<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required] FOR THE YEAR ENDED DECEMBER 31,
1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] FOR THE TRANSITION PERIOD
FROM ______ TO ______.
Commission file number 0-22010
THOMAS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-0843540
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5215 NORTH O'CONNOR BOULEVARD, SUITE 2500, IRVING, TEXAS 75039-3714
(Address of principal executive offices) (Zip Code)
(972) 869-3400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
Title of each class Name of each exchange on which registered
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Common Stock, par value $.01 per share NASDAQ-NMS
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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. [X] Yes / No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of February 28, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $30,401,000, based on the NASDAQ-NMS
closing price.
As of February 28, 1997, the following number of shares of the registrant's
stock were outstanding:
<TABLE>
<S> <C>
Common Stock 5,983,053
Class B Common Stock 164,174
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Total 6,147,227
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</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the 1997 Annual Report to Stockholders are incorporated by
reference into Part II. Portions of the definitive Proxy Statement for the
1998 Annual Meeting of Stockholders are incorporated by reference into Part
III.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
The Company provides management consulting services designed to
improve the competitiveness and profitability of the Company's clients. The
Company's specific methodology, known as Total Cycle Time, focuses on reducing
the time spent on revenue-producing, product development and administrative
processes. By accelerating these processes using Total Cycle Time methodology,
clients are able to improve responsiveness to customers, accelerate new product
design and introduction and increase quality and productivity, thereby
resulting in improvements in financial performance. The Company's clients are
typically large companies, many of whom are included in the Fortune 1000.
The need for the Company's Total Cycle Time services arises from
competitive pressures that affect most industries worldwide and require
companies to respond with faster development and supply of goods and services.
The Company believes the competitive pressures have been caused by several
factors, including shorter product life cycles, higher quality standards and
technological innovation. Companies that rely on slow, bureaucratic
operations risk deteriorating margins, product obsolescence and loss of market
share. Past competitive advantages such as size, market position and reputation
are often no longer sufficient to maintain a leading competitive position. As
a result, traditional management techniques, which often focus on individual
departments or functional units of a business, rather than processes, may
lessen a company's ability to quickly respond to market opportunities.
Utilizing Total Cycle Time methodology, the Company analyzes a
client's business, assesses potential performance improvements, trains a
client's senior management and employees, and works to implement actions to
improve operating performance. Total Cycle Time services are designed to
enable the Company's clients to achieve quantifiable results, such as improved
profitability, greater productivity, more effective asset utilization and
reduced time in developing and delivering new products to market, thereby
making clients more competitive. Due to the Company's prior success with and
confidence in Total Cycle Time services, the Company generally provides its
clients with the option of paying the Company fixed fees or a combination of
fixed fees and incentive fees based on measurable improvements in a client's
business operations.
The Company's Information Technologies business segment focuses on
products and services that integrate and enhance the company's business
improvement methodologies. The Company offers SalesWare, which creates an
advanced opportunity management system that is easily embedded into a client's
information technology infrastructure. Additionally, the Company provides
paperless warehouse and distribution systems, including software packages,
customization, installation and training services. Its product line includes a
state-of-the-art warehouse and distribution management system featuring
advanced real-time radio frequency based receiving and cycle counting
applications.
TOTAL CYCLE TIME
The Total Cycle Time methodology developed and employed by the Company
is used to analyze and reengineer a client's business into components of three
basic processes: the development of new products and services; the production
and delivery of goods and services; and the definition and implementation of
strategies to capitalize on fast response. By defining such processes, the
Company is able to analyze and quantify a client's existing performance levels
using measures of time, productivity, asset utilization, cost and quality.
These measurements are then used to establish operating and financial
improvements the Company believes can be obtained by a client using existing or
reduced resources. Total Cycle Time implementation programs typically span one
to three years.
The Company's activities begin with the assessment of a potential
client's existing level of performance. This assessment typically includes
site visits, interaction with management and an analysis of historical
performance. The Company uses the results of this assessment to determine the
estimated operating and financial improvements that can be obtained by the
client using existing or reduced resources through the implementation of Total
Cycle Time. The Company then analyzes whether a Total Cycle Time program will
generate sufficient benefits to the client prior to proceeding with a proposal.
<PAGE> 3
The Company believes that results from the implementation of Total
Cycle Time programs will be obtained only if the senior executives of a client
are committed to change based on Total Cycle Time. Consequently, the Company
provides a client's chief executive officer (or chief operating officer of a
business unit) and senior managers a four-day CEO workshop tailored exclusively
for the client. The CEO workshop is often conducted at the Company's CEO
Center, a remote facility located near Baton Rouge, Louisiana. At the CEO
workshop, a client will gain exposure to Total Cycle Time tools, help define
what the client's business is capable of achieving, identify the critical
processes/high leverage areas within the client's company, identify appropriate
measurements for each of the critical processes and learn how the improvement
of critical processes will lead to tangible results. A key objective of the
CEO workshop is that the client build a business team commitment to improve
performance using Total Cycle Time as the driver. See "Business - Facilities."
Frequently, business and cultural "barriers" restrict or hinder a
client's operating processes. These barriers may consist of excessive
inspections, inappropriate lot/batch sizes, improper measures or a client's
view of its business as departments or functions rather than as integrated
processes. Cultural and business process barriers appear in a wide variety of
manufacturing, project and service businesses and their removal can have a
significant, positive impact on a client's business. Because these barriers are
ingrained in a client's business and culture, they may be difficult for a
client's management to identify and address without the assistance of
experienced outside business professionals.
At an early stage of a program's implementation, the Company analyzes
each of a client's business processes, identifies the business process and
cultural barriers restricting a client's business and determines the actions
required to remove these barriers. As barriers to improved performance and
unnecessary steps in the business processes are removed, cycle times are
reduced and activities or actions are more rapidly and efficiently completed.
During implementation of a Total Cycle Time program, the Company
transfers its methodology to a client. The Company works with a client to
internalize Total Cycle Time in order to sustain a change in a client's culture
after the Company's personnel complete the bulk of the program. The Company
grants its clients a limited license to use Total Cycle Time rights internally
following completion of a program. See "Business -- Intellectual Property."
In response to client demand, the Company introduced a range of
"continuous improvement services," consisting in part of ongoing assessments
and upgrades to Total Cycle Time methodology for completed programs.
Continuous improvement services are designed to maintain and improve upon the
successes of the original Total Cycle Time programs. In addition to providing
the Company with the opportunity for further client development and additional
fees, continuous improvement services provide clients with an extended means of
assessing, monitoring and improving their business utilizing Total Cycle Time.
COMPETITIVE STRATEGY
The Company's strategy is to maintain and enhance its position in the
development and implementation of its Total Cycle Time methodology. The
Company's strategy includes the following key elements, many of which
differentiate the Company from traditional providers of consulting services.
Emphasize Results. The Company often enters into incentive fee
contracts, which make the Company's revenue from a particular program
partially contingent upon certain results. The Company offers
incentive fee contracts as a means of obtaining additional contracts,
in the belief that its willingness to structure part of its fees based
upon the results generated for its clients differentiates it from
competitors, who generally charge fees based on time expended
regardless of results. These incentive fee contracts demonstrate the
Company's confidence that its programs will positively enhance the
businesses of its clients.
Target Large Clients and Multiple Program Opportunities. The
Company has focused its marketing efforts on companies with annual
revenues ranging from $500 million to $50 billion, preferably with
multiple program opportunities, in the specific industry business
units the Company has identified. The Company believes larger clients
provide greater revenue opportunities because such clients are likely
to realize greater economic benefit from the Company's services.
Larger clients may also provide the Company the opportunity to render
services to multiple business units within or related to the client.
Active Involvement and Method for Continuous Improvement. By
implementing Total Cycle Time throughout a complete business or
business unit in cooperation with a client's management, the Company
<PAGE> 4
believes it can more effectively influence business culture and
processes and provide clients with the methodology necessary for
continuous improvement. In contrast, traditional consulting firms
often provide only isolated expertise in the form of written
assessments or reports that focus on discrete functions or an isolated
segments of a business.
Experienced Professional Staff. The Company employs professionals
with extensive business management experience. Traditional consulting
firms often hire recent business school graduates with expertise in a
particular subject rather than expertise in total business management.
Program Focus. The Company focuses on cultural and business
process barriers rather than on subject matter barriers and functional
units, which the Company believes have less impact on improving a
client's performance.
CLIENTS
The Company's clients are typically large, well-established
manufacturing, project and service companies, or distinct business units of
such companies, in North America, Europe, and the Asia/Pacific region. Many of
the Company's clients are Fortune 1000 companies (or equivalent size non-U.S.
companies) or units thereof. The Company has implemented Total Cycle Time
programs for the following clients, among others:
<TABLE>
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DOMESTIC CLIENTS:
<S> <C>
Osram Sylvania
Overhead Door
American Microsystems Pawnee Industries
Bell Packaging Pinnacle Automation
Chief Auto Parts Polaroid
Coleman Outdoor Products Rohm and Haas
Cypress Semiconductor LSG Skychefs/Caterair
Cyprus Amax Signetics
Delco Electronics Tastemaker
Detroit Diesel Teledyne
Dresser Industries Texas Instruments
DSC Communications W.W. Grainger
Douglas Aircraft Wacker Chemtronic
Dover Western Digital
Dresser Industries
Electronic Data Systems INTERNATIONAL CLIENTS:
General Electric ABB Asea Brown Boveri
General Motors Bosch Blaupunkt
GTS Breuguet
Graphic Controls Euclid Hitachi
Gulfstream Aerospace Gemplus
Hillenbrand Industries Hilti
ITT Philco Tatuapa Radio & Televisao
Johnson Electric Philips N.V.
Moore Business Forms Schindler
Motorola SGS Thomson Microelectronics
National Semiconductor Siemens
Olivetti
</TABLE>
There can be no assurance that in the future the Company will perform
services for any of the companies listed above. In order to maintain and
increase its revenues, the Company will need to add new clients or expand
existing client relationships to include additional divisions or business units
of such clients.
In 1997, two clients, LSG Skychefs and General Motors, accounted for
an aggregate of 21% of the Company's total revenues. In 1996, three clients,
LSG Skychefs, Siemens and Moore Business Forms, accounted for an aggregate of
<PAGE> 5
35% of the Company's total revenues. In 1995, one client of the Company,
Siemens, accounted for 18% of the Company's total revenues.
SALES AND MARKETING
In addition to direct sales efforts, the Company's services are
marketed using several methods, including:
References and Referrals. The Company believes that references and
referrals from clients are among its most powerful sales tools. Even without a
direct referral, clients are frequently contacted for their evaluation of the
Company and its services. In addition, the Company believes that each Total
Cycle Time program holds the potential for added revenues by exposing the
Company and its programs to other business units, customers and suppliers of
each client.
Lectures and Publications. The Company also markets its services
through lectures and publications. Mr. Philip Thomas is the author of five
books that provide an introduction to the value of implementing Total Cycle
Time. These five books are Competitiveness Through Total Cycle Time, Getting
Competitive, Time Warrior, Quality Alone is Not Enough and Survival at Nodulex.
In addition, the Company promotes the publication in periodical and business
journals of articles about time-based management generally and Total Cycle Time
specifically. Company personnel also lecture to chambers of commerce, trade
associations, and business symposia on the subject of achieving competitiveness
through the application of Total Cycle Time.
CONTRACTUAL ARRANGEMENTS
The Company performs Total Cycle Time services for clients pursuant to
contracts generally with terms of one to three years. Clients compensate the
Company for its services in the form of fixed fees or a combination of both
fixed and incentive fees (based on client improvements achieved). The
Company's fee structure is based on a client's size, the complexity and
geographic deployment of a client's business, the level of improvement
opportunity available to a client and certain other factors.
Fixed fees are recognized as revenues monthly over the term of a
program. Incentive fees are generally based on objective measures, such as
cycle time reduction, inventory reduction, accounts receivable reduction,
profit improvement or other quantifiable objectives and are recognized as
revenues as earned under the terms of the relevant contract. Once incentive
fees are earned, they are not refunded even if client performance subsequently
declines. Factors such as a client's commitment to Total Cycle Time, general
business and economic cycles, and a client's product position in the
marketplace will affect the performance of the Company's clients, thus
affecting the Company's revenues from incentive fee compensation. In 1997 and
1996, approximately 25% and 27%, respectively, of the Company's revenues were
attributable to incentive fees.
The Company includes in its business under commitment (backlog) signed
client contracts with terms generally ranging from 18 to 24 months. Business
under commitment, excluding Information Technologies, was $56 million at
December 31, 1997.
PROFESSIONAL STAFF
The Company's staff of business professionals who apply Total Cycle
Time methodology are referred to by the Company as "Resultants." For its
Resultant work force, the Company employs individuals with significant
problem-solving and managerial skills from fields including manufacturing,
engineering and finance. The Company's Resultants typically have 15 to 20
years of business management and specific industry experience. The Company
provides computer-based, classroom, textbook and videotape training for all new
Resultants. The Company historically has experienced less than 10% voluntary
annual turnover of its Resultants, reflecting the stable nature of its
workforce. The Company provides its Resultants with the opportunity to share
in the Company's profits and achieve bonuses through results-oriented
compensation such as the Company's stock option and bonus plans.
COMPETITION
Traditional consulting firms provide services similar in some respects
to the services provided by the Company. Providers of such services include
A.T. Kearney, Inc., Boston Consulting Group, McKinsey & Co. and major national
accounting firms, as well as several small firms that primarily focus on
time-based management services. Many of the
<PAGE> 6
Company's competitors have greater personnel, financial, technical and
marketing resources than the Company, and there can be no assurance that the
Company will be able to compete successfully with its existing competitors or
with any new competitors.
The Company believes that the competitive factors most important to
its business are the unique quality of its Total Cycle Time methodology, the
quality of its professional staff, its willingness to be compensated on an
incentive basis and its reputation for achieving targeted results. The Company
believes that no significant competitors offer their clients the opportunity to
base fees on the results achieved.
The Company believes that its most significant "competitor" is the
propensity for potential clients to "self-medicate" by attempting to implement
changes in their businesses themselves, in the belief they will achieve results
comparable to those resulting from the Company's services without the
assistance of outside professionals. The Company believes that these attempts
to self-medicate may result in limited success. However, such attempts may
substantially lengthen the Company's sales cycle and may therefore limit
business opportunities for the Company.
Because the Total Cycle Time methodology is not capable of being
patented, there can be no assurance that the Company will not be subject to
competition from others using substantially similar methodologies. However,
the Company believes that its base of knowledge, experience and clients provide
it with a competitive advantage.
INTELLECTUAL PROPERTY
The Company has secured federal registration for the service marks
"Total Cycle Time," "TCT, 5 I's Process" and "Cycles of Learning." These
registrations expire from August 2002 to January 2003. The Company has filed
an application for federal service mark registration for "Resultants," "AIP
Management," "AIP's," "SalesWare," "Actions- In-Process" and "Speed Driven
Results." The Company has also made appropriate filings in several European
countries to secure protection of its marks in those countries. The Company
considers each of these service marks or trademarks to be significant to the
Company's business.
The Company's proprietary methodologies have been developed over 20
years at great expense, have required considerable effort on the part of
skilled professionals, are not generally known by persons other than clients of
the Company and are considered trade secrets. Although the Company's services
necessarily incorporate trade secrets, the Company maintains its trade secrets
in strict confidence. As part of its standard engagement, the Company grants
clients a limited license to make internal use of certain of the Company's
proprietary methodologies following completion of a program.
The Company has entered into nondisclosure and noncompete agreements
with Philip Thomas and substantially all of its employees. There can be no
assurance that such agreements will deter any employee of the Company from
disclosing confidential information to third parties or from using such
information to compete with the Company in the future.
FACILITIES
The Company's principal executive office is located in Irving, Texas,
where the Company leases approximately 25,000 square feet of office space under
a lease that expires in December 1998. The Company is currently evaluating
several alternatives for its headquarters location. However, the Company does
not anticipate any material increase in lease expense or interruption of its
business. The Company also leases space for its offices in Troy, Michigan;
Frankfurt, Germany; and Singapore. The Company believes that these facilities
are adequate for its current needs.
The Company currently leases from Philip Thomas two 30-acre tracts of
land near Baton Rouge, Louisiana, on which the CEO Center is located. The land
is leased pursuant to two 25 year leases entered into in December 1991 and
January 1994, respectively. The Company owns 10 acres of adjacent land with
improvements. These tracts of land are used for conferences, training and CEO
workshops. The annual rental on one leased property is $6,000, and the Company
has prepaid rent on this lease through the year 2016. The annual rental on the
second leased property is also $6,000 and is paid annually.
<PAGE> 7
EMPLOYEES
At February 28, 1998, the Company had a total of 336 employees,
consisting of 173 full-time Resultants, 32 software programming and customer
service employees and 100 sales and administrative employees. At February 28,
1998, the Company also retained the services of 31 Associate Resultants who
work on an as-needed basis. The Company's employees are not represented by a
labor union nor are they subject to any collective bargaining agreement. The
Company considers its employee relations to be good.
ITEM 2. PROPERTIES.
The Company's principal executive office is located in Irving, Texas.
The Company also leases space in a building adjacent to its principal executive
offices in Irving, Texas and space for its offices in Troy, Michigan; Maumee,
Ohio; Frankfurt, Germany; and Singapore. The Company currently leases 60 acres
of land near Baton Rouge, Louisiana, on which the Company's conference and
training center ("CEO Center") is located. The Company considers these
properties to be adequate for their business purposes.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to a legal action styled Creative Dimensions in
Management, Inc. v. Thomas Group, Inc., filed September 17, 1996 in the United
States District Court for the Eastern District of Pennsylvania. This matter
arises out of disputes under two agreements between the Company and Creative
Dimensions in Management, Inc. ("CDM"), a small private company with whom the
Company had an alliance. CDM has asserted various causes of action against the
Company, including fraud, misrepresentation, breach of contract and conversion.
The Company believes that CDM's claims lack merit, and has filed counterclaims
against CDM for breach of contract, breach of implied covenant of good faith
and fair dealing, fraudulent inducement, and attorney's fees. The Company is
contesting CDM's claims and is pursuing its counterclaims vigorously. The
matter is in the early stage of discovery. The plaintiff is seeking at least
$50 million in actual damages, punitive damages, an accounting, interests,
costs of suit, attorney's fees, and injunctive relief. The Company is seeking
an undetermined amount in actual damages, punitive damages, attorney's fees,
and costs of suit.
The Company has become subject to various claims and other legal matters in the
course of conducting its business. The Company believes that neither such
claims and other legal matters nor the cost of prosecuting and/or defending
such claims and other legal matters should have a material adverse effect on
the Company's consolidated results of operations, financial condition or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
<PAGE> 8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET FOR REGISTRANT'S COMMON EQUITY
The Company's Common Stock is traded on the over the counter market on
the NASDAQ National Market System under the symbol TGIS. The stock prices set
forth represent the highest and lowest sales prices per share of the Company's
Common Stock as reported by the NASDAQ National Market System. The prices
reported in the following table by the NASDAQ National Market System reflect
inter-dealer prices without retail mark-up, mark-down or commissions.
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Quarter Ended High Low
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March 31, 1996 $15.75 $12.00
June 30, 1996 $20.00 $14.13
September 30, 1996 $18.63 $14.00
December 31, 1996 $14.63 $ 7.00
March 31, 1997 $11.50 $ 6.63
June 30, 1997 $12.50 $ 7.00
September 30, 1997 $14.00 $10.50
December 31, 1997 $13.00 $10.00
</TABLE>
There is no established public market for the Company's Class B
Common Stock.
HOLDERS OF RECORD
As of February 28, 1998 there were approximately 117 holders of record
of the Company's Common Stock.
DIVIDENDS
The Company has not paid cash dividends on its Common Stock. The
Company intends to retain future earnings in order to provide funds for use in
the operation and expansion of the business, and, accordingly, does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
ITEM 6. SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.
Selected historical and pro forma financial data appearing on page 17
of the Company's 1997 Annual Report to Stockholders is herein incorporated by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's discussion and analysis of financial condition and
results of operations appearing on pages 18 through 22 of the Company's 1997
Annual Report to Stockholders is herein incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and notes thereto, together with
the report of independent certified public accountants thereon, appearing on
pages 23 through 38 of the Company's 1997 Annual Report to Stockholders, are
herein incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
<PAGE> 9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information relating to the Company's directors and nominees for
election as directors, and the information relating to executive officers of
the Company, is incorporated herein by reference from the Company's Proxy
Statement (herein so called) for its 1998 Annual Meeting of Stockholders. It
is currently anticipated that the Proxy Statement will be publicly available
and mailed to stockholders in April 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The discussion under "Executive Compensation" in the Company's Proxy
Statement for its 1998 Annual Meeting is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The discussion under "Security Ownership of Certain Beneficial Owners
and Management" in the Company's Proxy Statement for its 1998 Annual Meeting is
incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The discussion under "Certain Transactions" in the Company's Proxy
Statement for its 1998 Annual Meeting is incorporated herein by reference.
<PAGE> 10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report.
1. Financial Statements
The Consolidated Financial Statements and the Report of
Independent Certified Public Accountants thereon are included on pages
18 through 38 of the Company's 1997 Annual Report to Stockholders
included as Exhibit 13 to this Form 10-K and are incorporated herein
by reference.
2. Financial Statement Schedules
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SEQUENTIAL
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SCHEDULE DESCRIPTION PAGE NUMBER
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II. Valuation and Qualifying Accounts and Reserves. ____
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3. Exhibits
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EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
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3.1 Amended and Restated Certificate of Incorporation of the Company
filed August 13, 1993, with the State of Delaware Office of the
Secretary of State (filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference). ___
3.2 Amended and Restated By-Laws (filed as Exhibit 3.5 to the
Company's 1993 Form S-1 (File No. 33-64492) and incorporated
herein by reference). ___
4.1 Specimen Certificate evidencing Common Stock (filed as Exhibit 4.1
to the Company's 1993 Form S-1 (File No. 33-64492) and
incorporated herein by reference). ___
4.2 Form of Warrant Issued by the Company to the Representative (filed
as Exhibit 4.2 to the Company's 1993 Form S-1 (File No. 33-64492)
and incorporated herein by reference). ___
*4.3 Stonegate Securities letter agreement. ___
10.1 Registration Rights Agreement dated February 23, 1990, among the
Company, EDS, Philip R. Thomas, individually and acting in a
representative capacity (filed as Exhibit 10.7 to the Company's
1993 Form S-1 (File No. 33-64492) and incorporated herein by ___
reference).
10.2 Agreement dated July 14, 1992, by and among the Company, Philip R.
Thomas and EDS (filed as Exhibit 10.11 to the Company's 1993 Form
S-1 (File No. 33-64492) and incorporated herein by reference). ___
10.5 Employment Agreement between the Company and Alex W. Young (filed ___
as Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 (the "1993 Form 10-K") and
incorporated herein by reference). ___
10.6 Amendment to Employment Agreement between the Company and Alex W. ___
Young (filed as Exhibit 10.13 to the Company's 1993 Form 10-K and
incorporated herein by reference). ___
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<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
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10.7 Employment Agreement between the Company and Leland L. Grubb, Jr.
(filed as Exhibit 10.7 to the Company's 1996 Form 10-K and
Incorporated herein by reference). ___
10.8 Amended and Restated 1988 Stock Option Plan (filed as Exhibit
10.14 to the Company's 1993 Form S-1 (File No. 33-64492) and
incorporated herein by reference). ___
10.9 Amended and Restated 1992 Stock Option Plan. (Filed as Exhibit
10.8 to the Company's 1993 Form S-1 (File No. 33-64492) and
incorporated herein by reference). ___
10.10 401(k) Plan (filed as Exhibit 10.16 to the Company's 1993 Form S-
1 (File No. 33-64492) and incorporated herein by reference). ___
10.11 Form of Indemnification Agreement (filed as Exhibit 10.18 to the
Company's 1993 Form S-1 (File No. 33-64492) and incorporated
herein by reference). ___
10.12 First Amended and Restated Revolving Credit Loan Agreement dated
December 4, 1996 between Comerica Bank-Texas and the Company (filed ___
as Exhibit 10.12 to the Company's 1996 Form 10-k and incorporated
herein by reference).
10.13 Supplemental Registration Rights Agreement dated April 5, 1993
among the Company, Allen & Company Incorporated, EDS and Philip R.
Thomas, individually and acting in a representative capacity
(filed as Exhibit 10.22 to the Company's 1993 Form S-1 (File No.
33-64492) and incorporated herein by reference). ___
10.14 Commercial lease dated December 31, 1991 between Philip R. Thomas
and Wayne Heirtzler Thomas, as owners, and the Company, as lessee
(filed as Exhibit 10.31 to the Company's 1993 Form S-1 (File No.
33-64492) and incorporated herein by reference). ___
10.15 Amendment No. 1 to Commercial Lease between Philip R. Thomas and
Wayne Heirtzler Thomas, as owners, and the Company, as lessee,
dated February 8, 1992 (filed as Exhibit 10.32 to the Company's
1993 Form S-1 (File No. 33-64492) and incorporated herein by ___
reference).
10.16 Amendment No. 2 to Commercial Lease between Philip R. Thomas and
Wayne Heirtzler Thomas, as owners, and the Company, as lessee,
dated February 1, 1993 (filed as Exhibit 10.33 to the Company's
1993 Form S-1 (File No. 33-64492) and incorporated herein by
reference). ___
10.17 Amendment No. 3 to Commercial Lease between Philip R. Thomas and
Wayne Heirtzler Thomas, as owners, and the Company, as lessee
(filed as Exhibit 10.34 to the Company's 1993 Form S-1 (File No.
33-64492) and incorporated herein by reference). ___
10.18 Registration Rights Agreement, dated as of August 18, 1993,
between the Company and Philip R. Thomas (filed as Exhibit 10.37
to the Company's 1993 Form S-1 (File No. 33-64492) and
incorporated herein by reference). ___
*10.19 Non-Employee Director Retainer Fee Plan. ___
</TABLE>
- -------------
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
<S> <C> <C>
10.20 Commercial Lease dated February 8, 1994 between Philip R. Thomas
and Wayne Heirtzler Thomas, as owners, and the Company, as lessee
(filed as Exhibit 10.41 to the Company's registration statement on
Form S-1 (File No. 33-79418) and incorporated herein by ___
reference).
* 10.21 Employment agreement dated July 14, 1997 between the Company and ___
James E. Dykes.
* 10.22 1997 Stock Option Plan dated April 3, 1997. ___
* 10.23 Deferred Compensation Plan. ___
* 10.24 Computer Lease Agreement with Comerica Leasing Corporation. ___
* 10.25 Employment agreement dated effective January 2, 1998 and executed
March 6, 1998, as amended effective March 31, 1998 between the
Company and Philip R. Thomas. ___
* 13 1997 Annual Report to Stockholders. ___
* 21 Subsidiaries of the Company. ___
* 23 Consent of BDO Seidman, LLP. ___
24 Power of Attorney (set forth on the signature page of this Form
10-K). ___
* 27 Financial Data Schedule
* 27.396 Restated Financial Data Schedule for the three months ended March
31, 1996
* 27.696 Restated Financial Data Schedule for the three months ended June
30, 1996
* 27.996 Restated Financial Data Schedule for the three months ended September
30, 1996
* 27.1296 Restated Financial Data Schedule for the three months ended December
31, 1996
* 27.397 Restated Financial Data Schedule for the three months ended March
31, 1997
* 27.697 Restated Financial Data Schedule for the three months ended June
30, 1997
* 27.997 Restated Financial Data Schedule for the three months ended September
30, 1997
</TABLE>
----------------
* Filed herewith.
(b) Reports on Form 8-K.
Current Report on Form 8-K filed February 24, 1998
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Irving, State of Texas, on March 30, 1998.
THOMAS GROUP, INC.
By: /s/ PHILIP R. THOMAS
------------------------------------
Philip R. Thomas
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Philip R. Thomas and J. Thomas Williams, and each of them, such person's true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any and all capacities, to sign any and all amendments to this Form 10-K and to
file the same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<PAGE> 14
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Form 10-K has been signed by the following persons
on behalf of the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ PHILIP R. THOMAS
- ------------------------
Philip R. Thomas Director, Chairman of the Board and Chief Executive Officer March 31, 1998
--------------
/s/ J. THOMAS WILLIAMS
- ------------------------
J. Thomas Williams President and Chief Operating Officer March 31, 1998
--------------
/s/ JAMES E. DYKES
- ------------------------
James E. Dykes Executive Vice President of Corporate Development March 31, 1998
and Director --------------
/s/ LELAND L. GRUBB, JR.
- ------------------------
Leland L. Grubb, Jr. Vice President, Chief Financial Officer and Treasurer March 31, 1998
(Principal Financial and Accounting Officer) --------------
/s/ ALEXANDER W. YOUNG
- ------------------------
Alexander W. Young Vice President, President of Utilities Business Unit March 31, 1998
and Director --------------
/s/ JOHN T. CHAIN, JR.
- ------------------------
John T. Chain, Jr. Director March 31, 1998
--------------
/s/ RICHARD A. FREYTAG
- ------------------------
Richard A. Freytag Director March 31, 1998
--------------
</TABLE>
<PAGE> 15
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Thomas Group, Inc.
Irving, Texas
The audits referred to in our report dated March 10, 1998 relating to the
consolidated financial statements of Thomas Group, Inc., which is incorporated
in Item 8 of the Form 10-K by reference to the annual report to stockholders
for the year ended December 31, 1997 included the audits of the financial
statement schedule listed under Item 14 of this Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
Dallas, Texas
March 10, 1998
<PAGE> 16
THOMAS GROUP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED END OF
DESCRIPTION OF YEAR TO EXPENSES DEDUCTIONS YEAR
- ---------------------------------------------------------------- --------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1995
Allowance for doubtful accounts . . . . . . . $ 890 $ 245 $ 890 $ 245
Allowance for doubtful accounts, long term . . $ 1,500 $ -- $ 1,118 $ 382
December 31, 1996
Allowance for doubtful accounts . . . . . . . $ 245 $ 215 $ 154 $ 306
Allowance for doubtful accounts, long term . . $ 382 $ 182 $ -- $ 564
December 31, 1997
Allowance for doubtful accounts $ 306 $ 231 $ 196 $ 341
Allowance for doubtful accounts, long term $ 564 $ -- $ 564 $ --
</TABLE>
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company
filed August 13, 1993, with the State of Delaware Office of the
Secretary of State (filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference). ___
3.2 Amended and Restated By-Laws (filed as Exhibit 3.5 to the
Company's 1993 Form S-1 (File No. 33-64492) and incorporated
herein by reference). ___
4.1 Specimen Certificate evidencing Common Stock (filed as Exhibit 4.1
to the Company's 1993 Form S-1 (File No. 33-64492) and
incorporated herein by reference). ___
4.2 Form of Warrant Issued by the Company to the Representative (filed
as Exhibit 4.2 to the Company's 1993 Form S-1 (File No. 33-64492)
and incorporated herein by reference). ___
*4.3 Stonegate Securities letter agreement. ___
10.1 Registration Rights Agreement dated February 23, 1990, among the
Company, EDS, Philip R. Thomas, individually and acting in a
representative capacity (filed as Exhibit 10.7 to the Company's
1993 Form S-1 (File No. 33-64492) and incorporated herein by ___
reference).
10.2 Agreement dated July 14, 1992, by and among the Company, Philip R.
Thomas and EDS (filed as Exhibit 10.11 to the Company's 1993 Form
S-1 (File No. 33-64492) and incorporated herein by reference). ___
10.5 Employment Agreement between the Company and Alex W. Young (filed ___
as Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 (the "1993 Form 10-K") and
incorporated herein by reference). ___
10.6 Amendment to Employment Agreement between the Company and Alex W. ___
Young (filed as Exhibit 10.13 to the Company's 1993 Form 10-K and
incorporated herein by reference). ___
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
<S> <C> <C>
10.7 Employment Agreement between the Company and Leland L. Grubb, Jr.
(filed as Exhibit 10.7 to the Company's 1996 Form 10-K and
Incorporated herein by reference). ___
10.8 Amended and Restated 1988 Stock Option Plan (filed as Exhibit
10.14 to the Company's 1993 Form S-1 (File No. 33-64492) and
incorporated herein by reference). ___
10.9 Amended and Restated 1992 Stock Option Plan. (Filed as Exhibit
10.8 to the Company's 1993 Form S-1 (File No. 33-64492) and
incorporated herein by reference). ___
10.10 401(k) Plan (filed as Exhibit 10.16 to the Company's 1993 Form S-
1 (File No. 33-64492) and incorporated herein by reference). ___
10.11 Form of Indemnification Agreement (filed as Exhibit 10.18 to the
Company's 1993 Form S-1 (File No. 33-64492) and incorporated
herein by reference). ___
10.12 First Amended and Restated Revolving Credit Loan Agreement dated
December 4, 1996 between Comerica Bank-Texas and the Company (filed ___
as Exhibit 10.12 to the Company's 1996 Form 10-k and incorporated
herein by reference).
10.13 Supplemental Registration Rights Agreement dated April 5, 1993
among the Company, Allen & Company Incorporated, EDS and Philip R.
Thomas, individually and acting in a representative capacity
(filed as Exhibit 10.22 to the Company's 1993 Form S-1 (File No.
33-64492) and incorporated herein by reference). ___
10.14 Commercial lease dated December 31, 1991 between Philip R. Thomas
and Wayne Heirtzler Thomas, as owners, and the Company, as lessee
(filed as Exhibit 10.31 to the Company's 1993 Form S-1 (File No.
33-64492) and incorporated herein by reference). ___
10.15 Amendment No. 1 to Commercial Lease between Philip R. Thomas and
Wayne Heirtzler Thomas, as owners, and the Company, as lessee,
dated February 8, 1992 (filed as Exhibit 10.32 to the Company's
1993 Form S-1 (File No. 33-64492) and incorporated herein by ___
reference).
10.16 Amendment No. 2 to Commercial Lease between Philip R. Thomas and
Wayne Heirtzler Thomas, as owners, and the Company, as lessee,
dated February 1, 1993 (filed as Exhibit 10.33 to the Company's
1993 Form S-1 (File No. 33-64492) and incorporated herein by
reference). ___
10.17 Amendment No. 3 to Commercial Lease between Philip R. Thomas and
Wayne Heirtzler Thomas, as owners, and the Company, as lessee
(filed as Exhibit 10.34 to the Company's 1993 Form S-1 (File No.
33-64492) and incorporated herein by reference). ___
10.18 Registration Rights Agreement, dated as of August 18, 1993,
between the Company and Philip R. Thomas (filed as Exhibit 10.37
to the Company's 1993 Form S-1 (File No. 33-64492) and
incorporated herein by reference). ___
*10.19 Non-Employee Director Retainer Fee Plan. ___
</TABLE>
- -------------
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
<S> <C> <C>
10.20 Commercial Lease dated February 8, 1994 between Philip R. Thomas
and Wayne Heirtzler Thomas, as owners, and the Company, as lessee
(filed as Exhibit 10.41 to the Company's registration statement on
Form S-1 (File No. 33-79418) and incorporated herein by ___
reference).
* 10.21 Employment agreement dated July 14, 1997 between the Company and ___
James E. Dykes.
* 10.22 1997 Stock Option Plan dated April 3, 1997. ___
* 10.23 Deferred Compensation Plan. ___
* 10.24 Computer Lease Agreement with Comerica Leasing Corporation. ___
* 10.25 Employment agreement dated effective January 2, 1998 and executed
March 6, 1998, as amended effective March 31, 1998 between the
Company and Philip R. Thomas. ___
* 13 1997 Annual Report to Stockholders. ___
* 21 Subsidiaries of the Company. ___
* 23 Consent of BDO Seidman, LLP. ___
24 Power of Attorney (set forth on the signature page of this Form
10-K). ___
* 27 Financial Data Schedule
* 27.396 Restated Financial Data Schedule for the three months ended March
31, 1996
* 27.696 Restated Financial Data Schedule for the three months ended June
30, 1996
* 27.996 Restated Financial Data Schedule for the three months ended September
30, 1996
* 27.1296 Restated Financial Data Schedule for the three months ended December
31, 1996
* 27.397 Restated Financial Data Schedule for the three months ended March
31, 1997
* 27.697 Restated Financial Data Schedule for the three months ended June
30, 1997
* 27.997 Restated Financial Data Schedule for the three months ended September
30, 1997
</TABLE>
----------------
* Filed herewith.
<PAGE> 1
EXHIBIT 4.3
May 29, 1997
Thomas Group, Inc.
5215 North O'Connor Blvd.
Suite 2500
Irving, Texas 75039
Attention: Philip R. Thomas
Chairman and CEO
Gentlemen:
1. The purpose of this letter (the "Agreement") is to set forth
the terms of the engagement by Thomas Group. Inc. ("Thomas Group" or the
"Company") of Stonegate Securities, Inc. ("Stonegate") to serve as its
financial advisor and to furnish Investment Banking services to Thomas Group
with respect to:
(a) assisting the Company in locating prospective clients
for the Company's newly created emerging growth division;
(b) rendering financial advice and services preparatory
to the possible sale of equity interests in the Company,
including introducing Thomas Group to Investment Banking firms
in order to identify potential Investment Bankers for Thomas
Group's acquisition strategy or capital needs, as the case may
be;
(c) evaluating potential acquisitions by the Company with
respect to other consulting or software companies; and
(d) evaluating strategic alternatives available to the
Company, including evaluating the capital structure of the
Company.
<PAGE> 2
Thomas Group, Inc.
May 29, 1997
Page 2
2. The Company represents that all information provided to
Stonegate in connection with the services to be performed under this Agreement
will be complete and correct in all material respects and will not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading (the "Information").
The Company agrees to advise Stonegate immediately of the occurrence of any
event or any other change known to the Company that results in any of the
Information containing an untrue statement of a material fact or omitting to
state any material fact necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
3. If, in the course of such services, Stonegate advises the
Company in connection with any financial transaction or any sale, merger or
acquisition, Stonegate shall be separately compensated for such services
pursuant to a separate agreement and will receive fees that are customary for
any such transaction. The Company recognizes that Stonegate has followed, and
may continue to follow the Company's stock and, from time to time, Stonegate
may issue research reports concerning the Company and its stock. It is
understood between the Company and Stonegate that such reports are not issued
on behalf, or with the authorization, of the Company and Stonegate shall have
sole responsibility for their content. Neither the Company, nor its officers,
directors, employees or affiliates, shall have any responsibility for any
information contained in such reports or other information disseminated by
Stonegate concerning the Company, regardless of whether or not the Company
reviews or comments upon such reports or information.
4. The term of Stonegate's engagement shall be for the
twenty-four-month period from the date of this Agreement (the ?Initial Term?)
and may be extended beyond the Initial Term by mutual written consent.
Notwithstanding the foregoing, the Company may terminate this Agreement with or
without cause at any time upon delivery to Stonegate of written notice thereof,
except for the provisions set forth in paragraphs 2, 6 and 7, which provisions
shall survive the termination of this Agreement.
5. For providing financial advisory and investment banking
services, the Company agrees to grant Stonegate warrants (the ?Warrants?) to
purchase an aggregate of 50,000 shares of the Company?s common stock at an
exercise price of $11.25 per share. Twenty five thousand (25,000) of the
Warrants shall vest immediately upon execution of this Agreement and shall be
immediately exercisable and 25,000 of the Warrants shall, at the sole
discretion of the Company's management with respect to Stonegate's performance
of the items discussed in paragraph 1 (a) through (d) above, vest on the first
anniversary of the date of this Agreement and shall become immediately
exercisable. It is understood that the second 25,000 Warrants
<PAGE> 3
Thomas Group, Inc.
