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, 1999
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 1-14443
GARTNER GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-3099750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 10212 06904-2212
56 Top Gallant Road (Zip Code)
Stamford, CT
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 316-1111
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Class On Which Registered
Common Stock, Class A, $.0005 Par Value New York Stock Exchange
Common Stock, Class B, $.0005 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
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, 1999, was
approximately $717.0 million. 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, 1999 was 53,674,606 shares of Common Stock, Class A and 34,174,116
shares of Common Stock, Class B.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Stockholders of Registrant for the fiscal year ended
September 30, 1999. Certain information therein is incorporated by
reference into Part II hereof.
(2) Proxy Statement for the Annual Meeting of Stockholders of Registrant to be
held on February 1, 2000. Certain information therein is incorporated by
reference into Part III hereof.
<PAGE>
PART I
Item 1. Business.
General
Gartner Group, Inc. ("GartnerGroup" or the "Company"), founded in 1979, is the
world's leading independent provider of research and analysis on the computer
hardware, software, communications and related information technology ("IT")
industries. The Company is organized into three business segments: research,
services and events. Research encompasses products which, on an ongoing basis,
highlight industry developments, review new products and technologies, provide
quantitative market research, and analyze industry trends within a particular
technology or market sector. The Company enters into annual renewable contracts
for research products and distributes such products through print and
electronic media. Services, consists primarily of consulting and measurement
engagements, which provide comprehensive assessments of cost performance,
efficiency and quality for all areas of IT. Events consists of vendor and user
focused symposia, expositions and conferences. The Company's primary clients
are senior business executives, IT professionals, purchasers and vendors of IT
products and services. With more than 800 research analysts and 400
consultants, GartnerGroup product and service offerings collectively provide
comprehensive coverage of the IT industry to over 9,600 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 and
industry best practices in a dynamic market where vendors continually introduce
new products with a wide variety of standards and ever-shorter life cycles. As
a result, senior business executives and IT professionals are making
substantial financial commitments to IT systems and products and require
independent, third-party research that provides a comprehensive detailed and
complete look at the IT landscape 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 market. The Company has adopted three strategic imperatives to leverage
its thought leadership through both a services organization and an interactive
channel in order to maximize opportunity and financial results. First,
delivering cutting-edge thought leadership in its research. Second,
dramatically growing the Company's consultative business and third, enhancing
the Company's web-delivery capabilities.
Deliver Thought Leadership. The Company is a leading provider of in-depth,
value-added, proprietary research and analysis of the IT industry. The
Company's global network of research professionals is comprised of more than
1,200 analysts and consultants averaging fifteen years of industry experience.
Of the 1,200 professionals, 245 professionals are e-business analysts and
consultants. The Company intends to increase its investment in thought
leadership by recruiting and hiring additional e-business experts. The Company
maintains five primary research centers located in Stamford, CT, Santa Clara,
CA, Windsor, England, Brisbane, Australia and Tokyo, Japan, plus a number of
smaller, satellite research centers throughout the world.
Growth in Consultative Business. The Company intends to invest in and grow its
services business to further leverage its knowledge base. There is a
significant demand within the Company's current client base for the Company to
apply its knowledge and message to client-specific situations and industries.
The Company intends to continue to leverage its research knowledge to provide
cost effective solutions and to staff appropriately to deliver on the expanding
consulting business.
Enhance Web-Delivery Capabilities. The Company intends to significantly invest
in re-architecting the Company's Web-delivery capability. The Company is on its
third-generation web platform, and has been a leader in using the Web to
deliver research to its clients. In order to capture the full potential of the
internet as an interactive delivery vehicle, the Company is redesigning its
research process to deliver into an Internet paradigm. Going forward, the
Company plans to expand its research capability to include tools and a
web-based interaction for research and inquiry that is continuously refreshed
within a dynamic Internet environment.
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.
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Products and Services
The Company's principal products are Research, Services and Events.
Research. Research primarily consists of annually renewable subscription-based
contracts for research 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.
Research and advisory services provide qualitative and quantitative research
and analysis that clarifies decision-making for IT buyers, users and vendors.
Research and advisory services also provide objective analysis that helps
clients stay ahead of IT trends, directions and vendor strategies and provide
worldwide coverage of research, statistical analysis, growth projections and
market share rankings of suppliers and vendors to IT manufacturers and the
financial community. Each product 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
GartnerGroup research and analysis on paper and through a number of electronic
delivery formats.
The Company measures the volume of its research business based on research
contract value. The Company calculates research contract value as the
annualized value of all subscription-based research product contracts with
ratable revenue recognition 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.
Deferred revenues, as presented in the Company's Consolidated Balance Sheets,
represent unamortized revenues from billed research products, services and
events. Total 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 outstanding and
billed contracts.
Services. Services consist of consulting and measurement engagements.
Consulting services provide customized project consulting on the delivery,
deployment and management of high-tech products and services. Principal
consulting service offerings include Marketing Strategy, Competitive Analysis,
E-Business Strategy, Customer Satisfaction Surveys and E-Business Web
Diagnostic. Measurement services provide benchmarking, continuous improvement
and best practices services. One of the Company's key measurements of its
Services products is services backlog. Services backlog represents future
revenue to be derived from in-process consulting and measurement engagements.
Events. Events include symposia, conferences and exhibitions that provide
comprehensive coverage of IT issues and forecasts of key IT industry segments.
The conference season begins each year with Symposia and ITxpo, held in the
United States, Europe and the Asia/Pacific rim. 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.
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 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.
3
<PAGE>
Employees
As of September 30, 1999, the Company employed 3,402 persons. Of the 3,402
employees, 890 are located at the Company's headquarters in Stamford, CT, 1,457
are located at other domestic facilities and 1,055 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 leadership team, professional analysts and
consultants, 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.
A special meeting of stockholders was held on July 16, 1999. The matters voted
upon and the results of the voting were as follows:
(1) The stockholders voted 84,887,311 votes in the affirmative and 841,119
votes in the negative, with 105,252 votes abstaining, to recapitalize the
Company (see Note 2--Recapitalization in the Notes to Consolidated
Financial Statements). In connection with the recapitalization of the
Company, Robert E. Weisman resigned as a member of the Board of Directors
of the Company as of the effective time of the recapitalization.
Additionally, three individuals, Anne Sutherland Fuchs, Charles B. McQuade
and Kenneth Roman were appointed to the Board of Directors of the Company
at the time of the recapitalization.
(2) The stockholders voted 69,433,737 votes in the affirmative and 16,324,141
votes in the negative, with 75,804 votes abstaining, to amend the
Company's certificate of incorporation to provide for a classified Board
of Directors. The Board of Directors has been divided into three classes
with one class of directors to be elected each year and each class having
a three-year term.
(3) The stockholders voted 73,761,975 votes in the affirmative and 12,022,943
votes in the negative, with 48,764 votes abstaining, to amend the
Company's certificate of incorporation to increase the authorized number
of shares of common stock and preferred stock which the Company may issue
from 201,600,000 shares of common stock and 2,500,000 shares of preferred
stock to 250,000,000 shares of common stock consisting of 166,000,000
shares of Class A Common Stock and 84,000,000 shares of Class B Common
Stock) and 5,000,000 shares of Preferred Stock.
4
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of November 30, 1999, there were approximately 250 holders of record of the
Company's Class A Common Stock and approximately 6,900 holders of record of the
Company's Class B Common Stock. 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". Since July 20, 1999, the Company's Class B Common Stock has
been listed for trading on the New York Stock Exchange under the symbol "IT/B".
On July 16, 1999, the Company's stockholders approved a series of transactions
that resulted in the separation of the Company and IMS Health. This was
accomplished, in part, through the recapitalization of the Company's
outstanding common stock into two classes of Common Stock, consisting of Class
A Common Stock and Class B Common Stock, and the issuance of an aggregate of
40,689,648 shares of Class B Common Stock to IMS Health in exchange for a like
number of shares of Class A Common Stock held by IMS Health. The separation was
effected, in part, through the July 26, 1999 tax-free distribution by IMS
Health to its stockholders of the newly issued Class B Common Stock of the
Company owned by IMS Health. IMS Health is required by IRS regulations to
monetize its remaining interest of 6,900,000 shares and warrants for 599,400
shares in the Company as quickly as feasible after the spin-off, subject to
certain restrictions agreed to by both companies. In addition, the Company's
stockholders approved an amendment to the Company's Certificate of
Incorporation to increase the authorized capital stock of the Company to a
total of 250,000,000 shares of Common Stock (166,000,000 shares of Class A
Common Stock and 84,000,000 shares of Class B Common Stock) and 5,000,000
shares of Preferred Stock. The Class B Common Stock is identical in all
respects to the Class A Common Stock, except that the Class B Common Stock is
entitled to elect at least 80% of the members of the Company's Board of
Directors. In addition, any Class B Common Stock holder who owns more than 15%
of the outstanding Class B Common Stock, will not be able to vote all of his or
her Class B Common Stock in the election of directors unless such holder owns
an equivalent percentage of Class A Common Stock. The Company's stockholders
also approved an amendment to the Company's Certificate of Incorporation to
create a classified Board of Directors of three classes having staggered
three-year terms.
In connection with the IMS Health transaction the Company declared a special,
nonrecurring cash dividend of $1.1945 per share, payable to all Company
stockholders of record as of July 16, 1999. The cash dividend, totaling
approximately $125.0 million, was paid on July 22, 1999 and was funded out of
existing cash.
Also in connection with the recapitalization, on July 27, 1999, the Company
commenced a tender offer in a Dutch Auction format to purchase approximately
15% of its outstanding common stock at prices not less than $21.00 and not more
than $24.00 per share. Under the terms of the Dutch Auction tender offer, the
Company repurchased shares of Class A Common Stock and Class B Common Stock in
the same proportion as the ratio of the number of shares of each class
outstanding on July 26, 1999. Pursuant to the tender offer, which expired on
August 31, 1999, the Company purchased a total of 15,759,279 shares, comprised
of 9,636,247 shares of Class A Common Stock at a purchase price of $21.75 per
share and 6,123,032 shares of Class B Common Stock at a purchase price of
$21.875 per share. These repurchases were funded in part through term
borrowings under the Company's $500 million credit facility (see Note 8
- --Long-Term Debt in the Notes to the Consolidated Financial Statements). The
Company also is required to purchase 5,166,691 shares, allocated between Class
A Common Stock and Class B Common Stock in the same proportion as in the Dutch
Auction, in the open market by July 2001 as part of the recapitalization plan.
Under the terms of the recapitalization agreement, the Company is required to
indemnify IMS Health for additional taxes, under certain circumstances, if
actions by the Company cause the distribution to become taxable to IMS Health
and its stockholders. These actions include the use of stock for substantial
acquisitions and the issuance, without regulatory approval, of stock options
over set limitations during a two-year period following the recapitalization.
In addition, the Company has indemnified IMS Health on any tax liabilities
associated with the spin-off that may result from the acquisition of the
Company. The Company monitors its actions for compliance in this regard and
believes that it is unlikely, within matters under the Company's control, that
it will incur any significant costs as a result of its indemnity.
5
<PAGE>
Other information required by this item is incorporated herein by reference to
page 24 of 1999 Annual Report to Stockholders of Registrant.
Item 6. Selected Consolidated Financial Data.
"Selected Consolidated Financial Data" contained on page 47 of the Annual
Report of Stockholders of Registrant is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained on pages 18 through 25 of the 1999 Annual Report to
Stockholders of Registrant is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
"Quantitative and Qualitative Disclosures about Market Risk" contained on page
25 of the 1999 Annual Report to Stockholders of Registrant is incorporated
herein by reference.
Item 8. Consolidated Financial Statements and Supplementary Data.
"Consolidated Financial Statements and Supplementary Data" contained on pages
26 through 46 of the 1999 Annual Report to Stockholders of Registrant is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information relating to directors of the Company is set forth under the caption
"Proposal One: Election of Directors" on pages 2 through 14 of the Proxy
Statement for Annual Meeting of Stockholders of Registrant to be held February
1, 2000 and is incorporated herein by reference. Information relating to
executive officers of the Company is set forth under the caption "Executive
Officers" on page 6 of the Proxy Statement for Annual Meeting of Stockholders
of Registrant to be held February 1, 2000 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 17 of the Proxy Statement for Annual Meeting of
Stockholders of Registrant to be held February 1, 2000 and is incorporated
herein by reference.
Item 11. Executive Compensation.
Information relating to Executive Compensation is set forth under the caption
"Executive Compensation" on pages 7 through 14 of the Proxy Statement for
Annual Meeting of Stockholders of Registrant to be held February 1, 2000 and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information relating to Security Ownership of Certain Beneficial Owners and
Management is set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" on pages 15 and 16 of the Company's Proxy
Statement for Annual Meeting of Stockholders of Registrant to be held February
1, 2000 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 February
1, 2000 on page 17 and is incorporated herein by reference.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<S> <C> <C> <C>
(a) 1. Financial Statements
--------------------
The following consolidated financial statements are incorporated herein by reference to the 1999
Annual Report to Stockholders of Registrant in response to Item 8 thereof:
(i) Report of Independent Auditors
(ii) Consolidated Balance Sheets as of September 30, 1999 and 1998
(iii) Consolidated Statements of Operations for Fiscal Years Ended September 30, 1999 and 1998
(iv) Consolidated Statements of Changes in Stockholders' Equity for Fiscal Years Ended
September 30, 1999, 1998 and 1997
(v) Consolidated Statements of Cash Flows for Fiscal Years Ended September 30, 1999, 1998
and 1997
(vi) Notes to Consolidated Financial Statements
2. Financial Statement Schedule
----------------------------
II. Valuation and qualifying accounts Schedules not listed above have been omitted
because the information required to be set forth therein is not applicable or is shown
in the financial statements or notes thereto.
3. Exhibits
-----------
Exhibit
Number Description of Document
-----------------------------------------
3.1(6) Amended and Restated Certificate of Incorporation
3.2(4) Amended Bylaws, as of July 16, 1999
4.1(1) Form of Certificate for Common Stock, Class A
4.2(6) Form of Stock Certificate for Common Stock, Class B
10.1(1) Form of Indemnification Agreement
10.2(1) Amended and Restated Registration Rights Agreement dated March 19, 1993 among
the Registrant, Dun & Bradstreet Corporation and D&B Enterprises, Inc.
10.3(2) Lease dated December 29, 1994 between Soundview Farms and the Registrant
related to premises at 56 Top Gallant Road, 70 Gatehouse Road, and 88 Gatehouse
Road, Stamford, Connecticut
10.4 Lease dated May 16, 1997 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 10.3)
10.5(1)* Long Term Incentive Plan (Tenure Plan), including form of Employee Stock
Purchase Agreement
10.6* 1991 Stock Option Plan, as amended and restated on October 12, 1999
10.7 (1)* 1993 Director Stock Option Plan
10.8 (1)* Employee Stock Purchase Plan
10.9* 1994 Long Term Stock Option Plan, as amended and restated on October 12, 1999
10.10(2) Forms of Master Client Agreement
10.11(1) Commitment Letter dated July 16, 1993 from The Bank of New York
10.12(1) Indemnification Agreement dated April 16, 1993 by and among the Registrant,
Cognizant Corporation (as successor to the Dun & Bradstreet Corporation) and the
Information Partners Capital Fund
10.13* 1998 Long Term Stock Option Plan, as amended and restated on October 12, 1999
10.14(3) Commitment Letter dated September 30, 1996 from Chase Manhattan Bank
10.15* 1996 Long Term Stock Option Plan, as amended and restated on October 12, 1999
10.16(5) Employment Agreement between Manuel A. Fernandez and Gartner Group, Inc. as
of November 12, 1998
</TABLE>
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<TABLE>
<S> <C> <C>
10.17(5) Employment Agreement between William T. Clifford and Gartner Group, Inc. as of
November 12, 1998
10.18(5) Employment Agreement between E. Follett Carter and Gartner Group, Inc. as of
November 12, 1998
10.19(5) Employment Agreement between Michael D. Fleisher and Gartner Group, Inc. as of
November 12, 1998
10.20* Employment Agreement between Regina M. Paolillo and Gartner Group, Inc. as of
February 8, 1999
10.21* Employment Agreement between Richard E. Eldh, Jr. and Gartner Group, Inc. as of
February 8, 1999
13.1 Annual report to stockholders
21.1 Subsidiaries of Registrant
23.1 Independent Auditors' Report on Schedule
23.2 Independent Auditors' Consent
24.1 Power of Attorney (see Signature Page)
27.1 Financial Data Schedules
* Compensation plan or arrangement required to be filed as an exhibit to this report on Form 10-K
pursuant to Item 14(c) this report.
(1) Incorporated by reference from the Registrant's Registration Statement on Form S-1 (File
No. 33-67576), as amended, effective October 4, 1993.
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-K as filed on
December 21, 1995.
(3) Incorporated by reference from the Registrant's Annual Report on Form 10-K as filed on
December 17, 1996.
(4) Incorporated by reference from Registrant's Registration Statement on Form S-8 (File No.
333-35169) as filed on September 8, 1997.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K filed on
December 24, 1998.
(6) Incorporated by reference from the Registrant's Registration Statement on Form 8-A as filed
on July 7, 1999.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated July 29, 1999.
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Stamford, State of Connecticut, on the 20th day of December, 1999.
GARTNER GROUP, INC.
By: /s/ MICHAEL D. FLEISHER
-----------------------
Michael D. Fleisher
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Michael D. Fleisher and Regina M.
Paolillo and each of them acting individually, as his or her attorney-in-fact,
each with full power of substitution, for him or her 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>
Name Title Date
<S> <C> <C>
/s/ MICHAEL D. FLEISHER Director, President and Chief Executive Officer December 20, 1999
- -------------------------- (Principal Executive Officer)
Michael D. Fleisher
/s/ REGINA M. PAOLILLO Executive Vice President Finance and December 20, 1999
- -------------------------- Administration and Chief Financial Officer
Regina M. Paolillo (Principal Financial and Accounting Officer)
/s/ MANUEL A. FERNANDEZ Director, Chairman of the Board December 20, 1999
- --------------------------
Manuel A. Fernandez
/s/ ANNE SUTHERLAND FUCHS Director December 20, 1999
- --------------------------
Anne Sutherland Fuchs
/s/ WILLIAM O. GRABE Director December 20, 1999
- --------------------------
William O. Grabe
/s/ MAX D. HOPPER Director December 20, 1999
- --------------------------
Max D. Hopper
/s/ JOHN P. IMLAY, JR. Director December 20, 1999
- --------------------------
John P. Imlay, Jr.
/s/ CHARLES B. MCQUADE Director December 20, 1999
- --------------------------
Charles B. McQuade
/s/ STEPHEN G. PAGLIUCA Director December 20, 1999
- --------------------------
Stephen G. Pagliuca
/s/ DENNIS G. SISCO Director December 20, 1999
- --------------------------
Dennis G. Sisco
</TABLE>
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GARTNER GROUP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(all amounts in thousands)
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged Deductions Deductions
Beginning Costs and to Other from for Sale of Balance at
of Year Expenses Accounts (1) Reserve (2) Business End of Year
------------ ---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
------ ------ ---- ------ ------ ------
Year Ended September 30, 1999
Allowance for doubtful accounts and
returns and allowances ........... $4,125 $5,128 $274 $4,589 $ -- $4,938
------ ------ ---- ------ ------ ------
</TABLE>
(1) Allowances of $274 and $319 assumed upon acquisitions of entities in year
ended September 30, 1999 and 1997, respectively.
(2) Amounts written off.
10
Exhibit 10.6
GARTNER GROUP, INC.
1991 STOCK OPTION PLAN
As amended and restated on October 12, 1999
This 1991 Stock Option Plan is an amendment and restatement of the Gartner
Group, Inc. 1991 Stock Option and Appreciation Right Incentive Compensation
Plan.
1. Purpose of the Plan. The purpose of this Stock Option Plan is to enable
the Company to provide incentive to eligible employees, consultants and officers
whose present and potential contributions are important to the continued success
of the Company, to afford these individuals the opportunity to acquire a
proprietary interest in the Company, and to enable the Company to enlist and
retain in its employment qualified personnel for the successful conduct of its
business. It is intended that this purpose will be effected through the granting
of (a) stock options, (b) stock purchase rights, (c) stock appreciation rights,
and (d) long-term performance awards.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or such of its Committees as
shall be administering the Plan, in accordance with Section 8 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under applicable securities laws, Delaware
corporate law and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in
accordance with Section 8 of the Plan.
(f) "Common Stock" means the Common Stock, $.01 par value, of the
Company.
(g) "Company" means Gartner Group, Inc., a Delaware corporation,
previously known as GGI Holding Corporation.
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(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(i) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship is not interrupted or terminated by the
Company, or any Parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Administrator, including sick leave, military leave, or
any other personal leave; provided, however, that for purposes of Continuous
Status as an Employee or Consultant, no such leave may exceed ninety (90) days,
unless reemployment upon the expiration of such leave is guaranteed by contract
(including written Company policies) or statute or unless (in the case of
Options and Rights other than Incentive Stock Options) the Administrator has
expressly designated a longer leave period during which (for purposes of such
Options or Rights) Continuous Status as an Employee or Consultant shall
continue; or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor; and provided further
that any vesting or lapsing of the Company's right to repurchase Shares at their
original purchase price shall cease on the ninety-first (91st) consecutive day
of any leave of absence approved by the Administrator and shall not recommence
until such date, if any, upon which the Consultant or Optionee resumes his or
her service with the Company. Continuous employment shall be interrupted and
terminated for an Employee if the Employee's weekly work hours change from full
time to part time. Part-time status for the purpose of vesting continuation or
eligibility to receive Options shall be determined in accordance with policies
adopted by the Company from time to time, which policies, if any, shall
supercede the determination of part-time status set forth in the Company's
posted "employee status definitions".
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(n) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without
limitation the Nasdaq National Market of the National
Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a
share of Common Stock shall be the closing sales price
for such stock (or the closing bid price, if no sales
were reported) as quoted on such exchange or system (or
the exchange with the greatest volume of trading in
Common Stock) on the date of determination, as reported
in The Wall Street Journal or such other source as the
Administrator of the Plan deems reliable.
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the Nasdaq National Market thereof) or is
regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the
high bid and low asked prices for the Common Stock on the
date of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems
reliable.
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good
faith by the Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Long-Term Performance Award" means an award under Section 7
below. A Long-Term Performance Award shall permit the recipient to receive a
cash or stock bonus (as determined by the Administrator) upon satisfaction of
such performance factors as are set out in the recipient's individual grant.
Long-term Performance Awards will be based upon the achievement of Company,
Subsidiary and/or individual performance factors or upon such other criteria as
the Administrator may deem appropriate.
(q) "Long-Term Performance Award Agreement" means a written
agreement between the Company and an Optionee evidencing the terms and
conditions of an individual Long-Term Performance Award grant. The Long-Term
Performance Award Agreement is subject to the terms and conditions of the Plan.
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(r) "Nonstatutory Stock Option" means any Option that is not an
Incentive Stock Option.
(s) "Notice of Grant" means a written notice evidencing certain
terms and conditions of an individual Option, Stock Purchase Right, SAR or
Long-Term Performance Award grant. The Notice of Grant is part of the Option
Agreement, the SAR Agreement and the Long-Term Performance Award Agreement.
(t) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means a stock option granted pursuant to the Plan.
(v) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(w) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(x) "Optioned Stock" means the Common Stock subject to an Option or
Right.
(y) "Optionee" means an Employee or Consultant who holds an
outstanding Option or Right.
(aa) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(bb) "Plan" means this Stock Option Plan, formerly the 1991 Stock
Option and Appreciation Right Incentive Compensation Plan.
(cc) "Restricted Stock" means shares of Common Stock subject to a
Restricted Stock Purchase Agreement acquired pursuant to a grant of Stock
Purchase Rights under Section 6 below.
(dd) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
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(ee) "Right" means and includes SARs, Long-Term Performance Awards
and Stock Purchase Rights granted pursuant to the Plan.
(ff) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor rule thereto, as in effect when discretion is being exercised with
respect to the Plan.
(gg) "SAR" means a stock appreciation right granted pursuant to
Section 5 of the Plan.
