<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- --- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER 0-22718
ZAMBA CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE #41-1636021
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7301 OHMS LANE, SUITE 200, MINNEAPOLIS, MINNESOTA 55439
(Address of principal executive offices, including zip code)
(612) 832-9800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (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 (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class June 30, 1999
----- --------------
<S> <C>
Common Stock, $0.01 par value 29,605,320
</TABLE>
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THIS REPORT CONSISTS OF 40 SEQUENTIALLY NUMBERED PAGES.
<PAGE>
ZAMBA CORPORATION
INDEX
PART I -- Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited) Page No.
--------
<S> <C>
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1999, and 1998 3
Consolidated Balance Sheets as of
June 30, 1999, and December 31, 1998 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999, and 1998 5
Consolidated Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Not Applicable
PART II -- Other Information
Items
1-3. None 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. None 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ZAMBA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1999 1998 1999 1998
------- ------- ------- ------
<S> <C> <C> <C> <C>
Net revenues:
Services $6,327 $1,385 $11,100 $2,719
Products 4 25 54 95
------- ------- ------- ------
6,331 1,410 11,154 2,814
Cost and expenses:
Project costs 3,348 431 6,133 931
Other costs 740 151 1,334 314
Sales and marketing 500 492 1,023 970
General and administrative 1,536 454 2,560 905
Research and development - 427 - 811
Amortization of intangibles 944 - 1,880 -
------- ------- ------- ------
Loss from operations (737) (545) (1,776) (1,117)
Other income (expense):
Interest income 19 56 42 132
Interest expense (21) - (45) -
------- ------- ------- ------
(2) 56 (3) 132
Net loss ($739) ($489) ($1,779) ($985)
------- ------- ------- ------
------- ------- ------- ------
Net loss per share- basic and diluted ($0.02) ($0.02) ($0.06) ($0.04)
------- ------- ------- ------
------- ------- ------- ------
Weighted average shares outstanding 29,576 24,923 29,321 25,025
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
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ZAMBA CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,511 $ 2,962
Accounts receivable, net 4,020 2,150
Unbilled receivables 361 284
Prepaid expenses and other current assets 202 299
-------- ---------
Total current assets 9,094 5,695
Property and equipment, net 1,186 1,175
Restricted cash 200 200
Identifiable intangible assets, net 4,906 6,768
Goodwill, net 96 38
Other assets 62 65
-------- ---------
Total assets $ 15,544 $ 13,941
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current installments of long-term debt $228 $285
Accounts payable 816 195
Accrued expenses 1,712 765
Deferred revenue 2,124 334
-------- ---------
Total current liabilities 4,880 1,579
-------- ---------
Long-term debt, less current installments 1,119 1,240
-------- ---------
Commitments
Total liabilities 5,999 2,819
-------- ---------
Stockholders' equity:
Common stock, $0.01 par value, 55,000 shares
authorized, 29,605 and 29,014 issued and
outstanding at June 30, 1999 and December 31, 1998,
respectively 296 290
Additional paid-in capital 78,863 78,667
Accumulated deficit (69,614) (67,835)
-------- ---------
Total stockholders' equity 9,545 11,122
-------- ---------
Total liabilities and stockholders' equity $ 15,544 $ 13,941
-------- ---------
-------- ---------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
ZAMBA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands) Six Months Ended
June 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,779) ($985)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,242 245
Provision for bad debts 132 -
Amortization of discounts on investments - (7)
Changes in operating assets and liabilities:
Accounts receivable (2,002) (117)
Unbilled receivables (77) -
Prepaid expenses and other current assets 93 78
Accounts payable 620 75
Accrued expenses 948 (357)
Deferred revenue 1,790 (209)
--------- ---------
Net cash provided by (used in) operating activities 1,967 (1,277)
Cash flows from investing activities:
Purchase of investments - (2,327)
Proceeds from maturity of investments - 3,565
Purchase of equipment (368) (28)
Payment on debt (74) -
Other (70) (25)
--------- ---------
Net cash provided by (used in) investing activities (512) 1,185
Cash flows from financing activities:
Proceeds from exercises of stock options and warrants 94 134
--------- ---------
Net cash provided by financing activities 94 134
--------- ---------
Net change in cash and cash equivalents 1,549 42
Cash and cash equivalents, beginning of period 2,962 3,103
--------- ---------
Cash and cash equivalents, end of period $4,511 $3,145
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
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ZAMBA CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A. Basis of Presentation:
The unaudited consolidated financial statements of Zamba Corporation ("Zamba"
or the "Company") as of June 30, 1999, and for the three and six month
periods ended June 30, 1999, and 1998, reflect, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary
to fairly state our financial position as of June 30, 1999, and our results
of operations and cash flows for the reported periods. The results of
operations for any interim period are not necessarily indicative of the
results to be expected for any other interim period or for the full year. The
year-end balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted
accounting principles. These financial statements should be read in
conjunction with our audited consolidated financial statements and related
notes for the year ended December 31, 1998, which were included in our 1998
Annual Report on Form 10-K.
Note B. Net Loss per Share:
We incurred net losses for the three and six month periods ended June 30,
1999, and 1998, and excluded assumed conversion shares from the diluted loss
per share computation, because their effect is anti-dilutive. At June 30,
1999, we had 7,280,205 stock options outstanding, which may be dilutive in
future periods.
Note C. Selected Balance Sheet Information:
<TABLE>
<CAPTION>
(in thousands) June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
Accounts receivable, net:
Accounts receivable $ 4,324 $ 2,377
Less allowance for doubtful accounts (304) (227)
--------- ---------
$ 4,020 $ 2,150
--------- ---------
--------- ---------
Property and equipment, net:
Computer equipment $ 2,690 $ 2,462
Furniture and equipment 649 507
Leasehold improvements 186 186
--------- ---------
3,525 3,155
Less accumulated depreciation and
amortization (2,339) (1,980)
--------- --------
$ 1,186 $ 1,175
--------- ---------
--------- ---------
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Zamba is a national customer care consulting company. According to the
Gartner Group, customer care is expected to grow at a cumulative average
growth rate of 54% per year through 2002. Our services are designed to assist
clients in building lasting relationships with customers, increase the
effectiveness of customer service and sales operations, and improve overall
communication with customers. We deliver our services using a unique
combination of accumulated expertise in the customer care field, existing
technology, and client knowledge. Typically, we perform our services on a
fixed-bid, fixed-timetable basis. Rapid development and significant client
involvement are key aspects to our methodologies. We offer our clients
end-to-end assistance with their implementations, including business case
evaluation, system planning and design, software implementation, modification
and development, training, installation, change management, network
management, and post-implementation support. Our services include the design,
implementation and integration of enterprise level applications to facilitate
sales automation, call center management, marketing automation and automated
field service and sales. We also own approximately 44% of the equity in
NextNet, Inc., a private corporation engaged in the development of wireless
data products. The chairman of Zamba, Joseph B. Costello, is also the
chairman of NextNet.
We currently derive most of our revenue from systems integration services
including business case evaluation, system planning and design, software
package implementation, custom software development, training, installation
and change management. We also derive recurring revenue from providing
post-implementation support.
Our revenues and earnings may fluctuate from quarter to quarter based on the
number, size and scope of projects in which we are engaged, the contractual
terms and degree of completion of such projects, any delays incurred in
connection with a project, employee utilization rates, the adequacy of
provisions for losses, the accuracy of estimates of resources required to
complete ongoing projects, and general economic conditions and other factors.
Also, revenues from a large client may constitute a significant portion of
our total revenues in any particular quarter.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999, COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998
Revenues increased 349% to $6.33 million in 1999 compared to $1.41
million in 1998. The increase in revenues is due to Zamba's acquisition of
The QuickSilver Group ("QuickSilver") in September 1998 and growth in the
combined business since the acquisition. The increase in service revenue is
primarily due to our transition to the sale of system integration services,
the QuickSilver acquisition, and increased market acceptance of our services.
The decrease in product revenue is due to our transition away from selling
stand-alone software
7
<PAGE>
products. We expect services revenues to increase throughout 1999 while
product revenues should continue to decline.
Project costs consist primarily of salaries and employee benefits for
personnel dedicated to client projects and direct expenses incurred to
complete projects that were not reimbursed by the client. These costs
represent the most significant expense Zamba incurs in providing its
services. Project costs were $3.35 million or 53% of net revenues in 1999
compared to $431,000 or 31% in 1998. The increase was primarily due to the
increase in project personnel. Project personnel increased as a result of the
acquisition of QuickSilver, our change in focus from software to services,
and the increased number and size of our engagements. We expect project
personnel costs to continue to increase on a dollar basis throughout 1999 in
order to deliver revenue growth from customer care services.
Other costs consist of non-billable project personnel costs and other
business costs, including training and recruiting costs. Other costs were
$740,000 or 12% of net revenues in 1999 compared to $151,000 or 11% of net
revenues in 1998. The increase in other costs relates primarily to the
increase in headcount for both training and recruiting personnel.