May 29, 1997
Page 3
shall vest immediately on the first anniversary of the date of this Agreement
unless the Company notifies Stonegate in writing to the contrary. Any and all
Warrants issued under the terms of this Agreement shall be issued to the
following entities and in the following sharing ratio: 75% of the Warrants
shall be issued to SRG & Associates, Ltd. and 25% of the Warrants shall be
issued to Lyon Securities, Inc. All vested Warrants shall be exercisable in
accordance with their terms regardless of any termination of this Agreement.
Vested Warrants shall be exercisable for five years from the date of vesting.
The agreement evidencing the Warrants shall contain customary terms and
conditions, including, without limitation, anti-dilution provisions. In
addition, the Company shall grant Stonegate customary ?piggy-back? registration
rights with respect to the shares of common stock underlying the Warrants.
6. If in connection with any services or matters that are the
subject of or arise out of this Agreement or Stonegate's engagement hereunder,
Stonegate becomes involved (whether or not as a name party) in any action,
claim or legal proceeding (including any governmental inquiry or investigation
and including, but not limited to, actions, claims or legal proceedings arising
out of or based upon any breach by the Company of any agreement or
representation or warranty of the Company contained herein, or any untrue
statement or alleged untrue statement of a material fact by the Company in any
release or communication to an offeree of the securities or an omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements contained therein, not misleading), the
Company agrees, to the extent permitted by applicable law, to indemnify and
hold Stonegate harmless against any losses, claims, damages or liabilities,
joint or several, as they are incurred, to which Stonegate may become subject
in connection therewith, provided that Stonegate promptly notifies the Company
of any such action, claim or legal proceeding and provides the Company with an
opportunity to defend against or settle such matter with counsel of its choice,
and provided further that the Company shall not be liable under the indemnity
provisions hereof in respect of any loss, claim, damage or liability pertaining
to this engagement to the extent that such loss, claim, damage or liability
resulted from Stonegate's negligence, bad faith, willful misconduct or
violation of any law, rule or regulation. The foregoing agreements shall apply
to any modification of Stonegate's engagement, and shall remain in full force
and effect following the completion or termination of Stonegate's engagement
and the sale of any securities and shall be in addition to any rights that
Stonegate may have at common law or otherwise. The foregoing agreements in this
paragraph shall, upon the same terms and conditions, extend to and inure to the
benefit of each person, if any, who may be deemed to control Stonegate and to
each of Stonegate's and each such person's respective affiliates, directors,
officers, employees and agents.
<PAGE> 4
Thomas Group, Inc.
May 29, 1997
Page 4
7. Stonegate agrees to indemnify and hold the Company, each
person, if any, who may be deemed to control the Company and to each of the
Company's and each such person's respective affiliates, directors, officers,
employees and agents harmless against any losses, claims, damages, joint or
several, that resulted from Stonegate's gross negligence, bad faith, willful
misconduct or violation of any law, rule or regulation or breach of this
Agreement.
8. This Agreement may not be amended or modified except in
writing and shall be governed by and construed in accordance with the laws of
the State of Texas and all obligations shall be performed in Dallas County,
Texas.
If the foregoing is in accordance with your understanding of the terms
of our engagement, please confirm your agreement by signing and returning the
enclosed copy of this Agreement to the undersigned effective as of the date
first above written.
Very truly yours,
STONEGATE SECURITIES, INC.
By:
--------------------------
E.B. Lyon III, President
Confirmed and agreed to:
THOMAS GROUP, INC.
By:
---------------------------------
Philip R. Thomas
Chairman and
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.19
THOMAS GROUP, INC.
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR RETAINER FEE PLAN
1. Purpose. The purpose of this Amended and Restated
Non-Employee Director Retainer Fee Plan (the "Plan") is to provide non-employee
directors of Thomas Group, Inc., a Delaware corporation (the "Corporation"),
with a retainer fee plan, consisting of cash, shares of the Corporation's
common stock, $.01 par value per share ("Common Stock"), and options to
purchase shares of Common Stock which will:
(a) provide a means by which the Corporation may attract
able persons to serve as non-employee directors of the Corporation;
(b) increase the interest of non-employee directors in
the Corporation's welfare; and
(c) furnish an incentive to non-employee directors to
continue their services for the Corporation and to reward them for
their services in a manner that will suitably recognize the value of
their judgment, counsel and expertise.
2. Administration. The Plan shall be administered by the Board
of Directors of the Corporation ("Board") or a committee thereof ("Committee").
Except as otherwise provided by the Board in written directions to the
Committee, the Committee shall have all of the powers with respect to the Plan.
Any member of the Committee (or all members in the event the Board elects to
assume direct responsibility for administration of the Plan) may be removed at
any time, with or without cause, by resolution of the Board. Any vacancy
occurring in the membership of the Committee may be filled by appointment of
the Board.
The Committee shall select one of its members to act as its Chairman,
and shall make such rules and regulations for its operation as it deems
appropriate. A majority of the Committee shall constitute a quorum and the act
of a majority of the members of the Committee present at a meeting at which a
quorum is present shall be the act of the Committee.
3. Participants. Only directors who are not employees of the
Corporation shall be eligible to participate in the Plan.
4. Common Stock Subject to Plan. The Board may not grant more
than 120,000 shares of Common Stock under the Plan, in the aggregate (subject
to adjustment in accordance with Section 7). Options granted hereunder shall
be granted pursuant to the Corporation's 1992 Stock Option Plan (the "1992
Plan"), and shall be subject to all limitations of such plan, including the
aggregate number of options which may be granted. Shares available to be
granted under this Plan may be made available from either authorized but
unissued Common Stock or Common Stock held by the Corporation in its treasury.
<PAGE> 2
5. Grants. Each non-employee director of the Board is entitled
to receive, and shall be paid, a retainer fee pursuant to the formula described
below. The grant of a stock option shall be evidenced by a stock option
agreement containing such terms and provisions as are approved by the Board,
but not inconsistent with this Plan and the 1992 Plan.
Each non-employee director in the Plan shall be paid his or her
retainer fee in the following manner:
(i) Upon election or appointment to the Board, each non-employee
director shall receive nine thousand (9,000) options to purchase Common Stock.
All options granted hereunder shall be for a period of five years, with
standard vesting.
(ii) A cash fee of $25,000 per year will be paid to each
non-employee director in four equal installments. Each installment will be
paid in cash within 15 days after the end of a fiscal quarter.
(iii) Common Stock having an aggregate value of $25,000 (at the
time of grant) will be granted to each non- employee director in four equal
installments. Each installment will be granted effective as of the last
business day of a fiscal quarter.
(iv) The computation of amounts to be paid pursuant to this
Section shall be adjusted for service by a non-employee director during a
partial fiscal quarter or partial fiscal year, as applicable, by computing the
amount due hereunder for the applicable fiscal period and multiplying such
result by the ratio of (a) the number of days of such partial fiscal quarter or
partial fiscal year, as applicable, that the particular non-employee director
was a director and that this Plan was in effect for such director during such
period to (b) the number of days in the complete fiscal quarter or year, as
applicable.
6. Common Stock Price on Date of Grant. The exercise price of
options granted hereunder shall be 100% of the fair market value of the Common
Stock on the date of grant. For the purposes hereof, the fair market value of
the Common Stock on the date of grant shall be the average of the high and low
prices of the Common Stock on the principal national securities exchange on
which the Common Stock is listed, or if not so listed, the average of the high
and low prices of the Common stock on such date on the NASDAQ National Market
System, or if not so quoted, the average of the bid and asked prices of the
Common Stock on such date in such other market in which shares of Common Stock
are regularly quoted, or if not so quoted, as established by the Board on such
date.
7. Capital Adjustments. The aggregate number of shares of Common
stock which may be granted under the Plan shall be proportionately adjusted to
reflect any stock dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, reorganization, liquidation, or the
like, of or by the Corporation. Any fractional shares resulting from any such
adjustment shall be eliminated for the purposes of such adjustment.
- 2 -
<PAGE> 3
8. Non-Assignability. An option granted to a participant may not be
transferred other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. Except as described in the preceding
sentence, during a participant's lifetime, options granted to a participant may
be exercised only by a participant.
9. Interpretation. The Board shall interpret the Plan and shall
prescribe such rules in connection with the operation of the Plan as it
determines to be advisable for the administration of the Plan. The Board may
rescind and amend its rules.
10. Amendment and Termination of the Plan. The Board may at any
time suspend or terminate this Plan. The Board may also at any time amend or
revise the terms of this Plan, provided that, without further approval thereof
by the vote or written consent of the holders of a majority of the
Corporation's outstanding Common Stock, no such amendment or revision shall
(except as otherwise permitted under the provisions of Section 7): (a)
increase the maximum number of shares in the aggregate which may be granted
pursuant to Section 4 of the Plan; (b) materially increase the benefits
accruing to participants under Section 5 of the Plan; (c) change the exercise
price set forth in Section 6 hereof; (d) increase the maximum term of the
options provided for in Section 5 hereof; or (e) modify the class of persons
eligible to receive compensation pursuant to the Plan.
The provisions of Section 3, 5 and 6 of this Plan may not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the
rules thereunder.
11. Effect of the Plan. Neither the adoption of this Plan nor any
action of the Board shall be deemed to give any participant any right to
continue to serve as a director of the Corporation.
12. Investment Intent. The Corporation may require that there be
presented to and filed with it by any participant under the Plan, such evidence
as it may deem necessary to establish that the options granted or shares of
Common Stock granted or to be purchased pursuant to this Plan are being
acquired for investment purposes and not with a view to their distribution.
13. Term. Unless sooner terminated by action of the Board, this
Plan will terminate on August 9, 2003.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
executed as of March 9, 1995 by its Chief Executive Officer and Secretary
pursuant to authorization of its Board of Directors.
By:
-----------------------------------
Philip R. Thomas
Chief Executive Officer
Attest:
- ---------------------------
Alex W. Young, Secretary
- 4 -
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of July
15, 1997, by and between THOMAS GROUP, INC., a Delaware corporation ("Thomas
Group") and JAMES E. DYKES, an individual residing in Florida ("Employee").
RECITALS
WHEREAS, Employee is the Executive Vice President Corporate Development of
Thomas Group and an integral part of its management who participates in the
decision-making process relative to short and long-term planning and policy for
Thomas Group; and
WHEREAS, Thomas Group has determined that it would be in the best interests of
Thomas Group and its stockholders to assure continuity in the management of
Thomas Group's operations by entering into an employment agreement to retain
the services of Employee; and
WHEREAS, Thomas Group wishes to assure itself of the continued services of
Employee for the period hereinafter provided, and Employee is willing to be
employed by Thomas Group for said period, upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the obligations undertaken
by the parties pursuant hereto and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Thomas Group and
Employee agree as follows:
1. Definitions. The defined terms used in this Agreement shall have
the meanings ascribed to them in this Section 1.
1.1 Affiliate. "Affiliate" shall mean any corporation over which
Employee or Thomas Group, as the case may be, can exercise effective management
and control.
1.2 Board of Directors. "Board" or the "Board of Directors" shall
mean the Board of Directors of Thomas Group or any committee of the Board
empowered to act or make decisions or determinations with respect to this
Agreement.
1.3 Cause. "Cause" shall mean that, as determined in good faith by
the Board of Directors, Employee has engaged in any act of gross misconduct
which is materially injurious to Thomas Group or its business.
1.4 Change in Control. "Change in Control" shall mean:
(a) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person" which, for purposes of this
definition, excludes Employee or any of his Affiliates) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
<PAGE> 2
shares of common stock or other securities of Thomas Group resulting in the
beneficial ownership by such individual, entity or group of 40% or more of
either (1) the then-outstanding shares of common stock of Thomas Group (the
"Outstanding Thomas Group Common Stock") or (2) the combined voting power of
the then-outstanding voting securities of Thomas Group entitled to vote
generally in the election of directors (the "Outstanding Thomas Group Voting
Securities"); or
(b) if individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute more than
fifty percent of the members of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election or
nomination for election by Thomas Group's stockholders was approved by a vote
of at least two-thirds of the directors then constituting the Incumbent Board,
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest subject to Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(c) approval by the stockholders of Thomas Group of a
reorganization, merger or consolidation unless following such reorganization,
merger or consolidation (1) more than 40% of, respectively, the
then-outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation (the "Outstanding Survivor Common
Stock"), and the combined voting power of the then-outstanding voting
securities of such corporation entitled to vote generally in the election of
directors (the "Outstanding Survivor Voting Securities"), is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Thomas Group Common Stock and Outstanding Thomas Group Voting Securities
immediately prior to such reorganization, merger or consolidation in
substantially the same proportions as their ownership immediately prior to such
reorganization, merger or consolidation, of the Outstanding Thomas Group Common
Stock and Outstanding Thomas Group Voting Securities, as the case may be (for
purposes of determining whether such percentage test is satisfied, there shall
be excluded from the number of shares of Outstanding Survivor Common Stock and
Outstanding Survivor Voting Securities owned by Thomas Group's stockholders,
but not from the total number of shares of Outstanding Survivor Common Stock
and Outstanding Survivor Voting Securities, any shares or voting securities
received by any such stockholder in respect of any consideration other than
shares or voting securities of Thomas Group), (2) no Person (excluding Thomas
Group, any employee benefit plan (or related trust) of Thomas Group, any
qualified employee benefit plan of such Surviving Corporation and any Person
beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 40% or more of the Outstanding Thomas
Group Common Stock or Outstanding Thomas Group Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 40% or more of,
respectively, the shares of Outstanding Survivor Common Stock or the
Outstanding Survivor Voting Securities, and (3) more than 50% of the members of
the board of directors of the Surviving Corporation were members of the
Incumbent Board at the time of the execution of the initial agreement providing
for such reorganization, merger or consolidation; or
-2-
<PAGE> 3
(d) (1) approval by the stockholders of Thomas Group of a
complete liquidation or dissolution of Thomas Group or (2) the first to occur
of (i) the sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of Thomas Group, or
(ii) the approval by the stockholders of Thomas Group of any such sale or
disposition, other than, in each case, any such sale or disposition to a
corporation with respect to which immediately thereafter (x) more than 40% of,
respectively, the shares of Outstanding Survivor Common Stock and the
Outstanding Survivor Voting Securities is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Thomas Group
Common Stock and Outstanding Thomas Group Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition of the
Outstanding Thomas Group Common Stock and Outstanding Thomas Group Voting
Securities, as the case may be (for purposes of determining whether such
percentage test is satisfied, there shall be excluded from the number of shares
of Outstanding Survivor Common Stock and Outstanding Survivor Voting Securities
owned by Thomas Group's stockholders, but not from the total number of shares
of Outstanding Survivor Common Stock and Outstanding Survivor Voting Securities
of the surviving corporation, any shares or voting securities received by any
such stockholder in respect of any consideration other than shares or voting
securities of Thomas Group), (y) no Person (excluding Thomas Group and any
employee benefit plan (or related trust) of Thomas Group, any qualified
employee benefit plan of such transferee corporation and any Person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 40% or more of the Outstanding Thomas Group Common
Stock or Outstanding Thomas Group Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 40% or more of, respectively, the
shares of Outstanding Survivor Common Stock and the Outstanding Survivor Voting
Securities and (z) more than 50% of the members of the board of directors of
the surviving corporation were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the board providing for
such sale or other disposition of assets of Thomas Group.
1.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.6 Common Stock. "Common Stock" shall mean the common stock of
Thomas Group, par value $.01 per share.
1.7 Disability. "Disability" shall mean the inability of Employee to
perform his material managerial duties and responsibilities as contemplated
under Section 3 during the Term of Employment, as determined in accordance with
Section 6.1(e).
1.8 Term of Employment. "Term of Employment" shall mean the period
of time commencing on the effective date of this Agreement and continuing until
the third anniversary date of this Agreement; provided, however, that Employee
and Thomas Group can agree, in writing, to extend the Term of Employment for an
additional five years, unless terminated earlier pursuant to the terms hereof.
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<PAGE> 4
2. Termination of Prior Agreements. Thomas Group and Employee
hereby acknowledge and agree that this Agreement supersedes any prior
agreements.
3. Employment. Thomas Group employs Employee and Employee
accepts employment by Thomas Group as Executive Vice President Corporate
Development of Thomas Group for the Term of Employment on the terms and
conditions and for the compensation hereinafter set forth. Subject to the
authority of the Board of Directors, Employee shall be responsible for
Corporate Development management of the business and affairs of Thomas Group in
the ordinary course of its business with all such powers with respect to such
Corporate Development management and control as may be reasonably incident to
such responsibilities as its Executive Vice President Corporate Development,
with all of the rights, powers and decision-making discretion appertaining
thereto. Employee shall devote his full time and effort to the discharge of
his duties as Thomas Group's Executive Vice President Corporate Development.
4. Compensation and Benefits During the Term of Employment.
4.1 Base Compensation. Employee shall receive base
compensation ("Base Compensation") in the amount determined by the Compensation
and Stock Option Committee of the Board of Directors (the "Compensation
Committee"). The amount of Employee's Base Compensation shall initially be
$330,000.00 annually and shall be reviewed and adjusted as appropriate at least
annually by the Compensation Committee. Base Compensation shall be paid in
equal monthly installments by Thomas Group to Employee.
4.2 Incentive Compensation Arrangement.
(a) In further consideration of Employee's
performance of services under Section 3 hereof, Thomas Group agrees to
compensate Employee under the incentive compensation arrangement ("Incentive
Compensation") set forth in Section 4.2(b). Except as specifically provided
herein, the computation of annual incentive compensation will be based upon the
audited financial results of Thomas Group.
(b) (1) General. Employee's Incentive
Compensation is initially based upon 16.5% (the "Entitled Percent") of the
dollar value derived from a formula sharing ratio of Thomas Group's revenues.
The sharing ratio is based upon Thomas Group's percentage increase in
cumulative income before tax and incentive compensation ("IBTIC") for the
current fiscal year compared to Thomas Group's cumulative IBTIC for the prior
fiscal year, and upon certain targeted levels of Thomas Group's IBTIC. For
purposes of determining IBTIC, Incentive Compensation includes CEO Incentive
Compensation. The Compensation Committee may review the percent stated above
from time to time and make appropriate changes.
(2) Incentive Compensation Calculation.
The formula for determining incentive compensation is as follows: Incentive
Compensation equals the product of Thomas Group revenues for the applicable
fiscal year multiplied by the income growth sharing ratio expressed as a
percentage ("IGSR") for the fiscal year, the result multiplied by the Entitled
Percent. The ISGR is determined with reference to the following table:
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<PAGE> 5
INCOME GROWTH SHARING RATIO
<TABLE>
<CAPTION>
Income Before Tax and
Incentive Compensation Less
as a % of Revenues than 5%* 5%-9.99%* 10%-14.99%* 15%-24.99%* Over 25%*
----------------------- -------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
0 - 8.99% 0 0 0 .2% .3%
9.00% - 14.99% .3% .4% .5% .6% .7%
15.00% - 19.25% .5% .6% .8% 1.0% 1.2%
Over 19.25% .8% 1.0% 1.3% 1.6% 1.8%
</TABLE>
*IBTIC Growth Rate
ISGR is determined by first determining the IBTIC as a percent of revenue for
the current fiscal year and then entering the table along that line until the
appropriate IBTIC Growth Rate is reached; the ISGR is shown at that
intersection in the table.
For purposes of this table, IBTIC Growth Rate for each applicable fiscal year
is derived from the following formula:
IBTIC [Current Fiscal Year]
--------------------------- minus 1 x 100
IBTIC [Prior Fiscal Year]
In the event that either the IBTIC Growth Rate or the IBTIC, as
computed above, is zero or negative for a particular fiscal year, it shall be
treated as zero for purposes of the foregoing computation for such year.
(3) If Incentive Compensation, as
calculated in accordance with Section 4.2(b) hereof, exceeds 55 percent of Base
Compensation in a fiscal year, the excess of Incentive Compensation, as
calculated, over 55 percent of Base Compensation will not be paid to Employee
but will be used to calculate the award of a stock option to Employee. The
number of shares to be awarded under such option is determined using the
following formula:
Excess Incentive Compensation
N = -------------------------------
P
Where:
N = Number of shares subject to such option
P = Market price of the Company's stock on the date of award
Excess Incentive Compensation = Excess of Incentive Compensation as calculated
minus 55 percent of base compensation in a fiscal year.
-5-
<PAGE> 6
Options granted hereunder shall be granted pursuant to the
Corporation's 1992 Stock Option Plan and shall be subject to all limitations of
such plan, including the aggregate number of options which may be granted.
Options granted pursuant to this Section 4.2(b)(3) shall contain an option
price equal to the market price (average of the day's high and low prices) on
the date of award, shall be fully vested, and shall expire 10 years following
date of grant. This stock option award shall not preclude the Board of
Directors from granting additional options to Employee as it deems appropriate.
Options granted pursuant to this Agreement shall be administered by the
Compensation Committee.
(4) Partial Fiscal Years. The
computations set forth in Section 4.2(b)(2) above shall be adjusted to take
into account eligibility for partial fiscal years by computing them based upon
the entire fiscal year and multiplying these results by the ratio of the number
of days of such partial fiscal year to the number of days in the complete
fiscal year.
(5) (i) Payments. Thomas Group
shall pay the Incentive Compensation to Employee on or before the fifteen (15)
days after the completion of the audit of Thomas Group's financial statements
by Thomas Group's certified public accountants.
(ii) Eligibility Under Other Plans.
Employee's eligibility for bonuses or incentive compensation payments under
plans in effect prior to effectiveness of this Agreement shall terminate upon
the effectiveness of this Agreement.
4.3 Travel Costs. Thomas Group shall reimburse Employee
for all travel costs incurred by Employee in connection with Thomas Group's
business, together with all other business expenses of Employee in performing
his duties hereunder, consistent with Thomas Group's past practices.
4.4 Automobile Expenses. Thomas Group shall provide
automobile transportation to employee for Employee's use in connection with
Thomas Group's business, consistent with Thomas Group's past practices.
4.5 Pension and Insurance Benefit Plan Participation; No
Other Bonus Plan Participation. Employee shall be entitled to participate in
Thomas Group's 401(k) plan, subject to the terms and conditions of such plans.
Thomas Group also shall provide medical, disability and life insurance coverage
to Employee on the terms and conditions of each of the plans Thomas Group
maintains with respect thereto. In addition, Thomas Group shall continue to
pay premiums on all insurance policies on Employee's life which name either
Thomas Group or Thomas Group's creditors as beneficiary. Employee shall not be
entitled to participate in any other bonus arrangement instituted from time to
time by Thomas Group, unless approved in advance by the Board.
4.6 First Year Living Allowance. Actual expenses, not to
exceed $100,000 will be paid by Thomas Group to Employee to live within a short
distance of the Las Colinas office.
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<PAGE> 7
5. Term of the Agreement. The term of this Agreement, unless
terminated sooner pursuant to Section 5, shall be for the Term of Employment.
6. Termination; Disability; Death, Change in Control.
6.1 Basis. Employee's employment under this Agreement
may be terminated as described in this Section 6.1. In the event that
Employee's employment is terminated in accordance with this Section 6.1,
Employee shall be entitled to receive the benefits described in Section 6.2
that correspond with the manner of such termination.
(a) Termination Without Cause. Thomas Group may
terminate Employee's employment hereunder without Cause, as determined in the
good faith judgment of the Board of Directors, by written notice to Employee to
that effect. Unless otherwise specified in the notice, such termination shall
be effective immediately.
(b) Termination With Cause. Thomas Group may
terminate the employment of Employee hereunder for Cause by written notice to
Employee to that effect. Unless otherwise specified in the notice, such
termination shall be effective immediately.
(c) Left Blank Intentionally
(d) Without Good Reason. Employee may
voluntarily terminate his employment hereunder without Good Reason upon 360
days written notice to Thomas Group to that effect.
(e) Disability. Employee or Thomas Group may
terminate Employee's employment by reason of Disability upon written notice to
the other party to that effect. If the parties hereto are unable to agree as
to the existence of Disability or as to the date of commencement of Disability,
each of Employee and Thomas Group shall select a physician licensed to practice
medicine in the United States and the determination as to any such question
shall be made by such physicians; provided, however, that if such two
physicians are unable to agree, they shall mutually select a third physician
licensed to practice medicine in the United States and the determination as to
any such question shall be made by a majority of such physicians. Any
determination made by physicians in accordance with the provisions of the
immediately foregoing sentence shall be final and binding on the parties
hereto. Employee agrees to submit to any and all reasonable medical
examinations or procedures and to execute and deliver any and all consents to
release of medical information and records or otherwise as shall be reasonably
required by any of the physicians selected in accordance with this Section
6.1(e). Unless otherwise specified in the notice, such termination shall be
effective immediately.
(f) Death. This Employment Agreement shall
automatically terminate as of the date of Employee's death during the Term of
Employment.
(g) Change in Control. If a Change in Control
occurs during the Term of Employment, Thomas Group shall promptly give written
notice to Employee thereof. Following
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<PAGE> 8
a Change in Control, Employee shall be employment is terminated sooner by Thomas
Group as set forth in Section 6.1(h). In the event that Employee decides to
resign or otherwise voluntarily terminate his employment following the
occurrence of a Change in Control, Employee may do so by giving written notice
to Thomas Group to that effect on or before 180 days after the occurrence of the
Change in Control, which notice shall be effective on the later to occur of (i)
180 days after the occurrence of the Change in Control or (ii) 90 days after the
date of such notice. If Employee does not give such notice to Thomas Group,
this Agreement will remain in effect; provided, however, that the failure of
Employee to terminate this Agreement following the occurrence of a Change in
Control shall not be deemed a waiver of Employee's right to terminate his
employment upon a subsequent occurrence of a Change in Control in accordance
with the terms of this subsection.
(h) Notwithstanding that Employee has given
notice of termination pursuant to subsections (d) or (g) of this Section 6.1,
Thomas Group may, in its sole discretion, thereafter require Employee to
terminate his employment prior to the expiration of the applicable notice
period.
6.2 Benefits Upon Termination. Employee shall receive
the benefits described in the subsection below that corresponds with the manner
of termination of Employee's employment under Section 6.1.
(a) Without Cause. In the event Thomas Group
terminates Employee's employment hereunder without Cause during the Term of
Employment, Employee shall be entitled to the payments and benefits set forth
on Exhibit I.
(b) With Cause. In the event Employee's
employment is terminated with Cause, no further payments or benefits shall be
paid or provided by Thomas Group to Employee hereunder except for reimbursement
for expenses incurred prior to the date of termination, or the payment of
Incentive Compensation that has become due and payable to Employee on or before
the date of such termination under Section 4.2 hereof. In addition, Employee
shall be entitled to exercise any vested but unexercised stock options for a
period of 90 days following the effective date of the termination of Employee
for Cause, and if any such options remain unexercised upon the expiration of
such 90-day period, they shall be determined forfeited by Employee and have no
further force and effect.
(c) Good Reason. In the event Employee
terminates his employment for Good Reason during the Term of Employment,
Employee shall be entitled to the payments and benefits set forth on Exhibit I.
(d) Without Good Reason. In the event Employee
terminates his employment without Good Reason pursuant to Section 6.1(d)
hereof, Employee shall be entitled to the benefits or payments provided for in
Section 6.2(b) hereof.
-8-
<PAGE> 9
(e) Disability. In the event that Employee's
employment is terminated by reason of Disability, Employee shall be entitled to
the payments and benefits set forth on Exhibit I.
(f) Death. In the event Employee's employment is
terminated by reason of his death, Thomas Group shall not be required to make
any payments or provide any benefits hereunder, except for (a) reimbursement
for expenses incurred prior to such termination date, (b) payment of Incentive
Compensation through such termination date as provided in Section 4.2, (c) the
use by Thomas Group of its best efforts to remove any guaranties by Employee of
indebtedness of Thomas Group, and (d) payment of premiums to continue the
medical and dental insurance coverage on Employee's spouse as in effect at and
as of the date of Employee's death for the remainder of spouse's life, if
available; provided, however, that nothing contained herein shall limit or
diminish any rights of Employee's estate or any other person to payments under
any life insurance policy maintained by Thomas Group for the benefit of
Employee or his beneficiaries or any health, disability, pension or other
benefit plan provided pursuant to Section 4.7, in each case in accordance with
the terms thereof. If Employee's employment is terminated by reason of his
death, the benefits provided under this Section 6.2(f) shall be paid to the
beneficiary or beneficiaries designated in writing by Employee and delivered
during Employee's lifetime to an officer of Thomas Group; however, if no such
beneficiary designation is made by Employee during his lifetime, the benefits
hereunder shall be paid to his estate. In addition, Employee's estate shall be
entitled to exercise any vested but unexercised stock options for a period of
180 days following the date of Employee's death, and if any such options remain
unexercised upon the expiration of such 180-day period, they shall be
determined forfeited by Employee's estate and have no further force and effect.
(g) Change in Control. In the event Employee
terminates his employment as provided in Section 6.1(g) following the
occurrence of a Change in Control, Employee shall be entitled to the payments
and benefits provided in Exhibit I.
7. Non-Competition, Non-Solicitation, and Confidentiality
Covenants.
7.1 Non-competition Covenant.
(a) In consideration for the execution of this
Agreement by Thomas Group and the payments for services to be rendered by
Employee hereunder, Employee agrees that during the Term of Employment and, in
the case of a termination Without Good Reason or for Cause, for a period of
three years after the date of such termination, Employee shall not engage in
competition with Thomas Group in any manner or capacity (e.g., as an advisor,
principal, agent, partner, officer, director, shareholder, employee, member of
any association or otherwise) that materially adversely affects Thomas Group,
including without limitation, rendering time based management counseling
services, soliciting customers of Thomas Group for any competitor of Thomas
Group, or soliciting any employee of Thomas Group to leave the employ of Thomas
Group to work for or on behalf of any competitor of Thomas Group (the
"Prohibited Activities"). Employee further agrees that, during the Term of
Employment, and, in the case of a termination
-9-
<PAGE> 10
Without Good Reason or for Cause, for a period of three years after the date of
such termination, Employee will not assist or encourage any other person in
carrying out any activity that would be one of the Prohibited Activities if such
activity were carried out by Employee and, in particular, Employee agrees that
he will not induce any employee of Thomas Group to carry out any such activity.
(b) The obligations of Employee under this
Section 7.1 shall apply to any geographic area in which Thomas Group is
operating. In addition to the exclusion from Prohibited Activities set forth
in Section 7.1(a) hereof, ownership by Employee, as a passive investment, of
less than 5% of the outstanding shares of capital stock of any corporation
listed on a national securities exchange or publicly traded in the
over-the-counter market shall not constitute a breach of this Section 7.1.
7.2 Right to Work Product and Confidentiality.
(a) Thomas Group and Employee each acknowledge
that performance of this Agreement may result in the discovery, creation or
development of inventions, combinations, methods, formulae, techniques,
processes, improvements, software designs, computer programs, strategies,
specific computer-related know-how, course materials, seminar materials,
computer models, customer lists, data and original works of authorship
(collectively, the "Work Product"). Employee agrees that Employee will
promptly and fully disclose to Thomas Group any and all Work Product generated,
conceived, reduced to practice or learned by Employee, either solely or jointly
with others, during the Term of Employment, which in any way relates to the
business of Thomas Group. Employee further agrees that neither Employee, nor
any party claiming through Employee will, other than in the performance of this
Agreement, make use of or disclose to others any proprietary information
relating to the Work Product.
(b) Employee agrees that, whether or not the
services performed by Employee hereunder are considered works made for hire or
an employment to invent, all Work Product discovered, created or developed
under this Agreement shall be and remain the sole property of Thomas Group and
its assigns. Except as specifically set forth in writing and signed by both
Thomas Group and Employee, Employee agrees that Thomas Group shall have all
copyright and patent rights with respect to any Work Product discovered,
created, or developed under this Agreement without regard to the origin of the
Work Product.
(c) If and to the extent that Employee may, under
applicable law, be entitled to claim any ownership interest in the Work
Product, Employee hereby transfers, grants, conveys, assigns and relinquishes
exclusively to Thomas Group any and all right, title and interest it now has or
may hereafter acquire in and to the Work Product under patent, copyright, trade
secret and trademark law in perpetuity or for the longest period otherwise
permitted by law. Employee further agrees, as to the Work Product, to assist
Thomas Group in every reasonable way to obtain and, from time to time, enforce
patents, copyrights, trade secrets and other rights and protection relating to
said Work Product, and to that end, Employee will execute all documents for use
in applying for and obtaining such patents, copyrights, trade secrets and other
rights and protection with respect to such Work Product as Thomas Group may
desire, together with any assignments
-10-
<PAGE> 11
thereof to Thomas Group or persons designated by it. Employee's obligations to
assist Thomas Group in obtaining and enforcing patents, copyrights, trade
secrets and other rights and protection relating to the Work Product shall
continue beyond the Term of Employment.
(d) If and to the extent that any preexisting
rights of Employee are embodied or reflected in the Work Product, Employee
hereby grants to Thomas Group the irrevocable, perpetual, non-exclusive,
worldwide, royalty-free right and license to (i) use, execute, reproduce,
display, perform and distribute copies of and prepare derivative works based
upon such preexisting rights and any derivative works thereof and (ii)
authorize others to do any or all of the foregoing.
(e) Employee acknowledges that much, if not all,
of the material and information related to the products, consulting techniques,
or other business affairs of Thomas Group and its Affiliates, including,
without limitation, any and all Work Product discovered or created pursuant to
this Agreement, and the business affairs of Thomas Group's clients and
customers which have or will come into Employee's possession or knowledge in
connection with the performance of this Agreement, consists of confidential and
proprietary data of Thomas Group and its Affiliates (collectively,
"Confidential Information"), disclosure of which to, or use by, third parties
would be damaging to Thomas Group or its clients. Employee agrees to hold such
Confidential Information in strictest confidence and agrees not to release such
information to any other Thomas Group employee unless such employee has a need
for such knowledge. Employee further agrees not to make use of Confidential
Information for Employee's own benefit or for the benefit of any third parties,
other than for the performance of this Agreement, and not to release or disclose
the Confidential Information to any other party either during or after the Term
of Employment. In the event of any breach of this confidentiality obligation,
Employee acknowledges that Thomas Group would have no adequate remedy at law,
since the harm caused by such a breach would not be easily measured and
compensated for in the form of damages, and hereby waives its right to contest
any equitable relief sought by Thomas Group, though not Employee's right to
contest the question of whether a breach has occurred, and Employee waives the
requirement of any bond being posted as security for such equitable relief.
8. General Provisions.
8.1 Notices. All notices, requests, demands, or other
communications with respect to this Agreement shall be in writing and shall be
personally delivered, telecopied, or mailed, postage prepaid, certified or
registered mail, or delivered by a nationally recognized express courier
service, charges prepaid, to the following addresses (or such other addresses
as the parties may specify from time to time in accordance with this Section
8.1):
Employee: James E. Dykes
5215 North O'Connor Boulevard
Suite 2500
Irving, TX 75039
Thomas Group: Thomas Group, Inc.
5215 North O'Connor Boulevard
Suite 2500
Irving, TX 75039
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<PAGE> 12
Any such notice shall, when sent in accordance with the preceding
sentence, be deemed to have been given and received (i) on the day personally
delivered or telecopied, (ii) on the third day following the date mailed, or
(iii) 24 hours after shipment by such courier service.
8.2 Entire Agreement. This Agreement, together with the
exhibits hereto, supersedes any and all other agreements, either oral or
written between the parties hereto with respect to the employment of Employee
by Thomas Group and contains all of the covenants and agreements between the
parties with respect to such employment. Any modification of this Agreement
will be effective only if it is in writing signed by each of the parties
hereto.
8.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
8.4 Waiver of Breach. The waiver by either party of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach.
8.5 Severability. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be judicially
unenforceable and/or invalid by a court of competent jurisdiction, in whole or
in part, the remaining provisions shall nevertheless be binding, enforceable
and in full force and effect.
8.6 Titles and Headings. The titles and headings of the
various sections hereof are intended solely for convenience of reference and
not intended for any purpose whatsoever to explain, modify or place any
construction upon any of the provisions of this Agreement.
8.7 Attorney's Fees. In the event any one or more of the
parties hereto bring suit against any other part hereto, based upon or arising
out of a breach or violation of this Agreement, each party hereto agrees that
each party who is successful on the merits, upon final adjudication from which
no further appeal can be taken or is taken within the time allowed by law,
shall be entitled to recover his or its reasonable attorneys' fees and expenses
from the party or parties which is or are (as the case may be) not successful.
8.8 Benefit and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns; provided, however, that nothing contained in this
Section 8.8 shall impair Employee's rights under Section 6.2(g), if the
successor or assign of Thomas Group became such upon the occurrence of a Change
in Control. Notwithstanding anything herein to the contrary, Employee shall not
assign any of his rights or obligations under this Agreement.
-12-
<PAGE> 13
8.9 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, and all of which
shall together constitute one agreement.
8.10 Reliance on Authority of Person Signing Agreement.
Each individual signing this Agreement on behalf of a corporation warrants that
such execution has been duly authorized by the corporation for which he or she
is signing. The execution and performance of this Agreement by each party has
been duly authorized by all applicable laws and regulations and (in the case of
a corporation) all necessary corporate action, and this Agreement constitutes
the valid and enforceable obligation of each party in accordance with its
terms.
8.11 Amendments. Amendments to any section of this
Agreement shall not be effective unless agreed to in writing by the parties
hereto. This Agreement, including this provision against oral modification,
shall not be amended, modified or terminated except in a writing signed by each
of the parties to this Agreement, and no waiver of any provision of this
Agreement shall be effective unless in a writing duly signed by the party
sought to be bound.
8.12 Waiver. No waiver of any provision of this Agreement
shall be deemed to operate as waiver of any past or future right.
9. Renewal Discussions. Unless Employee's employment hereunder
has been earlier terminated, the parties hereto agree that they will use their
reasonable best efforts to enter into discussions six months prior to the fifth
anniversary of the effective date of this Agreement with respect to whether and
on what terms Employee's employment after such date, and the terms thereof,
this Agreement shall automatically terminate on such fifth anniversary.
10. Certain Tax Provisions. Employee acknowledges and agrees
that all payments and benefits made or provided to Employee pursuant to the
terms hereof which are required by applicable federal, state or local laws to
be subject to withholding for income taxes, shall be so subject.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement effective as of the date first above written.
EMPLOYEE:
----------------------------------
JAMES E. DYKES
THOMAS GROUP, INC.
By:
-------------------------------
Name: PHILIP R. THOMAS
Title: Chairman and Chief
Executive Officer
-13-
<PAGE> 14
EXHIBIT I
SEVERANCE BENEFIT PAYMENTS
1. A lump sum payment in cash, not later than 20 days after the
termination of Employee's employment, in an amount equal to six (6) months at
Employee's average "Annualized Includible Compensation". (Annualized
Includible Compensation is defined as the total cash paid in Base Compensation,
salary and Incentive compensation to James E. Dykes during the period
consisting of the preceding full taxable year, plus the year in which
termination occurred [on an annualized basis], all after date of this
Agreement).
2. The unvested portion of stock options granted to Employee
shall become fully vested and immediately exercisable on the effective date of
such termination and shall be exercisable for the maximum period specified in
such options.
-14-
<PAGE> 1
EXHIBIT 10.22
THOMAS GROUP, INC.
