or Disability. If during the term of this Agreement
Executive's employment shall be terminated by reason of death or 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) Base Salary and vacation accrued
through the Termination Date only, (B) any bonus payment previously fixed and
declared by the Board or its Compensation Committee on behalf of Executive and
not previously paid to Executive, (C) continuation of group health benefits
pursuant to the Company's standard programs as in effect from time to time (or
continuation of substantially similar benefits, through a third party carrier,
at the Company's election), for a period of not less than 18 months (or such
longer period as may be required by COBRA), provided that Executive makes the
necessary conversion, with the cost of such benefits to be paid by the Company
for 18 months and by Executive for any period beyond 18 months, (D) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement), but only to the extent vested as of
the Termination Date, (E) such other benefits upon death or Disability, as the
case may be, as may then be established under the Company's then-existing
severance and benefit plans and policies at the time of such Disability or
death, and (F) no other compensation, severance or other benefits.
A. Voluntary Termination or Termination for Business Reasons. 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) Base Salary and
accrued vacation through the Termination Date only, (B) the right to exercise
all outstanding stock options held by Executive for thirty (30) days following
the Termination Date (or such longer period as may be provided in the applicable
stock option plan or agreement), but only to the extent vested as of the
Termination Date, (C) to the extent COBRA shall be applicable to the Company,
continuation of group health benefits pursuant to the Company's standard
programs as in effect from time to time (or continuation of substantially
similar benefits through a third party carrier, at the Company's election), 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 provided that
Executive makes the appropriate conversion and payments, and (D) no further
severance, benefits or other compensation.
A. Exclusivity. 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 (a), (b), (c), or (d) of this Section 7,
whichever shall be applicable.
<PAGE>
I. Limitation on Payments.
A. In the event that the severance and other benefits provided for in this
Agreement or otherwise payable to Executive (i) constitute "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) but for this Section 8 would be subject to the
excise tax imposed by Section 4999 of the Code, then Executive's severance
benefits under Section 7 shall be payable either (i) in full, or (ii) as to such
lesser amount which would result in no portion of such severance benefits being
subject to excise tax under Section 4999 of the Code, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the excise tax imposed by Section 4999, results in the receipt by
Executive on an after-tax basis, of the greatest amount of severance benefits
under this Agreement, notwithstanding that all or some portion of such severance
benefits may be taxable under Section 4999 of the Code.
A. If a reduction in the payments and benefits that would otherwise be paid or
provided to Executive under the terms of this Agreement is necessary to comply
with the provisions of Section 8(a), Executive shall be entitled to select which
payments or benefits will be reduced and the manner and method of any such
reduction of such payments or benefits (including but not limited to the number
of options that would accelerate as to vesting under Section 7), subject to
reasonable limitations (including, for example, express provisions under the
Company's benefit plans) (so long as the requirements of Section 8(a) are met).
Within thirty (30) days after the amount of any required reduction in payments
and benefits is finally determined in accordance with the provisions of Section
8(c), Executive shall notify the Company in writing regarding which payments or
benefits are to be reduced. If no notification is given by Executive, the
Company will determine which amounts to reduce. If, as a result of any reduction
required by Section 8(a), amounts previously paid to Executive exceed the amount
to which Executive is entitled, Executive will promptly return the excess amount
to the Company.
A. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Company for
all purposes. For purposes of making the calculations required by this Section
8, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 8.
I. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
A. Business Reasons. "Business Reasons" shall mean (i) any act of personal
dishonesty taken by Executive in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of Executive,
(ii) commission of a
<PAGE>
felony or other offense which involves moral turpitude or is otherwise injurious
to the Company, (iii) a willful act by Executive which constitutes gross
misconduct and which is injurious to the Company, (iv) material breach of this
Agreement by Executive, including (A) any material breach of the provisions of
Section 10, 11, or 12 or 13 hereof, or (B) continued violation by Executive of
Executive's obligations under Section 1 of this Agreement that are demonstrably
willful and deliberate on Executive's part after there has been delivered to
Executive a written demand for performance from the Company which describes the
basis for the Company's belief that Executive has not substantially performed
his duties.
A. Disability. "Disability" shall mean that Executive has been unable to perform
his duties as an employee as the result of Executive's 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). 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.
A. 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 9(b); (iii) if this
Agreement is terminated by the Company, the termination date specified in the
notice of termination given by the Company to Executive; (iv) if the Agreement
is terminated by Executive, the termination date specified in the notice of
termination given by Executive to the Company; or (v) if this Agreement expires
by its terms, then the last day of the term of this Agreement.
A. Constructive Termination. A "Constructive Termination" shall be deemed to
occur if (A) without the consent of Executive, (i) there is a significant
reduction in Executive's duties, authorities and responsibilities, (ii)
Executive is required to relocate his place of employment, other than a
relocation within 50 miles of Executive's current business location or to Fort
Myers, Florida, or (iii) 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 (30) day period immediately following such material adverse
change or reduction Executive elects to terminate his employment voluntarily.
A. Change in Control. A "Change in Control" shall be deemed to have occurred if:
1. any "Person," as such term is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
(A) the Company, (B) IMS Health, Inc., a Delaware corporation, or any
wholly-owned subsidiary of IMS Health, Inc. (collectively, "IMS"), until IMS
shall cease to be the "Beneficial Owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
at least 15% of the combined voting power of the Company's then-outstanding
securities, (C) any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or IMS, or (D) any company owned, directly
or indirectly, by the
<PAGE>
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), becomes the Beneficial Owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
then-outstanding securities; provided that, in the case of any Person which (i)
has filed and has in effect a report of beneficial ownership on Schedule 13-G in
which such Person is reported as a "passive" investor for the purpose of such
Schedule 13-G, for so long as such person continues to be a passive investor
thereunder in the Company, (ii) is the Beneficial Owner of less than 15% of the
combined voting power of the outstanding securities of the Company immediately
prior to the Proposed Recapitalization (defined below) and immediately prior to
the Proposal Spinoff (defined below), (iii) is the Beneficial Owner of less than
15% of the combined voting power of the outstanding securities of IMS Health,
Inc. immediately prior to the Proposed Recapitalization and immediately prior to
the Proposed Spinoff, and (iv) acquires more than 15% but less than [20%] of the
combined voting power of the Company's then-outstanding securities solely by
virtue of the Proposed Recapitalization and Proposed Spinoff, then a Change in
Control shall not be deemed to occur so long as (i) such Person remains a
passive investor in the Company under Schedule 13-G and (ii) such Person
beneficially owns shares in the Company representing no more than the combined
voting power of the outstanding securities of the Company beneficially owned by
such Person immediately following the Proposed Spinoff plus [five percent (5%)];
1. during any period of twenty-four months (not including any period prior to
the execution of this Agreement), individuals who at the beginning of such
period constitute the Board, and any new director (other than (A) a director
nominated by a Person who has entered into an agreement with the Company to
effect a transaction described in Sections (2)(a)(i), (iii) or (iv) hereof, (B)
a director nominated by any Person (including the Company) who publicly
announces an intention to take or to consider taking actions (including, but not
limited to, an actual or threatened proxy contest) which if consummated would
constitute a Change in Control or (C) a director nominated by any Person who is
the Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by the
Company's stockholders was approved in advance by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at lease a majority
thereof;
1. the stockholders of the Company approve any transaction or series of
transactions under which the Company is merged or consolidated with any other
company, other than a merger or consolidation (A) which would result in the
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) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
<PAGE>
1. the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets; or
1. the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.
A transfer of shares of stock of the Company from IMS to an affiliated
company, subsidiary or spin-off entity of IMS, or the reduction in ownership of
capital stock of the Company by IMS by means of a spin-off of such shares to IMS
stockholders or sales of shares into the public market, shall not alone be
deemed to meet the requirements of clause (8)(e)(i) hereof.
For the purposes hereof, the "Proposed Recapitalization" refers to the
proposed recapitalization by the Company of its outstanding equity securities in
which a new class of Class B Common Stock having special voting rights will be
created and issued to IMS in exchange for the shares of Class A Common Stock of
the Company held by IMS, and the "Proposed Spinoff" refers to the proposed
spinoff by IMS to its shareholders on a tax-free basis of a significant portion
of the shares of Company Common Stock owned by IMS.
I. 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.
A. "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
<PAGE>
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.
I. 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.
I. 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.
A. 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.
<PAGE>
I. 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 three (3) 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 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.
A. In addition, for a period of three (3) 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 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.
A. 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.
A. 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 13 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.
<PAGE>
I. 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.
A. 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.
A. Successors.
1. 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.
1. 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.
1. No Other Assignment of Benefits. Except as provided in this Section 14(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.
A. 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
<PAGE>
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.
A. Entire Agreement. This Agreement shall supersede any and all prior
agreements, representations or understandings (whether oral or written and
whether express or implied) between the parties with respect to the subject
matter hereof.
A. 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.
A. Governing Law; Arbitration. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York as they apply to
contracts entered into and wholly to be performed within such state by residents
of such state. 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.
A. Employment Taxes. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes.
A. 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: ____________________________________
Manuel A. Fernandez
President and Chief Executive Officer
EXECUTIVE
JOHN F. HALLIGAN
________________________________________
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
November 12, 1998, by and between Michael D. Fleisher, an individual
("Executive") and Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive currently serves as the Executive Vice President and
President, Emerging Business of the Company.