Sales and marketing expenses were $500,000 or 8% of net revenues in 1999
compared to $492,000 or 35% of net revenues in 1998. The increase in dollar
terms is due to the hiring of additional direct sales personnel. The decrease
in percentage terms is due to our increased revenue and our success in the
marketplace. We expect the amount spent for sales and marketing costs will
increase slightly over the next few quarters as we grow our staff and pay
commissions for the expected increase in sales.
General and administrative expenses were $1.54 million or 24% of net
revenues in 1999 compared to $454,000 or 32% of net revenues in 1998. The
increase in dollar terms is primarily due to the acquisition of QuickSilver
and the related increase in staff headcount as well as increased facilities
and depreciation expenses. The decrease in percentage terms mostly reflects
our increased revenues. We anticipate general and administrative costs to
increase on a dollar basis over the next several quarters as we continue to
expand geographically and invest in developing a technology infrastructure to
support our anticipated revenue and headcount growth.
No research and development expenses were incurred in 1999 compared to
$427,000 in 1998. The 1998 expenses represent costs we incurred to develop
NextNet before completing the outside financing for NextNet on September 21,
1998, as discussed in our Form 10-K for the year ended December 31, 1998. We
do not expect to incur any research and development costs for the foreseeable
future.
Intangible asset amortization expense was $944,000 in 1999 compared to
$0 in 1998. This increase is due to the acquisition of QuickSilver. The
acquisition was accounted for using the purchase method of accounting and the
purchase price was allocated to tangible and identifiable intangible assets.
The fair value of identifiable intangible assets was $7.70 million and was
allocated to the following categories: people and experiences, client
references, client lists, and intellectual property and delivery methodology.
These amounts are being amortized over economic useful lives of between two
and four years. Approximately 97% of the costs related to the QuickSilver
acquisition will be amortized by September 30, 2000.
8
<PAGE>
Interest income was $19,000 in 1999 compared to $56,000 in 1998. The
decrease is due to decreases in our cash and investment accounts, which were
used to fund operating activities and the QuickSilver acquisition.
Interest expense was $21,000 in 1999 compared to $0 in 1998. The
increase is due to interest charges paid on debt acquired as result of the
acquisition of QuickSilver and interest charges accrued for future payments
of the notes payable issued in connection with the acquisition of QuickSilver.
SIX MONTHS ENDED JUNE 30, 1999, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
Revenues increased 296% to $11.15 million in 1999 compared to $2.81
million in 1998. The increase in revenues is due to the acquisition of
QuickSilver in September 1998 and growth in the combined business since the
acquisition. The increase in service revenue is primarily due to our
transition to the sale of system integration services, the QuickSilver
acquisition, and increased market acceptance of our services. The decrease in
product revenue is due to our transition away from selling stand-alone
software products. We expect services revenues to increase throughout 1999
while product revenues should continue to decline.
Project costs consist primarily of salaries and employee benefits for
personnel dedicated to client projects and direct expenses incurred to
complete projects that were not reimbursed by the client. These costs
represent the most significant expense Zamba incurs in providing its
services. Project costs were $6.13 million or 55% of net revenues in 1999
compared to $931,000 or 33% in 1998. The increase in costs is primarily due
to the increase in project personnel. Project personnel increased as a result
of the acquisition of QuickSilver, our change in focus from software to
services, and the increased number and size of our engagements. We expect
project personnel costs to continue to increase on a dollar basis throughout
1999 in order to deliver revenue growth.
Other costs consist of non-billable project personnel costs and other
business costs, including training and recruiting costs. Other costs were
$1.33 million or 12% of net revenues in 1999 compared to $314,000 or 11% of
net revenues in 1998. The increase in other costs relates primarily to the
increase in headcount for both training and recruiting personnel.
Sales and marketing expenses were $1.02 million or 9% of net revenues in
1999 compared to $970,000 or 34% of net revenues in 1998. The increase in
dollar terms is due to the hiring of additional direct sales personnel. The
decrease in percentage terms is due to our increased revenue and success in
the marketplace. We expect the amount spent for sales and marketing costs
will increase slightly over the next few quarters as we grow our staff and
pay commissions for the expected increase in sales.
General and administrative expenses were $2.56 million or 23% of net
revenues in 1999 compared to $905,000 or 32% of net revenues in 1998. The
increase in dollar terms is primarily due to the acquisition of QuickSilver and
the related increase in staff headcount as well as increased expenses for
facilities and depreciation. The decrease in percentage terms mostly reflects
our increased revenues. We anticipate general and administrative costs to
increase on a
9
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dollar basis over the next several quarters as we increase the size of our
offices or open offices in additional locations, and invest in developing our
technology infrastructure.
No research and development expenses were incurred in 1999 compared to
$811,000 in 1998. The 1998 expenses represent costs we incurred to develop
NextNet before completing the outside financing for NextNet on September 21,
1998, as discussed in our Form 10-K for the year ended December 31, 1998. We
do not expect to incur any research and development costs for the foreseeable
future.
Intangible asset amortization expense was $1.88 million in 1999 compared
to $0 in 1998. This increase is due to the acquisition of QuickSilver. The
acquisition was accounted for using the purchase method of accounting and the
purchase price was allocated to tangible and identifiable intangible assets.
The fair value of identifiable intangible assets was $7.70 million and was
allocated to the following categories: people and experiences, client
references, client lists, and intellectual property and delivery methodology.
These amounts are being amortized over economic useful lives of between two
and four years. Approximately 97% of the costs related to the QuickSilver
acquisition will be amortized by September 30, 2000.
Interest income was $42,000 in 1999 compared to $132,000 in 1998. The
decrease is due to decreases in our cash and investment accounts, which were
used to fund operating activities and the QuickSilver acquisition.
Interest expense was $45,000 in 1999 compared to $0 in 1998. The
increase is due to interest charges paid on debt acquired as result of the
acquisition of QuickSilver and interest charges accrued for future payments
of the notes payable issued in connection with the acquisition of QuickSilver.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, we had no significant capital spending or purchase
commitments and had cash and cash equivalents totaling $4.51 million and
working capital of $4.21 million. For the six months ended June 30, 1999,
$1.97 million was provided from operating activities compared to the $1.28
million used in operating activities in the same period in 1998. The increase
in cash provided from operating activities is due to our improved operating
performance and a more focused effort on cash management. During the six
months ended June 30, 1999, we used $512,000 in investing activities. We
believe our existing capital resources will be sufficient to meet our capital
requirements into 2000.
YEAR 2000
Year 2000 computer issues may impact Zamba. The full extent and scope of the
risks from the Year 2000 issue have not yet been fully assessed. In the event
that internal products and systems, or those products and systems provided or
utilized by third parties do not correctly recognize and process date
information beyond the year 1999, material adverse effects on our business,
operating results, and financial condition could result.
10
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To address Year 2000 issues, we have initiated a program designed to address the
most critical Year 2000 items that would affect our products and the operations
of the following functions: operations, finance, sales, and human resources. We
have not commenced work on contingency plans to address potential problems with
its internal systems or the systems of its supplier and customers or other third
parties.
In December 1998, we commenced a program to inventory, assess, remediate, and
test the Year 2000 capability of our software products. All Year 2000
activities concerning current and legacy products are expected to be
completed by October 1999.
Other Year 2000 issues primarily consist of assessing the Year 2000 impact
for outside vendors, customers, and facilities. Project plans are being
developed and will include the process of identifying and prioritizing
critical suppliers and customers at the direct interface level, and
communicating with them about their plans and progress in addressing Year
2000 issues. Evaluations of the most critical third parties have been
initiated. It is expected that all Year 2000 project plans, 1999 budgets and
the remaining inventories will be completed by the beginning of the third
quarter of 1999. Concurrent with this effort, each business function is
conducting a focused level of ranking and functional assessment of its
inventory to establish the methods and actions required to resolve any Year
2000 issues discovered. The assessment efforts are estimated to be completed
by the beginning of the third quarter of 1999. The remediation (modification
or replacement of existing software or systems) and the testing phases of the
project plans are expected to take place throughout most of 1999 and are
estimated to be completed, for all business critical items, by the fourth
quarter of 1999. All remaining issues (which are considered low priority or
low risk to the business) are planned to be addressed as time permits and
could continue through the first half of 2000.
To date, nominal amounts have been spent to address Year 2000 issues, aside
from amounts spent in the normal course of business to upgrade our
information system infrastructure. We don't expect the total cost associated
with required modifications to become Year 2000 ready to be significant or to
have a material adverse effect on our business, operating results and
financial condition. Our current estimates of the amount of time and costs
necessary to implement and test its systems are based on the facts and
circumstances existing at this time. New developments may occur that could
affect our estimates for the required modifications to become Year 2000
ready. These developments include, but are not limited to: (a) the
availability and cost of personnel trained in this area, (b) the ability to
locate and correct all relevant computer code and equipment, and (c) the
planning and modification success needed to achieve full implementation.
Readers are cautioned that the foregoing discussion regarding Year 2000
computer issues contains forward-looking statements based on current
expectations that involve risks and uncertainties and should be considered in
conjunction with the following. The failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Such failures could materially and
adversely affect our business, operating results, and financial condition.