1997 STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 PURPOSE
ARTICLE 2 DEFINITIONS
ARTICLE 3 ADMINISTRATION
ARTICLE 4 ELIGIBILITY
ARTICLE 5 SHARES SUBJECT TO PLAN
ARTICLE 6 GRANT OF AWARDS
6.1 In General
6.2 Maximum ISO Grants
ARTICLE 7 OPTION PRICE
ARTICLE 8 AWARD PERIOD; VESTING
8.1 Award Period
8.2 Vesting
ARTICLE 9 TERMINATION OF SERVICE
9.1 Death
9.2 Retirement
9.3 Disability
9.4 Leave of Absence
ARTICLE 10 EXERCISE OF INCENTIVE
10.1 In General
10.2 Disqualifying Disposition of ISO
ARTICLE 11 AMENDMENT OR DISCONTINUANCE
ARTICLE 12 TERM
ARTICLE 13 CAPITAL ADJUSTMENTS
ARTICLE 14 RECAPITALIZATION, MERGER AND CONSOLIDATION;
CHANGE IN CONTROL
ARTICLE 15 LIQUIDATION OR DISSOLUTION
ARTICLE 16 INCENTIVES IN SUBSTITUTION FOR INCENTIVES
GRANTED BY OTHER CORPORATIONS
ARTICLE 17 MISCELLANEOUS PROVISIONS
17.1 Investment Intent
17.2 No Right to Continued Employment
17.3 Indemnification of Board and Committee
17.4 Effect of the Plan
17.5 Compliance With Other Laws and Regulations
17.6 Tax Requirements
17.7 Assignability
17.8 Use of Proceeds
</TABLE>
<PAGE> 3
THOMAS GROUP, INC.
1997 STOCK OPTION PLAN
The name of the plan is the THOMAS GROUP, INC. 1997 STOCK OPTION PLAN (the
"PLAN"). The Plan was adopted by the Board of Directors of THOMAS GROUP, INC.,
a Delaware corporation (hereinafter called the "COMPANY"), effective as of
April 3, 1997.
ARTICLE 1
PURPOSE
The purpose of the Plan is to attract and retain the services of key
employees of the Company and its Subsidiaries and to provide such persons with
a proprietary interest in the Company through the granting of incentive stock
options and non-qualified stock options that will
(a) increase the interest of such persons in the Company's welfare;
(b) furnish an incentive to such persons to continue their services for
the Company; and
(c) provide a means through which the Company may attract able persons as
employees.
With respect to Reporting Participants, the Plan and all transactions under
the Plan are intended to comply with all applicable conditions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "1934 ACT"). To the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void ab initio, to the extent permitted by law and
deemed advisable by the Committee.
ARTICLE 2
DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
2.1 "AWARD" means the grant of any Incentive Stock Option or Non-qualified
Stock Option, whether granted singly, in combination or in tandem (each
individually referred to herein as an "Incentive").
2.2 "AWARD AGREEMENT" means a written agreement between a Participant and
the Company which sets out the terms of an Award.
2.3 "AWARD PERIOD" means the period during which one or more Incentives
granted under an Award may be exercised.
2.4 "BOARD" means the board of directors of the Company.
<PAGE> 4
2.5 "CHANGE OF CONTROL" means any of the following: (i) any consolidation,
merger or share exchange of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a consolidation, merger or share exchange of the Company
in which the holders of the Company's Common Stock immediately prior to such
transaction have the same proportionate ownership of Common Stock of the
surviving corporation immediately after such transaction; (ii) any sale, lease,
exchange or other transfer (excluding transfer by way of pledge or
hypothecation) in one transaction or a series of related transactions, of all
or substantially all of the assets of the Company; (iii) the stockholders of
the Company approve any plan or proposal for the liquidation or dissolution of
the Company; (iv) the cessation of control (by virtue of their not constituting
a majority of directors) of the Board by the individuals (the "CONTINUING
DIRECTORS") who (x) at the date of this Plan were directors or (y) become
directors after the date of this Plan and whose election or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then in office who were directors at the date of
this Plan or whose election or nomination for election was previously so
approved; (v) the acquisition of beneficial ownership (within the meaning of
Rule 13d-3 under the 1934 Act) of an aggregate of twenty percent (20%) of the
voting power of the Company's outstanding voting securities by any person or
group (as such term is used in Rule 13d-5 under the 1934 Act) who beneficially
owned less than 15% of the voting power of the Company's outstanding voting
securities on the date of this Plan, or the acquisition of beneficial ownership
of an additional 5% of the voting power of the Company's outstanding voting
securities by any person or group who beneficially owned at least 15% of the
voting power of the Company's outstanding voting securities on the date of this
Plan, provided, however, that notwithstanding the foregoing, an acquisition
shall not constitute a Change of Control hereunder if the acquirer is (x) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company and acting in such capacity, (y) a Subsidiary of the Company or a
corporation owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of voting securities
of the Company or (z) any other person whose acquisition of shares of voting
securities is approved in advance by a majority of the Continuing Directors; or
(vi) in a Title 11 bankruptcy proceeding, the appointment of a trustee or the
conversion of a case involving the Company to a case under Chapter 7.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended.
2.7 "COMMITTEE" means the Compensation and Stock Option Committee or another
committee appointed or designated by the Board to administer the Plan.
2.8 "COMMON STOCK" means the common stock, par value $.01 per share, which
the Company is currently authorized to issue or may in the future be authorized
to issue.
2.9 "COMPANY" means THOMAS GROUP, INC., a Delaware corporation, and any
successor entity.
2.10 "DATE OF GRANT" means the effective date on which an Award is made to a
Participant as set forth in the applicable Award Agreement; provided, however,
that solely for purposes of
<PAGE> 5
Section 16 of the 1934 Act and the rules and regulations promulgated
thereunder, the Date of Grant of an Award shall be the date of stockholder
approval of the Plan if such date is later than the effective date of such
Award as set forth in the Award Agreement.
2.11 "EMPLOYEE" means common law employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company or any Subsidiary of the Company.
2.12 "FAIR MARKET VALUE" of a share of Common Stock is the mean of the
highest and lowest prices per share on the New York Stock Exchange Consolidated
Tape, or such reporting service as the Committee may select, on the appropriate
date, or in the absence of reported sales on such day, the most recent previous
day for which sales were reported.
2.13 "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock option
within the meaning of Section 422 of the Code, granted pursuant to this Plan.
2.14 "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
Employee and who satisfies the requirements of Rule 16b-3(b)(3) promulgated
under the 1934 Act or any successor provision.
2.15 "NON-QUALIFIED STOCK OPTION" or "NQSO" means a non-qualified stock
option granted pursuant to this Plan.
2.16 "OPTION PRICE" means the price which must be paid by a Participant upon
exercise of a Stock Option to purchase a share of Common Stock.
2.17 "PARTICIPANT" shall mean an Employee of the Company or a Subsidiary to
whom an Award is granted under this Plan.
2.18 "PLAN" means this THOMAS GROUP, INC. 1997 Stock Option Plan, as amended
from time to time.
2.19 "REPORTING PARTICIPANT" means a Participant who is subject to the
reporting requirements of Section 16 of the 1934 Act.
2.20 "RETIREMENT" means any Termination of Service solely due to retirement
upon attainment of age 60, or permitted early retirement as determined by the
Committee.
2.21 "STOCK OPTION" means a Non-qualified Stock Option or an Incentive Stock
Option.
2.22 "SUBSIDIARY" means (i) any corporation or limited liability company in
an unbroken chain of corporations or limited liability companies beginning with
the Company, if each of the corporations or limited liability companies other
than the last corporation or limited liability company in the unbroken chain
owns equity securities possessing a majority of the total combined voting power
of all classes of equity securities in one of the other corporations or
<PAGE> 6
limited liability companies in the chain, and (ii) any limited partnership, if
the Company or any corporation or limited liability company described in item
(i) above owns a majority of the general partnership interest and a majority of
the limited partnership interests entitled to vote on the removal and
replacement of the general partner. "SUBSIDIARIES"means more than one of any
such corporations, limited partnerships or limited liability companies.
2.23 "TERMINATION OF SERVICE" occurs when a Participant who is an Employee
of the Company or any Subsidiary shall cease to serve as an Employee of the
Company and its Subsidiaries, for any reason.
2.24 "DISABILITY" shall have the meaning given it in the employment
agreement of the Participant; provided, however, that if that Participant has
no employment agreement, "Disability" shall mean a physical or mental
impairment of sufficient severity that, in the opinion of the Company, either
the Participant is unable to continue performing the duties he performed before
such impairment or the Participant's condition entitles him to disability
benefits under any insurance or employee benefit plan of the Company or its
Subsidiaries and that impairment or condition is cited by the Company as the
reason for termination of the Participant's employment; provided, however, with
respect to any Incentive Stock Option, Disability shall have the meaning given
it under the rules governing Incentive Stock Options under the Code.
ARTICLE 3
ADMINISTRATION
The Plan shall be administered by the Committee appointed by the Board. The
Committee shall consist of not fewer than two persons. Any member of the
Committee may be removed at any time, with or without cause, by resolution of
the Board. Any vacancy occurring in the membership of the Committee may be
filled by appointment by the Board.
Membership on the Committee shall be limited to those members of the Board
who are Non-employee Directors and who are "OUTSIDE DIRECTORS" under Section
162(m) of the Code. The Committee shall select one of its members to act as its
Chairman. A majority of the Committee shall constitute a quorum, and the act of
a majority of the members of the Committee present at a meeting at which a
quorum is present shall be the act of the Committee.
The Committee shall determine and designate from time to time the eligible
persons to whom Awards will be granted and shall set forth in each related
Award Agreement the Award Period, the Date of Grant, and such other terms,
provisions, limitations, and performance requirements, as are approved by the
Committee, but not inconsistent with the Plan. The Committee shall determine
whether an Award shall include one type of Incentive, or two or more Incentives
granted in combination.
The Committee, in its discretion, shall (i) interpret the Plan, (ii)
prescribe, amend, and rescind any rules and regulations necessary or
appropriate for the administration of the Plan, and (iii) make such other
determinations and take such other action as it deems necessary or advisable in
<PAGE> 7
the administration of the Plan. Any interpretation, determination, or other
action made or taken by the Committee shall be final, binding, and conclusive
on all interested parties.
With respect to restrictions in the Plan that are based on the requirements
of Rule 16b-3 promulgated under the 1934 Act, Section 422 of the Code, Section
162(m) of the Code, the rules of any exchange or inter-dealer quotation system
upon which the Company's securities are listed or quoted, or any other
applicable law, rule or restriction (collectively, "APPLICABLE LAW"), to the
extent that any such restrictions are no longer required by applicable law, the
Committee shall have the sole discretion and authority to grant Awards that are
not subject to such mandated restrictions and/or to waive any such mandated
restrictions with respect to outstanding Awards.
ARTICLE 4
ELIGIBILITY
Any Employee (including an Employee who is also a director or an officer)
whose judgment, initiative, and efforts contributed or may be expected to
contribute to the successful performance of the Company is eligible to
participate in the Plan; provided that only Employees shall be eligible to
receive Incentive Stock Options. The Committee, upon its own action, may grant,
but shall not be required to grant, an Award to any Employee of the Company or
any Subsidiary. Awards may be granted by the Committee at any time and from
time to time to new Participants, or to then Participants, or to a greater or
lesser number of Participants, and may include or exclude previous
Participants, as the Committee shall determine. Except as required by this
Plan, Awards granted at different times need not contain similar provisions.
The Committee's determinations under the Plan (including without limitation
determinations of which Employees, if any, are to receive Awards, the form,
amount and timing of such Awards, the terms and provisions of such Awards and
the agreements evidencing same) need not be uniform and may be made by it
selectively among Employees who receive, or are eligible to receive, Awards
under the Plan.
ARTICLE 5
SHARES SUBJECT TO PLAN
Subject to adjustment as provided in ARTICLES 13 AND 14, the maximum number
of shares of Common Stock that may be delivered pursuant to Awards granted
under the Plan is (a) one hundred twenty-five thousand (125,000) shares; plus
(b) shares of Common Stock previously subject to Awards which are forfeited,
terminated, or expired unexercised; plus (c) without duplication for shares
counted under the immediately preceding clause, a number of shares of Common
Stock equal to the number of shares repurchased by the Company in the open
market or otherwise and having an aggregate repurchase price no greater than
the amount of cash proceeds received by the Company from the sale of shares of
Common Stock under the Plan; plus (d) any shares of Common Stock surrendered to
the Company in payment of the exercise price of options issued under the Plan.
Shares to be issued may be made available from authorized but unissued Common
Stock, Common Stock held by the Company in its treasury, or Common Stock
purchased by the
<PAGE> 8
Company on the open market or otherwise. During the term of this Plan, the
Company will at all times reserve and keep available the number of shares of
Common Stock that shall be sufficient to satisfy the requirements of this Plan.
ARTICLE 6
GRANT OF AWARDS
6.1 IN GENERAL. The grant of an Award shall be authorized by the Committee
and shall be evidenced by an Award Agreement setting forth the Incentive or
Incentives being granted, the total number of shares of Common Stock subject to
the Incentive(s), the Option Price (if applicable), the Award Period, the Date
of Grant, and such other terms, provisions, limitations, and performance
objectives, as are approved by the Committee, but not inconsistent with the
Plan. The Company shall execute an Award Agreement with a Participant after the
Committee approves the issuance of an Award. Any Award granted pursuant to this
Plan must be granted within ten (10) years of the date of adoption of this
Plan. The Plan shall be submitted to the Company's stockholders for approval;
however, the Committee may grant Awards under the Plan prior to the time of
stockholder approval. Any such Award granted prior to such stockholder approval
shall be made subject to such stockholder approval. The grant of an Award to a
Participant shall not be deemed either to entitle the Participant to, or to
disqualify the Participant from, receipt of any other Award under the Plan.
6.2 MAXIMUM ISO GRANTS. The Committee may not grant Incentive Stock Options
under the Plan to any Employee which would permit the aggregate Fair Market
Value (determined on the Date of Grant) of the Common Stock with respect to
which Incentive Stock Options (under this and any other plan of the Company and
its Subsidiaries) are exercisable for the first time by such Employee during
any calendar year to exceed $100,000. To the extent any Stock Option granted
under this Plan which is designated as an Incentive Stock Option exceeds this
limit or otherwise fails to qualify as an Incentive Stock Option, such Stock
Option shall be a Non-qualified Stock Option.
ARTICLE 7
OPTION PRICE
The Option Price for any share of Common Stock which may be purchased under a
Stock Option shall be at least one hundred percent (100%) of the Fair Market
Value of the share on the Date of Grant. If an Incentive Stock Option is
granted to an Employee who owns or is deemed to own (by reason of the
attribution rules of Section 424(d) of the Code) more than ten percent (10%) of
the combined voting power of all classes of stock of the Company (or any parent
or Subsidiary), the Option Price shall be at least one hundred and ten percent
(110%) of the Fair Market Value of the Common Stock on the Date of Grant.
<PAGE> 9
ARTICLE 8
AWARD PERIOD; VESTING
8.1 AWARD PERIOD. Subject to the other provisions of this Plan, the
Committee may, in its discretion, provide that an Incentive may not be
exercised in whole or in part for any period or periods of time or beyond any
date specified in the Award Agreement. Except as provided in the Award
Agreement, an Incentive may be exercised in whole or in part at any time during
its term. The Award Period for an Incentive shall be reduced or terminated upon
Termination of Service in accordance with this ARTICLE 8 AND ARTICLE 9. No
Incentive granted under the Plan may be exercised at any time after the end of
its Award Period. No portion of any Incentive may be exercised after the
expiration of ten (10) years from its Date of Grant. However, if an Employee
owns or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company (or any parent or Subsidiary) and an Incentive
Stock Option is granted to such Employee, the term of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall be no
more than five (5) years from the Date of Grant.
8.2 VESTING. Except as otherwise provided in the Award, vesting of all
Awards shall be annually, with monthly incremental vesting. The Committee, in
its sole discretion, may determine that an Incentive will be immediately
exercisable, in whole or in part, or that all or any portion may not be
exercised until a date, or dates, subsequent to its Date of Grant, or until the
occurrence of one or more specified events, subject in any case to the terms of
the Plan. Subsequent to the Date of Grant, the Committee may, in its sole
discretion, accelerate the date on which all or any portion of an Incentive may
be exercised.
ARTICLE 9
TERMINATION OF SERVICE
9.1 DEATH. Upon the death of a Participant, then any and all Awards held by
the Participant that are not yet exercisable as of the date of the
Participant's death shall be fully vested as of the date of death, and shall be
exercisable by that Participant's legal representatives, legatees or
distributees for a period of the lesser of (a) the remainder of the term of the
Award or (b) 180 days following the date of the Participant's death. Any
portion of an Award not exercised upon the expiration of the periods specified
in (a) or (b) shall be null and void.
9.2 RETIREMENT. If a Participant's employment relationship is terminated by
reason of the Participant's Retirement, then the portion, if any, of any and
all Awards held by the Participant that are not yet exercisable as of the date
of that Retirement shall become null and void as of the date of Retirement;
provided, however, that the portion, if any, of any and all Awards held by the
Participant that are exercisable as of the date of that Retirement shall be
exercisable for the lesser of (a) the remainder of the term of the Award or (b)
90 days following the date of Retirement.
9.3 DISABILITY. If a Participant's employment relationship is terminated by
reason of the Participant's Disability, then the portion, if any, of any and
all Awards held by the Participant that are not yet exercisable as of the date
of that termination for Disability shall become null and void as of the date of
termination; provided, however, that the portion, if any, of any and all Awards
held by the Participant that are exercisable as of the date of that termination
shall survive the termination for the lesser of (a) the original term of the
Award and (b) 180 days following the
<PAGE> 10
date of termination, and the Award shall be exercisable by the Participant, his
guardian, or his legal representative.
9.4 LEAVE OF ABSENCE. With respect to an Award, the Committee may, in its
sole discretion, determine that any Participant who is on leave of absence for
any reason will be considered to still be in the employ of the Company for
vesting and other purposes.
ARTICLE 10
EXERCISE OF INCENTIVE
10.1 IN GENERAL. A vested Incentive may be exercised during its Award
Period, subject to limitations and restrictions set forth therein and in
ARTICLE 9. A vested Incentive may be exercised at such times and in such
amounts as provided in this Plan and the applicable Award Agreement, subject to
the terms, conditions, and restrictions of the Plan.
In no event may an Incentive be exercised or shares of Common Stock be issued
pursuant to an Award if a necessary listing or quotation of the shares of
Common Stock on a stock exchange or inter-dealer quotation system or any
registration under state or federal securities laws required under the
circumstances has not been accomplished. No Incentive may be exercised for a
fractional share of Common Stock. The granting of an Incentive shall impose no
obligation upon the Participant to exercise that Incentive.
STOCK OPTIONS. Subject to such administrative regulations as the Committee
may from time to time adopt, a Stock Option may be exercised by the delivery of
written or telephonic notice to the Company setting forth the number of shares
of Common Stock with respect to which the Stock Option is to be exercised and
the date of exercise thereof (the "EXERCISE DATE"), which shall be at least
three (3) days after giving such notice unless an earlier time shall have been
mutually agreed upon. On the Exercise Date, the Participant shall deliver to
the Company consideration with a value equal to the total Option Price of the
shares to be purchased, payable as follows: (a) cash, check, bank draft, or
money order payable to the order of the Company, (b) Common Stock owned by the
Participant on the Exercise Date, valued at its Fair Market Value on the
Exercise Date, and/or (c) by delivery (including by FAX) to the Company or its
designated agent of an executed irrevocable option exercise form together with
irrevocable instructions from the Participant to a broker or dealer, reasonably
acceptable to the Company, to sell certain of the shares of Common Stock
purchased upon exercise of the Stock Option or to pledge such shares as
collateral for a loan and promptly deliver to the Company the amount of sale or
loan proceeds necessary to pay such purchase price.
Upon payment of all amounts due from the Participant, the Company shall cause
certificates for the Common Stock then being purchased to be delivered as
directed by the Participant (or the person exercising the Participant's Stock
Option in the event of his death) at its principal business office promptly
after the Exercise Date. The obligation of the Company to deliver shares of
Common Stock shall, however, be subject to the condition that if at any time
the Committee shall determine in its discretion that the listing, registration,
or qualification of the Stock Option or the Common Stock upon any securities
exchange or inter-dealer quotation system or under any state
<PAGE> 11
or federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the Stock
Option or the issuance or purchase of shares of Common Stock thereunder, the
Stock Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee.
10.2 DISQUALIFYING DISPOSITION OF ISO. If shares of Common Stock acquired
upon exercise of an Incentive Stock Option are disposed of by a Participant
prior to the expiration of either two (2) years from the Date of Grant of such
Stock Option or one (1) year from the transfer of shares of Common Stock to the
Participant pursuant to the exercise of such Stock Option, or in any other
disqualifying disposition within the meaning of Section 422 of the Code, such
Participant shall notify the Company in writing of the date and terms of such
disposition. A disqualifying disposition by a Participant shall not affect the
status of any other Stock Option granted under the Plan as an Incentive Stock
Option within the meaning of Section 422 of the Code.
ARTICLE 11
AMENDMENT OR DISCONTINUANCE
Subject to the limitations set forth in this ARTICLE 11, the Board may at any
time and from time to time, without the consent of the Participants, alter,
amend, revise, suspend, or discontinue the Plan in whole or in part; provided,
however, that no amendment which requires stockholder approval in order for the
Plan and Incentives awarded under the Plan to continue to comply with Section
162(m) of the Code, including any successors to such Section, shall be
effective unless such amendment shall be approved by the requisite vote of the
stockholders of the Company entitled to vote thereon. Any such amendment shall,
to the extent deemed necessary or advisable by the committee, be applicable to
any outstanding Incentives theretofore granted under the Plan, notwithstanding
any contrary provisions contained in any stock option agreement.
Notwithstanding anything contained in this Plan to the contrary, unless
required by law, no action contemplated or permitted by this ARTICLE 11 shall
adversely affect any rights of Participants or obligations of the Company to
Participants with respect to any Incentive theretofore granted under the Plan
without the consent of the affected Participant.
ARTICLE 12
TERM
The Plan shall be effective from the date that this Plan is approved by the
Board. Unless sooner terminated by action of the Board, the Plan will terminate
on March 31, 2007, but Incentives granted before that date will continue to be
effective in accordance with their terms and conditions.
ARTICLE 13
CAPITAL ADJUSTMENTS
If at any time while the Plan is in effect, or Incentives are outstanding,
there shall be any increase or decrease in the number of issued and outstanding
shares of Common Stock resulting
<PAGE> 12
from (1) the declaration or payment of a stock dividend, (2) any
recapitalization resulting in a stock split-up, combination, or exchange of
shares of Common Stock, or (3) other increase or decrease in such shares of
Common Stock effected without receipt of consideration by the Company, then and
in such event:
(i) An appropriate adjustment shall be made in the maximum number of
shares of Common Stock then subject to being awarded under the Plan and in
the maximum number of shares of Common Stock that may be awarded to a
Participant to the end that the same proportion of the Company's issued and
outstanding shares of Common Stock shall continue to be subject to being so
awarded.
(ii) Appropriate adjustments shall be made in the number of shares of
Common Stock and the Option Price thereof then subject to purchase pursuant
to each such Stock Option previously granted and unexercised, to the end
that the same proportion of the Company's issued and outstanding shares of
Common Stock in each such instance shall remain subject to purchase at the
same aggregate Option Price.
Except as otherwise expressly provided herein, the issuance by the Company of
shares of its capital stock of any class, or securities convertible into shares
of capital stock of any class, either in connection with direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to the number of or Option Price of shares of Common Stock then
subject to outstanding Stock Options granted under the Plan.
Upon the occurrence of each event requiring an adjustment with respect to any
Incentive, the Company shall mail to each affected Participant its computation
of such adjustment which shall be conclusive and shall be binding upon each
such Participant.
ARTICLE 14
RECAPITALIZATION, MERGER AND
CONSOLIDATION; CHANGE IN CONTROL
(a) The existence of this Plan and Incentives granted hereunder shall not
affect in any way the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital structure and its
business, or any merger or consolidation of the Company, or any issue of
bonds, debentures, preferred or preference stocks ranking prior to or
otherwise affecting the Common Stock or the rights thereof (or any rights,
options, or warrants to purchase same), or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
(b) Subject to any required action by the stockholders, if the Company
shall be the surviving or resulting corporation in any merger, consolidation
or share exchange, any
<PAGE> 13
Incentive granted hereunder shall pertain to and apply to the securities or
rights (including cash, property, or assets) to which a holder of the number
of shares of Common Stock subject to the Incentive would have been entitled.
(c) In the event of any merger, consolidation or share exchange pursuant
to which the Company is not the surviving or resulting corporation, there
shall be substituted for each share of Common Stock subject to the
unexercised portions of such outstanding Incentives, that number of shares
of each class of stock or other securities or that amount of cash, property,
or assets of the surviving, resulting or consolidated company which were
distributed or distributable to the stockholders of the Company in respect
to each share of Common Stock held by them, such outstanding Incentives to
be thereafter exercisable for such stock, securities, cash, or property in
accordance with their terms. Notwithstanding the foregoing, however, all
such Incentives may be canceled by the Company as of the effective date of
any such reorganization, merger, consolidation, share exchange or any
dissolution or liquidation of the Company by giving notice to each holder
thereof or his personal representative of its intention to do so and by
permitting the purchase during the thirty (30) day period next preceding
such effective date of all of the shares of Common Stock subject to such
outstanding Incentives.
(d) In the event of a Change of Control, then, notwithstanding any other
provision in this Plan to the contrary, all unmatured installments of
Incentives outstanding shall thereupon automatically be accelerated and
exercisable in full. The determination of the Committee that any of the
foregoing conditions has been met shall be binding and conclusive on all
parties.
ARTICLE 15
LIQUIDATION OR DISSOLUTION
In case the Company shall, at any time while any Incentive under this Plan
shall be in force and remain unexpired, (i) sell all or substantially all of
its property, or (ii) dissolve, liquidate, or wind up its affairs, then each
Participant shall be thereafter entitled to receive, in lieu of each share of
Common Stock of the Company which such Participant would have been entitled to
receive under the Incentive, the same kind and amount of any securities or
assets as may be issuable, distributable, or payable upon any such sale,
dissolution, liquidation, or winding up with respect to each share of Common
Stock of the Company. If the Company shall, at any time prior to the expiration
of any Incentive, make any partial distribution of its assets, in the nature of
a partial liquidation, whether payable in cash or in kind (but excluding the
distribution of a cash dividend payable out of earned surplus and designated as
such) then in such event the Option Prices then in effect with respect to each
Stock Option shall be reduced, on the payment date of such distribution, in
proportion to the percentage reduction in the tangible book value of the shares
of the Company's Common Stock (determined in accordance with generally accepted
accounting principles) resulting by reason of such distribution.
<PAGE> 14
ARTICLE 16
INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER CORPORATIONS
Incentives may be granted under the Plan from time to time in substitution
for similar instruments held by employees of a corporation who become or are
about to become management Employees of the Company or any Subsidiary as a
result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of stock of the employing
corporation. The terms and conditions of the substitute Incentives so granted
may vary from the terms and conditions set forth in this Plan to such extent as
the Board at the time of grant may deem appropriate to conform, in whole or in
part, to the provisions of the Incentives in substitution for which they are
granted.
ARTICLE 17
MISCELLANEOUS PROVISIONS
17.1 INVESTMENT INTENT. The Company may require that there be presented to
and filed with it by any Participant under the Plan, such evidence as it may
deem necessary to establish that the Incentives granted or the shares of Common
Stock to be purchased or transferred are being acquired for investment and not
with a view to their distribution.
17.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Incentive
granted under the Plan shall confer upon any Participant any right with respect
to continuance of employment by the Company or any Subsidiary.
17.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or the
Committee, nor any officer or Employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to
the Plan, and all members of the Board or the Committee and each and any
officer or employee of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination, or interpretation.
17.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action of
the Board or the Committee shall be deemed to give any person any right to be
granted an Award or any other rights except as may be evidenced by an Award
Agreement, or any amendment thereto, duly authorized by the Committee and
executed on behalf of the Company, and then only to the extent and upon the
terms and conditions expressly set forth therein.
17.5 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. Notwithstanding anything
contained herein to the contrary, the Company shall not be required to sell or
issue shares of Common Stock under any Incentive if the issuance thereof would
constitute a violation by the Participant or the Company of any provisions of
any law or regulation of any governmental authority or any national securities
exchange or inter-dealer quotation system or other forum in which shares of
Common Stock are quoted or traded (including without limitation Section 16 of
the 1934 Act and Section 162(m) of the Code); and, as a condition of any sale
or issuance of shares of Common Stock under an Incentive, the Committee may
require such agreements or undertakings, if any, as the Committee may deem
necessary or advisable to assure compliance with any such
<PAGE> 15
law or regulation. The Plan, the grant and exercise of Incentives hereunder,
and the obligation of the Company to sell and deliver shares of Common Stock,
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as may
be required.
17.6 TAX REQUIREMENTS. The Company shall have the right to deduct from all
amounts hereunder paid in cash or other form, any Federal, state, or local
taxes required by law to be withheld with respect to such payments. The
Participant receiving shares of Common Stock issued under the Plan shall be
required to pay the Company the amount of any taxes which the Company is
required to withhold with respect to such shares of Common Stock.
Notwithstanding the foregoing, in the event of an assignment of a Non-qualified
Stock Option pursuant to Section 17.7, the Participant who assigns the
Non-qualified Stock Option shall remain subject to withholding taxes upon
exercise of the Non-qualified Stock Option by the transferee to the extent
required by the Code or the rules and regulations promulgated thereunder. Such
payments shall be required to be made prior to the delivery of any certificate
representing such shares of Common Stock. Such payment may be made in cash, by
check, or through the delivery of shares of Common Stock owned by the
Participant (which may be effected by the actual delivery of shares of Common
Stock by the Participant or by the Company's withholding a number of shares to
be issued upon the exercise of a Stock Option, if applicable), which shares
have an aggregate Fair Market Value equal to the required minimum withholding
payment, or any combination thereof.
17.7 ASSIGNABILITY. Incentive Stock Options may not be transferred or
assigned other than by will or the laws of descent and distribution and may be
exercised during the lifetime of the Participant only by the Participant or the
Participant's legally authorized representative. The designation by a
Participant of a beneficiary will not constitute a transfer of the Stock
Option. The Committee may waive or modify any limitation contained in the
preceding sentences of this Section 17.7 that is not required for compliance
with Section 422 of the Code. Unless the Committee provides otherwise, all or a
portion of a Non-qualified Stock Option to be granted to a Participant may be
transferred by such Participant to (i) the spouse, children or grandchildren of
the Participant ("IMMEDIATE FAMILY MEMBERS"), (ii) a trust or trusts for the
exclusive benefit of such Immediate Family Members, or (iii) a partnership in
which such Immediate Family Members are the only partners, (iv) an entity
exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any
successor provision, or (v) a split interest trust or pooled income fund
described in Section 2522(c)(2) of the Code or any successor provision,
provided that (x) there shall be no consideration for any such transfer, and
(y) subsequent transfers of transferred Non-qualified Stock Options shall be
prohibited except those by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined in the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended.
Following transfer, any such Non-qualified Stock Option shall continue to be
subject to the same terms and conditions as were applicable immediately prior
to transfer, provided that for purposes of ARTICLES 10, 11, 13, 15 AND 17
hereof the term "PARTICIPANT" shall be deemed to include the transferee. The
events of Termination of Service shall continue to be applied with respect to
the original Participant, following which the Non-qualified Stock Options shall
be exercisable by the transferee only to the extent and for the periods
specified in the Award Agreement. The Committee and the
<PAGE> 16
Company shall have no obligation to inform any transferee of a Non-qualified
Stock Option of any expiration, termination, lapse or acceleration of such
Option. The Company shall have no obligation to register with any federal or
state securities commission or agency any Common Stock issuable or issued under
a Non-qualified Stock Option that has been transferred by a Participant under
this Section 17.7.
17.8 USE OF PROCEEDS. Proceeds from the sale of shares of Common Stock
pursuant to Incentives granted under this Plan shall constitute general funds
of the Company.
<PAGE> 17
A copy of this Plan shall be kept on file in the principal office of the
Company in Dallas, Texas.
* * * * * * * * * * * * * * *
IN WITNESS WHEREOF, the Company has caused this instrument to be executed as
of April 3, 1997 by its duly authorized representative.
THOMAS GROUP, INC.
By:
---------------------------
<PAGE> 1
EXHIBIT 10.23
THOMAS GROUP, INC.
DEFERRED COMPENSATION PLAN
RESTATED, EFFECTIVE NOVEMBER 1, 1996)
Thomas Group, Inc., a Delaware corporation (the "Company"), hereby
amends and restates the Thomas Group, Inc. Deferred Compensation Plan (the
"Plan") effective as of November 1, 1996 (the "Effective Date"), such Plan
being originally effective as of November 18, 1993. The Plan, as amended and
restated, shall apply to all Participants in the Plan as of the Effective Date,
and all Eligible Employees who become Participants after the Effective Date.
In addition, the Plan as amended and restated shall apply to all Deferred
Accounts of Participants as of the Effective Date, except with respect to a
Participant who declines to accept such amendment and restatement and who,
therefore, elects to terminate his participation in the Plan, in which event
the terms of the Plan as in effect prior to the Effective Date shall continue
to apply to such Participant's Deferred Account.
ARTICLE I
PURPOSE
The purpose of the Plan is to provide deferred compensation and
retirement income to a select group of key management personnel and members of
the Senior Management Team and who contribute materially to the continued
growth, development and future business success of the Company and its
Subsidiaries, and to provide a benefits package which will assist the Company
in attracting, retaining and motivating employees and members of the Senior
Management Team.
It is the intention of the Company that the Plan meet all of the
requirements necessary to qualify as a non-qualified, unfunded, unsecured plan
of deferred compensation for a select group of management or highly compensated
employees within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1),
and all Plan provisions shall be interpreted accordingly.
ARTICLE II
DEFINITIONS
2.1 "Beneficiary" shall mean the person or persons entitled to
receive benefits which are payable upon or after a Participant's death pursuant
to the terms of this Plan.
2.2 "BIT" shall mean the Thomas Group, Inc. business improvement team
as from time to time constituted.
2.3 "Board" shall mean the board of directors of the Company as from
time to time constituted.
2.4 "Change of Control" means any of the following: (i) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's common stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's common stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger; (ii) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company; (iii) the stockholders of the
Company approve any plan or proposal for the liquidation or dissolution of the
Company; (iv) any person or group (as such term is used in Rule 13d-5 under the
Securities Exchange Act of 1934, as amended) shall become the beneficial owner
(within the meant of Rule 13d-3 under that Act) of 20% or more of the Company's
outstanding common stock; (v) individuals constituting the Board on the date
the Plan is adopted by the Board (or the successors of such individuals
nominated or elected to the Board by a vote of at least two-thirds of such
individuals or such successors so nominated or elected), cease for any reason
to constitute a
<PAGE> 2
majority of the directors; or (vi) in a Title 11 bankruptcy proceeding, the
appointment of a trustee or the conversion of a case involving the Company to a
case under Chapter 7.
2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time. References to any section of the Internal Revenue Code
shall include any successor provision thereto.
2.6 "Committee" shall mean the person or persons appointed by the
Board to serve as the Compensation and Stock Option Committee of the Board.
2.7 "Company" shall mean Thomas Group, Inc.
2.8 "Compensation" shall mean the Participant's base salary or wages
for services actually rendered in the course of employment by the Company and
any performance bonuses.
2.9 "Deferred Account" shall mean the bookkeeping account established
and maintained by the Company to reflect the Participant's interest under this
Plan, as determined pursuant to Article IV of this Plan.
2.10 "Deferred Compensation Agreement" shall mean the agreement, in
the form attached hereto as Exhibit A and made a part hereof, executed by the
Company and the Eligible Employee, pursuant to which, among other things, the
Eligible Employee elects to become a Participant in the Plan, and agrees to be
bound by the terms and conditions thereof.
2.11 "Disabled" or "Disability" shall mean the inability of the
Participant to perform his duties for the Company in such a manner that he or
she qualifies for disability income payments under the Company's long-term
disability benefit plan. If a Participant is not a participant in any
long-term disability benefit plan maintained by the Company, "Disabled" or
"Disability" shall mean the Participant is entitled to a disability retirement
benefit under the Federal Social Security Act, provided the Company has been
notified in writing of such entitlement. The determination of whether or not a
Disability exists shall be determined by the Company, and shall be
substantiated by competent medical evidence.
2.12 "Eligible Employee" shall mean those employees and members of the
Senior Management Team of the Company or any of its Subsidiaries who are
selected by the BIT to be eligible to participate in the Plan in accordance
with Section 3.1, and who, because of their positions and responsibilities,
contribute materially to the continued growth, development and future business
success of the Company and its Subsidiaries.
2.13 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. References to any section of ERISA shall
include any successor provision thereto.
2.14 "Participant" shall mean an Eligible Employee who becomes a
participant in the Plan pursuant to Article III below and any former Eligible
Employee who is entitled to benefits under the Plan.
2.15 "Plan" shall mean the Thomas Group, Inc. Deferred Compensation
Plan as set forth in this document, and as hereafter amended.
2.16 "Plan Year" shall mean the twelve (12) consecutive month period
ending on December 31.
2.17 "Retirement" shall mean termination of employment on or after the
first day of the month following the month in which occurs the Participant's
62nd birthday.
2.18 "Senior Management Team" means those employees designated by the
Company as being members of such team.
2.19 "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing fifty
<PAGE> 3
percent or more of the total combined voting power of all classes of stock in
one of the other corporations in the chain, and "Subsidiaries" means more than
one of any such corporations.
2.20 "Termination of Employment" shall mean the termination of
employment with the Company and all Subsidiaries, whether voluntarily or
involuntarily, other than by reason of a Participant's Retirement, or after
becoming Disabled, or death.
2.21 "Unforeseeable Emergency" shall mean a severe financial hardship
to the Participant resulting from a sudden and unexpected illness or accident
of a Participant or of a dependent (as defined in Code Section 152(a)) of the
Participant, loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant (but specifically not including
the need to send a child of the Participant to college or the desire to
purchase a home).
2.22 "Valuation Date" shall mean each business day that the New York
Stock Exchange is open for business, and the last day of the Plan Year if not
such a business day.
2.23 Whenever a noun, or a pronoun in lieu thereof, is used in this
Plan in plural form and there be only one person, thing or institution within
the scope of the word so used, or in singular form and there be more than one
person, thing or institution within the scope of the word so used, such word,
or the pronoun used in lieu thereof, shall have a plural or singular meaning,
as the case may be. Pronouns of the masculine gender may mean the feminine and
vice versa.
2.24 The words "herein," "hereof," and "hereunder" shall refer to the
Plan.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. The BIT shall, from time to time, select those
employees and members of the Senior Management Team of the Company who shall be
Eligible Employees. Any Eligible Employee shall become a Participant in the
Plan by making an election and executing a Deferred Compensation Agreement as
set forth in Section 3.3 below.
3.2 Cessation of Eligible Employee Status. If any Participant does
not incur a Termination of Employment but ceases to be an Eligible Employee as
defined in Section 2.11 hereof, then, during the period that such Participant
is not an Eligible Employee as defined in such Section 2.11 hereof: (i) such
Participant's deferred compensation elections under Section 3.3 hereof shall
cease, and (ii) such Participant's Deferred Account shall continue to be
adjusted as provided in Section 4.2 hereof.