(hh) "SAR Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual SAR grant.
The SAR Agreement is subject to the terms and conditions of the Plan.
(ii) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(jj) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 6 of the Plan, as evidenced by a Notice of Grant.
(kk) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Shares Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the total number of Shares reserved and available for distribution
under the Plan is 32,800,000 Shares. Subject to Section 10 of the Plan, if any
Shares that have been optioned under an Option cease to be subject to such
Option (other than through exercise of the Option), or if any Option or Right
granted hereunder is forfeited or any such award otherwise terminates prior to
the issuance of Common Stock to the participant, the shares that were subject to
such Option or Right shall again be available for distribution in connection
with future Option or right grants under the Plan; provided, however, that
Shares that have actually been issued under the Plan, whether upon exercise of
an Option or Right, shall not in any event be returned to the Plan and shall not
become available for future distribution under the Plan.
4. Eligibility. Nonstatutory Stock Options and Rights may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee or Consultant who has been granted
an Option or Right may be granted additional Options or Rights.
5. Options and SARs.
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(a) Options. The Administrator, in its discretion, may grant Options
to eligible participants and shall determine whether such Options shall be
Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be
evidenced by a Notice of Grant which shall expressly identify the Options as
Incentive Stock Options or as Nonstatutory Stock Options, and be in such form
and contain such provisions as the Administrator shall from time to time deem
appropriate. Without limiting the foregoing, the Administrator may at any time
authorize the Company, with the consent of the respective recipients, to issue
new Options or Rights in exchange for the surrender and cancellation of
outstanding Options or Rights. Option agreements shall contain the following
terms and conditions:
(i) Exercise Price; Number of Shares. The per Share exercise
price for the Shares issuable pursuant to an Option shall
be such price as is determined by the Administrator;
provided, however, that in the case of an Incentive Stock
Option, the price shall be no less than 100% of the Fair
Market Value of the Common Stock on the date the Option
is granted, subject to any additional conditions set out
in Section 5(a)(iv) below.
The Notice of Grant shall specify the number of Shares to
which it pertains.
(ii) Waiting Period and Exercise Dates. At the time an Option
is granted, the Administrator will determine the terms
and conditions to be satisfied before Shares may be
purchased, including the dates on which Shares subject to
the Option may first be purchased. The Administrator may
specify that an Option may not be exercised until the
completion of the service period specified at the time of
grant. (Any such period is referred to herein as the
"waiting period.") At the time an Option is granted, the
Administrator shall fix the period within which the
Option may be exercised, which shall not be earlier than
the end of the waiting period, if any, nor, in the case
of an Incentive Stock Option, later than ten (10) years,
from the date of grant.
(iii) Form of Payment. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including
the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive
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Stock Option, shall be determined at the time of grant)
and may consist entirely of:
(1) cash;
(2) check;
(3) promissory note;
(4) other Shares which (1) in the case of Shares acquired
upon exercise of an option, have been owned by the
Optionee for more than six months on the date of
surrender, and (2) have a Fair Market Value on the date
of surrender not greater than the aggregate exercise
price of the Shares as to which said Option shall be
exercised;
(5) delivery of a properly executed exercise notice
together with such other documentation as the
Administrator and any broker approved by the Company, if
applicable, shall require to effect an exercise of the
Option and delivery to the Company of the sale or loan
proceeds required to pay the exercise price;
(6) any combination of the foregoing methods of payment;
or
(7) such other consideration and method of payment for
the issuance of Shares to the extent permitted by
Applicable Laws.
(iv) Special Incentive Stock Option Provisions. In addition to
the foregoing, Options granted under the Plan which are
intended to be Incentive Stock Options under Section 422
of the Code shall be subject to the following terms and
conditions:
(1) Dollar Limitation. To the extent that the aggregate
Fair Market Value of (a) the Shares with respect to which
Options designated as Incentive Stock Options plus (b)
the shares of stock of the Company, Parent and any
Subsidiary with respect to which other incentive stock
options are exercisable for the first time by an Optionee
during any calendar year under all plans of the Company
and any Parent
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and Subsidiary exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. For purposes of
the preceding sentence, (a) Options shall be taken into
account in the order in which they were granted, and (b)
the Fair Market Value of the Shares shall be determined
as of the time the Option or other incentive stock option
is granted.
(2) 10% Stockholder. If any Optionee to whom an Incentive
Stock Option is to be granted pursuant to the provisions
of the Plan is, on the date of grant, the owner of Common
Stock (as determined under Section 424(d) of the Code)
possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any
Parent or Subsidiary of the Company, then the following
special provisions shall be applicable to the Option
granted to such individual:
(a) The per Share Option price of Shares subject to
such Incentive Stock Option shall not be less than
110% of the Fair Market Value of Common Stock on the
date of grant; and
(b) The Option shall not have a term in excess of five
(5) years from the date of grant.
Except as modified by the preceding provisions of this
subsection 5(a)(iv) and except as otherwise limited by
Section 422 of the Code, all of the provisions of the
Plan shall be applicable to the Incentive Stock Options
granted hereunder.
(v) Other Provisions. Each Option granted under the Plan may
contain such other terms, provisions, and conditions not
inconsistent with the Plan as may be determined by the
Administrator.
(vi) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an
Option previously granted, based on such terms and
conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer
is made.
(b) SARs.
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(i) In Connection with Options. At the sole discretion of the
Administrator, SARs may be granted in connection with all
or any part of an Option, either concurrently with the
grant of the Option or at any time thereafter during the
term of the Option. The following provisions apply to
SARs that are granted in connection with Options:
(1) The SAR shall entitle the Optionee to exercise the
SAR by surrendering to the Company unexercised a portion
of the related Option. The Optionee shall receive in
Exchange from the Company an amount equal to the excess
of (1) the Fair Market Value on the date of exercise of
the SAR of the Common Stock covered by the surrendered
portion of the related Option over (2) the exercise price
of the Common Stock covered by the surrendered portion of
the related Option. Notwithstanding the foregoing, the
Administrator may place limits on the amount that may be
paid upon exercise of an SAR; provided, however, that
such limit shall not restrict the exercisability of the
related Option.
(2) When an SAR is exercised, the related Option, to the
extent surrendered, shall cease to be exercisable.
(3) An SAR shall be exercisable only when and to the
extent that the related Option is exercisable and shall
expire no later than the date on which the related Option
expires.
(4) An SAR may only be exercised at a time when the Fair
Market Value of the Common Stock covered by the related
Option exceeds the exercise price of the Common Stock
covered by the related Option.
(ii) Independent of Options. At the sole discretion of the
Administrator, SARs may be granted without related
Options. The following provisions apply to SARs that are
not granted in connection with Options:
(1) The SAR shall entitle the Optionee, by exercising the
SAR, to receive from the Company an
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amount equal to the excess of (1) the Fair Market Value
of the Common Stock covered by the exercised portion of
the SAR, as of the date of such exercise, over (2) the
Fair Market Value of the Common Stock covered by the
exercised portion of the SAR, as of the last market
trading date prior to the date on which the SAR was
granted; provided, however, that the Administrator may
place limits on the aggregate amount that may be paid
upon exercise of an SAR.
(2) SARs shall be exercisable, in whole or in part, at
such times as the Administrator shall specify in the
Optionee's SAR agreement.
(iii) Form of Payment. The Company's obligation arising upon
the exercise of an SAR may be paid in Common Stock or in
cash, or in any combination of Common Stock and cash, as
the Administrator, in its sole discretion, may determine.
Shares issued upon the exercise of an SAR shall be valued
at their Fair Market Value as of the date of exercise.
(c) Method of Exercise.
(i) Procedure for Exercise; Rights as a Stockholder. Any
Option or SAR granted hereunder shall be exercisable at
such times and under such conditions as determined by the
Administrator and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option or SAR shall be deemed to be exercised when
written notice of such exercise has been given to the
Company in accordance with the terms of the Option or SAR
by the person entitled to exercise the Option or SAR and
full payment for the Shares with respect to which the
Option is exercised has been received by the Company.
Full payment may, as authorized by the Administrator
(and, in the case of an Incentive Stock Option,
determined at the time of grant) and permitted by the
Option Agreement consist of any consideration and method
of payment allowable under subsection 5(a)(iii) of the
Plan. Until the issuance (as evidenced by the appropriate
entry
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on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date
is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter shall
be available, both for purposes of the Plan and for sale
under the Option, by the number of Shares as to which the
Option is exercised. Exercise of an SAR in any manner
shall, to the extent the SAR is exercised, result in a
decrease in the number of Shares which thereafter shall
be available for purposes of the Plan, and the SAR shall
cease to be exercisable to the extent it has been
exercised.
(ii) Rule 16b-3. Options and SARs granted to individuals
subject to Section 16 of the Exchange Act ("Insiders")
must comply with the applicable provisions of Rule 16b-3
and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for
the maximum exemption from Section 16 of the Exchange Act
with respect to Plan transactions.
(iii) Termination of Employment or Consulting Relationship. In
the event an Optionee's Continuous Status as an Employee
or Consultant terminates (other than upon the Optionee's
death or Disability), the Optionee may exercise his or
her Option or SAR, but only within such period of time as
is determined by the Administrator at the time of grant,
not to exceed six (6) months (three (3) months in the
case of an Incentive Stock Option) from the date of such
termination, and only to the extent that the Optionee was
entitled to exercise it at the date of such termination
(but in no event later than the expiration of the term of
such Option or SAR as set forth in the Option or SAR
Agreement). To the extent that Optionee was not entitled
to exercise an Option or SAR at the date of such
termination, and to the extent that the
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Optionee does not exercise such Option or SAR (to the
extent otherwise so entitled) within the time specified
herein, the Option or SAR shall terminate.
(iv) Disability of Optionee. In the event an Optionee's
Continuous Status as an Employee or Consultant terminates
as a result of the Optionee's Disability, the Optionee
may exercise his or her Option or SAR, but only within
six (6) months from the date of such termination, and
only to the extent that the Optionee was entitled to
exercise it at the date of such termination (but in no
event later than the expiration of the term of such
Option or SAR as set forth in the Option or SAR
Agreement). To the extent that Optionee was not entitled
to exercise an Option or SAR at the date of such
termination, and to the extent that the Optionee does not
exercise such Option or SAR (to the extent otherwise so
entitled) within the time specified herein, the Option or
SAR shall terminate.
(v) Death of Optionee. Notwithstanding Sections 5(c)(iii) and
5(c)(iv) above, in the event of an Optionee's death
during Optionee's Continuous Status as an Employee or
Consultant, the Optionee's estate or a person who
acquired the right to exercise the deceased Optionee's
Option or SAR by bequest or inheritance may exercise the
Option or SAR, but only within six (6) months (or such
lesser period as the Option or SAR Agreement may provide,
or such longer period, not to exceed twelve (12) months,
as the Option or SAR Agreement may provide) following the
date of death, and only to the extent that the Optionee
was entitled to exercise it at the date of death (but in
no event later than the expiration of the full term of
such Option or SAR as set forth in the Option or SAR
Agreement). To the extent that Optionee was not entitled
to exercise an Option or SAR at the date of death, and to
the extent that the Optionee's estate or a person who
acquired the right to exercise such Option does not
exercise such Option or SAR (to the extent otherwise so
entitled) within the time specified herein, the Option or
SAR shall terminate.
(d) The following limitations shall apply to grants of Options to
Employees:
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(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an
additional 500,000 Shares which shall not count against
the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the
Company's capitalization as described in Section 10.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection
with a transaction describe in Section 10), the canceled
Option will be counted against the limit set forth in
Section 5(d)(i). For this purpose, if the exercise price
of an Option is reduced, the transaction will be treated
as a cancellation of the Option and the grant of a new
Option.
6. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that the offeree shall be entitled to
purchase, the price to be paid, and the time within which the offeree must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the Administrator made the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.
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(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rule 16b-3. Stock Purchase Rights granted to Insiders, and
Shares purchased by Insiders in connection with Stock Purchase Rights, shall be
subject to any restrictions applicable thereto in compliance with Rule 16b-3. An
Insider may only purchase Shares pursuant to the grant of a Stock Purchase
Right, and may only sell Shares purchased pursuant to the grant of a Stock
Purchase Right, during such time or times as are permitted by Rule 16b-3.
(e) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 10
of the Plan.
7. Long-Term Performance Awards.
(a) Administration. Long-Term Performance Awards are cash or stock
bonus awards that may be granted either alone or in addition to other awards
granted under the Plan. Such awards shall be granted for no cash consideration.
The Administrator shall determine the nature, length and starting date of any
performance period (the "Performance Period") for each Long-Term Performance
Award, and shall determine the performance or employment factors, if any, to be
used in the determination of Long-Term Performance Awards and the extent to
which such Long-Term Performance Awards are valued or have been earned.
Long-Term Performance Awards may vary from participant to participant and
between groups of participants and shall be based upon the achievement of
Company, Subsidiary, Parent and/or individual performance factors or upon such
other criteria as the Administrator may deem appropriate. Performance Periods
may overlap and participants may participate simultaneously with respect to
Long-Term Performance Awards that are subject to different Performance Periods
and different performance factors and criteria. Long-Term Performance Awards
shall be confirmed by, and be subject to the terms of, a Long-Term Performance
Award agreement. The terms of such awards need not be the same with respect to
each participant.
At the beginning of each Performance Period, the Administrator
may determine for each Long-Term Performance Award subject to such Performance
Period the range of dollar values or number of shares of Common
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Stock to be awarded to the participant at the end of the Performance Period if
and to the extent that the relevant measures of performance for such Long-Term
Performance Award are met. Such dollar values or number of shares of Common
Stock may be fixed or may vary in accordance with such performance or other
criteria as may be determined by the Administrator.
(b) Adjustment of Awards. The Administrator may adjust the
performance factors applicable to the Long-Term Performance Awards to take into
account changes in legal, accounting and tax rules and to make such adjustments
as the Administrator deems necessary or appropriate to reflect the inclusion or
exclusion of the impact of extraordinary or unusual items, events or
circumstances in order to avoid windfalls or hardships.
8. Administration.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by Rule
16b-3 and Applicable Laws, the Plan may (but need not) be
administered by different administrative bodies with
respect to (A) Directors who are employees, (B) Officers
who are not Directors and (C) Employees who are neither
Directors nor Officers.
(ii) Administration with respect to Directors and Officers.
With respect to grants of Options and Rights to eligible
participants who are Officers or Directors of the
Company, the Plan shall be administered by (A) the Board,
if the Board may administer the Plan in compliance with
Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary grant or award plan, or (B)
a Committee designated by the Board to administer the
Plan, which Committee shall be constituted (1) in such a
manner as to permit the Plan to comply with Rule 16b-3 as
it applies to a plan intended to qualify thereunder as a
discretionary grant or award plan and (2) in such a
manner as to satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons. With
respect to grants of Options to eligible participants who
are neither Directors nor Officers of the Company, the
Plan shall be administered by (A) the Board or (B) a
Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the
Applicable Laws.
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(iv) General. Once a Committee has been appointed pursuant to
subsection (ii) or (iii) of this Section 8(a), such
Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time
to time the Board may increase the size of any Committee
and appoint additional members thereof, remove members
(with or without cause) and appoint new members in
substitution therefor, fill vacancies (however caused)
and remove all members of a Committee and thereafter
directly administer the Plan, all to the extent permitted
by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted
by Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary grant or award plan.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and
Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option and Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted
hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when
Options or Rights may be exercised (which may be based on
performance
16
<PAGE>
criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or
limitation regarding any Option or Right or the shares of
Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion,
shall determine;
(vii) to construe and interpret the terms of the Plan;
(viii) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(ix) to determine whether and under what circumstances an
Option or Right may be settled in cash instead of Common
Stock or Common Stock instead of cash;
(x) to reduce the exercise price of any Option or Right;
(xi) to modify or amend each Option or Right (subject to
Section 16 of the Plan);
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an
Option or Right previously granted by the Administrator;
(xiii) to institute an Option Exchange Program;
(xiv) to determine the terms and restrictions applicable to
Options and Rights and any Restricted Stock; and
(xv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Rights.
9. Transferability of Options. Unless otherwise determined by the
Administrator to the contrary, Options and Rights may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The Administrator may, in the
manner established by the Administrator, provide for the transfer of a
Nonstatuatory Stock Option by the Optionee to any member of the Optionee's
immediate family. In such case, the Nonstatutory Stock Option shall be
17
<PAGE>
exercisable only by such transferee. Following transfer, any such Nonstatutory
Stock Options shall continue to be subject to the same terms and conditions as
were applicable immediately prior to the transfer. For purposes of this Section,
an Optionee's "immediate family" shall mean any of the following who have
acquired the Option from the Optionee through a gift or domestic relations
order: a child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships, trusts for
the exclusive benefit of these persons and any other entity owned solely by
these persons, and such other persons and entities as shall be eligible to be
included as transferees in the Form S-8 Registration Statement under the
Securities Act of 1933, as amended, filed or to be filed by the Company to
register shares of Common Stock to be issued upon the exercise of Options
granted pursuant to the Plan.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Right, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no
Options or Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option or Right
has not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option or Right shall terminate
as of a date fixed by the Board and give each Optionee the right to exercise his
18
<PAGE>
or her Option or Right as to all or any part of the Optioned Stock, including
Shares as to which the Option or Right would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Right shall be assumed or an
equivalent Option or Right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation does not agree to assume the Option or to substitute an equivalent
option, the Administrator shall, in lieu of such assumption or substitution,
provide for the Optionee to have the right to exercise the Option or Right as to
all or a portion of the Optioned Stock, including Shares as to which it would
not otherwise be exercisable. If the Administrator makes an Option or Right
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee that the Option or
Right shall be exercisable for a period of not less than fifteen (15) days from
the date of such notice, and the Option or Right will terminate upon the
expiration of such period. For the purposes of this paragraph, the Option or
Right shall be considered assumed if, immediately following the merger or sale
of assets, the Option or Right confers the right to purchase, for each Share of
Optioned Stock subject to the Option or Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets was not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation and the participant, provide for
the consideration to be received upon the exercise of the Option or Right, for
each Share of Optioned Stock subject to the Option or Right, to be solely common
stock of the successor corporation or its Parent equal in Fair Market Value to
the per share consideration received by holders of Common Stock in the merger or
sale of assets.
11. Date of Grant. The date of grant of an Option or Right shall be, for
all purposes, the date on which the Administrator makes the determination
granting such Option or Right, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each Optionee
within a reasonable time after the date of such grant.
12. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Right unless the exercise of such Option or Right and
the issuance and delivery of such Shares shall comply with all relevant
19
<PAGE>
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
Applicable Laws, and the requirements of any stock exchange or quotation system
upon which the Shares may then be listed or quoted, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Right, the Company may require the person exercising such Option or
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required.
13. Liability of Company.
(a) Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
by an Option or Right exceeds, as of the date of grant, the number of Shares
which may be issued under the Plan without additional stockholder approval, such
Option or Right shall be void with respect to such excess Optioned Stock, unless
stockholder approval of an amendment sufficiently increasing the number of
Shares subject to the Plan is timely obtained in accordance with Section 16(b)
of the Plan.
14. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
20
<PAGE>
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such stockholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
17. Taxation Upon Exercise of Option or Right. At the discretion of the
Administrator, Optionees may satisfy withholding obligations as provided in this
Section 17. When an Optionee incurs tax liability in connection with an Option
or Right, which tax liability is subject to withholding under applicable tax
laws, the Optionee may satisfy the tax withholding obligation by one or some
combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, or (c) by surrendering to the Company Shares
which (i) in the case of Shares previously acquired from the Company, have been
owned by the Optionee for more than six months on the date of surrender, and
(ii) have a fair market value on the date of surrender equal to or less than
Optionee's marginal tax rate times the ordinary income recognized, or (d) by
electing to have the Company withhold from the Shares to be issued upon exercise
of the Option or Right that number of Shares having a fair market value equal to
the amount required to be withheld. For this purpose, the fair market value of
the Shares to be withheld shall be determined on the date that the amount of tax
to be withheld is to be determined (the "Tax Date").
If the Optionee is an Insider, any surrender of previously owned Shares
to satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
21
<PAGE>
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is an Insider, the election must comply with the
applicable provisions of Rule 16b-3 and shall be subject to such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
18. Term of the Plan. The Plan shall expire, and no further Options shall
be granted pursuant to the Plan, on April 25, 2001.
19. Tax and Social Security Indemnity. An Optionee shall indemnify the
Company against any tax arising in respect of the grant or exercise of an Option
or Right which is a liability of the Optionee but for which the Company is
required to account under the laws of any relevant territory. The Company may
recover the tax from the Optionee in such manner as the Administrator deems
appropriate, including (but without prejudice to the generality of the
foregoing):
(a) withholding shares upon the exercise of the Option and selling
the same;
(b) deducting the necessary amount from the Optionee's compensation;
or
(c) requiring the Optionee to make cash payment to the Company for
such tax.
20. Options Granted to Employees of French Subsidiaries.
(a) Purpose. Options granted under the Plan to Employees of French
subsidiaries are intended to qualify under the French regulations as provided in
articles 208-1 to 208-8-2 of the French Company Act (Code des Societes). The
purpose of this Section is to specify the applicable rules to Options for French
Employees and shall not be applicable to any other Employee of the Company.
22
<PAGE>
(b) General. Options granted to French Employees under the Plan are
subject to the provisions of the Plan and any option agreement unless otherwise
provided in this Section 20.
(c) Eligible Participants. Options may be granted exclusively to
Employees of French subsidiaries as (defined in Section 2(l)) of the Plan.
Payment of Director fees by the Company shall not be sufficient to constitute
employment for any purposes of the Options granted to Employees of French
subsidiaries. Employees of French subsidiaries may not be granted Options if, at
the date of grant, they hold more than ten percent (10%) of the Common Stock of
the Company. Section 5(a)(iv)(2) shall not apply to the grant of Options to
French employees.
(d) Options. Eligible Employees may be granted options as provided
in Section 5(a) of the Plan. If rights or awards mentioned in Section 5(b)
(Stock Appreciation Rights), Section 6 (Stock Purchase Rights) and Section 7
(Long-Term Performance Awards) of the Plan are granted to Employees of French
subsidiaries, the provisions of this Section shall not apply to the Stock
Appreciation Rights, Stock Purchase Rights and Long-Term Performance Awards
granted.
(e) Option Price. The exercise price of the Option shall be
determined as set forth in the Plan but it shall not be less than 80% of the
average Fair Market Value of the Common Stock during the twenty (20) market
trading days prior to the date of the grant. The exercise price shall remain
unchanged once the Option is granted. The authority of Administrator to reduce
the Option exercise price, as set forth in Section 8(b)(x) of the Plan, shall,
with respect to Options granted to Employees of French subsidiaries, be limited
to the extend that such reduction may not be to a price less than 80% of the
average Fair Market Value of the Common Stock during the twenty (20) market
trading days prior to the date of such reduction.
(f) Exercise of the Option. Upon exercise of an Option, Employees of
French subsidiaries will receive Shares of Common Stock. Section 8(b)(ix) of the
Plan, concerning the ability to settle the Option in cash instead of Shares of
Common Stock, is not applicable to Employees of French subsidiaries.
(g) Qualification of Plan. In order to have the Plan qualify in
France, any other provision of the Plan that would not be consistent with French
company law or tax law requirements shall not apply to Employees of French
subsidiaries.
23
Exhibit 10.9
GARTNER GROUP, INC.
LONG TERM STOCK OPTION PLAN
As amended and restated on October 12, 1999
1. Purposes of the Plan. The purposes of this Long Term Stock Option Plan
(the "Plan") are:
o to attract and retain quality personnel for positions of substantial
responsibility,
o to create additional incentive for senior personnel of the Company
by offering long term equity participation in the Company, and
o to promote the long-term success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant and
subject to the applicable provisions of Section 422 of the Code and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall administer the Plan in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under state corporate and securities laws
and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock, Class A of the Company.
(g) "Company" means Gartner Group, Inc., a Delaware corporation.
<PAGE>
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who is compensated
for such services. The term "Consultant" shall not include Directors who are
paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(i) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 91st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option. Continuous employment shall be interrupted and terminated for an
Employee if the Employee's weekly work hours change from full time to part time.