Due in large part to the uncertainty of the Year 2000 readiness of
third-party suppliers and customers, as well as the lack of a final Year 2000
project plan for the remaining internal business systems that are not yet
assessed as Year 2000 ready, we are currently unable to determine whether the
consequences of Year 2000 issues will have a material impact on our business,
operating results or financial condition. Our programs addressing Year 2000
computer issues are expected to reduce our level of uncertainty
11
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regarding Year 2000 issues and, in particular, about the Year 2000 readiness
of its material internal operations, suppliers, customers, and other
third-parties. In addition, we believe that the current Year 2000 activities
surrounding our software products and internal systems have reduced the risk
of any disruption caused by any Year 2000 issues in these areas.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standard No. 133 "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), effective in
2001, establishes new standards for recognizing all derivatives as either
assets or liabilities, and measuring those instruments at fair value. We have
no derivative financial instruments. At the present time, we do not
anticipate that SFAS No. 133 will have a material impact on the financial
position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have debt at a fixed interest rate of 7%, as described in Item 7A in
the 1998 Annual Report to Shareholders on Form 10-K. There has been no
material change to this information.
FACTORS THAT MAY AFFECT FUTURE RESULTS
There can be no assurance that our business will grow as anticipated or that
we will achieve or sustain profitability on a quarterly or annual basis in
the future. We derive a substantial part of our revenues from a small number
of clients whom, after evaluating our capabilities, decide whether to engage
us to create business case evaluations, consult on change management
practices and, in some cases, to design, implement and deploy their customer
care systems. A decision by any one of these clients to delay a customer care
project may have a material adverse effect on our business and results of
operations.
In order for our revenues from consulting and integration services to grow,
we must continue to add more clients and larger projects to plan, design and
implement customer care systems. Inability to obtain clients for large-scale
consulting and integration services could materially and adversely affect the
growth of its business.
In addition to the factors listed above, actual results could vary materially
from the foregoing forward-looking statements due to our inability to hire
and retain qualified personnel, the risk that we may need to enhance products
and services beyond what is currently planned, the levels of promotion and
marketing required to promote our products and services so as to attain a
competitive position in the marketplace, or other risks and uncertainties
identified in this Quarterly Report and our other filings with the SEC.
12
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Zamba held its Annual Meeting on May 20, 1999. Two proposals were
presented at the Annual Meeting for voting by the shareholders: the election
of directors and the ratification of KPMG, LLP as Zamba's independent
auditors for 1999. Each person nominated for director was elected, with
25,531,433 votes cast in favor of electing Joseph B. Costello, and 56,206
votes cast against; 25,531,433 votes cast in favor of electing Dixon R. Doll,
and 56,206 votes cast against; 25,533,432 votes cast in favor of electing
Paul D. Edelhertz, and 54,207 votes cast against; 25,430,821 votes cast in
favor of electing Michael A. Fabiaschi, and 156,818 votes cast against; and
25,533,433 votes cast in favor of electing Thomas W. Minick, and 54,206 votes
cast against. 25,512,276 votes were cast in favor of the proposal to ratify
the appointment of KPMG, LLP as independent auditors for fiscal year 1999;
with 6,749 votes cast against; 68,614 votes abstaining; and no broker
non-votes.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(b) Reports on Form 8-K - None
13
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SIGNATURES
Pursuant to the requirements 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.
ZAMBA CORPORATION
By: /s/ PAUL EDELHERTZ
---------------------------------
Paul Edelhertz
President and Chief Executive Officer
By: /s/ MICHAEL H. CARREL
---------------------------------
Michael H. Carrel
Chief Financial Officer
Dated: August 16, 1999
14
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EXHIBIT INDEX
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
SEQUENTIALLY NUMBERED
EXHIBIT NUMBER TITLE PAGE
- -------------------------------------------------------------------------------------
<S> <C> <C>
10.01** Change of Control Agreement between
Registrant and Peter Marton dated 16
July 15, 1999
- -------------------------------------------------------------------------------------
10.02** Change of Control Agreement between
Registrant and Michael Carrel dated 25
July 8, 1999
- -------------------------------------------------------------------------------------
10.03** Change of Control Agreement between
Registrant and Ian Nemerov dated July 8, 33
1999
- -------------------------------------------------------------------------------------
</TABLE>
** Management contract or compensation plan
15
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CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT
This Change in Control Employment and Severance Agreement (the "AGREEMENT")
is entered into this 15th day of July, 1999 between Peter Marton ("Executive")
and ZAMBA CORPORATION, a Delaware corporation (the "COMPANY"). This Agreement is
intended to provide Executive with the compensation and benefits described
herein upon the occurrence of specific events following a Change in Control (as
hereinafter defined).
Certain capitalized terms used in this Agreement are defined in Article
VII.
The Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY THE COMPANY
1.1 Executive is currently employed as the Executive Vice President
and Chief Operating Officer of the Company.
1.2 This Agreement shall become effective upon the occurrence of a
Change in Control.
1.3 The Company and Executive each agree and acknowledge that
Executive is employed by the Company as an "at will" employee and that either
Executive or the Company has the right at any time to terminate Executive's
employment with the Company, with or without cause or advance notice, for any
reason or for no reason. The Company and Executive wish to set forth the
compensation and benefits which Executive shall be entitled to receive in the
event that Executive's employment with the Company terminates under the
circumstances described in Article II of this Agreement.
1.4 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company and Executive's
execution of the general waiver and release described in Section 4.3.
ARTICLE II
TRIGGERING EVENTS
2.1 Involuntary Termination of Employment During Term
(a) If Executive's employment is involuntarily terminated by
the Company without Cause during the Term, such termination of employment
will be a Triggering Event, and the Company shall pay or provide
Executive the compensation and benefits described in Article III.
(b) If Executive's employment is involuntarily terminated by
the Company for Cause during the Term, such termination of employment
will NOT be a Triggering Event, and Executive will NOT be entitled to
receive any compensation or benefits under the provisions of this
Agreement except as otherwise specifically set forth herein.
2.2 Voluntary Termination of Employment During Term.
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(a) Executive may voluntarily terminate his employment with the
Company at any time during the Term. If Executive voluntarily terminates
his employment for Good Reason during the Term, such termination of
employment will be a Triggering Event, and the Company shall pay or
provide Executive the compensation and benefits described in Article III.
(b) If Executive voluntarily terminates his employment for any
reason other than Good Reason during the Term, such termination of
employment will NOT be a Triggering Event, and Executive will NOT be
entitled to receive any compensation or benefits under the provisions of
this Agreement except as otherwise specifically set forth herein.
2.3 Death or Disability During Term. If Executive's employment with
the Company terminates on account of death or disability during the Term, such
termination of employment will be a Triggering Event, and the Company shall pay
or provide Executive the compensation and benefits described in Article III.
2.4 Employment Through Term. If Executive's employment continues
through the end of the Term, such continuation of employment will be a
Triggering Event, and the Company shall pay Executive the compensation and
benefits described in Article III.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Right to Benefits. If a Triggering Event occurs, Executive shall
be entitled to receive the compensation and benefits described in this Agreement
subject to the restrictions and limitations set forth in Article IV. If a
Triggering Event does not occur, Executive shall not be entitled to receive any
compensation and benefits described in this Agreement, except as otherwise
specifically set forth herein.
3.2 Severance Payment. Upon the occurrence of a Triggering Event or,
if later, upon the termination of Executive's employment with the Company
following a Triggering Event, Executive shall receive a lump sum severance
payment equal to the sum of (a) the amount of Executive's Base Salary that would
have been paid with respect to the period beginning on the date of the
Triggering Event and ending with the last day of the Term plus (b) six (6)
months of Base Salary. Such lump sum amount shall be paid no later than thirty
(30) days following the date of the Triggering Event or, if later, the date of
termination of Executive's employment with the Company and shall be subject to
all applicable tax withholding.
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3.3 Health Insurance Coverage. Upon the occurrence of a Triggering
Event or, if later, upon the termination of Executive's employment with the
Company following a Triggering Event, to the extent permitted by the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the
Company's group health insurance policy, Executive and his covered dependents
will be eligible to continue their health insurance benefits at their own
expense. If Executive elects COBRA continuation coverage, the Company shall pay
Executive's and covered dependents' COBRA continuation premiums for six (6)
months following the date Executive's coverage as an active employee under the
Company's group health policy ceases, provided that the Company's obligation to
make such payments shall terminate immediately if Executive becomes eligible for
other health insurance benefits at the expense of a new employer. Executive
agrees to notify the Company, in writing, immediately upon acceptance of any
employment which provides health insurance benefits. This Section 3.3 provides
only for the Company's payment of COBRA continuation premiums for the period
specified above. This Section 3.3 is not intended to affect, nor does it affect,
the rights of Executive, or Executive's covered dependents, under any applicable
law with respect to health insurance continuation coverage.
3.4 Stock Option Acceleration. Executive's stock options under the
Company's 1993 Equity Incentive Plan which are outstanding as of the date of the
Triggering Event (the "Stock Options") shall become fully vested and exercisable
upon the occurrence of a Triggering Event or upon the termination of Executive's
employment during the Term which does not otherwise constitute a Triggering
Event, notwithstanding the then existing provisions of the relevant Stock Option
agreements, which provisions are expressly modified by this Agreement. The
period of time during which the Stock Options shall remain exercisable, and all
other terms and conditions of the Stock Options, shall be as specified in the
relevant Stock Option agreements.