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:
I. Employment. The Company shall employ Executive in the position of Executive
Vice President and President, Emerging Business, as such position has been
defined in terms of responsibilities and compensation as of the effective date
of this Agreement; provided, however, that the Board of Directors of the Company
(the "Board") shall have the right, at any time or from time to time, to revise
such responsibilities and compensation as the Board in its discretion may deem
necessary or appropriate. Executive shall comply with and be bound by the
Company's operating policies, procedures and practices from time to time in
effect during his employment. During the term of Executive's employment with the
Company, Executive shall continue to devote his full time, skill and attention
to his duties and responsibilities, and shall perform them faithfully,
diligently and competently, and Executive shall use his best efforts to further
the business of the Company and its affiliated entities.
I. Term. The employment of Executive pursuant to this Agreement shall continue
through October 1, 1999, provided that such term (the "Employment Term") shall
automatically renew at the end of the initial term and each subsequent term
thereafter for a one (1) year period, unless Executive or the Company shall
elect to terminate the Agreement by written notice to the other party not less
than sixty (60) days prior to the end of the respective term.
I. Salary. As compensation for the services rendered by Executive under this
Agreement, the Company shall pay to Executive a base salary ("Base Salary")
initially equal to $250,000 per year for fiscal 1999, 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.
<PAGE>
The Base Salary shall be subject to periodic adjustments by the Board or the
Compensation Committee of the Board, in the sole discretion of the Board or such
Committee.
I. 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 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, 1999 has previously been set at
$180,000, with a maximum bonus of $450,000.
I. 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, 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.
A. Vacation, Sick Leave and Holidays. Executive shall be entitled to vacation,
sick leave and vacation in accordance with the policies of the Company 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.
I. Employment Relationship. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under
applicable law. 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 fourteen (14) days'
prior written notice of termination. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and policies at the time of termination.
I. Severance Benefits.
A. Change in Control. If during the term of this Agreement the Company shall be
subject to a Change in Control (as defined below), then Executive shall be
entitled to receive the following: (A) Base Salary and vacation accrued through
the Termination Date, (B) an amount equal to two (2) years of Executive's Base
Salary then in effect, payable immediately upon the Change in Control, (C) an
amount equal to two (2) times Executive's target bonus for the fiscal year in
which the Change in Control occurs (as well as any unpaid bonus from the prior
fiscal year), all payable immediately upon the Change in Control, (D)
acceleration in full of vesting of all outstanding stock options, TARPs and
other equity arrangements subject to vesting and held by Executive (and in this
regard all options and other exercisable rights held by Executive shall remain
exercisable for ninety (90) days following any termination of
<PAGE>
Executive's employment (or such longer period as may be provided in the
applicable stock option plan or agreement)), (E) forgiveness by the Company of
all outstanding principal and interest due to the Company under indebtedness
incurred by Executive to purchase shares of capital stock of the Company, (F)
continuation of group health benefits pursuant to the Company's standard
programs as in effect from time to time (or continuation of substantially
similar benefits through a third party carrier, at the Company's election) for a
period of not less than 18 months (or such longer period as may be required by
COBRA), provided that Executive makes the necessary conversion, with the cost of
such coverage to be paid by the Company for 18 months and by Executive for any
period beyond 18 months, (G) in the event of termination of Executive's
employment within 12 months following the Change in Control, outplacement
support at the Company's expense up to $15,000 and (H) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, Executive
shall be obligated to repay to the Company any amounts previously received
pursuant to clauses (B) and (C) hereof, to the extent the same correspond to any
period following the Termination Date during which Executive violates the
noncompetition agreement set forth in Section 13. Upon a Change in Control,
Executive may elect, in his sole discretion, (i) not to receive all or any
portion of any cash payment provided herein, or to defer all or any portion of
any such payment to one or more payment tranches over a period of up to 3 years,
(ii) not to have all or any portion of indebtedness forgiven or to defer such
forgiveness or any portion thereof to one or more forgiveness tranches over a
period of up to 3 years, and/or (iii) not to have all or any portion of vesting
restrictions lapse, in each such case in order to avoid or limit any "parachute
payment" under Section 280G(b)(2) of the Internal Revenue Code of 1986, as
amended.
A. Involuntary Termination. If during the term of this Agreement the Company
terminates the employment of Executive involuntarily and without Business
Reasons or a Constructive Termination occurs, then Executive shall be entitled
to receive the following: (A) Base Salary and vacation accrued through the
Termination Date plus continued Base Salary for a period of twelve (12) months
following the Termination Date, payable in accordance with the Company's regular
payroll schedule as in effect from time to time, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement) but only to the extent vested as of
the Termination Date, (D) continuation of group health benefits pursuant to the
Company's standard programs as in effect from time to time (or continuation of
substantially similar benefits, through a third party carrier, at the Company's
election), for a period of not less than 18 months (or such longer period as may
be required by COBRA), provided that Executive makes the necessary conversion,
with the cost of such benefits to be paid by the Company for 18 months and by
Executive for any period beyond 18 months, and (E) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, if
Executive violates the non-competition agreement set forth in Section 13 during
the three (3) year period following the Termination Date, the Company shall not
be required to continue to pay the salary or bonus specified in clause (A)
hereof for any period following the Termination Date, and in such event
Executive shall be obligated to repay to the Company any amounts previously
received pursuant to clause (A) hereof, to the extent the same relate to any
period following the Termination Date.
<PAGE>
A. Termination for Death or Disability. If during the term of this Agreement
Executive's employment shall be terminated by reason of death or 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) Base Salary and vacation accrued
through the Termination Date only, (B) any bonus payment previously fixed and
declared by the Board or its Compensation Committee on behalf of Executive and
not previously paid to Executive, (C) continuation of group health benefits
pursuant to the Company's standard programs as in effect from time to time (or
continuation of substantially similar benefits, through a third party carrier,
at the Company's election), for a period of not less than 18 months (or such
longer period as may be required by COBRA), provided that Executive makes the
necessary conversion, with the cost of such benefits to be paid by the Company
for 18 months and by Executive for any period beyond 18 months, (D) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement), but only to the extent vested as of
the Termination Date, (E) such other benefits upon death or Disability, as the
case may be, as may then be established under the Company's then-existing
severance and benefit plans and policies at the time of such Disability or
death, and (F) no other compensation, severance or other benefits.
A. Voluntary Termination or Termination for Business Reasons. 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) Base Salary and
accrued vacation through the Termination Date only, (B) the right to exercise
all outstanding stock options held by Executive for thirty (30) days following
the Termination Date (or such longer period as may be provided in the applicable
stock option plan or agreement), but only to the extent vested as of the
Termination Date, (C) to the extent COBRA shall be applicable to the Company,
continuation of group health benefits pursuant to the Company's standard
programs as in effect from time to time (or continuation of substantially
similar benefits through a third party carrier, at the Company's election), 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 provided that
Executive makes the appropriate conversion and payments, and (D) no further
severance, benefits or other compensation.
A. Exclusivity. 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 (a), (b), (c), or (d) of this Section 7,
whichever shall be applicable.
<PAGE>
I. Limitation on Payments.
A. In the event that the severance and other benefits provided for in this
Agreement or otherwise payable to Executive (i) constitute "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) but for this Section 8 would be subject to the
excise tax imposed by Section 4999 of the Code, then Executive's severance
benefits under Section 7 shall be payable either (i) in full, or (ii) as to such
lesser amount which would result in no portion of such severance benefits being
subject to excise tax under Section 4999 of the Code, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the excise tax imposed by Section 4999, results in the receipt by
Executive on an after-tax basis, of the greatest amount of severance benefits
under this Agreement, notwithstanding that all or some portion of such severance
benefits may be taxable under Section 4999 of the Code.
A. If a reduction in the payments and benefits that would otherwise be paid or
provided to Executive under the terms of this Agreement is necessary to comply
with the provisions of Section 8(a), Executive shall be entitled to select which
payments or benefits will be reduced and the manner and method of any such
reduction of such payments or benefits (including but not limited to the number
of options that would accelerate as to vesting under Section 7), subject to
reasonable limitations (including, for example, express provisions under the
Company's benefit plans) (so long as the requirements of Section 8(a) are met).
Within thirty (30) days after the amount of any required reduction in payments
and benefits is finally determined in accordance with the provisions of Section
8(c), Executive shall notify the Company in writing regarding which payments or
benefits are to be reduced. If no notification is given by Executive, the
Company will determine which amounts to reduce. If, as a result of any reduction
required by Section 8(a), amounts previously paid to Executive exceed the amount
to which Executive is entitled, Executive will promptly return the excess amount
to the Company.
A. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Company for
all purposes. For purposes of making the calculations required by this Section
8, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 8.
I. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
A. Business Reasons. "Business Reasons" shall mean (i) any act of personal
dishonesty taken by Executive in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of Executive,
(ii) commission of a
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felony or other offense which involves moral turpitude or is otherwise injurious
to the Company, (iii) a willful act by Executive which constitutes gross
misconduct and which is injurious to the Company, (iv) material breach of this
Agreement by Executive, including (A) any material breach of the provisions of
Section 10, 11, or 12 or 13 hereof, or (B) continued violation by Executive of
Executive's obligations under Section 1 of this Agreement that are demonstrably
willful and deliberate on Executive's part after there has been delivered to
Executive a written demand for performance from the Company which describes the
basis for the Company's belief that Executive has not substantially performed
his duties.
A. Disability. "Disability" shall mean that Executive has been unable to perform
his duties as an employee as the result of Executive's 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). 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.
A. 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 9(b); (iii) if this
Agreement is terminated by the Company, the termination date specified in the
notice of termination given by the Company to Executive; (iv) if the Agreement
is terminated by Executive, the termination date specified in the notice of
termination given by Executive to the Company; or (v) if this Agreement expires
by its terms, then the last day of the term of this Agreement.