3.3 Election. An Eligible Employee may elect, pursuant to a
Deferred Compensation Agreement entered into with the Company, to participate
in the Plan and to make an initial election to defer the receipt of a portion
of the Compensation otherwise payable to him or her by the Company. The
Deferred Compensation Agreement must be signed by the Participant and delivered
to the Company at such time as required by the Committee. For each Plan Year
other than the Plan Year during which he first becomes a Participant, a
Participant must elect prior to January 1 of such Plan Year (in accordance with
procedures and rules established by the Committee) to defer receipt of, and
contribute to his Deferred Account established under this Plan, a portion of
his Compensation pursuant to an election form, or such Participant will not be
allowed to make a deferral election until the next Plan Year. With respect to
the first Plan Year he is eligible to participate, the Participant must execute
his Deferred Compensation Agreement and make his initial election for the
remainder of such Plan Year within 30 days after he is notified he is eligible
to participate, or such Participant will not be allowed to make a deferral
election until the next Plan Year; provided that, if a Participant's first date
of eligibility is January 1, such Participant must make his first election
prior to such January 1. All elections made under this Section 3.3 shall be
made in writing on an election form prescribed by and filed with the Committee
and shall be irrevocable for the Plan Year for which made.
<PAGE> 4
The percentage rate of deferred compensation, if any, which each
Participant elects must be in whole percentage points or a specific dollar
amount and shall be made on an election form provided by and filed with the
Committee. An initial election: (i) shall be made in accordance with this
Section 3.3; (ii) shall be effective as soon as practicable after the executed
election form is delivered to the Committee; (iii) shall not have retroactive
effect and shall be irrevocable and remain in force for the balance of the Plan
Year in which the Participant's participation begins; and (iv) shall remain in
force for subsequent Plan Years unless revoked or changed. The Committee shall
establish and communicate to Participants uniform and nondiscriminatory
procedures for the election of deferred compensation and may change said
procedures at such times and in such manner as the Committee may determine to
be necessary or desirable.
Prior to the beginning of each Plan Year, a Participant shall make his
deferred compensation election with respect to that Plan Year by executing and
delivering to the Committee an election form prior to the beginning of such
Plan Year. If a Participant fails to deliver a deferred compensation election
with the Committee prior to the beginning of a Plan Year, such Participant
shall be treated as if he elected not to participate in the Plan for that Plan
Year. A Participant may not change a deferred compensation election for a Plan
Year once that Plan Year has begun. A Participant may discontinue a deferred
compensation election at any time during a Plan Year, provided that any such
discontinuance shall be effective on the first day of the payroll period (or
such other time as the Committee shall permit in accordance with uniform and
nondiscriminatory rules) beginning after the notice of the discontinuance is
received by the Committee. A Participant who desires to discontinue a deferred
compensation election must notify the Committee thereof in writing on a form
specified by the Committee. A Participant who has discontinued the deferred
compensation election may not resume a deferred compensation election until the
Plan Year following the Plan Year with respect to which the discontinuance
occurred. Termination of Employment by a Participant or the cessation of
participation for any reason, including death, Disability or Retirement, shall
be deemed to revoke any election then in effect, effective immediately
following the close of the pay period in which such termination or cessation
occurs.
Notwithstanding the foregoing provisions of this Article III, if the
Company desires to establish a trust for the payment of benefits under the Plan
as provided for in Article VI hereof, before the establishment of the trust and
as a condition to its establishment, each Participant must execute a written
waiver of any priority the Participant may have under state or federal law with
respect to any claims the Participant may have against the Company under the
Plan or under the trust beyond the rights the Participant would have as a
general creditor of the Company. After the establishment of any such trust,
any Eligible Employee who qualifies for the Plan shall not be eligible to
become a Participant in the Plan unless and until such Employee executes the
written waiver provided for herein.
3.4 Maximum Deferral. The Committee reserves the right to determine
a maximum amount which the Participant may defer in a calendar year and
reserves the right to revise such maximum at any time, and from time to time,
in the Committee's sole discretion.
ARTICLE IV
BENEFITS AND VALUATION OF ACCOUNTS
4.1 Establishment of Deferred Account. The Committee will establish
and maintain a Deferred Account for each Participant who has made a deferred
compensation election hereunder. There shall be credited to a Participant's
Deferred Account as of each date Compensation is paid to the Participant, an
amount equal to the amount of Compensation deferred in accordance with the
Participant's election and Deferred Compensation Agreement. The Committee
shall maintain, or cause to be maintained, records which will adequately
disclose at all times the state of each separate Deferred Account hereunder and
the state of any trust created pursuant to Article V hereof. The books, forms
and methods of accounting shall be entirely subject to the supervision of the
Committee.
4.2 Periodic Determination of Participant's Deferred Account.
(a) Allocations in General. For the purpose of making
allocations as of any Valuation Date, any net earnings and adjustments in value
to the Deferred Accounts shall be allocated pursuant to Section 4.2(b) below,
and deferred compensation shall be credited pursuant to Section 4.1 hereof.
Whenever an allocation or credit
<PAGE> 5
is required to be made hereunder, it shall be made by the Committee, or at the
Committee's direction and subject to its supervision.
(b) Allocation of Net Earnings and Adjustments in Value of the
Deferred Accounts. The net earnings or losses of the Deferred Accounts under
the Plan for a particular period shall be determined on the basis of the
earnings or losses of the funds maintained under this Plan since the previous
Valuation Date. If Participants have been given the opportunity to direct the
manner in which the amounts credited to their Deferred Accounts shall be
invested under the Plan in accordance with Section 4.3 below, net earnings and
adjustments to value shall be allocated as of the Valuation Date to those
Deferred Accounts based on their individual performance.
(c) Computations. All of the computations required to be made
under the provisions of this Article IV, when made, shall be conclusive with
respect thereto and shall be binding upon all the Participants, Beneficiaries,
and all other persons ever having an interest in any trust.
Upon final determination of the Committee's calculations for a Plan
Year, if a trust has been established to fund the benefits hereunder, the
Company shall transfer to the Trustee the amount necessary to ensure that the
trust holds assets with a value equal to the Deferred Accounts, as so
calculated.
4.3 Investment of Deferred Amounts. In the event the Committee shall
determine to permit the Participants to direct the manner in which the amounts
credited to their Deferred Accounts shall be invested, then the provisions of
this Section 4.3 shall apply, and during employment with the Company, a
Participant may direct the investment of his Deferred Account in any
investment fund that may be established by the Committee. Neither the
Participant nor Beneficiary shall have any right, title or interest whatever in
or to, or any claim, preferred or otherwise, in or to, any of the selected
investments.
A Participant may change such Participant's direction concerning the
manner for investment of such Participant's Deferred Account, provided (i) that
a request for the change must be made in accordance with the forms and
procedures prescribed and adopted by the Committee, and (ii) the change shall
become effective in accordance with such procedures.
In order to comply with applicable federal or state laws, including but
in no event limited to any federal or state income tax laws, the Committee may
establish such rules with respect to the change of investment designation by
Participants as it shall deem necessary or advisable to comply with any such
laws.
4.4 In-Service Withdrawals. Subject to the provisions of this Section,
upon application by a Participant, the Committee may, in accordance with the
provisions of this Section, permit such Participant to withdraw all or a
portion of such Participant's Deferred Account for an Unforeseeable Emergency;
provided however, that such withdrawal shall terminate such Participant's right
to defer additional amounts during the remainder of the Plan Year following
such withdrawal.
The following provisions shall apply with respect to withdrawals for
Unforeseeable Emergencies:
(a) Application for withdrawal must be made in writing on a
form approved by the Committee, and must set out in detail the circumstances
establishing that the proposed withdrawal is for an Unforeseeable Emergency.
(b) The Committee's determination of whether the application
meets the requirements of this Section shall be final and conclusive, and in
making such determination, the Committee shall follow uniform and
nondiscriminatory rules.
(c) If the Committee is satisfied that the application meets
the requirements of this Section, the application shall be granted.
(d) For purposes hereof, an Unforeseeable Emergency shall not
exist if the hardship is or may be relieved as follows:
<PAGE> 6
(i) Through reimbursement or compensation by insurance or
otherwise;
(ii) By liquidation of the Participant's assets, to the extent
the liquidation of such assets would not itself cause severe financial
hardship; or
(iii) By cessation of deferred compensation elections hereunder.
(e) In no event will any payment on account of an
Unforeseeable Emergency exceed the amount required to meet such emergency plus
any amounts necessary to pay any federal, state or local taxes reasonably
anticipated to result from such payment.
(f) All withdrawals under this Section shall be subject to
Committee approval. When an application for withdrawal is granted under the
provisions of this Subsection, the Committee shall give such written directions
to the Trustee as shall be appropriate to effectuate the distribution of the
amount withdrawn in accordance with the terms hereof. The date of withdrawal
payment shall be specified by the Committee. Withdrawals shall be paid in the
form of a single cash lump sum; provided, however, that withdrawals shall be
paid pro rata from any investment funds in which amounts may then be invested
under a trust, unless the Committee determines, in its sole discretion, that a
different allocation is appropriate.
4.5 Time of Payment. A Participant shall be entitled to receive the
entire amount in his Deferred Account upon the earliest to occur of the
following events:
(i) Retirement;
(ii) Disability;
(iii) Termination of Employment; or
(iv) Change of Control.
4.6 Form of Payment. A Participant's Deferred Account shall be paid
in one of the following forms, as selected by the Participant on his or her
Deferred Compensation Agreement, after the event which entitles the Participant
to payment in accordance with Section 4.5 above. Until complete payment of a
terminated Participant's Deferred Account, the Participant's Deferred Account
shall continue to be credited with earnings in accordance with Section 4.2
above. The available forms of payment are:
(i) one lump sum payment within ninety (90) days after the
event;
(ii) one lump sum payment within 60 days following the calendar
year in which the event occurs; or
(iii) equal annual installments for a period of up to ten (10)
years, commencing within ninety (90) days after the event
ARTICLE V
DEATH BENEFITS
5.1 In the event of a Participant's death, his Beneficiary shall be
entitled to the amount credited to his Deferred Account determined as of the
Valuation Date on or immediately preceding the date of such Participant's
death, payment of which amount shall commence no later than sixty (60) days
following the date of such Participant's death. Payment under this Article V
to the Beneficiary shall be in three (3) equal annual installments commencing
within sixty (60) days after the Participant's death or, in the sole discretion
of the Committee, in one
<PAGE> 7
lump sum payment. The unpaid Deferred Account balance shall continue to be
credited with earnings in accordance with Section 4.2 above until complete
payment of the deceased Participant's Deferred Account.
5.2 Notwithstanding Section 5.1, if the Beneficiary is a
Participant's estate, the Company may, in its sole and absolute discretion,
make a single lump sum payment to the estate in an amount equal to the balance
in such Participant's Deferred Account.
ARTICLE VI
SOURCE OF PAYMENT OF BENEFITS
The Plan is a non-qualified, unfunded, deferred compensation plan.
Therefore, all benefits owing under the Plan shall be paid out of the Company's
general corporate funds, which are subject to the claims of creditors, or out
of any trust the Board shall establish or authorize, provided that all assets
paid into any such trust shall at all times before actual payment to a
Participant or Beneficiary remain subject to the claims of general creditors of
the Company. In the absence of action by the Board, nothing herein shall be
construed to create or require the creation of a trust for the purpose of
paying benefits owing under the Plan. Although the Plan is to be deemed
totally unfunded, in addition to the discretionary authority to establish a
trust as provided for herein, the Company may, but shall not be obligated to,
purchase one or more life insurance or annuity policies or contracts for the
purpose of providing for its obligations hereunder. Any such policies or
contracts, if so purchased, shall name the Company or the trust as beneficiary
and sole owner, with all incidents of ownership therein, including (but not
limited to) the right to cash and loan values, dividends (if any), death
benefits, and the right of termination. Any such policies or contracts
purchased hereunder shall remain a general restricted asset of the Company or
of the trust. Unless otherwise provided by the Company, no policy or contract
as provided for herein shall be deemed to be held in trust for the benefit of a
Participant or any Beneficiary. Neither the Participant nor any Beneficiary
shall have any right, title or interest whatever in or to, or any claim,
preferred or otherwise, in or to, any particular assets of the Company as a
result of participation in the Plan, any policy or contract as provided for
herein, or any trust that the Company may establish to aid in providing the
payments described in the Plan. Nothing contained in the Plan, and no action
taken pursuant to its provisions, shall create or be construed to create a
trust or a fiduciary relationship of any kind between the Company and a
Participant or any other person. Neither a Participant nor a Beneficiary of a
Participant shall acquire any interest greater than that of an unsecured
creditor in any assets of the Company or in any trust that the Company may
establish for the purposes of paying benefits hereunder.
ARTICLE VII
DESIGNATION OF BENEFICIARIES
7.1 Designation or Change of Beneficiary by a Participant. Each
Participant may from time to time designate the person(s) or entity(ies) to
whom the benefits provided for in Article V are to be paid. A Participant may
from time to time change such Participant's designation of Beneficiary and upon
any such change, any previously designated Beneficiary's right to receive any
benefits under the Plan shall terminate. In order to be effective, any
designation or change of designation of a Beneficiary must be made on a form
furnished by the Committee and signed by the Participant and received by the
Committee while the Participant is alive. If a Beneficiary of a deceased
Participant shall survive the deceased Participant but die prior to the receipt
of all benefits payable to said Beneficiary under the Plan, then such benefits
as would have been payable to said deceased Beneficiary shall be paid to such
Beneficiary's estate at the same time and in the same manner as such benefits
would have been payable to said deceased Beneficiary.
7.2 Beneficiary Designated By The Plan. In the event that a
Participant shall die without having designated a Beneficiary, or in the event
that a Participant shall die having revoked an earlier Beneficiary designation
without having effectively designated another Beneficiary, or in the event that
a designated Beneficiary shall fail to survive such Participant, then and in
any such event, the Participant's estate shall be his Beneficiary.
<PAGE> 8
ARTICLE VIII
ADMINISTRATION
8.1 The Committee. Subject to the provisions of this Article VIII, the
Plan shall be administered by the Committee appointed by the Board. The
Committee shall consist of not fewer than two persons. Any member of the
Committee may be removed at any time, with or without cause, by resolution of
the Board. Any vacancy occurring in the membership of the Committee may be
filled by appointment by the Board. The Committee shall select one of its
members to act as its Chairman and shall make such rules and regulations for
its operation as it deems appropriate. A majority of the Committee shall
constitute a quorum and the act of a majority of the members of the Committee
present at a meeting at which a quorum is present shall be the act of the
Committee.
8.2 Powers and Duties of the Committee. The Committee shall: (i)
determine and designate from time to time the Eligible Employees; (ii)
interpret the Plan; (iii) prescribe, amend, and rescind any rules and
regulations necessary or appropriate for the administration of the Plan; (iv)
employ agents, attorneys, accountants or other persons (who also may be
employed by or represent the Company) for such purposes as the Committee
considers necessary or desirable in connection with its duties hereunder; and
(v) make such other determinations and take such other action as it deems
necessary or advisable. Any interpretation, determination, or other action
made or taken by the Committee shall, subject to Section 8.6, be final,
binding, and conclusive on all interested parties. To the extent powers
described above are not delegated to a Committee, the Board shall have the
powers described in this Section. The Committee may, in its sole discretion,
impose limitations, restrictions and conditions on the Participants' rights to
receive benefits as set forth in the Participant's Deferred Compensation
Agreement.
8.3 Nondiscriminatory Exercise Of Authority. Whenever, in the
administration of the Plan, any discretionary action by the Committee is
required, the Committee shall exercise its authority in a nondiscriminatory
manner so that all persons similarly situated will receive substantially the
same treatment.
8.4 Named Fiduciaries and Allocation of Responsibility. ERISA
requires that certain persons, who are deemed to be "fiduciaries" as defined in
Section 3(21)(A) of ERISA, be designated as "Named Fiduciaries" in the Plan.
The Committee is hereby designated the Named Fiduciary. The Named Fiduciary
shall have only the powers, duties and responsibilities specifically allocated
to such fiduciary pursuant to the terms of this Plan or delegated by the
Company and accepted in writing by the Committee. The Named Fiduciary may, by
written instrument, allocate some or all of such Named Fiduciary's
responsibilities to another fiduciary or designate another person to carry out
some or all of such Named Fiduciary's fiduciary responsibilities. The
Committee and each other fiduciary to whom responsibilities are allocated by
the Committee will be furnished a copy of the Plan and their acceptance of such
responsibility will be made by agreeing in writing to act in the capacity
designated. No Named Fiduciary shall be liable for an act or omission of any
person (who is allocated a fiduciary responsibility or who is designated to
carry out such responsibility) in carrying out a fiduciary responsibility
except to the extent that the Named Fiduciary did not act in accordance with
the standard contained in Section 404(a) of ERISA with respect to the
allocation or designation, continuation thereof, or implementation or
establishment of the allocation or designation procedures. Any person or group
of persons may serve in more than one fiduciary capacity with respect to the
Plan.
8.5 Participant as Committee Member. In the event the Committee
exercises any discretionary authority under the Plan with respect to a
Participant who is a member of the Committee, such discretionary authority
shall be exercised solely and exclusively by those members of the committee
other than the Participant. In the event the remaining members of the
Committee cannot reach a majority conclusion or if such Participant is the sole
member of the Committee, the Board of the Company shall appoint a temporary
substitute Committee member to exercise all the powers of a qualified Committee
member concerning the matter in which such Participant cannot so act or for
which there is a deadlock.
8.6 Review Procedures Under ERISA.
(a) Notification. If any benefits under the Plan are wholly
or partially denied, the Committee will notify the Participant (or the
Participant's estate or representative) of its decision in writing. Such
notification will be written in a manner calculated to be understood by the
Participant (or the Participant's estate or representative) and will contain
(i) specific reasons for the denial, (ii) specific reference to pertinent Plan
provisions, (iii) a description of any additional material or information
necessary for the Participant (or the Participant's estate or representative)
to provide an explanation of why such material or information is necessary, and
(iv) information as to the steps to be taken if the Participant (or the
Participant's estate or representative) wishes to submit a request for
<PAGE> 9
review. Such notification will be given within ninety (90) days after the
request for benefits is received by the Committee (or within one hundred eighty
(180) days, if special circumstances require an extension of time for
processing the claim, and if written notice of such extension and circumstances
is given to the Participant (or the Participant's estate or representative)
within the initial ninety (90) day period). If such notification is not given
within such period, the request for benefits will be considered denied as of
the last day of such period and the Participant (or the Participant's estate or
representative) may request review under paragraph (b) below.
(b) Review Procedure. Within sixty (60) days after the date
on which the Participant (or the Participant's estate or representative)
receives a written notice of a denial of benefits (or, if applicable, within
sixty (60) days after the date on which such denial is considered to have
occurred), if the Participant (or the Participant's estate or representative)
disagrees with the denial of a request for benefits, the Participant (or the
Participant's estate or representative) shall (i) file a written request with
the Committee for a review of his denied request for benefits and of pertinent
documents, and (ii) submit written issues and comments to the Committee. The
Committee will notify the Participant (or the Participant's estate or
representative) of its decision in writing. Such notification will be written
in a manner calculated to be understood by the Participant (or the
Participant's estate or representative) and will contain specific reasons for
the decision as well as specific references to pertinent Plan provisions. The
decision on review will be made within sixty (60) days after the request for
review is received by the Committee (or within one hundred twenty (120) days,
if special circumstances require an extension of time for processing the
request, such as the decision by the Committee to hold a hearing, and if
written notice of such extension and circumstances is given to the Participant
(or the Participant's estate or representative) within the initial sixty (60)
day period). Any decision by the Committee shall be made by majority vote.
The Participant (or the Participant's estate or representative) and an
authorized representative (if so desired) are entitled to be present and heard
if any hearing is held as part of the review. If the decision on review is not
made within such period, the request for benefits will be considered denied.
No legal action can be brought to recover benefits before the claims review
process has been exhausted.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 No Right to Continue in Employment. The adoption and maintenance
of this Plan and the execution of any Deferred Compensation Agreement shall not
be deemed to constitute an employment contract between the Company or any of
its Subsidiaries and any Eligible Employee. Nothing herein contained shall be
deemed (i) to give to any Eligible Employee the right to be retained in the
employ of the Company or any of its Subsidiaries; (ii) to affect the right of
the Company or any of its Subsidiaries to discipline or discharge any Eligible
Employee at any time; or (iii) to affect any Eligible Employee's right to
terminate his employment at any time.
9.2 Indemnification of Board, BIT and Committee. No member of the
Board, the BIT, or the Committee, nor any officer or employee of the Company
acting on behalf of the Board, the BIT, or the Committee, shall be personally
liable for any action, determination, or interpretation taken or made in good
faith with respect to the Plan, and all members of the Board, BIT or the
Committee and each officer or employee of the Company acting on their behalf
shall, to the extent permitted by law, be fully indemnified and protected by
the Company in respect to any such action, determination or interpretation.
9.3 Amendment; Termination. The Plan and any Deferred Compensation
Agreement may be altered or amended in whole or in part, at any time and from
time to time, by the Board, in its sole discretion, upon thirty (30) days'
prior written notice delivered to each Participant affected by any such action.
The Company reserves the right to terminate this Plan at any time.
No amendment by the Company shall reduce the accrued benefits of a
Participant.
If the Company terminates the Plan, the Company shall distribute to each
Participant, within 60 days after the effective date of termination, such
Participant's account, valued as of the date of termination.
<PAGE> 10
9.4 Binding Effect. This Plan shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and the Participants, and
their heirs, assigns and personal representatives.
9.5 Construction of Plan. The captions used in this Plan are for the
convenience only and shall not be construed in interpreting the Plan. Whenever
the context so requires in this Plan, the masculine shall include the feminine
and neuter, and the singular shall also include the plural, and conversely.
9.6 Integrated Plan. This Plan constitutes the final and complete
expression of agreement among the parties hereto with respect to the subject
matter hereof.
9.7 Controlling Law. This Plan shall be construed and enforced
according to the laws of the State of Texas to the extent not preempted by
Federal law, which shall otherwise control.
9.8 Title To Assets. No Participant shall have any right to, or
interest in, any assets of the Company upon termination of his or her
employment or otherwise, except as provided from time to time under this Plan.
9.9 Expenses. All costs and expenses with respect to the adoption,
implementation, interpretation and administration of the Plan shall be borne by
the Participants.
9.10 Inalienability of Benefits. The right of any Participant or
Beneficiary to any benefit or payment under the Plan shall not be subject to
alienation or assignment, and to the fullest extent permitted by law, shall not
be subject to attachment, execution, garnishment, sequestration or other legal
or equitable process. In the event a Participant or Beneficiary who is
receiving or is entitled to receive benefits under the Plan attempts to assign,
transfer or dispose of such right, or if an attempt is made to subject said
right to such process, such assignment, transfer or disposition shall be null
and void.
9.11 Payment of Benefits. Whenever any benefit which shall be payable
under the Deferred Compensation Agreement is to be paid to or for the benefit
of any person who is then a minor or determined to be incompetent by qualified
medical advice, the Company need not require the appointment of a guardian or
custodian, but shall be authorized to cause the same to be paid over to the
person having custody of such minor or incompetent, or to cause the same to be
paid to such minor or incompetent without the intervention of a guardian or
custodian, or to cause the same to be paid to a legal guardian or custodian of
such minor or incompetent if one has been appointed or to cause the same to be
used for the benefit of such minor or incompetent.
IN WITNESS WHEREOF, Thomas Group, Inc. has caused this Plan to be
executed by its duly authorized representative this day of
, 1996.
THOMAS GROUP, INC.
By:
Title:
<PAGE> 11
AGREED AND ACCEPTED BY PARTICIPANTS
Each of the undersigned represents that: (i) he is a Participant in the
Plan as of September 30, 1996, (ii) he has received and reviewed a copy of the
foregoing Restated Plan, (ii) he has had a reasonable opportunity to compare
his rights and benefits under this Restated Plan with his rights and benefits
under the Plan as in effect prior to November 1, 1996, and (iv) he agrees to
the amendment of his Deferred Compensation Agreement to conform to this
Restated Plan and the application of the provisions of this Restated Plan to
his Deferred Account as of November 1, 1996.
, 1996
, 1996
, 1996
, 1996
, 1996
, 1996
, 1996
<PAGE> 1
EXHIBIT 10.24
Lease Financing Agreement No. 9704
COMERICA LEASING CORPORATION
LEASE FINANCING AGREEMENT
LEASE FINANCING AGREEMENT dated as of August 12, 1997, by and between COMERICA
LEASING CORPORATION, a Michigan corporation, with its principal office located
at 29201 Telegraph Road, Southfield, Michigan, 48034 (herein "CLC") and THOMAS
GROUP, INC. , a Delaware corporation of 5215 North O'Connor Blvd., Suite 2500,
Irving, Texas 75039 (herein called "Lessee").
Upon the terms and conditions contained herein, CLC agrees to lease to Lessee,
and Lessee agrees to lease from CLC, and grant to CLC a security interest in,
the Equipment described in the Lease Schedule(s) executed from time to time by
the parties and thereby made a part hereof. "Schedule" as used herein includes
each of such Lease Schedules, together with any amendments, attachments and
exhibits thereto, each of which shall be deemed to be a part of this Capital
Lease Financing Agreement and collectively referred to as the "Agreement"
and/or "Lease Agreement". "Equipment" as used herein shall mean all the
Equipment which shall be subject to the term of this Agreement as identified on
the Schedules and/or Exhibits attached hereto or referenced herein or otherwise
incorporated by reference. Individual pieces of such Equipment shall be
referred to as "Item(s)" or "Item(s) of Equipment".
1. LEASE STATUS AND EFFECTIVE DATE. The terms and provisions of this
Agreement shall be effective as of the date Lessee certifies in writing that
the Equipment has been delivered to and accepted by Lessee or as of the date
CLC confirms to the seller or supplier of the Equipment the purchase of or the
purchase order for the Equipment, whichever occurs first, and shall continue
for the period specified in the Schedule pertaining to the Equipment unless
sooner terminated as provided hereunder (herein called the "Term"). The rental
payments shall be payable as set forth in each Schedule. The parties agree
that this Agreement represents a financing arrangement referred to as a "Lease
Financing Agreement" to which the relevant provisions of Article 9 (Secured
Transactions) of the Michigan Uniform Commercial Code (MCLA Section 440.9101 ET
SEQ) are applicable.
2. RENT, TAXES, ETC. The amount and terms of payment of the rental for the
Equipment shall be as provided for in the Schedule pertaining thereto. Lessee
shall also pay and discharge when due, whether payable by or billed or assessed
to CLC or Lessee, all license fees, assessments, and sales, use, property,
excise and other taxes now or hereafter imposed by any federal, state or local
government upon or with respect to this Agreement, any of the Equipment or
payments hereunder (excluding only taxes based solely on CLC's net income),
together with any interest or penalties in connection therewith. The parties
agree that the Lessee shall include the Items of Equipment in the ad valorem
tax returns to be filed by the Lessee in the applicable states or localities
and that CLC shall not include the Items of Equipment in any ad valorem tax
returns filed by them in such states or localities. Lessee agrees to comply
with all state and local laws requiring the filing of any tax returns or any
reports relating to the Equipment and promptly furnish to CLC evidence of such
filings and payment of the taxes.
3. WARRANTY. CLC warrants that it has received whatever title was conveyed to
CLC by CLC's predecessor in title to such Equipment. CLC further warrants that
during the term of the Lease, if no default has occurred, Lessee's use of the
Equipment shall not be interrupted by CLC or anyone claiming solely through or
under CLC regarding matters not related to this Agreement or the transactions
contemplated thereby.
Lessee acknowledges and agrees that (I) the Equipment is of a size, design,
capacity and manufacture selected by Lessee, (ii) CLC is not a manufacturer
thereof, nor a manufacturer's agent, nor a dealer in property of such kind as
the Equipment, and (iii) as between CLC and Lessee, LESSEE LEASES THE EQUIPMENT
AS IS AND THAT CLC HAS NOT MADE, NOR DOES IT MAKE, ANY REPRESENTATION OR
WARRANTY OR AGREEMENT WITH RESPECT TO THE FITNESS, MERCHANTABILITY, CONDITION,
QUALITY, DURABILITY OR SUITABILITY OF THE EQUIPMENT IN ANY RESPECT INCLUDING
ITS FITNESS FOR THE PURPOSES AND USES OF LESSEE, OR AS TO CLC'S TITLE THERETO
OR LESSEE'S RIGHT TO QUIET ENJOYMENT OF THE SAME (EXCEPT AS SPECIFICALLY SET
FORTH HEREIN), OR ANY OTHER REPRESENTATION OR WARRANTY OR AGREEMENT OF ANY KIND
OR CHARACTER, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT THERETO, ALL OF
WHICH ARE HEREBY SPECIFICALLY DISCLAIMED. Lessee acknowledges that Lessee has
reviewed and approved the Purchase Order, Supply Contract or Purchase Agreement
covering the Equipment purchased from the seller or supplier thereof for lease
to Lessee.
Lessee's Initials __________
<PAGE> 2
CLC hereby assigns, without warranty or representation as to legality or
validity, to Lessee, so long as there has been no default hereunder, all rights
which CLC may have against the seller of the Equipment by reason of and arising
out of the purchase of such Equipment, including any implied or express
warranties respecting the Equipment.
4. ACCEPTANCE; NET LEASE. Acceptance by Lessee of the Equipment shall be
conclusively presumed upon delivery of the Equipment to Lessee. If CLC so
requests, Lessee will furnish CLC with a Certificate of Equipment Acceptance in
CLC's form. This Agreement is a "net lease" and Lessee's obligation to pay
rental and other amounts payable hereunder shall be absolute and unconditional
and shall not be subject to any abatement, reduction, setoff, defense, or
counterclaim whatsoever (and Lessee hereby waives all of the foregoing to any
extent permitted by law), including, but not limited to, abatements or
reductions due to any present or future claims of Lessee against CLC hereunder
or otherwise. Nor, except as otherwise expressly provided herein, shall this
Agreement terminate or the obligations of Lessee hereunder be affected, by
reason of any defect in, damage to, or loss or destruction of any of the
Equipment from any cause whatsoever, including any defect in the condition,
design, operation or fitness for use of the Equipment, any liens, encumbrances,
security interests or rights of others with respect to any of the Equipment, the
taking or requisitioning of the Equipment by condemnation or otherwise, the
prohibition by government action of Lessee's use of the Equipment, the
interference with such use by any private person or corporation, the invalidity
or unenforceability or lack of due authorization or other infirmity of this
Agreement.
5. DELIVERY AND INSTALLATION. Unless otherwise agreed in writing, all
insurance, transportation, rigging, drayage, installation and other charges in
connection with the delivery and installation of the Equipment, or with the
removal to another location, are to be paid by Lessee.
6. CARE AND USE OF EQUIPMENT. Lessee (I) shall, at its expense, maintain the
Equipment in good operating condition, repair, and appearance, and protect the
same from deterioration, ordinary wear and tear excepted; (ii) shall use the
Equipment in the regular course of its business only within its normal
capacity, without abuse, and in a manner contemplated by the manufacturer and
required by any insurers thereof; and (iii) shall cause the Equipment at all
times to be in compliance with all applicable governmental rules and
regulations and laws. Lessee shall not make modifications, alterations, or
additions to the Equipment without the prior written consent of CLC and no such
modifications, alterations or additions shall be made which adversely affect
the value or utility of the Equipment.
7. DAMAGE TO EQUIPMENT. Lessee hereby assumes all risks of loss, theft,
damage, or destruction, partial or complete, of the Equipment from any and
every cause whatsoever commencing with delivery of the Equipment to Lessee, an
agent of Lessee or to a carrier consigned for shipment to Lessee or an agent of
Lessee, whichever is earlier. Lessee agrees to give prompt written notice to
CLC in the event of any loss of, or damage to, any Equipment. The total or
partial destruction of any Equipment or the total or partial loss of use or
possession thereof to Lessee shall not release or relieve Lessee from any
obligation of Lessee hereunder which shall remain in full force and effect. In
the event of damages of any kind whatever to any Equipment, Lessee at its
expense (except to the extent of any proceeds of insurance provided by Lessee
which shall have been received by CLC as a result of such loss, theft, damage,
or destruction), and at the option of CLC, shall either (a) place the same in
good repair, condition and working order, or (b) replace the same with a like
item of equipment acceptable to CLC and in good repair, condition and working
order and of equivalent value which shall become Equipment hereunder free and
clear of all liens, and Lessee shall execute a new Schedule and other documents
deemed appropriate by CLC to evidence such replacement, or (C) pay CLC the
amount shown as the "Principal Balance" in the Amortization Schedule for the
Equipment, attached to the Schedule pertaining to such Equipment or thereafter
furnished to the Lessee by Lessor which schedule shall be based on the same
assumptions used by Lessor in initially pricing the transaction. Upon
replacement or payment as provided for in clauses (b) and (C) hereof this
Agreement shall terminate with respect to such Items of Equipment so paid for
or replaced and CLC shall release its security interest therein.
8. INDEMNITY. Lessee shall promptly defend, indemnify, and hold CLC harmless
from and against (a) any and all loss of or damage to the Equipment, usual wear
and tear excepted; (b) any claim, cause of action, liability (including, but
not limited to, negligence, tort and strict liability), damages, cost or
expenses (including reasonable attorneys' fees) which may arise or be incurred
in any manner in favor of any person relating to the Equipment or any part
thereof, including, by way of example but not of limitation, claims arising out
of or incident to the construction, design, purchase, delivery, installation,
ownership, sale, leasing or return of the Equipment or as a result of its use,
maintenance, repair, operation or condition thereof, whether or not any claimed
defects in such Equipment are latent or are discoverable; (C) any claim, cause
of action, cost or expense which may arise or be incurred by reason of or as a
result of any act or omission of Lessee for itself or as agent for CLC
hereunder, and (d) any claim, cause of action, cost or expense arising from
alleged patent infringement. The obligations of Lessee herein contained shall
survive the expiration of this Agreement as to any loss, damages, claims,
causes of action, liabilities, costs or expenses based on or arising out of
events or conditions occurring or existing during the Term.
9. INSURANCE. Lessee will carry insurance with such insurers and in such
amounts as shall be satisfactory to CLC, which shall include but not be limited
to all insurance required by law, on the Equipment covering all risks of loss
in an amount not
<PAGE> 3
less than the full replacement cost thereof and comprehensive public liability
and property damage insurance in respect of the operation and use of the
Equipment IN AN AMOUNT ADEQUATE TO PROTECT CLC. Each such insurance policy
shall provide as follows: (a) with respect to the risk of loss, insurance on
the Equipment, that (I) coverage is in effect at the premises where the
Equipment is located and while in transit to and from such location, (ii) CLC,
as a secured party, shall be insured as its interest may appear, (iii) all
losses will be adjusted directly with CLC or all amounts payable thereunder
will be payable to CLC, (iv) the interest of CLC will at all times be insured
regardless of any breach of violation by Lessee of any warranties, declarations
or conditions contained in such policy, (v) the policy may be canceled only
after 30 days written notice to CLC; (b) as to the insurance for public
liability and property damage incurred by others, that (I) CLC, as a secured
party, is an additional insured thereunder, (ii) all provisions of such policy,
except the limits of liability, will operate in the same manner as if there
were a separate policy covering each insured, and (iii) the policy may be
canceled only after 30 days written notice to CLC. The proceeds of the
physical damage insurance on the Equipment shall be applied pursuant to Section
7 hereof. Lessee shall pay the premiums for all insurance and deliver evidence
of such payment, together with the policies, or duplicates thereof, to CLC. In
case of failure of Lessee to procure or maintain insurance as herein specified,
CLC may, at its option, obtain such insurance, in which event the cost thereof
shall be payable to CLC forthwith as additional rent hereunder.
10. GRANT OF SECURITY INTEREST. Lessee hereby assigns, pledges and grants to
CLC a continuing security interest in the Equipment, the Agreement and all
interests and matters of any nature whatsoever arising therefrom to secure all
payment due under this Agreement and any indebtedness of Lessee to CLC from
time to time outstanding as evidenced by the Agreement and under such other
leases or notes or other evidence of indebtedness made by Lessee and delivered
to CLC from time to time, and any and all other advances, commitments to loan
or lease, accruals, extensions and renewals of credit owing by Lessee to CLC
whether present or future as the case may be and to secure Lessee's prompt,
full and faithful performance and observance of all the provisions to be kept,
observed or performed by Lessee under the Agreement and under any other leases,
notes, agreements executed by Lessee and delivered to CLC. The security
interest granted hereby shall also cover the cash and non-cash proceeds of the
Equipment, including the proceeds of any hazard or casualty insurance relating
thereto. The creation of an interest in proceeds is not construed to give
Lessee any right to dispose of any of the Equipment.
11. PERFECTION OF SECURITY INTEREST. In order to perfect and maintain CLC's
security interest in the Equipment, the Agreement and all interests of any
nature whatsoever arising therefrom and as further assurance to CLC, Lessee
shall execute and deliver to CLC, concurrently with Lessee's execution of the
Agreement, and promptly at any time or times thereafter at the request of CLC,
all financing statements, continuation financing statements, assignments of
lease, certificates of title, applications of vehicle or other titles,
affidavits, reports, financial statements and all other documents and
information which CLC may request, in a form satisfactory to CLC; and Lessee
shall promptly pay all costs associated therewith, including, but not limited
to, filing and recording fees.
12. TITLE. The Lessee, as between CLC and the Lessee, shall and hereby does
retain full legal title to the Equipment. Lessee acknowledges that the
Equipment is and will be at all times remain personal property regardless of
how installed or attached to the premises.
13. COVENANTS AND REPRESENTATIONS. Lessee shall keep the Equipment free and
clear of all levies, liens, charges and encumbrances except for the security
interest of CLC as provided for herein. During the Term, Lessee shall not
without CLC's written consent, part with possession or control of the
Equipment, or sublease, sell, assign, pledge, mortgage or otherwise encumber
the Equipment or any part thereof. CLC shall be entitled to inspect the
Equipment and all records of Lessee pertaining thereto upon request and during
normal business hours. It is agreed that the Lessee may desire to engage in
the acquisition of stock and/or assets of other entities from time to time (the
"acquisitions"). Lessee shall be permitted to engage in Acquisition and Debt
may be assumed by Lessee in connection therewith, so long as (I) the
acquisition(s) are related to the Lessee's existing line of business, (ii) no
event of Default exists at the time of such acquisition(s), (iii) the
acquisition(s) will not cause an Event of Default to occur, (iv) any Debt to
any seller must be unsecured, and (v) acquisitions must be reasonably projected
to be accretive to positive earnings within twelve months of closing of
acquisitions. Lessee shall not without the prior written consent of Comerica
Leasing Corporation: convey, transfer or lease substantially all of its assets
as an entirety to any third party. In the event that Lessee is a party to a
leveraged buy-out, merger, consolidation, sale or lease of substantially all of
its assets, or any other significant corporate changes, such event shall
constitute a Casualty Loss; and in such event, Lessee shall pay Comerica
Leasing Corporation the amount shown as the "Principal Balance" in the
Amortization Schedule plus any other amounts owing by Lessee in accordance with
the terms of the Lease for the Equipment if attached to the Schedule pertaining
to such Equipment or thereafter furnished by Comerica Leasing Corporation to
Lessee based on the same assumptions used in initially pricing the transaction
unless Comerica Leasing Corporation's prior written consent is given. Upon the
receipt of such amount by Comerica Leasing Corporation, this Agreement shall
terminate and Lessee shall take title to the Equipment AS IS, WHERE IS, WITHOUT
WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO ANY MATTER WHATSOEVER.