Part-time status for the purpose of vesting continuation or eligibility to
receive Options shall be determined in accordance with policies adopted by the
Company from time to time, which policies, if any, shall supercede the
determination of part-time status set forth in the Company's posted "employee
status definitions".
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without
limitation the Nasdaq National Market of the National
<PAGE>
Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a
share of Common Stock shall be the closing sales prices
for such stock (or the closing bid price, if no sales
were reported) as quoted on such system or exchange (or
the exchange with the greatest volume of trading in
Common Stock) on the date of determination, as reported
in The Wall Street Journal or such other source as the
Administrator of the Plan deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the Nasdaq National Market thereof) or is
regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the
high bid and low asked prices for the Common Stock on the
date of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems
reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good
faith by the Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing certain
terms and conditions of an individual Option grant. The Notice of Grant is part
of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(u) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
<PAGE>
(v) "Optioned Stock" means the Common Stock subject to an Option.
(w) "Optionee" means an Employee or Consultant who holds an
outstanding Option.
(x) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "Senior Manager" means an Employee who is an executive officer,
vice president, director-level employee or senior analyst of the Company, or
such other Employee as the Administrator shall deem eligible to participate in
the Plan.
(aa) "Share" means a share of Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(ab) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,640,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies
with respect to
<PAGE>
Directors, Officers who are not Directors, and Senior
Managers who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers
Subject to Section 16(b). With respect to Option grants
made to Senior Managers who are also Officers or
Directors subject to Section 16(b) of the Exchange Act,
the Plan shall be administered by (A) the Board, if the
Board may administer the Plan in compliance with the
rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a committee
designated by the Board to administer the Plan, which
committee shall be constituted to comply with the rules
governing a plan intended to qualify as a discretionary
plan under Rule 16b-3. Once appointed, such Committee
shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint
additional members, remove members (with or without
cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee
and thereafter directly administer the Plan, all to the
extent permitted by the rules governing a plan intended
to qualify as a discretionary plan under Rule 16b-3.
(iii) Administration With Respect to Other Persons. With
respect to Option grants made to Senior Managers who are
neither Directors nor Officers of the Company, the Plan
shall be administered by (A) the Board or (B) a committee
designated by the Board, which committee shall be
constituted to satisfy Applicable Laws. Once appointed,
such Committee shall serve in its designated capacity
until otherwise directed by the Board. The Board may
increase the size of the Committee and appoint additional
members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused),
and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted
by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(n) of the Plan;
<PAGE>
(ii) to select the Senior Managers to whom Options may be
granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted
hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when
Options may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver
of forfeiture restrictions, and any restriction or
limitation regarding any Option or the shares of Common
Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion,
shall determine;
(vii) to reduce the exercise price of any Option;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations
relating to sub-plans established for the purpose of
qualifying for preferred tax treatment under foreign tax
laws;
(x) to modify or amend each Option (subject to Section 14(c)
of the Plan), including the discretionary authority to
extend the post-termination exercisability period of
Options longer than is otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an
Option previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
<PAGE>
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Options may be granted to Senior Managers. If otherwise
eligible, a Senior Manager who has been granted an Option may be granted
additional Options.
6. Limitations.
(a) Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares subject to an Optionee's Incentive Stock Options granted by the
Company, any Parent or Subsidiary, which become exercisable for the first time
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan nor any Option shall confer upon an Optionee
any right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
(c ) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an
additional 500,000 Shares which shall not count against
the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the
Company's capitalization as described in Section 12.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection
with a transaction describe in Section 12), the canceled
Option will be
<PAGE>
counted against the limit set forth in Section 6(c)(i).
For this purpose, if the exercise price of an Option is
reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall become
effective upon the earlier to occur of its adoption by the Board or its approval
by the shareholders of the Company as described in Section 18 of the Plan. It
shall continue in effect for a term of ten (10) years unless terminated earlier
under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be ten (10) years from
the date of grant. However, in the case of an Incentive Stock Option, the term
shall be ten (10) years from the date of grant or such shorter term as may be
provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
<PAGE>
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the
voting power of all classes of stock of the Company
or any Parent or Subsidiary, the per Share exercise
price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the
per Share exercise price shall be no less than 100%
of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for
more than six months on the date of surrender, and (B)
have a Fair Market Value on the date of surrender equal to
the
<PAGE>
aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) in the case of a "cashless exercise" during the trading
window permitted by the Company's Insider Trading Policy,
delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or
loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred
compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable
Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
<PAGE>
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
<PAGE>
(b) Termination of Employment or Consulting Relationship.
(i) Upon termination of an Optionee's Continuous Status as an
Employee or Consultant with the Company, such Optionee may
exercise his or her Option to the extent that he or she
was entitled to exercise it as of the date of such
termination. Such exercise may occur only before the end
of the period determined by the Administrator for exercise
following termination. In the case of an Incentive Stock
Option, such period shall not exceed three (3) months. In
no event shall such period extend beyond the expiration
date of the term of the Option as set forth in the Option
Agreement.
(ii) An Optionee's change of status from Employee to Consultant
shall not be treated as a termination of the Optionee's
Continuous Status as an Employee or Consultant, and any
Option held by the Optionee shall remain in effect, except
as provided hereinbelow. Any Incentive Stock Option held
by such Optionee shall automatically cease to be treated
for tax purposes as an Incentive Stock Option and shall be
treated as a Nonstatutory Stock Option on the ninety-first
(91st) day following such change of status.
Notwithstanding the above, within thirty (30) days after
any such change of status, the Administrator may in its
discretion determine that this Section 10(b)(ii) shall not
apply to such change of status and that such change of
status shall be treated as a termination of the Optionee's
Continuous Status as an Employee or Consultant as provided
in Section 10(b)(i).
(iii) To the extent that the Optionee is not entitled to
exercise his or her Option at the date of such
termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(c) Disability of Optionee. Upon termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of the Optionee's
Disability, the Optionee may exercise his or her Option at any time within
twelve (12) months from the date of such termination (but in no event later than
the expiration of the term of such Option as set forth in the Notice of Grant),
only to the extent that the Optionee was entitled to exercise it at the date of
such termination. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
<PAGE>
(d) Death of Optionee. Upon the death of an Optionee, the Option may
be exercised at any time within twelve (12) months following the date of death
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, only to the
extent that the Optionee was entitled to exercise the Option at the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(e) Rule 16b-3. Options granted to individuals subject to Section 16
of the Exchange Act ("Insiders") must comply with the applicable provisions of
Rule 16b-3 and shall contain such additional conditions or restrictions as may
be required thereunder to qualify for the maximum exemption from Section 16 of
the Exchange Act with respect to Plan transactions.
11. Transferability of Options. Unless otherwise determined by the
Administrator to the contrary, Options may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee. The Administrator may, in the manner
established by the Administrator, provide for the transfer of a Nonstatuatory
Stock Option by the Optionee to any member of the Optionee's immediate family.
In such case, the Nonstatutory Stock Option shall be exercisable only by such
transferee. Following transfer, any such Nonstatutory Stock Options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to the transfer. For purposes of this Section, an Optionee's
"immediate family" shall mean any of the following who have acquired the Option
from the Optionee through a gift or domestic relations order: a child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, trusts for the exclusive
benefit of these persons and any other entity owned solely by these persons, and
such other persons and entities as shall be eligible to be included as
transferees in the Form S-8 Registration Statement under the Securities Act of
1933, as amended, filed or to be filed by the Company to register shares of
Common Stock to be issued upon the exercise of Options granted pursuant to the
Plan.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each
<PAGE>
outstanding Option, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option may be assumed or an equivalent option
may be substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. The Administrator may, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the Option
as to all or a portion of the Optioned Stock, including Shares as to which it
would not otherwise be exercisable. If the Administrator makes an Option
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the option confers the right to purchase
or receive, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the
<PAGE>
successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the Option,
to be solely common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
16. Liability of Company.
<PAGE>
(a) Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
by an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 14(b) of the Plan.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
19. Tax and Social Security Indemnity. An Optionee shall indemnify the
Company against any tax arising in respect of the grant or exercise of the
Option which is a liability of the Optionee but for which the Company is
required to account under the laws of any relevant territory. The Company may
recover the tax from the Optionee in such manner as the Administrator deems
appropriate, including (but without prejudice to the generality of the
foregoing):
(a) withholding shares upon the exercise of the Option and selling
the same;
(b) deducting the necessary amount from the Optionee's compensation;
or
(c) requiring the Optionee to make cash payment to the Company for
such tax.
Exhibit 10.13
GARTNER GROUP, INC.
1998 LONG TERM STOCK OPTION PLAN
(As amended and restated October 12, 1999)
1. Purposes of the Plan. The purposes of this 1998 Long Term Stock Option
Plan (the "Plan") are:
o to attract and retain quality personnel for positions of substantial
responsibility,
o to create additional incentive for senior personnel of the Company
by offering long term equity participation in the Company, and
o to promote the long-term success of the Company's business.
Awards granted under the Plan may be Options or Time Accelerated Restricted
Stock. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant and subject to the applicable provisions of Section 422 of the Code and
the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall administer the Plan in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under state corporate and securities laws
and the Code.
(c) "Award" means a grant of Options and/or Time Accelerated
Restricted Stock.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(g) "Common Stock" means the Common Stock, Class A, par value
$.0005, of the Company.
(h) "Company" means Gartner Group, Inc., a Delaware corporation.
<PAGE>
(i) "Continuous Status as an Employee " means that the employment
relationship with the Company, any Parent, or Subsidiary, is not interrupted or
terminated. Continuous Status as an Employee shall not be considered interrupted
in the case of (i) any leave of absence approved by the Company or (ii)
transfers between locations of the Company or between the Company, its Parent,
any Subsidiary, or any successor. A leave of absence approved by the Company
shall include sick leave, military leave, or any other personal leave approved
by an authorized representative of the Company. For purposes of Incentive Stock
Options, no such leave may exceed 90 days, unless reemployment upon expiration
of such leave is guaranteed by statute or contract. If reemployment upon
expiration of a leave of absence approved by the Company is not so guaranteed,
on the 91st day of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and shall be treated for
tax purposes as a Nonstatutory Stock Option. Continuous employment shall be
interrupted and terminated for an Employee if the Employee's weekly work hours
change from full time to part time. . Part-time status for the purpose of
vesting continuation or eligibility to receive Options shall be determined in
accordance with policies adopted by the Company from time to time, which
policies, if any, shall supercede the determination of part-time status set
forth in the Company's posted "employee status definitions".
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without
limitation the Nasdaq National Market of the National
Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a
share of Common Stock shall be the closing sales prices
for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common
Stock) on the date of determination, as reported in The
Wall Street Journal or such other source as the
Administrator of the Plan deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the Nasdaq National Market thereof) or is
regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of
a
<PAGE>
Share of Common Stock shall be the mean between the
high bid and low asked prices for the Common Stock on the
date of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems
reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good
faith by the Administrator.
(o) "Holder" means an Employee who holds Shares of Time Accelerated
Restricted Stock.
(p) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(q) "Insider" means an Employee subject to Section 16 of the
Exchange Act.
(r) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(s) "Notice of Grant" means a written notice evidencing certain
terms and conditions of an individual Award. The Notice of Grant is part of the
Option Agreement or Restricted Stock Agreement, as applicable.
(t) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means an Award of a stock option pursuant to the Plan.
(v) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(w) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(x) "Optioned Stock" means the Common Stock subject to an Option.
(y) "Optionee" means an Employee who holds an outstanding Option.
(z) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(aa) "Restricted Stock Agreement" means a written agreement between
the Company and a Holder evidencing the terms and conditions of an individual
award of Time
<PAGE>
Accelerated Restricted Stock. The Restricted Stock Agreement is subject to the
terms and conditions of the Plan.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(cc) "Senior Manager" means an Employee who is an executive officer,
vice president, director-level employee or senior analyst of the Company, or
such other Employee as the Administrator shall deem eligible to participate in
the Plan.
(dd) "Share" means a share of Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
(ff) "Time Accelerated Restricted Stock" means an Award of Shares
pursuant to the Plan which are subject to restrictions on transferability.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be subject to Awards
under the Plan is 2,500,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
Awards under the Plan (unless the Plan has terminated). If an Award of Shares of
Time Accelerated Restricted Stock is forfeited without having vested, such
Shares shall become available for future Awards under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan shall not be returned to the Plan and shall not become available
for future Awards under the Plan, except that if unvested Shares of Time
Accelerated Restricted Stock are reacquired by the Company and the Holder of
such Shares did not receive any benefits of ownership of such Shares, such
Shares shall become available for future Awards under the Plan. For purposes of
the preceding sentence, voting rights shall not be considered a benefit of Share
ownership.
<PAGE>
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to
Directors, Officers who are not Directors, and Senior
Managers who are neither Directors nor Officers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted
hereunder as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the Plan shall be
administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the
Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the
transactions contemplated hereunder shall be structured
to satisfy the requirements for exemption under Rule
16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a
Committee, which committee shall be constituted to
satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(m) of the Plan;
(ii) to select the Senior Managers to whom Awards may be
granted hereunder;
(iii) to determine whether and to what extent Awards are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Award granted
hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when
Options may be exercised (which may be based on
performance criteria), any acceleration of vesting or
waiver of forfeiture restrictions, any acceleration of
<PAGE>
the lapse of restrictions on the transferability of
Shares of Time Accelerated Restricted Stock, and any
restriction or limitation regarding any Award or the
shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole
discretion, shall determine;
(vii) to reduce the exercise price of any Option;
(viii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations
relating to sub-plans established for the purpose of
qualifying for preferred tax treatment under foreign tax
laws;
(x) to modify or amend each Option (subject to Section 15(c)
of the Plan), including the discretionary authority to
extend the post-termination exercisability period of
Options longer than is otherwise provided for in the
Plan;
(xii) to modify or amend (subject to Section 15(c) of the Plan)
each Restricted Stock Agreement, including the
acceleration of the lapse of restrictions on the
transferability of Shares of Time Accelerated Restricted
Stock;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an
Award previously granted by the Administrator;
(xiii) to institute an Option Exchange Program; and
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and Holders and any other holders of Options and Shares of Time
Accelerated Restricted Stock.
5. Eligibility. Awards may be granted to Senior Managers. If otherwise
eligible, a Senior Manager who has been granted an Award may be granted
additional Awards.
6. Limitations.
(a) Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares subject to an Optionee's Incentive Stock Options granted by the
Company, any Parent or Subsidiary, which become exercisable for the first
<PAGE>
time during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan nor any Option shall confer upon an Optionee
any right with respect to continuing the Optionee's employment with the Company,
nor shall they interfere in any way with the Optionee's right or the Company's
right to terminate such employment or consulting relationship at any time, with
or without cause.
(c) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 150,000 shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an
additional 150,000 Shares which shall not count against
the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the
Company's capitalization as described in Section 13.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection
with a transaction describe in Section 13), the canceled
Option will be counted against the limit set forth in
Section 6(c)(i). For this purpose, if the exercise price
of an Option is reduced, the transaction will be treated
as a cancellation of the Option and the grant of a new
Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
effective upon the earlier to occur of its adoption by the Board or its approval
by the shareholders of the Company as described in Section 19 of the Plan. It
shall continue in effect for a term of ten (10) years unless terminated earlier
under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be ten (10) years from
the date of grant. However, in the case of an Incentive Stock Option, the term
shall be ten (10) years from the date of grant or such shorter term as may be
provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
<PAGE>
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to the exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the
voting power of all classes of stock of the Company
or any Parent or Subsidiary, the per Share exercise
price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the
per Share exercise price shall be no less than 100%
of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator.
In the case of a Nonstatutory Stock Option intended to
qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Nonstatutory Options may
be granted with a per Share exercise price of less than
100% of the Fair Market Value per Share on the date of
grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note (on such terms and conditions as
determined by the Administrator);
<PAGE>
(iv) other Shares which have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised;
(v) in the case of a "cashless exercise" during the trading
window permitted by the Company's Insider Trading Policy,
delivery of a properly executed exercise notice together
with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored
deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable
Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 13 of the
Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
<PAGE>
(b) Termination of Employment Relationship.
(i) Upon termination of an Optionee's Continuous Status as an
Employee, such Optionee may exercise his or her Option to
the extent that he or she was entitled to exercise it as
of the date of such termination. Such exercise may occur
only before the end of the period determined by the
Administrator for exercise following termination. In the
case of an Incentive Stock Option, such period shall not
exceed three (3) months. In no event shall such period
extend beyond the expiration date of the term of the
Option as set forth in the Option Agreement.
(ii) To the extent that the Optionee is not entitled to
exercise his or her Option at the date of such
termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Upon termination of an Optionee's
Continuous Status as an Employee as a result of the Optionee's Disability, the
Optionee may exercise his or her Option at any time within twelve (12) months
from the date of such termination (but in no event later than the expiration of
the term of such Option as set forth in the Notice of Grant), only to the extent
that the Optionee was entitled to exercise it at the date of such termination.
If, at the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified herein, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. Upon the death of an Optionee, the Option may
be exercised at any time within twelve (12) months following the date of death
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, only to the
extent that the Optionee was entitled to exercise the Option at the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
11. Transferability of Options. Unless otherwise determined by the
Administrator to the contrary, Options may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee. The Administrator may, in the manner
established by the Administrator, provide for the transfer of a Nonstatutory
Stock Option by the Optionee to any member of the Optionee's immediate family.
Following transfer, any such Nonstatutory Stock Options shall continue to be
subject to the same terms and conditions as were applicable immediately prior to
the transfer. For purposes of this Section, an Optionee's "immediate family"
<PAGE>
shall mean any of the following who have acquired the Option from the Optionee
through a gift or domestic relations order: a child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships, trusts for the exclusive benefit of these persons and
any other entity owned solely by these persons, and such other persons and
entities as shall be eligible to be included as transferees in the Form S-8
Registration Statement under the Securities Act of 1933, as amended, filed or to
be filed by the Company to register shares of Common Stock to be issued upon the
exercise of Options granted pursuant to the Plan.
12. Time Accelerated Restricted Stock.
(a) Grants of Time Accelerated Restricted Stock. Shares of Time
Accelerated Restricted Stock may be granted either alone, in addition to, or in
tandem with other Awards granted under the Plan and/or cash awards made outside
of the Plan. After the Administrator determines that it will grant Time
Accelerated Restricted Stock under the Plan, it shall advise the Holder in
writing of the terms, conditions and restrictions related to the Award,
including the number of Shares subject to the Award. The Award shall be
evidenced by execution of a Restricted Stock Agreement in the form determined by
the Administrator.
(b) The Restricted Stock Agreement. The Restricted Stock Agreement
shall contain such terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Agreements need not be the same
with respect to each Holder.
(c) Nontransferability. Shares of Time Accelerated Restricted Stock
may not be sold, assigned, transferred, alienated, commuted, anticipated, or
otherwise disposed of (except, subject to the provisions of the Restricted Stock
Agreement, by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of ERISA or
the rules promulgated thereunder), or pledged or hypothecated as collateral for
a loan or as security for the performance of any obligation, or be otherwise
encumbered, and are not subject to attachment, garnishment, execution or other
legal or equitable process, prior to the lapse of the period of time
restrictions on the transferability of such Shares remain in effect as set forth
in the Restricted Stock Agreement, and any attempt at action in contravention of
this Section shall be null and void. The lapse of restrictions on the
transferability of such Shares may be accelerated upon the attainment of
performance criteria as set forth in the Restricted Stock Agreement.
(d) Termination of Employment Relationship.
(i) If, prior to the lapse of restrictions on transferability
applicable to Shares of Time Accelerated Restricted
Stock, the Holder's Continuous Status as an Employee
ceases, other than as set forth in subsection (ii) below,
such Shares as to which restrictions on transferability
have not lapsed shall be forfeited to the Company and all
rights of the Holder to such Shares shall terminate
without further obligation on the part of the Company,
effective on the date the Holder's Continuous Status as
an Employee ceases, unless the Administrator determines
otherwise.
<PAGE>
(ii) If, prior to the lapse of restrictions on transferability
applicable to Shares of Time Accelerated Restricted
Stock, the Holder's Continuous Status as an Employee
ceases as a result of the Holder's death or Disability,
the restrictions on the transferability of such Shares
shall lapse.
(e) Rule 16b-3. Time Accelerated Restricted Stock granted to
Insiders, and Shares acquired by Insiders in connection with an Award of Shares
of Time Accelerated Restricted Stock, shall be subject to any restrictions
applicable thereto in compliance with Rule 16b-3.
(f) Rights as a Stockholder. Once Shares of Time Accelerated
Restricted Stock are granted, the Holder shall have the rights equivalent to
those of a stockholder, and shall be a stockholder when the Shares are entered
upon the records of the duly authorized transfer agent of the Company in the
name of the Holder. Certificates representing the Shares may bear a legend, if
the Company deems it advisable, to the effect that they are issued subject to
specified restrictions. Shares issued and transferred to a Holder pursuant to an
Award shall be deposited with an officer of the Company designated by the
Administrator for the Holder's account to be held until the lapse of the
restrictions upon such Shares or the earlier forfeiture of the Shares to the
Company in accordance with the terms of the Restricted Stock Agreement. Each
Holder shall execute and deliver to the Company stock powers enabling the
Company to exercise its rights hereunder.
(g) Dividends. Dividends paid on the Shares of Time Accelerated
Restricted Stock, whether in cash, stock or property, at the discretion of the
Administrator, may be paid to the Holder currently or be held by the Company
subject to the same restrictions on transferability as the Shares to which they
relate. If such cash dividends are held subject to such restrictions on
transferability, the Administrator may determine whether, and on what terms,
interest may be paid on such dividends until the lapse of restrictions on
transferability. If the Shares to which such dividends relate are forfeited to
the Company, such dividends, including interest thereon, if any, shall likewise
be forfeited to the Company without further obligation on the part of the
Company.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each Award, and the number of shares of Common Stock which have been authorized
for issuance under the Plan but as to which no Awards have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Award, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
<PAGE>
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Award.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option may be assumed or an equivalent option
may be substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. The Administrator may, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the Option
as to all or a portion of the Optioned Stock, including Shares as to which it
would not otherwise be exercisable. If the Administrator makes an Option
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the option confers the right to purchase
or receive, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Date of Grant. The date of grant of an Award shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Award, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee and Holder within
a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Section 422 or Section 162(m) of the Code (or any successor rule or statute
or other applicable law, rule or regulation,
<PAGE>
including the requirements of any exchange or quotation system on which the
Common Stock is listed or quoted). Such shareholder approval, if required,
shall be obtained in such a manner and to such a degree as is required by the
applicable law, rule or regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee or
Holder, unless mutually agreed otherwise between the Optionee or Holder and the
Administrator, which agreement must be in writing and signed by the Optionee or
Holder and the Company.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or the grant of Shares of Time Accelerated Restricted
Stock unless the exercise of such Option and the issuance and delivery of such
Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, Applicable Laws, and the requirements of
any stock exchange or quotation system upon which the Shares may then be listed
or quoted, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
17. Liability of Company.
(a) Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
by an Option or the number of Shares of Time Accelerated Restricted Stock
exceeds, as of the date of grant, the number of Shares which may be issued under
the Plan without additional shareholder approval, such Award shall be void with
respect to such excess Shares, unless shareholder approval of an amendment
sufficiently increasing the number of Shares subject to the Plan is timely
obtained in accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted.
<PAGE>
Such shareholder approval shall be obtained in the manner and to the degree
required under applicable federal and state law.
20. Tax and Social Security Indemnity. An Optionee or Holder shall
indemnify the Company against any tax arising in respect of the grant or
exercise of the Option or the grant of Shares of Time Accelerated Restricted
Stock which is a liability of the Optionee or Holder but for which the Company
is required to account under the laws of any relevant territory. The Company may
recover the tax from the Optionee or Holder in such manner as the Administrator
deems appropriate, including (but without prejudice to the generality of the
foregoing):
(a) withholding shares upon the exercise of the Option and selling
the same;
(b) deducting the necessary amount from the Optionee's or Holder's
compensation; or
(c) requiring the Optionee or Holder to make cash payment to the
Company for such tax.
