UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
----------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended November 30, 1998
Commission file number 0-19433
[LOGO]
Technology Solutions Company
Incorporated in the State of Delaware
Employer Identification No. 36-3584201
205 North Michigan Avenue
Suite 1500
Chicago, Illinois 60601
(312) 228-4500
TSC (1) HAS FILED all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) HAS BEEN subject to
such filing requirements for the past 90 days.
As of January 8, 1999, there were outstanding 41,185,110
shares of TSC Common Stock, par value $.01.
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
Index to Form 10-Q
Part I
Page
Number
FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
November 30, 1998 and May 31, 1998 3
Consolidated Statements of Income
for the Three Months and
Six Months Ended November 30, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the Six Months Ended November 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
Part II
OTHER INFORMATION
Item 4 22
Item 5 22
Item 6 23
SIGNATURES 24
EXHIBIT INDEX 25
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
TECHNOLOGY SOLUTIONS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
November 30, May 31,
1998 1998
---------- -------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 54,791 $ 38,458
Marketable securities 27,705 27,973
Receivables, less allowance for doubtful
receivables of $4,751 and $3,246 79,260 72,114
Deferred income taxes 9,970 7,448
Other current assets 13,661 12,750
------- -------
Total current assets 185,387 158,743
COMPUTERS, FURNITURE AND EQUIPMENT, NET 9,412 9,515
LONG-TERM INVESTMENTS -- 1,200
COST IN EXCESS OF NET ASSETS OF ACQUIRED
BUSINESSES AND OTHER INTANGIBLES 15,646 13,535
LONG-TERM RECEIVABLES AND OTHER 9,906 14,155
-------- --------
Total assets $220,351 $197,148
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,020 $ 1,931
Accrued compensation and related costs 26,790 20,982
Capitalized lease obligations -- 79
Deferred compensation 16,438 13,566
Other current liabilities 446 4,784
------- -------
Total current liabilities 47,694 41,342
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; shares authorized -
10,000,000; none issued -- --
Common stock, $.01 par value; shares authorized -
100,000,000; shares issued - 41,212,498 412 403
Capital in excess of par value 94,820 85,089
Retained earnings 78,787 72,463
Unrealized holding loss (55) (42)
Cumulative translation adjustment (1,307) (1,209)
------- -------
172,657 156,704
Less: Treasury Stock, at
cost (0 and 381,186 shares) -- (898)
------- -------
Total stockholders' equity 172,657 155,806
-------- --------
Total liabilities and stockholders' equity $220,351 $197,148
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of this financial information.
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TECHNOLOGY SOLUTIONS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the Three Months For the Six Months
Ended November 30, Ended November 30,
------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
REVENUES:
Professional fees $81,472 $63,772 $167,033 $124,130
Software and hardware products -- 124 8 173
------- ------- -------- --------
81,472 63,896 167,041 124,303
------- ------- -------- --------
COSTS AND EXPENSES:
Project personnel 39,792 29,305 79,088 57,456
Other project expenses 12,931 8,841 26,150 18,035
Management and
administrative support 17,669 12,913 35,434 24,758
Goodwill amortization 1,271 929 2,391 1,806
Non-recurring charges 5,300 -- 5,300 --
Incentive compensation 3,491 2,843 8,729 6,493
------- ------- ------- -------
80,454 54,831 157,092 108,548
------- ------- ------- -------
OPERATING INCOME 1,018 9,065 9,949 15,755
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Net investment income 657 330 1,436 713
Interest expense (10) (21) (39) (30)
------ ------- ------ ------
647 309 1,397 683
------ ------- ------ ------
INCOME BEFORE INCOME TAXES 1,665 9,374 11,346 16,438
INCOME TAX PROVISION 901 4,062 5,022 7,167
------- -------- -------- --------
NET INCOME $ 764 $ 5,312 $ 6,324 $ 9,271
======= ======== ======== ========
EARNINGS PER COMMON SHARE $ 0.02 $ 0.13 $ 0.16 $ 0.24
======= ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 40,889 38,757 40,548 38,261
======= ======== ======== ========
EARNINGS PER COMMON SHARE
ASSUMING DILUTION $ 0.02 $ 0.12 $ 0.15 $ 0.21
======= ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 43,016 42,933 43,438 42,422
======= ======== ======== =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of this financial information.
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TECHNOLOGY SOLUTIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the
Six Months Ended
November 30,
----------------
1998 1997
----- ------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,324 $ 9,271
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 5,803 3,488
Provisions for receivable valuation
allowances and reserves
for possible losses 2,184 1,188
Loss (gain) on sale of investments 13 (48)
Non-recurring charges 5,300 --
Deferred income taxes (2,539) (1,876)
Changes in assets and liabilities:
Receivables (9,246) (11,326)
Purchases of trading securities related
to deferred compensation program (2,872) (3,916)
Refundable income taxes -- 810
Other current assets 1,195 (24)
Accounts payable 2,092 (942)
Accrued compensation and related costs 3,808 (339)
Deferred compensation funds
from employees 2,872 3,916
Other current liabilities 175 7,387
Other assets (712) (2,267)
------ ------
Net cash provided by
operating activities 14,397 5,322
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities (1,725) (1,500)
Proceeds from available-for-sale securities 4,960 2,507
Proceeds from held-to-maturity investments 1,200 3,290
Capital expenditures, net (2,105) (2,530)
Net assets of acquired businesses
and other investments (6,467) (10,360)
Capitalized lease obligation (79) 61
------ ------
Net cash used in investing activities (4,216) (8,532)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 3,775 6,386
Proceeds from employee stock purchase plan 2,231 1,440
------ ------
Net cash provided by
financing activities 6,006 7,826
------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 146 (588)
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 16,333 4,028
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 38,458 27,951
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $54,791 $31,979
======= =======
The accompanying Notes to Consolidated Financial Statements are an
integral part of this financial information.
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION the restatement of earnings
per common share, earnings per
The consolidated financial common share assuming
statements include the dilution, weighted average
accounts of Technology number of common shares
Solutions Company and its outstanding, and weighted
subsidiaries (the "Company"). average number of common and
The consolidated statements of common equivalent shares
income for the three months outstanding, to reflect all of
and six months ended the Company's prior stock
November 30, 1998 and 1997, splits, including the three-
the consolidated balance sheet for-two stock split effected
as of November 30, 1998 and as a 50 percent stock dividend
the consolidated statements of effective August 10, 1998.
cash flows for the six months
ended November 30, 1998 and NOTE 2--THE COMPANY
1997 have been prepared by the The Company delivers business
Company without audit. In the benefits through consulting
opinion of management, these and systems integration
financial statements include services that help clients
all adjustments necessary to transform customer
present fairly the financial relationships and improve
position, results of operations. The Company's
operations and cash flows as clients generally are located
of November 30, 1998 and for throughout the United States,
all periods presented. All and in Europe, Latin America,
adjustments made have been of and Canada.
a normal recurring nature.
Certain information and NOTE 3--SUMMARY OF SIGNIFICANT
footnote disclosure normally ACCOUNTING POLICIES
included in the financial
statements prepared in PRINCIPLES OF
accordance with generally CONSOLIDATION-The accompanying
accepted accounting principles consolidated financial
have been condensed or statements include the
omitted. The Company believes accounts of the Company and
that the disclosures included all of its subsidiaries. All
are adequate and provide a significant intercompany
fair presentation of interim transactions have been
period results. Interim eliminated. Acquired
financial statements are not businesses are included in the
necessarily indicative of results of operations since
financial position or their acquisition dates.
operating results for an
entire year. It is suggested REVENUE RECOGNITION-The Com-
that these interim financial pany derives substantially all
statements be read in of its revenues from
conjunction with the audited information technology (IT),
financial statements and the strategic business and
notes thereto included in the management consulting, systems
Company's Annual Report on integration, programming, and
Form 10-K for the fiscal year packaged software integration
ended May 31, 1998 filed with and implementation services.
the United States Securities The Company operates in one
and Exchange Commission (SEC) industry segment - providing
on August 28, 1998. IT and strategic business
consulting services to major
Certain previously reported companies. The Company
amounts have been reclassified recognizes revenue on
to conform with the current
period presentation, including
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<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
COMPUTERS, FURNITURE AND
EQUIPMENT--Computers, furniture
contracts as work is performed and equipment are carried at
primarily based on hourly cost and depreciated on a
billing rates. Out-of-pocket straight-line basis over their
expenses are presented net of estimated useful lives. Useful
amounts billed to clients in lives generally are five years
the accompanying consolidated or less.
statements of income.
