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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
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-25746
RENAISSANCE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 04-3150009
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Lincoln North
55 Old Bedford Road
Lincoln, Massachusetts 01773
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (617) 259-8833
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of February 14, 1997, the approximate aggregate market value of the
voting stock held by non-affiliates of the registrant was $199,507,284, based on
the last reported sale price of the registrant's Common Stock on the Nasdaq
National Market as of the close of business on February 14, 1997. There were
9,430,483 shares of Common Stock outstanding as of February 14, 1997.
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In December 1996, the Renaissance Solutions, Inc. ("Renaissance" or the
"Company") completed an acquisition (the "Acquisition") of International Systems
Services Corporation ("ISS"). The Acquisition has been accounted for as a
pooling of interests, and therefore the consolidated financial statements and
other financial information and data for all periods prior to the Acquisition
contained in this Annual Report on Form 10-K have been restated to include the
accounts and operations of ISS with those of the Company.
PART I
ITEM 1. BUSINESS
Renaissance provides management consulting and client/server systems
integration services, primarily for large corporations. The Company's offerings
fall into three categories, Strategic Services, Performance Solutions Services
and Technology Services, all of which can incorporate both consulting services
and technology implementation.
Strategic Services consist primarily of management consulting services,
and include the Company's Strategic Management Systems practice and its Strategy
Development practice. The Strategic Management Systems practice is designed to
assist senior executives in strategy implementation, and includes management
consulting services using the "Balanced Scorecard" concept described in three
Harvard Business Review articles and in The Balanced Scorecard, a recently
published book, all of which were co-authored by one of the Company's founders,
and the design, development and implementation of software-based executive
information systems. Strategy Development involves working directly with
executive level clients on industry analysis, strategy formulation and strategic
planning for the development and implementation of intermediate and long-range
competitive strategies.
The Company's Performance Solutions Services consist primarily of
consulting services designed to assist companies in the design and
implementation of key business processes. The Company's Performance Solutions
Services Group also assists companies in increasing the efficiency and output of
these processes to maximize corporate performance.
The Company's Technology Services are provided by its Technology Services
Group, and focus on the design, development and implementation of desktop
applications using client/server architecture to support decision-making,
coordination, information sharing and skill development by knowledge workers.
These applications are designed to support both the strategic management process
and key business processes, with an emphasis on product development, sales,
order
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fulfillment and customer service. The Company believes that by bridging
management consulting and systems integration capabilities it can help its
customers effectively use technology to satisfy their strategic objectives.
The Renaissance Solution
Renaissance combines its expertise in management consulting and
client/server systems integration to assist customers in developing innovative
solutions to their business needs. The Company believes that the combination of
defining an organization's strategy clearly, framing it in terms of measurable
objectives and goals, and implementing information systems in support of these
goals differentiates Renaissance from its competitors. Renaissance focuses on
engagements that are intended to have a significant effect on a customer's
future profitability or competitive market position.
Renaissance's service offerings are designed to support both the strategic
and operational processes of large corporations, as follows:
. At the strategic level, the Company provides management consulting services
and technology support that are intended to analyze and define corporate
competitive strategy, and translate that strategy into strategic corporate
objectives and targets. In addition, the Company designs, develops and
implements software-based executive information systems, or "Strategic
Feedback Systems" ("SFS"), that provide desktop information and
communications tools for use by senior executives in achieving these
objectives. In addition, SFS systems allow senior executives to access
information to measure corporate performance.
. At the business process level, the Company assists its clients in leveraging
best practices to produce higher levels of individual and organizational
performance. The Company's efforts in this area typically focus on
redesigning key business processes, including product development, sales,
order fulfillment and customer service. The Company then designs, develops
and implements desktop applications using client/server architecture to
support the redesigned processes. These applications are designed to assist
knowledge workers in increasing performance using the new or redesigned work
processes.
. At the technological level, the Company develops information infrastructure
that supports newly designed management systems or redesigned business
processes. The Company also designs and develops technological
infrastructure that supports cross-functional and cross-divisional
collaboration, enables faster execution of corporate transformation
programs, and provides greater access to organizational knowledge.
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Strategy
Renaissance's goal is to be a leading provider of management consulting
and client/server systems integration services to corporations seeking major
performance improvements. The Company is pursuing the following strategies to
achieve this goal.
. Employ a Multidisciplinary Approach. The Company believes that a key factor
differentiating Renaissance's service offerings is the combination of its
expertise in management consulting and client/server systems integration.
The Company believes that by bridging management consulting and systems
integration capabilities it can help its customers effectively use
technology to satisfy their strategic objectives.
. Provide Tailored Solutions Using Proprietary Methodologies and Reusable
Software Components. The Company is investing in proprietary methodologies
and reusable software components for all of its service offerings. Although
the Company individually tailors solutions for each customer, it leverages
its capabilities through the use of these proprietary methodologies and
software components in order to take full advantage of its best practices
and case experiences. The Company believes that this approach reduces
development time and project costs, enhances project quality, permits rapid
expansion of the Company's professional staff and differentiates the
Company's services from those of its competitors.
. Emphasize Cross-Selling Activities and Coordinated Account Development. The
Company believes a key element of growth is the coordinated development of
existing and new accounts. The Company focuses its marketing and business
development activities on targeted new clients, improving services to
existing clients and actively cross-selling its service offerings to extend
the life of existing client relationships.
. Broaden Customer Base Through Targeted Industry Marketing, Geographic
Expansion and Alliances. The Company plans to continue to expand its
marketing initiatives and capabilities. The Company is expanding its
professional staff through the addition of personnel with consulting
expertise in targeted industry sectors and is increasing its sector-specific
customer marketing efforts and practice initiatives, including publications
and executive seminars. The Company is also seeking marketing alliances with
consulting and technology providers who offer products or services that
complement the Company's service offerings.
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. Build Renaissance Brand Name. The Renaissance name is closely associated
with the Balanced Scorecard management consulting methodology. The Balanced
Scorecard concept was described in three articles appearing in the Harvard
Business Review in 1992, 1993 and 1996 and in The Balanced Scorecard, a
recently published book, all of which were co-authored by one of the
Company's founders. The Company seeks to promote its name association with
the Balanced Scorecard through additional publications, speaking engagements
and other marketing activities. By building name recognition for both
Renaissance and the Balanced Scorecard, the Company believes it can
differentiate Renaissance from its competitors.
. Diversify Service Offerings and Markets Through Internal Development and
Acquisitions of Complementary Businesses. The Company's strategy includes
the development and marketing of an integrated portfolio of service
offerings that address the needs of senior executives in various industry
sectors. The Company seeks to implement this goal through a combination of
innovative internal development and strategic acquisitions designed to
expand it service offerings and targeted markets. For example, in December
1996 the Company acquired ISS to augment the Company's process design
services and systems development capabilities and enhance its client base in
the financial services and telecommunications sectors. In addition, in
February 1997 the Company acquired Coba Consulting Limited ("COBA-UK"),
which offers strategic consulting services to the telecommunications,
financial services, utilities and retail sectors in the United Kingdom, and
C.M. Management Services Ltd. Inc. ("COBA-Boston"), which provides strategic
consulting services to the telecommunications sector in the United States.
Services
Renaissance's offerings are delivered through three service groups, the
Strategic Services Group, the Performance Solutions Group and the Technology
Services Group.
Strategic Services Group
The Company's Strategic Services Group assists clients in strategy
development and designs strategic management systems. Strategy development
involves working directly with executive level clients on industry analysis,
strategy formulation and strategic planning for the development and
implementation of intermediate and long-range competitive strategies. This work
may include strategy audits, industry trend analyses, competitor assessment,
internal and external benchmarking and strategy design. The Company also assists
clients with analysis and due diligence in conjunction with acquisitions.
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The Company's strategic services also include consulting using the
Company's Balanced Scorecard methodology, complementary consulting services and
the design and development of desktop applications to assist senior executives
in measuring strategy implementation. The goal of the Balanced Scorecard
methodology is to provide senior managers with a framework to translate the
corporate strategy into measurable objectives, measures and targets. The
Balanced Scorecard methodology is designed to consolidate measurement of many of
the disparate elements of the company's competitive agenda, such as becoming
customer oriented, improving quality, accelerating financial performance,
reducing time to market for new products, and managing for the long term.
Fees for services provided by the Company's Strategic Services Group
typically are based on the project schedule, Renaissance staffing requirements,
the level of customer involvement and the scope of the project as agreed upon
with the customer at the project's inception. The Company generally seeks to
obtain an adjustment in its fees in the event of any significant change in any
of the assumptions upon which the original estimate was based. Fees for the
Company's Balanced Scorecard engagements vary significantly depending on the
size and complexity of the customer's business and the scope of the engagement,
but have ranged from under $100,000 to in excess of $1,000,000. Since its
inception in 1992, the Company has completed over 110 strategy analyses and
development engagements, and has delivered approximately 165 Balanced
Scorecards for different business units within over 50 organizations.
The Company also offers complementary services related to the Strategic
Management Solutions practice. In 1994 the Company developed the Strategic
Feedback System, which is an executive information system that provides
senior
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executives with desktop access to strategic information presented in the form of
performance measurements derived from the Balanced Scorecard. Fees for SFS
engagements have ranged from approximately $100,000 to approximately $1,000,000.
Since its introduction in 1994, the Company has completed six SFS engagements
for five different organizations. The Company offers SFS services to existing
customers for which it has provided Balanced Scorecard services and to new
customers as an integral part of future Balanced Scorecard services.
Performance Solutions Group
The Company's Performance Solutions Group focuses on the business and
process-based redesign of key business processes or activities that drive a
customer's business. The Company focuses its performance solutions services on
five key business processes -- customer acquisition, customer service, new
product development, knowledge management and information technology ("I/T").
A typical performance solutions engagement may begin with a diagnostic
analysis of corporate performance, and the identification and assessment of
those processes that offer the most significant opportunities for performance
improvement. The Company then uses the results of this assessment to develop a
business case quantifying the performance opportunities.
Working with the client's management, the Company's Performance Solutions
Group then focuses on redefining and redesigning one or more of the business
processes that offer opportunities for performance improvements. The redesign
typically seeks to leverage internal/corporate best practices, including the
insights and skills of best performers, and external/industry best practices.
The resulting processes are then analyzed and translated by Renaissance
into performance specifications for the client's I/T infrastructure in order to
provide desktop support to employees charged with managing and implementing the
redesigned processes. The Company works with the client to define these
performance specifications, and create a resulting development plan. Working
with its Technology Services Group, the Company converts these requirements into
functional prototypes, pilots and production systems.
Fees for services provided by the Company's Performance Solutions Group
typically are based on the project schedule, Renaissance staffing requirements,
the level of customer involvement, and the scope of the project as agreed at the
project inception. The Company generally seeks to obtain an adjustment in its
fees in the event of any significant change in any of the assumptions upon which
the original estimate was based. Fees vary significantly depending upon the
size and complexity of the customer's business and the scope of the engagement,
but have ranged from
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$100,000 for a diagnostic business case development project to in excess of
$3,000,000 for a process redesign engagements involving the development of a
large-scale system.
Technology Services Group
The Company's Technology Services Group designs, develops and assists in
implementing desktop applications using client/server architecture to support
key business processes, such as new product development, sales, order
fulfillment and customer service. These systems, which are often developed in
connection with the Company's Strategic Services Group or Performance Solutions
Group, are designed to enable customers to reduce costs, speed time to market
and improve coordination among knowledge workers.
The Company designs and develops desktop applications focused on
supporting the strategic management process. These engagements are performed
both independent of and as follow-ons to Balanced Scorecard engagements. In
situations in which Renaissance has not previously prepared a Balanced Scorecard
for the customer, Renaissance typically prepares an abbreviated Balanced
Scorecard to assess the strategic objectives to be addressed as part of the
design and development of the desktop application.
The Company's desktop applications are typically used to access,
consolidate, analyze and disseminate information not readily accessible from
existing legacy systems, including:
. Reference Data: explanations and supporting documentation on products,
processes and customers, such as product specifications for use in
responding to customer inquiries.
. Procedural Data: decision support in the form of "if/then" rules,
interpretations and best practice information, such as a checklist of
remedial steps to be taken following the discovery of a billing error.
. Performance Data: feedback measurements regarding individual and process
performance, such as proposal to sales ratios used by an organization's
sales force.
The Company believes that the availability of this type of data is critical to
improving knowledge worker productivity and decision making.
In developing such desktop applications, the Company uses rapid
prototyping techniques, standard database and groupware software, application
development tools and reusable software components. In addition, the Company has
developed customizable templates and tools for use in system design. These
techniques, tools
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and components are intended to reduce development time and project costs and
increase the productivity of the Company's professionals.
Fees for services provided by the Company's Technology Services Group
typically are based on the project schedule, Renaissance staffing requirements,
the level of customer involvement and the scope of the project as agreed upon
with the customer at the project's inception. The Company generally seeks to
obtain an adjustment in its fees in the event of any significant change in any
of the assumptions upon which the original estimate was based. Fees for the
Company's desktop application engagements vary significantly depending on the
size and complexity of the customer's business and the scope of the engagement,
but have ranged from under $500,000 for a pilot system to in excess of
$3,000,000 for a large multi-application engagement. Since its inception in
1992, the Company has performed 48 engagements involving the design and
development of desktop applications for 23 organizations.
Marketing, Sales and Customers
The Company markets its services to senior executives of large
corporations both directly and through various marketing alliances, including
its collaboration with Gemini Consulting, Inc. ("Gemini"). The Company markets
its services in the United States through its Lincoln, Massachusetts
headquarters and its Atlanta, Georgia, Boston, Massachusetts, Chicago, Illinois,
San Francisco, California, Stamford, Connecticut and Washington, D.C. offices
and in Europe through its London offices. See Note 10 of Notes to Consolidated
Financial Statements.
The Company continues to expand its direct marketing capabilities by
hiring industry sector specialists to undertake business development initiatives
in the following industry sectors: financial services and insurance; oil, gas
and utilities; computing and communications; healthcare and pharmaceuticals; and
retail and diversified. The Company is seeking marketing alliances with
technology and service providers who offer products or services that complement
the Company's service offerings in these sectors.
The Company employs a variety of business development and marketing
techniques to communicate directly with current and prospective customers,
including authoring of articles and other publications regarding the Company's
methodologies, regular newsletters and direct mail initiatives and executive
seminars featuring presentations by senior officers of key customers. A
significant portion of Renaissance's marketing activities is carried out by
senior Renaissance executives.
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The following table sets forth a list of selected customers for which the
Company, either directly or in collaboration with Gemini, has provided services
in 1994, 1995 or 1996:
Financial Oil, Gas and Utilities
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Services/Insurance
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Barclays Bank PLC Mobil Corporation
Chemical Bank Nova Chemical Sales
Federal National Mortgage Nova Gas
Association
CIGNA Corporation
North American Life
Assurance Company
Mercantile & General
Computing and Retail and
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Communications Diversified
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AT&T Corp. The Limited, Inc.
British Telecom Inc.
An important component of the Company's marketing strategy is to offer
additional services to existing customers through coordinated cross-selling
efforts. For example, the Company's Balanced Scorecard services often result in
follow-on projects for other business units within the customer organization. In
1996, the Company provided services to 32 of the 75 customers for whom the
Company provided services in 1995.
In 1996, revenues from services and other amounts billable to Gemini
accounted for approximately 21% of the Company's total revenues, and revenues
from services billable to divisions of AT&T Corp. ("AT&T") accounted for
approximately 26% of the Company's total revenues in 1996. See Note 11 of Notes
to Consolidated Financial Statements.
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Relationship with Gemini
Since 1993 the Company has been a party to a Teaming Agreement (the
"Teaming Agreement") with Gemini pursuant to which the Company and Gemini have
agreed to perform on a collaborative basis certain service offerings obtained as
a result of Gemini marketing efforts or joint Gemini/Renaissance marketing
efforts. These joint service offerings include Balanced Scorecard and desktop
application design, development and implementation engagements.
Gemini is a worldwide consulting firm that provides business and system
transformation services which are complementary to Renaissance's service
offerings. The Company believes that its relationship with Gemini currently
provides the Company with access to potential customers that the Company would
not otherwise be able to obtain. Approximately 44%, 34% and 31% of the Company's
revenues in 1994, 1995 and 1996, respectively, resulted from its relationship
with Gemini; approximately 36%, 15% and 21%, respectively, of revenues were from
services and other amounts billable to Gemini and approximately 8%, 19% and 10%,
respectively, of revenues were from services billable directly to third parties.
In many of these engagements, the Company provided services as a subcontractor
to Gemini.
In November 1996, the Company and Gemini entered into a Restated Teaming
Agreement (the "Restated Teaming Agreement"). The following is a summary of the
material terms of the Restated Teaming Agreement.
The Restated Teaming Agreement has a term ending on November 1, 1999. It
is subject to termination by Gemini as a result of, among other things, the
occurrence of a change in control of Renaissance, which is defined generally to
mean (i) the sale or other disposition of all or substantially all of the assets
of the Company, (ii) the consummation of a transaction pursuant to which any
person (other than an existing stockholder or a Gemini competitor, as defined in
the Restated Teaming Agreement) becomes the beneficial owner of securities
representing more than 40% of the combined voting power of the Company, (iii)
the consummation of a transaction pursuant to which a Gemini competitor becomes
the beneficial owner of securities representing more than 25% of the combined
voting power of the Company, or (iv) a merger or consolidation of the Company
with any other entity resulting in the holders of Renaissance Common Stock
immediately prior to such transaction ceasing to hold at least 50% of the
combined voting power of Renaissance or the surviving entity after such
transaction. In the event that the Restated Teaming Agreement is validly
terminated by either party prior to its expiration, Renaissance is required to
pay a termination fee to Gemini in an amount declining from $1.6 million in the
event of a termination prior to November 1, 1996 to $250,000 in the event of a
termination prior to November 1, 1999. In addition, in such event, various
payment obligations contained in the Restated Teaming Agreement will terminate
on the termination date.
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During the term of the Restated Teaming Agreement, the Company and Gemini
have agreed to staff jointly engagements for their collaborative service
offerings. Final staffing decisions are made by the party with primary
responsibility for the customer.
Under the Restated Teaming Agreement, the Company has agreed to train
Gemini in use of the Company's Balanced Scorecard, desktop application and
certain other methodologies prior to November 1, 1998, to perpetually license
these methodologies, to the extent developed prior to November 1, 1998, to
Gemini on a non-exclusive basis and agreed to perform certain services for
Gemini in 1996. In exchange, Gemini has agreed to pay the Company an annual fee
of $2.0 million in each of the years during the three year period ending October
31, 1997. Revenue for these services will be recognized by the Company as the
services are performed pursuant to the terms of the Restated Teaming Agreement.
The license of methodologies by Renaissance to Gemini expressly excludes any
software created by Renaissance. The Company is obligated to pay Gemini an
annual fee of $400,000 in each of the years during the three year period ending
October 31, 1997 for certain training services provided by Gemini to Renaissance
personnel.
As part of the Restated Teaming Agreement, Gemini has committed to provide
the Company with certain levels of bookings. The minimum bookings commitments
total $12.0 million in the twelve month period ending October 31, 1997 and $12.5
million in each of the twelve month periods ending October 31, 1998 and 1999. As
described below, these commitments represent a 50% reduction in Gemini's minimum
bookings commitments under the Teaming Agreement. For the twelve month period
ended October 31, 1995, bookings attributable to Gemini under the Teaming
Agreement (without regard to the application of bookings attributable to prior
period deficiencies) totalled approximately $8.7 million. For the twelve month
period ending October 31, 1996, such bookings (without regard to application of
bookings to prior period deficiencies) totalled approximately $9.9 million.
In the event that during any of the six month periods during the term of
the Restated Teaming Agreement bookings obtained by Renaissance from Gemini
customers or customers of joint service offerings by Renaissance and Gemini are
less than the specified minimum bookings, Gemini may retain the services of
Renaissance for a fee equal to the amount of the deficiency. If at the end of
twelve months a bookings deficiency still remains, Gemini is required to make a
compensating payment to Renaissance of 25% of the remaining deficiency in full
satisfaction of the bookings deficiency. In no event will Gemini be obligated to
make a payment with respect to any bookings deficiency in an amount in excess of
25% of such deficiency.
The Company monitors Gemini's progress in meeting its bookings commitments
through regular conference calls and meetings with Gemini marketing
representatives. Under the Restated Teaming Agreement, "bookings" are
generally
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defined as gross fees (excluding expense reimbursements) committed to
Renaissance as a result of the relationship with Gemini during the applicable
six month period for services to be provided within twelve months of the
commitment, as evidenced by a written agreement between the Company and the
customer, plus any such fees actually collected by the Company during such
period which are not evidenced by a written agreement. Gemini generally is
treated as having satisfied its bookings commitment regardless of whether
revenues are recognized by Renaissance with respect to a particular engagement.
For example, under the Restated Teaming Agreement, 50% of the fees attributable
to a cancelled contract count towards Gemini's bookings commitment if such
cancellation is not primarily attributable to the actions or omissions of
Gemini. In accordance with industry practice, nearly all of the Company's
contracts are terminable by either the customer or the Company on short or no
notice and without penalty. In addition, Gemini does not guarantee the
collectibility of any receivables resulting from customer engagements under the
Restated Teaming Agreement.
The amount of Gemini's bookings commitment is subject to adjustment as a
result of, among other things, any failure by Renaissance to make available to
Gemini such quantities of marketing and sales resources and such number of staff
for joint service offerings as may from time to time be mutually agreed upon by
the parties. In addition, Gemini's minimum bookings commitment terminates in the
event that any of Messrs. Harry M. Lasker, David A. Lubin or David P. Norton,
the founders of the Company, ceases for any reason to be employed by the Company
on a full time basis. In such event, the parties have agreed to negotiate in
good faith to establish new commitments for the remainder of the term of the
Restated Teaming Agreement.
The Restated Teaming Agreement superseded a prior agreement entered into
between the Company and Gemini in October 1994, as amended through March 1996.
In general, the Restated Teaming Agreement provides for a reduction by 50% in
Gemini's minimum bookings commitments for the twelve month periods ended October
31, 1997, 1998 and 1999 and the elimination of various contractual covenants in
favor of Gemini, including non-competition restrictions, rights of first
refusal, rights of first offer and limitations on issuances and transfers of
securities by the Company and the founders of the Company and certain of their
affiliates, which were previously set forth in the Teaming Agreement. The
Restated Teaming Agreement also provides for a reduction in the termination fee
payable by Renaissance in the event of a valid termination of the agreement by
either party and also provides for the payment of certain license fees by Gemini
to Renaissance in five equal installments of $1.0 million during the period
commencing on November 18, 1996 and ending on November 1, 1998.
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Development of Service Offerings
A significant element of Renaissance's strategy is the continuous
improvement of existing service offerings and the development of new and related
services. To implement this strategy, Renaissance seeks to identify new and
enhanced methodologies developed in the course of customer engagements and to
disseminate these developments as "best practices" through internal training
programs. In addition, the Company undertakes internal development activities to
create new practice offerings and related methodologies and enhance and extend
its methodologies with technology. The Company has organized a team of
professionals whose primary responsibility is the management of the Company's
practice development efforts. This group has developed an internal knowledge
management system that provides rapid access to new developments and support
materials to all of the Company's employees.
Recent Developments
On December 31, 1996 the Company acquired all of the outstanding capital
stock of ISS in exchange for 1,310,000 shares of Common Stock of the Company
(the "ISS Acquisition"). The ISS Acquisition was accounted for as a pooling of
interests. See Note 2 of Notes to Consolidated Financial Statements.
ISS provides business planning, process design, change management and system
integration services to Fortune 500 companies. The Company believes that ISS'
service offerings complement the capabilities of Renaissance's Performance
Solutions Group and its Technology Services Group. The ISS Acquisition also
provided the Company with additional experience in process design, new skills in
the area of information technology processes and 25 additional project managers.
In addition, the ISS Acquisition expanded the Company's skill base for system
specification prototyping and development.