21. Options Granted to Employees of French Subsidiaries.
(a) Purpose. Options granted under the Plan to Employees of French
subsidiaries are intended to qualify under the French regulations as provided in
articles 208-1 to 208-8-2 of the French Company Act (Code des Societes). The
purpose of this Section is to specify the applicable rules to Options for French
Employees and shall not be applicable to any other Employee of the Company.
(b) General. Options granted to French Employees under the Plan are
subject to the provisions of the Plan and any option agreement unless otherwise
provided in this Section 21.
(c) Eligible Participants. Options may be granted exclusively to
Employees (as defined in Section 2(l)) of the Plan) of French subsidiaries.
Payment of Director fees by the Company shall not be sufficient to constitute
employment for any purposes of the Options granted to Employees of French
subsidiaries. Employees of French subsidiaries may not be granted Options if, at
the date of grant, they hold more than ten percent (10%) of the Common Stock of
the Company.
(d) Options. Eligible Employees may be granted Options as provided
in the Plan. If Shares of Time Accelerated Restricted Stock mentioned in Section
12 of the Plan are granted to Employees of French subsidiaries, the provisions
of this Section shall not apply to the Shares of Time Accelerated Restricted
Stock granted.
(e) Option Price. The exercise price of the Option shall be
determined as set forth in the Plan but it shall not be less than 80% of the
average Fair Market Value of the Common Stock during the twenty (20) market
trading days prior to the date of the grant. The exercise price shall remain
unchanged once the Option is granted. The authority of Administrator to reduce
the Option exercise price, as set forth in Section 8(b)(x) of the Plan, shall,
with respect to Options granted to Employees of French subsidiaries, be limited
to the extend that such reduction may not be to a price
<PAGE>
less than 80% of the average Fair Market Value of the Common Stock during the
twenty (20) market trading days prior to the date of such reduction.
(f) Exercise of the Option. Upon exercise of an Option, Employees of
French subsidiaries will receive Shares of Common Stock. Section 4(b)(vii) of
the Plan, concerning the ability to settle the Option in cash instead of Shares
of Common Stock, is not applicable to Employees of French subsidiaries.
(g) Qualification of Plan. In order to have the Plan qualify in
France, any other provision of the Plan that would not be consistent with French
company law or tax law requirements shall not apply to Employees of French
subsidiaries.
Exhibit 10.15
GARTNER GROUP, INC.
1996 LONG TERM STOCK OPTION PLAN
As amended and restated October 12, 1999
1. Purposes of the Plan. The purposes of this 1996 Long Term Stock Option
Plan (the "Plan") are:
o to attract and retain quality personnel for positions of substantial
responsibility,
o to create additional incentive for senior personnel of the Company
by offering long term equity participation in the Company, and
o to promote the long-term success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant and
subject to the applicable provisions of Section 422 of the Code and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall administer the Plan in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under state corporate and securities laws
and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock, Class A of the Company.
(g) "Company" means Gartner Group, Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who is compensated
for such services. The term "Consultant" shall not include Directors who are
paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
<PAGE>
(i) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 91st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option. Continuous employment shall be interrupted and terminated for an
Employee if the Employee's weekly work hours change from full time to part time.
Part-time status for the purpose of vesting continuation or eligibility to
receive Options shall be determined in accordance with policies adopted by the
Company from time to time, which policies, if any, shall supercede the
determination of part-time status set forth in the Company's posted "employee
status definitions".
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without
limitation the Nasdaq National Market of the National
Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a
share of Common Stock shall be the closing sales prices
for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common
Stock) on the date of determination, as reported in The
Wall Street Journal or such other source as the
Administrator of the Plan deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the Nasdaq National Market thereof) or is
regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the
high bid and
2
<PAGE>
low asked prices for the Common Stock on the date of
determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good
faith by the Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing certain
terms and conditions of an individual Option grant. The Notice of Grant is part
of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(u) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option.
(w) "Optionee" means an Employee or Consultant who holds an
outstanding Option.
(x) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "Senior Manager" means an Employee who is an executive officer,
vice president, director-level employee or senior analyst of the Company, or
such other Employee as the Administrator shall deem eligible to participate in
the Plan.
(aa) "Share" means a share of Common Stock, as adjusted in
accordance with Section 12 of the Plan.
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(bb) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,800,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to
Directors, Officers who are not Directors, and Senior
Managers who are neither Directors nor Officers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted
hereunder as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the Plan shall be
administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the
Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the
transactions contemplated hereunder shall be structured
to satisfy the requirements for exemption under Rule
16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a
Committee, which committee shall be constituted to
satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(n) of the Plan;
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(ii) to select the Senior Managers to whom Options may be
granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted
hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when
Options may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver
of forfeiture restrictions, and any restriction or
limitation regarding any Option or the shares of Common
Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion,
shall determine;
(vii) to reduce the exercise price of any Option;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations
relating to sub-plans established for the purpose of
qualifying for preferred tax treatment under foreign tax
laws;
(x) to modify or amend each Option (subject to Section 14(c)
of the Plan), including the discretionary authority to
extend the post-termination exercisability period of
Options longer than is otherwise provided for in the
Plan;
(xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an
Option previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Options may be granted to Senior Managers. If otherwise
eligible, a Senior Manager who has been granted an Option may be granted
additional Options.
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6. Limitations.
(a) Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares subject to an Optionee's Incentive Stock Options granted by the
Company, any Parent or Subsidiary, which become exercisable for the first time
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan nor any Option shall confer upon an Optionee
any right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an
additional 500,000 Shares which shall not count against
the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the
Company's capitalization as described in Section 12.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection
with a transaction describe in Section 12), the canceled
Option will be counted against the limit set forth in
Section 6(c)(i). For this purpose, if the exercise price
of an Option is reduced, the transaction will be treated
as a cancellation of the Option and the grant of a new
Option.
7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall become
effective upon the earlier to occur of its adoption by the Board or its approval
by the shareholders of the Company as described in Section 18 of the Plan. It
shall continue in effect for a term of ten (10) years unless terminated earlier
under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be ten (10) years from
the date of grant. However, in the case of an Incentive Stock Option, the term
shall be ten (10) years from the date of grant or such shorter term as may be
provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
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granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the
voting power of all classes of stock of the Company
or any Parent or Subsidiary, the per Share exercise
price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the
per Share exercise price shall be no less than 100%
of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator.
In the case of a Nonstatutory Stock Option intended to
qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the
Fair Market Value per Share on the date of grant pursuant
to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
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<PAGE>
(ii) check;
(iii) promissory note (on such terms and conditions as
determined by the Administrator);
(iv) other Shares which have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised;
(v) in the case of a "cashless exercise" during the trading
window permitted by the Company's Insider Trading Policy,
delivery of a properly executed exercise notice together
with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored
deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable
Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
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<PAGE>
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship.
(i) Upon termination of an Optionee's Continuous Status as an
Employee or Consultant with the Company, such Optionee
may exercise his or her Option to the extent that he or
she was entitled to exercise it as of the date of such
termination. Such exercise may occur only before the end
of the period determined by the Administrator for
exercise following termination. In the case of an
Incentive Stock Option, such period shall not exceed
three (3) months. In no event shall such period extend
beyond the expiration date of the term of the Option as
set forth in the Option Agreement.
(ii) An Optionee's change of status from Employee to
Consultant shall not be treated as a termination of the
Optionee's Continuous Status as an Employee or
Consultant, and any Option held by the Optionee shall
remain in effect, except as provided hereinbelow. Any
Incentive Stock Option held by such Optionee shall
automatically cease to be treated for tax purposes as an
Incentive Stock Option and shall be treated as a
Nonstatutory Stock Option on the ninety-first (91st) day
following such change of status. Notwithstanding the
above, within thirty (30) days after any such change of
status, the Administrator may in its discretion determine
that this Section 10(b)(ii) shall not apply to such
change of status and that such change of status shall be
treated as a termination of the Optionee's Continuous
Status as an Employee or Consultant as provided in
Section 10(b)(i).
(iii) To the extent that the Optionee is not entitled to
exercise his or her Option at the date of such
termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Upon termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of the Optionee's
Disability, the Optionee may exercise his or her Option at any time within
twelve (12) months from the date of such termination (but in no event later than
the expiration of the term of such Option as set forth in the Notice of Grant),
only to the extent that the Optionee was entitled to exercise it at the date of
such termination. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
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(d) Death of Optionee. Upon the death of an Optionee, the Option may
be exercised at any time within twelve (12) months following the date of death
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, only to the
extent that the Optionee was entitled to exercise the Option at the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
11. Transferability of Options. Unless otherwise determined by the
Administrator to the contrary, Options may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee. The Administrator may, in the manner
established by the Administrator, provide for the transfer of a Nonstatuatory
Stock Option by the Optionee to any member of the Optionee's immediate family.
In such case, the Nonstatutory Stock Option shall be exercisable only by such
transferee. Following transfer, any such Nonstatutory Stock Options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to the transfer. For purposes of this Section, an Optionee's
"immediate family" shall mean any of the following who have acquired the Option
from the Optionee through a gift or domestic relations order: a child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, trusts for the exclusive
benefit of these persons and any other entity owned solely by these persons, and
such other persons and entities as shall be eligible to be included as
transferees in the Form S-8 Registration Statement under the Securities Act of
1933, as amended, filed or to be filed by the Company to register shares of
Common Stock to be issued upon the exercise of Options granted pursuant to the
Plan.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities
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convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option may be assumed or an equivalent option
may be substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. The Administrator may, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the Option
as to all or a portion of the Optioned Stock, including Shares as to which it
would not otherwise be exercisable. If the Administrator makes an Option
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the option confers the right to purchase
or receive, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Section 422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of
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any exchange or quotation system on which the Common Stock is listed or quoted).
Such shareholder approval, if required, shall be obtained in such a manner and
to such a degree as is required by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
16. Liability of Company.
(a) Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
by an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 14(b) of the Plan.
17. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted.
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Such shareholder approval shall be obtained in the manner and to the degree
required under applicable federal and state law.
19. Tax and Social Security Indemnity. An Optionee shall indemnify the
Company against any tax arising in respect of the grant or exercise of the
Option which is a liability of the Optionee but for which the Company is
required to account under the laws of any relevant territory. The Company may
recover the tax from the Optionee in such manner as the Administrator deems
appropriate, including (but without prejudice to the generality of the
foregoing):
(a) withholding shares upon the exercise of the Option and selling
the same;
(b) deducting the necessary amount from the Optionee's compensation;
or
(c) requiring the Optionee to make cash payment to the Company for
such tax.
13
Exhibit 10.20
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
February 8, 1999, between Regina Paolillo, an individual ("Executive") and
Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive currently serves as the Executive Vice President, General
Manager IT Management Group, 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 Executive
Vice President, General Manager IT Management Group, 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 her employment. During the term of Executive's employment with the
Company, Executive shall continue to devote her full time, skill and attention
to her duties and responsibilities, and shall perform them faithfully,
diligently and competently, and Executive shall use her 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, 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.
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 $250,000 per year, payable to Executive on a bi-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 her 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 been set at $125,000.
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 she 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 her 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. 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 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)
<PAGE>
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 her 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.
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) 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>
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 her 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.
D. Voluntary Termination or Termination for Business Reasons. If (i)
Executive voluntarily terminates her employment or (ii) Executive is terminated
involuntarily for Business Reasons, then in any such event Executive or her
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.
<PAGE>
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.
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 her responsibilities
as an employee and intended to result in substantial personal enrichment of
Executive, (ii) commission of a felony or
<PAGE>
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 her duties.
B. Disability. "Disability" shall mean that Executive has been unable
to perform her 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 her duties hereunder before the termination of her 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.
C. 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 her 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 her employment voluntarily.
E. 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 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
<PAGE>
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%);
2. 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;
3. 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;
4. 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
<PAGE>
5. 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.
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 her association with
the Company and subsidiaries and her performance under this Agreement are the
property of the Company and its subsidiaries. Executive agrees that she 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 her 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
<PAGE>
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 her individual capacity she 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 she will not, except with the express
written consent of the Board of Directors of the Company, become engaged in,
render services for, or permit her 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>
13. Non-Competition Agreement.
A. Executive acknowledges that her services are of a special, unique
and extraordinary value to the Company and that she 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.
<PAGE>
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 her at the home address which she 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.
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.
2. 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.
D. No Other Assignment of Benefits. Except as provided in this Section
14(D), 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.
E. 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
<PAGE>
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
F. Entire Agreement. Employee acknowledges and reaffirms her
obligations contained in (i) the Company's standard form of Agreement Regarding
Certain Conditions of Employment, which was previously executed by Employee (or,
if Employee has not previously executed such agreement, by which Employee hereby
agrees to be bound in consideration for the mutual agreements herein), and (ii)
Notices of Stock Options, if any, which were previously executed by Employee,
which documents include, without limitation, obligations regarding confidential
information, non-competition and non-solicitation. If there is any conflict
between the terms of this Agreement, and the Agreement Regarding Certain
Conditions of Employment, and the Notices of Stock Options, the terms of the
more restrictive provisions shall control. This Agreement, the Agreement
Regarding Certain Conditions of Employment and the Notices of Stock Options
collectively contain the entire understanding of the parties with respect to the
subject matter hereof and supersede any prior understandings or agreements
between the parties with respect to such subject matter.
G. 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.
H. Governing Law; Arbitration. This Agreement shall be construed in
accordance with and governed by the laws of the State of Connecticut 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.
I. Employment Taxes. All payments made pursuant to this Agreement will
be subject to withholding of applicable taxes.
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.
GARTNER GROUP, INC.
By:
William Clifford
President and Chief Executive Officer
/s/ Regina Paolillo
---------------------
REGINA PAOLILLO
Exhibit 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
February 8, 1999, between Richard E. Eldh, an individual ("Executive") and
Gartner Group, Inc., a Delaware corporation (the "Company").
Recitals
A. Executive currently serves as the Executive Vice President,
Worldwide Sales, 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 Executive
Vice President, Worldwide Sales, 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, 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.
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 $250,000 per year, 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.
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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, 1999 has been set at $150,000.
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. 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 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)
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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.
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) 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.
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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
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.
<PAGE>
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.
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
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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 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.
C. 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:
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 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
<PAGE>
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%)];
2. 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;
3. 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;
4. 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
<PAGE>
5. 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.
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.
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
<PAGE>
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 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>
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.
<PAGE>
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.
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.
2. 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.
D. No Other Assignment of Benefits. Except as provided in this Section
14(D), 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.
E. 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
<PAGE>
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
F. Entire Agreement. Employee acknowledges and reaffirms his
obligations contained in (i) the Company's standard form of Agreement Regarding
Certain Conditions of Employment, which was previously executed by Employee (or,
if Employee has not previously executed such agreement, by which Employee hereby
agrees to be bound in consideration for the mutual agreements herein), and (ii)
Notices of Stock Options, if any, which were previously executed by Employee,
which documents include, without limitation, obligations regarding confidential
information, non-competition and non-solicitation. If there is any conflict
between the terms of this Agreement, and the Agreement Regarding Certain
Conditions of Employment, and the Notices of Stock Options, the terms of the
more restrictive provisions shall control. This Agreement, the Agreement
Regarding Certain Conditions of Employment and the Notices of Stock Options
collectively contain the entire understanding of the parties with respect to the
subject matter hereof and supersede any prior understandings or agreements
between the parties with respect to such subject matter.
G. 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.
H. Governing Law; Arbitration. This Agreement shall be construed in
accordance with and governed by the laws of the State of Connecticut 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.
I. Employment Taxes. All payments made pursuant to this Agreement will
be subject to withholding of applicable taxes.
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.
GARTNER GROUP, INC.
By:
William Clifford
President and Chief Executive Officer
/s/ Richard E. Eldh
-----------------------
Richard E. Eldh
1999 ANNUAL REPORT
FACE TO FACE
[GRAPHIC]
[GARTNERGROUP LOGO]
<PAGE>
GartnerGroup helps clients achieve business success
through the intelligent and efficient use of technology.
<PAGE>
FINANCIAL HIGHLIGHTS
(IN THOUSANDS EXCEPT PER SHARE, EMPLOYEE AND CLIENT DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $734,234 $641,957 $511,239 $394,672 $295,146
ONGOING REVENUES (1) $734,234 $623,881 $489,925 $382,453 $293,845
NET INCOME (2) $107,386 $ 98,249 $ 73,130 $ 50,534 $ 30,001
DILUTED EARNINGS PER SHARE (2) $ 1.02 $ 0.93 $ 0.71 $ 0.51 $ 0.32
CASH PROVIDED BY OPERATIONS $128,819 $ 97,795 $ 87,157 $ 65,689 $ 66,966
EMPLOYEES 3,402 2,972 2,885 2,129 1,175
CLIENT ORGANIZATIONS (3) 9,692 9,144 8,124 7,241 5,500
- --------------------------------------------------------------------------------------------
</TABLE>
(1) EXCLUDES GARTNERLEARNING REVENUE, A UNIT SOLD DURING FISCAL 1998.
(2) NORMALIZED TO EXCLUDE OTHER CHARGES, ONE-TIME INCOME TAX BENEFIT AND
ACQUISITION AND DISPOSITION-RELATED CHARGES.
(3) EXCLUDES DATAPRO AND GARTNERLEARNING. FISCAL 1995 INFORMATION DOES NOT
INCLUDE DATAQUEST.
<PAGE>
[PHOTO OF MICHAEL D. FLEISHER]
MICHAEL D. FLEISHER CHIEF EXECUTIVE OFFICER
LETTER TO OUR SHAREHOLDERS
Although this past fiscal year was a challenging and tumultuous time for
GartnerGroup, our ongoing revenues grew a solid 18 percent to $734 million.
Diluted earnings per share, excluding charges, rose 10 percent to $1.02 per
share.
These results were below Wall Street's expectations and triggered a decline in
our stock price. In addition, the complex spinoff of IMS Health's equity stake
in GartnerGroup, while positive for the company, was a cumbersome and difficult
process.
Despite these recent disappointments and distractions, GartnerGroup today faces
a huge market opportunity that it is exceptionally well positioned to exploit.
The impending explosion of business-to-business e-commerce will create
unprecedented market need for the research and services GartnerGroup can offer.
o Senior business executives -- and I mean all business executives in every
function, in every industry, around the globe -- have a tremendous need for
advice on how to use technology to build better businesses. At the same time,
information technology (IT) vendors require
2
<PAGE>
advice on market and technology directions and the needs of their customers. We
are the best company in the world to supply this type of advice.
o As the early experiments with e-commerce have turned into substantive business
opportunities, building robust, scalable systems that connect with core legacy
systems has become an absolute imperative. Helping clients successfully meet
this challenge is one of GartnerGroup's greatest strengths.
o The pendulum has clearly swung from Web applications being built and
maintained in marketing organizations to their being built, maintained and made
robust by chief information officers and their teams -- the very people who
constitute the vast majority of our clients.
o The new business process of "build and adapt" has created tremendous demand
for timely, thought-leading research and personalized services that will enable
our clients to execute rapid go-to-market strategies.
The impending explosion of business-to-business e-commerce will create
unprecedented market need for GartnerGroup's research and services.
It is clear that the market is coming to us in a powerful way.
GartnerGroup is determined to take full advantage of this opportunity by
focusing on three strategic imperatives to support our future success in the
marketplace.
o Extend our world-class research capability
o Dramatically grow our services business
o Enhance our Internet delivery capability
In fiscal 2000, we will be making significant incremental investments over 1999
levels to drive these initiatives.
o Provocative thought leadership through world-class research will continue to
be the vital core that powers the rest of our business. To address the exploding
e-business opportunity,
3
<PAGE>
we will continue to build on our current team of 245 e-business experts by
aggressively hiring additional analysts who possess the exceptional knowledge,
insight and experience that is our standard.
o Helping our clients move from strategy to results increasingly involves more
than just delivering research. We will meet this demand for higher levels of
personalized, face-to-face assistance by aggressively investing in and growing
our services business.
o Web technologies continue to revolutionize the delivery of content. To ensure
that we take full advantage of the powerful new methods made possible by the
Web, we will make significant investments in rearchitecting GartnerGroup's Web
delivery capability, and will redesign our research process to deliver into a
Web-based paradigm.
In 1979, GartnerGroup invented the IT advisory business. In the 20 years since
our founding, we have built a remarkable company that uniquely serves 9,600
worldwide client organizations that tremendously value our services. We have an
exploding market opportunity that we are well positioned to exploit. We have
3,400 passionate, dedicated and talented employees who are culturally diverse
and globally situated, and who all share a common mission: to help our clients
achieve business success through the intelligent and efficient use of
technology.
No other company in the world can do that as well as GartnerGroup, the business
technology advisor.
/s/ Michael D. Fleisher
Michael D. Fleisher
Chief Executive Officer
4
<PAGE>
Face to Face
Today's IT and business executives look to GartnerGroup for customized advice
delivered face-to-face, through inquiries to our analysts, through on-site
engagements with our consultants, through participation in our conferences and
through gartner.com.
[PHOTOS]
5
<PAGE>
GartnerGroup Research A Trusted Source of Provocative, Actionable Thought
Leadership
As sources of information about IT and business have proliferated in recent
years, GartnerGroup has remained the leader in the IT advisory services business
for a number of compelling reasons.
Our research is rigorously pursued through a dynamic process that frames issues,
forms hypotheses, challenges assumptions and draws conclusions. Findings are
presented in a form that is easily digested by clients, and that has been proven
to be highly accurate and actionable.
The breadth and depth of our research coverage enables our clients to remain on
the cutting edge of technology issues. In 1999, for example, GartnerGroup
identified the concept of zero latency, reported on the progress of Windows
2000, published the e-business Opportunity/Threat Model, identified the five
phases of e-business computing and defined the worldwide e-commerce market
opportunity. Our research products generated revenue of $479 million in fiscal
1999.
[PHOTO]
Business-to-business e-commerce will grow to $3.1 trillion in 2004.
Business-to-consumer e-commerce will grow to $380 billion by 2003.
Our 800 expert analysts provide our clients with a comprehensive and detailed
look at the entire IT landscape. We project industry and technology trends,
forecast and size IT markets, evaluate and comment on IT products and vendors,
share industry best practices, and translate hype into business reality. We
don't just follow today's latest fads. We track virtually everything our clients
want and need to know -- today and in the future -- about using IT to make their
businesses more successful.
GartnerGroup has delivered research to clients via electronic media since 1993.
As Web technologies evolve and improve, we will continue to upgrade our Internet
delivery capability to ensure that our clients gain faster and easier access to
our expertise.
Providing independent, objective advice is the core of our business. In a world
increasingly populated by self-serving information, our clients highly value the
simplicity of this agenda.
6
<PAGE>
GartnerGroup Services Helping Clients Move From Strategy to Results
Nothing happens in business today without IT. Regardless of industry, function
or geography, the intelligent use of technology is at the top of every
executive's agenda.
This marriage of technology and business, the need for rapid decision-making,
and the complexity of the IT/business environment, have all combined to create
an explosive increase in the demand for personalized, face-to-face advice.
GartnerGroup Services enables our clients to apply our vast knowledge of IT to
their specific situation.
The services component of global IT spending is projected to grow to $722
billion by 2003.
For more than six years, GartnerGroup has provided personalized, customized
consulting that helps our clients to architect, evaluate and monitor IT
solutions. Three components
[PHOTOS]
7
<PAGE>
80 global locations.
9,600 client organiza-
tions. 3,400 employ-
ees. 1,500 CIOs. 800
sales professionals.
1,200 analysts and
consultants who aver-
age 15 years of indus-
try experience. 15,000
Symposia attendees.
150,000 client inquiries.
<PAGE>
[PHOTO OF RICHARD E. ELDH, JR.]
RICHARD E. ELDH, JR. EXECUTIVE VICE PRESIDENT WORLDWIDE SALES, EVENTS AND
MARKETING
9
<PAGE>
of our services organization -- Performance Management, Strategic Workshops and
Consulting -- generated fiscal 1999 revenues of $150 million.
GartnerGroup Services possesses a number of unique competitive advantages that
enable it to thrive in this business:
o Its 400 consultants have immediate access to constantly refreshed,
up-to-the-minute research supplied by GartnerGroup analysts around the world.