A. Constructive Termination. A "Constructive Termination" shall be deemed to
occur if (A) without the consent of Executive, (i) there is a significant
reduction in Executive's duties, authorities and responsibilities, (ii)
Executive is required to relocate his place of employment, other than a
relocation within 50 miles of Executive's current business location or to Fort
Myers, Florida, or (iii) 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 (30) day period immediately following such material adverse
change or reduction Executive elects to terminate his employment voluntarily.
A. Change in Control. A "Change in Control" shall be deemed to have occurred if:
1. any "Person," as such term is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
(A) the Company, (B) IMS Health, Inc., a Delaware corporation, or any
wholly-owned subsidiary of IMS Health, Inc. (collectively, "IMS"), until IMS
shall cease to be the "Beneficial Owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
at least 15% of the combined voting power of the Company's then-outstanding
securities, (C) any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or IMS, or (D) any company owned, directly
or indirectly, by the
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stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), becomes the Beneficial Owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
then-outstanding securities; provided that, in the case of any Person which (i)
has filed and has in effect a report of beneficial ownership on Schedule 13-G in
which such Person is reported as a "passive" investor for the purpose of such
Schedule 13-G, for so long as such person continues to be a passive investor
thereunder in the Company, (ii) is the Beneficial Owner of less than 15% of the
combined voting power of the outstanding securities of the Company immediately
prior to the Proposed Recapitalization (defined below) and immediately prior to
the Proposal Spinoff (defined below), (iii) is the Beneficial Owner of less than
15% of the combined voting power of the outstanding securities of IMS Health,
Inc. immediately prior to the Proposed Recapitalization and immediately prior to
the Proposed Spinoff, and (iv) acquires more than 15% but less than [20%] of the
combined voting power of the Company's then-outstanding securities solely by
virtue of the Proposed Recapitalization and Proposed Spinoff, then a Change in
Control shall not be deemed to occur so long as (i) such Person remains a
passive investor in the Company under Schedule 13-G and (ii) such Person
beneficially owns shares in the Company representing no more than the combined
voting power of the outstanding securities of the Company beneficially owned by
such Person immediately following the Proposed Spinoff plus [five percent (5%)];
1. during any period of twenty-four months (not including any period prior to
the execution of this Agreement), individuals who at the beginning of such
period constitute the Board, and any new director (other than (A) a director
nominated by a Person who has entered into an agreement with the Company to
effect a transaction described in Sections (2)(a)(i), (iii) or (iv) hereof, (B)
a director nominated by any Person (including the Company) who publicly
announces an intention to take or to consider taking actions (including, but not
limited to, an actual or threatened proxy contest) which if consummated would
constitute a Change in Control or (C) a director nominated by any Person who is
the Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by the
Company's stockholders was approved in advance by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at lease a majority
thereof;
1. the stockholders of the Company approve any transaction or series of
transactions under which the Company is merged or consolidated with any other
company, other than a merger or consolidation (A) which would result in the
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) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
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1. the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets; or
1. the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.
A transfer of shares of stock of the Company from IMS to an affiliated
company, subsidiary or spin-off entity of IMS, or the reduction in ownership of
capital stock of the Company by IMS by means of a spin-off of such shares to IMS
stockholders or sales of shares into the public market, shall not alone be
deemed to meet the requirements of clause (8)(e)(i) hereof.
For the purposes hereof, the "Proposed Recapitalization" refers to the
proposed recapitalization by the Company of its outstanding equity securities in
which a new class of Class B Common Stock having special voting rights will be
created and issued to IMS in exchange for the shares of Class A Common Stock of
the Company held by IMS, and the "Proposed Spinoff" refers to the proposed
spinoff by IMS to its shareholders on a tax-free basis of a significant portion
of the shares of Company Common Stock owned by IMS.
I. 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.
A. "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
<PAGE>
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.
I. 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.
I. 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.
A. 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.
<PAGE>
I. 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 three (3) 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 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.
A. In addition, for a period of three (3) 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 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.
A. 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.
A. 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 13 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.
<PAGE>
I. 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.
A. 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.
A. Successors.
1. 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.
1. 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.
1. No Other Assignment of Benefits. Except as provided in this Section 14(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.
A. 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
<PAGE>
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.
A. Entire Agreement. This Agreement shall supersede any and all prior
agreements, representations or understandings (whether oral or written and
whether express or implied) between the parties with respect to the subject
matter hereof.
A. 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.
A. Governing Law; Arbitration. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York as they apply to
contracts entered into and wholly to be performed within such state by residents
of such state. 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.
A. Employment Taxes. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes.
A. 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: ____________________________________
Manuel A. Fernandez
President and Chief Executive Officer
EXECUTIVE
MICHAEL D. FLEISHER
________________________________________
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
February, 1998, by and between Manuel A. Fernandez, an individual ("Executive")
and Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive served as President of the Company from January 21, 1991
through September 1997, and has served as Chief Executive Officer of the Company
since April 1, 1991 and as Chairman of the Board of Directors 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 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
continue through October 1, 2000 (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 $33,333.33 per month ("Base Salary") for fiscal 1998, 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
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<PAGE>
Compensation Committee of the Board of Directors, in the sole discretion of the
Board or such Committee.
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, 1998 has previously been set at a
minimum bonus of $400,000, with a maximum bonus of $800,000.
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) At Will Employment. 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) Involuntary Termination. 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 three (3) 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%
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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 (and in this regard, all options held by Executive shall remain
exercisable for ninety (90) days following the Termination Date (or such longer
period as may be provided in the applicable option plan or agreement), (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, (H) in the event of an involuntary termination without Business Reason or
a Constructive Termination, which in either such case occurs within twelve (12)
months following a Change in Control, forgiveness by the Company of all
outstanding principal and interest due to the Company under indebtedness
incurred by Executive to purchase shares of capital stock of the Company, and
(I) 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 three (3) year period following the
Termination Date.
(c) Voluntary Termination Following Change in Control. If during the
term of this Agreement a "Change in Control" occurs and Executive voluntarily
resigns within the first six (6) months following 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 three
(3) 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 (and in this regard, all options held by Executive
shall remain exercisable for ninety (90) days following the Termination Date (or
such longer period as may be provided in the applicable option plan or
agreement)), (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, (H) forgiveness by the Company of all outstanding principal and interest
due to the Company under indebtedness incurred by Executive to purchase shares
of capital stock of the Company, and (I) no other compensation, severance or
other benefits. Notwithstanding
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<PAGE>
the foregoing, however, if Executive violates the non-competition agreement set
forth in Section 12 during the three (3) 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, or any voluntary resignation by Executive
within the first six (6) months following such Change in Control, as provided in
this paragraph (c), Executive may elect, in his sole discretion, (i) not to
receive all or any portion of any cash payment, (ii) not to have all or any
portion of indebtedness forgiven and/or (iii) not to have all or any portion of
vesting restrictions lapse, in each such case in order to avoid any "parachute
payment" under Section 280G(b)(2) of the Internal Revenue Code of 1986, as
amended.
(d) Termination for Disability. 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 three (3) 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, 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 (and in this regard, all options held by Executive shall remain
exercisable for ninety (90) days following the Termination Date (or such longer
period as may be provided in the applicable option plan or agreement)), (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 three years following
the Termination Date, (G) forgiveness by the Company of all outstanding
principal and interest due to the Company under indebtedness incurred by
Executive to purchase shares of capital stock of the Company, and (H) no other
compensation, severance or other benefits. Notwithstanding the foregoing,
however, the Company may deduct from the salary specified in clause (A) hereof
the amount of any payments then received by Executive under any disability
benefit program maintained by the Company.
(e) Voluntary Termination or Involuntary Termination for Business
Reasons. 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) the right to exercise all stock options held by Executive for thirty (30)
days following the Termination Date (or such longer period as may be provided in
the applicable stock option plan or agreement), but only to the extent vested as
of the Termination Date, (C) 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
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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 (D) no further severance, benefits or other compensation.
(f) Termination Upon Death. 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 (and in this regard, all options held by Executive shall remain
exercisable for ninety (90) days following the Termination Date (or such longer
period as may be provided in the applicable option plan or agreement)), (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, (F) forgiveness by the Company of all outstanding
principal and interest due to the Company under indebtedness incurred by
Executive to purchase shares of capital stock of the Company, and (G) no further
benefits or other compensation.
(g) Exclusivity. 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.
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
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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. A "Change in Control" shall be deemed to have
occurred if:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than (A) the Company, (B) Cognizant Corporation, a Delaware
corporation, or any wholly-owned subsidiary of Cognizant Corporation
(collectively, "Cognizant"), until Cognizant shall cease to be the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least 15% of the
combined voting power of the Company's then-outstanding securities, (C) any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or Cognizant, or (D) any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), becomes the "Beneficial Owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
(A) a director nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in Section (8)(e)(i), (iii) or (iv)
hereof, (B) a director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy contest) which if
consummated would constitute a Change in Control or (C) a director nominated by
any Person who is the Beneficial Owner, directly or indirectly, of securities of
the
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Company representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or nomination for election by
the Company's stockholders was approved in advance by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at lease a majority
thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or consolidated with
any other company, other than a merger or consolidation (A) which would result
in the 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) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or
(v) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
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)(i) 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.
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(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.
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
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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 three
(3) 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
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 three (3) 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 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
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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.
(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
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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 understandings (whether oral or written and
whether express or implied) between the parties with respect to the subject
matter hereof, including with all limitation the respective Executive Stock and
Employment Agreements effective as of January 21, 1991, July 28, 1994 and April
1, 1997.