Contracts are performed in COST IN EXCESS OF NET ASSETS
phases. Losses on contracts, OF ACQUIRED BUSINESSES-The
if any, are reserved in full excess of cost over the fair
when determined. Revenue from market value of the net
licensing of software is identifiable assets of
recognized upon delivery of businesses acquired (goodwill)
the product. The Company does is amortized on a straight-
not presently have any line basis, typically over a
significant maintenance and five-year period.
support contracts for software
licensed to clients. Revenue SOFTWARE DEVELOPMENT COSTS-The
from hardware sales is Company capitalizes certain
recognized upon delivery. software development costs
once technological feasibility
CASH AND CASH EQUIVALENTS--The is established in accordance
Company considers all highly with Statement of Financial
liquid investments readily Accounting Standards (SFAS)
convertible into cash (with No. 86, "Accounting for the
original maturities of three Costs of Computer Software to
months or less)to be cash be Sold, Leased or Otherwise
equivalents. These short-term Marketed." Amortization of
investments are carried at software costs is the greater
cost plus accrued interest, of the amount computed using
which approximates market. the (a) ratio of current
revenues to the total current
MARKETABLE SECURITIES-The Com- and anticipated future
pany's marketable securities revenues or (b) the straight-
are comprised of preferred line method over the estimated
stocks and trading securities. economic life of the product.
The preferred stocks, all of
which are classified as FOREIGN CURRENCY TRANSLA-
available-for-sale, are TION--All assets and
reported at fair value, with liabilities of foreign
unrealized gains and losses subsidiaries are translated to
excluded from earnings and U.S. dollars at end of period
reported as a net after-tax exchange rates.
amount in a separate component The resulting translation
of stockholders' equity until adjustments are recorded as a
realized. The Company's component of stockholders'
investments related to the equity. Income and expense
executive deferred items are translated at average
compensation plan are exchange rates prevailing
classified as trading during the period.
securities, with unrealized Gains and losses from
gains and losses included in foreign currency transactions
the Company's consolidated of these subsidiaries are
statements of income. Realized included in the consolidated
gains or losses are determined statements of income. The
on the specific identification functional currencies for the
method. Company's foreign subsidiaries
are their local currencies.
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FAIR VALUE OF FINANCIAL returns were filed on a fiscal
INSTRUMENTS--The carrying year basis ending on May 31.
values of current assets and The Company uses an asset and
liabilities and long-term liability approach to
receivables approximated their financial accounting and
fair values at November 30, reporting for income taxes.
1998 and May 31, 1998. Deferred income taxes are
Investments pertaining to provided when tax laws and
minor investments in companies financial accounting standards
for which fair value is not differ with respect to the
readily available is believed amount of income for a year
to approximate its carrying and the basis of assets and
amount. liabilities. The Company does
not provide U.S. deferred
STOCK-BASED COMPENSATION-The income taxes on earnings of
Company accounts for stock- foreign subsidiaries which are
based compensation using the expected to be indefinitely
intrinsic value method reinvested.
prescribed in Accounting
Principles Board (APB) ESTIMATES AND ASSUMPTIONS-The
Opinion No. 25, "Accounting preparation of financial
for Stock Issued to statements in conformity with
Employees," and related generally accepted accounting
interpretations. Accordingly, principles requires management
the Company recognizes no to make assumptions that
compensation expense for its affect the reported amounts of
stock option plan or employee assets and liabilities at the
stock purchase plan. date of the financial
statements and the reported
INCOME TAXES-The Company files amounts of revenues and
its federal and state income expenses during the reporting
tax returns on a calendar year period. Actual results could
basis. The current income tax differ from those estimates.
provision represents the
Company's federal, state and
foreign income taxes for the
fiscal year as though tax
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4--EARNINGS PER COMMON SHARE
The Company adopted SFAS No. 128, "Earnings Per Share," as of
February 28, 1998. The Company discloses basic and diluted
earnings per share in the consolidated statements of income under
the provisions of SFAS No. 128. Earnings per common share
assuming dilution is computed by dividing net income by the
weighted average number of common shares outstanding during each
period presented, including common equivalent shares arising from
the assumed exercise of stock options, where appropriate.
Earnings per common share is computed by dividing net income by
the weighted average number of common shares outstanding during
each period presented. All share and per share amounts have been
adjusted to reflect all of the Company's prior stock splits,
including the three-for-two stock split effective August 10,
1998.
Reconciliation of Basic and Diluted EPS
For the Three Months Ended
- ----------------------------------------------------
November 30, 1998 November 30, 1997
----------------- -----------------
Per Per
Net Common Net Common
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic EPS $764 40,889 $0.02 $5,312 38,757 $0.13
===== =====
Effect of
Stock
Options -- 2,127 -- 4,176
----- ------ ------ -----
Diluted
EPS $764 43,016 $0.02 $5,312 42,933 $0.12
===== ====== ===== ====== ====== =====
For the Six Months Ended
- -----------------------------------------------------
November 30, 1998 November 30, 1997
----------------- -----------------
Per Per
Net Common Net Common
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic EPS $6,324 40,548 $0.16 $9,271 38,261 $0.24
===== =====
Effect of
Stock
Options -- 2,890 -- 4,161
------ ------ ------ ------
Diluted
EPS $6,324 43,438 $0.15 $9,271 42,422 $0.21
====== ====== ===== ====== ====== =====
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 5--STOCK OPTIONS
As of November 30, 1998,
options to purchase 9.6
million shares of common stock
were outstanding and options
to purchase an additional 1.6
million shares of common stock
were available for grant under
the Technology Solutions
Company 1996 Stock Incentive
Plan.
NOTE 6--OTHER EVENTS
On October 29, 1998, the Board
of Directors of the Company
adopted a Rights Agreement and
approved a number of
amendments to the Company's By-
laws. Copies of the Rights
Agreement, the By-laws and the
Company's related news release
can be found on the Form 8-K
filed with the SEC on October
29, 1998.
On November 22, 1998, the
Board of Directors of the
Company authorized a stock
repurchase program pursuant to
which the Company may, from
time to time, acquire up to
two million shares of the
Company's common stock in the
open market or through
privately negotiated
transactions. The Board also
voted to change the fiscal
year of the Company from a
fiscal year ending on the
thirty-first day of May in
each year to a calendar year
ending on the thirty-first day
of December in each year. The
change in fiscal year was
effected by the Board's
approval of an amendment to
the Company's By-laws. The
transition report covering the
period from June 1, 1998
through December 31, 1998 will
be filed on Form 10-K.
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 7--COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes new standards for reporting and displaying
comprehensive income and its components in a full set of general-
purpose financial statements. This statement is effective for
fiscal years beginning after December 15, 1997 and requires
reclassification of prior period financial statements.
Comprehensive Income
For the Three Months Ended
November 30,
---------------------------
1998 1997
------ ------
Net Income $764 $5,312
Foreign Currency Translation
Adjustments, net of tax (122) (98)
Unrealized Holding (Losses)
Gains of Available-for-Sale
Securities, net of tax (81) 254
----- -----
$561 $5,468
===== ======
Comprehensive Income
For the Six Months Ended
November 30,
-------------------------
1998 1997
------ ------
Net Income $6,324 $9,271
Foreign Currency Translation
Adjustments, net of tax (98) (238)
Unrealized Holding (Losses)
Gains of Available-for-Sale
Securities, net of tax (13) 212
------ ------
$6,213 $9,245
====== ======
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TECHNOLOGY SOLUTIONS COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS nonbillable expenses directly
incurred for client projects
Three Months Ended November and business development
30, 1998 Compared With Three efforts including recruiting
Months Ended November 30, 1997 fees, sales and marketing
expenses, personnel training
Consolidated net revenues for and provisions for valuation
the quarter ended November 30, allowances and reserves for
1998 increased 28 percent to potential losses on continuing
$81.5 million compared with projects. Other project
$63.9 million for the same expenses for the second
period last fiscal year. The quarter of fiscal 1999 were
increase resulted from $12.9 million, compared with
domestic revenue growth of 29 $8.8 million in the comparable
percent and international period of fiscal 1998, an
revenue growth of 19 percent. increase of $4.1 million, or
The source of the revenue 46 percent. The increase in
growth is the continued strong other project expenses primarily
demand for the Company's includes: increases in
technology and business domestic hiring, training and
consulting services. The nonbillable travel expenses of
Company's ability to generate $1.2 million as a result of
this additional revenue is increased headcount and
also due to the Company's business development; an
increased consulting staff. increase in domestic practice
The additional hours billed by area selling costs of $0.4
the increased consulting million; an increase in other
staff, combined with an eight practice area development
percent increase in average costs of $0.1 million;
domestic billing rates, were international growth of $0.4
the primary factors in revenue million; and an increase in
growth compared to the same the provisions for valuation
period a year ago. allowances and reserves for
potential losses on continuing
Project personnel costs for projects of $0.8. Other
the quarter ended November 30, project expenses as a
1998, which represent mainly percentage of net revenues
professional salaries and increased to 16 percent in the
benefits, increased to $39.8 second quarter of fiscal 1999
million from $29.3 million for from 14 percent for the same
the same period last fiscal period last fiscal year.