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On February 3, 1997 the Company acquired all of the ordinary shares (the
"COBA-UK Common Stock") of COBA-UK for the sum of approximately $11,900,000 and
the issuance of 163,160 shares of Common Stock of the Company. In connection
with this transaction, the Company entered into an option agreement (the
"Option Agreement") with COBA-UK and the holders of the deferred convertible
non-voting stock of COBA-UK (the "Deferred Stock") pursuant to which the holders
of the Deferred Stock granted the Company an option to acquire all of the
Deferred Stock in 1998 and 1999. The Company will acquire the Deferred Stock in
1998 and 1999 at a purchase price to be determined based on the financial
performance of COBA-UK in 1997 and 1998. The maximum possible purchase price for
the Deferred Stock under the Option Agreement is $12,600,000, part of which may
be paid by the issuance of shares of Common Stock of the Company. See Note 13 of
Notes to Consolidated Financial Statements.
COBA-UK provides strategy formulation, research and analysis, acquisition
assessment and strategy implementation services. The Company believes that the
COBA-UK acquisition expanded its Strategic Services practice and enlarged its
customer base in the United Kingdom. A majority of COBA-UK revenues in 1996 were
derived from clients in four of the Company's key sectors -- computing and
communications, financial services/insurance, oil, gas and utilities and retail
and diversified sectors. The Company intends to integrate these service
offerings within its Strategic Services Group.
On February 13, 1997 the Company acquired all of the outstanding capital
stock of COBA-Boston for an aggregate purchase price of $9,250,000 and an earn-
out of cash (or, in the Company's discretion, cash and stock) based on COBA-
Boston's 1997 and 1998 performance. See Note 13 of Notes to Consolidated
Financial Statements.
Services offered by COBA-Boston include strategy formulation, market and
competitor assessment, strategy implementation and enterprise transformation. A
majority of the COBA-Boston customers in 1996 were in the computing and
communications industry in the United States and Canada.
Prior to their acquisition by Renaissance, both COBA-UK and COBA-Boston
were parties to a joint marketing arrangement with a network of consulting firms
in Europe and Asia (the "COBA Network"). No stockholder, director or officer of
COBA-UK was also a stockholder, director or officer of COBA-Boston.
Renaissance anticipates that both COBA-UK and COBA-Boston will continue to
participate in the COBA Network as subsidiaries of the Company.
Competition
The management consulting and client/server systems integration markets
(which include the markets for the Company's strategic, performance innovation
and technology solutions services) are comprised of a large number of
participants, are subject to rapid change and are highly competitive. Primary
competitors include general management consulting firms and the consulting
practices of the ''Big Six'' accounting firms; systems consulting and
integration firms; and the professional service groups of computer equipment
companies. In addition, customers may elect to increase their
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internal strategic planning and information systems resources to satisfy their
needs for strategic and performance innovation solutions. The Company may also
face competition from Gemini following the termination of the Restated Teaming
Agreement in light of the methodology license set forth therein.
Many participants in the management consulting and client/server systems
integration markets have significantly greater financial, technical and
marketing resources, greater name recognition and generate greater consulting
and systems integration revenues than does Renaissance. In addition, the
management consulting and client/server systems integration markets are highly
fragmented and served by numerous firms, many of which serve only their
respective local markets. The Company believes that the strong linkage between
its management consulting services and client/server systems integration
capabilities distinguishes it from its competitors.
The Company believes that the principal competitive factors in the
management consulting and client/server systems integration industries include
the nature of the service offering, quality of service, responsiveness to
customer needs, experience, technical expertise and price. The Company believes
that it competes favorably with respect to these factors.
Human Resources
As of December 31, 1996, the Company had a total staff of 220 full-time
equivalent employees, comprised of 207 full-time salaried employees, two part-
time salaried employees and 12 full- or part-time independent contractors. The
Company's total staff of 209 employees as of December 31, 1996 was comprised of
161 professionals and 48 administrative employees.
Intellectual Property
The Company's success is dependent in part upon its proprietary
methodologies and tools and other proprietary intellectual rights. A significant
portion of the Company's management consulting services are based on the
Balanced Scorecard concept described in three Harvard Business Review articles
and in The Balanced Scorecard, a recently published book, all of which were co-
authored by one of the Company's founders. The Company believes that the
Balanced Scorecard name is in the public domain. As a result, third parties may
provide services using the Balanced Scorecard name which are competitive with
the services offered by the Company.
The Company relies upon a combination of trade secret, non-disclosure and
other contractual arrangements, and copyright and trademark laws, to protect its
-15-
<PAGE>
proprietary rights. The Company holds no patents or registered copyrights or
trademarks. The Company generally enters into confidentiality agreements with
its employees, consultants, customers and potential customers and limits access
to and distribution of its proprietary information. There can be no assurance
that the steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary information or that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights.
The Company's business includes the development of custom software
applications in connection with specific customer engagements. Ownership of such
software is generally assigned to the customer. In addition, the Company also
develops object-oriented software components that can be reused in software
application development and certain foundation and application software
products, or software ''tools,'' most of which remain the property of the
Company.
Although the Company believes that its services and products do not
infringe on the intellectual property rights of others, there can be no
assurance that such a claim will not be asserted against the Company in the
future.
ITEM 2. PROPERTIES
The Company's headquarters and principal administrative, sales and
marketing, and system development operations are located in approximately 40,000
square feet of leased space in Lincoln, Massachusetts. The Company occupies
these premises under a lease expiring in August 1999. The Company also occupies
office space in Atlanta, Georgia; Boston, Massachusetts; Chicago, Illinois; San
Francisco, California; Stamford, Connecticut; Washington, D.C.; and London,
England. The Company anticipates that additional space will be required as
business expands and believes that it will be able to obtain suitable space as
needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation that it believes could have a
material adverse effect on the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company held a Special Meeting of Stockholders (the "Special Meeting")
on November 15, 1996. At the Special Meeting, stockholders holding 4,908,758
shares of Common Stock voted for the approval of an amendment to the Company's
1995
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<PAGE>
Equity Incentive Plan increasing the number of shares reserved for issuance
under the Plan from 1,100,000 to 2,100,000. Stockholders holding 1,807,500
shares voted against such proposal. Stockholders holding 38,700 shares abstained
from voting on such proposal. No "broker non-votes" were recorded at the Special
Meeting.
Executive Officers of the Company
The information set forth in Item 10 of Part III is incorporated herein by
this reference.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been trading on the Nasdaq National Market
under the symbol "RENS" since the Company's initial public offering on April 4,
1995. The following table sets forth for the fiscal periods indicated the high
and low sales prices per share of Common Stock as reported on the Nasdaq
National Market:
<TABLE>
<CAPTION>
Fiscal 1995
-----------
Quarter High Low
- ------- ---- ---
<S> <C> <C>
Second (from April 4, 1995) $15.750 $ 9.500
Third 26.750 13.000
Fourth 24.750 13.000
<CAPTION>
Fiscal 1996
-----------
Quarter High Low
- ------- ----- ---
<S> <C> <C>
First $30.000 $13.250
Second 35.500 27.500
Third 42.375 25.500
Fourth 49.250 33.500
</TABLE>
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<PAGE>
There were 39 stockholders of record of the Company's Common Stock as of
February 15, 1997.
The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion.
On December 31, 1996 the Company issued 1,310,000 shares of Common Stock
to Mr. O. Bruce Gupton, now a Director and Executive Vice President of the
Company, in connection with the ISS Acquisition. These securities were issued
by the Company in reliance on Section 4(2) of the Securities Act of 1933, as
amended, as the ISS Acquisition did not involve a public offering.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information with respect to the
Company's consolidated statements of operations for the period from March 23,
1992 (date of inception) through December 31, 1992, for the years ended December
31, 1993, 1994, 1995 and 1996, and with respect to the Company's consolidated
balance sheets as of December 31, 1992, 1993, 1994, 1995 and 1996 have been
derived from the Company's audited Consolidated Financial Statements. The
following selected consolidated financial information give retroactive effect to
the acquisition of International Systems Services Corporation by the Company,
which has been accounted for as a pooling-of-interests. This information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Period from
March 23, 1992 Years Ended
(inception) to December 31,
----------------------------------
December 31, 1992 1993 1994 1995 1996
----------------- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues..................... $9,706 $13,507 $22,988 $35,536 $52,450
------ ------- ------- ------- -------
Costs and expenses:
Professional personnel.... 7,686 11,966 14,056 21,089 31,733
Professional development
and recruiting........... 57 408 894 1,895 2,045
Marketing and sales........ 87 258 482 810 1,624
General and administrative. 1,467 2,598 4,274 6,442 9,217
Acquisition costs....... -- -- -- -- 3,524
------ ------- ------- ------- -------
Total costs and expenses 9,297 15,230 19,706 30,236 48,143
------ ------- ------- ------- -------
Income (loss) from operations 409 (1,723) 3,282 5,300 4,307
Interest expense............. (6) (43) (126) (40) (139)
Interest income.............. 26 26 21 469 1,693
------ ------- ------- ------- -------
Interest (loss) before income
taxes....................... 429 (1,740) 3,177 5,729 5,861
Provision for income
taxes (1)................... -- -- -- 1,894 4,091
------ ------- ------- ------- -------
Net income (loss)............ $ 429 $(1,740) $ 3,177 $ 3,835 1,770
====== ======= ======= ======= =======
Net income per share......... $ .51 $ .53 $ .20
======= ====== =======
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Pro Forma Data: (2)
Historical income
before pro forma
adjustments................. $ 5,861
-------
Pro forma adjustment to
(officer's salary) (2)...... 2,100
-------
Historical/pro forma
income (loss) before
income taxes................ $ 429 $(1,740) $ 3,177 $ 5,729 $ 7,961
Historical income taxes...... -- -- -- 1,894 4,091
Additional provision (credit)
for income taxes (3)........ 87 (87) 744 403 (266)
------ ------- ------- ------- -------
Pro forma income taxes....... 87 (87) 744 2,297 3,825
------ ------- ------- ------- -------
Pro forma net income (loss).. $ 342 $(1,653) 2,433 $ 3,432 $ 4,136
------ ------- ------- ------- -------
Pro forma net income
per share................... $.39 $.48 $.47
======= ======= =======
Pro forma weighted average
number of common and common
stock equivalent shares
outstanding (4)............. 6,303 7,223 $ 8,804
======= ======= =======
<CAPTION>
December 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents ................ $ 162 $ 94 $ 1,487 $ 6,159 $49,415
Working Capital.............. 1,961 1,644 3,176 18,706 68,375
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Total assets 2,864 3,986 8,977 27,135 82,151
Short-term borrowings........ 217 255 600 1,500 500
Current portion of long-
term debt................... -- -- 667 180 782
Long-term debt (less current
portion).................... -- 2,000 1,333 720 --
Stockholders' equity......... 214 160 3,338 21,056 71,641
</TABLE>
- ------------------------------------
(1) From its inception in 1992 through its reorganization in April 1995, the
Company was either an S corporation or a limited partnership and prior to
December 31, 1996, International Systems Services Corporation (ISS) was an S
corporation. Accordingly, the Company and ISS were not subject to federal
and state income taxes.
(2) The pro forma adjustment to officer's salary have been computed based on
the contractual reduction of ISS's officer compensation following the
Company's acquisition of ISS.
(3) Income taxes represent the income taxes that would have been provided as if
the Company and ISS were subject to federal and all applicable state
corporate income taxes from inception, based on the statutory tax rates and
the tax laws then in effect. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes 1 and 9 of Notes to
Consolidated Financial Statements.
(4) Based on the weighted number of common shares and common share equivalents
outstanding. See Note 1 of Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company derives substantially all of its revenues from management
consulting and client/server systems integration services. The Company markets
its services directly and through the Restated Teaming Agreement with Gemini.
Pursuant to the Restated Teaming Agreement, Renaissance and Gemini have agreed
to market and perform certain service offerings on a collaborative basis.
Approximately 44%, 34% and 31% of the Company's revenues in 1994, 1995 and 1996,
respectively, resulted from its relationship with Gemini; approximately 36%, 15%
and 21% of revenues were from services and other amounts billable to Gemini and
approximately 8%, 19% and 10% of revenues were from services billable directly
to third parties in 1994, 1995 and 1996, respectively.
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<PAGE>
Fees for services provided by the Company typically are based on the
project schedule, Renaissance staffing requirements, the level of customer
involvement and the scope of the project as agreed upon with the customer at the
project's inception. The Company generally seeks to obtain an adjustment in its
fees in the event of any significant change in any of the assumptions upon which
the original estimate was based. The Company records revenues at estimated
realizable rates as labor hours are incurred. Provisions are made for estimated
unbillable and uncollectible amounts.
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the Company's actual results
to differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those set forth below under the
caption "Certain Factors That May Affect Future Results."
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to revenues of certain items in the Company's consolidated
statements of operations.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues.................................... 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Professional personnel................... 61.1 59.3 60.5
Professional development
and recruiting......................... 3.9 5.3 3.9
Marketing and sales...................... 2.1 2.3 3.1
General and administrative............... 18.6 18.1 17.6
Acquisition costs........................ -- -- 6.7
----- ----- -----
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Total costs and expenses............. 85.7 85.1 91.8
----- ----- -----
Income from operations...................... 14.3 14.9 8.2
Interest income (expense), net.............. (0.4) 1.2 2.9
----- ----- -----
Income before income taxes.................. 13.8 16.1 11.2
Provision for income taxes.................. -- 5.3 7.8
----- ----- -----
Net income.................................. 13.8% 10.8% 3.4%
===== ===== =====
Pro Forma Data:
Historical income before
pro forma adjustments................... 11.2%
Pro forma adjustment to
officer's salary........................ 4.0
Historical/pro forma income
before income taxes..................... 13.8% 16.1% 15.2%
----- ----- -----
Historical income taxes..................... -- 5.3 7.8
Additional provision (credit) for
income taxes............................ 3.2 1.1 (0.5)
----- ----- -----
Pro forma income taxes...................... 3.2 6.4 7.3
----- ----- -----
Pro forma net income........................ 10.6% 9.7% 7.9%
===== ===== =====
</TABLE>
1996 Compared with 1995
Revenues increased 47% to $52.5 million in 1996 from $35.6 million in 1995.
This increase in revenues was primarily attributable to the significantly
increased level of services performed for clients by each of the Strategic
Services Group, the Performance Solutions Group and the Technology Services
Group. Revenues attributable to the Company's relationship with Gemini
represented 31% and 34% of total revenues in 1996 and 1995, respectively.
The Company expects that revenues from Gemini will decrease as a percentage of
revenues in the future. Revenues from operating companies of AT&T represented,
in the aggregate, approximately 26% and 23% of the Company's revenues in 1996
and 1995, respectively. The Company anticipates that revenues attributable to
operating companies of AT&T will decrease in the future because several
engagements for this group of clients have been completed.
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<PAGE>
In each of the four six month periods ended on October 31, 1996, Gemini's
actual bookings were lower than the minimum bookings provided for under the
Teaming Agreement. Gross bookings attributable to Gemini under the Teaming
Agreement (without regard to the application of bookings to prior period
deficiencies) for the six month periods ended April 30, 1995, October 31, 1995,
April 30, 1996 and October 31, 1996 were $6.8 million, $2.0 million, $5.3
million and $4.7 million, respectively. Because bookings for the six month
period ended October 31, 1995 were substantially below the bookings commitment
for such period, bookings for the subsequent six month periods ended April 30,
1996 and October 31, 1996 were, in accordance with the Teaming Agreement, used
to satisfy prior period deficiencies.
In particular, during the six month period commenced on May 1, 1995 and
ended October 31, 1995, Gemini's bookings commitment to the Company was $8.25
million. The actual bookings for such period, net of bookings applied to the
prior period deficiency, totalled approximately $1.9 million. Gemini satisfied
the resulting $6.3 million deficiency in the subsequent six month period through
a combination of revenues generated from client work referred to Renaissance by
Gemini, work performed by Renaissance as a subcontractor for Gemini, work
performed by Renaissance directly for Gemini and the acquisition by Gemini from
the Company for $2.2 million (included in revenue for the nine months ended
September 27, 1996) of certain Company program designs and related materials.
During the six month period commenced on November 1, 1995 and ended April 30,
1996, Gemini's bookings commitment to the Company was $7.0 million. The actual
bookings for the period, net of bookings applied to the prior period deficiency,
totalled approximately $1.2 million. Gemini issued to Renaissance a purchase
order for the deficiency of approximately $5.8 million. This purchase order was
satisfied by Gemini in the subsequent period through a combination of revenues
generated from client work referred to Renaissance by Gemini of approximately
$4.0 million and a cash payment by Gemini to Renaissance of $750,000 in the
third quarter of 1996 in satisfaction of the remaining $1.8 million purchase
order obligation. The Company's net income for the third fiscal quarter of 1996
was favorably affected by this cash payment which was included in revenues and
had no incremental cost associated with it.
During the six month period commenced on May 1, 1996 and ended on October
31, 1996, Gemini's bookings commitment to the Company was $8.0 million.
Approximately $4.1 million in revenues generated from the $5.2 million in
bookings in this six month period were applied to satisfy the prior period
deficiency. Gemini satisfied the bookings deficiency for this period with a one
time payment by Gemini to Renaissance of approximately $1.5 million in
accordance with the terms of the Restated Teaming Agreement.
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<PAGE>
Professional personnel costs increased 50% in 1996 to $31.7 million, or 60%
of revenues, from $21.1 million, or 59% of revenues, in 1995. The number of
full-time equivalent professional employees increased to 208 at December 31,
1996 from 132 at December 31, 1995. The increase in personnel costs resulted
from the standardization of all employee compensation adjustments to January of
each year beginning in January 1996 and professional time investment in the
Company's technology services.
Professional development and recruiting costs increased 8% in 1996 to $2.0
million, or 4% of revenues, from $1.9 million, or 5% of revenues, in 1995. This
increase in professional development and recruiting costs resulted primarily
from expansion in the number of professional employees retained by the Company.
Marketing and sales expenses increased 100% in 1996 to $1.6 million, or
3.1% of revenues, from $810,000, or 2.3% of revenues, in 1995. This increase in
marketing and sales expenses reflected an increase in the level and scope of
marketing communications activities in 1996. The Company is expanding its
marketing and sales efforts and therefore expects related expenses to increase
as a percentage of revenues in the future.
General and administrative expenses increased 43% in 1996 to $9.2 million,
or 18% of revenues, from $6.4 million, or 18% of revenues, in 1995. This
increase in general and administrative expenses resulted primarily from
additional costs necessary to support the growth in the Company's business and
professional staff during 1996 and included increases in salary costs for
administrative staff, increases in facilities and operating expenses and
investments in upgrading the Company's telecommunications (video and audio),
networks and systems.
Interest expense increased 74% in 1996 to $139,000, or 0.3% of revenues,
from $80,000, or 0.2% of revenues, in 1995. This increase was primarily
attributable to payments made to Shawmut Bank under the Company's working
capital line of credit and the cost of borrowings by ISS for working capital
needs, offset in part by a reduction in interest payments to Gemini under a $2.0
million working capital loan from Gemini to the Company (the "Gemini Loan"),
which was repaid following the Company's initial public offering in April 1995.
Interest income increased 233% in 1996 to $1.7 million, or 3% of revenues, from
$509,000, or 1% of revenues, for 1995. This increase was primarily the result of
higher cash balances from cash generated by operations and the proceeds from the
Company's follow-on public offerings in May and November 1996. Interest income
consists of interest earned on the Company's cash, cash equivalents and
marketable securities.
In 1996 the Company recorded a one time charge of $3.5 million for the
acquisition of ISS. This charge includes investment banking, legal and
accounting fees, consolidation of duplicate facilities, elimination of certain
redundant assets, and costs associated with consolidating such operations,
including severance and other related items.
The pro forma tax provision in 1996 was $3.8 million or 48% of pro forma
pre-tax income as compared with a pro forma tax provision of $2.3 million or 40%
in 1995. Non-deductible acquisition costs increased the effective tax rate in
1996 by 8.3%. The 1995 and 1996 figures were computed as if the Company had been
taxable as a C corporation since its
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<PAGE>
inception. Prior to its reorganization in April 1995 (the "Reorganization"),
the Company was not subject to federal or state income taxes at the Company
level. Prior to the acquisition of ISS on December 31, 1996, ISS was not subject
to federal and state income taxes at the Company level.
The pro forma data presented show the effect on 1996 of the contractual
reduction in ISS' officer's compensation following the ISS Acquisition of $2.1
million, included in professional personnel costs in 1996.
1995 Compared with 1994
Revenues increased 54% to $35.5 million in 1995 from $23.0 million in
1994. This increase in revenues was primarily attributable to the significantly
increased level of services performed for clients by both the Performance
Solutions Group and the Technology Services Group. Revenues from three operating
companies of AT&T represented, in the aggregate, approximately 23% of the
Company's revenues in 1995. Revenues attributable to the Company's relationship
with Gemini represented approximately 34% and 44% of the Company's total
revenues in 1995 and 1994, respectively.
Professional personnel costs (which includes salaries and benefits and
costs associated with independent contractors) increased 50% in 1995 to $21.1
million, or 59% of revenues, from $14.1 million, or 61% of revenues, in 1994.
Professional personnel costs in 1995 reflect the election by the Company's Co-
Chairmen and Chief Executive Officer to permanently forego a total of $150,000
in compensation to which they were otherwise entitled in 1995. The number of
full-time equivalent professional employees increased to 132 at December 31,
1995, from 92 at December 31, 1994. This increase in personnel resulted from the
need to staff an increasing level of customer engagements.
Professional development and recruiting costs increased 113% in 1995 to
$1.9 million, or 5% of revenues, from $894,000, or 4% or revenues, in 1994. This
increase in professional development and recruiting costs was primarily
attributable to the addition of significant numbers of professional personnel by
the Company in 1995.
Marketing and sales expenses increased 68% in 1995 to $810,000, or 2% of
revenues, from $482,000, or 2% of revenues, in 1994. This increase in marketing
and sales expenses reflected increased public relations and other marketing
communications activities in 1995. The Company is expanding its marketing and
sales efforts and therefore expects related expenses to increase as a percentage
of revenues in the future.
General and administrative expenses increased 49% in 1995 to $6.4
million, or 18% of revenues, from $4.3 million, or 19% of revenues, in 1994.
This increase in general and administrative expenses resulted primarily from
additional costs necessary to support the growth in the Company's business and
professional staff during 1995 and included increases in salary costs for
administrative staff as well as increases in facilities and operating expenses.
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<PAGE>
Interest expense declined 37% in 1995 to $80,000, or 0.2% of revenues,
from $126,000, or 0.6% of revenues, for 1994. This decline was primarily
attributable to the reduction in interest payments to Gemini under the Gemini
Loan, which was repaid following the Company's initial public offering in April
1995. Interest income was $569,000, or 2% of revenues, for 1995, up from
$21,000, or less than 1% of revenues, during 1994. The increase in interest
income resulted from interest earned on the proceeds of the Company's initial
public offering.
The pro forma provision for income taxes in 1995 was $2.3 million
compared with a pro forma tax provision of $744,000 in 1994. Both figures are
computed as if the Company had been taxable as a C corporation since its
inception and ISS had been taxable as a C corporation prior to its acquisition
by the Company on December 31, 1996. Prior to its Reorganization in April 1995,
the Company was not subject to federal or state income taxes at the Company
level. The 1995 pro forma effective tax rate was 40%. The 1994 pro forma
effective tax rate of 23% was less than the federal statutory tax rate of 34%
due to the carryforward of operating losses from 1993.
Under the Teaming Agreement as then in effect, during the six month
period commenced on May 1, 1995 and ended October 31, 1995, Gemini was obligated
to provide the Company with bookings (as defined in the Teaming Agreement) of
$8.25 million. The actual bookings for such period totalled approximately $1.9
million. Gemini satisfied the approximately $6.3 million deficiency through a
combination of revenues generated from client work referred to Renaissance by
Gemini, work performed by Renaissance as a subcontractor for Gemini and work
performed by Renaissance directly for Gemini. A portion of the deficiency
satisfied directly by Gemini was payable in installments through September 1,
1996.