(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.
(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.
(Signatures on the following page)
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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:-----------------------------------------------
William Grabe
EXECUTIVE
Manuel A. Fernandez
--------------------------------------------------
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ADDENDUM TO EMPLOYMENT AGREEMENT
This Addendum to Employment Agreement (this "Addendum") is entered into as
of August 24, 1998 by and between Manuel A. Fernandez, an individual
("Executive") and Gartner Group, Inc., a Delaware Corporation (the "Company").
Recitals
A. Executive is currently Chairman of the Board and Chief Executive
Officer of the Company. Executive has served as Chief Executive Officer since
April 1991 and as Chairman of the Board since April 1994, and also served as
President of the Company from January 1991 to September 30, 1997.
B. The Company and Executives desired to provide for continued employment
of Executive hereafter as Chairman of the Board of the Company.
C. The Company and Executive have previously entered into an Employment
Agreement dated as of February, 1998 (the "Agreement"). The Company and
Executive desire to amend the Agreement as provided in this Addendum, to provide
for the change in Executive's position with the Company to Chairman of the
Board.
Addendum
Therefore, in consideration of the mutual covenants contained herein, the
parties hereby agree as follows:
A. Change in Position. Section 1 of the Agreement is hereby
amended to read in full as follows:
"1. Employment. From and after January 1, 1999, Executive will continue
to serve the Company as Chairman of its Board of Directors, for the remainder of
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 Chairman
of the Board of Directors as the Board of Directors may from time to time
direct."
B. Related Modification Required. Section 8(d)(A)(i) of the Agreement,
defining one element of a "Constructive Termination" under the Agreement, shall
be amended to read in full as follows: "Executive's position changes as a result
of an action of the Company's such that Executive is no longer Chairman of the
Board of the Company reporting to the Company's Board of Directors."
C. Continued Force and Effect. Except as expressly provided hereby, the
Agreement shall continue in full force and effect.
This Addendum may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS THEREOF, each of the parties has executed this Addendum, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
COMPANY EXECUTIVE
GARTNER GROUP, INC. Manuel A. Fernandez
By:_________________________ _____________________________________
John F. Halligan,
Chief Financial Officer
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of February
26, 1998, by and between William T. Clifford, an individual ("Executive") and
Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive currently serves as the President & Chief Operating Officer
of the Company.
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. The Company shall employ Executive in the position of
President & Chief Operating Officer, as such position has been defined in terms
of responsibilities and compensation as of the effective date of this Agreement;
provided, however, that the Board of Directors of the Company (the "Board")
shall have the right, at any time or from time to time, to revise such
responsibilities and compensation as the Board in its discretion may deem
necessary or appropriate. Executive shall comply with and be bound by the
Company's operating policies, procedures and practices from time to time in
effect during his employment. During the term of Executive's employment with the
Company, Executive shall continue to devote his full time, skill and attention
to his duties and responsibilities, and shall perform them faithfully,
diligently and competently, and Executive shall use his best efforts to further
the business of the Company and its affiliated entities.
2. Term. The employment of Executive pursuant to this Agreement shall
continue through October 1, 2000, provided that such term (the "Employment
Term") shall automatically renew at the end of the initial term and each
subsequent term thereafter for a one (1) year period, unless Executive or the
Company shall elect to terminate the Agreement by written notice to the other
party not less than sixty (60) days prior to the end of the respective term.
3. Salary. As compensation for the services rendered by Executive under
this Agreement, the Company shall pay to Executive a base salary ("Base Salary")
initially equal to $25,000.00 per month for fiscal 1998, 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 periodic adjustments by the Board or the Compensation Committee of the Board,
in the sole discretion of the Board or such Committee.
<PAGE>
4. 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 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, 1998 has previously been set at
$250,000, with a maximum bonus of $500,000.
5. 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, 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 the
Company 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.
6. Employment Relationship. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under
applicable law. 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 fourteen (14) days'
prior written notice of termination. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and policies at the time of termination.
7. Severance Benefits.
(a) Involuntary Termination following Change in Control. If during
the term of this Agreement the Company shall be subject to a Change in Control
(as defined below) and within twelve (12) months thereafter (i) the Company or
its successor terminates the employment of Executive involuntarily and without
Business Reasons or (ii) a Constructive Termination occurs, then Executive shall
be entitled to receive the following: (A) Base Salary and vacation accrued
through the Termination Date plus continued Base 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) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) acceleration in
full of vesting of all outstanding stock options held by Executive (and in this
regard all options held by Executive shall remain exercisable for ninety (90)
days following the Termination Date (or such longer period as may be provided in
the applicable stock option plan or
<PAGE>
agreement)), (D) forgiveness by the Company of all outstanding principal and
interest due to the Company under indebtedness incurred by Executive to purchase
shares of capital stock of the Company, (E) continuation of group health
benefits pursuant to the Company's standard programs as in effect from time to
time (or continuation of substantially similar benefits through a third party
carrier, at the Company's election) for a period of not less than 18 months (or
such longer period as may be required by COBRA), provided that Executive makes
the necessary conversion, with the cost of such coverage to be paid by the
Company for 18 months and by Executive for any period beyond 18 months, and (F)
no other compensation, severance or other benefits. Notwithstanding the
foregoing, however, the Company shall not be required to continue to pay the
Base Salary specified in clause (A) hereof for any period following the
Termination Date if Executive violates the noncompetition agreement set forth in
Section 13 during the three (3) year period following the Termination Date, and
in such event Executive shall be obligated to repay to the Company any amounts
previously received pursuant to clause (A) hereof, to the extent the same
relates to any period following the Termination Date.
(b) Involuntary Termination in Absence of Change in Control. If
during the term of this Agreement the Company terminates the employment of
Executive involuntarily and without Business Reasons or a Constructive
Termination occurs (other than any such termination following a Change in
Control to which Section 7(a) applies), then Executive shall be entitled to
receive the following: (A) Base Salary and vacation accrued through the
Termination Date plus continued Base Salary for a period of twelve (12) months
following the Termination Date, payable in accordance with the Company's regular
payroll schedule as in effect from time to time, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement) but only to the extent vested as of
the Termination Date, (D) continuation of group health benefits pursuant to the
Company's standard programs as in effect from time to time (or continuation of
substantially similar benefits, through a third party carrier, at the Company's
election), for a period of not less than 18 months (or such longer period as may
be required by COBRA), provided that Executive makes the necessary conversion,
with the cost of such benefits to be paid by the Company for 18 months and by
Executive for any period beyond 18 months, and (E) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, if
Executive violates the non-competition agreement set forth in Section 13 during
the three (3) year period following the Termination Date, the Company shall not
be required to continue to pay the salary or bonus specified in clause (A)
hereof for any period following the Termination Date, and in such event
Executive shall be obligated to repay to the Company any amounts previously
received pursuant to clause (A) hereof, to the extent the same relate to any
period following the Termination Date.
(c) Termination for Death or Disability. If during the term of this
Agreement Executive's employment shall be terminated by reason of death or
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) Base Salary and
vacation accrued through the Termination Date only, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) continuation of
group health benefits pursuant to the Company's standard
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programs as in effect from time to time (or continuation of substantially
similar benefits, through a third party carrier, at the Company's election), for
a period of not less than 18 months (or such longer period as may be required by
COBRA), provided that Executive makes the necessary conversion, with the cost of
such benefits to be paid by the Company for 18 months and by Executive for any
period beyond 18 months, (D) the right to exercise all outstanding stock options
held by Executive for ninety (90) days following the Termination Date (or such
longer period as may be provided in the applicable stock option plan or
agreement), but only to the extent vested as of the Termination Date, (E) such
other benefits upon death or Disability, as the case may be, as may then be
established under the Company's then-existing severance and benefit plans and
policies at the time of such Disability or death, and (F) no other compensation,
severance or other benefits.
(d) Voluntary Termination or Termination for Business Reasons. 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) Base
Salary and accrued vacation through the Termination Date only, (B) the right to
exercise all outstanding stock options held by Executive for thirty (30) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement), but only to the extent vested as of
the Termination Date, (C) to the extent COBRA shall be applicable to the
Company, continuation of group health benefits pursuant to the Company's
standard programs as in effect from time to time (or continuation of
substantially similar benefits through a third party carrier, at the Company's
election), 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
provided that Executive makes the appropriate conversion and payments, and (D)
no further severance, benefits or other compensation.
(e) Exclusivity. 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 (a), (b), (c), or (d) of this Section 7,
whichever shall be applicable.
8. Limitation on Payments.
(a) In the event that the severance and other benefits provided for
in this Agreement or otherwise payable to Executive (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and (ii) but for this Section 8 would be subject
to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 7 shall be payable either (i) in full, or (ii)
as to such lesser amount which would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code, whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the excise tax imposed by Section 4999, results in the
receipt by Executive on an after-tax basis, of the greatest amount of severance
benefits under this Agreement, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code.
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<PAGE>
(b) If a reduction in the payments and benefits that would otherwise
be paid or provided to Executive under the terms of this Agreement is necessary
to comply with the provisions of Section 8(a), Executive shall be entitled to
select which payments or benefits will be reduced and the manner and method of
any such reduction of such payments or benefits (including but not limited to
the number of options that would accelerate as to vesting under Section 7),
subject to reasonable limitations (including, for example, express provisions
under the Company's benefit plans) (so long as the requirements of Section 8(a)
are met). Within thirty (30) days after the amount of any required reduction in
payments and benefits is finally determined in accordance with the provisions of
Section 8(c), Executive shall notify the Company in writing regarding which
payments or benefits are to be reduced. If no notification is given by
Executive, the Company will determine which amounts to reduce. If, as a result
of any reduction required by Section 8(a), amounts previously paid to Executive
exceed the amount to which Executive is entitled, Executive will promptly return
the excess amount to the Company.