3.5 Mitigation. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any payment
provided under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by another
employer or by retirement benefits after the date of the Triggering Event, or
otherwise.
ARTICLE IV
LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT
4.1 Other Severance Benefits; Withholding of Taxes. The benefits
provided under this Agreement are in lieu of any other benefit provided under
any employment contract or severance plan of the Company in effect at the time
of a Triggering Event. The Company shall withhold appropriate federal, state or
local income and employment taxes from any payments hereunder.
4.2 Obligations of Executive. During the Term, Executive agrees not to
personally solicit any of the Company's employees to become employed elsewhere
or provide the names of such employees to any other company which Executive has
reason to believe will solicit such employees.
4.3 Employee Agreement and Release Prior to Receipt of Certain
Benefits. Prior to the receipt of any benefits under Section 3.2 above,
Executive shall execute an effective employee agreement and release in the form
attached hereto as Exhibit A. Such employee agreement and release shall
specifically relate to all of Executive's rights and claims in existence at the
time of its execution. It is understood that Executive has twenty-one (21) days
to consider whether to execute such employee agreement and release and Executive
may revoke such employee agreement and release within seven (7) days after
execution of such employee agreement and release. If Executive does not execute
such employee agreement and release within the twenty-one (21) day period, or if
Executive revokes such employee agreement and release within the seven (7) day
period, no benefits shall be payable under
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Section 3.2 above. Nothing in this Agreement shall limit the scope or time of
applicability of such employee agreement and release once it is executed and
not timely revoked.
4.4 Certain Additional Payments. If it shall be determined, either by
the Company or by a final determination of the Internal Revenue Service, that
any payment or distribution by the Company to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement (including, without limitation, the value ascribed to option
acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would
cause Executive to become subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), then the Company shall pay to Executive, within the
later of ninety (90) days of the date of the Triggering Event or ninety (90)
days of the date of determination referred to above, an additional amount (the
"Gross-Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax and any federal (and state and local) income and
employment taxes on the Gross-Up Payment, shall be equal to the Payments. For
purposes of determining the amount of the Gross-Up Payment, Executive shall be
deemed to pay federal, state and local income taxes at the highest nominal
marginal rate of federal, state and local income taxation in the calendar year
in which the Gross-Up Payment is made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. If the Excise Tax is subsequently determined, whether by the Company or
by a final determination of the Internal Revenue Service, to be less than the
amount taken into account to determine the amount of the Gross-Up Payment, then
Executive shall repay to the Company at that time the portion of the Gross-Up
Payment attributable to such reduction (plus an amount equal to any tax
reduction, whether of the Excise Tax, any applicable income tax, or any
applicable employment tax, which Executive may enjoy as a result of such initial
repayment). If the Excise Tax is subsequently determined, whether by the Company
or by a final determination of the Internal Revenue Service, to be more than the
amount taken into account to determine the amount of the Gross-Up Payment, then
the Company shall pay to Executive an additional amount, which shall be
determined using the same methods as were used for calculating the Gross-Up
Payment, with respect to such excess. For purposes of this Section 4.4, a
determination of the Internal Revenue Service as to the amount of Excise Tax for
which Executive is liable shall not be treated as final until the time that
either (i) the Company agrees to acquiesce in the determination of the Internal
Revenue Service or (ii) the determination of the Internal Revenue Service has
been upheld in a court of competent jurisdiction and the Company decides not to
appeal such judicial decision or such decision is not appealable. If the Company
chooses to contest the determination of the Internal Revenue Service, then all
costs, attorneys' fees, and other expenses shall be paid by the Company.
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4.5 Amendment or Termination. This Agreement may be amended or
terminated only upon the mutual written consent of the Company and Executive.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may otherwise qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under any stock option or
other agreements with the Company; PROVIDED, HOWEVER, that in accordance with
Section 4.1 above, any benefits provided hereunder shall be in lieu of any other
severance payments to which Executive may otherwise be entitled, including,
without limitation, under any employment contract or severance plan, and
benefits under this Agreement shall be offset to the extent necessary to give
effect to this proviso. Except as otherwise expressly provided herein, amounts
which are vested benefits or which Executive is otherwise entitled to receive
under any plan, policy, practice or program of the Company at or subsequent to
the effective date of a Change in Control shall be payable in accordance with
such plan, policy, practice or program.
5.2 Employment Status. This Agreement does not constitute a contract
of employment, nor does it impose on Executive any obligation to remain as an
employee or on the Company any obligation (i) to retain Executive as an
employee, (ii) to change the status of Executive as an at will employee, or
(iii) to change the Company's policies regarding termination of employment.
ARTICLE VI
NON-ALIENATION OF BENEFITS
No benefit hereunder shall be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt to do so
shall be void.
ARTICLE VII
DEFINITIONS
For purposes of the Agreement, the following terms shall have the
meanings set forth below:
7.1 "Agreement" means this Change in Control Severance Agreement.
7.2 "Base Salary" means Executive's salary (excluding bonus, any other
incentive or other payments and stock option exercises) at the rate paid by the
Company in consideration for Executive's service on the day prior to the
effective date of a Change in Control or at such higher rate as may be in effect
during the Term and which is includable in the gross income of Executive for
federal income tax purposes or which would have been includable in gross income
except for an election either under Section 125 or 402(e)(3) of the Code or
under the terms of a nonqualified deferred compensation arrangement sponsored by
the Company.
7.3 "Cause" means either of the following: (i) an intentional or
grossly negligent act by Executive causing material harm to the Company or (ii)
Executive's conviction of, or plea of "guilty" or "no contest" to, a felony.
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7.4 "Change in Control" means the consummation of any one of the
following events: (i) a sale of all or substantially all of the assets of the
Company; (ii) a merger or consolidation in which the Company is not the
surviving corporation (other than a transaction the principal purpose of which
is to change the state of the Company's incorporation or a transaction in which
the voting securities of the Company are exchanged for beneficial ownership of
at least fifty percent (50%) of the voting securities of the controlling
acquiring corporation); (iii) a merger or consolidation in which the Company is
the surviving corporation and less than fifty percent (50%) of the voting
securities of the Company which are outstanding immediately after the
consummation of such transaction are beneficially owned, directly or indirectly,
by the persons who owned such voting securities immediately prior to such
transaction; (iv) any transaction or series of related transactions after which
any person (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934), other than any employee benefit plan (or related trust) sponsored
or maintained by the Company or any subsidiary of the Company, becomes the
beneficial owner of voting securities of the Company representing fifty percent
(50%) or more of the combined voting power of all of the voting securities of
the Company; or (v) the liquidation or dissolution of the Company.
7.5 "Code" means the Internal Revenue Code of 1986, as amended.
7.6 "Company" means Zamba Corporation, a Delaware corporation, and any
successor thereto.
7.7 "Disability" means a disability which qualifies Executive as
disabled for purposes of receiving benefits under the Company's long term
disability plan applicable to Executive.
7.8 "Good Reason" means that any one of the following actions has been
taken by the Company without Executive's express written consent and such action
has not been promptly reversed within thirty (30) days following written notice
from Executive to the Company: (i) a material reduction in Executive's job
responsibilities given Executive's prior position and responsibilities with the
Company, it being deemed that a position with a different title but providing
similar activities, given the size of the combined company, shall not be
considered a material reduction in Executive's job responsibilities; (ii) any
reduction in Executive's compensation and aggregate benefits as in effect
immediately prior to such reduction; (iii) relocation of Executive's workplace
to a facility or location more than twenty-five (25) miles from Executive's
workplace immediately prior to such relocation; (iv) any purported termination
of Executive's employment which is not effected by reason of death, disability,
or Cause; (v) the failure or refusal of a successor to the Company to assume the
Company's obligations under this Agreement, as provided in Section 8.7 below; or
(vi) a material breach by the Company or any successor to the Company of any of
the material provisions of this Agreement
7.9 "Term" means the period beginning on the effective date of a
Change in Control and ending thirteen (13) months thereafter.
7.10 "Triggering Event" means an event described in Section 2.1(a),
2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for
purposes of this Agreement.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. Any notices provided hereunder must be in writing and
such notices or any other written communication shall be deemed effective upon
the earlier of personal delivery (including personal delivery by telex or
facsimile) or the third day after mailing by first class mail, to the Company at
its primary office location and to Executive at his address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at his address as listed in the Company's payroll records.
8.2 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
8.3 Waiver. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
8.4 Complete Agreement. This Agreement, including Exhibit A,
constitutes the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein.
8.5 Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
8.6 Headings. The headings of the Articles and Sections hereof are
inserted for convenience only and shall neither be deemed to constitute a part
hereof nor to affect the meaning thereof.
8.7 Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not delegate any of his duties hereunder and he may
not assign any of his rights hereunder without the written consent of the
Company, which consent shall not be withheld unreasonably.
8.8 Attorneys' Fees. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
8.9 Choice of Law. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
Minnesota.