Liquidity and Capital Resources
To date, the Company's financing requirements have been met through a
combination of funds generated by operations, loans from Gemini, bank
borrowings, loans from certain of the Company's stockholders, the sale of Common
Stock in the Company's initial and follow-on public offerings and the sale to
Gemini of warrants to purchase up to 633,600 shares of Common Stock (the "Gemini
Warrants") and the subsequent exercise of the Gemini Warrants. At December 31,
1996, the Company had working capital of $68.4 million, an increase of $49.7
million as compared to working capital of $18.7 million at December 31, 1995.
The increase was primarily attributable to the Company's follow-on offerings in
May and November 1996, which provided net proceeds of approximately $34 million.
Funds provided (used) by operations amounted to $2,169,000, $(1,964,000)
and $10,120,000 for 1994, 1995, and 1996, respectively. Accounts receivable and
unbilled services decreased significantly in 1996 over 1995 as a result of the
increased focus on collections by the Company in 1996. Accounts receivable and
unbilled services
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<PAGE>
decreased 21% to $9.8 million on December 31, 1996 as compared to $12.4 million
on December 31, 1995. During this same period revenues increased 48%, to $52.4
million from $35.5 million in 1995. Accounts receivable and unbilled services
increased 118% to $12.4 million on December 31, 1995 as compared to $5.7 million
on December 31, 1994. Advance payments are recorded when billings exceed
revenues earned or expenses incurred. In 1995, advanced payments decreased to
$424,000 from $983,000 in 1994. Advance payments in 1996 increased to $879,000
from $424,000 in 1995.
Capital expenditures were $1.1 million $2.3 million and $1.8 million for
1994, 1995 and 1996, respectively.
On July 21, 1994, the Company entered into a revolving line of credit
agreement with Shawmut Bank (now Fleet Bank, N.A.) providing for borrowings of
up to $1.0 million. The line of credit agreement was subsequently amended to
increase the amount available for borrowings to $3.5 million. This line of
credit expires on June 1, 1997. As of December 31, 1995, $1.5 million was
outstanding under the line. No borrowings were outstanding under the line as of
December 31, 1996. The line of credit includes customary financial and other
covenants relating to the maintenance of certain financial tests, such as
minimum tangible net worth and quarterly profitability, and restricting the
Company's ability to incur additional indebtedness. On August 25, 1995, the
Company entered into a revolving line of credit agreement with Barclays Bank in
London providing for borrowings of up to British Pound Sterling 250,000. The
line of credit was subsequently amended to increase the amount available for
borrowings to British Pound Sterling 425,000. No borrowings were outstanding
under the line as of December 31, 1996. See Note 6 of Notes to Consolidated
Financial Statements.
The Company made a partnership distribution totaling $2,672,000 in
January 1995, which represented the cumulative net earnings of Renaissance
Strategy Group Limited Partnership, the Company's predecessor (the
"Partnership") from December 1, 1993 through December 31, 1994. The Company made
a final partnership distribution totaling $754,475 in March 1995, which
represented the estimated amount of the Partnership's net earnings during the
period commencing on January 1, 1995 and ending immediately prior to the
Company's reorganization on April 3, 1995 (the "Reorganization"). Both the
January 1995 and the March 1995 partnership distributions were evidenced by
promissory notes from the Company (the
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<PAGE>
"Stockholder Notes"), which Stockholder Notes were repaid from a portion of
the net proceeds of the Company's initial public offering. The partnership
distributions represent earnings of the Partnership upon which the recipients of
the Stockholder Notes were required to pay income taxes.
In the event that the Restated Teaming Agreement is validly terminated by
either party prior to its expiration, Renaissance is required to pay a
termination fee to Gemini in an amount declining from $1.6 million in the event
of a termination prior to November 1, 1996 to $250,000 in the event of a
termination prior to November 1, 1999.
In connection with the acquisition of COBA-UK, the Company will acquire all
of the deferred convertible non-voting stock of COBA-UK (the "Deferred Stock")
in 1998 and 1999 at a price based on the financial performance of COBA-UK in
1997 and 1998. The maximum possible purchase price for the Deferred Stock is
$12.6 million, part of which may be paid by the issuance of shares of Common
Stock of the Company.
In connection with the acquisition of COBA-Boston, the Company has agreed
to pay an earn-out to the former stockholders of COBA-Boston in 1998 and 1999
based upon the financial performance of COBA-Boston in 1997 and 1998,
respectively. The maximum possible amount of the payments to be made pursuant to
the earn-out is $9.25 million per year, part of which may be paid by the
issuance of shares of Common Stock of the Company.
Management believes that funds generated by operations, existing cash
balances (including proceeds from the Company's initial and follow-on public
offerings) and borrowings under the bank lines will be sufficient to meet the
Company's working capital and capital expenditure requirements for at least the
next twelve months. Thereafter, the Company's liquidity will be materially
dependent upon its internally generated funds and its ability to obtain funds
from financings from external sources, in the form of either additional equity
or indebtedness. The Company's ability to borrow will be a function of the level
of its internally generated funds and the assets of its business that are
available to serve as collateral, which will consist primarily of accounts
receivable.
-29-
<PAGE>
Certain Factors That May Affect Future Results
The following important factors, among others, could cause actual
results to differ materially from those indicated by forward-looking statements
made in this Annual Report on Form 10-K and presented elsewhere by management
from time to time.
Risks Associated with Acquisitions. The Company's strategy includes the
acquisition of businesses, products and technologies that are complementary to
those of the Company. Promising acquisitions are difficult to identify and
complete for a number of reasons, including competition among prospective
buyers. In furtherance of this strategy, in late 1996 and early 1997 the Company
acquired three businesses, ISS, COBA-UK and COBA-Boston. There can be no
assurance that the Company will be able to complete future acquisitions or that
the Company will be able to successfully integrate these and any future acquired
businesses, and the failure of the Company to integrate any acquired businesses
could have a material adverse effect on the Company's business and results of
operations. In order to finance any such future acquisitions, it may be
necessary for the Company to raise additional funds through public or private
financings. Any equity or debt financing, if available at all, may be on terms
which are not favorable to the Company and, in the case of equity financing, may
result in dilution to the Company's stockholders.
Management of Growth. The Company is currently experiencing a period of
rapid growth which has placed and could continue to place a strain on the
Company's financial, management and other resources. From January 1, 1993
through December 31, 1996, the size of the Company's professional staff
increased from 17 to 208 full-time equivalent employees, and further increases
are anticipated. Since January 1, 1993, the Company has expanded geographically
by adding employees based in Atlanta, Georgia; Boston, Massachusetts; Chicago,
Illinois; San Francisco, California; Stamford, Connecticut; Washington D.C.; and
London, England. The Company intends to open additional domestic and
international offices as needed. The Company's ability to manage its staff and
facilities growth effectively will require it to continue to improve its
operational, financial and other internal systems and to train, motivate and
manage its employees. If the Company's management is unable to manage growth
effectively and new employees are unable to achieve anticipated performance
levels, the Company's business and results of operations could be adversely
affected.
Dependence on Gemini. Since 1993 the Company has been a party to the
Teaming Agreement with Gemini pursuant to which the Company and Gemini have
agreed to market and perform certain service offerings on a collaborative basis.
Approximately 44%, 34% and 31% of the Company's revenues in 1994, 1995 and 1996,
respectively, resulted from its relationship with Gemini; approximately 36%, 15%
and 21%, respectively, of revenues were from services and other amounts billable
to Gemini and approximately 8%, 19% and 10%, respectively, of revenues were from
services billable directly to third parties. As a result, the Company's success
is currently dependent in part on the success of Gemini's marketing efforts.
In November 1996, the Company and Gemini entered into the Restated
Teaming Agreement. Gemini has committed to provide the Company with certain
minimum bookings during the term of the Restated Teaming Agreement, subject to
the satisfaction of certain conditions. In the event that during any of the six
month periods during the term of the Restated Teaming Agreement bookings
obtained by Renaissance from Gemini customers or customers of joint service
offerings by Renaissance and Gemini are less than specified minimum commitment
levels, Gemini may retain the services of Renaissance for a fee equal to the
amount of the deficiency. If at the end of twelve months a bookings deficiency
still remains, Gemini is required to make a compensating payment to Renaissance
of 25% of the remaining deficiency in full satisfaction of the bookings
deficiency. Gemini's obligation to provide these bookings to the Company will
terminate in the event that any of Harry M. Lasker, David A. Lubin or David P.
Norton, the founders of the Company, ceases to be employed by the Company on a
full time basis during the term of the Restated Teaming Agreement. In such
event, the parties have agreed to negotiate in good faith to establish new
commitments for the remainder of the term of the Restated Teaming Agreement. In
addition, the amount of Gemini's bookings commitment is subject to adjustment as
a result of, among other things, any failure by Renaissance to make available to
Gemini such quantities of marketing and sales resources and such number of staff
for joint service offerings as may from time to time be mutually agreed upon by
the parties.
The Company monitors Gemini's progress in meeting its bookings
commitments through regular conference calls and meetings with Gemini
representatives. "Bookings" are generally defined for purposes of the Restated
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<PAGE>
Teaming Agreement as gross fees (excluding expense reimbursements) committed to
Renaissance as a result of the relationship with Gemini during the applicable
period, as evidenced by a written agreement between the Company and the customer
for the delivery of goods or services within twelve months, plus any such fees
actually collected by the Company during such period which are not evidenced by
a written agreement. Gemini generally is treated as having satisfied its
bookings commitment regardless of whether revenues are recognized by Renaissance
with respect to a particular engagement. For example, under the Restated Teaming
Agreement, 50% of the fees attributable to a cancelled contract count towards
Gemini's bookings commitment if such cancellation is not primarily attributable
to the actions or omissions of Gemini. In accordance with industry practice,
nearly all of the Company's contracts are terminable by either the customer or
the Company on short or no notice and without penalty. In addition, Gemini does
not guarantee the collectibility of any receivables resulting from customer
engagements under the Restated Teaming Agreement.
The Restated Teaming Agreement has a term ending on November 1, 1999.
The Restated Teaming Agreement is subject to earlier termination upon the
occurrence of certain events, including a change in control of the Company (as
defined in the Restated Teaming Agreement). In the event that the Restated
Teaming Agreement is validly terminated by either party prior to its expiration,
Renaissance is required to pay a termination fee to Gemini in an amount
declining from a maximum of $1.6 million in the event of a termination prior to
November 1, 1996 to a minimum of $250,000 in the event of a termination prior to
November 1, 1999. In addition, in such event, various payment obligations
contained in the Restated Teaming Agreement will terminate on the termination
date. While the Company is continuing to build its internal marketing force and
seeking additional strategic alliances, the termination of the Restated Teaming
Agreement could have a material adverse effect on the Company's business and
results of operations.
Under the Restated Teaming Agreement, the Company has agreed to train
Gemini in the use of the Company's Balanced Scorecard, desktop application and
certain other methodologies during the period ending October 31, 1998 and to
perpetually license these methodologies, to the extent developed prior to
November 1, 1998, to Gemini on a non-exclusive basis. As a result, during the
term of the Restated Teaming Agreement Gemini personnel may perform services in
connection with joint service offerings which might otherwise be performed by
Company personnel. In addition, following the termination of the Restated
Teaming Agreement, Gemini will be in a position to compete with the Company
using know-how and methodologies which might otherwise be proprietary to the
Company.
The Company's ability to obtain the benefit of the bookings commitments
under the Restated Teaming Agreement may be affected by Gemini's
creditworthiness. Under the terms of the Restated Teaming Agreement, Gemini is
not
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<PAGE>
required to provide the Company with information regarding Gemini's financial
condition. Based on information made publicly available by an affiliate of
Gemini, the Company believes that Gemini experienced a significant decline in
sales and profits as well as capacity problems in 1995, and that Gemini's
results for the first quarter of 1996 were below its budget for such quarter.
In each of the four six month periods ended October 31, 1996, Gemini's
actual bookings were lower than the minimum bookings provided for under the
Teaming Agreement. During the six month period commenced on May 1, 1995 and
ended October 31, 1995, Gemini's bookings commitment (as defined in the Teaming
Agreement) to the Company was $8.25 million. The actual bookings for such
period, net of bookings applied to the prior period deficiency, totalled
approximately $1.9 million. Gemini satisfied the resulting $6.3 million
deficiency in the subsequent six month period through a combination of revenues
generated from client work referred to Renaissance by Gemini, work performed by
Renaissance as a subcontractor for Gemini, work performed by Renaissance
directly for Gemini and the acquisition by Gemini from the Company of certain
Company program designs and related materials. During the six month period
commenced on November 1, 1995 and ended April 30, 1996, Gemini's bookings
commitment to the Company was $7.0 million. The actual bookings for the period,
net of bookings applied to the prior period deficiency, totalled approximately
$1.2 million. Gemini issued to Renaissance a purchase order for the deficiency
of approximately $5.8 million. This purchase order was satisfied by Gemini in
the subsequent six month period through a combination of revenues generated from
client work referred to Renaissance by Gemini of approximately $4.0 million and
a cash payment by Gemini to Renaissance of $750,000 in the third fiscal quarter
of 1996 in satisfaction of the remaining $1.8 million purchase order obligation.
The Company's net income for the third fiscal quarter of 1996 was favorably
affected by this cash payment which was included in revenues and had no
incremental cost associated with it. During the six month period commenced on
May 1, 1996 and ended on October 31, 1996, Gemini's bookings commitment to the
Company was $8.0 million. Approximately $4.1 million in revenues generated from
the $5.2 million in bookings in this six month period were applied to satisfy
the prior period deficiency. Pursuant to the terms of the Restated Teaming
Agreement, Gemini satisfied the resulting bookings deficiency for the period
ending October 31, 1996 with a one-time payment by Gemini to Renaissance of
approximately $1.5 million.
Concentration of Revenues. The Company has in the past derived, and may
in the future derive, a significant portion of its revenues from a relatively
limited number of major projects. In 1994, 1995 and 1996, revenues from services
and other amounts billable to Gemini accounted for approximately 36%, 15% and
21%, respectively, of the Company's total revenues. Revenues from services
billable to Gemini in 1994 include revenues from services
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<PAGE>
provided to CIGNA Corporation ("CIGNA") by the Company as a subcontractor on
behalf of Gemini pursuant to the Teaming Agreement. These revenues from services
provided to CIGNA accounted for approximately 25% of the Company's total
revenues in 1994. In addition, revenues from services billable to divisions of
AT&T and to Mobil Corporation accounted for approximately 8% and 7%,
respectively, of the Company's total revenues in 1994 and revenues from services
billable to divisions of AT&T and to CIGNA accounted for approximately 23% and
8%, respectively, of the Company's total revenues in 1995. In 1996, revenues
from services billable to operating companies of AT&T accounted for
approximately 26% of the Company's total revenues. The Company anticipates that
revenues from operating companies of AT&T will decrease in the future because
several engagements for this group of clients have been completed. The Company's
revenues and earnings can fluctuate from quarter to quarter based on the number
of customer engagements and the requirements of these engagements. In accordance
with industry practice, nearly all of the Company's contracts are terminable by
either the customer or the Company on short or no notice and without penalty. An
unanticipated termination of a major project could have a material adverse
effect on the Company's business and results of operations.
Variability of Quarterly Operating Results. Variations in the Company's
revenues and operating results occur from quarter to quarter as a result of a
number of factors. Quarterly revenues and operating results can depend on the
size of customer engagements during a quarter, the number of working days in a
quarter and employee utilization rates. The timing of revenues is difficult to
forecast because the Company's sales cycle is relatively long in the case of new
customers and may depend on factors such as the size and scope of assignments
and general economic conditions. Because a high percentage of the Company's
expenses are relatively fixed, a variation in the level of customer assignments
can cause significant variations in
-33-
<PAGE>
operating results from quarter to quarter and could result in losses. The
Company attempts to manage its personnel utilization rates by closely monitoring
project timetables and staffing requirements for new projects. While the number
of professional staff may be adjusted to some degree to reflect active projects,
the Company must maintain a sufficient number of senior professionals to oversee
existing customer projects and participate in securing new customer engagements.
In addition, most of the Company's engagements are terminable without customer
penalty. An unanticipated termination of a major project could result in an
increase in underutilized employees and a decrease in revenues and profits or
the incurrence of losses.
Need to Develop New Offerings. The Company's future success will depend
in significant part on its ability to successfully develop and introduce new
service offerings and improved versions of existing service offerings. There can
be no assurance that the Company will be successful in developing, introducing
on a timely basis and marketing such service offerings or that any service
offerings will be accepted in the market. Moreover, services offered by others
may render the Company's services non-competitive or obsolete.
Project Risks. Many of the Company's engagements involve projects which
are critical to the operations of its customers' businesses and which provide
benefits that may be difficult to quantify. The Company's failure or inability
to meet a customer's expectations in the performance of its services could
result in the incurrence by the Company of a financial loss and could damage the
Company's reputation and adversely affect its ability to attract new business.
In addition, an unanticipated difficulty in completing a project could have an
adverse effect on the Company's business and results of operations. Fees for the
Company's engagements typically are based on the project schedule, Renaissance
staffing requirements, the level of customer involvement and the scope of the
project as agreed upon with the customer at the project's inception. The Company
generally seeks to obtain an adjustment in its fees in the event of any
significant change in any of the assumptions upon which the
-34-
<PAGE>
original estimate was based. However, there can be no assurance that the Company
will be successful in obtaining any such adjustment in the future.
Attraction and Retention of Key Personnel; Dependence on Founders. The
Company's business involves the delivery of professional services and is labor
intensive. The Company's success will depend in large part upon its ability to
attract, retain and motivate highly skilled employees. There is significant
competition for employees with the skills required to perform the services
offered by the Company. Although the Company expects to continue to attract and
retain sufficient numbers of highly skilled employees for the foreseeable
future, there can be no assurance that the Company will be able to do so. The
loss of any of the Company's three founders or other key personnel could have a
material adverse effect on the Company's business and results of operations,
including its ability to attract employees and secure and complete engagements.
Competition. The management consulting and client/server systems
integration markets are subject to rapid change and are highly competitive. The
Company competes with and faces potential competition for customer assignments
and experienced personnel from a number of companies that have significantly
greater financial, technical and marketing resources, generate greater revenues
and have greater name recognition than does the Company. In addition, the
management consulting and client/server systems integration markets are highly
fragmented and served by numerous firms, many of which serve only their
respective local markets. The Company's customers primarily consist of major
corporations, and there are an increasing number of professional services firms
seeking management consulting and client/server systems integration engagements
from that customer base. The Company believes that the principal competitive
factors in the management consulting and client/server systems integration
industries include the nature of the services offered, quality of service,
responsiveness to customer needs, experience,
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<PAGE>
technical expertise and price. There can be no assurance that the Company will
continue to compete successfully with its existing competitors or will be able
to compete successfully with any new competitors.
International Operations. Sales outside North America accounted for
approximately 10% of the Company's revenues in 1996. The Company intends to
expand its presence in European markets and anticipates that international sales
will account for an increasing portion of revenues in the future. International
revenues are subject to a number of risks, including the following: agreements
may be difficult to enforce and receivables difficult to collect through a
foreign country's legal system; foreign customers may have longer payment
cycles; foreign countries could impose additional withholding taxes or otherwise
tax the Company's foreign income, impose tariffs or adopt other restrictions on
foreign trade; fluctuations in exchange rates could affect product demand and
adversely affect the profitability in U.S. dollars of services provided by the
Company in foreign markets where payment for the Company's services is made in
the local currency; U.S. export licenses may be difficult to obtain; and the
protection of intellectual property in foreign countries may be more difficult
to enforce. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business and results of operations.
Intellectual Property Rights. The Company's success is dependent in part
upon its management consulting and client/server systems integration
methodologies and other intellectual property, some of which is proprietary to
the Company. A significant portion of the Company's management consulting
services are based on the Balanced Scorecard concept described in three Harvard
Business Review articles and in The Balanced Scorecard, a recently published
book, all of which were co-authored by one of the Company's founders. The
Company believes that the Balanced Scorecard name is in the public domain. As a
result, third parties may provide services using the Balanced Scorecard name
which are competitive with the services offered by the Company.
The Company relies upon a combination of trade secret, nondisclosure and
other contractual arrangements, and copyright and trademark laws to protect its
proprietary rights. The Company presently holds no patents or registered
copyrights or trademarks. The Company generally enters into confidentiality
agreements with its employees, consultants, customers and potential customers
and limits distribution of its proprietary information. There can be no
assurance that the steps taken by the Company in this regard will be adequate to
deter misappropriation of its proprietary information or that the Company will
be able to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights. Although the Company believes that its services
and products do not infringe on the intellectual property rights of others,
there can be no assurance that such a claim will not be asserted against the
Company in the future.
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<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.......................... 38
Consolidated Balance Sheets as of
December 31, 1995 and 1996........................... 39
Consolidated Statements of Operations
for the Years Ended December 31, 1994,
1995 and 1996........................................ 40
Consolidated Statements of
Stockholders' Equity for the Years
Ended December 31, 1994, 1995 and
1996................................................. 41
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1994,
1995 and 1996........................................ 42
Notes to Consolidated Financial
Statements........................................... 43
</TABLE>
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<PAGE>
INDEPENDENT AUDITORS' REPORT
Renaissance Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Renaissance
Solutions, Inc. and its subsidiaries (the "Company") as of December 31, 1995 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, 1996. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Renaissance Solutions, Inc. and
its subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As described in Note 1, the consolidated financial statements of the Company
give retroactive effect to the acquisition of International Systems Services
Corporation by the Company on December 31, 1996 as a pooling-of-interests.