year, an increase of
36 percent. The increase was Management and administrative
partially due to an increase support costs increased
in professional headcount and $4.8 million to $17.7 million
was consistent with the higher for the quarter ended November
revenues reported in the 30, 1998 from $12.9 million
second quarter of fiscal 1999. for the quarter ended
Project personnel costs as a November 30, 1997, an increase
percentage of net revenues of 37 percent. Approximately
increased to 49 percent in the $2.4 million of this increase
second quarter of fiscal 1999 was attributable to the
from 46 percent for the same increase in corporate support
period last fiscal year mainly services over last year,
due to lower staff utilization which was necessary to support
rates. the growth in business. The
increase in these costs versus
The Company charges most of the same period last year
its project expenses directly include: increased expenses in
to the client. Other project the internal systems and human
expenses consist of
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TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
resources areas of $0.9 Incentive compensation of $3.5
million; higher expenses of million was accrued for the
$0.4 million related to the quarter ended November 30,
expansion of the Company's 1998 compared to $2.8 million
corporate recruiting for the same period last year.
organization; higher marketing The increase is due to
expenses of $0.4 million as a increased headcount, at both
result of increased corporate the consulting staff and the
marketing efforts; project manager levels.
international growth of $0.6 Incentive compensation as a
million; and various other percentage of net revenues
infrastructure costs of $0.1 remained unchanged between
million. The Company also years at 4 percent. The
incurred an additional $2.4 Company expects to continue to
million of management and accrue incentive compensation
administrative costs throughout the year.
associated primarily with
increased regional management Net investment income in the
and practice area support second quarter of fiscal 1999
personnel. These costs was $0.6 million compared to
primarily include additional $0.3 million for the same
domestic regional management period a year ago. The
and practice area support increase is a result of higher
personnel of $1.0 million; cash and cash equivalent
international growth of $0.7 balances for the second
million; and various other quarter of fiscal 1999
management and administrative compared to the same period a
expenses of $0.7 million which year ago.
include items such as practice
area marketing, recruiting,
sales and other expenses. The Company's effective tax
rate for the quarter ended
Goodwill amortization November 30, 1998 was 54
increased to $1.3 million for percent, a rate which was
the quarter ended November 30, unusually high due to a larger
1998 compared to $0.9 million proportion of pre-tax
for the quarter ended November earnings being generated in
30, 1997. This increase is foreign, high tax-rate
due to the earn-out payments jurisdictions. The effect of
related to the acquisitions of the Company's $5.3 million non-
The Bentley Company, Inc. recurring charges was to lower
(Bentley) and Aspen domestic pre-tax earnings as a
Consultancy Ltd. (Aspen). percentage of consolidated pre-
tax earnings. Therefore, since
The Company recorded a one- the Company's foreign earnings
time non-recurring charge of are generally subject to
$5.3 million during the second higher tax rates (compared to
quarter of fiscal 1999. This US rates) and the foreign
amount is the result of decisions earnings represented an
made in the second quarter to unusually high proportion of
abandon an investment in an pre-tax earnings, the
Internet based commerce soft- consolidated effective tax
ware tool of $3.3 million and rate was higher this
expenses to sever certain quarter than in prior
management and administrative quarters. Excluding the impact
employees of $2.0 million. of the non-recurring charges,
the Company's effective tax
rate for the quarter was 43
percent, comparable to the
rate in the quarter ended
November 30, 1997.
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<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Weighted average million for the same period
number of common last fiscal year, an increase
shares and weighted of 38 percent. The increase
average number of common and was partially due to an
common equivalent shares increase in professional
outstanding increased headcount and was consistent
primarily due to the exercise with the higher revenues
of stock options reported in the first half of
and the issuance fiscal 1999. Project personnel
of shares under the costs as a percentage of net
Company's employee stock revenues increased slightly to
purchase plan. 47 percent in fiscal 1999 from
46 percent for the same period
last fiscal year.
RESULTS OF OPERATIONS The Company charges most of
its project expenses directly
Six Months Ended November 30, to the client. Other project
1998 Compared With Six Months expenses consist of
Ended November 30, 1997 nonbillable expenses directly
incurred for client projects
Consolidated net revenues for and business development
the six months ended November efforts including recruiting
30, 1998 increased 34 percent fees, sales and marketing
to $167.0 million compared expenses, personnel training
with $124.3 million for the and provisions for valuation
same period last fiscal year. allowances and reserves for
The increase resulted from potential losses on continuing
domestic revenue growth of 40 projects. Other project
percent, which was slightly expenses for the first half of
offset by a 3 percent decrease fiscal 1999 were
in international revenues. The $26.1 million, compared with
source of the domestic revenue $18.0 million in the
growth is the continued strong comparable period of fiscal
demand for the Company's 1998, an increase of $8.1
technology and business million, or 45 percent. The
consulting services. The increase in other project
Company's ability to generate expenses primarily includes:
this additional revenue is increases in domestic hiring,
also due to the Company's training and nonbillable travel
increased consulting staff. expenses of $2.5 million as a
The additional hours result of increased headcount
billed by the increased and business development; an
consulting staff, combined increase in domestic practice
with an eight percent area selling costs of $0.5
increase in average million; an increase in other
domestic billing rates, practice area development
were the primary costs of $0.3 million;
factors in revenue growth international growth of $0.9
compared to the same period a million; an increase in
year ago. unassigned costs of $1.5
million; and an increase in
the provisions for valuation
allowances and reserves for
Project personnel costs for potential losses on continuing
the six months ended November projects of $1.0 million.
30, 1998, which represent Other project expenses as a
mainly professional salaries percentage of net revenues
and benefits, increased to increased to 16 percent
$79.1 million from $57.5 in the first half of
fiscal 1999 from 15 percent
for the same period last
fiscal year.
- -----------------------------------------------------------------
Page 14
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Management and administrative The Company recorded a one-
support costs increased time non-recurring charge of
$10.6 million to $35.4 million $5.3 million during the second
for the six months ended quarter of fiscal 1999. This
November 30, 1998 from $24.8 charge is the result of
million for the six months decisions made in the second
ended November 30, 1997, an quarter to abandon an
increase of 43 percent. investment in an Internet-based
Approximately $5.2 million of commerce software tool of $3.3
this increase was attributable million and expenses to sever
to the increase in corporate certain management and adminis-
support services over last trative employees of $2.0 million.
year, which was necessary to
support the growth in Incentive compensation of $8.7
business. The increase in million was accrued for the
these costs versus the same six months ended November 30,
period last year include: 1998 compared to $6.5 million
increased expenses in the for the same period last year.
internal systems and human The increase is due to
resources areas of $2.8 increased headcount, at both
million; higher expenses of the consulting staff and the
$0.6 million related to the project manager levels.
expansion of the Company's Incentive compensation as a
corporate recruiting percentage of net revenues
organization; higher marketing remained unchanged between
expenses of $0.7 million as a years at 5 percent. The
result of increased corporate Company expects to continue to
marketing efforts; accrue incentive compensation
international growth of $0.5 throughout the year.
million; and various other
infrastructure costs of $0.6 Net investment income in the
million including corporate first half of fiscal 1999 was
legal, accounting, finance and $1.4 million compared to $0.7
investor relations costs. The million for the same period a
Company also incurred an year ago. The increase is a
additional $5.4 million of result of higher cash and cash
management and administrative equivalent balances for the
costs associated primarily first half of fiscal 1999
with increased regional compared to the same period a
management and practice area year ago.
support personnel. These costs
primarily include additional The Company's effective tax
domestic regional management rate for the first half of
and practice area support fiscal 1999 remained virtually
personnel of $2.7 million; unchanged between years at 44
international growth of $0.9 percent.
million; and various other
management and administrative Weighted average number of
expenses of $1.8 million which common shares and weighted
include items such as practice average number of common and
area marketing, recruiting, common equivalent shares
sales and other expenses. outstanding increased
primarily due to the exercise
Goodwill amortization of stock options and the
increased to $2.4 million for issuance of shares under the
the six months ended Company's employee stock
November 30, 1998 compared to purchase plan.