8.10 Construction of Plan. In the event of a conflict between the text
of the Agreement and any summary, description or other information regarding the
Agreement, the text of the Agreement shall control.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year written above.
ZAMBA CORPORATION, PETER MARTON
A DELAWARE CORPORATION EXECUTIVE
By: /s/ PAUL EDELHERTZ /s/ PETER MARTON
--------------------------- ----------------------------
Name: PAUL EDELHERTZ
-----------------------------
Title: PRESIDENT AND CEO
Exhibit A: Employee Agreement and Release
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EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE FOREGOING
AGREEMENT.
Except as otherwise set forth in this Agreement, I hereby release, acquit
and forever discharge the Company, its parents and subsidiaries, and their
officers, directors, agents, servants, employees, shareholders, successors,
assigns and affiliates, of and from any and all claims, liabilities, demands,
causes of action, costs, expenses, attorneys fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed (other than any
claim for indemnification I may have as a result of any third party action
against me based on my employment with the Company), arising out of or in any
way related to agreements, events, acts or conduct at any time prior to and
including the date I sign this Agreement, including but not limited to: all such
claims and demands directly or indirectly arising out of or in any way connected
with my employment with the Company or the termination of that employment,
including but not limited to, claims of intentional and negligent infliction of
emotional distress, any and all tort claims for personal injury, claims or
demands related to salary, bonuses, commissions, stock, stock options, or any
other ownership interests in the Company, vacation pay, fringe benefits, expense
reimbursements, severance pay, or any other form of compensation; claims
pursuant to any federal, state or local law or cause of action including, but
not limited to, the federal Civil Rights Act of 1964, as amended; the federal
Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Americans with Disabilities Act of 1990; state laws comparable to the foregoing
federal laws; tort law; contract law; wrongful discharge; discrimination; fraud;
defamation; emotional distress; and breach of the implied covenant of good faith
and fair dealing; provided, however, that nothing in this paragraph shall be
construed in any way to release the Company from its obligation to indemnify me
pursuant to the Company's Indemnification Agreement.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under the ADEA. I also acknowledge that the consideration
given for the waiver and release in the preceding paragraph hereof is in
addition to anything of value to which I was already entitled. I further
acknowledge that I have been advised by this writing, as required by the ADEA,
that: (A) my waiver and release do not apply to any rights or claims that may
arise after the date I sign this Agreement; (B) I have the right to consult with
an attorney prior to executing this Agreement; (C) I have twenty-one (21) days
to consider this Agreement (although I may choose to voluntarily execute this
Agreement earlier); (D) I have seven (7) days following the execution of this
Agreement by the parties to revoke the Agreement; and (E) this Agreement shall
not be effective until the date upon which the revocation period has expired,
which shall be the eighth day after this Agreement is executed by me, provided
that the Company has also executed this Agreement by that date ("Effective
Date").
By:
-----------------------------------
Date:
---------------------------------
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CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT
This Change in Control Employment and Severance Agreement (the
"AGREEMENT") is entered into this 8th day of July, 1999 between Michael H.
Carrel ("Executive") and ZAMBA CORPORATION, a Delaware corporation (the
"COMPANY"). This Agreement is intended to provide Executive with the
compensation and benefits described herein upon the occurrence of specific
events following a Change in Control (as hereinafter defined).
Certain capitalized terms used in this Agreement are defined in Article
VII.
The Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY THE COMPANY
1.1 Executive is currently employed as the Vice President and Chief
Financial Officer of the Company.
1.2 This Agreement shall become effective upon the occurrence of a
Change in Control.
1.3 The Company and Executive each agree and acknowledge that
Executive is employed by the Company as an "at will" employee and that either
Executive or the Company has the right at any time to terminate Executive's
employment with the Company, with or without cause or advance notice, for any
reason or for no reason. The Company and Executive wish to set forth the
compensation and benefits which Executive shall be entitled to receive in the
event that Executive's employment with the Company terminates under the
circumstances described in Article II of this Agreement.
1.4 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company and Executive's
execution of the general waiver and release described in Section 4.3.
ARTICLE II
TRIGGERING EVENTS
2.1 Involuntary Termination of Employment During Term
(a) If Executive's employment is involuntarily terminated by
the Company without Cause during the Term, such termination of employment
will be a Triggering Event, and the Company shall pay or provide
Executive the compensation and benefits described in Article III.
(b) If Executive's employment is involuntarily terminated by
the Company for Cause during the Term, such termination of employment
will NOT be a Triggering Event, and Executive will NOT be entitled to
receive any compensation or benefits under the provisions of this
Agreement except as otherwise specifically set forth herein.
2.2 Voluntary Termination of Employment During Term.
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(a) Executive may voluntarily terminate his employment with the
Company at any time during the Term. If Executive voluntarily terminates
his employment for Good Reason during the Term, such termination of
employment will be a Triggering Event, and the Company shall pay or
provide Executive the compensation and benefits described in Article III.
(b) If Executive voluntarily terminates his employment for any
reason other than Good Reason during the Term, such termination of
employment will NOT be a Triggering Event, and Executive will NOT be
entitled to receive any compensation or benefits under the provisions of
this Agreement except as otherwise specifically set forth herein.
2.3 Death or Disability During Term. If Executive's employment with
the Company terminates on account of death or disability during the Term, such
termination of employment will be a Triggering Event, and the Company shall pay
or provide Executive the compensation and benefits described in Article III.
2.4 Employment Through Term. If Executive's employment continues
through the end of the Term, such continuation of employment will be a
Triggering Event, and the Company shall pay Executive the compensation and
benefits described in Article III.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Right to Benefits. If a Triggering Event occurs, Executive shall
be entitled to receive the compensation and benefits described in this Agreement
subject to the restrictions and limitations set forth in Article IV. If a
Triggering Event does not occur, Executive shall not be entitled to receive any
compensation and benefits described in this Agreement, except as otherwise
specifically set forth herein.
3.2 Severance Payment. Upon the occurrence of a Triggering Event or,
if later, upon the termination of Executive's employment with the Company
following a Triggering Event, Executive shall receive a lump sum severance
payment equal to the sum of (a) the amount of Executive's Base Salary that would
have been paid with respect to the period beginning on the date of the
Triggering Event and ending with the last day of the Term plus (b) six (6)
months of Base Salary. Such lump sum amount shall be paid no later than thirty
(30) days following the date of the Triggering Event or, if later, the date of
termination of Executive's employment with the Company and shall be subject to
all applicable tax withholding.
3.3 Health Insurance Coverage. Upon the occurrence of a Triggering
Event or, if later, upon the termination of Executive's employment with the
Company following a Triggering Event, to the extent permitted by the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the
Company's group health insurance policy, Executive and his covered dependents
will be eligible to continue their health insurance benefits at their own
expense. If Executive elects COBRA continuation coverage, the Company shall pay
Executive's and covered dependents' COBRA continuation premiums for six (6)
months following the date Executive's coverage as an active employee under the
Company's group health policy ceases, provided that the Company's obligation to
make such payments shall terminate immediately if Executive becomes eligible for
other health insurance benefits at the expense of a new employer. Executive
agrees to notify the Company, in writing, immediately upon acceptance of any
employment which provides health insurance benefits. This Section 3.3 provides
only for the Company's payment of COBRA continuation premiums for the period
specified above. This Section 3.3 is not intended to affect, nor does it affect,
the rights of Executive, or
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Executive's covered dependents, under any applicable law with respect to
health insurance continuation coverage.
3.4 Stock Option Acceleration. Executive's stock options under the
Company's 1993 Equity Incentive Plan which are outstanding as of the date of the
Triggering Event (the "Stock Options") shall become fully vested and exercisable
upon the occurrence of a Triggering Event or upon the termination of Executive's
employment during the Term which does not otherwise constitute a Triggering
Event, notwithstanding the then existing provisions of the relevant Stock Option
agreements, which provisions are expressly modified by this Agreement. The
period of time during which the Stock Options shall remain exercisable, and all
other terms and conditions of the Stock Options, shall be as specified in the
relevant Stock Option agreements.
3.5 Mitigation. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any payment
provided under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by another
employer or by retirement benefits after the date of the Triggering Event, or
otherwise.
ARTICLE IV
LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT
4.1 Other Severance Benefits; Withholding of Taxes. The benefits
provided under this Agreement are in lieu of any other benefit provided under
any employment contract or severance plan of the Company in effect at the time
of a Triggering Event. The Company shall withhold appropriate federal, state or
local income and employment taxes from any payments hereunder.
4.2 Obligations of Executive. During the Term, Executive agrees not to
personally solicit any of the Company's employees to become employed elsewhere
or provide the names of such employees to any other company which Executive has
reason to believe will solicit such employees.