Deloitte & Touche LLP
Boston, Massachusetts
February 28, 1997
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<PAGE>
RENAISSANCE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1996
----------- -----------
(amounts in thousands, except share data)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 6,159 $49,415
Marketable securities............................. 4,890 17,910
Accounts receivable, net.......................... 8,304 7,765
Unbilled services, net............................ 4,049 2,057
Receivable from officers/shareholders............ 278 ---
Deferred tax asset................................ --- 560
Prepaid expenses and other current assets......... 298 826
------- -------
Total current assets...................... 23,978 78,533
------- -------
Property and equipment, net............................... 3,085 3,977
Other assets.............................................. 72 72
------- -------
Total assets.............................. $27,135 $82,582
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings............................. $ 1,500 $ 500
Current portion of note payable................... 180 782
Note payable to officers/shareholders............. --- 500
Accounts payable.................................. 1,708 2,642
Accrued payroll and related costs................. 1,190 1,775
Advanced payments................................. 424 879
Income taxes payable.............................. 270 120
Accrued acquisition costs......................... --- 3,131
------- -------
Total current liabilities................. 5,272 10,329
Long-term portion notes payable........................... 720 --
Deferred tax liability.................................... -- 431
Other liabilities......................................... 87 181
------- -------
Total liabilities......................... 6,079 10,510
------- -------
Commitments and contingencies--Notes 6, 7 and 10
Stockholders' equity:
Preferred stock, $.01 par value,
authorized 2,000,000 shares, none issued......... -- --
Common stock, $.0001 par value,
authorized 20,000,000 shares, issued and
outstanding 7,279,396 and 9,243,594
shares in 1995 and 1996, respectively............ 1 1
Additional paid in capital........................ 14,741 64,897
Warrants to acquire common stock.................. 1,600 ---
Cumulative translation adjustments................ (48) 264
Unrealized gain/(loss) on marketable securities... 35 (18)
Retained earnings................................. 4,727 6,497
------- -------
Stockholders' equity...................... 21,056 71,641
------- -------
Total..................................... $27,135 $82,582
======= =======
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
RENAISSANCE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
------------
December 31,
------------
1994 1995 1996
-------- -------- ----------
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Revenues................................ $22,988 $35,536 $52,450
------- ------- -------
Costs and expenses:
Professional personnel................ 14,056 21,089 31,733
Professional development and
recruiting............................ 894 1,895 2,045
Marketing and sales................... 482 810 1,624
General and administrative............ 4,274 6,442 9,217
Acquisition costs..................... --- --- 3,524
------- ------- -------
Total costs and expenses... 19,706 30,236 48,143
------- ------- -------
Income from operations.................. 3,282 5,300 4,307
Interest expense........................ (126) (80) (139)
Interest income......................... 21 509 1,693
------- ------- -------
Income before income taxes.............. 3,177 5,729 5,861
Provision for income taxes.............. --- 1,894 4,091
------- ------- -------
Net income.............................. $ 3,177 $ 3,835 $ 1,770
======= ======= =======
Net income per share.................... $ .51 $ .53 $ .20
======= ======= =======
Pro forma data:
Historical income before pro forma
adjustments........................... $ 5,861
Pro forma adjustment to officer's
salary................................ 2,100
-------
Historical/pro forma income before income
taxes.................................. $ 3,177 $ 5,729 $ 7,961
Historical provision for income taxes... --- 1,894 4,091
Additional pro forma provision (credit)
for income taxes....................... 744 403 (266)
------- ------- -------
Pro forma income taxes.................. 744 2,297 3,825
------- ------- -------
Pro forma net income.................... $ 2,433 $ 3,432 $ 4,136
======= ======= =======
Pro forma net income per share.......... $ .39 $ .48 $ .47
======= ======= =======
Pro forma weighted average number of
common and common equivalent shares
outstanding............................ 6,303 7,223 8,804
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
RENAISSANCE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Warrants Unrealized
To Gain
Additional Acquire Cumulative (Loss) on Retained
Number Common Paid in Common Translation Marketable Earnings
of Shares Stock Capital Stock Adjustments Securities (Deficit)
--------- ----- ------- ----- ----------- ---------- ---------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994, as
previously reported 4,412,358 $ -- $ -- $ -- $ -- $ -- $ (1,457)
Adjustment for pooling-of-
interests with ISS
(Note 2)..................... 1,310,000 1 403 __ __ __ 1,283
--------- ----------- --------- ----------- --------- ----------- ---------
Balance at January 1, 1994...... 5,722,358 1 403 -- -- -- (174)
Issuance of common stock..... 155,038 -- 1 -- -- -- --
Net income................... -- -- -- -- -- -- 3,177
--------- ----------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1994. 5,877,396 1 404 -- -- -- 3,003
Issuance of common stock,
net of related issuance
costs of $1,291............ 1,400,000 -- 15,636 -- -- -- --
Distribution to shareholders. (3,426)
Corporate reorganization..... -- -- (1,315) -- -- -- 1,315
Sale of warrants to acquire
common stock............... -- -- -- 1,600 -- -- --
Exercise of stock options.... 2,000 -- 16 -- -- -- --
Translation adjustment....... -- -- -- -- (48) -- --
Unrealized gain on
marketable securities...... -- -- -- -- -- 35 --
Net income................... -- -- -- -- -- -- 3,835
--------- ----------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1995.... 7,279,396 $ 1 $ 14,741 $ 1,600 $ (48) $ 35 $ 4,727
--------- ----------- --------- ----------- --------- ----------- ---------
Issuance of common stock,
net of related issuance
costs of $578.............. 1,117,275 -- 34,758 -- -- -- --
Exercise of Gemini Warrants.. 633,600 -- 11,917 (1,600) -- -- --
Exercise of stock options.... 171,201 -- 1,696 -- -- -- --
Issuance of stock through
Employee Stock Purchase
Plan....................... 42,122 -- 607 -- -- -- --
Tax benefit from exercise of
stock options.............. -- -- 1,178 -- -- -- --
Translation adjustment....... -- -- -- -- 312 -- --
Unrealized (loss) on
marketable securities...... -- -- -- -- -- (53) --
Net income................... -- -- -- -- -- -- 1,770
--------- ----------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1996.... 9,243,594 $ 1 $ 64,897 $ -- $ 264 $ (18) $ 6,497
========= =========== ========= =========== ========= =========== =========
<CAPTION>
Stockholders'
Equity
(Deficiency)
------------
(amounts in thousands)
<S> <C>
Balance at January 1, 1994, as
previously reported $ (1,457)
Adjustment for pooling-of-
interests with ISS
(Note 2)..................... 1,687
-----------
Balance at January 1, 1994...... 230
Issuance of common stock..... 1
Net income................... 3,177
-----------
Balance at December 31, 1994. 3,408
Issuance of common stock,
net of related issuance
costs of $1,291............ 15,636
Distribution to shareholders. (3,426)
Corporate reorganization..... --
Sale of warrants to acquire
common stock............... 1,600
Exercise of stock options.... 16
Translation adjustment....... (48)
Unrealized gain on
marketable securities...... 35
Net income................... 3,835
-----------
Balance at December 31, 1995.... $ 21,056
-----------
Issuance of common stock,
net of related issuance
costs of $578.............. 34,758
Exercise of warrants......... 10,317
Exercise of stock options.... 1,696
Issuance of stock through
Employee Stock Purchase
Plan....................... 607
Tax benefit from exercise of
stock options.............. 1,178
Translation adjustment....... 312
Unrealized (loss) on
marketable securities...... (53)
Net income................... 1,770
-----------
Balance at December 31, 1996.... $ 71,641
===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
RENAISSANCE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
------------
1994 1995 1996
---- ---- ----
(amounts in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 3,177 $ 3,835 $ 1,770
Adjustments to reconcile net income to
net cash provided by (used for) operating activities:
Depreciation............................................. 355 495 739
Deferred income taxes.................................... --- --- 129
Change in:
Accounts receivable, net.............................. (1,914) (7,609) 539
Unbilled services, net................................ (785) 996 1,992
Receivable from officers/shareholders................. --- (278) 278
Prepaid expenses and other current assets............. (132) (43) (528)
Payable to officers/shareholders...................... --- --- 500
Accounts payable...................................... (66) 865 934
Accrued payroll and related costs..................... 552 (23) 585
Income taxes payable.................................. --- 270 (150)
Advanced payments..................................... 983 (559) 455
Acquisition costs..................................... --- --- 3,131
Other liabilities..................................... --- 87 94
------- ------- --------
Net cash provided by (used for) operating activities..... 2,169 (1,964) 10,210
Cash flows from investing activities:
Purchases of marketable securities.......................... --- (4,855) (46,267)
Sales and maturities of marketable securities............... --- --- 33,194
Expenditures for property and equipment..................... (1,122) (2,015) (1,631)
Increase in other assets.................................... ___ (72) ---
------- ------- --------
Net cash used for investing activities................... (1,122) (6,942) (14,704)
Cash flows from financing activities:
Issuance of common stock, net............................... 1 15,652 47,378
Tax benefit from exercise of stock options.................. --- --- 1,178
Sale of warrants to acquire common stock.................... --- 1,600 ---
Payment of shareholder distributions........................ --- (3,426) ---
Short-term borrowings....................................... 845 1,800 500
Repayment of borrowings..................................... (500) (2,000) (1,618)
------- ------- --------
Net cash provided by financing
activities............................................. 346 13,626 47,438
Effect of exchange rate changes on cash and cash
equivalents................................................. --- (48) 312
------- ------- --------
Increase in cash and cash equivalents............................ 1,393 4,672 43,256
Cash and cash equivalents, beginning of year..................... 94 1,487 6,159
------- ------- --------
Cash and cash equivalents, end of year........................... $ 1,487 $ 6,159 $ 49,415
======= ======= ========
Supplemental disclosure of cash flow information:
Interest paid............................................... $ 100 $ 75 $ 146
Income taxes paid........................................... $ 2 $ 1,620 $ 2,650
</TABLE>
See notes to consolidated financial statements.
-42-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
The Company provides management consulting and client/server systems
integration services, primarily for large corporations. The Company's offerings
fall into three categories, Strategic Services, Performance Solutions Services
and Technology Services, all of which can incorporate consulting services and
technology implementation.
Reorganization
Renaissance Solutions, Inc. ("Renaissance" or the "Company") was
organized as a Delaware corporation in March 1992. In December 1993, the Company
contributed all of its assets, subject to all of its liabilities, to Renaissance
Strategy Group Limited Partnership, a Delaware limited partnership (the
"Partnership"), in exchange for the sole general partnership interest in the
Partnership. The business of the Company was conducted by the Partnership from
December 1, 1993 to April 3, 1995. Pursuant to a reorganization agreement (the
"Reorganization Agreement") entered into among the Company, the Partnership,
the limited partners of the Partnership, the holders of certain units of
economic interest ("Units") in the Partnership and the holders of certain
options to purchase Units, effective April 3, 1995 (i) the Company issued
4,567,396 shares of its Common Stock in exchange for all of the outstanding
limited partnership interests and Units in the Partnership, and (ii) options to
purchase 1,730,000 Units outstanding as of such date were exchanged for options
to purchase 432,605 shares of Common Stock. Immediately thereafter, the
Partnership was dissolved and all of its assets and liabilities were distributed
to and assumed by the Company. The reorganization of the Company described above
is referred to herein as the "Reorganization." The Reorganization has been
accounted for in a manner similar to a pooling of interests and, except as
otherwise indicated or where the context otherwise requires, the information set
forth in these financial statements has been adjusted to give retroactive effect
to the Reorganization. References herein to the "Company" and "Renaissance"
refer to Renaissance Solutions, Inc. and International Systems Services
Corporation and, with respect to operations between December 1, 1993 and April
3, 1995 (the date of the Reorganization), the Partnership, and its wholly-owned
subsidiaries, Renaissance Solutions Limited and Renaissance Securities Corp.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation. The consolidated financial statements of
the Company have been restated to give retroactive effect to the acquisition of
International Systems Services Corporation (ISS) on December 31, 1996 (Note 2)
as a pooling-of-interests.
Fiscal Years
The Company's fiscal year ends on December 31.
-43-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets 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.
Revenue Recognition
The Company derives most of its revenues from professional service
activities. Revenues on service contracts are recorded under the percentage of
completion method based upon the number of labor hours incurred compared to the
total estimated hours at estimated realizable rates. Provisions are made for
estimated unbillable and uncollectible amounts. Revenues are reported net of
reimbursable expenses which are billed and collected from clients. Reimbursable
expenses were approximately $1,947, $3,031 and $4,140 for the years ended
December 31, 1994, 1995 and 1996, respectively. When billings exceed revenues
earned and/or expenses incurred, the excess is recorded as advance payments.
In September and December 1996, Gemini satisfied a bookings deficiency under
the Teaming Agreement (Note 7) by making cash payments of $750 and $1,500,
respectively, which have been included in revenues for the year ended December
31, 1996.
Property and Equipment
Property and equipment are stated at cost. Major additions and improvements
are capitalized, while repairs and maintenance are charged to expense.
Depreciation is computed using straight-line methods over the estimated
useful lives of the assets as follows:
<TABLE>
<CAPTION>
Description Estimated Useful Life
------------------------------------- ---------------------
<S> <C>
Computer hardware and software.. 5 Years
Furniture and fixtures.......... 7 Years
Leasehold improvements.......... 10 Years
</TABLE>
Income Taxes
From its inception in 1992 to immediately prior to April 3, 1995 (the date
of its Reorganization), the Company was either an S corporation or a limited
partnership for federal income tax reporting purposes, and the taxable income of
the Company for that period was reportable by and taxable directly to the
Company's stockholders or partners rather than to the Company. Accordingly, no
federal or state income tax provision was required for the Company for the year
ended December 31, 1994 and through the date of the Reorganization.
-44-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Effective with the closing of the Company's initial public offering, the
Company has been subject to federal and state income taxes as a C corporation.
Prior to its acquisition by the Company, ISS was an S corporation for income
tax purposes. Accordingly, no federal or state income tax provision was
required for ISS for the years ended December 31, 1994 and 1995, and through
December 30, 1996. The provision for income taxes in 1996 includes a one-time
charge resulting from converting ISS from an S corporation to a C corporation,
primarily resulting from a change from the cash basis to the accrual basis of
accounting.
Deferred taxes are determined based on the estimated future tax effects of
differences between financial statement and tax bases of assets and liabilities
given the provisions of the enacted tax laws.
Foreign Currency Translation
The functional currency for the Company's U.K. subsidiaries, Renaissance
Solutions Limited and International Systems Services (U.K.), is the British
pound. Assets and liabilities are translated at year-end rates of exchange, and
income and expenses are translated at average rates of exchange for the year.
The resulting translation adjustments are excluded from net earnings and
accumulated as a separate component of stockholders' equity. Gains and losses
from foreign currency transactions have not been material and are reflected in
net income.
Per Share Amounts
Per share amounts are based on the pro forma weighted average number of common
and dilutive common equivalent shares (common stock options) outstanding. The
pro forma weighted average number of common shares assumes that 10,002 shares of
common stock issued in March 1994 and all stock options granted in January 1995
and March 1995 were outstanding for all periods presented. Common equivalent
shares are not included in the per share calculations where the effect of their
inclusion would be anti-dilutive, except in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83. The Bulletin requires that
all common shares issued and options to purchase shares of common stock granted
by the Company during the twelve-month period prior to filing of a proposed
initial public offering be included in the calculation as if they were
outstanding for all periods. The pro forma weighted average number of common
shares for 1994 and through April 11, 1995 also assumes that approximately
300,000 shares of the 1,400,000 shares issued in the Company's initial public
offering, the proceeds of which were used to repay stockholder notes totaling
approximately $3,426 (see Note 8), were outstanding. Pro forma weighted average
number of common shares also assumes the 1,310,000 shares in connection with the
ISS Acquisition (see Note 2) were outstanding for all periods presented.
Pro Forma Data
The pro forma data is presented to show the effects on 1996 of the contractual
reduction of ISS's officer's compensation following the acquisition of ISS and
the income taxes that would have been provided for in 1994, 1995 and 1996 on pro
forma income before taxes if ISS and the Company had been C corporations for all
periods presented. The pro forma data is presented for informational purposes
only and is not necessarily indicative of future net income or net income per
share.
-45-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Cash Flow Information
The Company considers all bank deposits and short-term investments having
original maturities of ninety days or less to be cash and cash equivalents.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121") in 1996. SFAS 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets. There was no effect of adopting of SFAS 121 on
the consolidated financial statements.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with APB No. 25, Accounting for Stock Issued to
Employees. Accordingly, no compensation expense has been recognized in the
consolidated financial statements for employee stock arrangements.
Fair Value of Financial Instruments
Financial instruments held or used by the Company consist of cash, marketable
securities, accounts receivable and accounts payable. Marketable securities are
carried at fair value at each balance sheet date. Management believes that
carrying value approximates fair value for all other financial instruments.
2. International Systems Services Corporation (ISS) Acquisition
On December 31, 1996, the Company acquired all of the outstanding capital
stock of ISS in exchange for 1,310,000 shares of the Company's common stock. The
acquisition has been accounted for as a pooling-of-interests and, as described
in Note 1, the Company's consolidated financial statements have been restated to
include the accounts of ISS for all periods presented.
Revenues, income before taxes, and net income of the separate companies are
as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1994 1995 1996
---------- -------- --------
<S> <C> <C> <C>
Revenues
Renaissance $12,881 $22,601 $34,784
ISS 10,107 12,935 17,666
---------- -------- --------
$22,988 $35,536 $52,450
========== ======== ========
Income
before taxes
Renaissance $ 2,800 $ 5,567 $ 5,716
ISS 377 162 145
---------- -------- --------
$ 3,177 $ 5,729 $ 5,861
========== ======== ========
Net income
Renaissance $ 2,800 $ 3,676 $ 2,474
ISS 377 159 (704)
---------- -------- --------
$ 3,177 $ 3,835 $ 1,770
========== ======== ========
</TABLE>
-46-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
In connection with the acquisition, Renaissance recorded one-time charges for
the acquisition of $3,524. This charge includes investment banking, legal and
accounting fees, consolidation of duplicate facilities, elimination of certain
redundant assets, and costs associated with consolidating such operations,
including severance and other related items.
3. Accounts Receivable and Unbilled Services
Accounts receivable and unbilled services consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1996
------- ------
<S> <C> <C>
Billed.................................. $ 8,640 $8,225
Unbilled services....................... 4,149 2,404
Allowance for uncollectible accounts.... (436) (807)
------- ------
Accounts receivable and unbilled
services, net.......................... $12,353 $9,822
======= ======
</TABLE>
Provisions for uncollectible accounts charged to expense were $256, $242 and
$795 in 1994, 1995 and 1996, respectively. Write-offs of uncollectible accounts
amounted to $99, $79, and $424 for the years ended December 31, 1994, 1995 and
1996, respectively.
4. Marketable Securities
Marketable securities are classified as available for sale and consist of U.S.
Treasury Notes, Federal Agency Bonds and Corporate Bonds having maturity dates
of more than three months and are stated at fair value. Aggregate net unrealized
holding gains/(losses) of $35 and $(18) at December 31, 1995 and 1996,
respectively, have been included as a separate component of stockholders' equity
in the accompanying consolidated balance sheets. Certain information with
respect to the Company's marketable securities as of December 31, 1995 and 1996
is presented below.
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------
Gross Gross
----- -----
Amortized Unrealized Unrealized Fair
--------- ---------- ---------- ----
Security Type Cost Holding Gains Holding Losses Value
------------- ---- ------------- -------------- -----
<S> <C> <C> <C> <C>
U.S. Treasury Notes... $ 3,604 $ 31 $ -- $ 3,635
Federal Agency Bonds.. 1,251 5 1 1,255
------- ------ ------ -------
$ 4,855 $ 36 $ 1 $ 4,890
======= ====== ====== =======
<CAPTION>
December 31, 1996
---------------------------------------
Gross Gross
----- -----
Amortized Unrealized Unrealized Fair
--------- ---------- ---------- ----
Security Type Cost Holding Gains Holding Losses Value
------------- ---- ------------- -------------- -----
<S> <C> <C> <C> <C>
U.S. Treasury Notes... $ 9,978 13 --- $ 9,986
Federal Agency Bonds.. 6,308 --- 32 6,276
Corporate Bonds....... 1,647 1 --- 1,648
------- ------ ------ -------
$17,928 $ 14 $ 32 $17,910
======= ====== ====== =======
</TABLE>
-47-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
The fair value of marketable securities, by contractual maturity, are shown
below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
<TABLE>
<CAPTION>
December 31,
1995 1996
---- ----
<S> <C> <C>
Due in one year or less............ $1,105 $ 7,131
Due after one through three years.. 3,785 10,779
------ -------
Total............................ $4,890 $17,910
====== =======
</TABLE>
There were no sales or maturities of securities during the year ended
December 31, 1995. Sales or maturities of marketable securities totalled $33,194
during the year ended December 31, 1996.
5. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
1995 1996
-------- -------
<S> <C> <C>
Computer hardware and software.. $ 2,306 $ 3,093
Furniture and fixtures.......... 1,253 1,658
Equipment....................... 661 836
Leasehold improvements.......... 261 525
-------- -------
4,481 6,122
Less accumulated depreciation... (1,396) (2,135)
-------- -------
Property and equipment, net..... $ 3,085 $ 3,977
======== =======
</TABLE>
6. Financing Arrangements
Line-of-Credit
At December 31, 1996, the Company had a $3,500 unsecured revolving line of
credit agreement with a bank, expiring on June 1, 1997. Interest is payable at
the bank's corporate rate (8.50% at December 31, 1996). The loan agreement
includes various customary financial and other covenants including maintenance
of minimum levels of tangible net worth and quarterly profitability. Borrowings
outstanding under the line were $1,500 at December 31, 1995. No borrowings were
outstanding as of December 31, 1996.
The Company had a British Pound Sterling 425 ($655) revolving line of credit
with a U.K. bank at December 31, 1996. There were no borrowings outstanding
under this line at December 31, 1995 or 1996.
-48-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
At December 31, 1996, ISS had a $500 working capital line of credit,
collateralized by ISS accounts receivables, expiring on April 27, 1997. Interest
is payable at prime (8.25% at December 31, 1996). The line of credit agreement
includes customary financial and other covenants including the maintenance of
minimum tangible net worth and quarterly profitability. Borrowings outstanding
under the line of $500 as of December 31, 1996 have subsequently been repaid.
Note Payable
At December 31, 1996, ISS had a note payable to a bank. The note bears
interest at prime (8.25% at December 31, 1996) and is due in equal installments
through December 28, 2000. The note payable, which was paid in full subsequent
to the balance sheet date, was classified as current as of December 31, 1996.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------
1995 1996
---- ----
<S> <C> <C>
Note payable $ 900 $ 782
Less current portion (180) (782)
----- -----
Long-term debt $ 720 $ --
===== =====
</TABLE>
Note Payable to Officers/Shareholders
ISS had a $500 promissory note, payable on demand to its President. The
outstanding balance at December 31, 1996 was $500, with interest at 5.8%. This
loan was repaid in full in January 1997.
7. Gemini Relationship
On October 17, 1994, the Company entered into a Teaming Agreement (the
"Teaming Agreement") with Gemini Consulting, Inc. ("Gemini") pursuant to which
the Company and Gemini agreed to market and perform certain service offerings on
a collaborative basis. Approximately 44%, 34% and 31% of the Company's revenues
in 1994, 1995 and 1996 resulted from its relationship with Gemini; approximately
36%, 15% and 21% of revenues were from services and other amounts billable to
Gemini and approximately 8%, 19% and 10% of revenues were from services billable
directly to third parties. Gemini had committed to provide the Company with
certain minimum bookings during the term of the Teaming Agreement, commencing
November 1, 1994, subject to the satisfaction of certain conditions.
-49-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Since the inception of the Teaming Agreement, Gemini has not met certain
of the minimum bookings commitments. In accordance with the Teaming Agreement,
Gemini has satisfied these bookings deficiencies through a combination of
revenues generated from client work referred to the Company, work performed by
the Company as a subcontractor for Gemini, work performed by the Company
directly for Gemini, the acquisition by Gemini from the Company for $2,200 of
certain Company program designs and related materials and cash payments of
$2,250. The $2,200 and $2,250 are included in revenues for the year ended
December 31, 1996.
On November 18, 1996, the Company and Gemini entered into a Restated
Teaming Agreement (the "Restated Teaming Agreement"). As part of the Restated
Teaming Agreement, Gemini has committed to provide the Company with certain
reduced levels of bookings during the 12 month periods ending October 31, 1997,
1998 and 1999. In the event that during any of the six month periods during the
term of the Restated Teaming Agreement bookings obtained by the Company from
Gemini customers or customers of joint service offerings by the Company and
Gemini are less than the specified minimum bookings, Gemini may retain the
services of the Company for a fee equal to the amount of the deficiency. If at
the end of twelve months a bookings deficiency still remains, Gemini is required
to make a compensating payment to the Company of 25% of the remaining deficiency
in full satisfaction of the bookings deficiency. In no event will Gemini be
obligated to make a payment with respect to any bookings deficiency in an amount
in excess of 25% of such deficiency.
In the event that the Restated Teaming Agreement is validly terminated by
either party prior to its expiration, Renaissance is required to pay a
termination fee to Gemini in an amount declining from a maximum of $1.6 million
in the event of a termination prior to November 1, 1996 to a minimum of $250,000
in the event of a termination prior to November 1, 1999.
Under the Teaming Agreement, as amended by the Restated Teaming
Agreement, the Company has agreed to train Gemini in use of the Company's
Balanced Scorecard, desktop application and certain other methodologies prior to
November 1, 1998, to perpetually license these methodologies, to the extent
developed prior to November 1, 1998, to Gemini on a non-exclusive basis and
agreed to perform certain services for Gemini in 1996. In exchange, Gemini has
agreed to pay the Company an annual fee of $2.0 million in each of the years
during the three year period ending October 31, 1997. Revenue for these services
will be recognized by the Company as the services are performed pursuant to the
terms of the Restated Teaming Agreement. The license of methodologies by
Renaissance to Gemini expressly excludes any software created by Renaissance.
The Company is obligated to pay Gemini an annual fee of $400,000 in each of the
years during the three year period ending October 31, 1997 for certain training
services provided by Gemini to Renaissance personnel. The Restated Teaming
Agreement also provides for the payment of certain license fees by Gemini to
Renaissance in five equal installments of $1.0 million during the period
commencing on November 18, 1996 and ending on November 1, 1998.