This enables the consultants to bring GartnerGroup's knowledge and perspective
to every engagement without having to re-create it at a client's expense.
o Since less than 15 percent of our research clients are services clients, an
immediate prospect base exists of more than 8,000 enterprises.
o In fiscal 1999, GartnerGroup Services completed more than 2,000 engagements in
areas ranging from e-business strategy to measuring the effectiveness and
efficiency of manufacturing operations.
o GartnerGroup Services possesses an unmatched level of trust, independence and
objectivity that is derived from long-standing client relationships and the
absence of any hidden agenda.
GartnerGroup Events Clients and Analysts Face to Face
When IT professionals need in-depth, comprehensive knowledge, they attend
GartnerGroup events around the globe for industry-leading insight and actionable
advice on the most important developments in IT.
GartnerGroup Events, like GartnerGroup Services, is ultimately powered by the
vast knowledge base developed by our research organization. Delivering
conference content that is internally produced and controlled by GartnerGroup
research analysts enables our events to maintain a level of quality, clarity and
consistency that is unmatched in the industry. Our clients registered their
strong approval of our conferences by driving dramatic growth of 54 percent in
this business to a total of $76 million in revenue in fiscal 1999.
10
<PAGE>
[PHOTO]
11
<PAGE>
GartnerGroup Symposium/ITxpo, our flagship event, is the premier strategic
planning conference in the IT industry. Last year, 15,000 senior executives
attended Symposia in four international locations. They were able to choose from
scores of sessions, and received an unparalleled look into the future of IT.
Symposium attendees have described the experience as equivalent to "receiving an
MBA in IT."
Exhibit and sponsorship sales are also a strong growth component of GartnerGroup
Events. The high quality of our attendees as prospective customers makes a
compelling case for IT vendors to participate in our events. Vendor exhibit
opportunities are uniquely structured to add value for our attendees, while
fitting within our framework of independence and vendor neutrality.
GartnerGroup events deepen our client relationships and drive growth throughout
our business.
[PHOTO]
The GartnerGroup Difference The Power of Reach
Business, ultimately, is about relationships. Whether those relationships happen
face-to- face over a cup of coffee, or over a fiber-optic cable, it is the
depth, durabililty and dynamism of a company's relationships that ultimately
determine its power in the marketplace, and its future as a business.
GartnerGroup's strength stems from the enormously powerful web of relationships
we have built during our 20 years in business. Our 1,200 analysts and
consultants and 800 sales professionals form a critical core of knowledge and
experience. The long-standing and intimate relationship between these employees
and our clients creates the unique GartnerGroup difference.
In 1999, we answered more than 150,000 client inquiries. Each inquiry is an
opportunity for us to grow client relationships and to foster a two-way forum
that enables a sharing of information, perspective, insight and knowledge.
Our relationships with more than 1,500 chief information officers worldwide
provide a powerful endorsement for GartnerGroup as an essential element of their
decision-making
12
<PAGE>
[PHOTO]
From our position, it is clear that the market is coming to us in a powerful
way.
13
<PAGE>
[PHOTOS]
14
<PAGE>
process. The feedback and input we receive from these executives provide
critical input into the ongoing development of our research agenda.
Web technology is providing important new ways to dramatically improve an
interactive flow of information between GartnerGroup and its clients. In the
coming months and years, clients will experience a significant improvement in
their ability to easily access our knowledge base. Enhanced search tools and
navigation will speed access to relevant research, while on-line client service
support will improve access to analysts for inquiries. The Web will also enable
important and revolutionary new means of interaction between GartnerGroup and
its community of clients and will give clients the tools to apply our knowledge
to their business objectives.
[PHOTO]
15
<PAGE>
[PHOTO]
REGINA M. PAOLILLO CHIEF FINANCIAL OFFICER
INVESTING FOR GROWTH
This was a year of significant change for GartnerGroup. We took a number of
important steps focused on building the future of our business. As a result, we
will be a stronger, more dynamic corporation going forward.
We completed the long-planned spinoff of IMS Health's 47 percent equity stake in
GartnerGroup. Approved by GartnerGroup shareholders in July, the spinoff
resulted in a new capital structure, created a more diversified shareholder
base, and gave the company needed flexibility. Components of the transaction
included the payment of a special cash dividend, the creation of a new class of
stock -- Class B Common Stock -- and the repurchase of 19.9 percent of the total
outstanding shares of GartnerGroup. In August, we completed the repurchase of
approximately 16 million shares via a Dutch tender offer and plan to repurchase
an additional 5 million shares on the open market in fiscal 2000. To finance the
dividend and repurchases, GartnerGroup obtained a $500 million credit facility
led by Chase Manhattan Bank and Credit Suisse First Boston with the
participation of other financial institutions.
Our fiscal 2000 investments will support the strategic imperatives outlined in
Michael Fleisher's letter and will fuel our future plans for accelerated growth.
In our research unit, we will focus on retaining, attracting and recruiting the
finest analysts and e-business experts in the world. We plan to add more than
200 consultants to our services organization in response to growing client
demand, and will augment our sales force by expanding our product solutions
unit. Finally, we will enhance our Web capabilities by developing software and
tools that encourage clients to have a more interactive experience with our
research, the experts behind that research and the wider community of
GartnerGroup clients.
I am very excited about the opportunity to contribute to our success in the role
of chief financial officer. I am confident that our employees, through their
continued dedication, loyalty and support of our vision, will lead us to new
heights in 2000 and beyond.
/s/ Regina M. Paolillo
Regina M. Paolillo
Chief Financial Officer
16
<PAGE>
FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS 18
CONSOLIDATED BALANCE SHEETS 26
CONSOLIDATED STATEMENTS OF OPERATIONS 27
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 28
CONSOLIDATED STATEMENTS OF CASH FLOWS 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31
REPORT BY MANAGEMENT 46
INDEPENDENT AUDITORS' REPORT 46
SELECTED CONSOLIDATED FINANCIAL DATA 47
CORPORATE DIRECTORY 48
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Total revenues for the Company for 1999 were $734.2 million, up 14% from $642.0
million for 1998. Current year revenue growth consisted of an 11% increase in
research revenue, a 35% increase in services revenue, a 54% increase in events
revenue and a 3% decrease in other revenue. Ongoing revenue, which is revenue
excluding GartnerLearning, increased $110.4 million or 18% in 1999 from the
prior year. During 1999, the Company changed its revenue presentation to the
above mentioned categories to better align revenue recognition methodologies and
reportable segments. Research encom- passes products which, on an ongoing basis,
highlight industry developments, review new products and technologies, provide
quantitative market research, and analyze industry trends within a particular
technology or market sector. The Company typically enters into annually
renewable subscription-based contracts for research products. Revenue from
research products is recognized as products are delivered and as the Company's
obligation to the client is completed over the contract period. Services
revenue, primarily derived from consulting and measurement engagements, is
recognized as work is performed on a contract by contract basis. Events revenue
is deferred and recognized upon the completion of the related symposium,
exposition or conference.
Given the new revenue presentation, the Company has developed the
following business measurements to complement its total contract value
measurement. The Company believes these business measurements reflect the volume
of business within each revenue category at a given point in time.
Revenue Category Business Measurement
Research Contract value attributable to all subscription-based
research products with ratable revenue recognition. Contract
value is calculated as the annualized value of the referred
to product or service contracts in effect at a given point
in time, without regard to the duration of such contracts
outstanding at such time. Research contract value increased
10% to approximately $560.8 million at September 30, 1999
from $511.4 million at September 30, 1998.
- --------------------------------------------------------------------------------
Services Services backlog represents future revenue to be derived
from in-process consulting and measurement engagements.
Services backlog increased 68% to approximately $71.6
million at September 30, 1999 from $42.7 million at
September 30, 1998.
- --------------------------------------------------------------------------------
Events Deferred revenue directly related to symposia, expositions
and conferences. Deferred revenue from events increased 66%
to approximately $51.4 million at September 30, 1999 from
$31.0 million at September 30, 1998, primarily due to
symposium and ITxpo events that will be held in the first
quarter of fiscal 2000.
- --------------------------------------------------------------------------------
Total Company contract value, which includes subscription-based
research products, measurement and certain other products, increased 15% to
approximately $684.6 million at September 30, 1999 versus the same date last
year. The Company believes that total value has been a significant measure of
the Company's volume of business. Historically, a substantial portion of client
companies have renewed these services for an equal or higher level of total
payments each year. Total deferred revenues of $355.6 million and $291.1 million
at September 30, 1999 and 1998, respectively, as presented in the Company's
Consolidated Balance Sheets, represent unamortized revenues from billed research
products, services and events. Total 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
outstanding and billed contracts.
Historically, the Company has realized significant renewals and growth
in contract value at the end of each quarter. 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 quarter for growth
in contract value 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 a 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 revenues are earned and amortized to income.
Historically, research revenues have increased in the first quarter of
each fiscal year over the immediately preceding quarter primarily due to
increased contract value at the end of the prior fiscal
18 GARTNER GROUP, INC.
<PAGE>
year. Events 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
due to the increase in research revenue upon which the Company is able to
further leverage its selling, general and administrative expenses, plus
operating income generated from the first quarter Symposia and ITxpo exhibition
events. Operating income margin generally is not as high in remaining quarters
of the fiscal year because the Company has typically increased operating
expenses for required growth and because the operating income margins from the
ITxpo conferences in the first fiscal quarter are higher than on conferences
held later in the fiscal year.
Operating income in 1999 was $131.0 million, net of $30.1 million in
other charges. Excluding the effect of other charges in 1999 and
acquisition-related and other charges in 1998, operating income increased 7% to
$161.1 million from $150.9 million. Operating income, excluding these charges,
has increased, in large part, due to revenue growth in consulting and events.
Diluted net income per common share was $0.84 in both 1999 and 1998.
Excluding other charges and a one-time tax benefit in 1999, and the loss on the
sale of GartnerLearning and other charges in 1998, diluted net income per common
share increased to $1.02 in 1999 from $0.93 in 1998, an increase of 10%.
Lastly, during 1999 the Company undertook a recapitalization which
effectively separated the Company from its significant shareholder, IMS Health
Incorporated. The recapitalization resulted in the creation of a new class of
common stock, the payment of a nonrecurring cash dividend of $125.0 million, the
purchase of approximately 15% of the Company's outstanding common stock under
the terms of a Dutch Auction tender offer and the requirement to purchase
5,166,691 additional shares in the open market by July 2001 and the assumption
of $250.0 million of long-term debt (see Note 2--Recapitalization in the Notes
to Consolidated Financial Statements).
ANALYSIS OF OPERATIONS
The following table sets forth certain results of operations as a percentage of
revenues:
FISCAL YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- -------------------------------------------------------------------------------
PERCENT OF REVENUES:
REVENUES:
RESEARCH 65% 68% 68%
SERVICES 21 17 17
EVENTS 10 8 7
OTHER 4 5 4
LEARNING -- 2 4
- -------------------------------------------------------------------------------
TOTAL REVENUES 100 100 100
- -------------------------------------------------------------------------------
COSTS AND EXPENSES:
COST OF SERVICES AND
PRODUCT DEVELOPMENT 40 39 40
SELLING, GENERAL AND
ADMINISTRATIVE 34 34 34
ACQUISITION-RELATED CHARGE -- 1 --
OTHER CHARGES 4 0 --
DEPRECIATION 3 3 2
AMORTIZATION OF INTANGIBLES 1 1 1
- -------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 82 78 77
- -------------------------------------------------------------------------------
OPERATING INCOME 18 22 23
INTEREST INCOME, NET 1 2 1
- -------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 19 24 24
PROVISION FOR INCOME TAXES 7 10 10
- -------------------------------------------------------------------------------
NET INCOME 12% 14% 14%
- -------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30, 1999 VERSUS
FISCAL YEAR ENDED SEPTEMBER 30, 1998
Total revenues increased 14% to $734.2 million in 1999 from $642.0 million in
1998. Revenues from research products increased 11% in 1999 to $479.0 million
compared to $433.1 million in 1998 and comprised approximately 65% and 68% of
total revenues in fiscal 1999 and 1998, respectively. Services revenue,
consisting primarily of consulting and measurement engagements, increased 35%,
to $149.8 million in 1999 as compared to $111.0 million in 1998 and comprised
approximately 21% of total revenue in 1999 versus 17% in 1998. Events revenue
was $75.6 million in 1999, an increase of 54% over $49.1 million in 1998. Other
revenues, consisting principally of software licensing fees, experienced a
slight decrease to $29.8 million in 1999 from $30.7 million in 1998. Although
the rate of growth in Company revenue slowed in 1999, the increase in total
revenues reflected the ability of the Company to gain client acceptance of new
products and services, increase sales penetration into new and existing clients
and develop incremental revenues from current and prior year acquisitions.
Pricing pressures in our traditional research products from smaller competitors
with lower profit margins and less robust product suites have contributed to the
slowed rev-
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
enue growth rate. Services backlog increased 68% to approximately $71.6 million
at September 30, 1999 and represents future revenues that will be recognized
from in-process consulting and measurement engagements. Recent acquisitions,
which include Griggs-Anderson, Inc. and The Warner Group, provide to our
consulting services both an increased strategic presence and an increased
capability to meet demand.
The Company has three defined geographic market areas: United States
and Canada, Europe and Other International. Revenues from sales to United States
and Canadian clients increased 14% to $471.8 million in fiscal 1999 from $415.6
million in fiscal 1998. Revenues from sales to European clients increased 22% to
$212.1 million in fiscal 1999 from $173.8 million in fiscal 1998. Sales to Other
International clients have decreased by 4% to $50.3 million in fiscal 1999 from
$52.6 million in fiscal 1998. This decrease was caused primarily by the general
unfavorable economic climate in the Asian markets. Revenue in Europe, primarily
in the Research area, increased as a result of continuing investments to expand
penetration of this market, off set in part by lower than expected growth in
measurement revenues.
The Company's sales strategy is to continue to extend the Company's
sales channels to clients with revenues ranging from $150 million to $2 billion,
maintain its focus on large customers and to expand total sales and services to
the Company's key clients. The Company continues to make investments in direct
sales personnel and distributor relationships in Europe and the Other
International markets and intends to pursue continued expansion of operations
outside of the United States in fiscal 2000. In addition, the Company will make
investments in its Web capabilities as a channel for growth and as a delivery
medium for products and services.
Operating income decreased 9% to $131.0 million in fiscal 1999 from
$143.5 million in fiscal 1998. Excluding acquisition-related and other charges,
operating income in fiscal 1999 increased 7%. Excluding such charges in 1999 and
1998, the United States and Canada experienced an increase of 7% and Europe
experienced a 19% growth rate. Other International markets experienced a decline
of 24% primarily from a decrease in revenue. Operating income has remained
favorable as a result of continuing revenue growth that has allowed the Company
to develop new products and services and to gain economies of scale through the
leveraging of its resources (additional revenues have been generated using
essentially the same resources). However, operating contribution margin,
excluding acquisition-related and other charges, decreased in fiscal 1999 to 22%
from 23% in fiscal 1998. This decrease was due to, in part, higher growth in
lower margin consultative services. In addition, operating contribution margin
from services in 1999 declined primarily from lower margin acquisitions.
Costs and expenses, excluding acquisition-related and other charges,
increased to $573.1 million in 1999 from $491.1 million in 1998, and increased
slightly as a percentage of total revenue to 78% in 1999 from 77% in 1998. Cost
of services and product development expenses were $289.1 million and $247.9
million for 1999 and 1998, respectively. This increase over the prior fiscal
year reflects the additional support required for the growing client base, costs
associated with acquired businesses and continued product development costs. The
increase in cost of services and product development expenses, as a percentage
of total revenues, is primarily attributable to increasing pricing pressure in
research products, continuing growth in personnel costs associated with the
development of new products and services and the delivery of products and
services to broader markets.
Selling, general and administrative expenses increased to $252.4
million from $215.9 million for fiscal 1999 and 1998, respectively, due to the
Company's continuing expansion of worldwide distribution channels and the
resulting commissions earned on the revenue generated. Although the Company has
added general and administrative resources to support the growing revenue base,
selling, general and administrative expenses have remained consistent at 34% of
total revenues for fiscal 1999 and 1998, respectively. Costs and expenses in
fiscal 2000 will be impacted both by the remaining amounts earned by employees
under the Company's retention incentive program as well as the fiscal 2000
performance-related variable compensation expense expected to be incurred.
Other charges in fiscal 1999 consisted of $9.2 million of legal and
advisory fees related to the recapitalization (see Note 2--Recapitalization in
the Notes to Consolidated Financial Statements), $14.2 million of costs,
primarily severance related, incurred as part of strategic reduction in force
initiatives and $6.7 million of bonuses paid in relation to a retention
incentive plan approved by the Board of Directors in response to the
recapitalization and reorganization. Costs and expenses were favorably impacted
in 1999 through the elimination of variable costs linked to financial
performance.
Depreciation expense increased to $21.6 million in fiscal 1999 from
$17.9 million in fiscal 1998, primarily due to capital spending required to
support business growth. Additionally, amortization of intangibles increased by
$0.7 million in fiscal 1999 as compared to fiscal 1998, reflecting primarily
goodwill associated with fiscal 1999 and 1998 acquisitions.
Interest income, net, decreased to $8.3 million in fiscal 1999 from
$9.6 million for fiscal 1998. This resulted primarily from interest expense of
$1.2 million on debt facility borrowings of $250.0 million related to the
recapitalization.
Provision for income taxes decreased by 19% or $11.8 million to $51.0
million in 1999 from $62.8 million in 1998. The effective tax rate was 37% and
42% for 1999 and 1998, respectively. In 1999,
20 GARTNER GROUP, INC.
<PAGE>
the Company incurred $8.6 million of non-deductible recapitalization costs
during the year, the tax effect of which was approximately offset by a one-time
income tax benefit of $2.5 million related primarily to the settlement of
certain tax examinations in the second quarter. Absent nondeductible costs, the
one-time income tax benefit and additional taxes incurred in fiscal 1998 related
to the sale of GartnerLearning, the effective rate was 37% for 1999 and 39% for
1998. The decrease of two percentage points was achieved primarily through the
utilization of tax loss and credit carryforwards and ongoing tax planning
initiatives. A more detailed analysis of the changes in the provision for income
taxes is provided in Note 12 of the Notes to Consolidated Financial Statements.
FISCAL YEAR ENDED SEPTEMBER 30, 1998 VERSUS
FISCAL YEAR ENDED SEPTEMBER 30, 1997
Total revenues increased 26% to $642.0 million in 1998 as compared to $511.2
million in 1997. Revenues from research products increased 24% in 1998 to $433.1
million compared to $349.6 million in 1997 and comprised approximately 68% of
total revenues in both 1998 and 1997. Services revenue increased 31% to $111.0
million in 1998 as compared to $84.6 million in 1997 and comprised approximately
17% of total revenues in both 1998 and 1997. Events revenue was $49.1 million in
1998, a 43% increase over $34.3 million in 1997. Revenue from the learning
business decreased 15% in 1998 to $18.1 compared to $21.3 in 1997 and comprised
approximately 3% of revenues in 1998 versus 4% in 1997. The increase in revenues
reflects 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 (primarily Computer
&Communications Information Group, Inc. (dba Datapro Information Services)). The
decrease in learning revenue was primarily the result of the sale of
GartnerLearning in the fourth quarter of fiscal 1998. Other revenues, consisting
principally of software licensing fees, increased 43% to $30.7 million in 1998
as compared to $21.4 million in the prior year. The increase was primarily
attributable to the introduction of total cost of ownership software products
related to the Company's acquisition of Interpose, Inc. during 1998.
The rate of growth in research revenues continued to be strong in the
United States and Canada and in Europe. Revenues from sales to United States and
Canadian clients increased 22% to $415.6 million in 1998 from $339.3 million in
1997. Revenues from sales to European clients increased 31% to $173.8 million in
1998 from $132.2 million in 1997. Sales to Other International clients,
primarily in the Asian and South American markets areas, increased by 32% to
$55.2 million in 1998 from $39.7 million in 1997.
Operating income increased 23% to $143.5 million in 1998 compared to
$116.6 million in 1997. Excluding acquisition-related and other charges,
operating income in 1998 increased 29%. The Company experienced growth in
operating income in 1998 in each of the three defined geographic markets, United
States and Canada, Europe and Other International of 20%, 6% and 185%,
respectively. Lower growth rates in Europe reflect the contribution of lower
margin acquisitions. Operating income, as a percentage of total revenues was 23%
for 1998 and 1997, after excluding the above mentioned charges. The decrease in
Europe was caused primarily by an increase in operating costs incurred to
support operations as well as cost associated with acquisition integration.
Operating income increased as a result of solid revenue growth coupled with
controlled spending that 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 favorably impacted operating results in 1998 compared to 1997.
Costs and expenses, excluding acquisition-related and other charges,
increased to $491.1 million in 1998 from $394.6 million in 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 1998 and 1997, respectively.
This increase in expenses over the prior fiscal year reflected 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
was 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 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 remained consistent at 34% of total revenues for fiscal
1998 and 1997, respectively.
During fiscal 1998, the Company incurred other charges that were
reflected in costs and expenses. In February 1998, the Company acquired the net
assets of Interpose Inc., a provider of total cost of ownership measurement and
analysis tools and training. In connection with the acquisition, the Company
recorded an acquisition-
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 other 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 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 value of $42.5 million and is included in other assets
in the Consolidated Balance Sheets. 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 12 of the Notes to
Consolidated Financial Statements.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
The Company's future operating results will depend upon the Company's ability to
continue to compete successfully in the market for information products and
services. The Company faces competition from a significant number of independent
providers of similar services, as well as the internal marketing and planning
organizations of the Company's clients. The Company also competes indirectly
against other information providers, including electronic and print media
companies and consulting firms. In addition, there are limited barriers to entry
into the Company's market and additional new competitors could readily emerge.
There can be no assurance that the Company will be able to continue to provide
the products and services that meet client needs as the Information Technology
("IT") market rapidly evolves, or that the Company can otherwise continue to
compete successfully. In this regard, the Company's ability to compete is
largely dependent upon the quality of its staff of IT analysts and consultants.
Competition for such qualified professionals is intense. There can be no
assurance that the Company will be able to hire additional qualified IT analysts
and consultants as may be required to support the evolving needs of clients or
any growth in the Company's business. Any failure to maintain a premier staff of
IT professionals could adversely affect the quality of the Company's products
and services, and therefore its future business and operating results. There may
also be increased business risk as the Company expands product and service
offerings to smaller domestic companies. Additionally, the Company believes it
will need to make significant investments and rearchitect its Web capabilities.
The Company recognizes the value and utility of the Web as a delivery channel
for products and services. Failure to increase and improve the Company's Web
capabilities could adversely impact future business and operating results. The
Company's performance may also be affected by Year 2000 Issues as described on
the following pages.
The Company has recently entered into a substantial amount of debt in
connection with its recapitalization transactions (see Note 2 --Recapitalization
in the Notes to Consolidated Financial Statements). The associated debt service
could impair future operating results. In addition, the outstanding debt could
limit the additional credit available to the Company, which in turn could
restrain the Company's ability to pursue business opportunities that may arise
in the future involving substantial investments of additional capital. In
addition, certain restrictions and limitations involving the purchase of common
stock and the issuance of stock could have an impact on the management and
growth of the Company.
In connection with its recapitalization, the Company agreed to certain
restrictions on business activity in order to reduce the risk to IMS Health and
its stockholders of substantial tax liabilities associated with the spinoff by
IMS Health of its equity interest in the Company. The Company also agreed to
assume the risk of such tax liabilities if the Company were to undertake certain
business activities
22 GARTNER GROUP, INC.
<PAGE>
that give rise to the liabilities. As a result, we may be limited in our ability
to undertake acquisitions involving the issuance of a significant amount of
stock unless we can obtain a ruling from the IRS that the transaction will not
give rise to such tax liabilities.
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's continued focus on revenue and operating income increases has
contributed to its ability to continue building cash and utilizing it to make
strategic investments and acquisitions and to fund recapitalization-related
expenditures.