4.3 Employee Agreement and Release Prior to Receipt of Certain
Benefits. Prior to the receipt of any benefits under Section 3.2 above,
Executive shall execute an effective employee agreement and release in the form
attached hereto as Exhibit A. Such employee agreement and release shall
specifically relate to all of Executive's rights and claims in existence at the
time of its execution. It is understood that Executive has twenty-one (21) days
to consider whether to execute such employee agreement and release and Executive
may revoke such employee agreement and release within seven (7) days after
execution of such employee agreement and release. If Executive does not execute
such employee agreement and release within the twenty-one (21) day period, or if
Executive revokes such employee agreement and release within the seven (7) day
period, no benefits shall be payable under Section 3.2 above. Nothing in this
Agreement shall limit the scope or time of applicability of such employee
agreement and release once it is executed and not timely revoked.
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4.4 Certain Additional Payments. If it shall be determined, either by
the Company or by a final determination of the Internal Revenue Service, that
any payment or distribution by the Company to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement (including, without limitation, the value ascribed to option
acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would
cause Executive to become subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), then the Company shall pay to Executive, within the
later of ninety (90) days of the date of the Triggering Event or ninety (90)
days of the date of determination referred to above, an additional amount (the
"Gross-Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax and any federal (and state and local) income and
employment taxes on the Gross-Up Payment, shall be equal to the Payments. For
purposes of determining the amount of the Gross-Up Payment, Executive shall be
deemed to pay federal, state and local income taxes at the highest nominal
marginal rate of federal, state and local income taxation in the calendar year
in which the Gross-Up Payment is made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. If the Excise Tax is subsequently determined, whether by the Company or
by a final determination of the Internal Revenue Service, to be less than the
amount taken into account to determine the amount of the Gross-Up Payment, then
Executive shall repay to the Company at that time the portion of the Gross-Up
Payment attributable to such reduction (plus an amount equal to any tax
reduction, whether of the Excise Tax, any applicable income tax, or any
applicable employment tax, which Executive may enjoy as a result of such initial
repayment). If the Excise Tax is subsequently determined, whether by the Company
or by a final determination of the Internal Revenue Service, to be more than the
amount taken into account to determine the amount of the Gross-Up Payment, then
the Company shall pay to Executive an additional amount, which shall be
determined using the same methods as were used for calculating the Gross-Up
Payment, with respect to such excess. For purposes of this Section 4.4, a
determination of the Internal Revenue Service as to the amount of Excise Tax for
which Executive is liable shall not be treated as final until the time that
either (i) the Company agrees to acquiesce in the determination of the Internal
Revenue Service or (ii) the determination of the Internal Revenue Service has
been upheld in a court of competent jurisdiction and the Company decides not to
appeal such judicial decision or such decision is not appealable. If the Company
chooses to contest the determination of the Internal Revenue Service, then all
costs, attorneys' fees, and other expenses shall be paid by the Company.
4.5 Amendment or Termination. This Agreement may be amended or
terminated only upon the mutual written consent of the Company and Executive.
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ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may otherwise qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under any stock option or
other agreements with the Company; PROVIDED, HOWEVER, that in accordance with
Section 4.1 above, any benefits provided hereunder shall be in lieu of any other
severance payments to which Executive may otherwise be entitled, including,
without limitation, under any employment contract or severance plan, and
benefits under this Agreement shall be offset to the extent necessary to give
effect to this proviso. Except as otherwise expressly provided herein, amounts
which are vested benefits or which Executive is otherwise entitled to receive
under any plan, policy, practice or program of the Company at or subsequent to
the effective date of a Change in Control shall be payable in accordance with
such plan, policy, practice or program.
5.2 Employment Status. This Agreement does not constitute a contract
of employment, nor does it impose on Executive any obligation to remain as an
employee or on the Company any obligation (i) to retain Executive as an
employee, (ii) to change the status of Executive as an at will employee, or
(iii) to change the Company's policies regarding termination of employment.
ARTICLE VI
NON-ALIENATION OF BENEFITS
No benefit hereunder shall be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt to do so
shall be void.
ARTICLE VII
DEFINITIONS
For purposes of the Agreement, the following terms shall have the
meanings set forth below:
7.1 "Agreement" means this Change in Control Severance Agreement.
7.2 "Base Salary" means Executive's salary (excluding bonus, any other
incentive or other payments and stock option exercises) at the rate paid by the
Company in consideration for Executive's service on the day prior to the
effective date of a Change in Control or at such higher rate as may be in effect
during the Term and which is includable in the gross income of Executive for
federal income tax purposes or which would have been includable in gross income
except for an election either under Section 125 or 402(e)(3) of the Code or
under the terms of a nonqualified deferred compensation arrangement sponsored by
the Company.
7.3 "Cause" means either of the following: (i) an intentional or
grossly negligent act by Executive causing material harm to the Company or (ii)
Executive's conviction of, or plea of "guilty" or "no contest" to, a felony.
7.4 "Change in Control" means the consummation of any one of the
following events: (i) a sale of all or substantially all of the assets of the
Company; (ii) a merger or consolidation in which the Company is not the
surviving corporation (other than a transaction the principal purpose of which
is to change the state of the Company's incorporation or a transaction in which
the voting securities of the Company are exchanged for beneficial ownership of
at least fifty percent (50%) of the voting securities of the controlling
acquiring corporation); (iii) a merger or consolidation in which the
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Company is the surviving corporation and less than fifty percent (50%) of the
voting securities of the Company which are outstanding immediately after the
consummation of such transaction are beneficially owned, directly or
indirectly, by the persons who owned such voting securities immediately prior
to such transaction; (iv) any transaction or series of related transactions
after which any person (as such term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934), other than any employee benefit plan (or
related trust) sponsored or maintained by the Company or any subsidiary of
the Company, becomes the beneficial owner of voting securities of the Company
representing fifty percent (50%) or more of the combined voting power of all
of the voting securities of the Company; or (v) the liquidation or
dissolution of the Company.
7.5 "Code" means the Internal Revenue Code of 1986, as amended.
7.6 "Company" means Zamba Corporation, a Delaware corporation, and any
successor thereto.
7.7 "Disability" means a disability which qualifies Executive as
disabled for purposes of receiving benefits under the Company's long term
disability plan applicable to Executive.
7.8 "Good Reason" means that any one of the following actions has been
taken by the Company without Executive's express written consent and such action
has not been promptly reversed within thirty (30) days following written notice
from Executive to the Company: (i) a material reduction in Executive's job
responsibilities given Executive's prior position and responsibilities with the
Company, it being deemed that a position with a different title but providing
similar activities, given the size of the combined company, shall not be
considered a material reduction in Executive's job responsibilities; (ii) any
reduction in Executive's compensation and aggregate benefits as in effect
immediately prior to such reduction; (iii) relocation of Executive's workplace
to a facility or location more than twenty-five (25) miles from Executive's
workplace immediately prior to such relocation; (iv) any purported termination
of Executive's employment which is not effected by reason of death, disability,
or Cause; (v) the failure or refusal of a successor to the Company to assume the
Company's obligations under this Agreement, as provided in Section 8.7 below; or
(vi) a material breach by the Company or any successor to the Company of any of
the material provisions of this Agreement
7.9 "Term" means the period beginning on the effective date of a
Change in Control and ending thirteen (13) months thereafter.
7.10 "Triggering Event" means an event described in Section 2.1(a),
2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for
purposes of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. Any notices provided hereunder must be in writing and
such notices or any other written communication shall be deemed effective upon
the earlier of personal delivery (including personal delivery by telex or
facsimile) or the third day after mailing by first class mail, to the Company at
its primary office location and to Executive at his address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at his address as listed in the Company's payroll records.
8.2 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or
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rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provisions had never been contained
herein.
8.3 Waiver. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
8.4 Complete Agreement. This Agreement, including Exhibit A,
constitutes the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein.
8.5 Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
8.6 Headings. The headings of the Articles and Sections hereof are
inserted for convenience only and shall neither be deemed to constitute a part
hereof nor to affect the meaning thereof.
8.7 Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not delegate any of his duties hereunder and he may
not assign any of his rights hereunder without the written consent of the
Company, which consent shall not be withheld unreasonably.
8.8 Attorneys' Fees. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
8.9 Choice of Law. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
Minnesota.
8.10 Construction of Plan. In the event of a conflict between the text
of the Agreement and any summary, description or other information regarding the
Agreement, the text of the Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year written above.
ZAMBA CORPORATION, MICHAEL H. CARREL
A DELAWARE CORPORATION EXECUTIVE
By: /s/ Paul Edelhertz /s/ Michael H. Carrel
------------------------------ ------------------------------
Name: Paul Edelhertz
--------------------------------
Title: President and CEO
-------------------------------
Exhibit A: Employee Agreement and Release
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EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE FOREGOING
AGREEMENT.
Except as otherwise set forth in this Agreement, I hereby release,
acquit and forever discharge the Company, its parents and subsidiaries, and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law,
equity, or otherwise, known and unknown, suspected and unsuspected, disclosed
and undisclosed (other than any claim for indemnification I may have as a
result of any third party action against me based on my employment with the
Company), arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the date I sign this Agreement,
including but not limited to: all such claims and demands directly or
indirectly arising out of or in any way connected with my employment with the
Company or the termination of that employment, including but not limited to,
claims of intentional and negligent infliction of emotional distress, any and
all tort claims for personal injury, claims or demands related to salary,
bonuses, commissions, stock, stock options, or any other ownership interests
in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age
Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Americans with Disabilities Act of 1990; state laws comparable to the
foregoing federal laws; tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the
implied covenant of good faith and fair dealing; provided, however, that
nothing in this paragraph shall be construed in any way to release the
Company from its obligation to indemnify me pursuant to the Company's
Indemnification Agreement.