Simultaneously with the closing of the Company's initial public offering
on April 11, 1995, Messrs. Harry Lasker and David Lubin and Ms. Melissa Norton,
the wife of David Norton (the "Principal Stockholders"), sold to Gemini options
for the purchase of 150,000 shares of Common Stock (the "Gemini Options") for an
aggregate purchase price of $675. Each Principal Stockholder sold to Gemini an
option for up to 50,000 shares of Common Stock at an exercise price equal to
$13.00 per share. In November 1996, the Company registered the shares underlying
the Gemini Options and the options were exercised.
-50-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
8. Stockholders' Equity
Initial Public Offering
On April 11, 1995, the Company completed its initial public offering of
Common Stock, whereby the Company issued 1,400,000 shares of Common Stock and an
additional 885,000 shares were sold by existing stockholders of the Company. The
net proceeds from the sale of the shares by the Company were approximately
$15,636 after deducting offering expenses of $1,291. Approximately $1,872 of the
net proceeds of the offering were used to repay a note due to Gemini and $3,426
of the net proceeds were used to repay notes payable to the Company's
stockholders incurred by the Company in connection with the payment of
partnership distributions in January and March 1995. Simultaneously with the
closing of the offering the Company also sold warrants to Gemini to acquire
633,600 shares of the Company's Common Stock for cash of $1,600.
Follow-on Offering
On May 17, 1996, the Company completed a follow-on public offering, whereby
the Company issued 902,125 shares of Common Stock and existing shareholders sold
647,500 shares of Common Stock. The net proceeds from the sale of shares by the
Company were approximately $28,263, after deducting offering expenses of $225.
November 1996 Offering
On November 18, 1996, the Company completed an additional offering. The
transaction included 215,150 shares sold by the Company and 1,049,850 shares
sold by existing shareholders, including shares acquired by Gemini upon
exercise of the Gemini Options (Note 7) and the Gemini Warrants (below). The
net proceeds of the offering were $6,495, after deducting offering expenses of
$353.
Gemini Warrants
The Company sold two warrants (together, the ''Gemini Warrants'') to Gemini
upon the closing of the Company's initial public offering for an aggregate
purchase price of $1,600. One warrant was exercisable through April 11, 1998 for
up to 313,600 shares of Common Stock at an exercise price equal to $13.00 per
share. The second warrant was exercisable through November 1, 1999 for up to
320,000 shares of Common Stock at an exercise price equal to $19.50 per share.
In November 1996, Gemini exercised the warrants and the Company received
proceeds from the exercise of $10,317.
-51-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Partnership Distributions
In January and March 1995, the Partnership declared and made partnership
distributions totalling $3,426 evidenced by delivery of the Company's promissory
notes which were paid with proceeds from the Company's initial public offering.
Distributions in excess of earnings were reclassified to paid in capital
pursuant to Securities and Exchange Commission Staff Accounting Bulletin Topic
4:B.
Preferred Stock
Authorized preferred stock consists of 2,000,000 shares, $.01 par value per
share. The Board of Directors is authorized, without shareholder approval, to
issue such shares of preferred stock in one or more series, with such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
the Board of Directors may determine.
1995 Equity Incentive Plan
In January 1995, the Board of Directors adopted and the stockholders approved
the 1995 Equity Incentive Plan (the ''Equity Plan''). Under the terms of the
Equity Plan, the Company is authorized to make awards of restricted stock and to
grant incentive and non-statutory options to employees of, and consultants and
advisors to, the Company to purchase shares of the Common Stock of the Company.
A total of 1,100,000 shares of Common Stock may be issued upon exercise of
options granted or awards made under the Equity Plan. Options granted through
December 31, 1996 generally vest in either four or five equal annual
installments commencing on the first anniversary of the optionee's date of hire.
On September 18, 1996, the Board of Directors adopted, and on November 15,
1996, the stockholders of the Company approved, an amendment to the Company's
1995 Equity Incentive Plan increasing the number of shares of Common Stock
available for issuance under the Plan from 1,100,000 to 2,100,000.
1995 Director Stock Option Plan
In January 1995, the Board of Directors adopted and the stockholders approved
the 1995 Director Stock Option Plan (the ''Director Plan''), which became
effective on the closing of the Company's initial public offering. Under the
terms of the Director Plan, directors of the Company who are not employees of
the Company or any subsidiary of the Company are eligible to receive non-
statutory options to purchase shares of Common Stock. A total of 50,000 shares
of Common Stock may be issued upon exercise of options granted under the
Director Plan. Options to purchase 25,000 shares of Common Stock have been
granted to the two eligible directors. The exercise price of options granted
under the Director Plan was equal to the closing price of the Common Stock on
the date of grant.
-52-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
A summary of activity under the Equity Plan and the Director Plan is as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ ----------------
<S> <C> <C>
Outstanding as of January 1, 1995 -- --
Options Granted (weighted average fair value $12.46) 744,218 $11.17
Exercised (2,000) 8.00
Cancelled/expired (2,900) 13.00
--------- -----
Outstanding as of December 31, 1995 739,318 11.40
Granted (weighted average fair value $16.06) 719,000 29.34
Exercised (171,213) 10.57
Cancelled/expired (126,510) 10.57
--------- -----
Outstanding as of December 31, 1996 1,160,595 $22.31
========= =====
Exercisable as of December 31, 1995 74,611 $ 8.74
========= =====
Exercisable as of December 31, 1996 102,274 $12.30
========= =====
</TABLE>
Additional information regarding options outstanding as of December 31, 1996
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------------- --------------------------------
Weighted Average
Range of Remaining Weighted Avgerage Weighted Avgerage
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$ 8.00 - $ 9.00 290,136 10.9 $ 8.00 40,921 $ 8.00
9.00 - 13.00 97,860 9.6 12.54 22,530 11.00
13.01 - 15.00 233,762 10.8 14.25 21,624 14.26
16.01 - 18.00 15,500 10.8 16.89 233 16.75
18.01 - 23.00 87,287 9.5 19.22 11,966 18.96
23.01 - 44.75 436,050 9.8 39.17 5,000 28.75
============== =========== ============ =========== ============ ===========
$ 8.00 - $28.75 1,160,595 10.2 $22.31 102,274 $12.30
</TABLE>
At December 31, 1996, 964,405 and 25,000 shares were available for future
grants under the Equity Plan and Directors' Plan, respectively.
1995 Employee Stock Purchase Plan
In January 1995, the Board of Directors adopted and the shareholders approved
the 1995 Employee Stock Purchase Plan (the "Purchase Plan"), which became
effective on the closing of the Company's initial public offering. The Purchase
Plan authorizes the issuance of up to a total of 450,000 shares of Common Stock
to participating employees. Under the terms of the Purchase Plan, the purchase
price is an amount equal to 85% of the fair market value per share of the Common
Stock on either the first day or the last day of the offering period, whichever
is lower. There were no shares acquired under the Purchase Plan during the year
ended December 31, 1995. 42,145 shares were issued under the Purchase Plan in
1996 at a weighted average price of $14.66. The weighted average fair value of
the 1995 and 1996 awards under the Purchase Plan were $1.72 and $2.57,
respectively. At December 31, 1996, 407,855 shares were reserved for future
issuances under the Purchase Plan.
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Additional Information
As discussed in Note 1, the Company continues to account for its stock-based
compensation plans in accordance with APB Opinion 25 and related
Interpretations. SFAS No. 123, "Accounting for Stock Based Compensation"
requires the disclosure of pro forma income and earnings per share had the
Company adopted the Fair Value method as of the beginning of fiscal 1995. If the
computed fair values of the 1995 and 1996 awards had been amortized to expense
over the vesting period of the awards, pro forma net income would have been
$3,164 ($.44 per share) in 1995 and $289 ($.03 per share) in 1996. The
Company's calculations for the stock option plans were made using the Black-
Scholes option pricing model with the following assumptions: expected life, 6
months following vesting; stock volatility, 66% in 1995 and 62% in 1996; risk
free interest rates, 6.28% in 1995 and 6.36% in 1996; and no dividends during
the expected term. The Company's calculations are based on a multiple option
valuation approach and forfeitures are recognized as they occur. Compensation
cost for the Purchase Plan was estimated using the Black-Scholes model with the
following assumptions: an expected life of 6 months; expected volatility of 66%
in 1995 and 62% in 1996; and risk-free interest rates of 5.27% and 5.63%.
9. Income Taxes
The provision for income taxes on a pro forma basis is as follows:
<TABLE>
<CAPTION>
Years Ended
-----------
December 31,
------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current taxes:
Federal........................ $ 978 $1,763 $3,703
State.......................... 301 534 1,020
------ ------ ------
Total current............... 1,279 2,297 4,723
------ ------ ------
Deferred taxes:
Federal........................ 30 --- (762)
State.......................... 5 --- (136)
Change in valuation allowance.. (570) --- ---
------ ------ ------
Total deferred.............. (535) --- (898)
------ ------ ------
Total provision............. $ 744 $2,297 $3,825
====== ====== ======
</TABLE>
Effective with the closing of the Company's initial public offering, the
Company's S corporation election was automatically terminated. The cumulative
effect of temporary differences between financial accounting and income tax
reporting was not material.
Prior to its acquisition by the Company, ISS was an S corporation for income
tax purposes. Accordingly, no federal or state income tax provision was
required for ISS for the years ended December 31, 1994 and 1995, and through
December 30, 1996. The historical provision for income taxes in 1996 includes a
one-time charge of $1,002 resulting from converting ISS from an S corporation to
a C corporation, primarily resulting from a change from the cash basis to the
accrual basis of accounting.
-54-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
----------------------------
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
The reconciliation of the Company's pro forma income tax provision to the
statutory federal tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended
-----------
December 31,
------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate................................ 34.0% 34.0% 34.0%
State income taxes--net of federal benefit........ 6.0 6.0 6.3
Non-deductible acquisition costs.................. --- --- 8.3
Change in valuation allowance..................... (18.0) --- ---
Other............................................. 1.4 --- (0.6)
---- ---- ----
Effective income tax rate......................... 23.4% 40.0% 48.0%
==== ==== ====
</TABLE>
The tax effect of significant items comprising the Company's net deferred
tax asset as of December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31,
-----------
1995 1996
---- ----
<S> <C> <C>
Short Term Deferred Tax Assets (Liabilities):
Deferred revenue................................. --- $ 260
Accrued acquisition costs........................ --- 557
Allowance for doubtful accounts.................. $ 33 (28)
Other, principally accrued vacation.............. 38 77
Cash-to-accrual basis conversion................. --- $ (192)
Depreciation..................................... (71) (114)
----- ------
Total............................................ $ --- $ 560
----- ------
Long Term Deferred Tax Assets (Liabilities):
Cash-to-accrual basis conversion................. --- $ (576)
Accrued acquisition costs........................ --- 145
----- ------
$ --- $ (431)
===== ======
</TABLE>
10. Commitments and Contingencies
Operating Leases
The Company is obligated under various leases for office space and several
equipment and service leases through 2004. Total rent expense under all
operating leases for the years ended December 31, 1994, 1995 and 1996 was $812,
$1,259 and $1,529, respectively.
-55-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Future minimum payments under non-cancellable operating leases at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
Office Equipment Total
--------- --------- ---------
<S> <C> <C> <C>
1997........................... 1,593 55 1,648
1998........................... 1,249 49 1,298
1999........................... 1,068 2 1,070
2000........................... 795 --- 795
2001........................... 315 --- 315
Thereafter..................... 946 --- 946
--------- ------ ---------
Total 5,966 106 6,072
</TABLE>
11. Segment Information
The Company operates in one business segment.
Geographic Information
Revenues of the Company's U.K. subsidiaries totaled approximately $5,463, or
10% of consolidated 1996 revenues. Income from operations for the Company's
U.K. subsidiaries for the year ended December 31, 1996 was $524, and
identifiable assets at December 31, 1996 were $3,812. The Company's U.K.
subsidiaries had no material operations in 1994. Revenues from customers outside
of North America, primarily in the United Kingdom, accounted for approximately
7%, 10% and 10% of total revenues for the year ended December 31, 1994, 1995 and
1996, respectively.
Major Customer and Credit Concentration Information
Revenues from certain of the Company's largest customers individually
exceeded 10% of revenues as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
Customer 1994 1995 1996
-------- ---------- ---------- -----------
<S> <C> <C> <C>
A (see note 7) 36% 15% 21%
B -- 23% 26%
</TABLE>
The Company's customers are principally large corporations from whom the
Company does not require collateral. The Company maintains reserves for
potential credit losses.
-56-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
12. Employee Benefit Plan
The Company has a 401(k) profit-sharing plan (the ''Plan'') established in
1994 and covering substantially all domestic employees. The Plan allows each
participant to defer up to 20% of annual earnings up to an amount not to exceed
an annual statutory maximum. Subject to the approval of the Board of Directors
on an annual basis, the Company may make profit-sharing contributions and/or
match employee deferrals. For the years ended December 31, 1995 and 1996, the
Company's contributions totalled $269 and $446, respectively.
13. Subsequent Acquisitions
On February 3, 1997, the Company acquired all of the outstanding common
stock of COBA Consulting Limited ("COBA-UK") for $11,900 in cash, plus 163,160
shares of common stock of the Company. The Company will also acquire certain
non-voting, convertible shares of COBA-UK in 1998 and 1999 for a purchase price,
as defined by the Stock Purchase Agreement dated January 27, 1997, based on
COBA-UK's actual financial performance for the years ending December 31, 1997
and 1998. The maximum additional purchase price, which may include shares of
common stock of the Company, is $12,600. This acquisition will be accounted for
as a purchase.
On February 13, 1997, the Company acquired all of the outstanding capital
stock of C.M. Management Systems Ltd., Inc. ("COBA-Boston") for $9,250 in cash.
The Company may be required to pay an additional amount of up to a maximum of
$18,500 in cash and/or shares of Common Stock at the Company's option,
determined based on COBA-Boston's actual financial performance for the years
ending December 31, 1997 and 1998. This acquisition will be accounted for as a
purchase.
Prior to their acquisition by Renaissance, both COBA-UK and COBA-Boston
were parties to a joint marketing arrangement with a network of consulting firms
in Europe and Asia (the "COBA Network"). No stockholder, director or officer of
COBA-UK was also a stockholder, director or officer of COBA-Boston.
Renaissance anticipates that both COBA-UK and COBA-Boston will continue to
participate in the COBA Network as subsidiaries of the Company.
-57-
<PAGE>
Renaissance Solutions, Inc.
SELECTED QUARTERLY FINANCIAL RESULTS
(Unaudited)
<TABLE>
<CAPTION>
March 31 June 30 September 29 December 31 March 29 June 28 September 27 December 31
--------- ------- ------------ ----------- -------- ------- ------------ -----------
1995 1995 1995 1995 1996 1996 1996 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................... $8,258 $8,395 $8,952 $9,931 $11,468 $12,767 $14,000 $14,215
Costs and expenses:................
Professional personnel.......... 5,281 5,181 5,357 5,270 7,071 8,227 8,853 7,582
Professional development
and recruiting.................. 425 348 562 560 570 317 766 392
Marketing and sales............. 163 152 188 307 324 460 410 430
General and administrative...... 1,432 1,483 1,565 1,962 2,298 2,020 2,242 2,657
Acquisition costs............... 0 0 0 0 0 0 0 3,524
- ----------------------------------------------------------------------------------------------------------------------------------
Total cost and expenses....... 7,301 7,164 7,672 8,099 10,263 11,024 12,271 14,585
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 957 1,231 1,280 1,832 1,205 1,743 1,729 (370)
Interest expense (80) 0 0 0 (47) (35) (29) (28)
Interest income 42 164 185 118 142 292 481 778
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 919 1,395 1,465 1,950 1,300 2,000 2,181 380
- ----------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 2 524 564 804 579 797 926 1,789
Net income (loss) (1) $ 917 $ 871 $ 901 $ 1,146 $ 721 $ 1,203 $ 1,255 $(1,409)
==================================================================================================================================
Pro Forma Data:
Historical income before pro forma
adjustments $1,300 $ 2,000 $ 2,181 $ 380
Pro forma adjustment to officer's
salary 68 599 1,042 391
- ----------------------------------------------------------------------------------------------------------------------------------
Historical/pro forma income before
income taxes $ 919 $1,395 $1,465 $ 1,950 $1,368 $ 2,599 $ 3,223 $ 771
- ----------------------------------------------------------------------------------------------------------------------------------
Historical income taxes 2 524 564 804 579 797 926 1,789
Additional provision (credit) for
income taxes (3) 367 37 25 (26) 0 0 1 (267)
- ----------------------------------------------------------------------------------------------------------------------------------
Pro forma income taxes 369 561 589 778 579 797 927 1,522
- ----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) $ 488 $ 871 $ 901 $ 1,172 $ 789 $ 1,802 $ 2,296 $ (751)
==================================================================================================================================
</TABLE>
(1) From its inception in 1992 through its Reorganization in April 1995, the
Company was either an S corporation or a limited partnership and prior to
December 31, 1996, International Systems Services Corporation (ISS) was an S
corporation. Accordingly, the Company and ISS were not subject to federal
and state income taxes.
(2) The pro forma adjustment to officer's salary have been computed based on
the contractual reduction of ISS's officer compensation following the
Company's acquisition of ISS.
(3) Income taxes represent the income taxes that would have been provided as if
the Company and ISS were subject to federal and all applicable state
corporate income taxes from inception, based on the statutory tax rates and
the tax laws then in effect. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes 1 and 9 of Notes to
Consolidated Financial Statements.
-58-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company and their ages as of
February 15, 1997 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Harry M. Lasker........ 53 Co-Chairman, Secretary and Director
David A. Lubin......... 46 Co-Chairman, Treasurer and Director
David P. Norton........ 55 President, Chief Executive Officer and Director
O. Bruce Gupton........ 43 Executive Vice President and Director
Ronald K. Bohlin....... 45 Senior Vice President-Practice Development
George A. McMillan..... 42 Vice President, Chief Financial Officer and Chief
Operating Officer
Robert S. Kaplan(1).... 56 Director
John F. Rockart (1).... 65 Director
- ---------------------
</TABLE>
(1) Member of the Compensation Committee and Audit Committee.
Mr. Lasker is a founder of the Company and has served as a director since the
Company's inception in March 1992 and as Co-Chairman and Secretary since
December 1993. From December 1981 to December 1991 Mr. Lasker served as Vice
President and Co-Chairman of Spectrum Interactive, Inc. (''Spectrum''), a
multimedia technology development company which he co-founded with Mr. Lubin.
Mr. Lubin is a founder of the Company and has served as Treasurer and a
director since the Company's inception in March 1992 and as Co-Chairman since
-59-
<PAGE>
December 1993. From December 1981 to December 1991 Mr. Lubin served as Vice
President and Co-Chairman of Spectrum, which he co-founded with Mr. Lasker.
Mr. Norton is a founder of the Company and has served as President and a
director since the Company's inception in March 1992 and as Chief Executive
Officer since December 1993. From 1975 to February 1992 Mr. Norton served as
President of Nolan, Norton & Co., an information technology consulting firm.
Nolan, Norton & Co. was acquired by the accounting firm of KPMG Peat Marwick in
March 1987. As a result, Mr. Norton also served as a Partner of KPMG Peat
Marwick from March 1987 to February 1992.
Mr. Gupton joined the Company as Executive Vice President and became a
director of the Company in January 1997. From 1981 to December 1996, Mr. Gupton
served as President and Chief Executive Officer of ISS, a management consulting
firm which was acquired by the Company in December 1996. Prior to joining ISS,
Mr. Gupton was employed by Price Waterhouse LLP where he provided management
advisory services, primarily in the field of information technology.
Mr. Bohlin joined the Company as Senior Vice President-Practice Development in
December 1994. From September 1993 to November 1994 Mr. Bohlin served as Vice
President-Strategic Services at Digital Equipment Corporation. From February
1992 to September 1993 Mr. Bohlin served as Vice President-Corporate Marketing
and Business Development at Analog Devices, Inc., a semiconductor company. From
January 1981 to February 1992 Mr. Bohlin was a consultant, partner and computer
industry practice leader at McKinsey & Company.
Mr. McMillan joined the Company as Chief Operating Officer in July 1993 and
has served as Vice President, Chief Financial Officer and Chief Operating
Officer since January 1995. From March 1992 to June 1993 Mr. McMillan operated
his own strategy consulting firm, focusing on strategy development for
underperforming corporations. From April 1989 to March 1992 Mr. McMillan served
as President and Chief Operating Officer of the Michigan Bulb Company, a direct
mailer of horticultural catalogs.
Dr. Kaplan has served as a director of the Company since April 1995. Dr.
Kaplan is the Marvin Bower Professor of Leadership Development at Harvard
Business School, where he has been a member of the faculty since September 1983.
Dr. Rockart has served as a director of the Company since April 1995. Dr.
Rockart has been a Senior Lecturer at the Center for Information Systems
Research of the Alfred P. Sloan School of Management of the Massachusetts
Institute of Technology since 1974 and has been the Director of the Center for
Information Systems Research since 1976. Dr. Rockart is a director of ComShare,
Inc. and Keane, Inc.
-60-
<PAGE>
Officers are elected on an annual basis and serve at the discretion of the
Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on its review of copies of reports filed by persons required to
file such reports ("Reporting Persons") pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or written
representations from certain Reporting Persons that no Form 5 filing was
required for such persons, the Company believes that during 1996 all filings
required to be made by its Reporting Persons were timely made in accordance with
the requirements of the Exchange Act, except as follows. On February 29, 1996,
Gresham T. Brebach, Jr., the Company's then Executive Vice President - Client
Services, sold shares of Common Stock, and a Form 4 reporting such transaction
was filed on April 10, 1996.
ITEM 11. EXECUTIVE COMPENSATION
Director Compensation
Each director who is not an employee of the Company receives reimbursements
for expenses incurred in service of the Company as a director, receives a
quarterly retainer of $2,500 and participates in the Company's 1995 Director
Stock Option Plan.
1995 Director Stock Option Plan
The 1995 Director Stock Option Plan (the "Director Plan") was adopted by the
Board of Directors and approved by the stockholders of the Company in January
1995. Under the terms of the Director Plan, directors of the Company who are
not employees of the Company or any subsidiary of the Company are eligible to
receive non-statutory options to purchase shares of Common Stock. A total of
50,000 shares of Common Stock may be issued upon exercise of options granted
under the Director Plan. As of February 15, 1997, Mr. Kaplan and Dr. Rockart
had each been granted options to purchase 10,000 shares at an exercise price of
$12.25 per share, and options to purchase 2,500 shares at an exercise price of
$28.75 per share, and 25,000 shares remained eligible for future option grants
under the Director Plan.
Each eligible director is granted an option to purchase 10,000 shares of
Common Stock on the date of his or her initial election to the Board of
Directors. Annual options to purchase 2,500 shares of Common Stock are granted
to each eligible director on April 15 of each subsequent fiscal year. The
exercise price of options granted under the Director Plan is equal to the
closing price of the Common Stock on the Nasdaq National Market on the date of
grant.
-61-
<PAGE>
Options granted under the Director Plan are not transferrable by the optionee
except by will or by the laws of descent and distribution. No option is
exercisable after the expiration of five years from the date of grant.
Compensation of Executive Officers
Employment Agreements
The Company is a party to employment agreements (the "Principals' Employment
Agreements") with each of Messrs. Lasker, Lubin and Norton (the "Principals")
for the period commencing January 31, 1995 and ending January 31, 1997. Pursuant
to the Principals' Employment Agreements, each of Mr. Lasker and Mr. Lubin is
employed as a Co-Chairman of the Company and Mr. Norton is employed as President
and Chief Executive Officer of the Company. The Principals' Employment
Agreements originally provided for an annual salary of $500,000. Effective July
1, 1996, the Principals' Employment Agreements were amended to provide for an
annual base salary of $375,000. Each Principal also is eligible for bonuses at
the discretion of the Board of Directors if the Principal satisfies targeted
performance objectives. Each Employment Agreement provides that the Principal's
employment may be terminated by the Company for "cause" (as defined in the
Principals' Employment Agreement) or upon the death or disability of the
Principal. Each Principals' Employment Agreement also contains covenants by the
Principal not to solicit any of the Company's employees or customers or disclose
or use any of the Company's proprietary information for a period of two years
following the termination of the Principal's employment and, in the event that
the Principal is terminated for cause, not to compete with the Company during
such two year period. Each Principal has agreed to assign his right, title and
interest to any inventions, software and other works created by him or at his
direction to the Company.