Lessee warrants and represents that (I) there currently are no pending or
threatened actions or proceedings before any court,
<PAGE> 4
administrative agency or other tribunal or body or judgments which may
materially adversely affect Lessee's financial condition or business operations
("Adverse Actions") and that during the Term, Lessee shall promptly advise CLC,
in writing, of the commencement or threatened commencement of any such Adverse
Actions; (ii) Lessee has the full power and authority to enter into this
Agreement, and has taken all requisite actions to authorize this transaction,
the acceptance of delivery of the Equipment and the performance of the
obligations of Lessee hereunder; and (iii) the signatories hereto are duly
authorized to sign on behalf of Lessee, and upon execution, the Agreement shall
be the valid, legal and binding obligation of Lessee enforceable pursuant to
its terms and will not constitute a breach of any other agreement to which
Lessee is a party.
14. LABELS. Lessee shall affix any labels furnished by CLC denoting CLC's
interest and keep the same upon a prominent place and clearly readable on each
item of Equipment. Lessee may place a number on any Equipment for its
identification purposes, but shall not otherwise mark the Equipment.
15. ACTS OF GOD, ETC. CLC shall not be liable or in default for any delay or
failure of performance hereunder resulting, directly or indirectly, from acts
of God, civil or military authority, acts of public enemy, war, accidents,
fires, explosions, earthquakes, floods, the elements, strikes, labor disputes,
shortages of parts, materials, labor on transportation or any cause beyond
CLC's control.
16. DEFAULT. Each of the following events shall constitute an "Event of
Default" hereunder: (a) Lessee fails to make payment of any rent or other sum
due to CLC as and when required hereunder and such failure shall continue for a
period of ten (10) days; (b) Lessee fails to procure or maintain insurance on
the Equipment as required herein; (C) Lessee fails in the performance or
observance of any of the other covenants, conditions or agreements to be
performed or observed by it under this Agreement and such failure shall
continue uncured for seven (7) days after written notice thereof to Lessee by
CLC; (d) Lessee defaults in any obligation to Comerica Bank or any of its
subsidiaries; (e) Lessee defaults in the payment of any obligation of Lessee
for money borrowed from a third party provided such indebtedness is in an
aggregate principal amount of Five Hundred Thousand 00/100 ($500,000.00) or
more; (f) Lessee ceases doing business, becomes insolvent, commits an act of
bankruptcy or becomes the subject of any proceeding under the Federal
Bankruptcy Code; (g) any representation or warranty made by Lessee under this
Agreement or any supplement, amendment, or addition thereto, or in any document
or certificate furnished CLC in connection herewith or pursuant hereto shall
prove to be incorrect at any time in any material respect; (h) judgments
aggregating more than Five Hundred Thousand and 00/100 ($500,000.00) Dollars
shall be entered against Lessee; and (I) Lessee creates, incurs, assumes, or
suffers to exist any mortgage, lien, pledge, or other encumbrance or attachment
of any kind whatsoever upon, affecting or with respect to the Equipment or this
Agreement or any of CLC's interests thereunder.
17. REMEDIES. Upon the happening of an Event of Default, CLC may at its
option undertake one or more of the following actions: (1) proceed by
appropriate court action or actions to enforce performance by Lessee of the
applicable covenants and provisions of this Agreement or to recover damages for
the breach thereof; (2) terminate this Agreement as to any or all Items of
Equipment, without prejudice to CLC's rights in respect to obligations then
accrued and remaining unsatisfied as well as the remedies and claims referred
to herein; (3) declare all unpaid rent immediately due and payable; (4)
directly, or by its agents, enter upon the premises of Lessee or other premises
where the Equipment may be located and without liability for suit, action or
other proceeding by Lessee, take possession of all such Equipment and thereupon
Lessee's right to possession thereof shall absolutely cease and terminate and
this Agreement shall terminate as to all such Equipment. LESSEE HEREBY
EXPRESSLY WAIVES TO THE EXTENT PERMITTED BY LAW (a) NOTICE AND THE RIGHT TO A
HEARING PRIOR TO SUCH RETAKING OF POSSESSION, AND (b) ANY DIRECT OR
CONSEQUENTIAL DAMAGES OCCASIONED BY SUCH TAKING OF POSSESSION; (5) elect to
sell or release any or all Items of Equipment and recover from the Lessee as
liquidated damages for the Lessee's default hereunder the "Principal Balance"
in the Amortization Schedule, on the date the sale or re- lease is consummated.
The amount received by CLC upon sale of such Items of Equipment shall be
deducted from said liquidated damage amount, and upon re-lease of such Items of
Equipment, the aggregate rentals to be received by CLC over the term(s) of such
re-lease, discounted by 5% per annum, shall be deducted from said liquidated
damage amount; (6) upon demand made to the Lessee, receive prompt payment from
Lessee of an amount equal to the "Principal Balance" in the Amortization
Schedule for the Equipment rental payment date next preceding the date such
demand is made, plus all rent and any other amounts owing by Lessee hereunder
to and including the date such notice is given; provided upon receipt of
payment in full of such amount, CLC shall tender to the Lessee a bill of sale
for the Items of Equipment then subject to this Agreement without any
warranties or representations regarding or relating to the Items for which the
bill of sale is tendered; (7) avail itself of any other remedy or remedies
provided for by any statute or otherwise available at law, in equity or in
bankruptcy or insolvency proceedings. In addition to any and all remedies and
damages set forth herein, Lessee shall also pay to CLC all costs and expenses
incurred by CLC as a result of Lessee's default, including without limitation,
all reasonable attorneys' fees and all costs and expenses incurred in searching
for, taking, removing, keeping, storing, repairing, restoring, selling or
re-leasing any Items of Equipment, and impositions relating thereto, as well as
any reasonable attorneys' fees and costs incurred subsequent to an Event of
Default relating to this Agreement, including, but not limited to, all
collection efforts, negotiations, documentation preparation and examination of
CLC's rights and remedies.
<PAGE> 5
In the event of any termination of this Agreement under this Section 18, it is
understood that CLC shall be entitled to retain all sums duly received by it
and shall be entitled to recover all rentals accrued and unpaid for the period
up to and including the date of such termination, as well as all other
additional sums which pursuant to the Agreement are payable by Lessee or for
which Lessee is liable or in respect of which Lessee agreed to indemnify CLC,
which may then be owing and unpaid.
18. LESSEE'S WAIVERS. To the extent permitted by applicable law, Lessee
hereby waives any and all rights including but not limited to Lessee's rights
to: (I) cancel this Agreement; (ii) repudiate this Agreement; (iii) reject the
Equipment; (iv) revoke acceptance of the Equipment; (v) recover damages from
CLC for any breaches of warranty or for any other reason; (vi) a security
interest in the Equipment in Lessee's possession or control for any reason;
(vii) deduct all or any part of any claimed damages resulting from CLC's
default, if any, under this Agreement; (viii) accept partial delivery of the
Equipment; (ix) "cover" by making any purchase or lease or of contract to
purchase or lease Equipment in substitution for those due from CLC; (x) recover
any general, special, incidental or consequential damages, for any reason
whatsoever; (xi) specific performance, replevin, detinue, sequestration, claim
and delivery or the like for any Equipment identified to this Agreement. To
the extent permitted by applicable law, Lessee also hereby waives any rights
now or hereafter conferred by statute or otherwise which may require CLC to
sell, lease or otherwise use any Equipment in mitigation of CLC's damages as
set forth in Paragraph 18 of this Agreement or which may otherwise limit or
modify any of CLC's rights or remedies under Paragraph 18.
19. WAIVER OF JURY TRIAL. Lessee hereby knowingly, voluntarily and
intelligently waives its constitutional right to a trial by jury with respect
to any claim, dispute, conflict, or contention, if any, as may arise under this
Lease Agreement or under any documents executed in connection herewith and
agrees that any litigation between the parties concerning this Lease Agreement
and the related documents shall be heard by a court of competent jurisdiction
sitting without a jury. Lessee hereby confirms to Comerica Leasing Corporation
that it has reviewed the effect of this waiver of jury trial with competent
legal counsel of its choice, or has been afforded the opportunity to do so,
prior to signing this Lease Agreement and the related documents and
acknowledges and agrees that Comerica Leasing Corporation is relying upon its
waiver in entering into this Lease Agreement.
20. ASSIGNMENT. LESSEE SHALL HAVE NO RIGHT TO ASSIGN THIS AGREEMENT OR ANY
INTEREST HEREIN WITHOUT THE PRIOR WRITTEN CONSENT OF CLC HAVING FIRST BEEN
OBTAINED. CLC may at any time assign for security or otherwise to any person
or entity all or part of its right, title and interest in, under and to this
Agreement, all or part of the rents and other sums at any time due or to become
due or at any time owing or payable by Lessee hereunder, and in and to the
Equipment covered hereby and the Security Deposit or any part thereof. After
written notice of such assignment given by CLC or such assignee to Lessee, all
sums payable by Lessee shall be paid by Lessee to such assignee. No such
assignee shall be obligated to perform any duty, covenant or condition required
to be observed or performed by CLC. Lessee agrees to acknowledge such
assignment in writing within fifteen (15) days after receiving written notice
thereof from the assignee or CLC. In the event of any such assignment, Lessee
agrees that Lessee will not assert against any such assignee any claims by way
of abatement, defense, set off, counterclaim, recoupment or otherwise which
Lessee may have by reason of any default of CLC hereunder or under any other
agreement, and no covenant, warranty or representation of CLC as to the
Equipment or any other matter shall in any way affect Lessee's duty to pay the
rent and perform its other obligations exactly as set forth in this Lease
Agreement.
21. FURTHER ASSURANCES. Lessee hereby makes, constitutes and appoints CLC its
true and lawful attorney-in-fact with full power of substitution to take any
action in furtherance of this Agreement, including, without limitation, the
signing of financing statements, endorsing of instruments, and the execution
and delivery of all documents and agreements necessary to obtain or accomplish
any protection for or collection or disposition of any part of the Equipment.
Such appointment shall be deemed irrevocable and coupled with an interest.
Lessee also agrees to furnish CLC: (1) an audit report containing a balance
sheet, income statement, and statement of sources and uses of funds prepared by
independent certified public accountants, or other accountants acceptable by
CLC within one hundred twenty (120) days after the close of each fiscal year of
Lessee occurring after the date of Lease; (2) balance sheets as of the end of
each quarterly period of Lessee's fiscal years, income statement and statement
of sources and uses of funds certified as accurate by an officer of Lessee
within forty-five (45) days after the close of each quarterly period, unless
more frequent reports are requested by CLC in its sole discretion; and (3)
prompt written notice of any material adverse change in Lessee's financial
condition or business operations, whether pending or threatened. The Lessee
agree(s) that Comerica Leasing Corporation may provide information relating to
Lessee regarding the Agreement to Comerica Leasing Corporation's parent,
affiliates, subsidiaries and service providers and to Federal or State
regulators as may be required by law.
22. LATE RENTAL PAYMENTS. In the event that Lessee should fail to pay any
part of the lease payments or any other sum required to be paid hereunder
within ten (10) days after the due date thereof, Lessee shall pay to CLC, in
addition to the amount due, a sum equal to 5% of the total monthly payment for
each month or part thereof for which said lease payments or other sums shall be
delinquent, but in no event shall such charge exceed the highest lawful amount
chargeable.
23. MISCELLANEOUS. All obligations of Lessee hereunder shall continue until
full performance thereof has been rendered. Any cancellation or termination by
CLC pursuant to the provisions hereof shall not release Lessee from any
obligations to CLC. If there is more than one Lessee named herein, the
liability of each shall be joint and several. THIS AGREEMENT AND ALL SCHEDULES
CONSTITUTE THIS ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE
EQUIPMENT. THIS LEASE MAY NOT BE AMENDED EXCEPT BY A WRITING SIGNED BY CLC AND
LESSEE AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES
HERETO, THEIR PERMITTED SUCCESSORS AND ASSIGNS.
Lessee's Initials ____________
<PAGE> 6
A failure by CLC to require strict performance by Lessee of any terms,
covenants or agreements herein shall not be construed as a consent or waiver of
any other breach of the same or of any other term, covenant or agreement
herein. All notices and other communications made or required to be given
pursuant to this Agreement shall be in writing and shall be mailed, certified,
return receipt requested, postage prepaid, to the party's address as set forth
herein or such other address as such party shall have designated in writing.
If any provision of this Agreement is prohibited by, or is unlawful or
unenforceable under any applicable law of any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition without invalidating the remaining provisions hereof; provided,
however, that any such prohibition in any jurisdiction shall not invalidate
such provision in any other jurisdiction; and provided, further, that where the
provisions of any such applicable law may be waived, they are waived by Lessee
to the full extent permitted by law so that the remaining provisions of this
Agreement shall be deemed to be a valid and binding agreement in accordance
with its terms.
<PAGE> 7
25. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF MICHIGAN. LESSEE AGREES TO SUBMIT TO THE JURISDICTION OF
THE STATE AND/OR FEDERAL COURTS IN THE STATE OF MICHIGAN. THE VENUE FOR ANY
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE DEEMED PROPER
IF SUCH PROCEEDING IS BROUGHT IN A FEDERAL OR STATE COURT IN MICHIGAN SELECTED
SOLELY BY CLC. SERVICE OF PROCESS MAY BE MADE BY MAILING A SUMMONS AND
COMPLAINT BY FIRST CLASS MAIL, POSTAGE PREPAID TO THE LAST KNOWN ADDRESS OF THE
LESSEE, TOGETHER WITH THEIR PROMPT SERVICE BY MAIL UPON THE SECRETARY OF STATE
FOR THE STATE OF MICHIGAN.
Lessee's Initials
----------
COMERICA LEASING CORPORATION
(Lessor)
By:
------------------------------
Matt M. Tidwell
Its: Lease Marketing Representative
Dated: August 12, 1997
WITNESSES:
(Lessee)
By:
- ----------------------------------- ------------------------------
Philip R. Thomas
- ----------------------------------- Its: Chairman & Chief
Executive Officer
Dated: August 12, 1997
<PAGE> 1
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into effective as
of January 2, 1998, by and between Thomas Group, Inc., a Delaware corporation
(the "Company") and Philip R. Thomas, an individual residing in Dallas, Texas
("Mr. Thomas").
RECITALS
WHEREAS, Mr. Thomas is currently the Chairman of the Board ("Chairman") and the
Chief Executive Officer of the Company and an integral part of its management
who participates in the decision-making process relative to short-and long-term
planning and policy for the Company; and
WHEREAS, the Company has determined that it would be in the best interests of
the Company and its stockholders to assure continuity in the management of the
Company's operations by entering into an employment agreement to retain the
services of Mr. Thomas; and
WHEREAS, the Company wishes to assure itself of the continued services of Mr.
Thomas for the period herein provided, and Mr. Thomas is willing to be employed
by the Company for such period, upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Mr. Thomas agree as follows:
1. Definitions. The defined terms used in this Agreement shall have the meanings
ascribed to them in this Section 1.
1.1 Affiliate. "Affiliate" shall mean any corporation over which Mr. Thomas or
the Company, as the case may be, can exercise effective management and control.
1.2 Board of Directors. "Board" or the "Board of Directors" shall mean the Board
of Directors of the Company or any committee of the Board empowered to act or
make decisions or determinations with respect to this Agreement.
1.3 Cause. "Cause" shall mean that as determined in good faith by the Board of
Directors, Mr. Thomas has engaged in any act of misconduct which is materially
injurious to the Company or its business.
1.4 Change in Control. "Change in Control" shall mean:
-1-
<PAGE> 2
(a) the acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person" which, for purposes of this definition,
excludes Mr. Thomas or any of his Affiliates) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of shares of
common stock or other securities of the Company resulting in the beneficial
ownership by such individual, entity or group of 40% or more of either (1) the
then-outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (2) the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); or
(b) if individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute more than 50% of the
members of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then constituting the Incumbent Board, shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest subject to Rule 14a-11
of Regulation 14A promulgated under the Exchange Act or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) approval by the stockholders of the Company of a reorganization, merger or
consolidation unless following such reorganization, merger or consolidation (1)
more than 40% of, respectively, the then-outstanding shares of common stock of
the corporation resulting from such reorganization, merger or consolidation (the
"Outstanding Survivor Common Stock"), and the combined voting power of the
then-outstanding voting securities of such corporation entitled to vote
generally in the election of directors (the "Outstanding Survivor Voting
Securities"), is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares of Outstanding
Survivor Common Stock and Outstanding Survivor Voting Securities owned by the
Company's stockholders, but not from the total number of shares of Outstanding
Survivor Common Stock and Outstanding Survivor Voting Securities, any shares or
voting securities received by any such stockholder in respect of any
consideration other than shares or voting securities of the Company), (2) no
Person (excluding the Company, any employee benefit plan (or related trust) of
the Company, any qualified employee benefit plan of such Surviving Corporation
and any Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 40% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the case may
be) beneficially owns, directly or indirectly, 40% or more of, respectively, the
shares of Outstanding Survivor Common Stock or Outstanding Survivor Voting
Securities, and (3) more than 50% of the members of the board of directors of
the Surviving Corporation were members of
-2-
<PAGE> 3
the Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(d) (1) approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company or (2) the first to occur of (i) the sale or other
disposition (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company, or (ii) the approval by the
stockholders of the Company of any such sale or disposition, other than, in each
case, any such sale or disposition to a corporation with respect to which
immediately thereafter (x) more than 40% of, respectively, the shares of
Outstanding Survivor Common Stock and the Outstanding Survivor Voting Securities
is then beneficially owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or other
disposition of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be (for purposes of determining whether such
percentage test is satisfied, there shall be excluded from the number of shares
of Outstanding Survivor Common Stock and Outstanding Survivor Voting Securities
owned by the Company's stockholders, but not from the total number of shares of
Outstanding Survivor Common Stock and Outstanding Survivor Voting Securities of
the surviving corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (y) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 40%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 40%
or more of, respectively, the shares of Outstanding Survivor Common Stock and
Outstanding Survivor Voting Securities and (z) more than 50% of the members of
the board of directors of the surviving corporation were members of the
Incumbent Board at the time of the execution of the initial agreement or action
of the board providing for such sale or other disposition of assets of the
Company.
1.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6 Common Stock. "Common Stock" shall mean the common stock of the Company, par
value $.01 per share.
1.7 Disability. "Disability" shall mean the inability of Mr. Thomas to perform
his material managerial duties and responsibilities as contemplated under
Section 3 during the Term of Employment, as determined in accordance with
Section 6.1(e).
1.8 Good Reason. "Good Reason" shall mean Mr. Thomas' decision to terminate his
employment under this Agreement if the Company or any successor thereto commits
any material breach of this Agreement.
-3-
<PAGE> 4
1.9 Term of Employment. "Term of Employment" shall mean the period of time
commencing on the effective date of this Agreement and continuing until December
31, 2005, unless terminated earlier pursuant to the terms hereof.
2. Termination of Prior Agreements. The Company and Mr. Thomas hereby
acknowledge and agree that this Agreement supersedes any prior agreements.
3. Employment. The Company employs Mr. Thomas and Mr. Thomas accepts employment
by the Company as Chairman and Chief Executive Officer for the Term of
Employment, on the terms and conditions and for the compensation hereinafter set
forth. Subject to the authority of the Board of Directors, and in his capacity
as Chief Executive Officer, Mr. Thomas shall have general management and control
of the business and affairs of the Company in the ordinary course of its
business, with all such powers with respect to such general management and
control as may be reasonably incident to his responsibilities as its Chief
Executive Officer. In his capacity as Chief Executive Officer, Mr. Thomas agrees
to devote substantially all of his time and efforts to the business of the
Company. Of his own accord or in concert with the Nominating, Corporate
Governance and Compensation Committee of the Board of Directors (the
"Committee"), Mr. Thomas may act solely in the capacity of Chairman (a
non-officer position). It is contemplated that Mr. Thomas would remain as
Chairman and Chief Executive Officer until December 31, 2000, at which time Mr.
Thomas would become Chairman. In his capacity as Chairman only, Mr. Thomas
agrees to devote one-half of his time and efforts to the business of the
Company.
4. Compensation and Benefits During the Term of Employment.
4.1 Base Compensation. In his capacity as Chairman and Chief Executive Officer,
Mr. Thomas shall receive base compensation in the amount of $600,000 annually.
In his capacity as Chairman only, Mr. Thomas shall receive base compensation in
the amount of $300,000 annually. Base compensation shall be reviewed annually by
the Committee and adjusted as appropriate. Base compensation shall be paid in
equal monthly installments by the Company to Mr. Thomas. No portion of base
compensation may be advanced to Mr. Thomas prior to the time otherwise payable.
4.2 Incentive Compensation Arrangement.
(a) In further consideration of Mr. Thomas' performance of services under
Section 3 hereof, the Company agrees to compensate Mr. Thomas under the
incentive compensation arrangement ("Incentive Compensation") set forth in
Section 4.2(b). Except as specifically provided herein, the computation of
annual incentive compensation will be based upon the audited financial results
of the Company.
(b) (1) General. Mr. Thomas' Incentive Compensation is equal to a percentage of
the dollar value derived from a formula sharing ratio of the Company's revenues.
In his capacity as Chairman and Chief Executive Officer, the percentage is 100%,
and in his capacity as Chairman only, the percentage is 50%. The sharing ratio
is based upon the Company's percentage increase in cumulative income before tax
and incentive compensation ("IBTIC") for the current fiscal year compared to the
Company's cumulative IBTIC for the prior fiscal year, and upon certain targeted
-4-
<PAGE> 5
levels of the Company's IBTIC. For purposes of determining IBTIC, incentive
compensation includes the Incentive Compensation payable under this Agreement as
well as any incentive compensation paid under a plan which includes Company
officers.
(2) Incentive Compensation Calculation. The formula for determining incentive
compensation is as follows: Incentive Compensation equals the product of the
Company revenues for the applicable fiscal year multiplied by the income growth
sharing ratio expressed as a percentage ("IGSR") for the fiscal year. The ISGR
is determined with reference to the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SHARING RATIO (%)
IBTIC GROWTH RATE
- --------------------------------------------------------------------------------------------------------
IBTIC AS % OF REVENUE STANDARD INCENTIVE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
<5% 5-9.99% 10-14.99% 15-24.99% 25-29.99%
- --------------------------------------------------------------------------------------------------------
4.0 - 8.99% 0.0 0.0 0.0 0.2 0.3
- --------------------------------------------------------------------------------------------------------
9.00 - 14.99% 0.3 0.4 0.5 0.6 0.7
- --------------------------------------------------------------------------------------------------------
15.00 - 19.25% 0.5 0.6 0.8 1.0 1.2
- --------------------------------------------------------------------------------------------------------
Over 19.25% 0.8 1.0 1.3 1.6 1.8
- --------------------------------------------------------------------------------------------------------
</TABLE>
(3) Partial Fiscal Years. The computations set forth in Section 4.2(b)(2) above
shall be adjusted to take into account eligibility for partial fiscal years by
computing them based upon the entire fiscal year and multiplying these results
by the ratio of the number of days of such partial fiscal year to the number of
days in the complete fiscal year.
(4) Payments. The Company shall pay the Incentive Compensation to Mr. Thomas
within five business days after completion of the fiscal year-end audit of the
Company's financial statements by the Company's certified public accountants. No
portion of incentive compensation may be advanced to Mr. Thomas prior to the
time otherwise payable.
4.3 Travel Costs and Business Expenses. The Company shall reimburse Mr. Thomas
for all reasonable travel costs and other business expenses incurred by Mr.
Thomas in connection with the Company's business and the performance of Mr.
Thomas' duties under this Agreement, in keeping with past practice.
4.4 Automobile Expenses. The Company shall provide an annual automobile
allowance of $23,400 to Mr. Thomas.
4.5 Memberships. During his tenure as Chief Executive Officer, the Company shall
provide the following existing club memberships for Mr. Thomas: Petroleum Club,
Las Colinas Country Club, Park Cities Club.
-5-
<PAGE> 6
4.6 Office Services. The Company shall provide administrative assistance and
secretarial services to Mr. Thomas consistent with past practices in the form of
two executive assistants. Additionally, the Company shall provide office
accommodations, at the Company's expense, in Dallas/Irving, Texas, and Ethel,
Louisiana.
4.7 Option Grants.
(a) Grant A. Concurrently with the effective date of this Agreement, the Company
has granted Mr. Thomas options to purchase 375,000 shares of Common Stock at an
exercise price of $12.125 per share ("Grant A"). Vesting of Grant A options
occurs as follows:
For fiscal 1998, the Company must achieve earnings per share ("EPS") of at least
$1.30 *, and for fiscal 1999 and 2000, the Company must achieve at least a 15%
compounded annual growth rate in EPS relative to the milestone of $1.30 * for
fiscal 1998. Following is an illustration of the time and EPS hurdles, for
vesting of Grant A.
GRANT A: 375,000 options, @ $12.125 per share, effective January 2, 1998.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
VESTING OF 125,000 OPTIONS OCCURS UPON MEETING BOTH HURDLES:
- ----------------------------------------------------------------------------------------
TIME HURDLE FULL YEAR 1998 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
December 31, 1998 $1.30 *
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
VESTING OF 125,000 OPTIONS OCCURS UPON MEETING BOTH HURDLES:
- ----------------------------------------------------------------------------------------
TIME HURDLE FULL YEAR 1999 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
December 31, 1999 $1.49
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
VESTING OF 125,000 OPTIONS OCCURS UPON MEETING BOTH HURDLES:
- ----------------------------------------------------------------------------------------
TIME HURDLE FULL YEAR 2000 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
December 31, 2000 $1.71
- ----------------------------------------------------------------------------------------
</TABLE>
* [The $1.30 EPS figure has been estimated, based upon (1)
the fiscal 1998 impact of the $2,314,000 write-off of capitalized software
development costs and related goodwill in 4th quarter 1997, and (2) estimates of
shares outstanding during each of the quarters of fiscal 1998. The EPS figure
will change, to "revised plan EPS," in which event the subsequent EPS hurdles
will also change (once only), to reflect the 15% compounded annual growth rate
in EPS relative to the milestone for fiscal 1998. To calculate "revised plan
EPS," reference will be made to (a) quarterly net income in the Company's 1998
plan, as adjusted for item (1) above, as well as (b) the actual share count (per
FASB 128) for each quarter in fiscal 1998 as reported in the Company's SEC
filings.]
-6-
<PAGE> 7
(b) Grants B through F. Mr. Thomas may also earn additional option grants in
subsequent years. The following describes the EPS hurdles for the grant of
Grants B through F, and the time and EPS hurdles for the vesting of Grants B
through F.
GRANT B: 125,000 options, @ then-current market price, granted upon completion
of the audit for fiscal year 2000 (no later than March 15, 2001).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
GRANT OF 125,000 OPTIONS OCCURS UPON MEETING ONE HURDLE:
- ----------------------------------------------------------------------------------------
FULL YEAR 2000 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
$1.71
- ----------------------------------------------------------------------------------------
</TABLE>
Grant B options vest as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
VESTING OF 125,000 OPTIONS OCCURS UPON MEETING BOTH HURDLES:
- ----------------------------------------------------------------------------------------
TIME HURDLE FULL YEAR 2001 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
December 31, 2001 $1.96
- ----------------------------------------------------------------------------------------
</TABLE>
GRANT C: 125,000 options, @ then-current market price, granted upon completion
of the audit for fiscal year 2001 (no later than March 15, 2002).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
GRANT OF 125,000 OPTIONS OCCURS UPON MEETING ONE HURDLE:
- ----------------------------------------------------------------------------------------
FULL YEAR 2001 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
$1.96
- ----------------------------------------------------------------------------------------
</TABLE>
Grant C options vest as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
VESTING OF 125,000 OPTIONS OCCURS UPON MEETING BOTH HURDLES:
- ----------------------------------------------------------------------------------------
TIME HURDLE FULL YEAR 2002 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
December 31, 2002 $2.25
- ----------------------------------------------------------------------------------------
</TABLE>
GRANT D: 125,000 options, @ then-current market price, granted upon completion
of the audit for fiscal year 2002 (no later than March 15, 2003).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
GRANT OF 125,000 OPTIONS OCCURS UPON MEETING ONE HURDLE:
- ----------------------------------------------------------------------------------------
FULL YEAR 2002 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
$2.25
- ----------------------------------------------------------------------------------------
</TABLE>
Grant D options vest as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
VESTING OF 125,000 OPTIONS OCCURS UPON MEETING BOTH HURDLES:
- ----------------------------------------------------------------------------------------
TIME HURDLE FULL YEAR 2003 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
December 31, 2003 $2.58
- ----------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE> 8
GRANT E: 125,000 options, @ then-current market price, granted upon completion
of the audit for fiscal year 2003 (no later than March 15, 2004).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
GRANT OF 125,000 OPTIONS OCCURS UPON MEETING ONE HURDLE:
- ----------------------------------------------------------------------------------------
FULL YEAR 2003 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
$2.58
- ----------------------------------------------------------------------------------------
</TABLE>
Grant E options vest as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
VESTING OF 125,000 OPTIONS OCCURS UPON MEETING BOTH HURDLES:
- ----------------------------------------------------------------------------------------
TIME HURDLE FULL YEAR 2004 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
December 31, 2004 $2.96
- ----------------------------------------------------------------------------------------
</TABLE>
GRANT F: 125,000 options, @ then-current market price, granted upon completion
of the audit for fiscal year 2004 (no later than March 15, 2005).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
GRANT OF 125,000 OPTIONS OCCURS UPON MEETING ONE HURDLE:
- ----------------------------------------------------------------------------------------
FULL YEAR 2004 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
$2.96
- ----------------------------------------------------------------------------------------
</TABLE>
Grant F options vest as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
VESTING OF 125,000 OPTIONS OCCURS UPON MEETING BOTH HURDLES:
- ----------------------------------------------------------------------------------------
TIME HURDLE FULL YEAR 2005 EPS HURDLE
- ----------------------------------------------------------------------------------------
<S> <C>
December 31, 2005 $3.40
- ----------------------------------------------------------------------------------------
</TABLE>
(c) Special Provisions. With respect to each of option grants A through F:
o Vesting occurs when both (a) the time hurdle is met and (b) the EPS
hurdle (for the full year) is met or exceeded. The determination
whether an EPS hurdle has been met, will be made upon completion of the
audit for the relevant year.
o Options which have not vested in prior years, will vest upon
achievement of the then-current hurdles for subsequent years. By way of
example, if the 125,000 options which were to have vested upon (a)
completion of the 1998 fiscal year and (b) the achievement of $1.30 EPS
for fiscal year 1998, did not vest, then such options will vest if the
then-current time and EPS hurdles are both met by the date on which the
Company releases
-8-
<PAGE> 9
its earnings report for any of the fiscal years 1999 through 2005. In
the foregoing example, if the 125,000 options which were to have vested
upon the achievement of $1.30 EPS for fiscal year 1998, did not vest,
then such options will vest if the $1.49 EPS hurdle is met for the full
fiscal year 1999.
o In a similar manner, options which were not granted in prior years,
will be granted upon achievement of the then-current hurdles for
subsequent years. By way of example, if the 125,000 options which were
to have been granted upon (a) completion of the 2000 fiscal year and
(b) the achievement of $1.71 EPS for fiscal year 2000, were not
granted, then such options will be granted if the time hurdle and EPS
hurdle are both met by the date on which the Company releases its
earnings report for any of the fiscal years 2001 through 2005. In the
foregoing example, if the 125,000 options which were to have been
granted upon (a) completion of the 2000 fiscal year and (b) the
achievement of $1.71 EPS for fiscal year 2000, were not granted, then
such options will be granted if the $1.96 EPS hurdle is met for the
full fiscal year 2001. Such grant will vest immediately.
o Those options which have not vested as of the date on which the Company
releases its earnings report for fiscal year 2005, are forfeited.
(d) Additional Discretionary Grants. In the discretion of the Board, the Company
may award additional options to Mr. Thomas for exceptional performance.
(e) Exercise Price. The exercise price of all options granted hereunder shall be
100% of the fair market value of the Common Stock on the date of grant,
determined as follows: the average of the high and low prices of the Common
Stock on the principal national securities exchange on which the Common Stock is
listed, or if not so listed, the average of the high and low prices of the
Common stock on such date on the Nasdaq National Market System, or if not so
quoted, the average of the bid and asked prices of the Common Stock on such date
in such other market in which shares of Common Stock are regularly quoted, or if
not so quoted, as established by the Board on such date.
(f) Window of Exercise. In the event Mr. Thomas' employment is terminated, by
either of Mr. Thomas or the Company, all stock options granted hereunder shall
remain exercisable for a period of three years following such termination.
4.8 401(k) Savings Plan and Insurance Benefit Plan Participation; No Other Bonus
Plan Participation. Mr. Thomas shall be entitled to participate in the Company's
401(k) savings plan, subject to the terms and conditions of such plans. The
Company also shall provide medical, disability and life insurance coverage to
Mr. Thomas on the terms and conditions of each of the plans the Company
maintains with respect thereto. Mr. Thomas shall not be entitled to participate
in any other bonus arrangement instituted from time to time by the Company,
unless approved in advance by the Board.
4.9 CEO Center Leases; Maintenance Equipment. The Company and Mr. Thomas are
parties to certain leases covering real property located in Ethel, Louisiana, on
which the CEO Center utilized by the Company is located. Such leases contemplate
that Mr. Thomas may purchase the leasehold
-9-
<PAGE> 10
improvements. The Company agrees to amend such leases, such that Mr. Thomas may
purchase the leasehold improvements at the lesser of book value or fair market
value, at the end of the lease term or in the event the Company no longer makes
use of the CEO Center for its business. Additionally, the Company agrees that
Mr. Thomas may purchase the vehicles and equipment used in maintenance of the
facility (such as trucks and mowers) at the lesser of book value or fair market
value, at the end of the real property lease term or in the event the Company no
longer makes use of the CEO Center for its business.
5. Term of the Agreement. The term of this Agreement, unless terminated sooner
pursuant to Section 6, shall be for the Term of Employment.
6. Termination.
6.1 Basis. Mr. Thomas' employment under this Agreement may be terminated as
described in this Section 6.1. In the event that Mr. Thomas' employment is
terminated in accordance with this Section 6.1, Mr. Thomas shall be entitled to
receive the benefits described in Section 6.2 that correspond with the manner of
such termination.
(a) Termination Without Cause. The Company may terminate Mr. Thomas' employment
under this Agreement without Cause by written notice to Mr. Thomas to that
effect. Unless otherwise specified in the notice, such termination shall be
effective immediately.
(b) Termination For Cause. The Company may terminate the employment of Mr.
Thomas under this Agreement for Cause by written notice to Mr. Thomas to that
effect. Unless otherwise specified in the notice, such termination shall be
effective immediately. Additionally, if Company revenues and EPS do not exceed
the thresholds set forth in the following table for each of three consecutive
fiscal years, then the employment of Mr. Thomas under this Agreement shall be
terminated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
YEAR 1998 1999 2000 2001 2002 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FULL YEAR EPS
HURDLE $1.30 * $1.49 $1.71 $1.96 $2.25 $2.58 $2.96 $3.40
- ------------------------------------------------------------------------------------------------------------
FULL YEAR
REVENUES
HURDLE (IN
$MILLION) $91.1 $104.8 $120.5 $138.6 $159.4 $183.4 $210.9 $242.5
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Note: for purposes of the foregoing table, the EPS and revenues hurdles for
fiscal years 1999 through 2005 reflect a compound growth rate of 15% per
year.
-10-
<PAGE> 11
* [The $1.30 EPS figure has been estimated, based upon (1) the fiscal
1998 impact of the $2,314,000 write-off of capitalized software development
costs and related goodwill in 4th quarter 1997, and (2) estimates of shares
outstanding during each of the quarters of fiscal 1998. The EPS figure will
change, to "revised plan EPS," in which event the subsequent EPS hurdles will
also change (once only), to reflect the 15% compounded annual growth rate in EPS
relative to the milestone for fiscal 1998. To calculate "revised plan EPS,"
reference will be made to (a) quarterly net income in the Company's 1998 plan,
as adjusted for item (1) above, as well as (b) the actual share count (per FASB
128) for each quarter in fiscal 1998 as reported in the Company's SEC filings.]
(c) Good Reason. Upon the occurrence of an event constituting Good Reason as
described in Section 1.10 hereof, Mr. Thomas may terminate his employment under
this Agreement for Good Reason within 30 days thereafter upon written notice to
the Company to that effect. If the effect of the occurrence of the event may be
cured, the Company shall have the opportunity to cure any such effect for a
period of 30 days following receipt of Mr. Thomas' termination notice. The right
of Mr. Thomas to terminate his employment for Good Reason shall not limit the
Company's ability to terminate Mr. Thomas for Cause, if Cause is determined to
exist prior to the time Mr.
Thomas delivers his written notice of termination to the Company.
(d) Without Good Reason. Mr. Thomas may voluntarily terminate his employment
under this Agreement without Good Reason, upon written notice to the Company to
that effect.
(e) Disability. Mr. Thomas or the Company may terminate Mr. Thomas' employment
by reason of Disability upon written notice to the other party to that effect.
If the parties are unable to agree as to the existence of Disability or as to
the date of commencement of Disability, each of Mr. Thomas and the Company shall
select a physician licensed to practice medicine in the United States and the
determination as to any such question shall be made by such physicians;
provided, however, that if such two physicians are unable to agree, they shall
mutually select a third physician licensed to practice medicine in the United
States and the determination as to any such question shall be made by a majority
of such physicians. Any determination made by physicians in accordance with the
provisions of the immediately foregoing sentence shall be final and binding on
the parties. Mr. Thomas agrees to submit to any and all reasonable medical
examinations or procedures and to execute and deliver any and all consents to
release of medical information and records or otherwise as shall be reasonably
required by any of the physicians selected in accordance with this Section
6.1(e). Unless otherwise specified in the notice, such termination shall be
effective immediately.
(f) Death. This Employment Agreement shall automatically terminate as of the
date of Mr. Thomas' death during the Term of Employment.
(g) Change in Control. If a Change in Control occurs during the Term of
Employment, the Company shall promptly give written notice to Mr. Thomas
thereof. Following a Change in Control, Mr. Thomas shall be required to continue
his employment under this Agreement for 90 days after the date of such Change in
Control, unless his employment is terminated sooner by the
-11-
<PAGE> 12
Company prior to the expiration of the applicable notice period. In the event
that Mr. Thomas decides to resign or otherwise voluntarily terminate his
employment following the occurrence of a Change in Control, Mr. Thomas may do so
by giving written notice to the Company to that effect on or before 180 days
after the occurrence of the Change in Control, which notice shall be effective
on the later to occur of (i) 180 days after the occurrence of the Change in
Control or (ii) 90 days after the date of such notice. If Mr. Thomas does not
give such notice to the Company, this Agreement will remain in effect; provided,
however, that the failure of Mr. Thomas to terminate this Agreement following a
Change in Control shall not be deemed a waiver of Mr. Thomas' right to terminate
his employment upon a subsequent occurrence of a Change in Control in accordance
with the terms of this subsection.
6.2 Benefits Upon Termination.
(a) General. In the event Mr. Thomas' employment is terminated, by either of Mr.
Thomas or the Company (other than by death), Mr. Thomas shall be entitled to the
retirement benefits set forth on Exhibit I.
(b) Death. In the event Mr. Thomas' employment is terminated by reason of his
death, the Company shall make payment of premiums to continue the medical and
dental insurance coverage on Mr. Thomas' spouse as in effect at and as of the
date of Mr. Thomas' death for the remainder of his spouse's life; provided,
however, that nothing contained herein shall limit or diminish any rights of Mr.