I acknowledge that I am knowingly and voluntarily waiving and
releasing any rights I may have under the ADEA. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled. I
further acknowledge that I have been advised by this writing, as required by
the ADEA, that: (A) my waiver and release do not apply to any rights or
claims that may arise after the date I sign this Agreement; (B) I have the
right to consult with an attorney prior to executing this Agreement; (C) I
have twenty-one (21) days to consider this Agreement (although I may choose
to voluntarily execute this Agreement earlier); (D) I have seven (7) days
following the execution of this Agreement by the parties to revoke the
Agreement; and (E) this Agreement shall not be effective until the date upon
which the revocation period has expired, which shall be the eighth day after
this Agreement is executed by me, provided that the Company has also executed
this Agreement by that date ("Effective Date").
By:
----------------------------------
Date:
--------------------------------
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CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT
This Change in Control Employment and Severance Agreement (the
"AGREEMENT") is entered into this 8th day of July, 1999 between Ian Nemerov
("Executive") and ZAMBA CORPORATION, a Delaware corporation (the "COMPANY").
This Agreement is intended to provide Executive with the compensation and
benefits described herein upon the occurrence of specific events following a
Change in Control (as hereinafter defined).
Certain capitalized terms used in this Agreement are defined in Article
VII.
The Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY THE COMPANY
1.1 Executive is currently employed as the Secretary and General
Counsel of the Company.
1.2 This Agreement shall become effective upon the occurrence of a
Change in Control.
1.3 The Company and Executive each agree and acknowledge that
Executive is employed by the Company as an "at will" employee and that either
Executive or the Company has the right at any time to terminate Executive's
employment with the Company, with or without cause or advance notice, for any
reason or for no reason. The Company and Executive wish to set forth the
compensation and benefits which Executive shall be entitled to receive in the
event that Executive's employment with the Company terminates under the
circumstances described in Article II of this Agreement.
1.4 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company and Executive's
execution of the general waiver and release described in Section 4.3.
ARTICLE II
TRIGGERING EVENTS
2.1 Involuntary Termination of Employment During Term
(a) If Executive's employment is involuntarily terminated by
the Company without Cause during the Term, such termination of employment
will be a Triggering Event, and the Company shall pay or provide
Executive the compensation and benefits described in Article III.
(b) If Executive's employment is involuntarily terminated by
the Company for Cause during the Term, such termination of employment
will NOT be a Triggering Event, and Executive will NOT be entitled to
receive any compensation or benefits under the provisions of this
Agreement except as otherwise specifically set forth herein.
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2.2 Voluntary Termination of Employment During Term.
(a) Executive may voluntarily terminate his employment with the
Company at any time during the Term. If Executive voluntarily terminates
his employment for Good Reason during the Term, such termination of
employment will be a Triggering Event, and the Company shall pay or
provide Executive the compensation and benefits described in Article III.
(b) If Executive voluntarily terminates his employment for any
reason other than Good Reason during the Term, such termination of
employment will NOT be a Triggering Event, and Executive will NOT be
entitled to receive any compensation or benefits under the provisions of
this Agreement except as otherwise specifically set forth herein.
2.3 Death or Disability During Term. If Executive's employment with
the Company terminates on account of death or disability during the Term, such
termination of employment will be a Triggering Event, and the Company shall pay
or provide Executive the compensation and benefits described in Article III.
2.4 Employment Through Term. If Executive's employment continues
through the end of the Term, such continuation of employment will be a
Triggering Event, and the Company shall pay Executive the compensation and
benefits described in Article III.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Right to Benefits. If a Triggering Event occurs, Executive shall
be entitled to receive the compensation and benefits described in this Agreement
subject to the restrictions and limitations set forth in Article IV. If a
Triggering Event does not occur, Executive shall not be entitled to receive any
compensation and benefits described in this Agreement, except as otherwise
specifically set forth herein.
3.2 Severance Payment. Upon the occurrence of a Triggering Event or,
if later, upon the termination of Executive's employment with the Company
following a Triggering Event, Executive shall receive a lump sum severance
payment equal to the sum of (a) the amount of Executive's Base Salary that would
have been paid with respect to the period beginning on the date of the
Triggering Event and ending with the last day of the Term plus (b) six (6)
months of Base Salary. Such lump sum amount shall be paid no later than thirty
(30) days following the date of the Triggering Event or, if later, the date of
termination of Executive's employment with the Company and shall be subject to
all applicable tax withholding.
3.3 Health Insurance Coverage. Upon the occurrence of a Triggering
Event or, if later, upon the termination of Executive's employment with the
Company following a Triggering Event, to the extent permitted by the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the
Company's group health insurance policy, Executive and his covered dependents
will be eligible to continue their health insurance benefits at their own
expense. If Executive elects COBRA continuation coverage, the Company shall pay
Executive's and covered dependents' COBRA continuation premiums for six (6)
months following the date Executive's coverage as an active employee under the
Company's group health policy ceases, provided that the Company's obligation to
make such payments shall terminate immediately if Executive becomes eligible for
other health insurance benefits at the expense of a new employer. Executive
agrees to notify the Company, in writing, immediately upon acceptance of any
employment which provides health insurance benefits. This Section 3.3 provides
only for the Company's payment of COBRA continuation premiums for the period
specified
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above. This Section 3.3 is not intended to affect, nor does it affect, the
rights of Executive, or Executive's covered dependents, under any applicable
law with respect to health insurance continuation coverage.
3.4 Stock Option Acceleration. Executive's stock options under the
Company's 1993 Equity Incentive Plan which are outstanding as of the date of the
Triggering Event (the "Stock Options") shall become fully vested and exercisable
upon the occurrence of a Triggering Event or upon the termination of Executive's
employment during the Term which does not otherwise constitute a Triggering
Event, notwithstanding the then existing provisions of the relevant Stock Option
agreements, which provisions are expressly modified by this Agreement. The
period of time during which the Stock Options shall remain exercisable, and all
other terms and conditions of the Stock Options, shall be as specified in the
relevant Stock Option agreements.
3.5 Mitigation. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any payment
provided under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by another
employer or by retirement benefits after the date of the Triggering Event, or
otherwise.
ARTICLE IV
LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT
4.1 Other Severance Benefits; Withholding of Taxes. The benefits
provided under this Agreement are in lieu of any other benefit provided under
any employment contract or severance plan of the Company in effect at the time
of a Triggering Event. The Company shall withhold appropriate federal, state or
local income and employment taxes from any payments hereunder.
4.2 Obligations of Executive. During the Term, Executive agrees not to
personally solicit any of the Company's employees to become employed elsewhere
or provide the names of such employees to any other company which Executive has
reason to believe will solicit such employees.
4.3 Employee Agreement and Release Prior to Receipt of Certain
Benefits. Prior to the receipt of any benefits under Section 3.2 above,
Executive shall execute an effective employee agreement and release in the form
attached hereto as Exhibit A. Such employee agreement and release shall
specifically relate to all of Executive's rights and claims in existence at the
time of its execution. It is understood that Executive has twenty-one (21) days
to consider whether to execute such employee agreement and release and Executive
may revoke such employee agreement and release within seven (7) days after
execution of such employee agreement and release. If Executive does not execute
such employee agreement and release within the twenty-one (21) day period, or if
Executive revokes such employee agreement and release within the seven (7) day
period, no benefits shall be payable under Section 3.2 above. Nothing in this
Agreement shall limit the scope or time of applicability of such employee
agreement and release once it is executed and not timely revoked.
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4.4 Certain Additional Payments. If it shall be determined, either by
the Company or by a final determination of the Internal Revenue Service, that
any payment or distribution by the Company to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement (including, without limitation, the value ascribed to option
acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would
cause Executive to become subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), then the Company shall pay to Executive, within the
later of ninety (90) days of the date of the Triggering Event or ninety (90)
days of the date of determination referred to above, an additional amount (the
"Gross-Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax and any federal (and state and local) income and
employment taxes on the Gross-Up Payment, shall be equal to the Payments. For
purposes of determining the amount of the Gross-Up Payment, Executive shall be
deemed to pay federal, state and local income taxes at the highest nominal
marginal rate of federal, state and local income taxation in the calendar year
in which the Gross-Up Payment is made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. If the Excise Tax is subsequently determined, whether by the Company or
by a final determination of the Internal Revenue Service, to be less than the
amount taken into account to determine the amount of the Gross-Up Payment, then
Executive shall repay to the Company at that time the portion of the Gross-Up
Payment attributable to such reduction (plus an amount equal to any tax
reduction, whether of the Excise Tax, any applicable income tax, or any
applicable employment tax, which Executive may enjoy as a result of such initial
repayment). If the Excise Tax is subsequently determined, whether by the Company
or by a final determination of the Internal Revenue Service, to be more than the
amount taken into account to determine the amount of the Gross-Up Payment, then
the Company shall pay to Executive an additional amount, which shall be
determined using the same methods as were used for calculating the Gross-Up
Payment, with respect to such excess. For purposes of this Section 4.4, a
determination of the Internal Revenue Service as to the amount of Excise Tax for
which Executive is liable shall not be treated as final until the time that
either (i) the Company agrees to acquiesce in the determination of the Internal
Revenue Service or (ii) the determination of the Internal Revenue Service has
been upheld in a court of competent jurisdiction and the Company decides not to
appeal such judicial decision or such decision is not appealable. If the Company
chooses to contest the determination of the Internal Revenue Service, then all
costs, attorneys' fees, and other expenses shall be paid by the Company.