The Company is also a party to an employment agreement with Mr. Gupton (the
"Employment Agreement"). The Employment Agreement provides for a four year term
commencing on December 31, 1996 (the "Term") and an annual salary of $375,000
for the first year of the Term. The annual salary is subject to adjustment
thereafter, but may not be decreased without Mr. Gupton's consent. Mr. Gupton
is also eligible to receive an annual bonus based upon performance criteria
determined by the Company's Board of Directors. The maximum bonus for the first
year of the term is $125,000, which amount may be increased in subsequent years.
The Employment Agreement may be terminated by either party upon 30 days' notice,
or by the Company immediately if for "cause" (as defined in the Employment
Agreement). Pursuant to the Employment Agreement, Mr. Gupton has agreed not to
compete with the Company until (i) one year after the termination
or cessation of his employment, if such termination or cessation is (A) due to
the expiration of the Term, (B) due to Mr. Gupton suffering from a "disability"
(as defined in the Employment Agreement) or (C) at the election of the Company,
not for "cause," or (ii) the later of the expiration of the remainder of the
Term and one year after the termination or cessation of his employment, if such
termination or cessation is (A) at the election of Mr. Gupton or (B) at the
election of the Company for "cause." Mr. Gupton has also agreed not to disclose
or use any of the Company's proprietary information and to assign his right,
title and interest to any inventions, software and other works created by him or
at his direction to the Company.
The Company is also a party to employment agreements with each of Messrs.
Bohlin and McMillan (the "Executive Agreements"). The Executive Agreements
provide for annual salaries of $300,000 and $250,000 for Messrs. Bohlin and
McMillan, respectively. Under the Executive Agreement, each officer agrees not
to disclose any confidential information of the Company. Pursuant to the
Executive Agreement, all inventions and intellectual property rights therein,
developed, acquired or conceived by the officer during the term of his
employment become the exclusive property of Renaissance. Each Executive
Agreement provides that for a period of two years after the date of termination
of employment, the officer shall not solicit any of the Company's employees or
customers. Each Executive Agreement may be terminated upon 30 days' written
notice by the Company or the officer for any reason or immediately by the
Company in the event that it believes that the officer has acted in a manner
detrimental to the Company's best interests. In addition, under each Executive
Agreement, in the event of certain changes in control of the Company (as
defined), all unvested stock options then held by such officer shall immediately
become exercisable as of the date of such termination.
-62-
<PAGE>
Effective on February 7, 1997, Gresham T. Brebach, Jr., the Company's
Executive Vice President--Client Services, resigned his position with the
Company. Prior to his resignation, Mr. Brebach and the Company were parties to
an employment agreement containing substantially the same terms as the Executive
Agreements described above. In connection with his resignation and in
consideration of his assistance in orchestrating the acquisition of ISS, the
Company awarded Mr. Brebach a bonus of $187,500.
Summary Compensation
The following table sets forth certain information with respect to the
annual and long-term compensation of the Chief Executive Officer of the Company
and each of the four other most highly compensated executive officers of the
Company (the "Named Executive Officers") for the three years ended December 31,
1996.
-63-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- -------------
Restricted All Other
Name and Salary Bonus Stock Compensation
Principal Position Year ($) ($)(1) Awards($) ($)(2)
------------------ ---- ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C>
David P. Norton............... 1996 $387,500 $ --- --- $500(3)
President and Chief 1995 500,000(1) --- --- 500(3)
Executive Officer 1994 250,000 473,643(2) --- 500(3)
Harry M. Lasker............... 1996 387,500 --- 500(3)
Co-Chairman and 1995 500,000(1) --- --- 500(3)
Secretary 1994 250,000 322,601(2) --- 500(3)
David A. Lubin................ 1996 387,500 --- 500(3)
Co-Chairman and 1995 500,000(1) --- --- 500(3)
Treasurer 1994 250,000 374,858(2) --- 500(3)
Gresham T. Brebach, Jr.(4).... 1996 375,500 46,154 --- ---
Executive Vice President 1995 373,558 119,712 --- ---
-- Client Services
Ronald K. Bohlin.............. 1996 300,000 50,000 --- ---
Senior Vice President -- 1995 300,000 --- --- ---
Practice Development
- -----------------------------
</TABLE>
(1) Includes $50,000 paid to the Named Executive Officer as salary in 1995
which he has repaid to the Company in 1996 in connection with the election
by the Company's Co-Chairmen and Chief Executive Officer to permanently
forego a total of $150,000 in compensation to which they were otherwise
entitled in 1995.
(2) Includes amounts payable in 1995 for services rendered by the Named
Executive Officer in 1994.
(3) Represents the Company's 401(k) profit-sharing plan matching contributions.
(4) Mr. Brebach resigned his positions with the Company effective February 7,
1997.
-64-
<PAGE>
Option Grants
The following table sets forth certain information concerning grants of
stock option made during fiscal 1996 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
--------------------------------------- Annual Rates of Stock
Number of Percent of Total Exercise Price Appreciation for
Securities Options Granted Price Option Term(2)
Underlying to Employees In Per Expiration --------------------------
Name Options Granted Fiscal Year Share Date(1) 5% 10%
---- --------------- ---------- ----- ------- -- ---
<S> <C> <C> <C> <C> <C> <C>
David P. Norton............. ___ ___ ___ ___ ___ ___
Harry M. Lasker............. ___ ___ ___ ___ ___ ___
David A. Lubin.............. ___ ___ ___ ___ ___ ___
Gresham T. Brebach, Jr.(4).. 50,000 (3) 7.0% $14.25 1/2/06 $448,087 $1,135,542
Ronald K. Bohlin............ 25,000 (3) 3.5 14.25 1/2/06 224,044 567,771
_________________
</TABLE>
(1) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted. The exercisability of these
options is accelerated upon the occurrence of a change in control.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10%, compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
optionholders' continued employment through the option period, and the date
on which the options are exercised.
(3) Options vest in four equal installments on each of the date of grant and
the first, second and third anniversary of the date of grant.
(4) Mr. Brebach resigned his positions with the Company effective February 7,
1997.
Year-End Option Table
The following table summarizes certain information regarding stock options
held as of December 31, 1996 by each of the Named Executive Officers.
-65-
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Number of Shares Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired on Value Options at Fiscal Year-End Fiscal Year-End
Exercise Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
Name (#) ($)(1) (#) ($)(2)
---- ---------- -------- --------------------------- --------------------------
<S> <C> <C> <C> <C>
David P. Norton............. ___ ___ ___/___ ___/___
Harry M. Lasker............. ___ ___ ___/___ ___/___
David A. Lubin.............. ___ ___ ___/___ ___/___
Gresham T. Brebach, Jr.(3).. 59,500 $1,445,925 3,012/187,536 $91,866/$6,657,573
Ronald K. Bohlin............ 31,250 812,813 25,012/68,762 919,191/2,409,816
___________
</TABLE>
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise.
(2) Based on the fair market value of the Common Stock as of December 31,
1996 ($44.75 per share) less the option exercise price, multiplied by
the number of shares underlying the options.
(3) Mr. Brebach resigned his positions with the Company effective February
7, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Mr. Kaplan
and Dr. Rockart. No executive officer of the Company has served as a director
or member of the compensation committee (or other committee serving an
equivalent function) of any other entity, whose executive officers served as a
director of or member of the Compensation Committee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 15, 1997
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) the Directors of the Company, (iii) the Named
Executive Officers, and (iv) the Directors and executive officers of the Company
as a group.
-66-
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership(1)
--------------------------
Name and Address Percent of
of Beneficial Owner Number of Shares Class
------------------- ---------------- -----------
<S> <C> <C>
O. Bruce Gupton................... 1,310,000 13.9%
c/o Renaissance Solutions, Inc.
100 First Stamford Place
Stamford, CT 06903-7698
Harry M. Lasker (2)............... 850,785 9.0
c/o Renaissance Solutions, Inc.
Lincoln North
55 Old Bedford Road
Lincoln, MA 01773
David A. Lubin (3)................ 848,286 9.0
c/o Renaissance Solutions, Inc.
Lincoln North
55 Old Bedford Road
Lincoln, MA 01773
Melissa E. Norton (4)............. 850,786 9.0
c/o Renaissance Solutions, Inc.
Lincoln North
55 Old Bedford Road
Lincoln, MA 01773
Putnam Investments, Inc. (5)...... 808,095 8.6
One Post Office Square
Boston, MA 02109
RCM Capital Management,........... 605,000 6.4
L.L.C.(6)
Four Embarcadero Center
San Francisco, CA 94111-4189
David P. Norton (7)............... 850,786 9.0
Robert S. Kaplan (8).............. 27,303 *
John F. Rockart (9)............... 12,500 *
</TABLE>
-67-
<PAGE>
<TABLE>
<S> <C> <C>
Ronald K. Bohlin (10)............ 31,262 *
Gresham T. Brebach, Jr. (11)..... 65,524 *
All directors and executive
officers as a group
(8 persons) (12)............... 3,976,810 41.8%
</TABLE>
__________
*Less than 1%
(1) The number of shares beneficially owned by each director and executive
officer is determined under rules promulgated by the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within 60 days after February 15, 1997 through the
exercise of any stock option or other right. The inclusion herein of such
shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of such shares.
Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares such power with his or
her spouse) with respect to all shares of capital stock listed as owned by
such person or entity.
(2) Includes 108,028 shares held by The Harry M. Lasker Children's Trust, the
beneficiaries of which are Mr. Lasker's children and a trustee of which is
Mr. Lasker's spouse, as to which shares Mr. Lasker disclaims beneficial
ownership. Also includes 42,000 shares held by The Red Farm Charitable
Trust, the trustees of which are Mr. Lasker and his spouse, as to which
shares Mr. Lasker disclaims beneficial ownership.
(3) Includes 72,856 shares held by The David A. Lubin Children's Trust, the
beneficiaries of which are Mr. Lubin's children, as to which shares Mr.
Lubin disclaims beneficial ownership. Also includes 39,500 shares held by
The Pine Point Foundation, a trust, the trustees of which are Mr. Lubin and
his spouse, as to which shares Mr. Lubin disclaims beneficial ownership.
(4) Ms. Norton is the spouse of David P. Norton, the President, Chief Executive
Officer and a Director of the Company.
(5) The information reported is based on a Schedule 13G, dated December 31,
1996, filed with the Securities and Exchange Commission by Putnam
Investments, Inc. ("PI"), Marsh & McLennan Companies, Inc. ("MMC"), Putnam
Investment
-68-
<PAGE>
Management, Inc. ("PIM") and The Putnam Advisory Company, Inc. ("PAC"). PI
is a registered investment advisor, in which capacity it advises PIM and
PAC and has shared voting power with respect to 125,489 shares and shared
dispositive power with respect to 808,095 shares. PIM has shared
dispositive power with respect to 668,706 shares. PAC has shared voting
power with respect to 125,489 shares and shared dispositive power with
respect to 139,389 shares. MMC is the parent holding company of PI. PI and
MMC disclaim beneficial ownership of such shares.
(6) The information is based on a Schedule 13G, dated December 31, 1996, filed
with the Securities and Exchange Commission by RCM Capital Management,
L.L.C. ("RCM Capital"), RCM Limited L.P. ("RCM Limited"), and RCM General
Corporation ("RCM General"). RCM Capital is an investment advisor, in
which capacity it has sole voting power with respect to 529,000 shares,
sole dispositive power with respect to 574,000 shares and shared
dispositive power with respect to 31,000 shares. RCM General is the
general partner of RCM Limited, the Managing Agent of RCM Capital. Each of
RCM General and RCM Limited disclaim beneficial ownership of such shares
except to the extent each may be deemed to have beneficial ownership of
securities beneficially owned by RCM Capital.
(7) Includes 850,786 shares held by Melissa E. Norton, the spouse of Mr.
Norton, as to which shares Mr. Norton disclaims beneficial ownership.
(8) Includes 17,301 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60 day period following February 15, 1997.
(9) Consists of 12,500 shares of Common Stock subject to outstanding stock
options which are exercisable within the 60 day period following February
15, 1997.
(10) Consists of 31,262 shares of Common Stock subject to outstanding stock
options which are exercisable within the 60 day period following February
15, 1997.
(11) Consists of 65,524 shares of Common Stock subject to outstanding stock
options which are exercisable within the 60 day period following February
15, 1997. Mr. Brebach resigned his position with the Company effective
February 7, 1997.
(12) Includes 88,196 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60 day period following February 15, 1997.
-69-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1995, the Company made a partnership distribution of $2,672,000,
of which approximately $772,000 was distributed to each of Messrs. Lasker, Lubin
and Norton or their affiliates (the "Founders"). This distribution represented
cumulative net earnings of the Partnership from December 1, 1993 through
December 31, 1994.
In March 1995, the Company made a partnership distribution of $754,475, of
which approximately $218,000 was distributed to each of the Founders. This
distribution represented the estimated amount of the Partnership's net earnings
for the period commencing on January 1, 1995 and ending immediately prior to the
Reorganization. Both the January 1995 and the March 1995 distributions were
evidenced by the Stockholder Notes. The principal amount of the Stockholder
Notes was repaid in April 1995 with a portion of the net proceeds from the
Company's initial public offering.
The Founders each pledged one-third of their shares of Common Stock as
security for a $2,000,000 loan to the Company from Gemini. A portion of the net
proceeds from the Company's initial public offering was used to repay all of the
amounts secured by this pledge which was released on April 11, 1995.
In January 1995, Messrs. Lasker and Lubin, Melissa E. Norton (the wife of
David P. Norton), the Harry M. Lasker Children's Trust (the "Lasker Trust")
and the David A. Lubin Children's Trust (the "Lubin Trust" and with the Lasker
Trust, the "Trusts") entered into a Stockholders' Voting Agreement (the "Voting
Agreement") pursuant to which, from and after the Reorganization and until
October 31, 1998, each of Messrs. Lasker and Lubin and Ms. Norton are entitled
to designate one representative for nomination to the Board of Directors of the
Company (initially Messrs. Lasker, Lubin and Norton), provided that, in each
case, Mr. Lasker and the Lasker Trust, Mr. Lubin and the Lubin Trust and Ms.
Norton retain at least 50% of their or her respective holdings of Common Stock
as existing immediately following the closing of the Company's initial public
offering. Under the Voting Agreement, each of Messrs. Lasker and Lubin, Ms.
Norton, the Lasker Trust and the Lubin Trust agrees to vote all of his, her or
its shares of Common Stock for the election of such nominees.
-70-
<PAGE>
In March 1994 the Company entered into a consulting agreement with Robert S.
Kaplan (the "Kaplan Consulting Agreement") pursuant to which Mr. Kaplan agreed
to provide certain consulting services to the Company. Mr. Kaplan is a director
of the Company. The Kaplan Consulting Agreement provides that the Company will
be the sole consulting firm with which Mr. Kaplan will perform Balanced
Scorecard-related services. Pursuant to the Kaplan Consulting Agreement, Mr.
Kaplan has agreed to refer all opportunities to perform potential Balanced
Scorecard projects to the Company, and the Company has agreed to pay Mr. Kaplan
at his per diem rate (currently $6,000) as well as a referral fee on all client
billable work obtained by the Company primarily as a result of Mr. Kaplan's
referrals. The referral fee is payable with respect to Company engagements
during the two years following the referral and equals 10% of the first
$1,000,000 in professional fees collected from a referred client and 2% of
professional fees collected from the client in excess of $1,000,000. Under the
Kaplan Consulting Agreement, during the term of the Kaplan Consulting Agreement,
the Company also has agreed to pay Mr. Kaplan $2,500 for each Balanced Scorecard
engagement completed by the Company under its Teaming Agreement with Gemini. The
Company made payments totaling $38,175, $16,285 and $10,000 to Mr. Kaplan under
the Kaplan Consulting Agreement in 1994, 1995 and 1996, respectively. The Kaplan
Consulting Agreement may be terminated by either party on 90 days' written
notice.
Pursuant to the Kaplan Consulting Agreement, in March 1994 the Company issued
Mr. Kaplan 10,002 shares of Common Stock and in January 1995 the Company granted
Mr. Kaplan options to purchase an additional 12,004 shares of Common Stock.
In July 1996 the Company entered into a consulting agreement with John F.
Rockart (the "Rockart Consulting Agreement") pursuant to which Dr. Rockart
agreed to provide certain consulting services to the Company. Dr. Rockart is a
director of the Company. The Rockart Consulting Agreement provides that the
Company will be the sole consulting firm with which Dr. Rockart will jointly
work to develop consulting methodologies or products. Pursuant to the Rockart
Consulting Agreement, the Company
-71-
<PAGE>
has agreed to pay Dr. Rockart at his per diem rate (currently $7,500 as well as
a referral fee on all client billable work obtained by the Company primarily as
a result of Dr. Rockart's referrals. The referral fee is payable with respect to
Company engagements during the two years following the referral and equals 5% of
the first $1,000,000 in professional fees collected from a referred client, 3.5%
of the second $1,000,000 in professional fees collected from the client and 2%
of the professional fees collected from a referred client in excess of
$2,000,000. The referral fee only applies to engagements greater than $100,000.
The Rockart Consulting Agreement also provides that in the event Dr. Rockart
and the Company jointly develop methodologies which are embedded in, but
exclusive of, other Renaissance methodologies, the Company will award Dr.
Rockart (i) options to purchase 5,000 shares of Common Stock when annual
revenues attributable to the methodology reach $2,000,000 per year, (ii) options
to purchase an additional 10,000 shares of Common Stock when annual revenues
attributable to the methodology reach $5,000,000, and (iii) options to purchase
an additional 10,000 shares of Common Stock for each additional $5,000,000 in
annual revenues attributable to the methodology. Title to the jointly developed
methodology will reside in the Company. No payments have been made to date under
the Rockart Consulting Agreement.
In November 1996, Gemini exercised three separate options to purchase 50,000
shares of Common Stock (each, an "Option") which had been sold to Gemini by each
of Messrs. Lubin and Lasker and Ms. Melissa E. Norton in connection with the
Company's initial public offering in April 1995. In connection with the
exercise of the Options, Gemini paid to each of Messrs. Lubin and Lasker and Ms.
Norton (i) $650,000, representing the exercise price of each Option, and (ii)
$255,454, in repayment, with interest, of a promissory note issued by Gemini to
each of Messrs. Lubin and Lasker and Ms. Norton as the purchase price of the
Option.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Form 10-K:
-------------------------------------------
1. Financial Statements. The following documents are set forth in
--------------------
Item 8 hereto:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995 and 1996
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996
Consolidated Statements of Stockholders' Equity
-72-
<PAGE>
for the Years Ended December 31, 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996
Notes to Consolidated Financial Statements
Selected Quarterly Financial Results
2. Financial Statement Schedules. The Company is not filing any
-----------------------------
financial statement schedules as part of this Annual Report on Form 10-K because
they are not applicable or the required information is included in the financial
statements or notes thereto.
3. Exhibits. The Exhibits listed in the Exhibit Index immediately
--------
preceding such Exhibits are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K:
-------------------
None.
-73-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RENAISSANCE SOLUTIONS, INC.
By: /s/ David P. Norton
--------------------
David P. Norton
President and Chief Executive Officer
Date: February 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ David P. Norton President, Chief Executive February 28, 1997
- ------------------- Officer and Director (Principal
David P. Norton Executive Officer)
/s/ George A. McMillan Vice President, Chief Financial February 28, 1997
- ---------------------- Officer, and Chief Operating
George A. McMillan Officer (Principal Financial and
Accounting Officer)
/s/ O. Bruce Gupton Director February 28, 1997
- -------------------
O. Bruce Gupton
/s/ Harry M. Lasker Director February 28, 1997
- -------------------
Harry M. Lasker
</TABLE>
-74-
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ David A. Lubin Director February 28, 1997
- ------------------
David A. Lubin
/s/ Robert S. Kaplan Director February 28, 1997
- --------------------
Robert S. Kaplan
/s/ John F. Rockart Director February 28, 1997
- -------------------
John F. Rockart
</TABLE>
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<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
a3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as amended.
a3.2 By-Laws of the Registrant.
a4.1 Specimen Certificate for Shares of Common Stock, $.0001 par value,
of the Registrant.
+a10.1 1995 Employee Stock Purchase Plan.
+a10.2 1995 Equity Incentive Plan.
+a10.3 1995 Director Stock Option Plan.
+a10.4 Employment Agreement between the Registrant and Harry M. Lasker,
dated as of January 31, 1995.
+b10.5 Amendment No. 1 to Employment Agreement between the Registrant and
Harry M. Lasker, dated as of July 1, 1996.
+a10.6 Employment Agreement between the Registrant and David A. Lubin,
dated as of January 31, 1995.
+b10.7 Amendment No. 1 to Employment Agreement between the Registrant and
David A. Lubin, dated as of July 1, 1996.
+a10.8 Employment Agreement between the Registrant and David P. Norton,
dated as of January 31, 1995.
+b10.9 Amendment No. 1 to Employment Agreement between the Registrant and
David P. Norton, dated as of July 1, 1996.
-1-
<PAGE>
a10.10 Stockholders' Voting Agreement among Harry M. Lasker, David A.
Lubin, Melissa E. Norton, the Harry M. Lasker Children's Trust and
the David A. Lubin Children's Trust dated as of January 31, 1995.
+c10.11 Employment Agreement between the Registrant and Gresham Brebach,
dated March 27, 1995, as amended.
+c10.12 Employment Agreement between the Registrant and Ronald K. Bohlin,
dated March 27, 1995, as amended.
+c10.13 Employment Agreement between the Registrant and George A. McMillan,
dated March 27, 1995, as amended.
+10.14 Employment Agreement between the Registrant and O. Bruce
Gupton, dated as of December 31, 1996.
b10.15 Third Amended and Restated Teaming Agreement between the Registrant
and Gemini Consulting, Inc., dated as of October 23, 1996.
a10.16 Reorganization Agreement among the Registrant, the Partnership and
the holders of certain equity interests in the Partnership, dated as
of January 31, 1995.
a10.17 Registration Rights Agreement among the Registrant, Harry M. Lasker,
David A. Lubin, Melissa E. Norton, the Harry M. Lasker Children's
Trust and the David A. Lubin Children's Trust, dated as of January
31, 1995.
-2-
<PAGE>
+a10.18 Consulting Agreement dated March 14, 1994 between the Partnership
and Robert Kaplan.
+10.19 Consulting Agreement dated July 22, 1996 between the Company and
John F. Rockart
a10.20 Lease Agreement by and between LadyLin Properties Limited
Partnership (successor in interest to Old Bedford Road Realty Trust)
and the Registrant, dated as of November 1, 1993, as amended to
date.
a10.21 Sublease Agreement by and between Sun Microsystems, Inc. and the
Registrant, dated as of May 27, 1993.
d10.22 Commercial Revolving Line of Credit Agreement between the Registrant
and Shawmut Bank, N.A., dated as of June 30, 1995.
d10.23 Commercial Revolving Line of Credit Promissory Note delivered by the
Registrant to Shawmut Bank, N.A., dated as of June 30, 1995.
e10.24 Amendment to Line of Credit Agreement, dated as of May 7, 1996, by
and between the Company and Fleet National Bank.
e10.25 Barclays Bank PLC Facility, dated as of April 26, 1996, by and
between Renaissance Solutions Limited and Barclays Bank PLC.
f10.26 Agreement and Plan of Merger, dated as of December 31, 1996, among
the Registrant, ISS, Artist Acquisition Corp. and O. Bruce Gupton
(acquisition of ISS).
10.27 Registration Rights Agreement, dated as of December 31, 1996, among
the Registrant and O. Bruce Gupton.
g10.28 Stock Purchase Agreement, dated as of, January 27, 1997, among the
Registrant, and the other parties named therein (acquisition of
COBA-UK).
h10.29 Stock Purchase Agreement, dated as of February 13, 1997, among the
Registrant, C.M. Management Systems Ltd. Inc. and Mark R. Bruneau,
Andrew R. Belt and Frederique Bouty (acquisition of COBA-Boston).