(c) Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Company for
all purposes. For purposes of making the calculations required by this Section
8, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 8.
9. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Business Reasons. "Business Reasons" shall mean (i) any act of
personal dishonesty taken by Executive in connection with his responsibilities
as an employee and intended to result in substantial personal enrichment of
Executive, (ii) commission of a felony or other offense which involves moral
turpitude or is otherwise injurious to the Company, (iii) a willful act by
Executive which constitutes gross misconduct and which is injurious to the
Company, (iv) material breach of this Agreement by Executive, including (A) any
material breach of the provisions of Section 10, 11, or 12 or 13 hereof, or (B)
continued violation by Executive of Executive's obligations under Section 1 of
this Agreement that are demonstrably willful and deliberate on Executive's part
after there has been delivered to Executive a written demand for performance
from the Company which describes the basis for the Company's belief that
Executive has not substantially performed his duties.
(b) Disability. "Disability" shall mean that Executive has been
unable to perform his duties as an employee as the result of Executive's
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). In the event that Executive resumes the performance of
substantially all of his duties hereunder before the
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<PAGE>
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 9(b);
(iii) if this Agreement is terminated by the Company, the termination date
specified in the notice of termination given by the Company to Executive; (iv)
if the Agreement is terminated by Executive, the termination date specified in
the notice of termination given by Executive 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) without the consent of Executive, (i) there is a
significant reduction in Executive's duties, authorities and responsibilities,
(ii) Executive is required to relocate his place of employment, other than a
relocation within 50 miles of Executive's current business location or to Fort
Myers, Florida, or (iii) 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 (30) day period immediately following such material adverse
change or reduction Executive elects to terminate his employment voluntarily.
(e) Change in Control. A "Change in Control" shall be deemed to have
occurred if:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than (A) the Company, (B) Cognizant Corporation, a Delaware
corporation, or any wholly-owned subsidiary of Cognizant Corporation
(collectively, "Cognizant"), until Cognizant shall cease to be the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least 15% of the
combined voting power of the Company's then-outstanding securities, (C) any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or Cognizant, or (D) any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), becomes the "Beneficial Owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
(A) a director nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv)
hereof, (B) a director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy contest) which if
consummated would constitute a Change in Control or (C) a director nominated by
any Person who is the Beneficial Owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or nomination for election by
the Company's stockholders was approved
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<PAGE>
in advance by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at lease a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or consolidated with
any other company, other than a merger or consolidation (A) which would result
in the 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) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or
(v) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
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)(A) hereof.
10. 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.
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<PAGE>
(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.
11. 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.
12. 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
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<PAGE>
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.
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13. 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 three
(3) 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
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 three (3) 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 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 13 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.
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14. 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.
(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 14(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.
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(e) Entire Agreement. This Agreement shall supersede any and all
prior agreements, representations or understandings (whether oral or written and
whether express or implied) between the parties with respect to the subject
matter hereof.
(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) Governing Law; Arbitration. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York as they apply
to contracts entered into and wholly to be performed within such state by
residents of such state. 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.
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(i) 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.
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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:_______________________________________________
Manuel A. Fernandez
Chairman & Chief Executive Officer
EXECUTIVE
William T. Clifford
President & Chief Operating Officer
__________________________________________________
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of February
20, 1998, by and between E. Follett Carter, an individual ("Executive") and
Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive currently serves as the EVP & President, Gartner Distribution
of the Company.
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. The Company shall employ Executive in the position of EVP &
President, Gartner Distribution, as such position has been defined in terms of
responsibilities and compensation as of the effective date of this Agreement;
provided, however, that the Board of Directors of the Company (the "Board")
shall have the right, at any time or from time to time, to revise such
responsibilities and compensation as the Board in its discretion may deem
necessary or appropriate. Executive shall comply with and be bound by the
Company's operating policies, procedures and practices from time to time in
effect during his employment. During the term of Executive's employment with the
Company, Executive shall continue to devote his full time, skill and attention
to his duties and responsibilities, and shall perform them faithfully,
diligently and competently, and Executive shall use his best efforts to further
the business of the Company and its affiliated entities.
2. Term. The employment of Executive pursuant to this Agreement shall
continue through October 1, 2000, provided that such term (the "Employment
Term") shall automatically renew at the end of the initial term and each
subsequent term thereafter for a one (1) year period, unless Executive or the
Company shall elect to terminate the Agreement by written notice to the other
party not less than sixty (60) days prior to the end of the respective term.
3. Salary. As compensation for the services rendered by Executive under
this Agreement, the Company shall pay to Executive a base salary ("Base Salary")
initially equal to $19,583.33 per month for fiscal 1998, 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 periodic adjustments by the Board or the Compensation Committee of the Board,
in the sole discretion of the Board or such Committee.
<PAGE>
4. 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 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, 1998 has previously been set at
$210,000, with a maximum bonus of $420,000.
5. 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, 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 the
Company 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.
6. Employment Relationship. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under
applicable law. 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 fourteen (14) days'
prior written notice of termination. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and policies at the time of termination.
7. Severance Benefits.
(a) Involuntary Termination following Change in Control. If during
the term of this Agreement the Company shall be subject to a Change in Control
(as defined below) and within twelve (12) months thereafter (i) the Company or
its successor terminates the employment of Executive involuntarily and without
Business Reasons or (ii) a Constructive Termination occurs, then Executive shall
be entitled to receive the following: (A) Base Salary and vacation accrued
through the Termination Date plus continued Base 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) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) acceleration in
full of vesting of all outstanding stock options held by Executive (and in this
regard all options held by Executive shall remain exercisable for ninety (90)
days following the Termination Date (or such longer period as may be provided in
the applicable stock option plan or
<PAGE>
agreement)), (D) forgiveness by the Company of all outstanding principal and
interest due to the Company under indebtedness incurred by Executive to purchase
shares of capital stock of the Company, (E) continuation of group health
benefits pursuant to the Company's standard programs as in effect from time to
time (or continuation of substantially similar benefits through a third party
carrier, at the Company's election) for a period of not less than 18 months (or
such longer period as may be required by COBRA), provided that Executive makes
the necessary conversion, with the cost of such coverage to be paid by the
Company for 18 months and by Executive for any period beyond 18 months, and (F)
no other compensation, severance or other benefits. Notwithstanding the
foregoing, however, the Company shall not be required to continue to pay the
Base Salary specified in clause (A) hereof for any period following the
Termination Date if Executive violates the noncompetition agreement set forth in
Section 13 during the three (3) year period following the Termination Date, and
in such event Executive shall be obligated to repay to the Company any amounts
previously received pursuant to clause (A) hereof, to the extent the same
relates to any period following the Termination Date.
(b) Involuntary Termination in Absence of Change in Control. If
during the term of this Agreement the Company terminates the employment of
Executive involuntarily and without Business Reasons or a Constructive
Termination occurs (other than any such termination following a Change in
Control to which Section 7(a) applies), then Executive shall be entitled to
receive the following: (A) Base Salary and vacation accrued through the
Termination Date plus continued Base Salary for a period of twelve (12) months
following the Termination Date, payable in accordance with the Company's regular
payroll schedule as in effect from time to time, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement) but only to the extent vested as of
the Termination Date, (D) continuation of group health benefits pursuant to the
Company's standard programs as in effect from time to time (or continuation of
substantially similar benefits, through a third party carrier, at the Company's
election), for a period of not less than 18 months (or such longer period as may
be required by COBRA), provided that Executive makes the necessary conversion,
with the cost of such benefits to be paid by the Company for 18 months and by
Executive for any period beyond 18 months, and (E) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, if
Executive violates the non-competition agreement set forth in Section 13 during
the three (3) year period following the Termination Date, the Company shall not
be required to continue to pay the salary or bonus specified in clause (A)
hereof for any period following the Termination Date, and in such event
Executive shall be obligated to repay to the Company any amounts previously
received pursuant to clause (A) hereof, to the extent the same relate to any
period following the Termination Date.
(c) Termination for Death or Disability. If during the term of this
Agreement Executive's employment shall be terminated by reason of death or
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) Base Salary and
vacation accrued through the Termination Date only, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) continuation of
group health benefits pursuant to the Company's standard
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programs as in effect from time to time (or continuation of substantially
similar benefits, through a third party carrier, at the Company's election), for
a period of not less than 18 months (or such longer period as may be required by
COBRA), provided that Executive makes the necessary conversion, with the cost of
such benefits to be paid by the Company for 18 months and by Executive for any
period beyond 18 months, (D) the right to exercise all outstanding stock options
held by Executive for ninety (90) days following the Termination Date (or such
longer period as may be provided in the applicable stock option plan or
agreement), but only to the extent vested as of the Termination Date, (E) such
other benefits upon death or Disability, as the case may be, as may then be
established under the Company's then-existing severance and benefit plans and
policies at the time of such Disability or death, and (F) no other compensation,
severance or other benefits.
(d) Voluntary Termination or Termination for Business Reasons. 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) Base
Salary and accrued vacation through the Termination Date only, (B) the right to
exercise all outstanding stock options held by Executive for thirty (30) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement), but only to the extent vested as of
the Termination Date, (C) to the extent COBRA shall be applicable to the
Company, continuation of group health benefits pursuant to the Company's
standard programs as in effect from time to time (or continuation of
substantially similar benefits through a third party carrier, at the Company's
election), 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
provided that Executive makes the appropriate conversion and payments, and (D)
no further severance, benefits or other compensation.