$1.8 million for the six
months ended November 30,
1997. This increase is due to
the earn-out payments related
to the acquisitions of Bentley
and Aspen.
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Page 15
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
LIQUIDITY AND CAPITAL Capital expenditures for the
RESOURCES six months ended November 30,
1998 were $2.1 million.
Net cash provided by operating Capital expenditures may
activities was $14.4 million continue at the current rate
for the six months throughout the year.
ended November 30, 1998. The Company currently
Operating cash flow included has no material commitments
net income of $6.3 million for capital expenditures.
and was also benefited from Net cash outlays related to
other favorable working business acquisitions and
capital activities. investments were $6.5 million
for the six months ended
November 30, 1998.
The net cash outlay related to
business acquisitions was due
to a $3.0 million earn-out
payment made in the first
quarter of fiscal 1999 for the
June 1997 acquisition of Bentley.
This benefit was Bentley was acquired for
partially offset by an a combination of cash and the
increase in net receivables of Company's common stock. The
$9.2 million due to the growth transaction was accounted for
of the Company's revenues. using the purchase method of
accounting.
The Company's significant
amounts of cash, cash Net cash outlays due to
equivalents and marketable business acquisitions also
securities have provided ample included a $1.5 million earn-
liquidity to handle the out payment made in the first
Company's current cash quarter of fiscal 1999 related
requirements. related to the May 1996
acquisition of Aspen.
In addition, a $2.0 million
investment was made in other
Net cash used in investing companies.
activities was $4.2 million
for the six months The Company has a
ended November 30, 1998. $10.0 million unsecured line
The Company of credit facility (the
purchased $1.7 million "Facility") with Bank of
of available-for-sale America Illinois. The
securities and received $5.0 agreement expires October
million from the sale of 4, 1999. At the Company's
available-for-sale securities. election, loans made under the
The Company, due to the Facility bear interest at
maturity of several held-to- either the Bank of America
maturity investments, received Illinois reference rate or a
proceeds of $1.2 million for Eurodollar loan at the
the six months ended November applicable Eurodollar interest
30, 1998. The proceeds were rate plus 0.75 percent. The
transferred to cash and cash unused line fee is
equivalents and reinvested in 0.125 percent of the unused
ongoing business activities portion of the commitment. The
and other equity investments. Facility requires, among other
- ------------------------------------------------------------------
Page 16
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
things, the Company to as opposed to the year 2000,
maintain certain financial because the programs were
ratios. As of November 30, written using two digits
1998, the Company was in rather than four to define the
compliance with these applicable year. This could
financial ratio requirements. result in a system failure or
As of November 30, 1998, no miscalculations causing
borrowings had been made under disruptions of operations such
the Facility. as, among others, a temporary
inability to process
NEW ACCOUNTING STANDARDS transactions, send invoices,
or engage in similar normal
In June 1997, the FASB issued business activities.
SFAS No. 131, "Disclosures
about Segments of an Enterprise The Company has conducted an
and Related Information." This assessment of its computer
statement establishes new information systems and is in
standards for reporting infor- the process of determining the
mation about operating nature and extent of the work
segments and is effective for required, if any, to make its
fiscal years beginning after internal systems Year 2000
December 15, 1997. The Company compliant. The Company's
is currently evaluating the internal systems can be
impact, if any, this statement grouped in two principal
will have on disclosures categories -- its accounting
in the consolidated Financial and human resources software
Statements. and its legacy systems
that perform a variety
On June 15, 1998, the FASB of processes. With
issued SFAS No. 133, respect to the suite of
"Accounting for Derivative software products licensed by
Instruments and Hedging the Company and relied upon in
Activities." SFAS No. 133 is the administration of
effective for financial accounting and human resources
statements issued for periods functions, which was licensed
ending after June 15, 1999. by the Company in the first
SFAS No. 133 requires that all quarter of its 1997 fiscal
derivative instruments be year, the licensor has
recorded on the balance sheet indicated that the version
at their fair value. Changes currently employed by the
in the fair value of Company will, at a minimum,
derivatives are recorded each need to have patches applied
period in current earnings or in order for the software
other comprehensive income, package to be Year 2000
depending on whether a compliant. The Company
derivative is designated as intends to apply the presently
part of a hedge transaction available patches for this
and, if it is, the type of purpose in the near-term, and
hedge transaction. The Company plans also to apply future
anticipates that, due to its patches to address the Year
limited use of derivative 2000 issue as they are made
instruments, the adoption of available. Based on currently
SFAS No. 133 will not have a available information, the
significant effect on the Company believes the expense
Company's results of associated with these efforts
operations or its financial will be immaterial. The
position. Company expects that updates
and enhancements to this
OTHER MATTERS software package will be
installed and operational
The Year 2000 issue concerns prior to January 1, 2000, and
the possibility that computer intends to seek assurances
programs with date-sensitive from the licensor to the
software may recognize a date effect that these updates and
using "00" as the year 1900, enhancements will result in
- -----------------------------------------------------------------
Page 17
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
the software package becoming on its business,
Year 2000 compliant. The operating results
Company expects to receive and financial condition.
these updates and enhancements However, if compliance
pursuant to a software support efforts of which
services agreement presently the Company is not currently
in place with the licensor, an aware are required and are not
agreement which the Company completed on time, or if the
does not currently intend to cost of any required updating,
terminate. Provided that the modification or replacement of
licensor gives such assurances the Company's information
concerning the updates and systems exceeds the Company's
enhancements to its software estimates, the Year 2000 issue
product suite, the Company could have a material adverse
does not expect that it will impact on the Company's
incur additional expense aside business, operating results
from the cost of the software and financial condition.
support services agreement in
order to bring its accounting In addition to the Company's
and human resources software internal systems, the Company
package into Year 2000 relies on third party vendors
compliance. in the conduct of its
business. For example, third
Other important internal party vendors handle the
business processes of the payroll function for the
Company, such as time and Company, and the Company also
expense reporting and labor relies on the services of
distribution, are performed by telecommunication companies,
legacy systems that are not banks, utilities, and
Year 2000 compliant. In commercial airlines, among
accordance with previously others. The Company plans to
established plans to integrate seek assurances from its
these functions with the material vendors and suppliers
accounting and human resources that there will be no
software described above and interruption of service as a
to upgrade these systems with result of the Year 2000 issue,
the intent of improving the and to the extent such
Company's ability to manage assurances are not given, the
its increasingly multinational Company intends to devise
operations, the Company contingency plans to improve
presently plans to replace the effects on the conduct of
these legacy systems in the Company's business in the
calendar year 1999, both to event the Year 2000 issue
address the Year 2000 issue results in the unavailability
and to attempt to achieve of services. There can be no
business benefits. The assurance that any contingency
Company estimates that the plans developed by the Company
cost associated with replacing will prevent any such service
these systems will be less interruption on the part of
than $1.0 million, and has one or more of the Company's
provided for the replacement third party suppliers from
of these systems in its having a material adverse
operating and capital budgets effect on the Company's
for calendar year 1999. business, operating results
and financial condition. In
Based on presently available addition, the failure on the
information, the Company part of the accounting systems
believes that any necessary of the Company's clients due
compliance efforts concerning to the Year 2000 issue could
its internal systems will not result in a delay in the
have a material adverse effect payment of invoices issued by
- -----------------------------------------------------------------
Page 18
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
the Company for services and Company. There can be no
expenses. A failure of the assurance that the Company
accounting systems of a will be able to secure
significant number of the contractual protections in
Company's clients would have a agreements concerning future
material adverse effect on the projects, or that any
Company's business, operating contractual protections
results and financial secured by the Company in
condition. agreements governing pending
and completed projects, will
The Company has generally dissuade the other party
refrained from performing Year thereto from asserting claims
2000 remediation services for against the Company with
its clients. It is possible, respect to the Year 2000
however, that former, present issue.