Cash provided by operating activities during fiscal 1999 was $128.8
million, compared to $97.8 million in the prior fiscal year, reflecting
primarily the impact of changes in balance sheet accounts, particularly fees
receivable, deferred revenues, and accounts payable and accrued liabilities.
Cash provided by investing activities totaled $1.1 million for fiscal
1999, compared to $145.2 million used for investing activities in fiscal 1998.
During fiscal 1999, the Company used $57.8 million in cash for acquisitions,
primarily for the purchase of The Warner Group for $18.0 million,
Griggs-Anderson, Inc. for $10.9 million and G2R, Inc. for $7.8 million.
Additionally, the Company used $14.0 million for investments in unconsolidated
businesses. Through the net sale of marketable securities, the Company generated
$104.6 million in fiscal 1999.
Cash used for financing activities totaled $198.7 million in fiscal
1999, compared to $62.9 million provided by financing activities for fiscal
1998. Financing activities in fiscal 1999 were primarily related to the
Company's recapitalization and included the repurchase of common stock for
$345.8 million, the one-time, nonrecurring dividend totaling $125.0 million and
$250.0 million in proceeds from the Credit Agreement with The Chase Manhattan
Bank and certain financial institutions. Cash provided by financing activities
include a $15.1 million credit to additional paid-in capital for tax benefits
received from stock transactions with employees and $18.0 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.
The effect of exchange rates reduced cash and cash equivalents by $0.1
million for the year ended September 30, 1999, and was due to the strengthening
of the U.S. dollar versus certain foreign currencies. In fiscal 1998 the effect
of exchange rates reduced cash and cash equivalents by $0.2 million. At
September 30, 1999, cash and cash equivalents and marketable securities totaled
$88.9 million. The Company issues letters of credit in the ordinary course of
business. The Company had outstanding letters of credit of $1.5 million with The
Chase Manhattan Bank and $2.0 million with The Bank of New York at September 30,
1999. Except as described below regarding the stock repurchases, the Company
believes that its current cash balances together with cash anticipated to be
provided by operating activities and borrowings available under the existing
credit facilities and lines of credit, will be sufficient for the expected
short-term and foreseeable long-term cash needs of the Company. The Company has
recently entered into a substantial amount of debt in connection with its
recapitalization transactions. If the Company were to require substantial
amounts of additional capital in the future to pursue business opportunities
that may arise involving substantial investments of additional capital, there
can be no assurances that such capital will be available to the Company or will
be available on commercially reasonable terms. The Company's subsequent open
market purchases required as part of the recapitalization will require a
significant amount of cash to fund the repurchase of common shares. The Company
intends to fund the remaining commitments related to the recapitalization
through borrowings under the credit agreement with The Chase Manhattan Bank and
certain financial institutions, and existing cash balances and cash anticipated
to be provided from operations. The credit agreement provides for credit
facilities in a maximum aggregate principal amount of $500 million, consisting
of a $350 million term loan, of which the Company has borrowed $250 million as
of September 30, 1999, and a $150 million senior revolving credit facility.
Under the Credit Agreement, the Company and its subsidiaries are subject to
certain customary affirmative, negative and financial covenants.
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: challenges facing the Company as highlighted in the President's
report, as well as uncertainties set forth under "Factors that May Affect Future
Performance" such as competition, a rapidly evolving market for delivery of IT
analysis and advice, regulatory requirements and uncertainties of international
trade.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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. On July 20, 1999, as
part of the Company's recapitalization, the Company's Class B Common Stock began
trading on the New York Stock Exchange under the symbol "IT/B" and traded within
a range of daily closing prices of $16.56 to $24.00 per share through September
30, 1999. During fiscal 1999, the Company's Class A Common Stock traded within a
range of daily closing prices of $16.00 to $25.63 per share.
Class A Common Stock Quarterly Common Stock Prices
FISCAL YEAR 1999 FISCAL YEAR 1998
- ---------------------------------------------------------------------
HIGH LOW HIGH LOW
- ---------------------------------------------------------------------
FIRST QUARTER ENDED
DECEMBER 31 $24.56 $17.88 $37.25 $26.75
SECOND QUARTER
ENDED MARCH 31 $25.63 $20.88 $40.81 $33.38
THIRD QUARTER
ENDED JUNE 30 $24.50 $19.00 $35.19 $30.44
FOURTH QUARTER
ENDED SEPTEMBER 30 $22.81 $16.00 $35.19 $20.88
- ---------------------------------------------------------------------
The Company, as required by the terms of the recapitalization, declared
a special, nonrecurring cash dividend of $1.1945 per share, payable to all
Company stockholders of record as of July 16, 1999. The cash dividend, totaling
approximately $125.0 million, was paid on July 22, 1999. 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 could be
misinterpreted as codes with special meanings (This is a simple description of
the most common cause of the Year 2000 problem. There are many complete
descriptions available, 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 recognition that the issue extends 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 clients):
o Supply Chain--suppliers, clients, financial affiliates, and government
agencies
o Products & Services--goods created by the Company for its clients
o Information Technology ("IT") Applications--in-house and vendor business
computer programs
o IT Infrastructure--computers, communications and call center systems
o Non-IT Process Systems--systems used to create and deliver the Company's
products & services
o Non-IT Facilities Systems--systems used to monitor and control the Company's
places of work and office equipment
The Company is on target 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. Should any date-related problems be revealed after that point, they will
be fixed by the Company at no extra charge to the client or replaced with a
product of equal value. The Company has tested and certified as Year 2000
compliant the majority of its internal custom applications. Additionally, the
Company expects to continue to take all prudent and reasonable steps to validate
the Year 2000-readiness of its direct supply chain interfaces and has developed
a contingency plan to deal with potential disruptions. The Company 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.
The Company has established a separate Year 2000 account to budget and
track significant 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 were
24 GARTNER GROUP, INC.
<PAGE>
$5.2 million for fiscal 1999 with forecasted costs for fiscal 2000 of $1.5
million. These costs have been predominantly for the budgeted replacement or
upgrades of the IT and non-IT systems, but also include personnel standard unit
costs. Budgeted costs are principally personnel related. The Company believes
that the Year 2000 problem may result in an increased percentage of IT
department budgets being directed toward Year 2000 remediation expenditures in
the near term. If this occurs, changes in customer buying practices could result
in either an increase or decrease in the demand for the Company's products and
services and, therefore, have the potential of benefiting or adversely impacting
future Company revenues and revenue patterns.
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 partially 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. 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. The
Company has been identifying potential variations of this scenario and is
continuing 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's plans to address the Year 2000 problem have been 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.
Unanticipated failures resulting from, but not limited to: a) essential
third parties, b) the Company's ability to complete the identification of all
date-sensitive systems, or c) the Company's ability to complete execution of its
own remediation efforts, could materially impact the Company's business and
financial condition.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their sovereign currencies and a new
currency called the "euro" and adopted the euro as their common legal currency
on that date. In the year 2002, participating countries will adopt the euro as
their single currency. Until that date, use of the euro is optional.
As of September 30, 1999, the Company has not found
the adoption of the euro to have an impact on the competitive conditions in
European markets and does not believe that the translation of financial
transactions into euros has had or will have a significant effect on the
Company's results of operations, liquidity, or financial condition.
Additionally, the Company does not anticipate any material impact from the euro
conversion on the Company's financial information systems which currently
accommodate multiple currencies. Costs associated with the adoption of the euro
are not expected to be significant and will be expensed as incurred.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 2001. The Company
is currently evaluating the effect, if any, that adoption of FAS 133 will have
on the Company's financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to borrowings under the Company's unsecured Credit Agreement with The
Chase Manhattan Bank. The Company's unsecured Credit Agreement bears interest at
variable rates and the fair value of this instrument is not significantly
affected by changes in market interest rates. An effective increase or decrease
of 10% in interest rates under the Credit Agreement would not have a material
effect on the Company's results of operations. The Company is exposed to market
risk from a series of forward purchase agreements on its
Class A Common Stock (see Note 10 -- Stockholders' Equity, stock repurchases in
the Notes to the Consolidated Financial Statements).
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 a cumulative translation adjustment, a
component of stockholders' equity, in the Consolidated Balance Sheets.
25
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA) SEPTEMBER 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 88,894 $157,744
MARKETABLE SECURITIES -- 60,940
FEES RECEIVABLE, NET OF ALLOWANCES OF $4,938 IN 1999 AND $4,125 IN 1998 282,047 239,243
DEFERRED COMMISSIONS 31,332 28,287
PREPAID EXPENSES AND OTHER CURRENT ASSETS 29,911 24,865
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 432,184 511,079
LONG-TERM MARKETABLE SECURITIES -- 43,610
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 63,592 50,801
INTANGIBLE ASSETS, NET 223,100 155,786
OTHER ASSETS 84,568 71,595
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 803,444 $832,871
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 95,869 $106,400
COMMISSIONS PAYABLE 23,235 20,422
DEFERRED REVENUES 354,517 288,013
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 473,621 414,835
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 250,000 --
OTHER LIABILITIES 5,337 3,098
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK:
$.01 PAR VALUE, AUTHORIZED 5,000,000 SHARES; NONE ISSUED OR OUTSTANDING -- --
COMMON STOCK:
$.0005 PAR VALUE, AUTHORIZED 166,000,000 SHARES OF CLASS A COMMON
STOCK AND 84,000,000 SHARES OF CLASS B COMMON STOCK; ISSUED 76,129,558
SHARES OF CLASS A COMMON STOCK (113,719,037 IN 1998) AND 40,689,648
SHARES OF CLASS B COMMON STOCK (NONE IN 1998) 58 57
ADDITIONAL PAID-IN CAPITAL 314,829 262,776
UNEARNED COMPENSATION (8,280) --
ACCUMULATED OTHER COMPREHENSIVE INCOME (3,830) (2,155)
ACCUMULATED EARNINGS 156,740 193,485
TREASURY STOCK, AT COST, 21,448,536 SHARES OF CLASS A COMMON STOCK
(12,540,576 IN 1998) AND 6,123,032 SHARES OF CLASS B COMMON STOCK
(NONE IN 1998) (385,031) (39,225)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 74,486 414,938
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 803,444 $832,871
====================================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26 GARTNER GROUP, INC.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
RESEARCH $479,045 $433,141 $349,600
SERVICES 149,840 110,955 84,631
EVENTS 75,581 49,121 34,256
OTHER 29,768 30,664 21,438
LEARNING -- 18,076 21,314
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 734,234 641,957 511,239
COSTS AND EXPENSES:
COST OF SERVICES AND PRODUCT DEVELOPMENT 289,053 247,913 202,815
SELLING, GENERAL AND ADMINISTRATIVE 252,423 215,928 173,610
ACQUISITION-RELATED CHARGE -- 4,494 --
OTHER CHARGES 30,130 2,819 --
DEPRECIATION 21,592 17,909 11,758
AMORTIZATION OF INTANGIBLES 10,041 9,357 6,443
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 603,239 498,420 394,626
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 130,995 143,537 116,613
LOSS ON SALE OF GARTNERLEARNING -- (1,973) --
INTEREST INCOME, NET 8,252 9,557 7,260
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 139,247 151,121 123,873
PROVISION FOR INCOME TAXES 50,976 62,774 50,743
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 88,271 $ 88,347 $ 73,130
===========================================================================================================================
NET INCOME PER COMMON SHARE:
BASIC $.86 $.88 $.77
===========================================================================================================================
DILUTED $.84 $.84 $.71
===========================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 102,226 100,194 94,742
===========================================================================================================================
DILUTED 104,948 105,699 102,751
===========================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
PREFERRED COMMON PAID-IN UNEARNED COMPREHENSIVE ACCUMULATED TREASURY STOCKHOLDERS'
(IN THOUSANDS, EXCEPT SHARE DATA) STOCK STOCK CAPITAL COMPENSATION INCOME EARNINGS STOCK EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1996 $0 $52 $134,711 $0 $(2,965) $32,008 $(13,571) $150,235
NET INCOME -- -- -- -- -- 73,130 -- 73,130
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS -- -- -- -- 1,867 -- -- 1,867
---------
COMPREHENSIVE INCOME -- -- -- -- -- -- -- 74,997
ISSUANCE OF 4,036,862 SHARES OF
CLASS A COMMON STOCK UPON
EXERCISE OF STOCK OPTIONS -- 2 13,594 -- -- -- -- 13,596
ISSUANCE FROM TREASURY STOCK OF
195,721 SHARES OF CLASS A COMMON
STOCK FOR PURCHASES BY EMPLOYEES -- -- 5,883 -- -- -- 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 -- -- -- -- 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) -- -- -- -- (12,004)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 1997 0 54 179,017 0 (1,098) 105,138 (13,241) 269,870
NET INCOME -- -- -- -- -- 88,347 -- 88,347
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS -- -- -- -- (1,057) -- -- (1,057)
---------
COMPREHENSIVE INCOME -- -- -- -- -- -- -- 87,290
ISSUANCE OF 5,370,690 SHARES OF
CLASS A COMMON STOCK UPON
EXERCISE OF STOCK OPTIONS -- 3 35,727 -- -- -- -- 35,730
ISSUANCE FROM TREASURY STOCK OF
195,904 SHARES OF CLASS A COMMON
STOCK FOR PURCHASES BY EMPLOYEES -- -- 5,885 -- -- -- 184 6,069
TAX BENEFITS OF STOCK TRANSACTIONS
WITH EMPLOYEES -- -- 47,273 -- -- -- -- 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) -- -- -- -- (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 FROM TREASURY STOCK OF
225,927 SHARES OF CLASS A
COMMON STOCK RELATED TO
ACQUISITIONS -- -- 6,919 -- -- -- 4 6,923
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 1998 0 57 262,776 0 (2,155) 193,485 (39,225) 414,938
NET INCOME -- -- -- -- -- 88,271 -- 88,271
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS -- -- -- -- (1,675) -- -- (1,675)
---------
COMPREHENSIVE INCOME -- -- -- -- -- -- -- 86,596
ISSUANCE OF 2,648,169 SHARES OF
CLASS A COMMON STOCK UPON
EXERCISE OF STOCK OPTIONS -- 1 18,032 -- -- -- -- 18,033
ISSUANCE FROM TREASURY STOCK OF
286,033 SHARES OF CLASS A
COMMON STOCK FOR PURCHASES BY
EMPLOYEES -- -- 4,842 -- -- -- 6 4,848
TAX BENEFITS OF STOCK
TRANSACTIONS WITH EMPLOYEES -- -- 15,096 -- -- -- -- 15,096
NET SHARE SETTLEMENT OF 155,962
SHARES OF CLASS A COMMON STOCK
ON FORWARD PURCHASE AGREEMENT -- -- -- -- -- -- -- --
NET CASH SETTLEMENT PAID ON
FORWARD PURCHASE AGREEMENT -- -- (10,900) -- -- -- -- (10,900)
SPECIAL CASH DIVIDEND PAID -- -- -- -- -- (125,016) -- (125,016)
RESTRICTED STOCK AWARD OF
452,000 SHARES OF CLASS A
COMMON STOCK, NET OF
FORFEITURES -- -- 9,940 (9,940) -- -- -- --
DUTCH AUCTION REPURCHASE OF
9,636,247 SHARES OF CLASS A
COMMON STOCK AND 6,123,032
SHARES OF CLASS B COMMON STOCK -- -- -- -- -- -- (344,633) (344,633)
ACQUISITION OF 65,500 SHARES OF
CLASS A COMMON STOCK -- -- -- -- -- -- (1,192) (1,192)
ISSUANCE OF 663,716 SHARES OF
CLASS A COMMON STOCK RELATED
TO ACQUISITIONS -- -- 15,043 -- -- -- 13 15,056
AMORTIZATION OF UNEARNED
COMPENSATION -- -- -- 1,660 -- -- -- 1,660
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 1999 $0 $58 $314,829 $(8,280) $(3,830) $156,740 $(385,031) $74,486
====================================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28 GARTNER GROUP, INC. 29
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 88,271 $ 88,347 $ 73,130
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION OF INTANGIBLES 31,633 27,266 18,201
RESTRICTED STOCK COMPENSATION 1,660 -- --
ACQUISITION-RELATED CHARGE -- 4,494 --
PROVISION FOR DOUBTFUL ACCOUNTS 5,128 4,051 3,421
EQUITY IN LOSSES OF MINORITY OWNED COMPANY 846 512 202
DEFERRED REVENUES 57,270 30,292 41,750
DEFERRED TAX EXPENSE 6,648 906 1,554
PRE-ACQUISITION TAX BENEFIT APPLIED TO REDUCE GOODWILL 327 -- 275
LOSS ON SALE OF GARTNERLEARNING -- 1,973 --
CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECTS OF ACQUISITIONS:
INCREASE IN FEES RECEIVABLE (40,628) (39,737) (60,378)
INCREASE IN DEFERRED COMMISSIONS (3,186) (5,132) (4,262)
DECREASE (INCREASE) IN PREPAID EXPENSES AND OTHER CURRENT ASSETS 381 (10,645) (7,915)
INCREASE IN OTHER ASSETS (4,880) (5,100) (2,707)
(DECREASE) INCREASE IN ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (17,306) (2,998) 22,101
INCREASE IN COMMISSIONS PAYABLE 2,655 3,566 1,785
- ------------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 128,819 97,795 87,157
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
PAYMENT FOR BUSINESSES ACQUIRED (EXCLUDING CASH ACQUIRED) (57,769) (45,418) (33,306)
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES (13,960) (19,814) (9,089)
ADDITION OF PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (31,747) (24,269) (21,513)
MARKETABLE SECURITIES SOLD (PURCHASED), NET 104,550 (58,220) (13,229)
LOANS TO OFFICERS -- (2,475) (7,163)
PROCEEDS FROM SALE OF GARTNERLEARNING -- 5,000 --
- ------------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 1,074 (145,196) (84,300)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
ISSUANCE OF COMMON STOCK AND WARRANTS 18,033 35,730 13,596
PROCEEDS FROM EMPLOYEE STOCK PURCHASE PLAN OFFERING 4,842 5,885 5,883
TAX BENEFITS OF STOCK TRANSACTIONS WITH EMPLOYEES 15,096 47,273 36,833
NET CASH SETTLEMENT ON FORWARD PURCHASE AGREEMENT (10,900) (12,045) (12,004)
(PURCHASE) SALE OF TREASURY STOCK (345,819) (13,931) 330
PROCEEDS FROM ISSUANCE OF DEBT 250,000 -- --
PAYMENTS FOR DEBT ISSUANCE COSTS (4,925) -- --
DIVIDENDS PAID (125,016) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (198,689) 62,912 44,638
- ------------------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (68,796) 15,511 47,495
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (54) (182) (1,835)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 157,744 142,415 96,755
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 88,894 $ 157,744 $142,415
====================================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: CASH PAID DURING THE PERIOD
FOR:
INTEREST $ 976 -- --
INCOME TAXES $ 47,045 $ 7,721 $ 6,597
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
COMMON STOCK RECEIVED IN SETTLEMENT OF OFFICER LOANS AND RELATED INTEREST -- $ 9,985 --
EQUITY INTEREST RECEIVED IN CONNECTION WITH SALE OF GARTNERLEARNING -- $ 42,500 --
STOCK ISSUED IN CONNECTION WITH ACQUISITIONS $ 15,056 $ 6,923 --
TREASURY STOCK TRANSACTIONS SETTLED SUBSEQUENT TO YEAR END -- $ 2,072 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 GARTNER GROUP, INC.
<PAGE>
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. (the "Company") and its majority-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated. 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 closing 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 research products is
deferred and recognized as products are delivered, and as the Company's
obligation to the client is completed over the contract term. Services revenues,
primarily derived from consulting and measurement engagements, are recognized as
work is performed on a contract by contract basis. Events revenue is deferred
and recognized upon the completion of the related symposium, exposition or
conference. Other revenues includes software licensing fees which are recognized
when delivery has occurred and when collectibility is probable, and the fees are
fixed or determinable. The Company's policy is to record at the time of signing
of a research and measurement contract the fees receivable and related deferred
revenues for the full amount of the contract billable on that date. All research
and measurement 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 research and
measurement 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. In addition, the Company defers direct event related costs
until completion of the related symposium, exposition or conference.
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. During the year ended September 30, 1999, the Company sold all
investments with maturities of more than three months at approximately the
amortized cost of $43.2 million to finance a portion of the Company's
recapitalization (see Note 2 --Recapitalization). At September 30, 1999, all of
the Company's marketable securities mature within three months of purchase.
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 assets or the remaining term of the related leases.
Long-lived assets. The Company regularly reviews long-lived assets for
impairment. Management's policy regarding long-lived assets is to evaluate the
recoverability of its assets when the facts and circumstances suggest that these
assets may be impaired. 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 long-lived assets would be recognized by the Company. This analysis
relies on a number of factors including operating results, business plans,
budgets, economic projections and changes in management's strategic direction.
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 ceases 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. Once technological feasibility has been determined, additional costs
incurred in development, including coding, testing, and documentation, are
capitalized. Amortization of software development costs is provided on a
product-by-product basis over the estimated economic life of the software,
generally two years, using the straight-line method. Amortization of capitalized
computer software development costs begins when the products are available for
general release to customers.
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 esti-
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
mated 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 Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109") (see
Note 12--Income Taxes). Non-compete agreements are being amortized on a
straight-line basis over the period of the agreement ranging from two to five
years. Tradenames are being amortized on a straight-line basis over their
estimated useful lives ranging from nine to twelve years.
Foreign currency translation. All assets and liabilities of foreign subsidiaries
are translated into U.S. dollars at year end exchange rates. Income and expense
items are translated at average exchange rates prevailing during the 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 basis 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 $18.1 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.
Comprehensive income. In the year ended September 30, 1999, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"). 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. The Company
has disclosed its comprehensive income in the Consolidated Statement of Changes
in Stockholders' Equity. The Company's total comprehensive income for the years
ended September 30, 1999, 1998 and 1997 was $86.6, $87.3 and $75.0 million,
respectively, and consisted of net income and foreign currency translation
adjustments.
Recently issued accounting standards. 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 during the year ended September 30, 2001. The Company is currently
evaluating the effect, if any, that adoption of FAS 133 will have on the
Company's financial position or results of operations.
Fair value of financial instruments. Most of the Company's financial
instruments, including cash, marketable securities, trade receivables and
payables, and accruals are short-term in nature. Accordingly, the carrying
amounts of these financial instruments approximates their fair value (see Note
10 regarding forward purchase agreements).
The carrying amounts of long-term debt approximates fair value as the
rates of interest on these credit facilities approximate current market rates of
interest for similar instruments with comparable maturities.
Concentrations of credit risk. Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and fees
receivable. Concentrations of credit risk with respect to fees receivables are
limited due to the large number of clients comprising the Company's client 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.
Reclassifications. Certain reclassifications have been made in the prior years'
financial statements to conform with the year ended September 30, 1999
presentation.
32 GARTNER GROUP, INC.
<PAGE>
2--RECAPITALIZATION
The Dun and Bradstreet Corporation ("D&B"), an investor in Information Partners
Capital Fund, L.P. ("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 common stock of the Company
to Cognizant Corporation ("Cognizant"), a spinoff 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 the year ended September 30, 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 spinoff of Cognizant and an independent
public company.
On July 16, 1999, the Company's stockholders approved a series of
transactions that resulted in the separation of the Company and IMS Health. This
was accomplished, in part, through the recapitalization of the Company's
outstanding common stock into two classes of Common Stock, consisting of Class A
Common Stock and Class B Common Stock, and the issuance of an aggregate of
40,689,648 shares of Class B Common Stock to IMS Health in exchange for a like
number of shares of Class A Common Stock held by IMS Health. The separation was
effected, in part, through the July 26, 1999 tax-free distribution by IMS Health
to its stockholders of the newly issued Class B Common Stock of the Company
owned by IMS Health. IMS Health is required by IRS regulations to monetize its
remaining interest of 6,900,000 shares and warrants for 599,400 shares in the
Company as quickly as feasible after the spinoff, subject to certain
restrictions agreed to by both companies. In addition, the Company's
stockholders approved an amendment to the Company's Certificate of Incorporation
to increase the authorized capital stock of the Company to a total of
250,000,000 shares of Common Stock (166,000,000 shares of Class A Common Stock
and 84,000,000 shares of Class B Common Stock) and 5,000,000 shares of Preferred
Stock. The Class B Common Stock is identical in all respects to the Class A
Common Stock, except that the Class B Common Stock is entitled to elect at least
80% of the members of the Company's Board of Directors. In addition, any Class B
Common Stock holder who owns more than 15% of the outstanding Class B Common
Stock, will not be able to vote all of his or her Class B Common Stock in the
election of directors unless such holder owns an equivalent percentage of Class
A Common Stock. The Company's stockholders also approved an amendment to the
Company's Certificate of Incorporation to create a classified Board of Directors
of three classes having staggered three-year terms.