(e) Exclusivity. 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 (a), (b), (c), or (d) of this Section 7,
whichever shall be applicable.
8. Limitation on Payments.
(a) In the event that the severance and other benefits provided for
in this Agreement or otherwise payable to Executive (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and (ii) but for this Section 8 would be subject
to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 7 shall be payable either (i) in full, or (ii)
as to such lesser amount which would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code, whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the excise tax imposed by Section 4999, results in the
receipt by Executive on an after-tax basis, of the greatest amount of severance
benefits under this Agreement, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code.
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(b) If a reduction in the payments and benefits that would otherwise
be paid or provided to Executive under the terms of this Agreement is necessary
to comply with the provisions of Section 8(a), Executive shall be entitled to
select which payments or benefits will be reduced and the manner and method of
any such reduction of such payments or benefits (including but not limited to
the number of options that would accelerate as to vesting under Section 7),
subject to reasonable limitations (including, for example, express provisions
under the Company's benefit plans) (so long as the requirements of Section 8(a)
are met). Within thirty (30) days after the amount of any required reduction in
payments and benefits is finally determined in accordance with the provisions of
Section 8(c), Executive shall notify the Company in writing regarding which
payments or benefits are to be reduced. If no notification is given by
Executive, the Company will determine which amounts to reduce. If, as a result
of any reduction required by Section 8(a), amounts previously paid to Executive
exceed the amount to which Executive is entitled, Executive will promptly return
the excess amount to the Company.
(c) Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Company for
all purposes. For purposes of making the calculations required by this Section
8, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 8.
9. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Business Reasons. "Business Reasons" shall mean (i) any act of
personal dishonesty taken by Executive in connection with his responsibilities
as an employee and intended to result in substantial personal enrichment of
Executive, (ii) commission of a felony or other offense which involves moral
turpitude or is otherwise injurious to the Company, (iii) a willful act by
Executive which constitutes gross misconduct and which is injurious to the
Company, (iv) material breach of this Agreement by Executive, including (A) any
material breach of the provisions of Section 10, 11, or 12 or 13 hereof, or (B)
continued violation by Executive of Executive's obligations under Section 1 of
this Agreement that are demonstrably willful and deliberate on Executive's part
after there has been delivered to Executive a written demand for performance
from the Company which describes the basis for the Company's belief that
Executive has not substantially performed his duties.
(b) Disability. "Disability" shall mean that Executive has been
unable to perform his duties as an employee as the result of Executive's
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). In the event that Executive resumes the performance of
substantially all of his duties hereunder before the
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<PAGE>
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 9(b);
(iii) if this Agreement is terminated by the Company, the termination date
specified in the notice of termination given by the Company to Executive; (iv)
if the Agreement is terminated by Executive, the termination date specified in
the notice of termination given by Executive 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) without the consent of Executive, (i) there is a
significant reduction in Executive's duties, authorities and responsibilities,
(ii) Executive is required to relocate his place of employment, other than a
relocation within 50 miles of Executive's current business location or to Fort
Myers, Florida, or (iii) 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 (30) day period immediately following such material adverse
change or reduction Executive elects to terminate his employment voluntarily.
(e) Change in Control. A "Change in Control" shall be deemed to have
occurred if:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than (A) the Company, (B) Cognizant Corporation, a Delaware
corporation, or any wholly-owned subsidiary of Cognizant Corporation
(collectively, "Cognizant"), until Cognizant shall cease to be the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least 15% of the
combined voting power of the Company's then-outstanding securities, (C) any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or Cognizant, or (D) any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), becomes the "Beneficial Owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
(A) a director nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv)
hereof, (B) a director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy contest) which if
consummated would constitute a Change in Control or (C) a director nominated by
any Person who is the Beneficial Owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or nomination for election by
the Company's stockholders was approved
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<PAGE>
in advance by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at lease a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or consolidated with
any other company, other than a merger or consolidation (A) which would result
in the 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) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or
(v) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
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)(A) hereof.
10. 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.
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(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.
11. 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.
12. 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
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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.
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13. 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 three
(3) 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
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 three (3) 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 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 13 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.
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14. 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.
(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 14(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.
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(e) Entire Agreement. This Agreement shall supersede any and all
prior agreements, representations or understandings (whether oral or written and
whether express or implied) between the parties with respect to the subject
matter hereof.
(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) Governing Law; Arbitration. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York as they apply
to contracts entered into and wholly to be performed within such state by
residents of such state. 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.
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(i) 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.
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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:_______________________________________________
Manuel A. Fernandez
Chairman & Chief Executive Officer
EXECUTIVE
E. Follett Carter
EVP & President, Gartner Distribution
_________________________________________________
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of February
20, 1998, by and between John F. Halligan, an individual ("Executive") and
Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive currently serves as the EVP & Chief Financial Officer of the
Company.
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. The Company shall employ Executive in the position of EVP &
Chief Financial Officer, as such position has been defined in terms of
responsibilities and compensation as of the effective date of this Agreement;
provided, however, that the Board of Directors of the Company (the "Board")
shall have the right, at any time or from time to time, to revise such
responsibilities and compensation as the Board in its discretion may deem
necessary or appropriate. Executive shall comply with and be bound by the
Company's operating policies, procedures and practices from time to time in
effect during his employment. During the term of Executive's employment with the
Company, Executive shall continue to devote his full time, skill and attention
to his duties and responsibilities, and shall perform them faithfully,
diligently and competently, and Executive shall use his best efforts to further
the business of the Company and its affiliated entities.
2. Term. The employment of Executive pursuant to this Agreement shall
continue through October 1, 2000, provided that such term (the "Employment
Term") shall automatically renew at the end of the initial term and each
subsequent term thereafter for a one (1) year period, unless Executive or the
Company shall elect to terminate the Agreement by written notice to the other
party not less than sixty (60) days prior to the end of the respective term.
3. Salary. As compensation for the services rendered by Executive under
this Agreement, the Company shall pay to Executive a base salary ("Base Salary")
initially equal to $19,583.33 per month for fiscal 1998, 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 periodic adjustments by the Board or the Compensation Committee of the Board,
in the sole discretion of the Board or such Committee.
<PAGE>
4. 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 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, 1998 has previously been set at
$170,000, with a maximum bonus of $340,000.
5. 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, 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 the
Company 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.
6. Employment Relationship. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under
applicable law. 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 fourteen (14) days'
prior written notice of termination. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and policies at the time of termination.
7. Severance Benefits.
(a) Involuntary Termination following Change in Control. If during
the term of this Agreement the Company shall be subject to a Change in Control
(as defined below) and within twelve (12) months thereafter (i) the Company or
its successor terminates the employment of Executive involuntarily and without
Business Reasons or (ii) a Constructive Termination occurs, then Executive shall
be entitled to receive the following: (A) Base Salary and vacation accrued
through the Termination Date plus continued Base 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) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) acceleration in
full of vesting of all outstanding stock options held by Executive (and in this
regard all options held by Executive shall remain exercisable for ninety (90)
days following the Termination Date (or such longer period as may be provided in
the applicable stock option plan or agreement)), (D) forgiveness by the Company
of all outstanding principal and interest due to the
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Company under indebtedness incurred by Executive to purchase shares of capital
stock of the Company, (E) continuation of group health benefits pursuant to the
Company's standard programs as in effect from time to time (or continuation of
substantially similar benefits through a third party carrier, at the Company's
election) for a period of not less than 18 months (or such longer period as may
be required by COBRA), provided that Executive makes the necessary conversion,
with the cost of such coverage to be paid by the Company for 18 months and by
Executive for any period beyond 18 months, and (F) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, the Company
shall not be required to continue to pay the Base Salary specified in clause (A)
hereof for any period following the Termination Date if Executive violates the
noncompetition agreement set forth in Section 13 during the three (3) year
period following the Termination Date, and in such event Executive shall be
obligated to repay to the Company any amounts previously received pursuant to
clause (A) hereof, to the extent the same relates to any period following the
Termination Date.
(b) Involuntary Termination in Absence of Change in Control. If
during the term of this Agreement the Company terminates the employment of
Executive involuntarily and without Business Reasons or a Constructive
Termination occurs (other than any such termination following a Change in
Control to which Section 7(a) applies), then Executive shall be entitled to
receive the following: (A) Base Salary and vacation accrued through the
Termination Date plus continued Base Salary for a period of twelve (12) months
following the Termination Date, payable in accordance with the Company's regular
payroll schedule as in effect from time to time, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement) but only to the extent vested as of
the Termination Date, (D) continuation of group health benefits pursuant to the
Company's standard programs as in effect from time to time (or continuation of
substantially similar benefits, through a third party carrier, at the Company's
election), for a period of not less than 18 months (or such longer period as may
be required by COBRA), provided that Executive makes the necessary conversion,
with the cost of such benefits to be paid by the Company for 18 months and by
Executive for any period beyond 18 months, and (E) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, if
Executive violates the non-competition agreement set forth in Section 13 during
the three (3) year period following the Termination Date, the Company shall not
be required to continue to pay the salary or bonus specified in clause (A)
hereof for any period following the Termination Date, and in such event
Executive shall be obligated to repay to the Company any amounts previously
received pursuant to clause (A) hereof, to the extent the same relate to any
period following the Termination Date.