-3-
<PAGE>
10.30 Registration Rights Agreement, dated as of February 13, 1997, among
the Registrant and Mark R. Bruneau, Andrew R. Belt and Frederique
Bouty.
21 Subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
__________
a Incorporated by reference to the Registrant's Registration Statement
on Form S-1, File No. 33-89524.
b Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended September 27, 1996.
c Incorporated by reference to the Registrant's Annual Report on Form
10-K for the period ended December 31, 1995.
d Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1995.
e Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended June 28, 1996.
f Incorporated by reference to the Registrant's Current Report on Form
8-K dated December 31, 1996.
g Incorporated by reference to the Registrant's Current Report on Form
8-K dated February 3, 1997.
h Incorporated by reference to the Registrant's Current Report on Form
8-K dated February 13, 1997.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report of Form 10-K.
-4-
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement"), made this 31st day of
December, 1996, is entered into by and between Renaissance Solutions, Inc., a
Delaware corporation with its principal place of business at Lincoln North, 55
Old Bedford Road, Lincoln, MA 01773 (the "Company"), and O. Bruce Gupton,
residing at 16 Hurlingham Drive, Conyers Farm, Greenwich, CT 06831 (the
"Employee").
Whereas, on December 31, 1996, the Company, Artist Acquisition Corp.,
a Connecticut corporation and a wholly-owned subsidiary of the Company (the
"Transitory Subsidiary"), International Systems Services Corporation, a
Connecticut corporation ("ISS"), and the Employee as the sole stockholder of
ISS, entered into an Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which the Transitory Subsidiary will merge with and into ISS, with
ISS surviving such merger; and
Whereas, in connection with the consummation of the transactions
contemplated by the Merger Agreement, the Company desires to employ the
Employee, and the Employee desires to be employed by the Company.
Now, therefore, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Term of Employment. The Company hereby agrees to employ the
------------------
Employee, and the Employee hereby accepts employment with the Company, upon the
terms set forth in this Agreement, for the period commencing on the Closing
Date, as such term is defined in the Merger Agreement (the "Commencement Date"),
and ending on the fourth anniversary of the Commencement Date, unless sooner
terminated in accordance with the provisions of Section 4 (such period, as it
may be extended, the "Employment Period").
2. Title; Capacity. The Employee shall serve initially in such
---------------
position as the Employee and the Company shall, promptly following the Closing
Date, determine, or in such other position as the Company or its Board of
Directors (the "Board") may from time to time determine. The Employee shall be
subject to the supervision of, and shall have such authority as is delegated to
him by, the Board or such officer or officers of the Company designated by the
Board.
-1-
<PAGE>
The Employee hereby accepts such employment and agrees to undertake
the duties and responsibilities inherent in such position and such other duties
and responsibilities as the Board or its designee shall from time to time
reasonably assign to him. The Employee agrees to devote his entire business
time, attention and energies to the business and interests of the Company during
the Employment Period; provided, however, that the Employee shall be free to
-------- -------
participate in board, civic and charitable activities so long as such activities
do not interfere with his duties and responsibilities to the Company hereunder.
The Employee agrees to abide by the rules, regulations, instructions, personnel
practices and policies of the Company and any changes therein which may be
adopted from time to time by the Company.
3. Compensation and Benefits.
-------------------------
3.1 Base Salary. The Company shall pay the Employee, at such times
-----------
as the Company pays its employees in general, an annual base salary of $375,000
for the one-year period commencing on the Commencement Date. Such base salary
shall be subject to adjustment thereafter as determined by the Board; provided,
--------
however, that the Board shall not decrease the base salary during the Employment
- -------
Period without the prior written consent of the Employee.
3.2 Annual Bonus. With respect to each year during the Employment
------------
Period, the Employee shall be eligible to receive a bonus of up to $125,000 (and
for years subsequent to the first year, such greater amount (if any) as shall be
determined by the Board) based upon such performance criteria as may be
determined in good faith by the Board. Such bonus shall be payable on or before
the 45th day of the year following the year in which such bonus is earned.
3.3 Fringe Benefits. The Employee shall be entitled to participate
----------------
in all benefit programs that the Company establishes and makes available to its
employees, if any, to the extent that Employee's position, tenure, salary, age,
health and other qualifications make him eligible to participate.
3.4 Reimbursement of Expenses. The Company shall reimburse the
-------------------------
Employee for all reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request; provided, however, that such
-------- -------
travel, entertainment and other expenses shall be subject to limitation in
accordance with Company policy as in effect from time to time.
-2-
<PAGE>
4. Employment Termination. The employment of the Employee by the
----------------------
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
4.1 Expiration of the Employment Period in accordance with Section 1;
4.2 At the election of the Company, for cause, immediately upon
written notice by the Company to the Employee. For the purposes of this Section
4.2, cause for termination shall be deemed to exist upon (a) a good faith
finding by the Company of continual failure of the Employee to perform his
assigned duties for the Company, or dishonesty, gross negligence or willful
misconduct related to the performance of the Employee's duties for the Company;
(b) the conviction of the Employee of, or the entry of a pleading of guilty or
nolo contendere by the Employee to, any crime involving moral turpitude or any
felony; (c) Employee's habitual drunkenness, or the use, possession,
distribution or being under the influence of alcohol or illegal substances or
drugs in the workplace or in a manner otherwise affecting the Employee's
performance of his duties for the Company (the only exception is that the
Employee may consume alcohol reasonably and responsibly, if he so chooses, at
legitimate business events and functions where alcohol is legally available); or
(d) the material breach by the Employee of any terms of this Agreement, which
breach continues for 30 days subsequent to written notice from the Company to
the Employee of the breach (unless such breach is not susceptible to cure, in
which case termination shall be deemed to be immediate);
4.3 Upon the death or disability of the Employee. As used in this
Agreement, the term "disability" shall mean the inability of the Employee, due
to a physical or mental disability, for a period of 120 days, whether or not
consecutive, during any 360-day period to perform the services contemplated
under this Agreement. A determination of disability shall be made by a
physician satisfactory to both the Employee and the Company; provided that if
-------- ----
the Employee and the Company do not agree on a physician, the Employee and the
Company shall each select a physician and such physicians together shall select
a third physician, whose determination as to disability shall be binding on all
parties; or
4.4 At the election of the Company or the Employee, upon not less
than 30 days' prior written notice of termination.
5. Effect of Termination.
---------------------
5.1 Termination for Cause or Voluntary Termination. In the event the
----------------------------------------------
Employee's employment is terminated by the Company for cause pursuant to Section
4.2, or by the Employee pursuant to Section 4.4, the Company shall pay to the
-3-
<PAGE>
Employee the compensation and benefits which would otherwise be payable to him
through the last day of his actual employment by the Company.
5.2 Termination for Death or Disability. If the Employee's
-----------------------------------
employment is terminated by death or because of disability pursuant to Section
4.3, the Company shall pay to the estate of the Employee or to the Employee, as
the case may be, the compensation and benefits which would otherwise be payable
to the Employee through the date of his termination of employment because of
death or disability.
5.3 Termination Without Cause. If the Employee's employment is
-------------------------
terminated at the election of the Company pursuant to Section 4.4, the Company
shall pay to the Employee the base salary and benefits payable to him under
Section 3, at the times provided in Section 3, including the pro rata portion of
any bonuses earned under Section 3.2 during the then current one-year period of
the Employment Period, through the day immediately prior to the one-year
anniversary of the date of his termination of employment.
5.4 Survival. The provisions of Sections 5 and 6 shall survive the
--------
termination of this Agreement.
6. Non-competition and Non-Solicitation
------------------------------------
6.1 Non-competition. During the Non-Competition Period (as defined
---------------
below) the Employee will not directly or indirectly:
(A) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, consultant, or
in any other capacity whatsoever (other than as the holder of not more
than one percent of the combined voting power of the outstanding stock
of a publicly held company), develop, design, produce, market, sell or
render (or assist any other person in developing, designing,
producing, marketing, selling or rendering) products or services
competitive with those developed, designed, produced, marketed, sold
or rendered by the Company or any subsidiary of the Company (whether
existing now or hereafter acquired or established) (a "Subsidiary")
while the Employee was employed by the Company; provided, however,
-------- -------
that nothing herein shall prohibit the Employee from holding up to 3%
of the publicly-traded securities of any corporation; or
(B) solicit, divert or take away, or attempt to divert or to take
away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, of the
Company
-4-
<PAGE>
or any of its Subsidiaries which were contracted, solicited or served
by the Employee while employed by the Company.
The term Non-Competition Period means the period of time commencing on
the Commencement Date and ending on (a) the first anniversary of the termination
or cessation of the Employee's employment, if such termination or cessation
occurs under Sections 4.1 or 4.3 or under Section 4.4 at the election of the
Company, and (b) the later of (i) the fourth anniversary of the Commencement
Date, and (ii) the first anniversary of the termination or cessation of the
Employee's employment, if such termination or cessation occurs under Section 4.2
or under Section 4.4 at the election of the Employee.
6.2 Non-solicitation. While the Employee is employed by the Company
----------------
and for a period of one year after the termination or cessation of such
employment for any reason, the Employee will not directly or indirectly recruit,
solicit or hire or otherwise retain the services of any employee of the Company
or of any of its Subsidiaries, or induce or attempt to induce any employee of
the Company or any of its Subsidiaries to terminate his/her employment with, or
otherwise cease his/her relationship with, the Company or such Subsidiary.
6.3 Interpretation. If any restriction set forth in Sections 6.1 or
--------------
6.2 is found by any court of competent jurisdiction to be unenforceable because
it extends for too long a period of time or over too great a range of activities
or in too broad a geographic area, it shall be interpreted to extend only over
the maximum period of time, range of activities or geographic area as to which
it may be enforceable.
6.4 Equitable Remedies. The restrictions contained in this Section 6
------------------
are necessary for the protection of the business and goodwill of the Company and
are considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Section 6 is likely to cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, the Employee agrees that the Company, in addition to such other remedies
which may be available, shall be entitled to specific performance and other
injunctive relief.
7. Proprietary Information and Developments. Concurrently with the
----------------------------------------
execution of this Agreement, the Employee shall enter into an Invention and Non-
disclosure Agreement, a copy of which is attached hereto as Exhibit B (the "Non-
------- -
disclosure Agreement").
8. Notices. All notices required or permitted under this Agreement
-------
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or at
such other address or
-5-
<PAGE>
addresses as either party shall designate to the other in accordance with this
Section 8.
9. Pronouns. Whenever the context may require, any pronouns used in this
--------
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
10. Entire Agreement. This Agreement, together with the Non-disclosure
----------------
Agreement, constitutes the entire agreement between the parties and supersedes
all prior agreements and understandings, whether written or oral, relating to
the subject matter of this Agreement.
11. Amendment. This Agreement may be amended or modified only by a written
---------
instrument executed by all of the parties hereto.
12. Governing Law. This Agreement shall be construed, interpreted and
-------------
enforced in accordance with the internal laws (and not the law of conflicts) of
the Commonwealth of Massachusetts.
13. Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of all of the parties hereto and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its respective assets or business; provided,
however, that the obligations of the Employee are personal and shall not be
assigned by him.
14. Severability. The invalidly or unenforceability of any provision of
------------
this Agreement shall not affect the validly or enforceability of any other
provision of this Agreement.
15. Miscellaneous.
-------------
15.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
15.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
-6-
<PAGE>
15.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
15.4 This Agreement shall become effective upon the Closing Date (as
such term is defined in the Merger Agreement) and shall be of no force and
effect if the Merger Agreement is terminated in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
RENAISSANCE SOLUTIONS, INC.
By: /s/ George A. McMillan
---------------------------------------
Name: George A. McMillan
Title: Vice President, Chief Fiancial Officer
and Chief Operating Officer
/s/ O. Bruce Gupton
---------------------------------------------
O. Bruce Gupton
-7-
<PAGE>
Exhibit B
---------
INVENTION AND NON-DISCLOSURE AGREEMENT
--------------------------------------
This Agreement is made between BUYER, a Delaware corporation (hereinafter
referred to collectively with its subsidiaries as the "Company"), and O. Bruce
Gupton (the "Employee").
In consideration of the employment or the continued employment of the
Employee by the Company, the Company and the Employee agree as follows:
1. Proprietary Information.
-----------------------
(a) The Employee agrees that all information, whether or not in writing,
of a private, secret or confidential nature concerning the Company's business,
business relationships or financial affairs (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company. By way of
illustration, but not limitation, Proprietary Information may include
inventions, products, processes, methods, techniques, formulas, compositions,
compounds, projects, developments, plans, research data, clinical data,
financial data, personnel data, computer programs, customer and supplier lists,
and contacts at or knowledge of customers or prospective customers of the
Company. The Employee will not disclose any Proprietary Information to any
person or entity other than employees of the Company or use the same for any
purposes (other than in the performance of his duties as an employee of the
Company) without written approval by an officer of the Company, either during or
after his employment with the Company, unless and until such Proprietary
Information has become public knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, laboratory notebooks, program listings, or
other written, photographic, or other tangible material containing Proprietary
Information, whether created by the Employee or others, which shall come into
his custody or possession, shall be and are the exclusive property of the
Company to be used by the Employee only in the performance of his duties for the
Company. All such materials or copies thereof and all tangible property of the
Company in the custody or possession of the Employee shall be delivered to the
Company, upon the earlier of (i) a request by the Company or (ii) termination of
his employment. After such delivery, the Employee shall not retain any such
materials or copies thereof or any such tangible property.
(c) The Employee agrees that his obligation not to disclose or to use
information and materials of the types set forth in paragraphs (a) and (b)
above, and
-1-
<PAGE>
his obligation to return materials and tangible property, set forth in paragraph
(b) above, also extends to such types of information, materials and tangible
property of customers of the Company or suppliers to the Company or other third
parties who may have disclosed or entrusted the same to the Company or to the
Employee.
2. Developments.
------------
(a) The Employee will make full and prompt disclosure to the Company
of all inventions, improvements, discoveries, methods, developments, software,
and works of authorship, whether patentable or not, which are created, made,
conceived or reduced to practice by him or under his direction or jointly with
others during his employment by the Company, whether or not during normal
working hours or on the premises of the Company (all of which are collectively
referred to in this Agreement as "Developments").
(b) The Employee agrees to assign and does hereby assign to the Company
(or any person or entity designated by the Company) all his right, title and
interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this paragraph
2(b) shall not apply to Developments which do not relate to the present or
planned business or research and development of the Company and which are made
and conceived by the Employee not during normal working hours, not on the
Company's premises and not using the Company's tools, devices, equipment or
Proprietary Information. The Employee understands that, to the extent this
Agreement shall be construed in accordance with the laws of any state which
precludes a requirement in an employee agreement to assign certain classes of
inventions made by an employee, this paragraph 2(b) shall be interpreted not to
apply to any invention which a court rules and/or the Company agrees falls
within such classes. The Employee also hereby waives all claims to moral rights
in any Developments.
(c) The Employee agrees to cooperate fully with the Company, both during
and after his employment with the Company, with respect to the procurement,
maintenance and enforcement of copyrights, patents and other intellectual
property rights (both in the United States and foreign countries) relating to
Developments. The Employee shall sign all papers, including, without limitation,
copyright applications, patent applications, declarations, oaths, formal
assignments, assignments of priority rights, and powers of attorney, which the
Company may deem necessary or desirable in order to protect its rights and
interests in any Development. The Employee further agrees that if the Company is
unable, after reasonable effort, to secure the signature of the Employee on any
such papers, any executive officer of the Company shall be entitled to execute
any such papers as the agent and the attorney-in-fact of the Employee, and the
Employee hereby irrevocably designates and appoints each executive officer of
the Company as his agent and attorney-in-fact to
-2-
<PAGE>
execute any such papers on his behalf, and to take any and all actions as the
Company may deem necessary or desirable in order to protect its rights and
interests in any Development, under the conditions described in this sentence.
3. Other Agreements.
----------------
The Employee hereby represents that, except as the Employee has disclosed
in writing to the Company, the Employee is not bound by the terms of any
agreement with any previous employer or other party to refrain from using or
disclosing any trade secret or confidential or proprietary information in the
course of his employment with the Company or to refrain from competing, directly
or indirectly, with the business of such previous employer or any other party.
The Employee further represents that his performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any
agreement to keep in confidence proprietary information, knowledge or data
acquired by the Employee in confidence or in trust prior to his employment with
the Company, and the Employee will not disclose to the Company or induce the
Company to use any confidential or proprietary information or material belonging
to any previous employer or others.
4. United States Government Obligations.
------------------------------------
The Employee acknowledges that the Company from time to time may have
agreements with the other persons or with the United States Government, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work under such agreements or
regarding the confidential nature of such work. The Employee agrees to be bound
by all such obligations and restrictions which are made known to the Employee
and to take all action necessary to discharge the obligations of the Company
under such agreements.
5. No Employment Contract.
----------------------
The Employee understands that this Agreement does not constitute a contract
of employment and does not imply that his employment will continue for any
period of time.
6. Miscellaneous.
-------------
(a) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(b) This Agreement supersedes all prior agreements, written or oral,
between the Employee and the Company relating to the subject matter of this
Agreement. This Agreement may not be modified, changed or discharged in whole
-3-
<PAGE>
or in part, except by an agreement in writing signed by the Employee and the
Company. The Employee agrees that any change or changes in his duties, salary or
compensation after the signing of this Agreement shall not affect the validity
or scope of this Agreement.
(c) This Agreement will be binding upon the Employee's heirs, executors
and administrators and will inure to the benefit of the Company and its
successors and assigns.
(d) No delay or omission by the Company in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on any
other occasion.
(e) The Employee expressly consents to be bound by the provisions of
this Agreement for the benefit of the Company or any subsidiary or affiliate
thereof to whose employ the Employee may be transferred without the necessity
that this Agreement be re-signed at the time of such transfer.
(f) The restrictions contained in this Agreement are necessary for the
protection of the business and goodwill of the Company and are considered by the
Employee to be reasonable for such purpose. The Employee agrees that any breach
of this Agreement is likely to cause the Company substantial and irrevocable
damage and therefore, in the event of any such breach, the Employee agrees that
the Company, in addition to such other remedies which may be available, shall be
entitled to specific performance and other injunctive relief.
(g) This Agreement is governed by and will be construed as a sealed
instrument under and in accordance with the laws of the Commonwealth of
Massachusetts. Any action, suit, or other legal proceeding which is commenced to
resolve any matter arising under or relating to any provision of this Agreement
shall be commenced only in a court of the Commonwealth of Massachusetts (or, if
appropriate, a federal court located within Massachusetts), and the Company and
the Employee each consents to the jurisdiction of such a court.
-4-
<PAGE>
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
WITNESS: BUYER
Date: By:
----------------------- ------------------------------
------------------------------
(print name and title)
O. Bruce Gupton
Date:
----------------------- --------------------------------
(signature)
-5-
<PAGE>
EXHIBIT 10.19
[Renaissance Solutions Letterhead]
July 17, 1996
Professor John F. Rockart
150 Cherry Brook Road
Weston, MA 02193
Subject: Faculty Consulting Agreement, 1996-1997
Dear Jack:
1. Introduction
Renaissance Solutions, Inc. (RSI) is a professional service organization that
provides innovative solutions to leading edge problems for world-class clients.
Our strategy requires us to stay at the leading edge in our target market
niches;
. Performance Measurement
. Strategic Management Process
. Organization Learning
. Knowledge Management
If we succeed, we are able to create economic leverage, both for our clients and
ourselves.
Over the years, through our personal roots and associations, we have found that
strong relations with the faculty of leading universities help to foster the
innovation which is so important to us. We have also found that such relations,
if managed properly, can meet a range of professional and economic objectives
for the faculty member as well.
Our goal at Renaissance is to build relations with a small number of faculty
members like yourself, whose professional interests are closely aligned to ours.
The relations will be built on approaches which create professional and economic
benefits for both parties.
<PAGE>
2. Objectives
The objectives for this agreement are several:
. Leverage you, as a continuing source of stimulation and
ideas for our clients and products.
. Create a source of marketing referrals from you which
RSI can convert to revenue.
. Provide a vehicle to implement your ideas and approaches
in our client organizations.
. Permit you to achieve economic benefit from the
execution of your work or association.
3. Compensation
A. Fee for Service Compensation
You would be paid your normal consulting per diem rates for participation in
conferences, research programs and billable client engagements. Compensation
will be paid on a quarterly basis based on billings collected during that
period.
B. Referral Fees
RSI will pay to you a "referral fee" on all client billable work obtained by RSI
primarily as a result of your direct referral, according to the following
schedule:
. 5% of the professional fees on the first $1,000,000
collected from the client; 3.5% on the second $1,000,000
collected from the client; and 2% thereafter.
The referral fee will be paid on all professional fees collected from that
client/division during the two-year period following the referral. No referral
fee would be paid thereafter. All referral fees will be paid on a quarterly
cycle based on collections made during that quarter. This referral fee only
applies to an engagement greater than $100,000.
C. Attribution for Joint Method/Product Development
Our goal is to work with you to jointly develop methodologies and/or products
related to the faculty member's areas of special knowledge. When new
methodologies are developed with you which are imbedded, but independent of
other RSI methods, RSI will provide attribution to the faculty member as
follows:
<PAGE>
. when annual revenues from the new methodology/product
reach a level of $2 million per year, options on 5,000
shares of RSI (at current market prices) would be
awarded;
. when annual revenues from the new methodology/product
reach a level of $5 million per year, options for
additional 10,000 shares of RSI common stock (at current
market prices) would be awarded;
. 10,000 additional options would be awarded for each $5
million increase in annual revenues.
These unique new methodologies would be the exclusive property of RSI.
4. Exclusivity
RSI will be the sole consulting firm with which you will contract and work with
respect to such joint PI Method/Product Development created under section 3.
5. Confidentiality
During the course of this relationship, it is expected that RSI will furnish you
with some of RSI's Confidential Information. This includes information
regarding the business and procedures of RSI, RSI's consulting methodologies and
attendant tools, lists of RSI clients, RSI employees, access to RSI's Voice Mail
System and other trade secrets or confidential and proprietary information for
RSI or its clients. You agree not to use such Confidential Information at any
time in the future, whether or not protected by trade laws, for any purpose
other than your engagement under this agreement, unless authorized in writing by
RSI to do so. You also agree to return promptly all written Confidential
Information (in whatever form furnished) without retaining copies or extracts
thereof when association with RSI has ended or as otherwise requested by RSI.
Additionally, when you are working with methodologies and tools proprietary to
RSI, you will review and gain approval from RSI for any publications associated
with work so that you do not inadvertently disclose any trade secrets.
For purposes of this Agreement, the term Confidential Information does not
include any information which is available generally to the public by means of
proper disclosure by someone other than you. Nor does it include information
which you have developed or will develop without assistance from RSI.
6. Entire Agreement
This is the entire agreement between RSI and you. Any changes are to be in
writing and based upon our mutual agreement.
<PAGE>
7. Termination
This agreement shall continue unless terminated by either party upon not less
than 90 days written notice to the other.
AGREED TO AND ACCEPTED AS OF THIS 22ND DAY OF JULY, 1996.
Renaissance Solutions, Inc.
By: /s/ George A. McMillan By: /s/ John F. Rockart
------------------------ ------------------------
George A. McMillan John F. Rockart
Vice President, Chief Financial
Officer and Chief Operating Officer
<PAGE>
EXHIBIT 10.27
REGISTRATION RIGHTS AGREEMENT
Agreement dated as of December 31, 1996, by and between Renaissance
Solutions, Inc., a corporation organized under the laws of the State of Delaware
(the "Company"), and O. Bruce Gupton (the "Stockholder").
INTRODUCTION
------------
The Company and the Stockholder have, as of the date hereof, entered into a
certain Agreement and Plan of Merger (the "Merger Agreement") pursuant to which,
upon and subject to the occurrence of the Closing thereunder, the Company will
issue to the Stockholder an aggregate of 1,310,000 shares of Common Stock,
$.0001 par value per share ("Common Stock"), of the Company. The Stockholder
wishes to have, and the Company is willing to grant to him, certain rights with
respect to the registration of such shares of Common Stock.