In connection with the IMS Health transacti0n the Company declared a
special, nonrecurring cash dividend of $1.1945 per share, payable to all Company
stockholders of record as of July 16, 1999. The cash dividend, totaling
approximately $125.0 million, was paid on July 22, 1999 and was funded out of
existing cash.
Also in connection with the recapitalization, on July 27, 1999 the
Company commenced a tender offer in a Dutch Auction format to purchase
approximately 15% of its outstanding common stock at prices not less than $21.00
and not more than $24.00 per share. Under the terms of the Dutch Auction tender
offer, the Company repurchased shares of Class A Common Stock and Class B Common
Stock in the same proportion as the ratio of the number of shares of each class
outstanding on July 26, 1999. Pursuant to the tender offer, which expired on
August 31, 1999, the Company purchased a total of 15,759,279 shares, comprised
of 9,636,247 shares of Class A Common Stock at a purchase price of $21.75 per
share and 6,123,032 shares of Class B Common Stock at a purchase price of
$21.875 per share. These repurchases were funded in part through term borrowings
under the Company's $500 million credit facility (see Note 8 -- Long-Term Debt).
The Company also is required to purchase 5,166,691 shares, allocated between
Class A Common Stock and Class B Common Stock in the same proportion as in the
Dutch Auction, in the open market by July 2001 as part of the recapitalization
plan.
As a result of the special, nonrecurring cash dividend, the Board of
Directors approved a reduction in the exercise prices of stock options to
maintain the aggregate economic value of the stock options. Under the exercise
price reduction program, the exercise prices of all options that had an exercise
price below the fair market value of the stock on July 16, 1999 were reduced to
maintain the ratio of the exercise price to the fair market value of the stock
prior to the cash dividend. The exercise prices of options with an exercise
price equal to or greater than the fair market value of the stock on July 16,
1999 were reduced by an amount equal to the dividend per share paid by the
Company. No changes were made to either the number of shares of common stock
covered or the vesting schedule of the options.
Under the terms of the recapitalization agreement, the Company is
required to indemnify IMS Health for additional taxes, under certain
circumstances, if actions by the Company cause the distribution to become
taxable to IMS Health and its stockholders. These actions include the use of
stock for substantial acquisitions and the issuance, without regulatory
approval, of stock options over set limitations during a two-year period
following the recapitalization. In addition, the Company has indemnified IMS
Health for any tax liabilities associated with the spinoff that may result from
the acquisition of the Company. The Company monitors its actions for compliance
in this regard and believes that it is unlikely, within matters under the
Company's control, that it will incur any significant costs as a result of its
indemnity.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3--ACQUISITIONS
On August 1, 1997, the Company acquired all of the outstanding shares of
Computer and Communications Information Group, Inc. doing business as 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 1997, consolidated total revenues on a pro
forma basis would have been $536.6 million for the year ended September 30,
1997. 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 the year ended September 30, 1997 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 and on May 25, 1999 the Company made an
additional investment of $1.1 million in cash to maintain its 37% membership
interest in Jupiter. 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 October 7, 1999 Jupiter completed its initial
public offering ("IPO") at $21.00 per share of common stock and, upon the
closing of the offering, exchanged membership units in Jupiter for shares of
common stock of Jupiter Communications, Inc. The Company owns 4,028,503 million
shares, or approximately 28.1%, of Jupiter Communications, Inc.'s outstanding
common stock.
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 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 $8.3 million. Of such
amount, $4.5 million was expensed as purchased in-process research and
development costs and is presented as the acquisition-related charge in the
Consolidated Statements of Operations. Of the remaining excess purchase price,
$2.9 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, Inc. 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 $15.1 million, of which $14.5
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
IT 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.
34 GARTNER GROUP, INC.
<PAGE>
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 305,808
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, 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 $16.9
million, of which $15.5 million has been recorded as goodwill, which is being
amortized over 30 years. In addition, $1.4 million of the purchase price was
allocated to a non-compete agreement and is being amortized over 5 years.
On November 13, 1998, the Company acquired all of the outstanding
shares of Wentworth Research, Limited ("Wentworth") for $8.3 million in cash.
Wentworth provides research and advisory services to chief information officers
and the senior information technology management community in the United Kingdom
and Hong Kong. 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 approximately $10.5 million, of which $9.7 million has been
recorded as goodwill, which is being amortized over 30 years. In addition, $0.8
million of the purchase price was allocated to a non-compete agreement which is
being amortized over 2 years.
On January 1, 1999, the Company acquired all of the assets and assumed
the liabilities of G2R, Inc. ("G2R") for $7.8 million in cash and 358,333 shares
of Class A Common Stock of the Company which had an approximate fair market
value of $7.8 million. G2R is a provider of research and consulting services to
IT product vendors and professional services and outsourcing firms. 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
approximately $13.4 million, of which $12.6 million has been recorded as
goodwill, which is being amortized over 30 years. In addition, $0.8 million of
the purchase price was allocated to a non-compete agreement and is being
amortized over 4 years.
On July 30, 1999 the Company acquired all of the outstanding shares of
The Warner Group ("Warner") for $18.0 million in cash. Warner is a leading
management consulting firm specializing in information technology,
communications technology and performance improvement for government agency
clients. 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 approximately $15.2 million, of which $14.3 million has been
recorded as goodwill, that is being amortized over 30 years. In addition, $0.9
million of the purchase price was allocated to non-compete agreements and is
being amortized over 2 and 5 years.
During 1999, the Company completed additional acquisitions for
consideration of $16.1 million in cash. During 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
value of $0.7 million. These acquisitions have been accounted for under the
purchase method and substantially all of the purchase price has been assigned to
goodwill.
During 1999 and 1998 the Company made several investments totaling
$10.9 million and $10.5 million, respectively, that are accounted for on the
cost method. The Company also made investments totaling $3.1 million and $9.3
million in 1999 and 1998 respectively, that are accounted for on the equity
method. These investments totaled $14.0 million and $19.8 million and are
included in Other assets on the Consolidated Balance Sheets as of September 30,
1999 and 1998, respectively.
Total cost and equity investments of the Company were $75.2 million and
$61.9 million, respectively, and are included in Other assets on the
Consolidated Balance Sheets at September 30, 1999 and 1998, respectively. The
pro forma results of operations for the year ended September 30, 1999 and 1998,
assuming the 1999 acquisitions were made at the beginning of each year, would
not differ significantly from the historical results.
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.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 was
independently appraised at $42.5 million on the date of sale 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.
5--OTHER CHARGES
During 1999, the Company recorded other charges related to reorganization and
recapitalization of approximately $30.1 million on a pre-tax basis.
Approximately $14.2 million of the charge related to certain job eliminations
associated with strategic reduction in force initiatives. Approximately $9.2
million of the other charge pertained to legal and advisory fees associated with
the Company's recapitalization (see Note 2--Recapitalization). In relation to
the Company's recapitalization, the Company's board of directors approved a
special one-time cash incentive plan to be earned and paid in three installments
and designed to enhance retention of key personnel. Approximately twenty-five
percent of the retention incentive, or $6.7 million, was vested in 1999 and was
paid on October 15, 1999. The second payment will be made on or before December
31, 1999 and the third payment will be made on or before April 15, 2000.
During 1998, the Company recorded other 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 presented as other 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) 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FURNITURE AND EQUIPMENT 3-8 $ 42,737 $ 27,278
COMPUTER EQUIPMENT 2-3 75,780 60,809
LEASEHOLD IMPROVEMENTS 2-15 23,955 21,916
- -----------------------------------------------------------------------------------------------------------
142,472 110,003
LESS--ACCUMULATED DEPRECIATION AND AMORTIZATION (78,880) (59,202)
- -----------------------------------------------------------------------------------------------------------
$ 63,592 $ 50,801
===========================================================================================================
</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) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOODWILL 7-30 $237,933 $168,936
NON-COMPETE AGREEMENTS 2-5 10,600 5,489
TRADENAMES 9-12 3,140 778
- -----------------------------------------------------------------------------------------------------------------------
251,673 175,203
LESS--ACCUMULATED AMORTIZATION (28,573) (19,417)
- -----------------------------------------------------------------------------------------------------------------------
$223,100 $155,786
=======================================================================================================================
</TABLE>
36 GARTNER GROUP, INC.
<PAGE>
8--LONG TERM DEBT
On July 16, 1999, ("the closing date") the Company entered into an unsecured
Credit Agreement with The Chase Manhattan Bank, as administrative agent for the
participating financial institutions thereunder, providing for a maximum of $500
million of credit facilities, consisting of a $350 million term loan and a $150
million senior revolving credit facility. The term loan can be advanced in
multiple drawings during the first year after the closing date. Amounts repaid
under the term loan may not be reborrowed. As of September 30, 1999, the Company
had borrowed $250 million under the term loan, and had not made any borrowings
under the revolving credit facility. Loans under the revolving facility will be
available for five years, subject to certain customary conditions on the date of
any such loan. A quarterly commitment fee of between 0.25% and 0.35% per annum
is payable on the unborrowed balance of the revolving credit facility.
Borrowings under the credit facility will accrue interest based on one or more
rates selected by the Company plus an applicable margin. The base rate shall be
LIBORor alternatively, the higher of the prime commercial lending rate of The
Chase Manhattan Bank, the Federal Funds Rate or the secondary market rate for
certificates of deposit. The applicable margin for the base rate can range from
0% to 0.50% per annum based upon an applicable calculated ratio and is initially
0.25% per annum. The interest rate paid on long-term debt as of September 30,
1999 was 7.5%
Loans made under the term loan will mature five years after the closing
date and will amortize in eight equal semi-annual installments commencing
eighteen months after the closing date. Loans made under the revolving credit
facility will mature five years after the closing date. Maturities of long-term
debt for the next five fiscal years are approximately $31.3 million in 2000,
$62.5 million for each year 2001 through 2003 and $31.3 million in 2004. Under
the Credit Agreement, the Company and its subsidiaries are subject to certain
customary affirmative, negative and financial covenants.
Letters of credit are issued by the Company in the ordinary course of
business. As of September 30, 1999, the Company had outstanding letters of
credit with Chase Manhattan Bank for $1.5 million and with The Bank of New York
for $2.0 million.
9--COMMITMENTS AND CONTINGENCIES
The Company leases various facilities, furniture and computer equipment under
lease arrangements expiring between 2000 and 2026. Future minimum annual
payments under operating lease agreements as of September 30, 1999 are as
follows (in thousands):
YEAR ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------
2000 $ 15,486
2001 12,933
2002 10,794
2003 9,847
2004 7,600
THEREAFTER 45,252
- ------------------------------------------------------------------------
TOTAL MINIMUM LEASE PAYMENTS $101,912
========================================================================
Rental expense for operating leases, net of sublease income, was $24.4,
$21.3 and $16.8 million for the years ended September 30, 1999, 1998 and 1997,
respectively. The Company has commitments with two facilities management
companies for printing, copying, mailroom and other related services. The
minimum annual obligations under these service agreements are $4.8 million for
1999, $4.9 million for 2000, $4.1 million for 2001, $4.1 million for 2002, and
$1.0 million for year 2003.
The Company is required to repurchase 5,166,691 additional shares of
its common stock on the open market by July 2001 as part of its recapitalization
(see Note 2 - Recapitalization).
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.
10--STOCKHOLDERS' EQUITY
Capital stock. Class A Common Stock and Class B Common Stock stockholders are
entitled to one vote per share on all matters to be voted by stockholders, other
than the election of directors. Class A Common Stock stockholders are entitled
to one vote per share on the election of Class A directors, which constitute not
more than 20% of the directors and Class B Common Stock stockholders are
entitled to one vote per share on the election of Class B directors, which
constitute at least 80% of the directors. In addition, any Class B Common Stock
holder who owns more than 15% of the outstanding Class B Common Stock, will not
be able to vote all of his or her Class B Common Stock in the election of
directors unless such holder owns an equivalent percentage of Class A Common
Stock.
On June 4, 1997, with the Board of Directors approval, the Company
provided loans totaling $7.2 million to certain officers to facilitate the
purchase of common stock arising out of the exercise of stock options. The loan
proceeds were not used to fund the option exercise price of the common stock
acquired. The loans 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%. 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
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rate of 5.6%. On July 23, 1998, with the Board of Directors' approval, the
Company received 302,003 shares of Class A Common Stock in settlement of the
loan balances and accrued interest.
Stock option plans and warrants. Under the terms of the 1991 Stock 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 shares of Class A Common
Stock have been reserved for issuance under this plan. At September 30, 1999 and
1998, 5,948,420 and 9,001,508 options were available for grant, respectively.
In January 1993, the Company adopted the 1993 Director Option Plan, a
stock option plan for directors, and reserved an aggregate of 1,200,000 shares
of Class A Common Stock for issuance under this plan. The plan currently
provides for the automatic grant of 15,000 options to purchase shares of Class A
Common Stock to each director upon first becoming an outside director and the
automatic grant of an option to purchase an additional 7,000 shares of Class A
Common Stock annually based on continuous service as an outside director. The
exercise price of each option granted under the plan is equal to the fair market
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. At September 30, 1999 and 1998, 526,000 and 603,000 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 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 the financial performance targets are met for the
year of grant 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 cumulative financial
performance targets are met for both the first and second years following the
date of grant, a second 25% become exercisable three years following the date of
grant. If cumulative financial performance targets are met for all three 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. Based on
cumulative performance through 1999, 1,487,070 shares were exercisable on
September 30, 1999. At September 30, 1999 and 1998, 624,000 and 287,500 options
were available for grant, respectively.
In October 1996, the Company adopted the 1996 Long Term Stock Option
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 achievement of
certain financial performance targets determined by the Board of Directors. If
financial performance targets are met in the year of grant 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. If
cumulative financial performance targets are met for both the first and second
years following the date of grant, a second 25% become exercisable three years
following the date of grant. If financial performance targets are met
cumulatively for all three 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. Based on 1997 and 1998 performance, 815,250 options will be exercisable
on February 24, 2000. At September 30, 1999 and 1998, 473,000 and 169,500
options to purchase common stock were available for grant.
In October 1998, the Company adopted the 1998 Long Term Stock Option
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
and restricted stock. A total of 2,500,000 shares of Class A Common Stock was
reserved for issuance under this plan. All options currently granted under the
plan vest and become fully exercisable six years following the date of grant,
based on continued employment, and have a term of ten years from the date of
grant assuming continued employment. Vesting and exercisability accelerates upon
achievement of certain financial performance targets determined by the Board of
Directors. If financial performance targets are met in the year of grant in
accordance with parameters as set by the Board in its sole discretion, 25% of
the shares granted become exercisable in the third anniversary date following
the date of grant. If cumulative financial performance targets are met for both
the first and second years following the date of grant, a second 25%
38 GARTNER GROUP, INC.
<PAGE>
become exercisable three years following the date of grant. If financial
performance targets are met cumulatively for all three 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. Based on 1999 performance, no vesting
has accelerated; however, if cumulative financial performance targets are met
for 1999 and 2000 or 1999, 2000 and 2001, vesting may still accelerate. At
September 30, 1999, 176,000 options to purchase common stock were available for
grant.
On April 4, 1997, the Company adopted an option exchange program that
allowed the exchange of certain stock options granted from October 1995 through
January 1997 under the 1991 Option Plan and the 1994 Long-Term Plan for options
with an exercise price of $21.09 per share. In total, options to purchase
1,647,000 shares of common stock were exchanged under this program. The original
vesting schedules and expiration dates associated with these stock options were
also amended to commence with the stock option exchange program date. These
amounts have been included as granted and canceled options during 1997 in the
summary activity table shown below.
On December 15, 1998, the Company adopted another option exchange
program that allowed the exchange of certain stock options granted from April
1997 through July 1998 for options with an exercise price of $20.46. In total,
options to purchase 4,737,400 shares of common stock were exchanged under this
program. The original vesting schedules and expiration dates associated with
these stock options were also amended to commence with the stock option exchange
program date. These amounts have been included as granted and canceled options
during 1999 in the summary activity table shown below.
In connection with the recapitalization (see Note 2--Recapitalization),
substantially all options with an exercise price below the fair market value of
the stock on the effective date were reduced to maintain the ratio of the
exercise price to the fair market value of the stock prior to the special,
nonrecurring cash dividend, which was $1.1945 per share. The exercise prices of
options with an exercise price equal to or greater than the fair market value of
the stock on the effective date were reduced by an amount equal to the dividend
per share paid by the Company. No changes were made in either the number of
shares of common stock covered or in the vesting schedule of the options.
A summary of stock option activity under the plans and agreement
through September 30, 1999 follows:
CLASS A WEIGHTED
COMMON AVERAGE
STOCK UNDER EXERCISE
OPTION PRICE
- -----------------------------------------------------------------------------
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
GRANTED 11,818,259 $20.946
EXERCISED (2,648,169) $ 6.810
CANCELED (7,511,554) $21.637
- -----------------------------------------------------------------------------
OUTSTANDING AT SEPTEMBER 30, 1999 17,789,568 $17.475
=============================================================================
Options for the purchase of 4,417,986 and 4,317,310 Class A Common
Stock were exercisable at September 30, 1999 and 1998, respectively.
The following table summarizes information about stock options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING
NUMBER NUMBER WEIGHTED AVERAGE CONTRACTUAL
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISABLE EXERCISE PRICE LIFE (YEARS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$0.88-4.83 641,640 603,140 $ 2.78 1.4
$5.51-13.08 3,226,240 2,066,240 $ 7.53 4.9
$15.67-19.90 8,989,865 1,315,215 $18.18 8.5
$20.46-24.49 4,419,323 222,179 $24.12 9.2
$25.18-26.81 36,000 32,000 $25.59 1.8
$30.47-37.29 476,500 179,212 $32.61 7.6
- ---------------------------------------------------------------------------------------------------------------------
17,789,568 4,417,986
========================================================================
</TABLE>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IMS Health has a warrant expiring December 1, 2000
to purchase 599,400 shares of Class A Common Stock at a price of $16.42 per
share.
Employee stock purchase plan. 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 the
Class A Common Stock price as reported by NYSE at the beginning or end of each
offering period, whichever is lower. During the year ended September 30, 1999,
286,033 shares were issued from treasury stock at an average purchase price of
$17.68 per share. At September 30, 1999, 1,792,900 shares were available for
offering under the plan.
Restricted stock awards. During the year ended September 30, 1999, the Company
granted restricted stock awards under the 1991 Stock Option Plan and the 1998
Long Term Stock Option Plan. The restricted stock awards will vest in six equal
installments with the first installment vesting two years after the grant and
then annually thereafter. Recipients are not required to provide consideration
to the Company other than rendering service and have the right to vote the
shares and receive dividends. The restricted stock may not be sold by the
employee during the vesting period. A total of 538,000 restricted shares of
Class A Common Stock were issued at a weighted average market value of $23.09
per share, of which 86,000 have been forfeited as of September 30, 1999. In
addition, the Company granted 35,000 stock options under the 1998 Long Term
Stock Option Plan with an exercise price of $1.00 per share that vest on the
same basis as the restricted stock awards. Such stock options had a fair market
value of $23.25 per stock option on the date of grant. The aggregate market
value of the restricted stock awards and stock option grants was $9.9 million.
Total compensation expense recognized for the restricted stock awards and option
grants was approximately $1.7 million for 1999.
Stock repurchases. Beginning in the year ended September 30, 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 the year ended September 30, 1998, four
settlements resulted in the Company receiving 365,949 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
the year ended September 30, 1999, four settlements resulted in the Company
receiving 155,962 shares of Class A Common Stock and paying approximately $10.9
million in cash. As of September 30, 1999, a forward purchase agreement in place
covered approximately $17.6 million or 828,157 shares of Class A Common Stock
having forward purchase prices established at $21.25 per share. If the market
priced portion of this agreement was settled based on the September 30, 1999
market price of Class A Common Stock ($16.00 per share), the Company would
settle under the terms of the forward purchase agreement with a payment of
either $4.3 million in cash or 271,739 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 in an effort to
offset the dilutive effect of the Company's stock-based employee compensation
plans. To date, the Company has repurchased 721,300 shares of Class A Common
Stock at a cost of approximately $17.4 million. There are no open commitments to
repurchase stock under this approval. No additional repurchases under this
approval are anticipated due to the open market repurchase limitations under the
terms of the recapitalization.
Stock based compensation. The Company applies the provisions of APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for stock-based compensation 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" the following are the pro forma net income and net
income per share for the years ended September 30, 1999, 1998 and 1997 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:
YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- --------------------------------------------------------------------------
NET INCOME
AS REPORTED $88,271 $88,347 $73,130
PRO FORMA $67,128 $58,480 $62,497
NET INCOME PER DILUTED
COMMON SHARE
AS REPORTED $ 0.84 $ 0.84 $ 0.71
PRO FORMA $ 0.64 $ 0.55 $ 0.61
- --------------------------------------------------------------------------
40 GARTNER GROUP, INC.
<PAGE>
The pro forma disclosures shown above reflect options granted after the
year ended September 30, 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 utilized for stock options granted or
modified:
1999 1998 1997
- -----------------------------------------------------------------------
EXPECTED LIFE (IN YEARS) 3.1-5.0 2.4-6.4 2.4-6.4
EXPECTED VOLATILITY .40 .40 .40
RISK FREE INTEREST RATE 4.93%-5.82% 4.22%-4.39% 6.00%-6.09%
EXPECTED DIVIDEND YIELD 0.00% 0.00% 0.00%
- -----------------------------------------------------------------------
The weighted average fair values of the Company's stock options granted
in the years ended September 30, 1999, 1998 and 1997 are $10.19, $12.00 and
$12.32, respectively.
- --------------------------------------------------------------------------------
11--COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share ("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. When the exercise
of stock options is antidilutive they are excluded from the calculation.
The following table sets forth the required disclosures of the
reconciliation of the basic and diluted net earnings per share computations.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
NET INCOME $ 88,271 $ 88,347 $ 73,130
=====================================================================================================================
DENOMINATOR :
DENOMINATOR FOR BASIC EARNINGS PER SHARE--
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 102,226 100,194 94,742
EFFECT OF DILUTIVE SECURITIES:
WEIGHTED AVERAGE NUMBER OF COMMON SHARES UNDER
WARRANT OUTSTANDING 155 298 274
WEIGHTED AVERAGE NUMBER OF OPTION SHARES OUTSTANDING 2,567 5,207 7,735
- ---------------------------------------------------------------------------------------------------------------------
DILUTIVE POTENTIAL COMMON SHARES 2,722 5,505 8,009
- ---------------------------------------------------------------------------------------------------------------------
DENOMINATOR FOR DILUTED EARNINGS PER SHARE--
ADJUSTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 104,948 105,699 102,751
=====================================================================================================================
BASIC EARNINGS PER COMMON SHARE $ 0.86 $ 0.88 $ 0.77
=====================================================================================================================
DILUTED EARNINGS PER COMMON SHARE $ 0.84 $ 0.84 $ 0.71
=====================================================================================================================
</TABLE>
For the years ended September 30, 1999 and 1998, options to purchase
4.3 million and 2.2 million shares of Class A Common Stock of the Company with
exercise prices greater than the average fair market value of $21.32 and $32.67,
for the respective periods, were not included in the computation of diluted
net income per share because the effect would have been antidilutive. All
outstanding options for the year ended September 30, 1997 were dilutive and were
included in the calculation of diluted earnings per share.