(c) Termination for Death or Disability. If during the term of this
Agreement Executive's employment shall be terminated by reason of death or
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) Base Salary and
vacation accrued through the Termination Date only, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) continuation of
group health benefits pursuant to the Company's standard programs as in effect
from time to time (or continuation of substantially similar benefits, through a
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third party carrier, at the Company's election), for a period of not less than
18 months (or such longer period as may be required by COBRA), provided that
Executive makes the necessary conversion, with the cost of such benefits to be
paid by the Company for 18 months and by Executive for any period beyond 18
months, (D) the right to exercise all outstanding stock options held by
Executive for ninety (90) days following the Termination Date (or such longer
period as may be provided in the applicable stock option plan or agreement), but
only to the extent vested as of the Termination Date, (E) such other benefits
upon death or Disability, as the case may be, as may then be established under
the Company's then-existing severance and benefit plans and policies at the time
of such Disability or death, and (F) no other compensation, severance or other
benefits.
(d) Voluntary Termination or Termination for Business Reasons. 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) Base
Salary and accrued vacation through the Termination Date only, (B) the right to
exercise all outstanding stock options held by Executive for thirty (30) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement), but only to the extent vested as of
the Termination Date, (C) to the extent COBRA shall be applicable to the
Company, continuation of group health benefits pursuant to the Company's
standard programs as in effect from time to time (or continuation of
substantially similar benefits through a third party carrier, at the Company's
election), 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
provided that Executive makes the appropriate conversion and payments, and (D)
no further severance, benefits or other compensation.
(e) Exclusivity. 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 (a), (b), (c), or (d) of this Section 7,
whichever shall be applicable.
8. Limitation on Payments.
(a) In the event that the severance and other benefits provided for
in this Agreement or otherwise payable to Executive (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and (ii) but for this Section 8 would be subject
to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 7 shall be payable either (i) in full, or (ii)
as to such lesser amount which would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code, whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the excise tax imposed by Section 4999, results in the
receipt by Executive on an after-tax basis, of the greatest amount of severance
benefits under this Agreement, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code.
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(b) If a reduction in the payments and benefits that would otherwise
be paid or provided to Executive under the terms of this Agreement is necessary
to comply with the provisions of Section 8(a), Executive shall be entitled to
select which payments or benefits will be reduced and the manner and method of
any such reduction of such payments or benefits (including but not limited to
the number of options that would accelerate as to vesting under Section 7),
subject to reasonable limitations (including, for example, express provisions
under the Company's benefit plans) (so long as the requirements of Section 8(a)
are met). Within thirty (30) days after the amount of any required reduction in
payments and benefits is finally determined in accordance with the provisions of
Section 8(c), Executive shall notify the Company in writing regarding which
payments or benefits are to be reduced. If no notification is given by
Executive, the Company will determine which amounts to reduce. If, as a result
of any reduction required by Section 8(a), amounts previously paid to Executive
exceed the amount to which Executive is entitled, Executive will promptly return
the excess amount to the Company.
(c) Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Company for
all purposes. For purposes of making the calculations required by this Section
8, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 8.
9. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Business Reasons. "Business Reasons" shall mean (i) any act of
personal dishonesty taken by Executive in connection with his responsibilities
as an employee and intended to result in substantial personal enrichment of
Executive, (ii) commission of a felony or other offense which involves moral
turpitude or is otherwise injurious to the Company, (iii) a willful act by
Executive which constitutes gross misconduct and which is injurious to the
Company, (iv) material breach of this Agreement by Executive, including (A) any
material breach of the provisions of Section 10, 11, or 12 or 13 hereof, or (B)
continued violation by Executive of Executive's obligations under Section 1 of
this Agreement that are demonstrably willful and deliberate on Executive's part
after there has been delivered to Executive a written demand for performance
from the Company which describes the basis for the Company's belief that
Executive has not substantially performed his duties.
(b) Disability. "Disability" shall mean that Executive has been
unable to perform his duties as an employee as the result of Executive's
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). In the event that Executive resumes the performance of
substantially all of his duties hereunder before the
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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 9(b);
(iii) if this Agreement is terminated by the Company, the termination date
specified in the notice of termination given by the Company to Executive; (iv)
if the Agreement is terminated by Executive, the termination date specified in
the notice of termination given by Executive 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) without the consent of Executive, (i) there is a
significant reduction in Executive's duties, authorities and responsibilities,
(ii) Executive is required to relocate his place of employment, other than a
relocation within 50 miles of Executive's current business location or to Fort
Myers, Florida, or (iii) 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 (30) day period immediately following such material adverse
change or reduction Executive elects to terminate his employment voluntarily.
(e) Change in Control. A "Change in Control" shall be deemed to have
occurred if:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than (A) the Company, (B) Cognizant Corporation, a Delaware
corporation, or any wholly-owned subsidiary of Cognizant Corporation
(collectively, "Cognizant"), until Cognizant shall cease to be the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least 15% of the
combined voting power of the Company's then-outstanding securities, (C) any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or Cognizant, or (D) any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), becomes the "Beneficial Owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
(A) a director nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv)
hereof, (B) a director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy contest) which if
consummated would constitute a Change in Control or (C) a director nominated by
any Person who is the Beneficial Owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or nomination for election by
the Company's stockholders was approved
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in advance by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at lease a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or consolidated with
any other company, other than a merger or consolidation (A) which would result
in the 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) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or
(v) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
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)(A) hereof.
10. 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.
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(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.
11. 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.
12. 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
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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.
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13. 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 three
(3) 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
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 three (3) 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 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 13 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.
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14. 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.
(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 14(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.
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(e) Entire Agreement. This Agreement shall supersede any and all
prior agreements, representations or understandings (whether oral or written and
whether express or implied) between the parties with respect to the subject
matter hereof.
(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) Governing Law; Arbitration. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York as they apply
to contracts entered into and wholly to be performed within such state by
residents of such state. 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.
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(i) 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.
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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:_______________________________________________
Manuel A. Fernandez
Chairman & Chief Executive Officer
EXECUTIVE
John F. Halligan
EVP & Chief Financial Officer
__________________________________________________
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of February
20, 1998, by and between Michael D. Fleisher, an individual ("Executive") and
Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive currently serves as the EVP & President, Emerging Businesses
of the Company.
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. The Company shall employ Executive in the position of
President, Emerging Business, as such position has been defined in terms of
responsibilities and compensation as of the effective date of this Agreement;
provided, however, that the Board of Directors of the Company (the "Board")
shall have the right, at any time or from time to time, to revise such
responsibilities and compensation as the Board in its discretion may deem
necessary or appropriate. Executive shall comply with and be bound by the
Company's operating policies, procedures and practices from time to time in
effect during his employment. During the term of Executive's employment with the
Company, Executive shall continue to devote his full time, skill and attention
to his duties and responsibilities, and shall perform them faithfully,
diligently and competently, and Executive shall use his best efforts to further
the business of the Company and its affiliated entities.
2. Term. The employment of Executive pursuant to this Agreement shall
continue through October 1, 2000, provided that such term (the "Employment
Term") shall automatically renew at the end of the initial term and each
subsequent term thereafter for a one (1) year period, unless Executive or the
Company shall elect to terminate the Agreement by written notice to the other
party not less than sixty (60) days prior to the end of the respective term.
3. Salary. As compensation for the services rendered by Executive under
this Agreement, the Company shall pay to Executive a base salary ("Base Salary")
initially equal to $19,166.67 per month for fiscal 1998, 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 periodic adjustments by the Board or the Compensation Committee of the Board,
in the sole discretion of the Board or such Committee.
<PAGE>
4. 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 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, 1998 has previously been set at
$150,000, with a maximum bonus of $300,000.
5. 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, 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 the
Company 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.
6. Employment Relationship. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under
applicable law. 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 fourteen (14) days'
prior written notice of termination. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and policies at the time of termination.
7. Severance Benefits.
(a) Involuntary Termination following Change in Control. If during
the term of this Agreement the Company shall be subject to a Change in Control
(as defined below) and within twelve (12) months thereafter (i) the Company or
its successor terminates the employment of Executive involuntarily and without
Business Reasons or (ii) a Constructive Termination occurs, then Executive shall
be entitled to receive the following: (A) Base Salary and vacation accrued
through the Termination Date plus continued Base 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) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) acceleration in
full of vesting of all outstanding stock options held by Executive (and in this
regard all options held by Executive shall remain exercisable for ninety (90)
days following the Termination Date (or such longer period as may be provided in
the applicable stock option plan or agreement)), (D) forgiveness by the Company
of all outstanding principal and interest due to the
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Company under indebtedness incurred by Executive to purchase shares of capital
stock of the Company, (E) continuation of group health benefits pursuant to the
Company's standard programs as in effect from time to time (or continuation of
substantially similar benefits through a third party carrier, at the Company's
election) for a period of not less than 18 months (or such longer period as may
be required by COBRA), provided that Executive makes the necessary conversion,
with the cost of such coverage to be paid by the Company for 18 months and by
Executive for any period beyond 18 months, and (F) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, the Company
shall not be required to continue to pay the Base Salary specified in clause (A)
hereof for any period following the Termination Date if Executive violates the
noncompetition agreement set forth in Section 13 during the three (3) year
period following the Termination Date, and in such event Executive shall be
obligated to repay to the Company any amounts previously received pursuant to
clause (A) hereof, to the extent the same relates to any period following the
Termination Date.