and future clients could
assert that certain services Due to the complexity of the
performed by the Company from Year 2000 issue, upon any
time to time involve or are failure of critical client
related to the Year 2000 systems or processes that may
issue. The Company has be directly or indirectly
recommended, implemented and connected or related to
customized various third-party systems or software designed,
software packages for its developed, customized or
clients, and to the extent implemented by the Company as
that such software programs described above, the Company
may not be Year 2000 may be subjected to claims
compliant, the Company could regardless of whether the
be subjected to claims as a failure is related to the
result thereof. Since the services provided by the
Company's inception in 1988, Company. There can be no
it also has designed and assurance that the Company
developed software and systems would be able to establish
for its clients. Due to the that it did not cause or
large number of such contribute to the failure of a
engagements undertaken by the critical client system or
Company over the years, there process. There also can be no
can be no assurance that all assurance that the contractual
such software programs and protections, if any, secured
systems will be Year 2000 by the Company in connection
compliant, which could also with any past, present or
result in the assertion of future clients will operate to
claims against the Company. insulate the Company from, or
limit the amount of, any
The Company's policy has been
to endeavor to secure
provisions in its client
contracts that, among other
things, disclaim implied
warranties, limit the duration
of the Company's express
warranties, relate the
Company's liability to the
amount of fees paid by the
client to the Company in
connection with the project,
and disclaim any liability
arising from third-party
software that is implemented,
customized or installed by the
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Page 19
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
liability arising from claims
asserted against the Company.
If asserted, the resolution of
such claims (and the
associated defense costs)
could have a material adverse
effect on the Company's
business, operating results
and financial condition.
- -----------------------------------------------------------------
Page 20
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
This Form 10-Q includes or may speak only as of the date on
include certain forward- which they are made and the
looking statements that Company does not undertake any
involve risks and obligation to update any
uncertainties. This Form 10-Q forward-looking statement to
contains certain forward- reflect events or
looking statements concerning circumstances after the date
the Company's financial of this Form 10-Q. If the
position, business strategy, Company does update or correct
budgets, projected costs and one or more forward-looking
plans and objectives of statements, investors and
management for future others should not conclude
operations as well as other that the Company will make
statements including words additional updates or
such as "anticipate," corrections with respect
"believe," "plan," "estimate," thereto or with respect to
"expect," "intend," and other other forward-looking
similar expressions. Although statements. Actual results may
the Company believes its vary materially.
expectations reflected in such
forward-looking statements are
based on reasonable
assumptions, stockholders are
cautioned that no assurance
can be given that such
expectations will prove
correct and that actual
results and developments may
differ materially from those
conveyed in such forward-
looking statements. Important
factors that could cause
actual results to differ
materially from the
expectations reflected in the
forward-looking statements in
this Form 10-Q include, among
others, the pace of
technological change, the
Company's ability to manage
growth and attract and retain
employees, general business
and economic conditions in the
Company's operating regions,
and competitive and other
factors, all as more fully
described in the Company's
Report on Form 10-K for the
year ended May 31, 1998 under
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations "Assumptions
Underlying Certain Forward-
Looking Statements and Factors
that May Affect Future
Results" and elsewhere from
time to time in the Company's
other SEC reports. Such
forward-looking statements
- -------------------------------------------------------------
Page 21
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
PART II. OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
TSC's 1998 Annual Meeting of Stockholders (the
"Annual Meeting") was held on October 1, 1998.
Represented at the Annual Meeting, either in person
or by proxy, were 33,318,408 voting shares. The
following actions were taken by a vote of TSC's
stockholders at the Annual Meeting:
1.Messrs. John T. Kohler and Michael R. Zucchini were
elected to serve as members of TSC's Board of Directors receiving
33,185,368 and 33,183,447 votes in favor of election,
respectively, and 133,040 and 134,961 votes withheld,
respectively. There were no votes against, abstentions or broker
non-votes with respect to the election of any nominee named
above. In addition, the terms of office for Messrs. Murray,
Oresman and Caldiero continue until the 1999 Annual Meeting, and
Messrs. Purcell and Waltrip continue until the 2000 Annual
Meeting.
2.The amendment to TSC's Certificate of Incorporation to
increase the number of authorized shares of Common Stock from
50,000,000 to 100,000,000 was ratified: 31,577,088 votes were
cast for the ratification; 1,724,253 votes were cast against the
ratification and there were 17,067 votes abstained. There were no
votes withheld or broker non-votes.
3.The appointment of PricewaterhouseCoopers LLP as
independent auditors for TSC for its fiscal year ending May 31,
1999 was ratified: 33,301,593 votes were cast for the
ratification; 8,929 votes were cast against the ratification and
there were 7,886 votes abstained. There were no votes withheld
or broker non-votes.
ITEM 5--OTHER ITEMS
The 1999 Annual Meeting of Stockholders (the "1999 Annual
Meeting") will be held on Wednesday, April 28, 1999. In
order for a stockholder proposal or nomination to be
properly presented at the 1999 Annual Meeting, the
stockholder proponent must comply with the relevant notice
requirements contained in the Company's By-laws. These
requirements relate to both the timing and content of the
notice.
The date of the 1999 Annual Meeting has been changed by more
than 30 calendar days from the anniversary of the 1998
Annual Meeting of Stockholders, which was held on October 1,
1998, to reflect a change in the Company's fiscal-year end
date from the thirty-first day of May in each year to the
thirty-first day of December in each year. As a result,
pursuant to the Company's By-laws, written notice of a
stockholder proposal or nomination must be delivered to the
Secretary of the Company not later than the close of
business on January 22, 1999. Reference is made to Sections
1.11 and 1.12 of the By-laws for the requirements as to the
information relating to the proponent and the proposal that
must be included in any such notice.
In addition, any stockholder proposal made in accordance
with the provisions of the Company's By-laws described above
that is intended to be included in the Company's proxy
statement for the 1999 Annual Meeting must comply with
certain rules and regulations promulgated by the United States Securities
and Exchange Commission. Those rules and regulations must be
complied with within a reasonable time before the Company begins to
print and mail its proxy materials for that meeting.
If a stockholder proposal is properly presented at the 1999
Annual Meeting in accordance with the requirements described
above and is not included in the Company's proxy statement
for that meeting, the proxy holders appointed by the Company
may exercise discretionary authority if, in its proxy
statement, the Company advises stockholders on the nature of
the proposal and how the proxy holders appointed by the
Company intend to vote on the proposal, unless the
stockholder submitting such proposal satisfies certain
requirements of the United States Securities and Exchange Commission,
including the mailing of a separate proxy statement to the
Company's stockholders.
- -------------------------------------------------------------------------
Page 22
ITEM 6--EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibit
Exhibit 27
(b) Three reports on Form 8-K were filed during the quarter
ended November 30, 1998. The first Report on Form 8-K was dated
September 4, 1998. This report contained information reported
under Item 5 related to the approval by the Compensation
Committee of the Board of Directors to reprice those stock
options (the "Option Repricing") issued under the Technology
Solutions Company 1996 Stock Incentive Plan that have an exercise
price above $10.875, the closing price of the Company's Common Stock
on September 4, 1998 (the "Underwater Options").
The Option Repricing applies to Underwater
Options to the extent the holders thereof elect to include
Underwater Options held by them in the Option Repricing. The
second Report on Form 8-K was dated October 29, 1998. This report
contained information reported under Item 5 related to the
Company's Board of Directors' approval of a Rights Agreement and
a number of amendments to the Company's By-laws. The third
report on Form 8-K was dated November 22, 1998. This report
contained information reported under Item 5 related to the
Company's Board of Directors' approval of a stock repurchase
program. It also included under Item 8 the approval by The
Board of Directors of a change in the fiscal year of the Company.
All other items in Part II are either not applicable
to the Company during the quarter ended November 30,
1998, the answer is negative, or a response has been
previously reported and an additional report of the
information is not required, pursuant to the
instructions to Part II.
- -----------------------------------------------------------
Page 23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on the 13th day of January 1999.
TECHNOLOGY SOLUTIONS COMPANY
Date: January 13, 1999 By: /s/ TIMOTHY P. DIMOND
---------------------
Timothy P. Dimond
Chief Accounting Officer
- ---------------------------------------------------------------
Page 24
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------
3(i) Restated Certificate of Incorporation of
Technology Solutions Company
10 Promissory Note of Kelly D. Conway
27 Financial Data Schedule
- --------------------------------------------------------------------
Page 25
EXHIBIT 3(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
TECHNOLOGY SOLUTIONS COMPANY
_________________________
Pursuant to Section 245 of the
General Corporation Law of the State of Delaware
__________________________
TECHNOLOGY SOLUTIONS COMPANY, a corporation
organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. The name of the Corporation is Technology Solutions
Company. The Corporation was originally incorporated under
the name Technology Solution Company.