Thomas' estate or any other person to payments under any health, disability,
pension or other benefit plan provided pursuant to Section 4.7, in each case in
accordance with the terms thereof. If Mr. Thomas' employment is terminated by
reason of his death, the benefits provided under this Section 6.2 shall be paid
to the beneficiary or beneficiaries designated in writing by Mr. Thomas;
however, if no such beneficiary designation is made by Mr. Thomas during his
lifetime, the benefits under this Agreement shall be paid to his estate. By
execution of this Agreement, Mr. Thomas hereby designates his spouse, Wayne
Thomas, as the beneficiary.
(c) Termination for Cause; Termination without Good Reason. In the event the
Company terminates the employment of Mr. Thomas under this Agreement for Cause
as provided in Section 6.1(b), or in the event Mr. Thomas terminates his
employment under this Agreement without Good Reason as provided in Section
6.1(d), then in either such event any unvested options held by Mr. Thomas do not
vest.
(d) Change in Control. In the event Mr. Thomas' employment is terminated as
provided in Section 6.1(g) following the occurrence of a Change in Control, in
addition to the retirement benefits set forth on Exhibit I, Mr. Thomas shall be
entitled to the following benefit:
A one-time cash payment calculated as 3.0 times Mr. Thomas' then-current full
year base salary, less $100.00.
Additionally, in the event of a Change in Control, then all unmatured stock
options outstanding shall thereupon automatically be accelerated, fully vested,
and exercisable in full, including that portion of any option that had not yet
become exercisable.
-12-
<PAGE> 13
7.1 Non-Solicitation; Dispute Resolution.
(a) Definitions. The "Term of Prohibition" means the period beginning on the
date of this Agreement and continuing for a period of three years following the
termination of Mr. Thomas's employment with the Company for any reason
whatsoever. The term "Competing Business" means any business enterprise which
provides management consulting services to improve the cycle time of business
processes of any organization.
(b) Permitted Activities; Prohibited Activities.
(1) During the Term of Prohibition, Mr. Thomas will neither solicit nor
employ any Company employee to engage in a Competing Business, nor
solicit the business of any client of the Company or prospective client
of the Company with respect to whom the Company has conducted an
on-site macro-assessment.
(2) Subject to the limitations in Section 7.1(b)(1) immediately above, Mr.
Thomas may undertake activities in connection with the use of Total
Cycle TimeTM methodology, including speeches on the subject of Total
Cycle Time, for a fee or otherwise. Mr. Thomas may also serve as a
finder for the Company per the standard form of written agreement for
finders (a sample of which is attached as Exhibit II), and may serve as
a TGI Licensee to personally render time-based management consulting
services per the standard form of written agreement for such licensees
(a sample of which is attached as Exhibit III). In the event Mr. Thomas
is to serve as a TGI Licensee, the references in the standard form of
written agreement to "TCT(R) programs having a potential revenue stream
greater than $500,000 per 12-month period" shall be amended to read
"TCT(R) programs having a potential revenue stream greater than
$1,000,000 per 12-month period."
(3) Notwithstanding the foregoing, in the event the Company terminates the
employment of Mr. Thomas under this Agreement for Cause as provided in
Section 6.1(b), or in the event Mr. Thomas terminates his employment
under this Agreement without Good Reason as provided in Section 6.1(d),
then in either such event and for a period of three years following
such termination:
o Mr. Thomas is prohibited from undertaking activities in connection
with the use of Total Cycle Time methodology, and
o Mr. Thomas is prohibited from serving as either a finder for the
Company or as a TGI Licensee.
(c) Certain Acknowledgments. Mr. Thomas acknowledges that the scope of
prohibited activities and the time duration of the Term of Prohibition are
reasonable in nature and are no broader than are necessary to maintain the
confidentiality and the goodwill associated with the Company's clients and
services, to protect the Confidential Information, and to protect other
legitimate business interests of the Company.
-13-
<PAGE> 14
(d) Resolution of Certain Controversies. In the event of any controversy or
claim arising out of or related to the provisions concerning the use and
protection of Confidential Information, the prohibitions of Section 7.1, or the
breach thereof, the parties agree that the Company may seek equitable and other
relief. In the event of any controversy or claim arising out of or related to
the other provisions of this Agreement, the parties agree first to try in good
faith to settle the dispute by non-binding mediation administered by the
American Arbitration Association under its Commercial Mediation Rules. In the
event that mediation does not resolve the dispute, such dispute shall be settled
exclusively by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association in Dallas, Texas, and judgment may be
entered in any court having jurisdiction thereof.
7.2 Right to Work Product; Confidentiality.
(a) The Company and Mr. Thomas each acknowledge that performance of this
Agreement may result in the discovery, creation or development of inventions,
combinations, methods, formulae, techniques, processes, improvements, software
designs, computer programs, strategies, specific computer-related know-how,
course materials, seminar materials, computer models, customer lists, data and
original works of authorship (collectively, the "Work Product"). Mr. Thomas
agrees to promptly and fully disclose to the Company any and all Work Product
generated, conceived, reduced to practice or learned by Mr. Thomas, either
solely or jointly with others, during the Term of Employment, which in any way
relates to the business of the Company. Mr. Thomas further agrees that neither
Mr. Thomas, nor any party claiming through Mr. Thomas will, other than in the
performance of this Agreement, make use of or disclose to others any proprietary
information relating to the Work Product.
(b) Mr. Thomas agrees that, whether or not the services performed by Mr. Thomas
under this Agreement are considered works made for hire or an employment to
invent, all Work Product discovered, created or developed under this Agreement
shall be and remain the sole property of the Company and its assigns. Except as
specifically set forth in writing and signed by both the Company and Mr. Thomas,
Mr. Thomas agrees that the Company shall have all copyright and patent rights
with respect to any Work Product discovered, created, or developed under this
Agreement, without regard to the origin of the Work Product.
(c) If and to the extent that Mr. Thomas may, under applicable law, be entitled
to claim any ownership interest in the Work Product, Mr. Thomas hereby
transfers, grants, conveys, assigns and relinquishes exclusively to the Company
any and all right, title and interest he now has or may hereafter acquire in and
to the Work Product under patent, copyright, trade secret and trademark law, in
perpetuity or for the longest period otherwise permitted by law. Mr. Thomas
further agrees to assist the Company in every reasonable way to obtain and, from
time to time, enforce patents, copyrights, trade secrets and other rights and
protection relating to the Work Product, and to that end, Mr. Thomas will
execute all documents for use in applying for and obtaining such patents,
copyrights, trade secrets and other rights and protection with respect to such
Work Product as the Company may desire, together with any assignments thereof to
the Company or persons designated by it. Mr. Thomas' obligations to assist the
Company in obtaining and enforcing patents,
-14-
<PAGE> 15
copyrights, trade secrets and other rights and protection relating to the Work
Product shall continue beyond the Term of Employment.
(d) If and to the extent that any preexisting rights of Mr. Thomas are embodied
or reflected in the Work Product, Mr. Thomas hereby grants to the Company the
irrevocable, perpetual, non-exclusive, worldwide, royalty-free right and license
to (i) use, execute, reproduce, display, perform and distribute copies of and
prepare derivative works based upon such preexisting rights and any derivative
works thereof and (ii) authorize others to do any or all of the foregoing.
(e) Mr. Thomas acknowledges that certain of the material and information related
to the products, consulting techniques or other business affairs of the Company
and its affiliates, including the business affairs of the Company's customers
and clients which have or will come into Mr. Thomas' possession or knowledge in
connection with the performance of this Agreement, consists of confidential and
proprietary data of the Company, its Affiliates and clients (collectively,
"Confidential Information"), disclosure of which to, or use by, third parties
would be damaging to the Company or its clients. Mr. Thomas agrees to hold such
Confidential Information in strictest confidence and agrees not to release such
information to any person other than Company employees, and to Company employees
only if such employees (in the judgment of Mr. Thomas) have a need for such
knowledge. Mr. Thomas further agrees not to make use of Confidential Information
for Mr. Thomas' own benefit or for the benefit of any third parties, other than
for the performance of this Agreement, and not to release or disclose the
Confidential Information to any other party either during the term of this
Agreement or after the termination of this Agreement. In the event of any breach
of this confidentiality obligation, Mr. Thomas acknowledges that the Company
would have no adequate remedy at law, since the harm caused by such a breach
would not be easily measured and compensated for in the form of damages, and
hereby waives his right to contest any equitable relief sought by the Company,
other than Mr. Thomas' right to contest the question of whether a breach has
occurred.
8. General Provisions.
8.1 Notices. All notices, requests, demands, or other communications with
respect to this Agreement shall be in writing and shall be personally delivered,
telecopied, or mailed, postage prepaid, certified or registered mail, or
delivered by a nationally recognized express courier service, charges prepaid,
to the following addresses (or such other addresses as the parties may specify
from time to time in accordance with this Section):
Mr. Thomas: 3510 Turtle Creek Boulevard
Dallas, TX 75219
The Company: Thomas Group, Inc.
5215 North O'Connor Boulevard
Suite 2500
Irving, TX 75039
-15-
<PAGE> 16
Any such notice shall, when sent in accordance with the preceding sentence, be
deemed to have been given and received (i) on the day personally delivered or
telecopied, (ii) on the third day following the date mailed, or (iii) 24 hours
after shipment by such courier service.
8.2 Entire Agreement. This Agreement, together with Exhibit I hereto, supersedes
any and all other agreements, either oral or written between the parties hereto
with respect to the employment of Mr. Thomas by the Company and contains all of
the covenants and agreements between the parties with respect to such
employment.
8.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
8.4 Waiver of Breach. The waiver by either party of a breach of any provision of
this Agreement by the other party shall not operate or be construed as a waiver
of any subsequent breach.
8.5 Severability. The provisions of this Agreement are severable, and if any one
or more provisions may be determined to be judicially unenforceable and/or
invalid by a court of competent jurisdiction, in whole or in part, the remaining
provisions shall nevertheless be binding, enforceable and in full force and
effect.
8.6 Titles and Headings. The titles and headings of the various sections hereof
are intended solely for convenience of reference and not intended for any
purpose whatsoever to explain, modify or place any construction upon any of the
provisions of this Agreement.
8.7 Attorneys' Fees. In the event any of the parties hereto brings suit against
the other party hereto, based upon or arising out of a breach or violation of
this Agreement, or in the event of an arbitration hearing based upon or arising
out of a breach or violation of this Agreement, each party agrees that the party
who is successful on the merits, upon final adjudication from which no further
appeal can be taken or is taken within the time allowed by law, shall be
entitled to recover his or its reasonable attorneys' fees and expenses from the
other party.
8.8 Benefit and Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns;
provided, however, that nothing contained in this Section 8.8 shall impair Mr.
Thomas' rights under Section 6.2(d), if the successor or assign of the Company
became such upon the occurrence of a Change in Control. Notwithstanding anything
herein to the contrary, Mr. Thomas shall not assign any of his rights or
obligations under this Agreement.
8.9 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be an original, and all of which shall together constitute
one agreement.
8.10 Reliance on Authority of Person Signing Agreement. The individual signing
this Agreement on behalf of the Company warrants that such execution has been
duly authorized by the Company. The execution and performance of this Agreement
by each party has been duly authorized by all applicable laws and regulations
and (in the case of the Company) all necessary corporate action,
-16-
<PAGE> 17
and this Agreement constitutes the valid and enforceable obligation of each
party in accordance with its terms.
8.11 Amendments. Amendments to any section of this Agreement shall not be
effective unless agreed to in writing by the parties hereto. This Agreement,
including this provision against oral modification, shall not be amended,
modified or terminated except in a writing signed by each of the parties to this
Agreement, and no waiver of any provision of this Agreement shall be effective
unless in a writing duly signed by the party sought to be bound.
9. Certain Tax Provisions. Mr. Thomas acknowledges and agrees that all payments
and benefits made or provided to Mr. Thomas pursuant to the terms hereof which
are required by applicable federal, state or local laws to be subject to
withholding for income taxes, shall be so subject.
-17-
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
effective as of the date first above written.
MR. THOMAS
/s/ Philip R. Thomas
- -------------------------------
Philip R. Thomas, individually
THOMAS GROUP, INC.
By: /s/ Alexander W. Young
-----------------------
Name: Alexander W. Young
Title: President and Chief Operating Officer
On Behalf of the Committee:
/s/ General John T. Chain , Jr.
- -------------------------------
General John T. Chain, Jr.
-18-
<PAGE> 19
SUPERCEDED BY THE FOLLOWING ADDENDUM
EXHIBIT I
RETIREMENT BENEFITS
For purposes of the following table, "FAE," or final average earnings, is
defined as the average of annual cash compensation (base salary and incentive
compensation) paid to Mr. Thomas over the period of January 1, 1998 to December
31, 2005; provided, that if Mr. Thomas' employment is terminated (1) as provided
in Section 6.1(g) following the occurrence of a Change in Control or (2) as
provided in Section 6.1(b), the calculation of FAE would be made only through
the year prior to the year in which the termination occurred (as an average for
those years during which Mr. Thomas was employed hereunder).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
IF MR. THOMAS' EMPLOYMENT ENDS THE RETIREMENT BENEFIT TO WHICH MR. THOMAS WOULD BE
DURING THIS TIME FRAME: ENTITLED: *
- ------------------------------------------------------------------------------------------------
<S> <C>
January 2, 1998 through A lifetime nonqualified cash payment calculated
December 31, 1998 in the form of a single-life annuity equal to the
greater of (a) $600,000 or (b) incentive
compensation earned by Mr. Thomas premised
upon financial performance of the Company in
fiscal 1997.
- ------------------------------------------------------------------------------------------------
January 1, 1999 through A lifetime nonqualified cash payment calculated
December 31, 1999 in the form of a single-life annuity equal to 60%
of FAE.
- ------------------------------------------------------------------------------------------------
January 1, 2000 through A lifetime nonqualified cash payment calculated
December 31, 2000 in the form of a single-life annuity equal to 60%
of FAE.
- ------------------------------------------------------------------------------------------------
January 1, 2001 through A lifetime nonqualified cash payment calculated
December 31, 2001 in the form of a single-life annuity equal to 60%
of FAE.
- ------------------------------------------------------------------------------------------------
January 1, 2002 through A lifetime nonqualified cash payment calculated
December 31, 2002 in the form of a single-life annuity equal to 60%
of FAE.
- ------------------------------------------------------------------------------------------------
January 1, 2003 through A lifetime nonqualified cash payment calculated
December 31, 2003 in the form of a single-life annuity equal to 60%
of FAE.
- ------------------------------------------------------------------------------------------------
January 1, 2004 through A lifetime nonqualified cash payment calculated
December 31, 2004 in the form of a single-life annuity equal to 60%
of FAE.
- ------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE> 20
<TABLE>
- ------------------------------------------------------------------------------------------------
<S> <C>
January 1, 2004 through A lifetime nonqualified cash payment calculated
December 31, 2005 in the form of a single-life annuity equal to 60%
of FAE.
- ------------------------------------------------------------------------------------------------
</TABLE>
- -------------
* Prior to commencement of the benefit for any time frame, Mr. Thomas may make
an election, to choose a different form of payment in order that his spouse may
continue to receive payments after his death. Should he make such an election,
the form of payment is called a "joint and survivor annuity," and the amount of
the payment would be actuarially reduced. BY EXECUTION OF THIS AGREEMENT, MR.
THOMAS HEREBY MAKES SUCH ELECTION.
---------------
Additionally, the Company shall either (a) make payment of premiums to continue
the Company-provided medical and dental insurance coverage on Mr. Thomas and his
spouse as in effect as of the date of retirement, for the remainder of Mr.
Thomas' and his spouse's life, or (b) purchase policies providing substantially
the same coverage, and for the same time frames.
-20-
<PAGE> 21
ADDENDUM TO EMPLOYMENT AGREEMENT
1. Section 1.3 is amended to add a parenthetical following the word
"misconduct," such that the provision now reads as follows:
""Cause" shall mean that as determined in good faith by the Board of
Directors, Mr. Thomas has engaged in any act of misconduct (for the time
frame following January 2, 1998) which is materially injurious to the
Company or its business."
2. Section 4.7(f) has been deleted.
3. The third sentence of Section 6.1(b) has been amended, such that the
sentence now reads as follows:
"Additionally, if Company revenues and EPS do not exceed the thresholds set
forth in the following table for each of three consecutive fiscal years,
then at the end of the third such year, the employment of Mr. Thomas under
this Agreement shall be terminated."
4. Section 6.2(a) has been amended in its entirety, to read as follows:
"In the event Mr. Thomas' employment is terminated, Mr. Thomas shall be
entitled to the termination benefits set forth on Exhibit I."
5. Sections 6.2(c) and (d) have been deleted.
6. Section 7.1(b)(2) has been amended to read as follows:
"Following the termination of Mr. Thomas's employment with the Company, Mr.
Thomas may do the following: (a) undertake activities in connection with
the use of Total Cycle TimeTM methodology, including speeches on the
subject of Total Cycle Time, for a fee or otherwise, and (b) serve as a
finder for the Company per the standard form of written agreement for
finders (a sample of which is attached as Exhibit II), and may serve as a
TGI Licensee to personally render time-based management consulting services
per the standard form of written agreement for such licensees (a sample of
which is attached as Exhibit III). In the event Mr. Thomas is to serve as a
TGI Licensee, the references in the standard form of written agreement to
"TCT(R) programs having a potential revenue stream greater than $500,000
per 12-month period" shall be amended to read "TCT(R) programs having a
potential revenue stream greater than $1,000,000 per 12-month period. The
provisions of this paragraph are subject to the limitations in Section
7.1(b)(1) immediately above."
7. Exhibit I to the Employment Agreement reads in its entirety as follows:
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<PAGE> 22
EXHIBIT I
TERMINATION BENEFITS
ARTICLE 1
If Mr. Thomas' employment with the Company is terminated, Mr. Thomas shall be
entitled to termination benefits in accordance with the following schedule:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
TERMINATION SCENARIO BENEFIT TIMING OF BENEFIT TREATMENT OF OPTIONS
PAYMENTS VESTING
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
A one-time cash All options granted
Change in Control payment calculated to date under
as 3.0 times annual Section 4.7 are
base compensation On the first day of automatically
the month following accelerated, fully
PLUS the date Mr. vested, and
Thomas' employment exercisable in full
A cash payment with the Company is for the remaining
calculated in the terminated term of such options
form of a joint and
survivor annuity
equal to $600,000
(the "$600,000
annuity" (1)
- -----------------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE> 23
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
TERMINATION SCENARIO BENEFIT TIMING OF BENEFIT TREATMENT OF OPTIONS
PAYMENTS VESTING
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
All options granted
Disability A one-time cash On the first day of to date under
payment calculated the month following Section 4.7 are
as 3.0 times annual the date Mr. automatically
base compensation Thomas' employment accelerated, fully
with the Company is vested, and
terminated exercisable in full
for the remaining
term of such options
- -----------------------------------------------------------------------------------------
All options granted
Death A one-time cash On the first day of to date under
payment calculated the month following Section 4.7 are
as 3.0 times annual the date Mr. automatically
base compensation Thomas' employment accelerated, fully
with the Company is vested, and
terminated exercisable in full
for the remaining
term of such options
- -----------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE> 24
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
TERMINATION SCENARIO BENEFIT TIMING OF BENEFIT TREATMENT OF OPTIONS
PAYMENTS VESTING
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
On the first day of All options granted
By Mr. Thomas, with A one-time cash the month following to date under
Good Reason payment calculated the date Mr. Section 4.7 are
as 3.0 times annual Thomas' employment automatically
base compensation with the Company is accelerated, fully
terminated vested, and
exercisable in full
for the remaining
term of such options
- -----------------------------------------------------------------------------------------
On the first day of All options granted
By the Company, A one-time cash the month following to date under
without Cause payment calculated the date Mr. Section 4.7 are
as 3.0 times annual Thomas' employment automatically
base compensation with the Company is accelerated, fully
terminated vested, and
exercisable in full
for the remaining
term of such options
- -----------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE> 25
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
TERMINATION SCENARIO BENEFIT TIMING OF BENEFIT TREATMENT OF OPTIONS
PAYMENTS VESTING
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
All options (which
By Mr. Thomas, 0 N/A to date have been
without Good Reason granted and vested
under Section 4.7)
are
automatically
accelerated, fully
vested, and
exercisable in full
for the remaining
term of such options
- -----------------------------------------------------------------------------------------
All options (which
By the Company, for 0 N/A to date have been
Cause granted and vested
under Section 4.7)
are
automatically
accelerated, fully
vested, and
exercisable in full
for the remaining
term of such options
- -----------------------------------------------------------------------------------------
</TABLE>
(1) The $600,000 annuity payment obligation shall not be an obligation of the
Company, and shall only be an obligation of any successor in the event of a
Change in Control. Reference Article 3 of this Exhibit I. Unless otherwise
elected by Mr. Thomas, the $600,000 annuity shall be distributed to Mr.
Thomas and his wife in the form of a joint and survivor annuity for the
life of Mr. Thomas and his wife. Any election to change the form of
distribution must be in writing and received by a successor entity in the
event of a Change in Control, on or prior to the date the $600,000 annuity
payments commence.
-25-
<PAGE> 26
ARTICLE 2
MEDICAL AND DENTAL COVERAGE
If Mr. Thomas' employment with the Company is terminated, the Company shall, for
the remainder of Mr. Thomas' life and his wife's life, either (a) continue to
make payment of premiums to continue the Company-provided medical and dental
insurance coverage on Mr. Thomas and his wife as in effect as of the date of
termination, or (b) purchase policies providing substantially the same coverage
for Mr. Thomas and his wife as existed immediately prior to the date of
termination.
ARTICLE 3
BINDING EFFECT
The terms of this Exhibit I shall be binding upon and inure to the benefit of
and be enforceable by the Company and Mr. Thomas and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business or assets of the
Company, by written agreement in form and substance satisfactory to Mr. Thomas,
expressly to assume and agree to perform the terms of this Exhibit I in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place.
-26-
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to Employment
Agreement this 31st day of March, 1998.
MR. THOMAS
/s/ Philip R. Thomas
- ------------------------------
Philip R. Thomas, individually
THOMAS GROUP, INC.
By: /s/ J. Thomas Williams
---------------------------
Name: J. Thomas Williams
Title: President and Chief Operating Officer
On Behalf of the Committee:
/s/ General John T. Chain, Jr.
- ------------------------------
General John T. Chain, Jr.
-27-
<PAGE> 1
EXHIBIT 13
================================================================================
THE QUEST FOR SPEED
================================================================================
THE CAR WAS A DARK BLUR trailing a mile-long plume of dust as it ripped across
the desert floor. The scene was a familiar one to the support crew and a handful
of reporters watching the ThrustSSC vehicle from the observation post. Dozens of
times in the previous three weeks, the car, carefully prepped, had rolled onto
the flats of Black Rock Desert in Nevada. The driver, RAF pilot Andy Green had
fired up its twin Rolls Royce jet engines and pushed the limits of speed
attainable in a land vehicle. Days before, the ThrustSSC had already broken the
former speed record. This time, with ideal conditions and the car performing at
its technical best, Green kept increasing fuel flow to the monstrous engines as
he made his approach to the timed area that would clock his official speed.
The ThrustSSC (Super Sonic Car) had been designed with its rear wheels, which
steer the car, set asymmetrically, giving it an unusual three-point stance. The
entire design was radical. In 1992, project leader Richard Noble had begun this
quest for speed with a dream to be the first to break the speed of sound on
land, but with absolutely no experience in designing or building cars. Noble's
final design broke tradition with much of the conventional thinking regarding
aerodynamics, power and control. With 110,000 horsepower, it was the most
powerful land vehicle ever built. Today's run would be the ultimate test of the
soundness of Noble's breakthrough concept.
NOW, WITH BOTH HANDS firmly gripping the violently shaking steering wheel, Andy
Green's eyes flicked back and forth between the blurry painted line on the dry
salt lake bed and the array of instruments in the cockpit. At these speeds, if
the terrific wind velocity shoved the nose of the car up as little as an inch
the vehicle would become airborne. The threat of disaster was measured in
centimeters and fractions of a second.
An observer would have found it difficult to know just how fast the vehicle was
traveling on this particular run, but the technical crew had remote sensors that
tracked the data Green was watching on his cockpit gauges. As the speed
continued to climb, the incredible force of wind friction and the slight
roughness of the roadway began to make the vehicle even harder to control. The
gauges flirted with the redline, but Green pushed on. Only weeks
1
<PAGE> 2
before at this very site American Craig Breedlove, a veteran land speed record
holder, had attempted to beat Noble's team to be the first to exceed Mach One in
a land vehicle. His Spirit of America rocket car had careened out of control and
was destroyed. Amazingly, Breedlove had escaped with only minor injuries.
TENSION AND THRILL MINGLED among the members of the press and Richard Noble's
largely-British support crew as Green's speed climbed past the current land
speed record. Suddenly, just as Green accelerated past the first timing pylon, a
collective gasp went up from the watching crowd as a distant boom was both heard
and felt. In a moment, however, realization swept the observers that this noise
was cause for jubilation, rather than for concern. What they had just witnessed
was the first time man had ever broken the speed of sound on land. An exultant
roar went up as the ThrustSSC held its course and sped through the measured mile
to make it official: a new land speed record of
2
<PAGE> 3
763.035 mph (Mach 1.020). The date was October 15, 1997, exactly 50 years and
one day after pilot Chuck Yeager first penetrated the sound barrier in his
famous flight of the "Glamorous Glennis."
WHAT DOES IT TAKE TO BECOME FAST - really fast? For twenty years, Thomas Group,
Inc. has helped major corporate clients become fast companies - fast to produce
goods and services - fast to respond to customer needs - fast to develop new
products. Many of the same principles and methods that led to the success of the
ThrustSSC project are mainstays in the Thomas Group toolkit: careful planning,
unconventional thinking, and a commitment to streamlining and removing barriers
that block the way to maximum performance.
The quest for speed begins with the INSPIRATION of the ultimate goal, often
championed by a single visionary. It requires the IDENTIFICATION of the steps
required and the potential barriers to success. For those involved, the quest
for speed demands
3
<PAGE> 4
INFORMATION, discovering the "how to" by acquiring necessary skills and
knowledge. Next comes the IMPLEMENTATION of the project, along with the
installation and careful monitoring of a set of measurement "gauges." Then, as
the quest for speed becomes reality, a process of INTERNALIZATION must occur, if
the newly acquired speed levels are to become repeatable and sustainable. These
are the steps the ThrustSSC team went through to achieve world record speed.
These are the same steps Thomas Group clients are led through to achieve their
competitive advantage through speed. Known as "the Five I's ProcessSM," and it
is only part of the methodology, and one of over 100 management tools the Thomas
Group ResultantsSM have at their disposal when "partnering" with client
companies to help them achieve their best performance levels.
In 1978, Philip R. Thomas acted on his dream. Encouraged by his 20 years of
success in applying speed-based solutions in the electronics industry, he
founded a company dedicated to producing tangible results for corporate clients.
By focusing on cause and effect relationships, Thomas was able to design methods
that, while incredibly functional, were often not found in management textbooks.
By viewing organizations as a series of connected processes, and streamlining
each of those processes, Thomas transformed client companies into fast, agile,
competitive leaders. He developed a careful set of measurements (referred to as
a "cockpit chart") which keeps client companies on track as their overall speed
climbs higher and higher.
4
<PAGE> 5
The results have been astonishing. Over the course of a typical engagement a
Thomas Group client will...
- - ACCELERATE REVENUE GROWTH
- - CUT DELIVERY LEAD TIMES AND TIME-TO-MARKET BY
MORE THAN 50%
- - IMPROVE TOTAL WORKFORCE PRODUCTIVITY BY 25%
- - REDUCE INVENTORIES BY 50%
- - PRODUCE SIGNIFICANT IMPROVEMENTS IN RETURN ON ASSETS
- - INCREASE OPERATING PROFIT BY UP TO 10% OF SALES
These impressive top- and bottom-line results are the direct result of
transforming client companies into faster, more competitive organizations. The
consistency with which these results can be obtained has allowed Thomas Group to
accept incentive-based fees on many projects. This very unusual "share the risk"
approach epitomizes Thomas Group's commitment to the client-partnering
relationship. It assures potential clients that, indeed, they will achieve their
goals. Thomas Group shares the risk - and the reward - by partnering with
clients across a wide range of industries.
"ACHIEVING WORLD-CLASS SPEED." This summarizes the lofty goal of Thomas Group's
responsibility to client companies. Increasingly, however, clients have asked
Thomas Group to apply the same effective speed-based methods to their strategic
growth initiatives. Early successes indicate that 20 years of "best practices"
can be readily applied to creating fast response to growth opportunities in
virtually any industry. This allows Thomas Group to facilitate not only maximum
operational results for clients, but also help them leverage "fast-ops"
capabilities into entirely new markets.
Richard Noble's quest for speed ended with success in the Black Rock Desert when
his car broke through the sound barrier. Surely, someone else will push the
speed record even higher, and many more will likely fail trying. But none can
ever attain the goal of "first" again. For Thomas Group, however, the potential
for new success is virtually unlimited. By expanding the PRODUCTS offered for
fast operations, strategy and growth, by expanding the MARKETS served through
regional divisions around the world, and by expanding the INDUSTRIES served
through multiple business units, Thomas Group anticipates a new era of fast
growth.
FOR THOMAS GROUP, INC., THE QUEST FOR SPEED HAS JUST BEGUN.
5
<PAGE> 6
================================================================================
FROM THE CHAIRMAN
================================================================================
TO OUR SHAREHOLDERS:
As Thomas Group enters its twentieth year and our fifth as a public company, we
have established ourselves as a market leader in transforming our corporate
clients into fast companies. We were the first to apply proven cycle time
reduction methods to all linked processes through a proprietary methodology we
named Total Cycle Time(R) (TCT). We proved that, not only did our clients make
tremendous financial gains, they also gained in the areas of quality, customer
responsiveness, and overall competitiveness. These factors drive enhanced
shareholder value for our clients. TCT has remained our primary product, our
core competency. As more and more companies reap the benefits of TCT, there is
an even greater urgency for their competitors to embrace a fast process culture.
If they do not, they may soon be unable to compete at all.
The commitment to speed within a company has become as fundamental as the wheels
on a car. Consider the basic elements of a car: a chassis with wheels, a
steering mechanism, a powertrain to make it go, and brakes to make it stop. Your
family sedan shares all of these same characteristics with the ThrustSSC, the
car that shattered the speed barrier in 1997. So what makes the ThrustSSC
different from your car? The ThrustSSC has been engineered to go very fast - it
has efficient systems, special designing, a dedicated and experienced support
team, and the best tools and technology. The ThrustSSC is a perfect analogy of
what Thomas Group does for our growing list of client companies - provide them
the means to move ahead very fast.
This year's annual report theme, "The Quest for Speed" is particularly relevant
to what I view as an unprecedented need for Thomas Group services. I have
observed a sharply increased recognition for the importance of speed in
business. If you read business and trade publications you have undoubtedly seen
the proliferation of recent articles linking "speed" and "competitiveness." They
are playing the Thomas Group song. And, as you will see in my comments to
follow, we have carefully and systematically laid the foundation to capitalize
on this opportunity.
Thomas Group's future growth will be partially due to our offering multiple
types of services to meet a broader range of needs for our clients. We have
invested heavily in research and development to produce the next generation of
Thomas Group products. By applying the fundamental element of speed to the
drivers of the dilemmas our clients face, we have historically produced Speed
Driven ResultsSM. Now we are using our best practices and vast store of
intellectual property to develop methods that address our clients' strategic
growth needs. We not only maximize clients' current operations, but we
6
<PAGE> 7
can now provide the systems and tools that will prepare them to take advantage
of future opportunities. We think of this new, continuing relationship with
clients as helping them by getting BETTER, BROADER, and BOLDER. This lets us
work with clients whose primary focus is on strategic growth. It also encourages
ongoing relationships with our current and former TCT clients. The common theme
to each of these engagement opportunities is enhancing shareholder value.
================================================================================
PHILIP R. THOMAS
CHAIRMAN AND CEO
================================================================================
Last year we announced the formation of our business units, designed to address
an ever-increasing number of industries and geographic markets. Our business
unit presidents and their support teams are veterans of their industries,
steeped in the Thomas Group methodology. This structural change has proven to be
a wise move. Because of their subject matter expertise, the business unit teams
can transfer our proven techniques into a customized set of solutions for the
dilemmas facing clients in their specific industries. Our Automotive unit,
headed by Lee Grubb, and our Aviation unit, led by Jim Houlditch have created
the greatest growth in new engagements, compared to their 1996 totals. The
Electronics unit, under Don McDonald, is aggressively pursuing new engagement
models. Bob Stephens has changed the title for his unit, which was formerly
called simply "Manufacturing" to Consumer and Industrial Products, to more
clearly identify with the outputs of his clients. Under the leadership of Tom
Williams, our European unit has generated impressive new sales. In Asia, the
economic crisis has created an unusual challenge for Herby Locke. Although the
monetary exchange situation makes it more difficult for them to pay us, the
Asian clients have a more pressing need for our services than ever before.
Because unusual times call for unusual solutions, Herby is developing long-range
relationships through which we can assist our Asian clients in using speed to
recover more quickly from their dilemmas during their economic crises. I am
happy to report that business-under-development of all business units points to
a strong 1998.
We have recently added a new business unit to address the needs of the utilities
industry. Faced with a new era of deregulated competition, utility companies are
having to learn a new way of doing business. With our experience in changing
processes, systems and cultures, Thomas Group is uniquely capable of making
agile competitors out of these slow-moving service providers. The utilities
industry
7
<PAGE> 8
represents one of our greatest growth opportunities. In 1997, Alex Young, Thomas
Group president and chief operating officer accepted the challenge of
investigating the potential of this market and developing an operating plan for
launching our new Utilities business unit. He successfully built the support
team, developed the necessary materials and tools, and initiated valuable
contacts with senior utility executives. As a Thomas Group veteran and peer to
these executives, Alex has succeeded in capturing their attention at a time when
they are inundated with calls from consultants. At Alex's request to carry this
opportunity forward to its expected growth and profitability, Alex is now
devoting his full energy and attention to this important project as president of
the Thomas Group Utilities business unit.
With this shift in Alex's role, we called upon J. Thomas Williams, currently
president of our European unit, to assume the responsibilities of corporate
president and chief operating officer. Tom is a most capable,
bottom-line-oriented executive, focused on increasing shareholder value. He has
improved the European business unit performance in less than two years as unit
president. His background includes financial management, strategic planning,
resource management, and large-scale organizational change. As a captain in the
U. S. Navy, he planned and oversaw the restructuring of eight naval shipyards,
saving $2.6 billion over five years. He earned an MBA from Harvard University.
At 51 years of age, Tom represents an important part of our succession plan, as
we look forward to those who will lead Thomas Group in the years to come. In
tandem with Tom's appointment I have asked him to share responsibilities with me
by forming the Office of the Chief Executive, which will consist of Tom and me.
My focus will be on top-line revenue growth, while Tom will focus on bottom-line
profitability.
Another change that helps pave the way to expanded growth and profitability is
the decision to take a charge for certain capitalized assets in our software
unit. It is now apparent that values originally placed on capitalized software
for certain products were unrealistic. This decision eliminates a substantial
non-cash expense that has dragged down earnings of the software business since
acquisition. Bill Jackson, president of the Software business unit, has
================================================================================
J. THOMAS WILLIAMS
PRESIDENT AND COO
================================================================================
8
<PAGE> 9
completed necessary technical modifications and product repackaging, and has
added the sales resources necessary for bringing this business unit to
profitability in 1998.
We changed the name of the software units to provide improved consistency and a
sense of cohesiveness. The new name is Thomas Group Information Technologies.
This also reflects a renewed commitment to our original intent with these
acquisitions: leverage our traditional engagement relationships into the
acquisition of cutting-edge technical tools that support our essential
speed-driven methodology, plus provide access to their impressive customer
lists. Our sales- and education-related products represent advanced systems that
provide fast information and performance in the selling and learning cycles. Our
other primary software product is an advanced warehouse inventory management
system that is an essential tool for obtaining real-time information on reducing
costly inventories and raising warehouse productivity so TCT methods can be
consistently applied.
While much of our expectation for the future lies in revenue growth, we have not
overlooked our costs. We have instituted firmer cost controls in all areas of
our business. We are gaining improved utilization of our assets. For instance,
we are now making our high-tech CEO Center in Louisiana available for use by
outside corporate clients as the ultimate conference center. We have tightened
our internal rules for business under commitment to improve the accuracy and
conservative nature of our projections. We have redesigned the measurements we
use that drive our incentive compensation, thus improving the predictability of
results and providing a smoothing of our revenues.
The steps we have taken during the year have successfully laid the necessary
foundation for building the strong, rapidly growing organization we can be. By
building on the three elements of expanded products, expanded markets, and
expanded industries, our future should be dynamic and prosperous.
Every quest begins with a vision. We believe we have now designed and
implemented the structure necessary to see the Thomas Group vision become
reality.
/s/ PHILIP R. THOMAS
Philip R. Thomas
Chairman and CEO
9
<PAGE> 10
================================================================================
THOMAS GROUP'S
QUEST FOR SPEED
================================================================================
Thomas Group excels in developing fast, competitive companies; yet our own
growth has not met our expectations. During 1997 we implemented a number of
organizational, financial and strategic changes designed to put us on the fast
track. While the improved financial controls will continue to benefit the cost
side of our business, our future revenue growth will be driven by three
variables: an expanded line of PRODUCTS/SERVICES, delivered to an
ever-increasing number of geographic MARKET AREAS, customized to the needs of
more and more INDUSTRIES. Beginning with our initial public offering date (IPO),
the chart below illustrates how these variables have begun to affect our growth
over the last four years, and how the increase in each will drive our future
growth exponentially.
EXPANDING PRODUCTS
We developed the concept of applying fast cycle time to all processes in an
organization, a proprietary methodology we call Total Cycle Time (TCT). The
financial impact to clients has been enormous, with additional benefits in
quality improvement and increased competitiveness. Our effectiveness has been
largely due to our ability to link DRIVERS to RESULTS, using the fundamental
element of
*planned
GROWING EXPONENTIALLY BY
EXPANDING INDUSTRIES,
MARKETS AND PRODUCTS
10
<PAGE> 11
SPEED to achieve improvement. Speed Driven Resultssm became our name for the
"deliverable," a descriptor that conveys both what we do, and how it benefits
the client. Over the years, the challenge has been to determine if Speed Driven
Results could be achieved in a variety of industries and processes. We have
discovered that our methods are fully transferable. We have successfully run
programs for clients in industries as diverse as airline food service catering,
discount retail, financial services, as well as the more traditional heavy
manufacturing and electronics industries.
There are pitfalls, however, in being essentially a one-product company. Some
viable prospective clients believe "cycle time" programs are for manufacturing
only, in spite of our many successes in non-manufacturing environments. Others
have attempted to install some form of cycle time program in the past, often
with poor results. Traditionally, by the design of our TCT programs, our
engagements have been limited to a specific length, usually 18 to 30 months.
Although we have often secured multiple engagements from a single client by
taking TCT to other divisions, subsidiaries, and even supply-chain companies,
each engagement was usually a finite, one-time intervention.
In late 1996, we created an internal Research and Development task force to
investigate opportunities
Dean Langford, President,
OSRAM Sylvania (left), and
Bob Stephens, President,
Thomas Group Consumer &
Industrial Products, discussing
one of OSRAM's many unique
lighting solutions.