4.5 Amendment or Termination. This Agreement may be amended or
terminated only upon the mutual written consent of the Company and Executive.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may otherwise qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under any stock option or
other agreements with the Company; PROVIDED, HOWEVER, that in accordance with
Section 4.1 above, any benefits provided hereunder shall be in lieu of any other
severance payments to which Executive may otherwise be entitled, including,
without limitation, under any employment contract or severance plan, and
benefits under this Agreement shall be offset to the extent necessary to give
effect to this proviso. Except as otherwise expressly provided herein, amounts
which are vested benefits or which Executive is otherwise entitled to receive
under any plan, policy, practice or program of the Company at or subsequent to
the effective date of a Change in Control shall be payable in accordance with
such plan, policy, practice or program.
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5.2 Employment Status. This Agreement does not constitute a contract
of employment, nor does it impose on Executive any obligation to remain as an
employee or on the Company any obligation (i) to retain Executive as an
employee, (ii) to change the status of Executive as an at will employee, or
(iii) to change the Company's policies regarding termination of employment.
ARTICLE VI
NON-ALIENATION OF BENEFITS
No benefit hereunder shall be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt to do so
shall be void.
ARTICLE VII
DEFINITIONS
For purposes of the Agreement, the following terms shall have the
meanings set forth below:
7.1 "Agreement" means this Change in Control Severance Agreement.
7.2 "Base Salary" means Executive's salary (excluding bonus, any other
incentive or other payments and stock option exercises) at the rate paid by the
Company in consideration for Executive's service on the day prior to the
effective date of a Change in Control or at such higher rate as may be in effect
during the Term and which is includable in the gross income of Executive for
federal income tax purposes or which would have been includable in gross income
except for an election either under Section 125 or 402(e)(3) of the Code or
under the terms of a nonqualified deferred compensation arrangement sponsored by
the Company.
7.3 "Cause" means either of the following: (i) an intentional or
grossly negligent act by Executive causing material harm to the Company or (ii)
Executive's conviction of, or plea of "guilty" or "no contest" to, a felony.
7.4 "Change in Control" means the consummation of any one of the
following events: (i) a sale of all or substantially all of the assets of the
Company; (ii) a merger or consolidation in which the Company is not the
surviving corporation (other than a transaction the principal purpose of which
is to change the state of the Company's incorporation or a transaction in which
the voting securities of the Company are exchanged for beneficial ownership of
at least fifty percent (50%) of the voting securities of the controlling
acquiring corporation); (iii) a merger or consolidation in which the Company is
the surviving corporation and less than fifty percent (50%) of the voting
securities of the Company which are outstanding immediately after the
consummation of such transaction are beneficially owned, directly or indirectly,
by the persons who owned such voting securities immediately prior to such
transaction; (iv) any transaction or series of related transactions after which
any person (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934), other than any employee benefit plan (or related trust) sponsored
or maintained by the Company or any subsidiary of the Company, becomes the
beneficial owner of voting securities of the Company representing fifty percent
(50%) or more of the combined voting power of all of the voting securities of
the Company; or (v) the liquidation or dissolution of the Company.
7.5 "Code" means the Internal Revenue Code of 1986, as amended.
7.6 "Company" means Zamba Corporation, a Delaware corporation, and any
successor thereto.
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7.7 "Disability" means a disability which qualifies Executive as
disabled for purposes of receiving benefits under the Company's long term
disability plan applicable to Executive.
7.8 "Good Reason" means that any one of the following actions has been
taken by the Company without Executive's express written consent and such action
has not been promptly reversed within thirty (30) days following written notice
from Executive to the Company: (i) a material reduction in Executive's job
responsibilities given Executive's prior position and responsibilities with the
Company, it being deemed that a position with a different title but providing
similar activities, given the size of the combined company, shall not be
considered a material reduction in Executive's job responsibilities; (ii) any
reduction in Executive's compensation and aggregate benefits as in effect
immediately prior to such reduction; (iii) relocation of Executive's workplace
to a facility or location more than twenty-five (25) miles from Executive's
workplace immediately prior to such relocation; (iv) any purported termination
of Executive's employment which is not effected by reason of death, disability,
or Cause; (v) the failure or refusal of a successor to the Company to assume the
Company's obligations under this Agreement, as provided in Section 8.7 below; or
(vi) a material breach by the Company or any successor to the Company of any of
the material provisions of this Agreement
7.9 "Term" means the period beginning on the effective date of a
Change in Control and ending thirteen (13) months thereafter.
7.10 "Triggering Event" means an event described in Section 2.1(a),
2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for
purposes of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. Any notices provided hereunder must be in writing and
such notices or any other written communication shall be deemed effective upon
the earlier of personal delivery (including personal delivery by telex or
facsimile) or the third day after mailing by first class mail, to the Company at
its primary office location and to Executive at his address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at his address as listed in the Company's payroll records.
8.2 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
8.3 Waiver. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
8.4 Complete Agreement. This Agreement, including Exhibit A,
constitutes the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein.
38
<PAGE>
8.5 Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
8.6 Headings. The headings of the Articles and Sections hereof are
inserted for convenience only and shall neither be deemed to constitute a part
hereof nor to affect the meaning thereof.
8.7 Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not delegate any of his duties hereunder and he may
not assign any of his rights hereunder without the written consent of the
Company, which consent shall not be withheld unreasonably.
8.8 Attorneys' Fees. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
8.9 Choice of Law. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
Minnesota.
8.10 Construction of Plan. In the event of a conflict between the text
of the Agreement and any summary, description or other information regarding the
Agreement, the text of the Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year written above.
ZAMBA CORPORATION, IAN NEMEROV
A DELAWARE CORPORATION EXECUTIVE
By: /s/ PAUL EDELHERTZ /s/ IAN NEMEROV
----------------------------- -----------------------------
Name: PAUL EDELHERTZ
-------------------------------
Title: PRESIDENT AND CEO
------------------------------
Exhibit A: Employee Agreement and Release
39
<PAGE>
EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE FOREGOING
AGREEMENT.
Except as otherwise set forth in this Agreement, I hereby release,
acquit and forever discharge the Company, its parents and subsidiaries, and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law,
equity, or otherwise, known and unknown, suspected and unsuspected, disclosed
and undisclosed (other than any claim for indemnification I may have as a
result of any third party action against me based on my employment with the
Company), arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the date I sign this Agreement,
including but not limited to: all such claims and demands directly or
indirectly arising out of or in any way connected with my employment with the
Company or the termination of that employment, including but not limited to,
claims of intentional and negligent infliction of emotional distress, any and
all tort claims for personal injury, claims or demands related to salary,
bonuses, commissions, stock, stock options, or any other ownership interests
in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age
Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Americans with Disabilities Act of 1990; state laws comparable to the
foregoing federal laws; tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the
implied covenant of good faith and fair dealing; provided, however, that
nothing in this paragraph shall be construed in any way to release the
Company from its obligation to indemnify me pursuant to the Company's
Indemnification Agreement.
I acknowledge that I am knowingly and voluntarily waiving and
releasing any rights I may have under the ADEA. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled. I
further acknowledge that I have been advised by this writing, as required by
the ADEA, that: (A) my waiver and release do not apply to any rights or
claims that may arise after the date I sign this Agreement; (B) I have the
right to consult with an attorney prior to executing this Agreement; (C) I
have twenty-one (21) days to consider this Agreement (although I may choose
to voluntarily execute this Agreement earlier); (D) I have seven (7) days
following the execution of this Agreement by the parties to revoke the
Agreement; and (E) this Agreement shall not be effective until the date upon
which the revocation period has expired, which shall be the eighth day after
this Agreement is executed by me, provided that the Company has also executed
this Agreement by that date ("Effective Date").
By:
----------------------------------------
Date:
--------------------------------------
40
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 2ND QTR.
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,511
<SECURITIES> 0
<RECEIVABLES> 4,324
<ALLOWANCES> (304)
<INVENTORY> 0
<CURRENT-ASSETS> 9,094
<PP&E> 3,525
<DEPRECIATION> (2,339)
<TOTAL-ASSETS> 15,544
<CURRENT-LIABILITIES> 4,880
<BONDS> 0
0
0
<COMMON> 79,159
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<SALES> 54
<TOTAL-REVENUES> 11,154
<CGS> 2
<TOTAL-COSTS> 7,467
<OTHER-EXPENSES> 5,331
<LOSS-PROVISION> 132
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> (1,779)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,779)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,779)
<EPS-BASIC> (.06)
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</TABLE>