2. The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of
Delaware on May 27, 1988. The original Certificate of
Incorporation has heretofore been amended and supplemented.
3. This Restated Certificate of Incorporation restates
and integrates, but does not further amend, the Certificate
of Incorporation as heretofore in effect, and there is no
discrepancy between those provisions and the provisions of
this Restated Certificate of Incorporation. This Restated
Certificate of Incorporation has been adopted by the Board
of Directors of the Corporation in the manner prescribed by
Section 245 of the General Corporation Law of the State of
Delaware, and is as follows:
FIRST: The name of the Corporation is Technology
Solutions Company.
SECOND: The address of the Corporation's registered
office in the State of Delaware is Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at
such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
-1-
<PAGE>
FOURTH: The total number of shares of all classes
which the Corporation shall have authority to issue equals
110,000,000, itemized by classes, par value of shares, and
series, if any, within a class as follows:
(a) 10,000,000 preferred shares, par value $.01 per
share (the "Preferred Stock"), to be issued in
series.
(b) 100,000,000 common shares, par value $.01 per
share (the "Common Stock").
The powers, preferences and rights, and the qualifications,
limitations or restrictions of the Common Stock relative to
the Preferred Stock are as set forth in Articles FIFTH
through EIGHTH.
FIFTH: A. The Preferred Stock may be issued from
time to time in one or more series and with such designation
for each such series as shall be stated and expressed in the
resolution or resolutions providing for the issue of each
such series adopted by the Board of Directors. The Board of
Directors in any such resolution or resolutions is expressly
authorized to state and express for each such series:
(i) The voting powers, if any, of the holders of
stock of such series;
(ii) The rate per annum and the times and
conditions at which the holders of stock of
such series shall be entitled to receive
dividends, and whether such dividends shall
be cumulative or non-cumulative and if
cumulative the terms upon which such
dividends shall be cumulative;
(iii) The price or prices and the time or
times at and the manner in which the stock of
such series shall be redeemable;
(iv) The right to which the holders of the
shares of stock of such series shall be
entitled upon any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation;
(v) The terms, if any, upon which shares of stock
of such series shall be convertible into, or
exchangeable for, shares of stock of any
other class or classes or of any other series
of the same or any other class or classes,
including the price or prices or the rate or
rates of conversion or exchange and the terms
of adjustment, if any; and
(vi) Any other designations, preferences and
relative, participating, optional or other
special rights, and qualifications,
limitations or restrictions thereof so far as
they are not inconsistent with the provisions
-2-
<PAGE>
of this Restated Certificate of Incorporation
and to the full extent now or hereafter
permitted by the laws of Delaware.
B. All shares of the Preferred Stock of any one series
shall be identical to each other in all respects, except
that shares of any one series at different times may differ
as to the dates from which dividends thereon, if cumulative,
shall be cumulative.
C. Series A Junior Participating Preferred Stock
Section 1. Designation and Amount. The shares of
such series shall be designated as "Series A Junior
Participating Preferred Stock" and the number of shares
constituting such series shall be 1,000,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of
the holders of any shares of any series of Preferred Stock
ranking prior and superior to the shares of Series A
Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly
dividends payable in cash on the first business day of
January, April, July and October in each year (each such
date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of
(a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A
Preferred Stock. In the event the Corporation shall at any
time after October 29, 1998 (the "Rights Declaration Date")
(i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each case the amount to
which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of
the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in
paragraph (A) above immediately after it declares a dividend
or distribution on the Common Stock (other than a dividend
-3-
<PAGE>
payable in shares of Common Stock); provided, however, that,
in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, subject to the prior and
superior rights of the holders of any shares of any series
of Preferred Stock ranking prior to and superior to the
shares of Series A Preferred Stock with respect to
dividends, a dividend of $.01 per share on the Series A
Preferred Stock shall nevertheless by payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be
cumulative on outstanding shares of Series A Preferred Stock
from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares of Series A Preferred Stock,
unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date,
in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights.
The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Preferred
Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to
which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by
law, the holders of shares of Series A Preferred Stock and
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the holders of shares of Common Stock shall vote
collectively as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A
Preferred Stock shall be in arrears in an amount equal
to six (6) quarterly dividends thereon, the occurrence
of such contingency shall mark the beginning of a
period (herein called a "default period") which shall
extend until such time when all accrued and unpaid
dividends for all previous quarterly dividend periods
and for the current quarterly dividend period on all
shares of Series A Preferred Stock then outstanding
shall have been declared and paid or set apart for
payment. During each default period, all holders of
Preferred Stock (including holders of the Series A
Preferred Stock) with dividends in arrears in an amount
equal to six (6) quarterly dividends thereon, voting as
a class, irrespective of series, shall have the right
to elect two (2) Directors.
(ii) During any default period, such voting right
of the holders of Series A Preferred Stock may be
exercised initially at a special meeting called
pursuant to subparagraph (iii) of this Section 3(C) or
at any annual meeting of stockholders, and thereafter
at annual meetings of stockholders, provided that such
voting right shall not be exercised unless the holders
of ten percent (10%) in number of shares of Preferred
Stock outstanding shall be present in person or by
proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the
holders of Preferred Stock of such voting rights. At
any meeting at which the holders of Preferred Stock
shall exercise such voting right initially during an
existing default period, they shall have the right,
voting as a class, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may
then exist up to two (2) Directors or, if such right is
exercised at an annual meeting, to elect two (2)
Directors. If the number which may be so elected at
any special meeting does not amount to the required
number, the holders of the Preferred Stock shall have
the right to make such increase in the number of
Directors as shall be necessary to permit the election
by them of the required number. After the holders of
the Preferred Stock shall have exercised their right to
elect Directors in any default period and during the
continuance of such period, the number of Directors
shall not be increased or decreased except by vote of
the holders of Preferred Stock as herein provided or
pursuant to the rights of any equity securities ranking
senior to or pari passu with the Series A Preferred
Stock.
(iii) Unless the holders of Preferred Stock
shall, during an existing default period, have
previously exercised their right to elect Directors,
the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series,
may request, the calling of special meeting of the
holders of Preferred Stock, which meeting shall
thereupon be called by the Chairman of the Board, the
President, a Vice President or the Secretary of the
Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Stock are
entitled to vote pursuant to this paragraph (C)(iii)
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<PAGE>
shall be given to each holder of record of Preferred
Stock by mailing a copy of such notice to him or her at
his or her last address as the same appears on the
books of the Corporation. Such meeting shall be called
for a time not earlier than 10 days and not later than
50 days after such order or request, or in default of
the calling of such meeting within 50 days after such
order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this paragraph
(C)(iii), no such special meeting shall be called
during the period within 50 days immediately preceding
the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common
Stock, and, if applicable, other classes of capital
stock of the Corporation, shall continue to be entitled
to elect the whole number of Directors until the
holders of Preferred Stock shall have exercised their
right to elect two (2) Directors voting as a class,
after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall
continue in office until their successors shall have
been elected by such holders or until the expiration of
the default period, and (y) any vacancy in the Board of
Directors may (except as provided in paragraph (C)(ii)
of this Section 3) be filled by vote of a majority of
the remaining Directors theretofore elected by the
holders of the class of capital stock which elected the
Director whose office shall have become vacant.
References in this paragraph (C) to Directors elected
by the holders of a particular class of stock shall
include Directors appointed by such Directors to fill
vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock
as a class to elect Directors shall cease, (y) the term
of any Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the number of
Directors shall be such number as may be provided for
in the certificate of incorporation or by-laws
irrespective of any increase made pursuant to the
provisions of paragraph (C)(ii) of this Section 3 (such
number being subject, however, to change thereafter in
any manner provided by law or in the certificate of
incorporation or by-laws). Any vacancies in the Board
of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a
majority of the remaining Directors.