11
<PAGE> 12
for us to deliver Speed Driven Results in non-operational venues. We discovered
two areas of broad concern to our clients that could be greatly impacted by our
methods: STRATEGY and GROWTH. Upon close examination we realized that strategy
(planning and directing movements to achieve objectives) and growth (expanding
through market-share, new markets, alliances, joint ventures, etc.) are really
focused on a common goal: identifying and taking advantage of viable
OPPORTUNITIES. By using Thomas Group's speed driven methods clients can be the
first to spot opportunities and quickest to exploit them to their advantage. We
are calling this new product model Opportunity Cycle Management (OCM). It opens
the door for us with clients who have a non-operational focus, while providing a
valid means for continuous client engagement, rather than a finite, fixed-term
relationship. We refer to this expanded role with our clients as helping them
to:
o be BETTER (operations)
o be BROADER (growth opportunities)
o and be BOLDER (strategic opportunities)
We will refine this exciting new product through 1998 in our initial
engagements, with the expectation that it could produce 20% to 30% of our total
revenues within the next few years.
THOMAS GROUP'S INCREASING ROLE
IN IMPROVING CLIENT COMPANIES'
MARKET VALUE
12
<PAGE> 13
Our Research and Development task force is already at work on further product
development. One clear area of interest is the implementation of Information
Technology systems, where our experience in process refinement and barrier
removal can give us a distinct competitive advantage over the typical technical
provider. Our software products (available through the Thomas Group Information
Technologies business unit) will be more aggressively cross-sold to our clients,
while we begin approaching the software client base with our TCT and OCM
products. We will also be aggressively considering other alliances, joint
ventures, and cross-selling opportunities that would give us access to new
clients and provide an expanded menu of compatible products.
We anticipate expanding alternate engagement options, such as offering shorter
term initial programs. This allows new client companies to experience Thomas
Group capabilities prior to committing to a long-term implementation contract.
By offering our assessment and improvement plan architecture as separate
products we secure a faster decision, while permitting the customer to make the
longer term engagement commitment after they have seen us perform.
[PHOTO]
(Seated, left to right) David DeLaRue, Vice President,
and Barbara DiGiacomo, Vice President, both of
Willis Corroon Construction National Wrap Up
Team, with (standing) Chuck Riehm, Vice President,
Sales & Marketing, Thomas Group Information
Technologies, reviewing a customized interactive
presentation software package developed by TGIT.
13
<PAGE> 14
EXPANDING MARKETS
In 1996, we continued our commitment to establishing regional business units to
deliver our products to clients within strategic locations around the globe.
This commitment has led to the establishment of business units based in Detroit
(for our automotive clients) and Singapore (to serve Asia and the Pacific Rim
area). Both Detroit and our existing operations in Frankfurt, Germany made great
advances in bookings in 1997. Our Asia unit has encountered the new challenge of
a broad economic crisis sweeping the area, which affects both the willingness of
clients to enter into new consulting relationships and what they can afford to
pay. We are committed to the region because of its vast potential for our
services. We expect some engagements in Asia, for the duration of the economic
downturn, and a rapidly increasing demand for Thomas Group products as the Asian
situation improves.
As we bring our three geographic business units to increased revenues and
profitability, we will be considering additional regions which may justify
establishing a new business unit. Meanwhile, the mobility of our Resultant teams
allows us to contract for programs in many countries not within a dedicated
business unit. It is likely we will establish an additional regional business
unit within the next two years.
[PHOTO]
(Left to right)Herby Locke, President, Thomas Group Asia, Paul Tong,
Chief Financial Officer, and Patrick Wang, Chairman/CEO, both of
Johnson Electric Industrial Manufactury, Ltd. in Hong Kong, and Philip
Thomas, Chairman/CEO, Thomas Group, Inc., discussing the economic
crisis in Asia and the significance of achieving a competitive advantage
through Total Cycle Time.
[PHOTO]
Jim Johnson, President/COO, Gulfstream Aerospace
Corporation (left), and Jimmy Houlditch, President,
Thomas Group Aviation Business Unit, in the cockpit
of a Gulfstream V.
14
<PAGE> 15
EXPANDING INDUSTRIES
Last year we announced the formation of our industry business units. These
units, headed by veterans of the industries they serve, deliver the Thomas Group
products, customized to the unique needs of the specific industry. Our current
industry business units are:
- - ELECTRONICS AND SEMICONDUCTORS
- - CONSUMER AND INDUSTRIAL PRODUCTS
- - AUTOMOTIVE
- - AVIATION & AEROSPACE
- - INFORMATION TECHNOLOGIES
We have "crossed over" into other industries frequently. Often the decision to
develop a new industry business unit has been driven by the success of these
cross-over programs. The general criteria we use for establishing a new business
unit are: the industry's need and potential acceptance of our methods and
products, the expectation of producing $50 million in revenues from that
industry within five to ten years, and the ability to assemble a highly
qualified leadership team with broad industry experience to lead the new
initiative.
While we continue to look for more industry-specific opportunities we have
targeted these two areas for expansion of our business units:
- - UTILITIES INDUSTRY
- - FINANCIAL SERVICES
[PHOTO]
(Left to right) John Farris,
Vice President, and Lee
Grubb, President, Thomas
Group Automotive
Business Unit, with Helmut
Fried, Vice President,
Thomas Group Europe, at
the Geneva Auto Show.
[PHOTO]
(Left to right)Bill Wield,
Vice President Operations,
Alex Young, President,
and Michael Kerrs, Vice
President, of the newly
formed Thomas Group
Utilities Business Unit.
15
<PAGE> 16
THE ROAD AHEAD
In 1997, Thomas Group achieved increased revenues, while we incurred increased
costs for establishing and developing our new business units. In addition, our
software business unit carried a capitalized expense which we corrected through
a charge in the fourth quarter. Although our planning for further business unit
and product expansion will continue through 1998, we will minimize those costs,
while we start to reap the rewards of new sales coming from the established
business units.
Although our business continued at a steady pace through 1997, we have not
achieved the growth we believe is our "entitlement." Our share price has been
disappointing, but reflects our inconsistent earnings. Many of the expenses
incurred in 1997 were one-time costs for establishing new products and markets.
This fact, combined with tighter cost controls, increased profit and loss
responsibility at the business unit level, and improved revenues driven by our
expanded products, markets and industries support our commitment to producing
more consistent earnings and significantly improved shareholder value.
The investments we have made in expanding products, markets, and industries are
just beginning to pay off. We expect to begin seeing the early effects of rapid
growth, driven by expansion within each of these areas, in 1998 and beyond
through ever-increasing revenues and improved profit margins.
16
<PAGE> 17
================================================================================
SELECTED HISTORICAL AND
PRO FORMA DATA
================================================================================
The following table sets forth selected historical and pro forma financial
information regarding the Company. This historical financial information has
been derived from the audited financial statements of the Company. This
information should be read in conjunction with, and is qualified by, the
consolidated financial statements and notes thereto included in this Annual
Report to Stockholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PRO
FORMA
In thousands, except per share data 1997 1996 1995 1994 1993 1993
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues $ 75,124 $ 72,029 $ 67,220 $ 52,460 $ 44,586 $ 44,586
Operating Expenses 71,240 69,239 56,641 52,899 36,105 37,635
----------- ----------- ----------- ----------- ----------- -----------
Operating Income (Loss) 3,884 2,790 10,579 (439) 8,481 6,951
Net gain on securities sale -- -- -- 479 -- --
Interest income (expense) 159 252 524 105 (30) (77)
----------- ----------- ----------- ----------- ----------- -----------
Income before Income Taxes 4,043 3,042 11,103 145 8,451 6,874
Income Taxes 1,617 1,217 4,348 99 3,254 2,644
----------- ----------- ----------- ----------- ----------- -----------
Net Income $ 2,426 $ 1,825 $ 6,755 $ 46 $ 5,197 $ 4,230
Earnings per share
Basic $ 0.40 $ 0.31 $ 1.13 $ 0.01 $ 1.07 $ 0.87
Diluted $ 0.38 $ 0.29 $ 1.08 $ 0.01 $ 0.99 $ 0.80
Weighted average shares
Basic 6,097,782 5,963,394 5,998,009 5,792,333 4,841,676 4,841,676
Diluted 6,327,484 6,309,970 6,282,036 6,127,332 5,262,632 5,262,632
BALANCE SHEET - YEAR END
Working Capital $ 20,738 $ 15,705 $ 20,001 $ 15,248 -- $ 18,245
Total Assets 44,386 38,890 40,157 27,567 -- 30,954
Long-term Obligations, Including
Current Maturities 3,286 1,661 1,101 1,131 -- 1,883
Total Stockholders'
Equity 34,708 31,512 31,051 22,277 -- 21,662
</TABLE>
1993 PRO FORMA ADJUSTMENTS
A number of changes took place on or prior to the August 1993 closing of the
Company's initial public offering, including (i) termination of the Company's
obligation to make payments to Electronic Data Systems Corporation, whether in
the form of interest, dividends or marketing fees, (ii) termination of the
management agreement with Thomas Group Holding Company, (iii) commencement of an
employment agreement with Mr. Thomas, and (iv) termination of royalty payments
to TC Operating, Inc. Due to these changes, historical results of operations are
not comparable prior to 1994 and may not provide the most meaningful
information. Pro forma information has therefore been provided for 1993.
17
<PAGE> 18
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
================================================================================
OVERVIEW
The Company derives the majority of its revenues from monthly fixed and
incentive fees for the implementation of Total Cycle Time and other business
improvement programs (collectively, "Business Improvement Programs"). Incentive
fees are tied to improvements in a variety of client performance measures
typically involving response time, asset utilization, productivity and
profitability. Due to the Company's use of incentive fee contracts, variations
in revenue levels may cause fluctuations in quarterly results. Factors such as a
client's commitment to a Total Cycle Time program, general economic and industry
conditions, and other issues could affect a client's business performance,
thereby affecting the Company's incentive fee revenues and quarterly earnings.
The Company also provides, on a fixed fee basis, software solutions for certain
business processes ("Information Technologies") through the sale of software
licenses, services and maintenance, and computer hardware. These services are
provided through subsidiary companies purchased in August 1995 and July 1996
which have each experienced several quarters of operating losses. The Company is
currently evaluating its options with regard to these subsidiaries. These
options include continuing to invest the funds necessary to improve the sales
process and bring the operations to profitability or evaluating opportunities to
sell or otherwise dispose of these operations. A pretax impairment charge of
$2.3 million was taken against Information Technologies' capitalized software
and goodwill in the fourth quarter of 1997, leaving $1.6 million in intangible
assets at December 31, 1997. Depending upon the option ultimately chosen, the
Company may recognize a loss on the disposition of such subsidiaries. At this
time, no decision has been made by the Company regarding these subsidiaries. If
the Company continues to own these subsidiaries, there can be no assurance that
such subsidiaries will achieve profitability. Continued losses by these
subsidiaries would have a material adverse effect on the financial condition,
results of operations or cash flows of the Company.
In 1996 the Company invested in developing its business by increasing its sales
and marketing effort, opening an office in Singapore and investing in personnel
and infrastructure for client programs that did not start until 1997. These
investments, particularly the business development expenses related to sales and
marketing, have continued into 1997 and are expected to continue in the
foreseeable future. Results from increases in the sales and marketing area are
not expected until six to twelve months after the initial expenses are incurred.
In addition to its domestic operations, the Company has operations and contracts
in Europe and the Asia/Pacific region. Contracts in these regions traditionally
have been denominated in the local currency of the client for which the service
is performed; therefore, the Company is exposed to currency fluctuation risks. A
partial natural exchange hedge exists because the Company's costs are also
denominated in the same local currency.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
FOR YEAR ENDED DECEMBER 31,
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Revenues 100.0 100.0 100.0
Cost of Sales 65.1 67.2 63.5
--------- --------- ---------
Gross Margin 34.9 32.8 36.5
Selling, General and Administrative 29.7 28.9 20.8
--------- --------- ---------
Operating Income (Loss) 5.2 3.9 15.7
Interest Income, net .2 .3 .8
--------- --------- ---------
Income before Income Taxes 5.4 4.2 16.5
Net Income 3.2 2.5 10.0
--------- --------- ---------
</TABLE>
RESULTS OF OPERATIONS
Years Ended December 31, 1997 and December 31, 1996
REVENUES
Revenues for 1997 increased by $3.1 million or 4% to $75.1 million from $72.0
million for 1996. Business Improvement Program revenues increased by $4.6
million or 7% to $69.6 million for 1997 from $65.0 million for 1996. Business
Improvement Program revenue increased due to increases in the number of
Asia/Pacific programs combined with new programs in the Automotive and Aviation
Business Units. The Information Technologies business segment revenues for 1997
decreased by $1.5 million or 21% to $5.5 million from $7.0 million in 1996.
Information Technologies revenues declined despite the inclusion of an
additional six months of revenues related to the acquisition of Bermac
Communications, Inc. ("Bermac") in July 1996, due to a decrease in the number of
software licenses sold in 1997.
Fixed fee and incentive based revenues were 73% and 27%, respectively, of
Business Improvement Program revenues for 1997 compared to 70% and 30%,
respectively, in 1996.
United States based Business Improvement Program revenues increased $4.3 million
or 10% in 1997 to $49.7 million from $45.4 million in 1996 due to additional
contracts, particularly in the Automotive and Aviation Business Units. European
revenues decreased $3.5 million or 19% to $14.9 million from $18.4 million in
1996. European revenues decreased primarily due to fewer active programs and a
weakening of the Swiss Franc and German Mark against the U.S. dollar. Since most
of the Company's European contracts are in the local currency of the programs,
the exchange rate fluctuation in 1997 reduced the converted U.S. dollar
revenues. Asia/Pacific revenues were $5.0 million in 1997, an increase of $3.8
million or
18
<PAGE> 19
311% over revenues of $1.2 million in 1996. Revenues in this region have
increased in 1997 as the Company increased its visibility and number of active
programs since entering the market in 1996. Due to deteriorated economic
conditions in the Asia/Pacific markets, 1998 revenues from this region are
expected to decline as the Company finds ways to work with its existing clients
on fees structures which are compatible with the current Asian economic
situation.
GROSS PROFIT
Gross profit for 1997 increased by $2.6 million or 11% to $26.2 million from
$23.6 million for 1996. As a percentage of sales, gross margin for 1997
increased to 35% from 33% for 1996. Gross profit for 1997 included a fourth
quarter capitalized software impairment charge of $1.6 million, reducing
Information Technologies' gross margin to a loss of $3.1 million and a negative
57% as a percentage of Information Technologies sales. (See discussion in
"Quarter ended December 31, 1997.") Had this impairment charge not been taken,
gross profit for the consolidated company would have been $27.8 million or 37%
of revenues for 1997. The increase in gross profit was the result of improved
cost control measures combined with ResultantSM work force reductions made in
late 1996. Cost control measures included, but were not limited to the closing
of the Company's Princeton, New Jersey and San Jose, California offices.
Management anticipates that the gross margin achieved in the Business
Improvement Program segment is sustainable in the short-term future.
Excluding the capitalized software impairment charge, Information Technologies'
margin declined to a negative 28% from approximately 1% in 1996. Information
Technologies' margin decline was due primarily to lower revenues in the segment.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for 1997 increased by $1.5 million
or 7% to $22.3 million from $20.8 million for 1996. As a percentage of sales,
the Company's selling, general and administrative expenses for 1997 increased
slightly to 30% from 29% for 1996. Selling, general and administrative expenses
for 1997 included a fourth quarter goodwill impairment charge of $0.7 million.
(See discussion in "Quarterly Results.") Excluding this impairment charge,
selling, general and administrative expense would have been $21.6 million or 29%
of revenues.
Absolute increases in selling, general and administrative expenses were due
primarily to business development initiatives started in the second half of 1996
and continued throughout 1997. Sales and marketing expenses increased $0.4
million due primarily to personnel increases and investments in improving market
visibility through advertisements and other initiatives. Particular emphasis was
placed on improving Information Technologies' sales and marketing efforts.
Additionally contributing to the increase in selling, general and administrative
expense was officers' incentive compensation earned in 1997 of $0.8 million. No
incentive compensation was earned in 1996.
The above-mentioned increases were partially offset by cost control measures
implemented throughout the company resulting in reduced travel and utilities
expenses.
INCOME TAXES
The company's effective tax rate in 1997 was 40%, equal to the effective tax
rate in 1996. The Company has a deferred tax asset of $2.6 million at December
31, 1997. Management believes that it is more likely than not to realize the
deferred tax asset and accordingly no valuation allowance has been provided. The
conclusion is based on the belief that current and future levels of taxable
income will be sufficient to realize the benefits of the deferred tax asset.
(See also Note 8 to the Consolidated Financial Statements.)
NET INCOME
As a result of the foregoing, net income for 1997 increased by $0.6 million or
33% to $2.4 million from $1.8 million for 1996. Earnings per share on a diluted
basis increased by $0.09 or 31% to $0.38 from $0.29 for 1996.
Years Ended December 31, 1996 and December 31, 1995
REVENUES
Revenues for 1996 increased by $4.8 million or 7% to $72.0 million from $67.2
million for 1995. Revenues from Business Improvement Programs for 1996 increased
by $1.6 million or 3% to $65.0 million from $63.4 million for 1995. Business
Improvement Program revenues for the comparable years increased despite
declining revenues in the third and fourth quarters of 1996 as several programs
ended and were not replaced with new contracts. The Information Technologies
segment revenues for 1996 increased by $3.2 million or 83% to $7.0 million from
$3.8 million for 1995 due to the inclusion of an additional seven months of
revenues related to the acquisition of Interlink Technologies ("Interlink") in
August 1995 and six months of revenues related to the acquisition of Bermac in
July 1996. Business Improvement Program and Information Technologies revenues
comprised 90% and 10% of total revenues for 1996, respectively.
Fixed fee and incentive based revenues were 70% and 30%, respectively, of 1996
Business Improvement Program revenues compared to 73% and 27%, respectively, for
1995.
United States-based Business Improvement Program revenue increased $9.1 million
or 25% in 1996 to $45.4 million from $36.3 million in 1995 due to additional
contracts and improved program performance. Revenues from European programs
decreased by $8.7 million or 32% to $18.4 million from $27.1 million in 1995.
The decline in European revenues was a result of certain large programs ending
before they were replaced with new business. As a result of the lag in program
sales and revenues, the European sales process has been refocused along the same
lines as the U.S. sales process in an effort to revive markets in Europe.
Revenues from the Asia/Pacific region were $1.2 million in 1996, the region's
first year of operations.
19
<PAGE> 20
GROSS PROFIT
Gross profit for 1996 decreased by $1.0 million or 4% to $23.6 million from
$24.6 million for 1995. As a percentage of sales, gross margin for 1996
decreased to 33% from 37% for 1995. The decline in gross profit was the result
of the hiring of a significant number of ResultantsSM and other direct personnel
in conjunction with increases in domestic business improvement contracts and
business development initiatives. As contracts ended without adequate
replacements in the third and fourth quarter of 1996, particularly in Europe,
the Company elected to reduce its number of Resultants in the fourth quarter of
1996. Costs associated with the reduction in work force were $0.5 million in the
fourth quarter of 1996.
Margin in the Information Technologies segment was less than 1% in 1996 as cost
of sales in 1996 increased $4.2 million or 150% to $6.9 million from $2.8
million for 1995. The primary reason for this increase was the inclusion of
Interlink cost of sales for a full year in 1996 compared to only five months in
1995 coupled with the addition of Bermac's operations which yielded a lower
gross margin than Interlink had in 1995. Additionally, Interlink revenues have
declined due to fewer software license sales in the second half of 1996 which
could not offset the fixed costs of programmers.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for 1996 increased by $6.8 million
or 49% to $20.8 million from $14.0 million for 1995. As a percentage of sales,
the Company's selling, general and administrative expenses for 1996 increased to
29% from 21% for 1995. The Company's 1996 business development initiatives were
a major factor in the absolute increase in selling, general and administrative
expense. Most of the sales and marketing related cost increases occurred in the
second half of 1996 in conjunction with the decision to design an integrated
marketing strategy for the Company. As this strategy was developed, and sales
and marketing personnel increased, SG&A related personnel costs increased by
more than $2.3 million as compared to 1995. As part of this strategy, the
Company focused on increasing its visibility in the marketplace and invested an
additional $2.1 million on this initiative in 1996. Another part of the
marketing strategy included the opening of a new office in Singapore, the
acquisition of Bermac, and increasing Interlink's sales and marketing spending.
These marketing initiatives contributed $2.2 million to the increase in 1996
selling, general and administrative expense.
INCOME TAXES
The Company's effective tax rate was 40% in 1996 compared to 39% in 1995. The
company had a deferred tax asset of $1.5 million at December 31, 1996.
NET INCOME
As a result of the foregoing, net income for 1996 decreased by $5.0 million or
74% to $1.8 million from $6.8 million for 1995. Earnings per share for 1996
decreased by $0.79 or 73% to $0.29 from $1.08 for 1995.
Quarterly Results
The following table sets forth certain unaudited operating results for each of
the four quarters in the two years ended December 31, 1997. The information has
been prepared on the same basis as the audited financial statements and, in the
opinion of the company, includes all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the information for the
periods presented.
<TABLE>
<CAPTION>
In thousands, 1997 1996
except per share data -----------------------------------------------------------------------------------------------------
For the three months ended For the three months ended
-----------------------------------------------------------------------------------------------------
Mar 31 June 30 Sept. 30 Dec. 31 YTD Mar. 31 June 30 Sept. 30 Dec. 31 YTD
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $16,849 $20,662 $19,493 $ 18,120 $75,124 $19,256 $19,895 $17,327 $ 15,551 $72,029
Operating Income (Loss) 1,012 2,601 2,163 (1,892) 3,884 2,614 3,503 467 (3,794) 2,790
Income (Loss) before
Income Taxes 1,020 2,661 2,198 (1,836) 4,043 2,690 3,561 557 (3,766) 3,042
Net Income (Loss) 612 1,597 1,301 (1,084) 2,426 1,615 2,172 345 (2,307) 1,825
Earnings (Loss) per share
Basic $ 0.10 $ 0.26 $ 0.21 $ (0.18) $ 0.40 $ 0.27 $ 0.37 $ 0.06 $ (0.39) $ 0.31
Diluted (1) $ 0.10 $ 0.26 $ 0.20 -- $ 0.38 $ 0.25 $ 0.34 $ 0.05 -- $ 0.29
Weighted average shares
Basic 6,079 6,081 6,102 6,131 6,098 6,033 5,931 5,938 5,963 5,963
Diluted (1) 6,220 6,247 6,435 -- 6,327 6,383 6,397 6,342 -- 6,310
STOCK PRICE (2)
High $ 11.50 $ 12.50 $ 14.00 $ 13.00 $ 14.00 $ 15.75 $ 20.00 $ 18.63 $ 14.63 $ 20.00
Low $ 6.63 $ 7.00 $ 10.50 $ 10.00 $ 6.63 $ 12.00 $ 14.13 $ 14.00 $ 7.00 $ 7.00
Close $ 9.75 $ 11.75 $ 12.75 $ 12.50 $ 12.50 $ 14.25 $ 18.50 $ 14.00 $ 9.00 $ 9.00
</TABLE>
(1) Due to losses from operations in the fourth quarters of 1997 and 1996,
diluted earnings per share and diluted weighted average shares are not
presented. Exercise of options and warrants would result in antidilutive
adjustments to basic earnings per share and basic weighted average shares.
(2) The stock prices set forth represent the highest and lowest sales prices
per share of the company's common stock as reported by the NASDAQ stock
market. The prices reported by the NASDAQ stock market reflect inter-dealer
prices without retail mark-up, mark-down or commissions, and may not
necessarily represent actual transactions.
20
<PAGE> 21
Quarter ended December 31, 1997
As part of the Company's continuing evaluation of the prospects for the
Information Technologies segment, the company recorded a charge in the fourth
quarter of 1997 totaling $2.3 million to impair its capitalized software ($1.6
million) and related goodwill ($0.7 million). This impairment resulted from an
evaluation to determine the appropriate course or courses of action to address
continued losses and poor results from the software companies. The analysis
consisted of a comparison of projected future undiscounted cash flows, on a
product by product basis, to capitalized software costs and an appropriate
allocation of related goodwill. To the extent future cash flows were not
sufficient to recover capitalized software and allocated goodwill, impairment
was indicated. Estimates of fair market value for those products where
impairment was indicated were developed and an impairment charge was then
recorded. The charge for software impairment was recorded in cost of sales while
the goodwill impairment was charged to selling, general and administrative
costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flow from operations,
periodically supplemented by borrowings under a bank line of credit.
Operations provided cash of $9.3 million in 1997, as compared to $6.3 million in
1996. Significant items positively affecting operating activities cash flow
include: net income of $2.4 million; depreciation and amortization of $4.3
million; collection of an income tax refund of $1.8 million; increases in
accounts payable of $1.6 million; and a $2.3 million non-cash charge related to
the impairment of capitalized software and goodwill. The principal item
negatively affecting cash flow is a $2.6 million increase in trade accounts
receivable and an increase in the deferred tax asset of $1.1 million. Trade
accounts receivable increased primarily as a result of increased quarterly
revenues in the fourth quarter of 1997 versus the fourth quarter of 1996. Days
sales outstanding improved to 41 days at December 31, 1997 from 50 days at
December 31, 1996.
Capital expenditures and subsidiary acquisitions have historically been the
Company's largest investing activities. Capital expenditures related primarily
to conference center improvements in 1995, additional conference center capacity
expansion and computer hardware upgrades in 1996 and additional computer and
network upgrades and office infrastructure enhancements in 1997. In 1995 the
Company used $1.5 million of cash to acquire Interlink and in 1996 used $2.3
million of cash to acquire Bermac. The Company anticipates 1998 capital
expenditures will not exceed $2 million. Included in these expenditures will be
the replacement of the Company's accounting software to accommodate normal
growth of the Company and to enable proper processing of transactions relating
to the year 2000 and beyond.
Cash flows used in financing activities in 1996 were for the purchase of the
Company's stock for $3.3 million, the settlement of 1995 amounts due to
affiliates, including a payment of $1.0 million to an officer of the Company for
prepaid rent for its CEO Center facility, certain 1996 advances to affiliates,
and for the purchase of a suite at Texas Stadium.
In 1994, the Board of Directors approved a stock repurchase plan for up to
250,000 shares. The Company purchased 7,000 shares at an average price of $10.71
in 1994 and 226,600 shares at an average price per share of $14.74 in 1996. The
Company completed the purchase of the remaining 16,400 shares in the second
quarter of 1997, at an average price per share of $11.37. The average price per
share of treasury shares at December 31, 1997 is $14.15.
On February 19, 1998, the Company entered into a stock purchase agreement with
Mr. Philip R. Thomas, Chairman and Chief Executive Officer for an as yet
undetermined number of shares of common stock in exchange for $8.2 million in
cash and the satisfaction of a $2.3 million outstanding debt to the Company. The
ultimate number of shares purchased from Mr. Thomas shall be determined based on
a formula and at a discount to market. The Company utilized an investment
banking firm to determine the appropriate discount factor. Mr. Thomas delivered
to the Company 1.4 million shares to be held in escrow until such time as the
final reconciliation is performed on April 27, 1998. Any excess shares held in
escrow shall be returned to Mr. Thomas. If there is a deficiency at the
reconciliation, Mr. Thomas shall execute a promissory note for the difference.
In addition, Mr. Thomas has the option to pay the Company in cash at the date of
the reconciliation for the $2.3 million debt owed to the Company.
On December 4, 1996 the Company entered into a $20 million revolving credit
facility with Comerica Bank - Texas. This facility expires in December 2003 and
includes a call option in December 2001. The terms provide for a $1 million per
quarter reduction in any outstanding balances after the first two years. Loans
under this agreement bear interest at the prime rate or other options. The
Company also has a $1.0 million credit facility with Comerica Bank - Texas for
the purchase of computer equipment. The Company made draws of $0.9 million on
this facility during 1997 to purchase computer equipment.
As of February 28, 1998, the Company had $1.6 million of borrowings outstanding
on the revolving credit facility which were used for working capital purposes.
The Company anticipates it may make use of its line of credit in the first and
second quarter of 1998.
Funds anticipated to be generated from operations together with cash and cash
equivalents and borrowings under the Company's credit facility are considered
adequate to finance the Company's short- and long-term operational requirements.
INFLATION
Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation had a material effect on
the results of operations during the three years ended December 31, 1997.
21
<PAGE> 22
RECENT ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. SFAS 130 is effective for financial
statements for periods beginning after December 15, 1997 and requires
comparative information for earlier years to be restated. Because of the recent
issuance of this standard, management has been unable to fully evaluate the
impact, if any, the standard may have on future financial statement disclosures.
Results of operations and financial position, however, will be unaffected by
implementation of this standard.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement established standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. This statement shall be effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. Because of the
recent issuance of this standard, the company has been unable to fully evaluate
the impact, if any, the standard may have on future financial statement
disclosures. Results of operations and financial position, however, will be
unaffected by implementation of this standard.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT:
With the exception of historical information, the matters discussed in this
report are "forward-looking statements" as that term is defined in Section 21E
of the Securities Exchange Act of 1934.
While the Company believes that its strategic plan is on target and the business
outlook remains strong, several important factors have been identified, which
could cause actual results to differ materially from those predicted. By way of
example:
o The competitive nature of the management consulting industry, in light of
new entrants into the industry and the difficulty of differentiating the
services offered to potential clients.
o The time required by prospective clients to fully understand the value and
complexity of a typical Total Cycle Time(R) (TCT) program may result in an
extended lead time to close new business.
o Performance-oriented fees are earned upon the achievement of improvements
in a client's business. The client's commitment to a TCT(R) program and
general economic/industry conditions could impact a client's business
performance and consequently the Company's ability to forecast the timing
and ultimate realization of performance-oriented fees.
o The ability of the Company to productively re-deploy personnel during
program transition periods.
o The ability of the Company to create alliances and make acquisitions that
are accretive to earnings.
o The competitive nature of the software solutions industry and the speed at
which technology changes to meet customer needs.
22
<PAGE> 23
================================================================================
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31,
In thousands, except per share data 1997 1996
--------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 11,254 $ 5,711
Trade accounts receivable, net of allowances of $341 and $306 10,278 8,904
Unbilled receivables 2,083 1,363
Accounts and notes receivable-affiliates 2,274 1,500
Other assets 1,545 3,944
-------- --------
Total Current Assets 27,434 21,422
Net Property and Equipment 8,326 7,641
Capitalized Software Development Costs 888 3,069
Other Assets 7,738 6,758
-------- --------
Total Assets $ 44,386 $ 38,890
-------- --------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 4,716 $ 3,901
Income taxes payable 1,356 1,420
Advance payments 320 396
Current maturities of long-term obligations 304 --
-------- --------
Total Current Liabilities 6,696 5,717
Long-Term Obligations 2,982 1,661
-------- --------
Total Liabilities 9,678 7,378
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common Stock, $.01 par value; 12,500,000 shares authorized,
6,282,391 and 6,179,117 shares issued 63 62
Class B Common Stock, $.01 par value; 1,200,000 shares
authorized, 176,594, and 185,189 shares issued and outstanding 2 2
Additional Paid-in Capital 21,597 20,143
Retained Earnings 17,996 15,570
Cumulative Translation Adjustment (531) (32)
Treasury Stock, 312,391 and 295,991 shares, at cost (4,419) (4,233)
-------- --------
Total Stockholders' Equity 34,708 31,512
-------- --------
Total Liabilities and Stockholders' Equity $ 44,386 $ 38,890
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
In thousands, except share data 1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Revenues $ 75,124 $ 72,029 $ 67,220
Cost of sales 48,926 48,401 42,651
---------- ---------- ----------
Gross Profit 26,198 23,628 24,569
Selling, general and administrative 22,314 20,838 13,990
---------- ---------- ----------
Operating Income 3,884 2,790 10,579
Interest income, net 159 252 524
---------- ---------- ----------
Income before Income Taxes 4,043 3,042 11,103
Income taxes 1,617 1,217 4,348
---------- ---------- ----------
Net Income $ 2,426 $ 1,825 $ 6,755
---------- ---------- ----------
Earnings per share
Basic $ 0.40 $ 0.31 $ 1.13
Diluted $ 0.38 $ 0.29 $ 1.08
Weighted average shares
Basic 6,097,782 5,963,394 5,998,009
Diluted 6,327,484 6,309,970 6,282,036
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
================================================================================
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Class B Additional
Common Common Paid-in Retained Translation Treasury
In thousands, except share data Stock Stock Capital Earnings Adjustment Stock Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995 $58 $1 $16,349 $6,990 $ - $(1,121) $22,277
Issuance of 180,944 and 223,790 shares
of Common Stock and of Class B 2 3 2,308 - - - 2,313
Tax benefit of non-qualified
stock option exercises - - 575 - - - 575
Redemption of 186,755 shares of Class B - (2) (1,843) - - - (1,845)
Performance guarantee by Mr. Thomas - - 705 - - - 705
Purchase of 735 shares of
Common Stock - - - - - (12) (12)
Foreign currency translation adjustment - - - - 283 - 283
Net income - - - 6,755 - - 6,755
--- -- ------- ------- ----- ------- -------
December 31, 1995 60 2 18,094 13,745 283 (1,133) 31,051
Issuance of 195,949 and 180,622 shares
of Common Stock and of Class B 2 2 3,288 - - - 3,292
Tax benefit of non-qualified
stock option exercises - - 619 - - - 619
Redemption of 146,966 shares of Class B - (2) (2,181) - - - (2,183)
Purchase of 226,600 shares of
Common Stock - - - - - (3,340) (3,340)
Reissuance of 19,742 shares of treasury
stock through 401(k) plan, at cost - - 52 - - 240 292
Discounted common stock options issued
under employee stock option plans - - 271 - - - 271
Foreign currency translation adjustment - - - - (315) - (315)
Net Income - - - 1,825 - - 1,825
--- -- ------- ------- ----- ------- -------
December 31, 1996 62 2 20,143 15,570 (32) (4,233) 31,512
Issuance of 97,632 and 1,378 shares
of Common Stock and of Class B 1 - 998 - - - 999
Tax benefit of non-qualified
stock option exercises - - 247 - - - 247
Redemption of 9,973 shares of Class B - - (82) - - - (82)
Purchase of 16,400 shares of
Common Stock - - - - - (186) (186)
Discounted common stock options issued
under employee stock option plans - - 291 - - - 291
Foreign currency translation adjustment - - - - (499) - (499)
Net Income - - - 2,426 - - 2,426
--- -- ------- ------- ----- ------- -------
December 31, 1997 $63 $2 $21,597 $17,996 $(531) $(4,419) $34,708
=== == ======= ======= ===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
In thousands, except share data YEAR ENDED DECEMBER 31,
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 2,426 $ 1,825 $ 6,755
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 4,309 3,274 2,038
Write-down of capitalized software and goodwill 2,341 -- --
Allowance for doubtful accounts 255 397 245
Provision for expatriate costs -- (151) (311)
Other (31) 27 --
Deferred taxes (1,060) (327) 621
Amortization of stock option grants 291 271 --
Change in operating assets and liabilities
(Increase)/decrease trade accounts receivable (1,882) 4,778 (2,143)
(Increase)/decrease in unbilled receivables (720) (1,363) --
(Increase)/decrease other assets (297) (2,914) (496)
Increase/(decrease) accounts payable and accrued liabilities 1,621 538 1,528
Increase/(decrease) advance payments (26) 106 (812)
Increase/(decrease) income taxes payable 2,086 (201) 3,032
-------- -------- --------
Net Cash Provided By
Operating Activities 9,313 6,260 10,457
-------- -------- --------
Cash Flows From Investing Activities
Acquisition of subsidiary -- (2,308) (1,500)
Decrease (increase) in short-term receivable -- 598 (572)
Capital expenditures (3,148) (3,109) (1,714)
Capitalization of software development costs (617) (1,659) (83)
Other (150) (250) (230)
-------- -------- --------
Net Cash Used In Investing Activities (3,915) (6,728) (4,099)
Cash Flows From Financing Activities
Purchase of treasury stock (186) (3,340) (12)
Proceeds from sale of treasury stock -- 240 --
Proceeds from exercise of stock options 552 986 495
Repayment of other long-term obligations (84) (90) (70)
Advances - computer line of credit 977 -- --
Repayment of obligations to affiliate -- (1,027) --
Net repayments from (advances to) affiliates (803) (1,700) 592
-------- -------- --------
Net Cash Provided By (Used In) Financing Activities 456 (4,931) 1,005
Effect of Exchange Rate Changes on Cash (311) (163) (32)
-------- -------- --------
Net Increase /(Decrease) In Cash and Cash Equivalents 5,543 (5,562) 7,331
Cash and Cash Equivalents
Beginning of period 5,711 11,273 3,942
-------- -------- --------
End of period $ 11,254 $ 5,711 $ 11,273
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY - Thomas Group, Inc. (the "Company") was incorporated under the
laws of the State of Delaware in June 1978 and provides management services
designed to improve the competitiveness and profitability of the Company's
clients. The Company's specific methodology in its core product is known as
Total Cycle Time and focuses on reducing the time spent on revenue-producing,
product development and administrative processes, resulting in operational and
financial improvements. The Company also provides software solutions that focus
on reducing process cycle times for certain business processes.
(b) BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Earnings per share is presented in accordance with the provisions of the
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128), which requires the presentation of "basic" and "diluted" earnings per
share. Basic earnings per share is based on the weighted average shares
outstanding without regard for common stock equivalents such as stock options
and warrants. Diluted earnings per share includes the effect of common stock
equivalents. Earnings per share amounts for all periods presented have been
restated to reflect the provisions of SFAS 128. Diluted earnings per share, as
restated for the adoption of SFAS 128 are equivalent to previously reported
amounts and basic earnings per share are $0.02 and $0.05 higher than previously
reported in 1996 and 1995, respectively.
The following reconciles basic earnings per share to diluted earnings per share
under the provisions of SFAS 128:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Income available to common shareholders $2,426 6,098 $0.40
Effect of dilutive securities:
Options and warrants -- 229
------ ----- -----
Diluted earnings per share
Income available to common shareholders $2,426 6,327 $0.38
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Income available to common shareholders $1,825 5,963 $0.31
Effect of dilutive securities:
Options and warrants -- 347
------ ----- -----
Diluted earnings per share
Income available to common shareholders $1,825 6,310 $0.29
====== ===== =====
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Income available to common shareholders $6,755 5,998 $1.13
Effect of dilutive securities:
Options and warrants -- 284
------ ----- -----
Diluted earnings per share
Income available to common shareholders $6,755 6,282 $1.08
====== ===== =====
</TABLE>
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(c) WARRANTS- The Company has outstanding a total of 225,000 warrants to
purchase shares of Common Stock. A portion of these warrants (175,000) expire on
August 26, 1998 and have an exercise price of $15.15. The remaining 50,000
warrants have an exercise price of $11.25 with 25,000 warrants expiring on May
29, 2002 and 25,000 expiring on May 29, 2003.
(d) RECLASSIFICATIONS - Certain consolidated financial statement amounts have
been reclassified from the previously reported financial statements in order to
conform with the current presentation.
(e) PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation. The carrying value of property and equipment is
evaluated periodically in relation to the operating performance and future
undiscounted net cash flows of the related business. Depreciation is provided by
accelerated methods over the estimated useful lives of the various assets as
follows:
<TABLE>
<S> <C>
Furniture and fixtures 5-7 Years
Equipment 3-7 Years
Leasehold improvements 5-19 Years
</TABLE>
(f) CAPITALIZED SOFTWARE DEVELOPMENT COSTS - Pursuant to Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed," the Company is required to capitalize
certain software development and production costs once technological feasibility
has been achieved. The cost of purchased software is capitalized when related to
a product which has achieved technological feasibility or that has an
alternative future use. Capitalization of software development costs stops when
the product is available for sale. For the year ended December 31, 1997 the
Company capitalized software costs amounting to $0.6 million. For the years
ended December 31, 1996 and 1995, the Company capitalized $1.7 million and $0.1
million, respectively. Software development costs incurred prior to achieving
technological feasibility are charged to research and development expense.