(b) Involuntary Termination in Absence of Change in Control. If
during the term of this Agreement the Company terminates the employment of
Executive involuntarily and without Business Reasons or a Constructive
Termination occurs (other than any such termination following a Change in
Control to which Section 7(a) applies), then Executive shall be entitled to
receive the following: (A) Base Salary and vacation accrued through the
Termination Date plus continued Base Salary for a period of twelve (12) months
following the Termination Date, payable in accordance with the Company's regular
payroll schedule as in effect from time to time, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) the right to
exercise all outstanding stock options held by Executive for ninety (90) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement) but only to the extent vested as of
the Termination Date, (D) continuation of group health benefits pursuant to the
Company's standard programs as in effect from time to time (or continuation of
substantially similar benefits, through a third party carrier, at the Company's
election), for a period of not less than 18 months (or such longer period as may
be required by COBRA), provided that Executive makes the necessary conversion,
with the cost of such benefits to be paid by the Company for 18 months and by
Executive for any period beyond 18 months, and (E) no other compensation,
severance or other benefits. Notwithstanding the foregoing, however, if
Executive violates the non-competition agreement set forth in Section 13 during
the three (3) year period following the Termination Date, the Company shall not
be required to continue to pay the salary or bonus specified in clause (A)
hereof for any period following the Termination Date, and in such event
Executive shall be obligated to repay to the Company any amounts previously
received pursuant to clause (A) hereof, to the extent the same relate to any
period following the Termination Date.
(c) Termination for Death or Disability. If during the term of this
Agreement Executive's employment shall be terminated by reason of death or
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) Base Salary and
vacation accrued through the Termination Date only, (B) any bonus payment
previously fixed and declared by the Board or its Compensation Committee on
behalf of Executive and not previously paid to Executive, (C) continuation of
group health benefits pursuant to the Company's standard programs as in effect
from time to time (or continuation of substantially similar benefits, through a
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third party carrier, at the Company's election), for a period of not less than
18 months (or such longer period as may be required by COBRA), provided that
Executive makes the necessary conversion, with the cost of such benefits to be
paid by the Company for 18 months and by Executive for any period beyond 18
months, (D) the right to exercise all outstanding stock options held by
Executive for ninety (90) days following the Termination Date (or such longer
period as may be provided in the applicable stock option plan or agreement), but
only to the extent vested as of the Termination Date, (E) such other benefits
upon death or Disability, as the case may be, as may then be established under
the Company's then-existing severance and benefit plans and policies at the time
of such Disability or death, and (F) no other compensation, severance or other
benefits.
(d) Voluntary Termination or Termination for Business Reasons. 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) Base
Salary and accrued vacation through the Termination Date only, (B) the right to
exercise all outstanding stock options held by Executive for thirty (30) days
following the Termination Date (or such longer period as may be provided in the
applicable stock option plan or agreement), but only to the extent vested as of
the Termination Date, (C) to the extent COBRA shall be applicable to the
Company, continuation of group health benefits pursuant to the Company's
standard programs as in effect from time to time (or continuation of
substantially similar benefits through a third party carrier, at the Company's
election), 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
provided that Executive makes the appropriate conversion and payments, and (D)
no further severance, benefits or other compensation.
(e) Exclusivity. 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 (a), (b), (c), or (d) of this Section 7,
whichever shall be applicable.
8. Limitation on Payments.
(a) In the event that the severance and other benefits provided for
in this Agreement or otherwise payable to Executive (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and (ii) but for this Section 8 would be subject
to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 7 shall be payable either (i) in full, or (ii)
as to such lesser amount which would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code, whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the excise tax imposed by Section 4999, results in the
receipt by Executive on an after-tax basis, of the greatest amount of severance
benefits under this Agreement, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code.
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(b) If a reduction in the payments and benefits that would otherwise
be paid or provided to Executive under the terms of this Agreement is necessary
to comply with the provisions of Section 8(a), Executive shall be entitled to
select which payments or benefits will be reduced and the manner and method of
any such reduction of such payments or benefits (including but not limited to
the number of options that would accelerate as to vesting under Section 7),
subject to reasonable limitations (including, for example, express provisions
under the Company's benefit plans) (so long as the requirements of Section 8(a)
are met). Within thirty (30) days after the amount of any required reduction in
payments and benefits is finally determined in accordance with the provisions of
Section 8(c), Executive shall notify the Company in writing regarding which
payments or benefits are to be reduced. If no notification is given by
Executive, the Company will determine which amounts to reduce. If, as a result
of any reduction required by Section 8(a), amounts previously paid to Executive
exceed the amount to which Executive is entitled, Executive will promptly return
the excess amount to the Company.
(c) Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Company for
all purposes. For purposes of making the calculations required by this Section
8, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 8.
9. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Business Reasons. "Business Reasons" shall mean (i) any act of
personal dishonesty taken by Executive in connection with his responsibilities
as an employee and intended to result in substantial personal enrichment of
Executive, (ii) commission of a felony or other offense which involves moral
turpitude or is otherwise injurious to the Company, (iii) a willful act by
Executive which constitutes gross misconduct and which is injurious to the
Company, (iv) material breach of this Agreement by Executive, including (A) any
material breach of the provisions of Section 10, 11, or 12 or 13 hereof, or (B)
continued violation by Executive of Executive's obligations under Section 1 of
this Agreement that are demonstrably willful and deliberate on Executive's part
after there has been delivered to Executive a written demand for performance
from the Company which describes the basis for the Company's belief that
Executive has not substantially performed his duties.
(b) Disability. "Disability" shall mean that Executive has been
unable to perform his duties as an employee as the result of Executive's
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). In the event that Executive resumes the performance of
substantially all of his duties hereunder before the
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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 9(b);
(iii) if this Agreement is terminated by the Company, the termination date
specified in the notice of termination given by the Company to Executive; (iv)
if the Agreement is terminated by Executive, the termination date specified in
the notice of termination given by Executive 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) without the consent of Executive, (i) there is a
significant reduction in Executive's duties, authorities and responsibilities,
(ii) Executive is required to relocate his place of employment, other than a
relocation within 50 miles of Executive's current business location, or (iii)
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 (30) day period
immediately following such material adverse change or reduction Executive elects
to terminate his employment voluntarily.
(e) Change in Control. A "Change in Control" shall be deemed to have
occurred if:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than (A) the Company, (B) Cognizant Corporation, a Delaware
corporation, or any wholly-owned subsidiary of Cognizant Corporation
(collectively, "Cognizant"), until Cognizant shall cease to be the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least 15% of the
combined voting power of the Company's then-outstanding securities, (C) any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or Cognizant, or (D) any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), becomes the "Beneficial Owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
(A) a director nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv)
hereof, (B) a director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy contest) which if
consummated would constitute a Change in Control or (C) a director nominated by
any Person who is the Beneficial Owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or nomination for election by
the Company's stockholders was approved
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in advance by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at lease a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or consolidated with
any other company, other than a merger or consolidation (A) which would result
in the 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) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or
(v) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
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)(A) hereof.
10. 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.
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(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.
11. 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.
12. 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
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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.
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13. 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 three
(3) 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
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 three (3) 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 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 13 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.
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14. 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.
(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 14(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.
-11-
<PAGE>
(e) Entire Agreement. This Agreement shall supersede any and all
prior agreements, representations or understandings (whether oral or written and
whether express or implied) between the parties with respect to the subject
matter hereof.
(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) Governing Law; Arbitration. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York as they apply
to contracts entered into and wholly to be performed within such state by
residents of such state. 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.
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(i) 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.
-12-
<PAGE>
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:_______________________________________________
Manuel A. Fernandez
Chairman & Chief Executive Officer
EXECUTIVE
Michael D. Fleisher
EVP & President, Emerging Businesses
__________________________________________________
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT STATE/COUNTRY OF INCORPORATION
AICC Consultores, S.A. Chile
AICC Consultores, S.A. Argentina
AICC Technology, S.A. Argentina
Computer & Communications Information New Jersey
Group, Inc. (dba Datapro Information
Services)
Dataquest (Korea), Inc. Delaware
Dataquest Australia Pty. Ltd. Australia
Dataquest, Incorporated California
Decision Drivers, Inc. Delaware
DQ Research Pte, Ltd. Singapore
G-Fund, L.L.C. Delaware
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. Properties, Ltd. Bermuda
G.G. West Corporation Delaware
Gartner Credit Corporation Delaware
Gartner Enterprises, Ltd. Delaware
Gartner Group Advisory (Singapore) Singapore
PTE Ltd.
Gartner Group Asia, Inc. Delaware
Gartner Group Canada Co. Canada
Gartner Group DO Brasil, S/C Ltda. Brazil
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 Hong Kong, Ltd. Hong Kong
Gartner Group Italia, S.r.L. Italy
Gartner Group Japan K.K. Japan
Gartner Group Nederland B.V. The Netherlands
Gartner Group Norge A/S Norway
Gartner Group Pacific Pty Limited Australia
Gartner Group Research (Thailand) Ltd. Thailand
Gartner Group Scandinavia A/S Denmark
Gartner Group Sverige AB Sweden
Gartner Group Switzerland AG Switzerland
Gartner Group Taiwan Ltd. Taiwan
Gartner Group UK Ltd. United Kingdom
Gartner Group, GmbH Germany
New Science Associates, Ltd. Ireland
New Science Limited United Kingdom
The Research Board Delaware
View Acquisition Company Delaware
Vision Events International, Inc. Delaware
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Gartner Group, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-67576, No. 33-85926, No. 33-92486, No. 333-35169 and No. 333-42587) on Form
S-8 of Gartner Group, Inc. of our report dated October 30, 1998, except as to
note 18 which is as of November 12, 1998, and the eighth paragraph of note 3
(Interpose Acquisition) which is as of December 10, 1998, relating to the
consolidated balance sheets of Gartner Group, Inc. and its subsidiaries as of
September 30, 1998 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of the
years in the three year period ended September 30, 1998, which report appears in
the 1998 Annual Report 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
St. Petersburg, Florida
December 23, 1998
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