(D) Except as set forth herein, holders of Series
A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
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<PAGE>
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other
dividends or distributions payable on the Series A Preferred
Stock as provided in Section 2 are in arrears, thereafter
and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series
A Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any
other distributions on, or redeem or purchase or
otherwise acquire for consideration any shares of
capital stock ranking junior (either as to
dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking
on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid
ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable
or in arrears in proportion to the total amounts
to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise
acquire for consideration shares of any capital
stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, provided that
the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity
stock in exchange for shares of any capital stock
of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series A Preferred
Stock, or any shares of capital stock ranking on a
parity with the Series A Preferred Stock, except
in accordance with a purchase offer made in
writing or by publication (as determined by the
Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after
consideration of the respective annual dividend
rates and other relative rights and preferences of
the respective series and classes, shall determine
in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any
subsidiary of the Corporation to purchase or otherwise
acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
-7-
<PAGE>
Section 5. Reacquired Shares.
Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or
otherwise), dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of
capital stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares
of Series A Preferred Stock shall have received $100 per
share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the
date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of
the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of
Series A Preferred Stock unless, prior thereto, the holders
of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient
obtained by dividing (i) the Series A Liquidation Preference
by (ii) 100 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock
splits, stock dividends and recapitalizations with respect
to the Common Stock) (such number in clause (ii), the
"Adjustment Number"). Following the payment of the full
amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A
Preferred Stock and Common Stock, respectively, and the
payment of liquidation preferences of all other shares of
capital stock which rank prior to or on a parity with Series
A Preferred Stock, holders of Series A Preferred Stock and
holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to
be distributed in the ratio of the Adjustment Number to 1
with respect to such Preferred Stock and Common Stock, on a
per share basis, respectively.
(B) In the event, however, that there are not
sufficient assets available to permit payment in full of the
Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Preferred Stock,
then such remaining assets shall be distributed ratably to
the holders of such parity shares in proportion to their
respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit
payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders
of Common Stock.
(C) In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii)combine the
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<PAGE>
outstanding Common Stock into a smaller number
of shares, then in each such case the Adjustment Number in
effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc.
In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any
other property, then in any such case the shares of Series A
Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to
100 times the aggregate amount of capital stock, securities,
cash and/or any other property (payable in kind), as the
case may be, for which or into which each share of Common
Stock is exchanged or changed. In the event the Corporation
shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange
or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption.
The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. Ranking.
The Series A Preferred Stock shall rank junior to
all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets,
whether or not upon the dissolution, liquidation or winding
up of the Corporation, unless the terms of any such series
shall provide otherwise.
Section 10. Amendment.
This Restated Certificate of Incorporation shall
not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority of
the outstanding shares of Series A Preferred Stock, voting
separately as a class.
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<PAGE>
Section 11. Fractional Shares.
Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
SIXTH: Each share of Common Stock shall entitle the
holder thereof to one vote, in person, by proxy or by
written consent, at any and all meetings of the stockholders
of the Corporation on all propositions before such meetings.
SEVENTH: Subject to the rights of the holders of
Preferred Stock, if any, the holders of Common Stock shall
be entitled to dividends when and as the same shall be
declared by the Board of Directors of the Corporation and as
may be permitted by law.
EIGHTH: In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or
involuntary (sometimes referred to herein as liquidation),
after payment or provision for payment of the debts and
other liabilities of the Corporation and the preferential
amounts to which the holders of any outstanding Preferred
Stock now or hereafter authorized shall be entitled upon
liquidation, the holders of Common Stock shall be entitled
to share ratably in the remaining assets of the Corporation.
NINTH: In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is
expressly authorized to make, alter or repeal the By-Laws of
the Corporation, subject to any specific limitation on such
power provided by any By-Laws adopted by the stockholders.
TENTH: Elections of directors need not be by written
ballot unless the By-Laws of the Corporation so provide.
ELEVENTH: The Corporation is to have perpetual
existence.
TWELVTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this
Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred
upon the stockholders herein are granted subject to this
reservation.
THIRTEENTH: A. A director of the Corporation shall
not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper
personal benefit. If the General Corporation Law of the
State of Delaware is amended to authorize corporate action
further eliminating or limiting the personal liability of
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<PAGE>
directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State
of Delaware, as so amended. Any repeal or modification of
this Section A by the stockholders of the Corporation shall
not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or
modification.
B. (1) Each person who was or is made a party
or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she or a
person of whom he or she is the legal representative is or
was a director, officer or employee of the Corporation or is
or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the
fullest extent authorized by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to
provide broader indemnification rights than said law
permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided,
however, that except as provided in paragraph (2) of this
Section B with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify
any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to
indemnification conferred in this Section B shall be a
contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided,
however, that if the General Corporation Law of the State of
Delaware requires, the payment of such expenses incurred by
a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service
was or is rendered by such person while a director or
officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition
of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking by or on behalf of such
director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section B or
otherwise.
(2) If a claim under paragraph (1) of this
Section B is not paid in full by the Corporation within
thirty days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring
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<PAGE>
suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any
is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it
permissible under the General Corporation Law of the State
of Delaware for the Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of
the Corporation (including its Board of Directors,
independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the
circumstances because he or she has met the applicable
standard of conduct set forth in the General Corporation Law
of the State of Delaware, nor an actual determination by the
Corporation (including its Board of Directors, independent
legal counsel or stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not
met the applicable standard of conduct.
(3) The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this Section B shall not
be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.
(4) The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer,
employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person
against such expense, liability or loss under the General
Corporation Law of the State of Delaware.
(5) The Corporation may, to the extent authorized
from time to time by the Board of Directors, grant rights to
indemnification, and rights to be paid by the Corporation
the expenses incurred in defending any proceeding in advance
of its final disposition, to any agent of the Corporation to
the fullest extent of the provisions of this Section B with
respect to the indemnification and advancement of expenses
of directors, officers and employees of the Corporation.
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<PAGE>
IN WITNESS WHEREOF, said TECHNOLOGY SOLUTIONS
COMPANY has caused this certificate to be signed by John T.
Kohler, its President and Chief Executive Officer, and
attested to by Paul R. Peterson, its Secretary and General
Counsel, this 16th day of December, 1998.
TECHNOLOGY SOLUTIONS COMPANY
By: /s/ John T. Kohler
John T. Kohler
esident and Chief Executive Officer
(Corporate Seal)
Attest:
/s/ Paul R. Peterson
Paul R. Peterson
Secretary and General Counsel
-13-
EXHIBIT 10
PROMISSORY NOTE
U.S. $1,200,000.00 November 12, 1998
FOR VALUE RECEIVED, the undersigned, Kelly D.
Conway, of 950 Woodbind Place, Lake Forest, Illinois 60045
("Borrower"), hereby unconditionally promises to pay to the
order of TECHNOLOGY SOLUTIONS COMPANY, a Delaware
Corporation ("Lender"), having its principal office at 205
North Michigan Avenue, Chicago, Illinois 60601, in lawful
money of the United States of America and in immediately
available funds, the principal sum of ONE MILLION TWO
HUNDRED THOUSAND DOLLARS AND NO CENTS ($1,200,000.00),
together with interest on the principal and accrued interest
balance from time to time outstanding at the rate of FOUR
AND FIFTY-ONE HUNDREDTHS percent (4.51%) per annum from the
date hereof until payment in full on November 12, 2003 (the
"Payment Date") in accordance with this Promissory Note;
provided, however, that:
(i) if Borrower has been employed by Lender, or any
parent or subsidiary company of Lender, from the date hereof
through and including November 12, 1999 (the "First
Anniversary Date"), then the amount of three hundred
thousand dollars ($300,000.00) of outstanding principal
indebtedness, plus interest accrued on such amount, shall be
discharged and forgiven by Lender and shall no longer be due
and, accordingly, Borrower shall have no further obligation
to Lender hereunder; and
(ii) if Borrower has been employed by Lender, or any
parent or subsidiary company of Lender, from the date hereof
through and including the twelfth day of each calendar month
following the First Anniversary Date, then on each such
twelfth day of each calendar month following the First
Anniversary Date, up to November 12, 2000 (the "Second
Anniversary Date"), the amount of twenty five thousand
dollars ($25,000.00) of outstanding principal indebtedness,
plus interest accrued on such amount, shall be discharged
and forgiven by Lender and shall no longer be due and,
accordingly, Borrower shall have no further obligation to
Lender hereunder; and
(iii) if Borrower has been employed by Lender, or
any parent or subsidiary company of Lender, from the date
hereof through and including the twelfth day of each
calendar month following the Second Anniversary Date, then
on each such twelfth day of each calendar month following
the Second Anniversary Date, up to November 12, 2001 (the
"Third Anniversary Date"), the amount of twenty thousand
dollars ($20,000.00) of outstanding principal indebtedness,
plus interest accrued on such amount, shall be discharged
and forgiven by Lender and shall no longer be due and,
accordingly, Borrower shall have no further obligation to
Lender hereunder; and
(iv) if Borrower has been employed by Lender, or any
parent or subsidiary company of Lender, from the date hereof
through and including the twelfth day of each calendar month
<PAGE>
following the Third Anniversary Date, then on each such
twelfth day of each calendar month following the Third
Anniversary Date, up to November 12, 2002 (the "Fourth
Anniversary Date"), the amount of twenty thousand dollars
($20,000.00) of outstanding principal indebtedness, plus
interest accrued on such amount, shall be discharged and
forgiven by Lender and shall no longer be due and,
accordingly, Borrower shall have no further obligation to
Lender hereunder; and
(v) if Borrower has been employed by Lender, or any
parent or subsidiary company of Lender, from the date hereof
through and including the twelfth day of each calendar month
following the Fourth Anniversary Date, then on each such
twelfth day of each calendar month following the Fourth
Anniversary Date, up to the Payment Date, the amount of ten
thousand dollars ($10,000.00) of outstanding principal
indebtedness, plus interest accrued on such amount, shall be
discharged and forgiven by Lender and shall no longer be due
and, accordingly, Borrower shall have no further obligation
to Lender hereunder.