Capitalized software development and purchased software costs are reported at
the lower of unamortized cost or net realizable value. Commencing upon initial
product release, these costs are amortized based on the greater of (a) the ratio
of current gross revenues for the product to total current and estimated future
gross revenues for the product or (b) the straight-line method over the
estimated life, generally three to five years. Fully amortized software costs
are removed from the financial records. For the years ended December 31, 1997,
1996, and 1995, the Company recorded $1.2 million, $0.6 million and $0.1 million
of amortization of capitalized software costs, respectively. See also Note 3 to
the Consolidated Financial Statements.) Amortization of capitalized software
costs is included in cost of sales in the accompanying consolidated statement of
operations.
(g) INTANGIBLES - The Company amortizes costs in excess of net assets acquired
on a straight-line basis over the estimated benefit period, generally three to
five years. Patents and licenses are generally amortized on a straight-line
basis over five years. The carrying value of goodwill and patents and licenses
is evaluated periodically in relation to the operating performance and future
undiscounted net cash flows of the related business. (See also Note 3 to the
Consolidated Financial Statements.)
(h) REVENUES - The Company derives its revenues from two primary sources: (1)
contracts for Business Improvement Programs and (2) contracts for Information
Technologies to specific business processes. Business Improvement Program
contracts specify fixed fees, or fixed fees plus incentives based on
improvements achieved. Incentive (performance-oriented) revenues are based on
agreed-upon formulas relating to improvements in customer-specific measures.
Improvements are measured at time intervals specified in each contract. Both the
Company and the client agree to the measured improvements and the corresponding
incentive fees earned by the Company, thereby completing the earnings process.
Fixed fees are recognized as revenue when earned, generally on a straight-line
basis over the life of the contract. Revenues from Information Technologies are
generally recognized on either a straight-line basis over the life of the client
agreement or upon the achievement of certain project milestones. An allowance
for doubtful accounts is provided when necessary and is determined on a
client-by-client basis.
28
<PAGE> 29
(i) UNBILLED RECEIVABLES - Fixed fees are recognized when earned, generally on a
straight-line basis over the life of the contract. Although fixed fee
recognition generally coincides with billings, as an accommodation to its
clients the Company may structure fee billings to increase in the latter stages
of a program. In such instances, straight-line recognition results in unbilled
receivables. Unbilled receivables are reduced as the program proceeds to its
latter stages and the cumulative billings more closely approximate aggregate
fees recognized.
(j) ADVANCE PAYMENTS - The Company occasionally receives advance payments of a
portion of its fees. Advance payments are deferred upon receipt and credited
against future revenue earned as specified by the contract.
(k) INCOME TAXES - Deferred income taxes are provided for temporary differences
between the financial statement and income tax basis of assets and liabilities
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Provisions are made for estimated United States
and foreign income taxes, less available tax credits and deductions, which may
be incurred on the remittance of the Company's share of foreign subsidiaries'
undistributed earnings.
(l) CASH AND CASH EQUIVALENTS - Cash equivalents consist of highly liquid
investments with original maturities of three months or less. At December 31,
1997, the Company had approximately $5.8 million invested in tax-exempt funds
and certificates of deposit.
(m) CONCENTRATION OF CREDIT RISK - The Company provides its services primarily
to a diverse group of large, well-established companies and does not require
collateral on receivable balances. The Company is currently expanding its
operations in Asia where severe economic turmoil has resulted in significant
fluctuations in the value of certain foreign currencies versus the U.S. dollar.
One client owes the Company $0.9 million and the Company has entered into an
extended payment agreement calling for the entire balance to be repaid by the
end of 1998. In early 1998, the client made a partial payment of $0.4 million
and the Company expects to fully collect the remaining balance in accordance
with the terms of the agreement. Until the economic situation in this area
stabilizes, the Company may experience difficulties expanding its operations or
may encounter other collection issues with its customers.
(n) FOREIGN CURRENCY TRANSLATION - Beginning in 1995, all balance sheet accounts
of foreign subsidiaries are translated at the current exchange rate as of the
end of the accounting period. The resulting translation adjustment is recorded
as a separate component of stockholders' equity. Income statement items are
translated at average currency exchange rates. Foreign currency fluctuation
risks are partially hedged because the foreign subsidiaries' costs are
denominated in local currency.
NOTE 2
ACQUISITIONS
Effective July 1, 1996 the Company acquired substantially all of the assets of
Bermac Communications, Inc. ("Bermac") a multimedia software company, for
approximately $2.3 million in cash. The acquisition was funded with cash from
operations and accounted for under the purchase method of accounting. Terms of
the acquisition provide for additional payments of $0.7 million, of which $0.2
million was for the completion of enhancements to software products and $0.5
million treated as additional goodwill. Included in these additional payments is
common stock valued at $0.3 million. The number of shares will be determined by
the stock price on July 1, 1998. In 1997 the 0.3 million was recorded as
additional goodwill and additional paid in capital. Bermac's results of
operations have been included in the Company's consolidated financial statements
beginning July 1, 1996. Bermac's operations are not material in relation to the
Company's consolidated financial statements; therefore, pro forma financial
information has not been presented.
In August 1995, the Company acquired substantially all of the assets of
Interlink Technologies, Inc. ("Interlink"), a provider of paperless warehouse
and distribution systems, for approximately $1.5 million in cash. The
acquisition was funded with cash from operations and accounted for under the
purchase method of accounting. Interlink's results of operations have been
included in the Company's consolidated financial statements beginning August 1,
1995.
The Company's unaudited pro forma consolidated results of operations for the
year ended December 31, 1995 assuming the acquisition of Interlink had occurred
as of January 1, 1995, is as follows:
<TABLE>
<CAPTION>
In thousands 1995
---------
<S> <C>
Revenues $ 71,119
Net Income $ 6,422
Earnings per share
Basic $ 1.07
Diluted $ 1.02
</TABLE>
29
<PAGE> 30
In connection with the Interlink acquisition, the Company entered into a
software development and consulting services agreement (the "Services
Agreement") with the former principals of Interlink. The Services Agreement
provided for the completion of development projects currently in process, as
well as ongoing services by the former principals. The Company made subsequent
payments under the Services Agreement based upon (i) completion of enhancements
to Interlink's software products, (ii) the provision of consulting and other
ongoing services, and (iii) the achievement of certain financial milestones.
These subsequent payments were not material to the Company's results of
operations or financial position.
NOTE 3
CAPITALIZED SOFTWARE AND GOODWILL IMPAIRMENT (Fourth Quarter Adjustments)
As part of the Company's continuing evaluation of the prospects for the
Information Technologies segment, the Company recorded a charge in the fourth
quarter of 1997 totaling $2.3 million due to the impairment of its capitalized
software ($1.6 million) and related goodwill ($0.7 million). This impairment
resulted from an evaluation to determine the appropriate course or courses of
action to address continued losses and poor results from the software companies.
The analysis consisted of a comparison of projected future undiscounted cash
flows, on a product by product basis, to capitalized software costs and an
appropriate allocation of related goodwill. To the extent future cash flows were
not sufficient to recover capitalized software and allocated goodwill,
impairment was indicated. Estimates of fair market value for those products
where impairment was indicated were developed and an impairment charge was then
recorded. The charge for software impairment was recorded in cost of sales while
the goodwill impairment was charged to selling, general and administrative
costs.
NOTE 4
OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
In thousands 1997 1996
-------------------
<S> <C> <C>
Investment in joint venture $ 179 $ 100
Prepaid expenses 1,478 1,974
Cash surrender value of key-man life insurance 820 726
Deferred compensation plan assets 2,124 1,360
Deferred tax benefit 2,571 1,511
Goodwill, net 731 1,153
Other intangibles, net 16 191
Income tax receivable 25 2,252
Investment in Texas Stadium Suite 489 534
Notes receivable, affiliate 229 200
Long-term receivables 436 506
Other 185 195
------ -------
9,283 10,702
Less current portion (1,545) (3,944)
------ -------
$7,738 $ 6,758
====== =======
</TABLE>
On December 31, 1995, the Company purchased a leasehold interest in a Texas
Stadium suite for $0.6 million. (See also Note 12 to the Consolidated Financial
Statements.) Amortization of the purchase price is provided on a straight-line
basis over the remaining term of the lease, which expires on December 31, 2008.
30
<PAGE> 31
NOTE 5
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
In thousands 1997 1996
----------------------
<S> <C> <C>
Equipment $ 7,985 $ 6,800
Furniture and fixtures 2,943 2,786
Leasehold improvements 5,547 5,280
Equipment under capital leases 977 395
Automobiles 204 176
Construction in process 3 6
-------- --------
17,659 15,443
Less accumulated depreciation and
amortization, including $94 and $384
respectively, relating to capital leases (9,333) (7,802)
-------- --------
$ 8,326 $ 7,641
======== ========
</TABLE>
NOTE 6
LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
In thousands 1997 1996
----------------------
<S> <C> <C>
Capital lease obligations $ 882 $ 23
Deferred compensation plan (See Note 9) 2,124 1,360
Other 280 278
-------- --------
3,286 1,661
Less current portion (304) --
-------- --------
$ 2,982 $ 1,661
======== ========
</TABLE>
Minimum lease payments required under non-cancelable lease arrangements
subsequent to December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Operating Capital
In thousands Leases Leases
---------------------
<S> <C> <C> <C>
1998 $2,206 $ 368
1999 1,022 368
2000 709 256
2001 655 -
2002 528 -
Thereafter 477 -
------ ------
$5,597 $ 992
====== ======
Less amount representing interest (110)
------
$ 882
======
</TABLE>
The Company leases office space, vehicles and various types of office equipment.
Rent expense related to operating leases totaled $3.3 million for 1997, $3.1
million for 1996, and $.18 million for 1995.
NOTE 7
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
In thousands 1997 1996
-----------------
<S> <C> <C>
Accounts payable and accrued liabilities $4,003 $3,038
Accrued payroll and bonuses 579 627
Accrued employee benefits 134 236
------ ------
$4,716 $3,901
====== ======
</TABLE>
31
<PAGE> 32
NOTE 8
INCOME TAXES
Federal, state and foreign income tax net expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
In thousands 1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Current tax expense $ 1,656 $ 629 $ 1,861
Federal 280 253 219
State 1,015 711 1,647
-------- -------- --------
Foreign 2,951 1,593 3,727
Deferred tax expense (benefit)
Federal (1,194) (336) 567
State (140) (40) 54
-------- -------- --------
(1,334) (376) 621
-------- -------- --------
$ 1,617 $ 1,217 $ 4,348
======== ======== ========
</TABLE>
The following reconciles income tax expense at the federal statutory rate to the
actual tax expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
In thousands 1997 1996 1995
----------------------------
<S> <C> <C> <C>
Income taxes at statutory rate $1,375 $1,034 $3,775
Effect on taxes resulting from:
State taxes 80 49 273
Foreign taxes 68 87 264
Other (primarily
permanent differences) 94 47 36
------ ------ ------
$1,617 $1,217 $4,348
====== ====== ======
</TABLE>
Significant components of the Company's net deferred tax assets (liabilities)
for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
In thousands 1997 1996
------- -------
<S> <C> <C>
Fixed assets $ 492 $ 597
Allowance for doubtful accounts 139 340
Foreign tax receivable 612 631
Computer software 570 (382)
Research and development -- (58)
Investment in affiliates -- (27)
Accrued expenses 105 121
Goodwill 344 20
Deferred compensation 322 254
Other, net (13) 15
------- -------
$ 2,571 $ 1,511
======= =======
</TABLE>
Management believes that it is more likely than not to realize the deferred tax
asset and accordingly no valuation allowance has been provided. This conclusion
is based on the belief that current and future levels of taxable income will be
sufficient to realize the benefits of the deferred tax asset.
The domestic and foreign source components of income before taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
In thousands 1997 1996 1995
------------------------------
<S> <C> <C> <C>
Domestic sources $2,872 $ 984 $6,726
Foreign sources 1,171 2,058 4,377
</TABLE>
32
<PAGE> 33
NOTE 9
EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) retirement plan. The Company, at its discretion,
matches a portion of the participants' contribution. Participants are vested in
the Company's matching contribution after five years of full-time service and
may join the plan January 1 and July 1. Matching contribution expense was $0.4
million, $0.4 million and $0.3 million for 1997, 1996 and 1995, respectively.
In 1994, the Company established a non-qualified deferred compensation plan.
Participation is limited to officers and key employees. Assets of the plan were
$2.1 million and accrued liabilities were $2.1 million at December 31, 1997 and
are recorded in the long term section of the balance sheet.
The Company has incentive compensation plans covering all full-time employees
and a separate incentive compensation program for certain key executive
officers, including Mr. Philip Thomas. Mr. Thomas' employment agreement provides
that, except for certain company-provided benefits, all of his compensation is
incentive-based. The aggregate incentive compensation paid or advanced under
these plans was $1.4 million, $1.5 million, and $3.2 million in 1997, 1996 and
1995, respectively. (See also Note 12 to the Consolidated Financial Statements.)
The Company self-insures its medical costs associated with injury and
hospitalization to its employees and their dependents up to a limit of $50,000
per person per plan year. Insurance is purchased for claims in excess of the
self-insurance limits. The current program also has contractual caps on the
total aggregate claims the Company is obligated to fund in any plan year. The
Company had an accrual for outstanding claims of approximately $0.1 million to
cover any loss incurred, including those not yet reported, through December 31,
1997.
NOTE 10
LITIGATION
The Company is party to a legal action styled Creative Dimensions in Management,
Inc. v. Thomas Group, Inc., filed September 17, 1996 in the United States
District Court for the Eastern District of Pennsylvania. This matter arises out
of disputes under two agreements between the Company and Creative Dimensions in
Management, Inc. ("CDM"), a small private company with whom the Company had an
alliance. CDMhas asserted various causes of action against the Company,
including fraud, misrepresentation, breach of contract and conversion. The
Company believes that CDM's claims lack merit and has filed counterclaims
against CDM for breach of contract, breach of implied covenant and good faith
and fair dealing, fraudulent inducement, and attorney's fees. The Company is
contesting CDM's claims and is pursuing its counterclaims vigorously. The matter
is in the early stage of discovery. The plaintiff is seeking at least $50
million in actual damages, punitive damages, and accounting, interests, costs of
suit, attorney's fees, and injunctive relief. The Company is seeking an
undetermined amount in actual damages, punitive damages, attorney's fees, and
costs of suit.
The Company has become subject to various claims and other legal matters in the
course of conducting its business. The Company believes that neither such claims
and other legal matters nor the cost of prosecuting and/or defending such claims
and other legal matters should have a material adverse effect on the Company's
consolidated results of operations, financial condition or cash flows.
33
<PAGE> 34
NOTE 11
SEGMENT DATA AND SALES TO MAJOR CUSTOMERS
The Company conducts its business primarily in two business segments, Business
Improvement Services and Information Technologies. Information regarding these
two segments follows:
<TABLE>
<CAPTION>
Business
Improvement Information
In thousands Services Technologies Corporate Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Sales to unaffiliated clients $69,620 $ 5,504 $ -- $75,124
Operating income (loss) 25,192 (7,177) (14,131) 3,884
Depreciation and amortization 1,811 1,830 668 4,309
Capital expenditures 2,803 58 287 3,148
Identifiable assets 20,977 3,390 20,019 44,386
1996
Sales to unaffiliated clients $65,011 $ 7,018 $ -- $72,029
Operating income (loss) 20,898 (2,600) (15,508) 2,790
Depreciation and amortization 2,221 730 323 3,274
Capital expenditures 2,064 725 320 3,109
Identifiable assets 18,918 6,590 13,382 38,890
1995
Sales to unaffiliated clients $63,392 $ 3,828 $ -- $67,220
Operating income (loss) 23,013 370 (12,804) 10,579
Depreciation and amortization 1,647 183 208 2,038
Capital expenditures 1,315 29 370 1,714
Identifiable assets 22,979 3,202 13,976 40,157
</TABLE>
The Company conducts its business primarily in three geographic areas, North
America, Europe and Asia. Information regarding these areas follows:
<TABLE>
<CAPTION>
In thousands North America Europe Asia Corporate Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Sales to unaffiliated clients $55,251 $14,903 $4,970 $ -- $75,124
Operating income (loss) 15,755 (581) 2,841 (14,131) 3,884
Identifiable assets 20,755 3,383 229 20,019 44,386
1996
Sales to unaffiliated clients $52,463 $18,357 $1,209 $ -- $72,029
Operating income (loss) 14,956 3,158 184 (15,508) 2,790
Identifiable assets 21,663 3,693 152 13,382 38,890
1995
Sales to unaffiliated clients $40,125 $27,095 $ -- $ -- $67,220
Operating income (loss) 13,366 10,017 -- (12,804) 10,579
Identifiable assets 20,399 5,782 -- 13,976 40,157
</TABLE>
34
<PAGE> 35
The following table indicates those clients whose revenues were in excess of 10%
of consolidated revenues in any of the three years ended December 31, 1997.
These clients are all in the Business Improvement services segment.
<TABLE>
<CAPTION>
North % of Europe % of Total Asia % of Total
In thousands America Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Client 1 $2,297 3% $4,466 6% $1,082 2%
Client 2 7,317 10% -- -- -- --
Year Ended December 31, 1996
Client 1 $5,708 8% $1,937 3% -- --
Client 2 7,746 11% -- -- -- --
Client 3 4,068 6% 5,305 7% -- --
Year Ended December 31, 1995
Client 1 $5,846 9% $6,250 9% -- --
</TABLE>
NOTE 12
RELATED PARTY TRANSACTIONS
PHILIP R. THOMAS - Principal Stockholder - The Company has entered into 25-year
lease agreements with Mr. Thomas for land on which the CEO Center is situated
and a separate agreement to lease guest accommodations situated on Mr. Thomas'
adjacent property. The land is leased pursuant to two 25 year leases entered
into in December, 1991 and January, 1994. The annual rentals on these leases is
$6,000 each, one of which has been prepaid throughout the year 2016. These guest
accommodations leases provide for monthly payments of $12,960 through November
30, 2016. This rate was determined by evaluating average occupancy rates and
costs of comparable facilities in the area. On December 31, 1995, the Company
prepaid the guest accommodations lease in its entirety. The $0.9 million
prepayment represents a discount of $0.6 million (computed on a net present
value basis) from the lease payments to which Mr. Thomas was entitled. The
prepayment is included in Other Assets, and is being amortized on a
straight-line basis over the term of the lease.
On December 31, 1995, the Company agreed to purchase Mr. Thomas' interest in a
Texas Stadium luxury suite for $0.6 million. The purchase price was established
by an independent third party that facilitates similar transactions.
Late in 1995, Mr. Thomas executed a $0.7 million promissory note to the Company,
in connection with his guarantee of a client's account receivable. On December
31, 1995 the note and all interest was prepaid and recorded as a contribution to
paid-in capital.
The Company employed two sales executives whose focus was acquiring new business
through relationships in the investment banking community. Supporting these
executives, the Company incurred costs of approximately $0.6 million and $0.5
million in 1996 and 1995, respectively. These executives have an ownership
interest in Celerity Partners, a limited partnership (the "Partnership") which
invests in companies whose competitiveness within a particular industry may be
significantly improved. The general partner of the Partnership is a limited
liability company ("Celerity LLC") in which Mr. Thomas owns a 30% equity
interest. The Company's board of directors has precluded Mr. Thomas from
negotiating or approving contracts with any potential client in which the
Partnership holds or is negotiating an ownership interest and from negotiating
the Company's agreements with Celerity LLC. During 1997, the Company ended the
employment of the two sales executives and entered into a "finder's agreement"
with the partnership which would compensate the partnership when it delivered
potential clients who ultimately entered into a business improvement program.
The Company made advances to Celerity LLC in 1997 in the amount of $0.2 million
against future finder's fees.
In 1997, Mr. Thomas earned $0.8 million in incentive compensation and was paid
compensation advances of $1.4 million. The excess of $0.6 million will be repaid
through the tender of shares to the Company, as described in the following
paragraph. Mr. Thomas did not earn incentive compensation in 1996 and therefore
executed a $1.5 million promissory note, bearing interest at prime plus 1/4% for
advances made to him. This note was extended and will be paid by Mr. Thomas as a
result of the Company's purchase of shares from Mr. Thomas, as described in the
following paragraph.
On February 19, 1998, the Company entered into a stock purchase agreement with
Mr. Philip R. Thomas, Chairman and Chief Executive Officer, for an as yet
undetermined number of shares of common stock in exchange for $8.2 million in
cash and the satisfaction of a $2.3 million outstanding debt to the Company. The
ultimate number of shares to be purchased from Mr. Thomas shall be determined
based on a formula and at a discount to market. The Company utilized an
investment banking firm to determine the appropriate discount factor. Mr. Thomas
delivered to the Company 1.4 million shares to be held in escrow until such time
as the final reconciliation is performed on April 27, 1998. Any excess shares
held in escrow shall be returned to Mr. Thomas. If there is a deficiency at the
reconciliation, Mr. Thomas shall execute a promissory note for the difference.
In addition, Mr. Thomas has the option to pay the Company in cash at the date of
the reconciliation for the $2.3 million debt owed to the Company.
35
<PAGE> 36
OTHER AFFILIATES - In 1996 the Company advanced Mr. Thomas Williams $0.2
million. Mr. Williams executed a promissory note due December 18, 2000.
A summary of current receivables from affiliates follows:
<TABLE>
<CAPTION>
DECEMBER 31,
In thousands 1997 1996
-----------------
<S> <C> <C>
Philip R. Thomas - incentive compensation advances $2,274 $1,500
Other affiliates - long term $ 229 $ 200
</TABLE>
A summary of transactions with affiliates follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
In thousands 1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Philip R. Thomas:
Real estate and other rentals paid to Mr. Thomas $ 6 $262 $301
Payments to ISSI for security systems -- -- 94
Payments to BERMAC for custom
computer software-- prior to acquisition -- 388 139
Payments to Celerity-- advance against
finder's agreement 200 -- --
Other Affiliates:
Loan to Thomas Williams -- 200 --
</TABLE>
NOTE 13
FINANCING AGREEMENT
At December 31, 1997, the Company maintains a $20 million revolving credit
agreement with Comerica Bank - Texas. This agreement expires in December 2003
and includes a call option in December 2001. Additionally, terms of the
agreement provide for a $1 million per quarter reduction in any outstanding
balances after the first two years. Loans under this agreement bear interest at
the prime rate or other similar option. The Company utilized the credit line
during 1997 to meet working capital requirements. The average daily balance
outstanding under the credit line was $0.2 million and total interest paid, at
an annual rate of 8.25%, was less than $0.1 million. The Company paid commitment
fees for the periods for which the Company had no outstanding amounts totalling
$56,000 for 1997. The Company did not borrow funds under the revolving line of
credit agreements at any time during 1996 or 1995. During 1996 and 1995, the
Company paid no interest but paid commitment fees of $22,000 and $23,000
respectively.
In addition, the Company has a $1.0 million credit facility with Comerica Bank -
Texas for the purchase of portable computer equipment. The Company made draws of
$0.9 million on this facility to purchase notebook computers.
NOTE 14
COMMON STOCK AND STOCK OPTIONS
Shares of Common Stock and Class B Common Stock are identical, except that
holders of Class B Common Stock have no voting rights. The Company grants
incentive and non-qualified stock options and has reserved 2,425,000 shares of
Common Stock and 675,000 shares of Class B Common Stock for issuance. Options to
purchase shares of the Company's Common Stock and Class B Common Stock have been
granted to directors, officers and employees. The majority of the options
granted become exercisable at the rate of 20% per year, and generally expire ten
years after the date of grant.
Of the 1,506,818 Common Stock options outstanding at December 31, 1997, 255,577
contain a provision whereby the option can be exercised by using shares of Class
B Common Stock previously acquired through the exercise of Class B stock options
and held for more than six months to pay all or a portion of the option holder's
exercise price. The tender of Class B Common Stock to pay for all or a portion
of the exercise of Common Stock options is credited against the exercise price
at the then fair market value of Class B Common Stock. The fair market value of
Class B Stock is 70% of the then quoted closing price on the NASDAQ for the
Company's Common Stock.
The Company has elected to continue to account for stock options issued to
employees in accordance with APB opinion 25, "Accounting for Stock Issued to
Employees." In February 1996 the Company granted options to officers and
employees at an exercise price lower than the market price of the stock at the
date of grant. The total related deferred compensation expense was $0.9 million
which will be recognized as the options vest. The total 1997 compensation cost
of $0.2 million was recorded as an increase in equity.
Effective for the year ended December 31, 1996, the Company was required to
adopt the disclosure portion of Statement of Financial Accounting Standard No.
123 (SFAS No. 123), "Accounting for Stock Based Compensation." This statement
requires the Company to provide pro forma information regarding net income
applicable to common shareholders and net income per share as if compensation
cost for the Company's stock options had been determined in accordance with the
fair value assumptions used for grants in 1997, 1996 and 1995 as
36
<PAGE> 37
follows: dividend yield of 0% for all years; expected volatility of 65%; risk
free interest rates ranging from 5% to 7%; and expected lives ranging from 3.84
to 6 years. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
In thousands 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net Income
As reported $ 2,426 $ 1,825 $ 6,755
Pro forma $ 1,513 $ 1,245 $ 6,674
Earnings Per Share
As reported
Basic $ 0.40 $ 0.31 $ 1.13
Diluted $ 0.38 $ 0.29 $ 1.08
Pro forma
Basic $ 0.25 $ 0.21 $ 1.11
Diluted $ 0.24 $ 0.20 $ 1.06
</TABLE>
A summary of the status of the Company's stock options to employees as of
December 31, 1997, 1996 and 1995 and changes in the years then ended is
presented below.
<TABLE>
<CAPTION>
COMMON OPTION SHARES 1997 1996 1995
----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,367,625 $ 9.78 949,597 $ 10.16 1,004,686 $ 9.88
Granted 370,250 10.35 656,415 9.60 180,000 11.81
Exercised (104,382) 6.88 (196,120) 11.19 (170,251) 10.75
Forfeited (126,675) 11.90 (42,267) 9.11 (64,838) 8.86
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at end of year 1,506,818 $ 9.89 1,367,625 $ 9.78 949,597 $ 10.16
========== ========== ========== ========== ========== ==========
Options exercisable at year-end 739,848 $ 10.39 680,761 $ 10.18 676,126 $ 10.67
---------- ---------- ---------- ---------- ---------- ----------
Weighted average fair value of
options granted during the year $ 10.49 $ 7.61 $ 7.27
</TABLE>
<TABLE>
<CAPTION>
COMMON B OPTION SHARES 1997 1996 1995
----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 12,360 $ 5.42 203,202 $ 4.47 437,592 $ 2.81
Granted -- -- -- -- -- --
Exercised (3,360) 5.36 (180,622) 4.57 (223,790) 1.40
Forfeited -- -- (10,220) 1.57 (10,600) 1.90
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at end of year 9,000 $ 5.44 12,360 $ 5.42 203,202 $ 4.47
========== ========== ========== ========== ========== ==========
Options exercisable at year-end 9,000 $ 5.44 12,360 $ 5.42 200,662 $ 4.46
========== ========== ========== ========== ========== ==========
</TABLE>
37
<PAGE> 38
The following table summarizes information about stock options outstanding at
December 31, 1997.
COMMON OPTIONS
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Outstanding Live (Years) Price Exercisable Price
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 - $ 5.44 10,621 6.84 $ 0.15 5,160 $ 0.32
6.00 - 7.94 575,231 5.96 7.47 205,221 6.77
8.00 - 9.94 287,824 9.43 8.48 115,642 8.41
10.00 - 13.75 506,367 4.81 12.12 346,047 12.26
14.00 - 16.88 109,475 7.83 15.58 59,744 15.54
17.00 - 19.13 17,300 8.49 18.51 8,034 18.54
------------------ --------- ---- ------- ------- ------
$ 0.00 - $19.13 1,506,818 6.40 $ 9.89 739,848 $10.39
================== ========= ==== ======= ======= ======
</TABLE>
COMMON B OPTIONS
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Outstanding Live (Years) Price Exercisable Price
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 5.44 9,000 1.42 $ 5.44 9,000 $ 5.44
</TABLE>
NOTE 15
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
In thousands, except share data 1997 1996 1995
----------------------------
<S> <C> <C> <C>
Interest paid $ 98 $ 1 $ 8
Income taxes paid 1,310 4,176 1,920
Receipt of Class B Common Stock in payment of exercise price of Common Stock options 82 2,181 1,843
Additional Acquisition cost payable in common stock 300 -- --
Acquisition of Texas Stadium Suite in exchange for note payable to Mr. Thomas -- -- 578
Prepayment of lease for CEO Center facilities in exchange for a note payable to Mr. Thomas -- -- 876
Repayment of loan by Mr. Thomas via offset with TGI prepayment of facilities lease -- -- 705
</TABLE>
38
<PAGE> 39
================================================================================
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT
================================================================================
Thomas Group, Inc.
Irving, Texas
We have audited the accompanying consolidated balance sheets of Thomas Group,
Inc. as of December 31, 1997 and 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Thomas
Group, Inc. at December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.
BDO Seidman, L.L.P.
Dallas, Texas
March 10, 1998
39
<PAGE> 40
================================================================================
CORPORATE INFORMATION
================================================================================
<TABLE>
<S> <C> <C>
International Headquarters DIRECTORS AND EXECUTIVE OFFICERS CORPORATE INFORMATION
5215 North O'Connor Boulevard Philip R. Thomas TRANSFER AGENT
Suite 2500 Chairman of the Board and Harris Trust and Savings Bank
Irving, Texas 75039-3714 Chief Executive Officer 5050 Renaissance Tower
Telephone: (972) 869-3400 1201 Elm Street
Fax: (972) 869-6501 J. Thomas Williams Dallas, Texas 75270
President, Chief Operating Officer and Telephone: (214) 658-0200
Dallas Office President, European Business Unit Fax: (214) 658-0222
5221 North O'Connor Boulevard
Suite 500 James E. Dykes LEGAL COUNSEL
Irving, Texas 75039-3714 Executive Vice President, Haynes & Boone, L.L.P.
Telephone: (972) 869-4100 Corporate Development and Director 901 Main Street
Fax: (972) 401-4230 3100 NationsBank Plaza
Leland L. Grubb, Jr. Dallas, Texas 75202-3789
Detroit Office Vice President
201 W. Big Beaver Road Chief Financial Officer, AUDITOR
Suite 201 Treasurer, and BDO Seidman, L.L.P.
Troy, Michigan 48084 President, Automotive Business Unit 2323 Bryan Street
Telephone: (810) 528-5110 Suite 1800
Fax: (810) 528-3271 Herbert D. Locke Dallas, Texas 75201-2628
Vice President
CEO Center President
3104 Highway 956 Asian/Pacific Business Unit
Ethel, Louisiana 70730
Telephone: (502) 683-4557 Alexander W. Young
Fax: (504) 683-4575 Vice President
President, Utilities Business Unit
Interactive Technologies, Inc. and Director
5221 North O'Connor Boulevard
Suite 500 Roger A. Crabb
Irving, Texas 75039-3714 Legal Counsel and Secretary
Telephone: (972) 501-3600
Fax: (972) 501-3601 John T. Chain
Director
Interlink Technologies, Inc. Retired Executive Vice President
5221 North O'Connor Bouleavard Burlington Northern Railroad
Suite 500
Irving, Texas 75039-3714 Richard A. Freytag
Telephone: (972) 501-3650 Director,
Fax: (972) 501-3651 Vice Chairman
Citicorp Banking Corporation
Germany
Thomas Group GmbH
Aculeum
Hahnstrasse 43
60528 Frankfurt am Main
Germany
Telephone: + 49 (0) 69 665 38 0
Fax: + 49 (0) 69 665 38 299
Singapore
Thomas Group Asia Pte. Ltd.
Level 36, Hong Leong Building
16, Raffles Quay
Singapore 048581
Republic of Singapore
Telephone: + 65 321 8935
Fax: + 65 225 9060
</TABLE>
FORM 10-K AND OTHER FINANCIAL
INFORMATION REQUESTS
A copy of the Annual Report on Form 10-K as filed with the Securities and
Exchange Commission and other financial information is available without charge
upon written request to Investor Relations, Thomas Group, Inc. 5215 N. O'Connor
Boulevard, Suite 2500, Irving, Texas 75039-3714.
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on July 9, 1998 at 9:00 a.m.
Central Time in the Company's offices, 5215 N. O'Connor Boulevard, Suite 2500,
Irving, Texas 75039-3714.
STOCK MARKET INFORMATION
AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock trades on the NASDAQ National Market System under the
symbol TGIS. At December 31, 1997, the Company had approximately 117 holders of
record of its Common Stock. The Company has paid no cash dividends and the
Company intends to retain future earnings in order to provide funds for use in
the operation and expansion of the business.
40
<PAGE> 1
EXHIBIT 21
PAGE 1 OF 1
THOMAS GROUP, INC.
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
- ---------------------------------- ---------------------
<S> <C>
Thomas Group GmbH Germany
Thomas Group (Switzerland) GmbH Switzerland
Thomas Group of Louisiana, Inc. Delaware
Thomas Group Information
Technologies, Inc. Delaware
Thomas Group Asia Pte. Ltd. Singapore
Thomas Group of Sweden, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23
PAGE 1 OF 1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Thomas Group, Inc.
Irving, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement on Form S-8/S-3 (Registration
No. 33-71752) of our report dated March 10, 1998, relating to the consolidated
financial statements of Thomas Group, Inc. appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
BDO SEIDMAN, LLP
Dallas, Texas
April 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000900017
<NAME> THOMAS GROUP, INC
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 11,254
<SECURITIES> 0
<RECEIVABLES> 12,702
<ALLOWANCES> 341
<INVENTORY> 0
<CURRENT-ASSETS> 27,434
<PP&E> 8,326
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,386
<CURRENT-LIABILITIES> 6,696
<BONDS> 0
63
0
<COMMON> 0
<OTHER-SE> 34,645
<TOTAL-LIABILITY-AND-EQUITY> 44,386
<SALES> 0
<TOTAL-REVENUES> 75,124
<CGS> 48,926
<TOTAL-COSTS> 71,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (159)
<INCOME-PRETAX> 4,043
<INCOME-TAX> 1,617
<INCOME-CONTINUING> 2,426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,426
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.38
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000900017
<NAME> THOMAS GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
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<ALLOWANCES> 150
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<CURRENT-ASSETS> 26,778
<PP&E> 7,268
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,532
<CURRENT-LIABILITIES> 7,538
<BONDS> 0
62
0
<COMMON> 0
<OTHER-SE> 31,629
<TOTAL-LIABILITY-AND-EQUITY> 40,532
<SALES> 0
<TOTAL-REVENUES> 19,256
<CGS> 0
<TOTAL-COSTS> 12,616
<OTHER-EXPENSES> 4,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (76)
<INCOME-PRETAX> 2,690
<INCOME-TAX> 1,075
<INCOME-CONTINUING> 1,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1,615
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000900017
<NAME> THOMAS GROUP,INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
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<SECURITIES> 0
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<CURRENT-ASSETS> 25,557
<PP&E> 7,626
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,505
<CURRENT-LIABILITIES> 6,128
<BONDS> 0
62
0
<COMMON> 0
<OTHER-SE> 32,954
<TOTAL-LIABILITY-AND-EQUITY> 40,505
<SALES> 0
<TOTAL-REVENUES> 39,151
<CGS> 0
<TOTAL-COSTS> 24,226
<OTHER-EXPENSES> 8,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (134)
<INCOME-PRETAX> 6,251
<INCOME-TAX> 2,464
<INCOME-CONTINUING> 3,787
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,787
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.59
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000900017
<NAME> THOMAS GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 7,010
<SECURITIES> 0
<RECEIVABLES> 11,913
<ALLOWANCES> 100
<INVENTORY> 0
<CURRENT-ASSETS> 22,370
<PP&E> 7,870
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,713
<CURRENT-LIABILITIES> 5,540
<BONDS> 0
62
0
<COMMON> 0
<OTHER-SE> 32,668
<TOTAL-LIABILITY-AND-EQUITY> 39,713
<SALES> 0
<TOTAL-REVENUES> 56,478
<CGS> 0
<TOTAL-COSTS> 35,902
<OTHER-EXPENSES> 13,992
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (224)
<INCOME-PRETAX> 6,808
<INCOME-TAX> 2,676
<INCOME-CONTINUING> 4,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,132
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000900017
<NAME> THOMAS GROUP,INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 5,711
<SECURITIES> 0
<RECEIVABLES> 10,267
<ALLOWANCES> 306
<INVENTORY> 0
<CURRENT-ASSETS> 21,422
<PP&E> 7,641
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,890
<CURRENT-LIABILITIES> 5,717
<BONDS> 0
62
0
<COMMON> 0
<OTHER-SE> 31,450
<TOTAL-LIABILITY-AND-EQUITY> 38,890
<SALES> 0
<TOTAL-REVENUES> 72,029
<CGS> 0
<TOTAL-COSTS> 48,401
<OTHER-EXPENSES> 20,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (252)
<INCOME-PRETAX> 3,042
<INCOME-TAX> 1,217
<INCOME-CONTINUING> 1,825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,825
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000900017
<NAME> THOMAS GROUP,INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,763
<SECURITIES> 0
<RECEIVABLES> 13,483
<ALLOWANCES> 306
<INVENTORY> 0
<CURRENT-ASSETS> 21,468
<PP&E> 7,200
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,225
<CURRENT-LIABILITIES> 5,213
<BONDS> 0
62
0
<COMMON> 0
<OTHER-SE> 32,259
<TOTAL-LIABILITY-AND-EQUITY> 39,255
<SALES> 0
<TOTAL-REVENUES> 16,849
<CGS> 10,894
<TOTAL-COSTS> 15,839
<OTHER-EXPENSES> (8)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8)
<INCOME-PRETAX> 1,020
<INCOME-TAX> 408
<INCOME-CONTINUING> 612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 612
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000900017
<NAME> THOMAS GROUP,INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
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<SECURITIES> 0
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<ALLOWANCES> 306
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<PP&E> 7,959
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,871
<CURRENT-LIABILITIES> 7,161
<BONDS> 0
62
0
<COMMON> 0
<OTHER-SE> 33,818
<TOTAL-LIABILITY-AND-EQUITY> 42,871
<SALES> 37,511
<TOTAL-REVENUES> 0
<CGS> 23,484
<TOTAL-COSTS> 33,898
<OTHER-EXPENSES> (68)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (68)
<INCOME-PRETAX> 3,681
<INCOME-TAX> 1,472
<INCOME-CONTINUING> 2,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,209
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000900017
<NAME> THOMAS GROUP,INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
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<SECURITIES> 0
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<PP&E> 8,429
<DEPRECIATION> 0
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<CURRENT-LIABILITIES> 8,461
<BONDS> 0
62
0
<COMMON> 0
<OTHER-SE> 35,565
<TOTAL-LIABILITY-AND-EQUITY> 46,672
<SALES> 0
<TOTAL-REVENUES> 57,004
<CGS> 35,089
<TOTAL-COSTS> 51,228
<OTHER-EXPENSES> (103)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,879
<INCOME-TAX> 2,369
<INCOME-CONTINUING> 3,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,510
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.56
</TABLE>