12--INCOME TAXES
Following is a summary of the components of income before provision for income
taxes (in thousands):
YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- -------------------------------------------------------------------------
U.S. $107,243 $113,589 $ 93,758
NON-U.S. 32,004 37,532 30,115
- -------------------------------------------------------------------------
CONSOLIDATED $139,247 $151,121 $123,873
=========================================================================
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income tax on the above income consists of the
following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT TAX EXPENSE:
U.S. FEDERAL $18,613 $ 2,081 $ 797
STATE AND LOCAL 2,977 2,257 1,872
FOREIGN 6,533 8,927 8,208
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT 28,123 13,265 10,877
DEFERRED TAX EXPENSE (BENEFIT):
U.S. FEDERAL 4,286 921 434
STATE AND LOCAL 1,052 552 912
FOREIGN 1,310 (567) 208
- ---------------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED 6,648 906 1,554
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT AND DEFERRED 34,771 14,171 12,431
BENEFIT OF STOCK TRANSACTIONS WITH EMPLOYEES
ALLOCATED TO ADDITIONAL PAID-IN CAPITAL 15,878 48,603 38,037
BENEFIT OF PURCHASED TAX BENEFITS CREDITED TO GOODWILL 327 -- 275
- ---------------------------------------------------------------------------------------------------------------------
TOTAL PROVISION FOR INCOME TAXES $50,976 $62,774 $50,743
=====================================================================================================================
</TABLE>
Current and long-term deferred tax assets and liabilities are comprised
of the following (in thousands):
SEPTEMBER 30, 1999 1998
- ----------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION $ 1,585 $ 666
EXPENSE ACCRUALS FOR BOOK PURPOSES 7,495 4,285
LOSS AND CREDIT CARRYFORWARDS 4,622 11,456
INTANGIBLE ASSETS 1,668 1,814
OTHER 1,210 1,104
- ----------------------------------------------------------------------------
GROSS DEFERRED TAX ASSET 16,580 19,325
- ----------------------------------------------------------------------------
INTANGIBLE ASSETS (8,457) (2,299)
EQUITY INTEREST (2,478) (2,477)
OTHER (1,577) (89)
- ----------------------------------------------------------------------------
GROSS DEFERRED TAX LIABILITY (12,512) (4,865)
- ----------------------------------------------------------------------------
VALUATION ALLOWANCE (3,559) (6,444)
- ----------------------------------------------------------------------------
NET DEFERRED TAX ASSET $ 509 $ 8,016
============================================================================
Current and long-term net deferred tax assets are $5.7 million and $0
million as of September 30, 1999 and are $1.8 million and $6.2 million as of
September 30, 1998, respectively, and are included in Prepaid expenses and other
current assets and Other assets in the Consolidated Balance Sheets. Current and
long-term net deferred tax liabilities are $0.9 million and $4.3 million as of
September 30, 1999 and are included in Accounts payable and accrued liabilities
and Other liabilities in the Consolidated Balance Sheets. There were no deferred
tax liabilities as of September 30, 1998.
The valuation allowance relates to state and foreign tax loss
carryforwards that more likely than not will expire unutilized. The net decrease
in the valuation allowance of approximately $2.9 million in the current year
results primarily from the utilization of U.S. federal tax loss carryforwards of
approximately $5.0 million and state tax loss carryforwards of approximately
$11.0 million. The net increase in the valuation allowance of approximately $1.5
million in the year ended September 30, 1998 was due primarily from the increase
in the state tax carryforwards of approximately $2.0 million and the net
utilization of foreign tax loss carryforwards of approximately $0.5 million. The
tax benefits from such tax loss carryforwards were $2.5, $1.2 and $1.7 million
for the years ended September 30, 1999, 1998 and 1997, respectively.
Approximately $2.7 million of the valuation allowance would reduce
paid-in-capital upon subsequent recognition of any related tax benefits.
42 GARTNER GROUP, INC.
<PAGE>
The differences between the U.S. federal statutory income tax rate and
the Company's effective rate are:
YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- ------------------------------------------------------------------------
STATUTORY TAX RATE 35.0% 35.0% 35.0%
STATE INCOME TAXES,
NET OF FEDERAL BENEFIT 3.1 4.3 4.5
FOREIGN INCOME TAXED
AT A DIFFERENT RATE 1.7 0.7 0.6
NON-DEDUCTIBLE GOODWILL
AND DIRECT ACQUISITION COSTS 1.1 3.5 0.9
NON-TAXABLE INCOME (1.3) (1.3) (0.9)
EXEMPT FOREIGN TRADING
GROSS RECEIPTS (2.3) (1.4) (1.0)
NON-DEDUCTIBLE RECAPITALIZATION
COSTS 2.2 -- --
SETTLEMENT OF TAX EXAMS (1.8) -- --
BENEFIT OF OPERATING LOSS AND
TAX CREDIT CARRYFORWARDS (2.0) -- --
OTHER ITEMS 0.9 0.7 1.9
- ------------------------------------------------------------------------
EFFECTIVE TAX RATE 36.6% 41.5% 41.0%
=========================================================================
As of September 30, 1999, the Company had state and local tax loss
carryforwards of $40.6 million, the majority of which will expire in two to four
years. In addition, the Company had foreign tax loss carryforwards of $4.5
million, of which $0.6 million will expire within three to five years, and $3.9
million can be carried forward indefinitely. In 1999, the Company incurred $8.6
million of non-deductible recapitalization costs during the year, the tax effect
of which was approximately offset by a one-time income tax benefit of $2.5
million related primarily to the settlement of certain tax examinations in the
second quarter. In 1998, 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 above mentioned items,
was 37% and 39% for 1999 and 1998, respectively.
13--EMPLOYEE BENEFITS
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 operatiing margins set by the Board of Directors. Amounts expensed in
connection with the plan totaled $6.6, $5.4 and $4.6 million for the years ended
September 30, 1999, 1998 and 1997, respectively.
14--SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 131 supercedes Statement of
Financial Accounting Standards No 14, "Financial Reporting for Segments of a
Business Enterprise", replacing the "industry segment" with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. FAS 131 also requires
additional disclosures with respect to products and services, geographic areas
and major customers.
In the fourth quarter of 1999, the Company adopted FAS 131. In relation
to the reorganization in the fourth quarter of 1999, the Company began managing
its business in three reportable segments organized on the basis of differences
in its related products and services: research, services and events. Research
consists primarily of subscription-based research products. Services consists
primarily of consulting and measurement engagements. Events consists of vendor
and user focused symposia, expositions and conferences.
The Company earns revenue from clients in many countries. Other than
the United States, the Company's country of domicile, there is no individual
country in which revenues from external clients represent 10% or more of the
Company's consolidated revenues. Additionally, no single client accounted for
10% or more of total revenue and the loss of a single client, in management's
opinion, would not have a material adverse effect on revenues.
The Company evaluates performance and allocates resources based on the
profit or loss from operations before interest income and expense, certain
selling, general and administrative costs, income taxes, other charges and
foreign exchange gains and losses. The accounting policies used by the
reportable segments are the same as those used by the Company as described in
Note 1 - Summary of Significant Accounting Policies.
The Company does not identify or allocate assets, including capital
expenditures, by operating segment. Accordingly, assets are not being reported
by segment because the information is not available by segment and is not
reviewed in the evaluation of performance or making decisions in the allocation
of resources.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables present information about reportable segments (in
thousands). Operating income in the "Other" column includes expenses unallocated
to reportable segments, expenses allocated to operations that do not meet the
quantitative threshold of FAS 131, and other charges. There are no intersegment
revenues:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1999 RESEARCH SERVICES EVENTS OTHER CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $479,045 149,840 75,581 29,768 $734,234
OPERATING INCOME $336,919 55,857 32,532 (294,313) $130,995
INTEREST INCOME, NET $ 8,252
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES $139,247
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 RESEARCH SERVICES EVENTS OTHER CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $433,141 110,955 49,121 48,740(1) $641,957
OPERATING INCOME $312,855 50,787 19,546 (239,651) $143,537
LOSS ON SALE OF GARTNERLEARNING $ (1,973)
INTEREST INCOME, NET $ 9,557
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES $151,121
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1997 RESEARCH SERVICES EVENTS OTHER CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUES $349,600 84,631 34,256 42,752(1) $511,239
OPERATING INCOME $248,825 40,409 10,319 (182,940) $116,613
INTEREST INCOME, NET $ 7,260
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES $123,873
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)REPRESENTS THE SUM OF OTHER AND LEARNING REVENUES FOR YEARS ENDED SEPTEMBER
30, 1998 AND 1997.
The Company's consolidated revenues are generated primarily through
direct sales to clients by domestic and international sales forces and a network
of independent international distributors. 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 areas located
outside of the United States, Canada and Europe. Most products and services of
the Company are provided on an integrated worldwide basis. Because of the
integration of products and services delivery, it is not practical to separate
precisely the revenues and operating income of the Company by geographic
location. Accordingly, the separation set forth in the table below is based upon
internal allocations, which involve certain management estimates and judgments.
Fiscal 1998 and 1997 revenues and operating income by geographic location have
been restated to be more comparable to the 1999 revenues allocation methodology.
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 client receivables are maintained by, and therefore
are included as identifiable assets of, the United States operations.
Summarized information by geographic location is as follows (in
thousands):
YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- -------------------------------------------------------------------------
UNITED STATES AND CANADA:
REVENUES $471,783 $415,622 $339,318
OPERATING INCOME $ 70,139 $ 81,894 $ 68,482
IDENTIFIABLE TANGIBLE ASSETS $437,452 $551,030 $407,262
LONG-LIVED ASSETS $318,509 $285,125 $189,304
EUROPE:
REVENUES $212,131 $173,762 $132,229
OPERATING INCOME $ 48,433 $ 44,455 $ 42,090
IDENTIFIABLE TANGIBLE ASSETS $110,472 $ 93,409 $ 73,974
LONG-LIVED ASSETS $ 41,233 $ 25,533 $ 20,950
OTHER INTERNATIONAL:
REVENUES $ 50,320 $ 52,573 $ 39,692
OPERATING INCOME $ 12,423 $ 17,188 $ 6,041
IDENTIFIABLE TANGIBLE ASSETS $ 32,420 $ 31,888 $ 27,654
LONG-LIVED ASSETS $ 11,518 $ 11,134 $ 10,331
- -------------------------------------------------------------------------
Excluding other charges, operating income was $95.1 million, $52.9
million and $13.1 million in the United States and Canada, Europe and Other
International, respectively, for the year ended September 30, 1999. Excluding
acquisition-related and other charges, operating income in the United States and
Canada was $89.2 million for the year ended September 30, 1998.
44 GARTNER GROUP, INC.
<PAGE>
15--QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1999 1ST 2ND 3RD 4TH
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $190,380 $171,328 $185,658 $186,868
OPERATING INCOME(1) $ 45,742 $ 39,610 $ 38,138 $ 7,505
NET INCOME $ 30,088 $ 28,841 $ 26,416 $ 2,926
DILUTED EARNINGS PER COMMON SHARE $ 0.29 $ 0.27 $ 0.25 $ 0.03
- ---------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30, 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 $ 0.25 $ 0.19 $ 0.22 $ 0.19
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1)INCLUDES OTHER CHARGES OF $4.4 MILLION, $1.5 MILLION, AND $24.2 MILLION IN
THE QUARTERS ENDED MARCH 31, 1999, JUNE 30, 1999 AND SEPTEMBER 30, 1999,
RESPECTIVELY.
45
<PAGE>
REPORT BY MANAGEMENT
Management's Responsibility for Financial Reporting
Management has prepared and is responsible for the integrity and objectivity of
the consolidated financial statements and related information included in the
Annual Report. The consolidated financial statements, which include amounts
based on management's best judgments and estimates, were prepared in conformity
with generally accepted accounting principles. Financial information elsewhere
in this Annual Report is consistent with that in the consolidated financial
statements.
The Company maintains a system of internal controls de- signed to
provide reasonable assurance at reasonable cost that assets are safeguarded and
transactions are properly executed and recorded for the preparation of financial
information. The internal control system is augmented with an organizational
structure providing division of responsibilities, careful selection and training
of qualified financial people and a program of internal audits.
The Audit Committee of the Board of Directors, composed solely of
outside directors, meets regularly with management, internal auditors and our
independent accountants to ensure that each is meeting its responsibilities and
to discuss matters concerning internal controls and financial reporting. Both
the independent and internal auditors have unrestricted access to the Audit
Committee.
The independent auditors for fiscal 1999, 1998 and 1997, KPMG LLP,
audit and render an opinion on the financial statements in accordance with
generally accepted auditing standards. These standards include an assessment of
the systems of internal controls and tests of transactions to the extent
considered necessary by them to support their opinion.
/s/ Manuel A. Fernandez
Manuel A. Fernandez
Chairman
/s/ Michael D. Fleisher
Michael D. Fleisher
President and Chief Executive Officer
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, 1999 and 1998, 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, 1999.
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, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
KPMG LLP
St. Petersburg, Florida
October 28, 1999
46 GARTNER GROUP, INC.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA) FISCAL YEAR ENDED SEPTEMBER 30, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
REVENUES:
RESEARCH $479,045 $433,141 $349,600 $279,629 $222,394
SERVICES 149,840 110,955 84,631 61,348 40,781
EVENTS 75,581 49,121 34,256 26,449 16,498
OTHER 29,768 30,664 21,438 15,027 14,172
LEARNING -- 18,076 21,314 12,219 1,301
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 734,234 641,957 511,239 394,672 295,146
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 603,239 498,420 394,626 345,232 251,406
OPERATING INCOME 130,995 143,537 116,613 49,440 43,740
MINORITY INTEREST -- -- -- 25 98
LOSS ON SALE OF GARTNERLEARNING (1,973) -- -- --
INTEREST INCOME, NET 8,252 9,557 7,260 3,665 2,271
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 139,247 151,121 123,873 53,130 46,109
PROVISION FOR INCOME TAXES 50,976 62,774 50,743 36,692 20,948
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 88,271 $ 88,347 $ 73,130 $ 16,438 $ 25,161
====================================================================================================================================
NET INCOME PER COMMON SHARE:
BASIC $ 0.86 $ 0.88 $ 0.77 $ 0.18 $ 0.29
DILUTED $ 0.84 $ 0.84 $ 0.71 $ 0.17 $ 0.26
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA:
CASH AND CASH EQUIVALENTS, AND MARKETABLE SECURITIES $ 88,894 $218,684 $171,054 $126,809 $ 95,414
FEES RECEIVABLE, NET 282,047 239,243 205,760 143,762 112,159
OTHER CURRENT ASSETS 61,243 53,152 48,794 39,579 28,655
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 432,184 511,079 425,608 310,150 236,228
INTANGIBLES AND OTHER ASSETS 371,260 321,792 219,704 133,958 96,678
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $803,444 $832,871 $645,312 $444,108 $332,906
====================================================================================================================================
DEFERRED REVENUES $354,517 $288,013 $254,071 $198,952 $161,001
OTHER CURRENT LIABILITIES 119,104 126,822 118,112 92,456 94,208
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 473,621 414,835 372,183 291,408 255,209
LONG-TERM DEBT 250,000 -- -- -- --
OTHER LIABILITIES 5,337 3,098 3,259 2,465 3,446
STOCKHOLDERS' EQUITY 74,486 414,938 269,870 150,235 74,251
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $803,444 $832,871 $645,312 $444,108 $332,906
====================================================================================================================================
<CAPTION>
SEPTEMBER 30, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESEARCH CONTRACT VALUE (1) $560,779 $511,422 $450,276 $344,106 $270,716
TOTAL CONTRACT VALUE (2) $684,611 $596,736 $505,162 $387,228 $303,231
CLIENT ORGANIZATIONS (3) 9,692 9,144 8,124 7,241 5,500
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) RESEARCH CONTRACT VALUE IS CALCULATED AS THE ANNUALIZED VALUE OF ALL
SUBSCRIPTION-BASED RESEARCH PRODUCT CONTRACTS WITH RATABLE REVENUE RECOGNITION
IN EFFECT AT A GIVEN POINT IN TIME, WITHOUT REGARD TO THE DURATION OF THE
CONTRACTS OUTSTANDING AT SUCH TIME.
(2) TOTAL CONTRACT VALUE IS CALCULATED AS THE ANNUALIZED VALUE OF ALL
SUBSCRIPTION-BASED RESEARCH PRODUCT, MEASUREMENT AND CERTAIN OTHER PRODUCT
CONTRACTS IN EFFECT AT A GIVEN POINT IN TIME, WITHOUT REGARD TO THE DURATION OF
THE CONTRACTS OUTSTANDING AT SUCH TIME. CONTRACT VALUE FOR 1997, 1996 AND 1995
HAS BEEN RESTATED TO EXCLUDE GARTNERLEARNING CONTRACTS.
(3) INFORMATION PROVIDED FOR FISCAL 1995 DOES NOT INCLUDE DATAQUEST,
INCORPORATED. INFORMATION PROVIDED FOR 1997 AND 1998 EXCLUDES DATAPRO.CLIENT
ORGANIZATIONS HAVE BEEN RESTATED FOR 1997, 1996 AND 1995 TO EXCLUDE
GARTNERLEARNING CLIENT ORGANIZATIONS.
47
<PAGE>
CORPORATE DIRECTORY
BOARD OF DIRECTORS
Manuel A. Fernandez (1)
Chairman
Gartner Group, Inc.
Michael D. Fleisher (1)
President and CEO
Gartner Group, Inc.
Anne Sutherland Fuchs (3)
Senior Vice President and
Group Publishing Director,
Hearst Magazines
William O. Grabe (3)
General Partner
General Atlantic Partners
Max D. Hopper (2) (4)
Retired Chairman
SABRE Technology Group
John P. Imlay, Jr. (3)
Chairman
Imlay Investments, Inc.
Charles B. McQuade (2)
President and CEO
Securities Industry Automation
Corporation
Stephen G. Pagliuca (2)
Managing Director
Bain Capital
Kenneth Roman (4)
Former Chairman and CEO
Ogilvy & Mather Worldwide
Dennis G. Sisco (4)
Partner
Behrman Capital
LEADERSHIP TEAM
Michael D. Fleisher (1)
President and CEO
Karen T. Cone
Senior Vice President and
General Manager,
GartnerGroup Interactive
Channel
Richard E. Eldh, Jr. (1)
Executive Vice President
Worldwide Sales, Events and
Marketing
Patricia L. Higgins (1)
Executive Vice President and
CEO of The Research Board
Masahiro Miyagawa
President and CEO
GartnerGroup, Japan
Graham P. Norton-Standen
Senior Vice President and
General Manager,
GartnerGroup International
Regina M. Paolillo (1)
Chief Financial Officer and
Executive Vice President
Finance and Administration
Henry B. Satterthwaite
Senior Vice President and
General Manager,
GartnerGroup Services
Maxwell B. Smith
Senior Vice President
Business Development
David R. Whitten
Senior Vice President and
General Manager,
GartnerGroup Research
(1) Corporate Officer
(2) Audit committee
(3) Compensation committee
(4) Corporate Governance committee
WORLDWIDE OFFICES
Corporate Headquarters
56 Top Gallant Road
Stamford, CT 06904 USA
Phone: 203-316-1111
West Coast Headquarters
San Jose, CA USA
European Headquarters
Egham, United Kingdom
Asia Headquarters
Tokyo, Japan
Pacific Headquarters
Milsons Point, Australia
GartnerGroup is located in
50 countries worldwide.
Addresses, phone and fax
numbers are listed on the
GartnerGroup Web site at
gartner.com
SHAREHOLDER INFORMATION
Notice of Annual Meeting
56 Top Gallant Road
Stamford, CT 06904
February 1, 2000
10:00 a.m. Eastern Time
Investor Relations
For further information on the company, additional copies of this report, Form
10-K, or other financial information, contact:
Investor Relations
Gartner Group, Inc.
56 Top Gallant Road
Stamford, CT 06904
203-316-1111
You may also contact us by sending an e-mail to [email protected] or
by visiting Investor Information at www.gartnerweb.com/investor
Exchange Information
The Company's Class A and Class B Common Stock is traded on the New York Stock
Exchange under the symbols IT and IT/B, respectively.
Legal Counsel
Wilson, Sonsini, Goodrich
& Rosati, P.C.
Palo Alto, CA
Independent Auditors
KPMG LLP
St. Petersburg, FL
Transfer Agent
BankBoston, N.A.
c/o EquiServe
PO Box 8040
Boston, MA 02266-8040
Phone: 781-575-3120
Internet: www.equiserve.com
48 GARTNER GROUP, INC.
<PAGE>
GartnerGroup's 1999 annual report was photographed at the company's flagship
U.S. conference, Symposium/ITxpo, held in Orlando, FL.
Entire contents (C) 1999 Gartner Group, Inc. All rights reserved. Reproduction
of this publication in any form without prior written permission is forbidden.
This annual report includes trademarks of Gartner Group, Inc. and other
companies.
Design: SVP Wilton, CT
<PAGE>
[PHOTO]
gartner.com
GARTNERGROUP
56 TOP GALLANT ROAD
P.O. BOX 10212
STAMFORD, CT
06904-2212
203-316-1111
EXHIBIT 21.1
<TABLE>
<CAPTION>
SUBSIDIARIES OF REGISTRANT STATE/COUNTRY OF INCORPORATION
<S> <C>
AICC Consultores, S.A. Chile
Computer & Communications Information New Jersey
Group, Inc. (dba Datapro Information
Services and Northern Business Information)
Dataquest Australia Pty. Ltd. Australia
Dataquest, Incorporated California
Decision Drivers, Inc. Delaware
G.G. Canada Co. Nova Scotia
G.G. Canada, Inc. Delaware
G.G. Credit, Inc. Delaware
G.G. Global Holdings, Inc. Delaware
G.G. Investment Management, 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 Argentina Argentina
Gartner Group DO Brasil, S/C Ltda. Brazil
Gartner Group Europe Holdings, B.V. The Netherlands
Gartner Group Europe, Inc. Delaware
Gartner Group Financial Services Company Ireland
Gartner Group France S.A.R.L. France
Gartner Group FSC, Inc. Barbados
Gartner Group, GmbH Germany
Gartner Group Hong Kong, Ltd. Hong Kong
Gartner Group Ireland Holdings Ireland
Gartner Group Ireland, Ltd. Ireland
Gartner Group Italia, S.r.L. Italy
Gartner Group Japan K.K. Japan
Gartner Group Learning, Inc. Minnesota
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
Griggs-Anderson, Inc. Delaware
Inteco Corporation Texas
IT Management Programme Ltd. United Kingdom
SI Venture Associates, L.L.C. Delaware
The Research Board Delaware
The Warner Group California
Vision Events International, Inc. Delaware
Vue Acquisition Company Delaware
Wentworth Research Ltd. United Kingdom
</TABLE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
Gartner Group, Inc.:
The audits referred to in our report dated October 28, 1999, included the
related financial statement schedule for the three-year period ended September
30, 1999. 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 audits. 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.
/s/ KPMG LLP
St. Petersburg, Florida
October 28, 1999
EXHIBIT 23.2
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, No. 333-42587, No.
333-77015 and No. 333-77013) on Form S-8 of Gartner Group, Inc. of our reports
dated October 28, 1999 relating to the consolidated balance sheets of Gartner
Group, Inc. and subsidiaries as of September 30, 1999 and 1998, 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, 1999,
which report appears in the 1999 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.
/s/ KPMG LLP
St. Petersburg, Florida
December 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GARTNER GROUP, INC. FOR THE PERIOD ENDED SEPTEMBER 30,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 88,894
<SECURITIES> 0
<RECEIVABLES> 286,985
<ALLOWANCES> 4,938
<INVENTORY> 0
<CURRENT-ASSETS> 432,184
<PP&E> 142,472
<DEPRECIATION> 78,880
<TOTAL-ASSETS> 803,444
<CURRENT-LIABILITIES> 473,621
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 74,428
<TOTAL-LIABILITY-AND-EQUITY> 803,444
<SALES> 734,234
<TOTAL-REVENUES> 734,234
<CGS> 289,053
<TOTAL-COSTS> 289,053
<OTHER-EXPENSES> 309,058
<LOSS-PROVISION> 5,128
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 139,247
<INCOME-TAX> 50,976
<INCOME-CONTINUING> 88,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<EPS-BASIC> 0
<NET-INCOME> 88,271
<EPS-DILUTED> 0.84
</TABLE>