(vi) if Borrower has been employed by Lender, or any
parent or subsidiary company of Lender, from the date hereof
through and including the Payment Date, then any and all
amounts of remaining outstanding interest accrued hereunder
shall be discharged and forgiven by Lender and shall no
longer be due and, accordingly, Borrower shall have no
further obligation to Lender hereunder.
Borrower, however, shall be responsible for income
tax on the principal plus interest, if and when they are
recognized as income, which shall be withheld by Lender from
any amounts owed by Lender to Borrower, including payroll.
Borrower reserves the right to prepay this Note, in
whole or in part, at any time without penalty. In the event
of such prepayment, the amount so prepaid will be applied to
principal due and interest will be adjusted accordingly.
All payments of principal and interest under this
Note shall be made by Borrower to Lender, at Lender's
principal place of business as set forth above, or at such
other place as Lender may from time to time designate in
writing.
The occurrence or existence of one or more of the
following events shall constitute an event of default
("Default") under this Note: (i) the failure of Borrower to
pay when due any principal or interest due hereunder; or
(ii) (a) Borrower shall become generally unable to pay his
debts as they become due, or (b) Borrower shall make an
assignment for the benefit of creditors, or (c) Borrower
shall call a meeting of creditors for the composition of
debts, or (d) a proceeding under any bankruptcy,
reorganization, arrangement of debt, insolvency,
readjustment of debt or receivership law or statute is filed
by or against Borrower, or a custodian, receiver or agent is
appointed or authorized to take charge of any of Borrower's
properties, or Borrower takes any action to authorize any of
the foregoing; or (iii) Borrower shall no longer remain, for
any reason, an employee of Lender, or a parent or subsidiary
company of Lender, or (v) there shall be entered against
Borrower any judgment or judgments in an aggregate amount in
-2-
<PAGE>
excess of $100,000, unless the amounts of such judgment or
judgments are covered by insurance and liability under such
insurance has been admitted by the issuer thereof.
In an event of Default, Lender may, by notice to
Borrower, declare all the indebtedness evidenced by this
Note to be, and thereupon such indebtedness shall become,
immediately due and payable, without presentment, demand,
protest or further notice of any kind, all of which are
hereby expressly waived by Borrower; provided, however, that
if the Default specified in clause (ii) (d) in the paragraph
two paragraphs above occurs, the indebtedness evidenced by
this Note shall automatically become due and payable,
without presentment, demand, protest or any notice of any
kind, all of which are hereby expressly waived by Borrower.
If payment hereunder becomes due and payable on a
day which is not a "Business Day" (as defined below), the
due date thereof shall be extended to the next succeeding
Business Day, and interest shall be payable thereon during
such extension at the rate specified above. "Business Day"
shall mean a day on which banks in Chicago, Illinois are
open for the transaction of banking business. In no case or
event whatsoever shall interest charged hereunder, however
such interest may be characterized or computed, exceed the
highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines
that Lender has received interest hereunder in excess of the
highest rate applicable hereto, Lender shall (i) apply such
excess to any unpaid principal balance due and payable by
Borrower hereunder to Lender; and (ii) if the amount of such
excess exceeds the unpaid principal and other liabilities
due and payable by Borrower hereunder, Lender shall remit
such excess to Borrower.
Any notice hereunder shall be sufficiently given if
in writing and delivered in person or mailed by first class
mail addressed as follows:
If to Borrower:
Kelly D. Conway
950 Woodbine Place
Lake Forest, Illinois 60045
If to Lender:
Technology Solutions Company
205 North Michigan Avenue, Suite 1500
Chicago, Illinois 60601
Attention: Senior Vice President and Chief
Financial Officer
Borrower and Lender may each designate additional or
different addresses by notice to the other party as provided
herein.
-3-
<PAGE>
Lender shall be under no obligation to marshal any
assets in favor of Borrower in payment of any or all of
Borrower's liabilities hereunder. To the extent that
Borrower makes a payment or payments to Lender, and such
payment or payments or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy law, provincial, state or
federal law, common law or equitable cause, then to the
extent of such recovery, the obligation or part hereof
originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not
occurred.
Any dispute between Lender and Borrower arising out
of, connected with, related to, or incidental to the
relationship established between them in connection with
this Note, and whether arising in contract, tort, equity, or
otherwise, shall be resolved in accordance with the internal
laws and not the conflicts of law provisions of the State of
Illinois.
Except as provided in the immediately succeeding
paragraph, Lender and Borrower each agree that all disputes
between them arising out of, connected with, related to, or
incidental to the relationship established between them in
connection with this Note and whether arising in contract,
tort, equity, or otherwise, shall be resolved only by state
or federal courts located in Cook County, Illinois, but
Lender and Borrower acknowledge that any appeals from those
courts may have to be heard by a court located outside of
Cook County, Illinois. Borrower waives any and all
objections that he may have to the location of the court
considering the dispute.
Borrower agrees that Lender shall have the right to
proceed against Borrower or his property in a court in any
location to enable Lender to enforce a judgment or other
court order entered in favor of Lender. Borrower agrees that
he will not assert any permissive counterclaims in any
proceeding brought by Lender to enforce a judgment or other
court order in favor of Lender. Borrower waives any
objection that he may have to the location of the court in
which Lender has commenced a proceeding described in
this paragraph.
Borrower waives personal service of any process upon
him and consents that all such service of process be made by
registered mail directed to Borrower at the address stated
herein.
Borrower waives the posting of any bond otherwise
required of Lender to enforce any judgment or other court
order entered in favor of Lender, or to enforce this note by
specific performance, temporary restraining order,
preliminary or permanent injunction.
Whenever possible, each provision of this Note shall
be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Note
shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the
-4-
<PAGE>
remainder of such provision or the remaining provisions of
this Note. Whenever in this Note reference is made to Lender
or Borrower, such reference shall be deemed to include, as
applicable, a reference to their respective successors and
assigns, and the provisions of this Note shall be binding
upon and shall inure to the benefit of said successors and
assigns. Borrower's successors and assigns shall include,
without limitation, a receiver, receiver and manager,
trustee or debtor-in-possession of or for Borrower.
By:_____________________________
Kelly D. Conway
Borrower
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<EXCHANGE-RATE> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 54,791
<SECURITIES> 27,705
<RECEIVABLES> 84,011
<ALLOWANCES> 4,751
<INVENTORY> 0
<CURRENT-ASSETS> 185,387
<PP&E> 21,482
<DEPRECIATION> 12,070
<TOTAL-ASSETS> 220,351
<CURRENT-LIABILITIES> 47,694
<BONDS> 0
0
0
<COMMON> 412
<OTHER-SE> 172,245
<TOTAL-LIABILITY-AND-EQUITY> 172,657
<SALES> 8
<TOTAL-REVENUES> 167,041
<CGS> 0
<TOTAL-COSTS> 154,908
<OTHER-EXPENSES> (1,436)
<LOSS-PROVISION> 2,184
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> 11,346
<INCOME-TAX> 5,022
<INCOME-CONTINUING> 6,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,324
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