In consideration of the mutual covenants and promises contained in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and the Stockholders agree as
follows:
1. Certain Definitions. As used in this Section 1 and elsewhere in this
-------------------
Agreement, the following terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
----------
other Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Registration Statement" means a registration statement filed by the
----------------------
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
-1-
<PAGE>
"Registration Expenses" means the expenses described in Section 5.
---------------------
"Registrable Shares" means (a) the shares of Common Stock issued to
------------------
the Stockholder pursuant to Merger Agreement and (b) any other shares of Common
Stock of the Company issued in respect of such shares (because of stock splits,
stock dividends, reclassifications, recapitalizations, or similar events);
provided, however, that shares of Common Stock which are Registrable Shares
- -------- -------
shall cease to be Registrable Shares (i) upon any sale pursuant to a
Registration Statement, Section 4(1) of the Securities Act or Rule 144 under the
Securities Act or upon any sale in any manner to a person or entity which, by
virtue of Section 11 of this Agreement, is not entitled to the rights provided
in this Agreement, (ii) at such time as all of the Registrable Shares then held
by the Rightsholders may be sold without restriction as to volume under Rule 144
or (iii) at such time as all such shares may be sold under Rule 144(k).
"Rightsholders" means the Stockholder and any other person or entity
-------------
who becomes a Rightsholder under this Agreement pursuant to Section 11.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
Other terms used herein and not otherwise defined shall have the respective
meanings ascribed to them in the Merger Agreement.
2. Demand Registration Rights.
--------------------------
(a) Subject to the provisions of paragraph (c) below, the Company
shall use its best efforts to file with the Commission (i) on or before March
17, 1997, the Company's Annual Report on Form 10-K for the year ended December
31, 1996, and (ii) within three (3) business days following such filing, a
Registration Statement on Form S-3 with respect to 300,000 of the Registrable
Shares (the "First Demand Registration"). In addition, at any time after the
first anniversary of the occurrence of the Closing pursuant to the Merger
Agreement and prior to the second anniversary of such Closing, the Stockholder
may request, in writing, that the Company effect the registration of up to an
aggregate of an additional 200,000 of the Registrable Shares (the "Second Demand
Registration"). In either case, if the Rightsholders intend to distribute such
Registrable Shares by means of an underwriting, the Stockholder shall so advise
the Company within five business days following the Earnings Release, in the
case of the First Demand Registration, and in his request, in the case of the
Second Demand Registration. In the event either of such registrations are
-2-
<PAGE>
underwritten, the right of Rightsholders to participate shall be conditioned on
such Rightsholders' participation in such underwriting. Upon receipt of such a
request, the Company shall, as expeditiously as possible, use its best efforts
to effect the registration of all Registrable Shares which the Company has been
requested to so register (subject to the maximums stated in this paragraph (a))
on such registration form selected by the Company as the Company is then
eligible to use.
(b) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above.
(c) Notwithstanding anything to the contrary set forth herein, if
at the time the Company is required to file a Registration Statement pursuant to
the first sentence of Section 2(a) the Company is then in possession of material
non-public information relating to the Company, its business or financial
condition which, in the good faith determination of the Company's Board of
Directors, is of an adverse nature, and which information (i) would not, but for
the filing of the Registration Statement, then be required to be disclosed and
(ii) if disclosed, would be to the material detriment of the Company, then the
Company may at its option delay the filing of such Registration Statement for a
period not in excess of six months from the date of the Earnings Release, such
right to delay to be exercised by the Company not more than once.
(d) If at the time of any request to register Registrable Shares
pursuant to this Section 2 made after the first anniversary of the occurrence of
the Closing pursuant to the Merger Agreement and prior to the second anniversary
of such Closing, the Company is engaged or has fixed plans to engage within 30
days of the time of the request in a registered public offering as to which the
Rightsholders may include Registrable Shares pursuant to Section 3 (subject to
the limitations set forth therein) or is engaged in any other activity which, in
the good faith deter mination of the Company's Board of Directors, would be
adversely affected by the requested registration to the material detriment of
the Company, then the Company may at its option direct that such request be
delayed for a period not in excess of six months from the effective date of such
offering or the date of commencement of such other material activity, as the
case may be, such right to delay a request to be exercised by the Company not
more than once.
(e) The Company agrees that it shall not enter into any agreement
which would provide any stockholder of the Company with the opportunity to
register shares incident to the registration of any Registrable Shares pursuant
to the registration rights granted in this Section 2.
-3-
<PAGE>
3. Incidental Registration Rights.
------------------------------
(a) At any time after the first anniversary of the Closing Date and
until the fifth anniversary of the Closing Date, whenever the Company proposes
to file a Registration Statement at any time and from time to time relating to
an offering in which the Company proposes to sell shares of Common Stock for its
own account, it will, prior to such filing, give at least 20 days' written
notice to all Rightsholders of its intention to do so (subject to the
limitations set forth in paragraph (c) below) and, upon the written request of a
Rightsholder or Rightsholders given within 20 days after the Company provides
such notice (which request shall state the intended method of disposition of
such Registrable Shares), the Company shall use its best efforts to cause all
Registrable Shares which the Company has been requested by such Rightsholder or
Rightsholders to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such
Rightsholder or Rightsholders; provided, that the Company shall have the right
to postpone or withdraw any registration effected pursuant to this Section 3
without obligation to any Rightsholder.
(b) In connection with any offering under this Section 3 involving
an underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriter(s) of such
offering. If in the opinion of the managing underwriter(s) of such offering the
registration of all or part of the shares of Common Stock (the "Incidental
Shares") which the Rightsholders have requested to be included pursuant to this
Section 3 and/or which other holders of shares of Common Stock or other
securities of the Company entitled to include shares of Common Stock in such
registration have requested to be included would materially and adversely affect
such public offering, then the Company shall be required to include in the
underwriting only that number of such shares, if any, which the managing
underwriter(s) believe(s) may be sold without causing such adverse effect. If
the number of Registrable Shares to be included in the underwriting in
accordance with the foregoing is less than the total number of shares which the
Rightsholders have requested to be included, then (i) the Company shall be
entitled to include all shares that it desires to be registered and (ii) the
Rightsholders who have requested registration and other holders of shares of
Common Stock or other securities of the Company entitled to include shares of
Common Stock in such registration on a parity with the Rightsholders shall
participate in the underwriting pro rata based upon their total ownership of
shares of Common Stock of the Company.
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<PAGE>
(c) Notwithstanding anything in the foregoing to the contrary, the
Company shall not be required to provide any advance notice to Rightsholders in
connection with any offering under this Section 3 involving an underwriting if
the Company has been informed that in the opinion of the managing underwriter(s)
the inclusion of any Incidental Shares in such offering would materially and
adversely affect the offering. In such event, the Company will provide written
notice to all Rightsholders of such managing underwriter's(s') opinion, which
notice need not be given prior to the filing of the applicable Registration
Statement.
4. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective for the period specified in paragraph
(b) below;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective for a period ending on the earlier of (i)
30 days after the effective date or (ii) the date on which all Registrable
Shares registered under such Registration Statement have been sold; provided,
however, that the Company may by written notice require that each Rightsholder
who is selling shares pursuant to such registration (a "Selling Holder")
immediately cease sales of shares pursuant to such Registration Statement at any
time that (A) the Company becomes engaged in a business activity or negotiation
which is not disclosed in the Registration Statement (or the prospectus included
therein) and which the Company desires to keep confidential for business
purposes, (B) the Company determines that a particular disclosure would be
premature or would adversely affect the Company or its business or prospects, or
(C) the Registration Statement can no longer be used under the existing rules
and regulations promulgated under the Securities Act. The Company shall not be
required to disclose to the Selling Holder(s) the reasons for requiring a
suspension of sales hereunder, and the Selling Holder(s) shall not disclose to
any third party the existence of any such suspension;
(c) as expeditiously as possible furnish to each Selling Holder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the Selling Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the Selling Holder; and
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<PAGE>
(d) as expeditiously as possible use its best efforts to register
or qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the Selling Holders shall
reasonably request, and do any and all other acts and things that may reasonably
be necessary or desirable to enable the Selling Holders to consummate the public
sale or other disposition in such states of the Registrable Shares owned by the
Selling Holders; provided, however, that the Company shall not be required in
-------- -------
connection with this paragraph (d) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
Selling Holders and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly notify
the Selling Holders and, if requested, the Selling Holders shall immediately
cease making offers of Registrable Shares and return all undistributed
prospectuses to the Company. The Company shall promptly provide the Selling
Holders with revised prospectuses and, following receipt of the revised
prospectuses, the Selling Holders shall be free to resume making offers of the
Registrable Shares.
5. Allocation of Expenses. The Rightsholders will pay all Registration
----------------------
Expenses of all registrations under Section 2 of this Agreement; provided,
however, that Rightsholders holding a majority of the Registrable Shares shall
determine whether any Registration Statement under Section 2 shall be printed by
a financial printer and whether legal counsel to the Selling Holders shall be
engaged. The Rightsholders requesting the registrations of Registrable Shares
under Section 3 of this Agreement shall pay the Registration Expenses of such
registration pro rata in accordance with the number of their Registrable Shares
included in such registration. For purposes of this Section 5, the term
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Agreement, including without limitation all registration and
filing fees, exchange listing fees, printing expenses, fees and disbursements of
counsel for the Company, state Blue Sky fees and expenses, the expense of any
special audits incident to or required by any such registration, underwriting
discounts, selling commissions and the fees and expenses of the Company's legal
counsel and one legal counsel for the Selling Holders. Notwithstanding the
provisions of this Section 5, in connection with the registration of Registrable
Shares under Section 2 of this Agreement, "Registration Expenses" shall mean
only expenses incurred by the Company solely for the purpose of complying with
the Company's obligations under Section 2 and only to the extent that such
expenses would not otherwise be required to be incurred by the Company in
complying with its reporting obligations under the Exchange Act.
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<PAGE>
6. Indemnification. In the event of any registration of any of the
---------------
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
-------- -------
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
In the event of any registration of any of the Registrable Shares under the
Securities Act pursuant to this Agreement, each seller of Registrable Shares,
severally and not jointly, will indemnify and hold harmless the Company, each of
its directors and officers and each underwriter (if any) and each person, if
any, who controls the Company or any such underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities, joint or several, to which the Company, such directors and
officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are
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<PAGE>
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of such seller,
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment or supplement; provided, however, that the
-------- ------
obligations of such Rightsholders hereunder shall be limited to an amount equal
to the proceeds to each Rightsholder of Registrable Shares sold as contemplated
herein.
Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
--------
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
-------- -------
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement unless and to the extent that the Indemnifying
Party is adversely affected by such failure. The Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
-------- -------
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation, and no Indemnified Party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party.
7. Indemnification with Respect to Underwritten Offering. In the event
-----------------------------------------------------
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2(a), the Company agrees to enter into
an underwriting agreement containing customary representations and warranties
with respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification by the Company of the underwriters of such offering.
-8-
<PAGE>
8. Information by Holder. Each Rightsholder of Registrable Shares
---------------------
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
9. "Stand-Off" Agreement. Each Rightsholder, if requested by an
--------------------
underwriter of Common Stock or other securities of the Company, shall agree not
to sell or otherwise transfer or dispose of any Registrable Shares or other
securities of the Company held by such Rightsholder for a specified period of
time following the effective date of a Registration Statement, such period not
to exceed 180 days, if the Registration Statement is declared effective on or
prior to the second anniversary of the Closing Date, or 90 days, if the
Registration Statement is declared effective after the second anniversary of the
Closing Date. Any such Stand-Off Agreement shall be in writing in a form
satisfactory to the Company and such underwriter. The Company may impose stop-
transfer instructions with respect to the Registrable Shares or other securities
subject to the foregoing restriction until the end of the stand-off period.
10. Effectiveness. This Agreement shall become effective upon the
-------------
occurrence of the Effective Time under the Merger Agreement. If the Merger
Agreement shall be terminated without the occurrence of the Effective Time, this
Agreement (and all of the rights and obligations of the parties hereunder) shall
terminate simultaneously.
11. Transfers of Certain Rights; Additional Rightsholders.
-----------------------------------------------------
(a) General. The rights granted to each Rightsholder pursuant to
-------
the terms of this Agreement may be transferred by such Rightsholder to another
Rightsholder, to any affiliate of such Rightsholder, or to any member of the
immediate family of such Rightsholder, or any trust established for the benefit
of any of the foregoing; provided, however, that in the case of any transfer
-------- -------
referred to in this paragraph (a), the Company is given written notice by the
transferor at the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which such rights are
being assigned.
(b) Transferees. Any transferee to whom rights hereunder are
-----------
transferred shall, as a condition to such transfer, deliver to the Company a
written instrument by which such transferee agrees to be bound by the
obligations imposed upon Rightsholders under this Agreement to the same extent
as if such transferee were a party hereto.
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<PAGE>
(c) Subsequent Transferees. A transferee to whom rights are
----------------------
transferred pursuant to this Section 11 may not again transfer such rights to
any other person or entity, other than as provided in (a) and (b) above.
12. No Assignment. Except as provided in Section 11 hereof, the rights
-------------
granted pursuant to this Agreement may not be transferred or assigned by any
Rightsholder.
13. Amendments. The provisions of this Agreement may be modified or
----------
amended at any time and from time to time only by an agreement or consent in
writing executed by the Company and the holders of a majority of the Registrable
Shares then outstanding; provided, however, that the registration rights granted
under this Agreement may be amended only in a manner which affects all
Registrable Shares in the same fashion.
14. Notices. All notices, requests, consents and other communications
-------
required to be given pursuant to this Agreement shall be in writing and shall be
given by personal delivery or by certified or registered mail, postage prepaid,
return receipt requested. Notices shall be deemed effective when personally
delivered or five days after being so mailed, as the case may be, to the parties
at the following respective addresses or at such other address of which either
party shall notify the other in accordance with this Section 14:
The Company: Renaissance Solutions, Inc.
Lincoln North
55 Old Bedford Road
Lincoln, Massachusetts 01773
Attention: President
With a copy to: Hal J. Leibowitz, Esq.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Any
Rightsholder: O. Bruce Gupton
c/o International Systems Services Corporation
100 First Stamford Place
Stamford, CT 06902-6746
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<PAGE>
With a copy to: Ellen B. Corenswet, Esq.
Brobeck, Phleger & Harrison LLP
1633 Broadway
4th Floor
New York, NY 10019
15. Entire Agreement; Governing Law. This Agreement, together with the
-------------------------------
Merger Agreement, embodies the entire agreement and understanding between the
parties, and supersedes all prior agreements and understandings relating to the
subject matter hereof. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to conflict of laws provisions.
16. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17. Headings. The headings of the sections, subsections, and paragraphs
--------
of this Agreement have been added for convenience only and shall not be deemed
to be a part hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
RENAISSANCE SOLUTIONS, INC.
By: /s/ George A. McMillan
--------------------------------
Title: Vice President, Chief Financial
-------------------------------
Officer and Chief Operating Officer
STOCKHOLDER:
/s/ O. Bruce Gupton
------------------------------------
O. Bruce Gupton
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<PAGE>
EXHIBIT 10.30
REGISTRATION RIGHTS AGREEMENT
Agreement dated as of February 13, 1997, by and among Renaissance
Solutions, Inc., a corporation organized under the laws of the State of Delaware
(the "Company"), and Mark R. Bruneau, Andrew R. Belt and Frederique Bouty
(individually, a "Stockholder" and collectively, the "Stockholders").
INTRODUCTION
------------
The Company and the Stockholders have, as of the date hereof, entered
into a certain Stock Purchase Agreement (the "Purchase Agreement") pursuant to
which, upon and subject to the occurrence of certain events, the Company may
issue to the Stockholders shares of Common Stock, $.0001 par value per share
("Common Stock"), of the Company. The Stockholders wish to have, and the
Company is willing to grant to them, certain rights with respect to the
registration of such shares of Common Stock, if any are so issued.
In consideration of the mutual covenants and promises contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Stockholders
agree as follows:
1. Certain Definitions. As used in this Section 1 and elsewhere in
-------------------
this Agreement, the following terms shall have the following respective
meanings:
"Commission" means the Securities and Exchange Commission, or any
----------
other Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"First Contingent Payment Date" means the date of payment of the
-----------------------------
First Contingent Payment by the Company to the Stockholders in accordance with
the terms of the Purchase Agreement.
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<PAGE>
"Registration Statement" means a registration statement filed by
----------------------
the Company with the Commission for a public offering and sale of securities of
the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section 5.
---------------------
"Registrable Shares" means (a) the shares of Common Stock, if any,
------------------
issued to the Stockholders pursuant to Purchase Agreement and (b) any other
shares of Common Stock of the Company issued in respect of such shares (because
of stock splits, stock dividends, reclassifications, recapitalizations, or
similar events); provided, however, that shares of Common Stock which are
-------- -------
Registrable Shares shall cease to be Registrable Shares (i) upon any sale
pursuant to a Registration Statement, Section 4(1) of the Securities Act or Rule
144 under the Securities Act or upon any sale in any manner to a person or
entity which, by virtue of Section 11 of this Agreement, is not entitled to the
rights provided in this Agreement, (ii) at such time as all of the Registrable
Shares then held by the Rightsholders may be sold without restriction as to
volume under Rule 144, or (iii) with respect to a Rightsholder, at such time as
all such shares may be sold by such Rightsholder under Rule 144(k).
"Rightsholders" means the Stockholders and any other person or
-------------
entity who becomes a Rightsholder under this Agreement pursuant to Section 11.
"Second Contingent Payment Date" means the date of payment of the
------------------------------
Second Contingent Payment by the Company to the Stockholders in accordance with
the terms of the Purchase Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or
--------------
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
Other terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Purchase Agreement.
2. Demand Registration Rights.
--------------------------
(a) Subject to the provisions of paragraph (c) below, from and
after the First Contingent Payment Date and prior to the first anniversary
thereof, the
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<PAGE>
Rightsholders, by an election of the Stockholders' Representative, may request,
in writing, that the Company effect the registration of up to 35% of the
Registrable Shares owned by each Rightsholder and issued to him as part of the
First Contingent Payment (the "First Demand"). Subject to the provisions of
paragraph (c) below, from and after the Second Contingent Payment Date and prior
to the first anniversary thereof, the Rightsholders, by an election of the
Stockholders' Representative, may request, in writing, that the Company effect
the registration of up to 35% of the Registrable Shares owned by each
Rightsholder and issued to him as part of the First Contingent Payment or the
Second Contingent Payment, less such number of Registrable Shares as were
registered pursuant to the First Demand. If the Rightsholders intend to
distribute such Registrable Shares by means of an underwriting, the
Stockholders' Representative shall so advise the Company in his request. In the
event either such registration is underwritten, the right of Rightsholders to
participate shall be conditioned on such Rightsholders' participation in such
underwriting. Upon receipt of such a request, the Company shall, as expedi-
tiously as possible, use its best efforts to effect the registration of all
Registrable Shares which the Company has been requested to so register (subject
to the maximums stated above in this paragraph (a)) on such registration form
selected by the Company as the Company is then eligible to use. Notwithstanding
any other provision of this Section 2, if the managing underwriter(s) advises
the Rightsholders participating in the registration in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the number of Registrable Shares that may be included in the underwriting shall
be allocated among all such Rightsholders in proportion (as nearly as
practicable) to the amount of Registrable Shares of the Company owned by each
such Rightsholder.
(b) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above.
(c) If at the time of any request to register Registrable Shares
pursuant to this Section 2 the Company is engaged or has fixed plans to engage
within 30 days of the time of the request in a registered public offering as to
which the Rightsholders may include Registrable Shares pursuant to Section 3
(subject to the limitations set forth therein) or is engaged in any other
activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of six months from the
effective date of such offering or the date of commencement of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once.
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<PAGE>
3. Incidental Registration Rights.
------------------------------
(a) From and after the First Contingent Payment Date and until the
first anniversary of the Second Contingent Payment Date (or, if no Second
Contingent Payment is made, the date by which such payment would have been
made), whenever the Company proposes to file a Registration Statement at any
time and from time to time relating to an offering in which the Company proposes
to sell shares of Common Stock for its own account, it will, prior to such
filing, give at least 20 days' written notice to all Rightsholders of its
intention to do so (subject to the limitations set forth in paragraph (c) below)
and, upon the written request of a Rightsholder or Rightsholders given within 20
days after the Company provides such notice (which request shall state the
intended method of disposition of such Registrable Shares), the Company shall
use its best efforts to cause all Registrable Shares which the Company has been
requested by such Rightsholder or Rightsholders to register to be registered
under the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Rightsholder or Rightsholders; provided, that the Company
shall have the right to postpone or withdraw any registration effected pursuant
to this Section 3 without obligation to any Rightsholder.
(b) In connection with any offering under this Section 3 involving
an underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriter(s) of such
offering. If in the opinion of the managing underwriter(s) of such offering the
registration of all, or part of, the shares of Common Stock (the "Incidental
Shares") which the Rightsholders have requested to be included pursuant to this
Section 3 and/or which other holders of shares of Common Stock or other
securities of the Company entitled to include shares of Common Stock in such
registration have requested to be included would materially and adversely affect
such public offering, then the Company shall be required to include in the
underwriting only that number of such shares, if any, which the managing
underwriter(s) believe(s) may be sold without causing such adverse effect. If
the number of Registrable Shares to be included in the underwriting in
accordance with the foregoing is less than the total number of shares which the
Rightsholders have requested to be included, then (i) the Company shall be
entitled to include all shares that it desires to be registered and (ii) the
Rightsholders who have requested registration and other holders of shares of
Common Stock or other securities of the Company entitled to include shares of
Common Stock in such registration on a parity with the Rightsholders shall
participate in the underwriting
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<PAGE>
pro rata based upon their total ownership of shares of Common Stock of the
Company.
(c) Notwithstanding anything in the foregoing to the contrary, the
Company shall not be required to provide any advance notice to Rightsholders in
connection with any offering under this Section 3 involving an underwriting if
the Company has been informed that in the opinion of the managing underwriter(s)
the inclusion of any Incidental Shares in such offering would materially and
adversely affect the offering. In such event, the Company will provide written
notice to all Rightsholders of such managing underwriter's(s') opinion, which
notice need not be given prior to the filing of the applicable Registration
Statement.
4. Registration Procedures. If and whenever the Company is required
-----------------------
by the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective for the period specified in paragraph
(b) below;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective for a period ending on the earlier of (i)
30 days after the effective date (excluding any days on which the Company
requires the Rightsholders to cease sales of shares as provided below) or (ii)
the date on which all Registrable Shares registered under such Registration
Statement have been sold; provided, however, that the Company may by written
notice require that each Rightsholder who is selling shares pursuant to such
registration (a "Selling Holder") immediately cease sales of shares pursuant to
such Registration Statement at any time that (A) the Company becomes engaged in
a business activity or negotiation which is not disclosed in the Registration
Statement (or the prospectus included therein) and which the Company desires to
keep confidential for business purposes, (B) the Company determines that a
particular disclosure would be premature or would adversely affect the Company
or its business or prospects, or (C) the Registration Statement can no longer be
used under the existing rules and regulations promulgated under the Securities
Act. The Company shall not be required to disclose to the Selling Holder(s) the
reasons for requiring a suspension of sales hereunder, and the Selling Holder(s)
shall not disclose to any third party the existence of any such suspension;
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<PAGE>
(c) as expeditiously as possible furnish to each Selling Holder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the Selling Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the Selling Holder; and
(d) as expeditiously as possible use its best efforts to register
or qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the Selling Holders shall
reasonably request, and do any and all other acts and things that may reasonably
be necessary or desirable to enable the Selling Holders to consummate the public
sale or other disposition in such states of the Registrable Shares owned by the
Selling Holders; provided, however, that the Company shall not be required in
-------- -------
connection with this paragraph (d) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to
the Selling Holders and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly notify
the Selling Holders and, if requested, the Selling Holders shall immediately
cease making offers of Registrable Shares and return all undistributed
prospectuses to the Company. The Company shall promptly provide the Selling
Holders with revised prospectuses and, following receipt of the revised
prospectuses, the Selling Holders shall be free to resume making offers of the
Registrable Shares.
5. Allocation of Expenses. The Selling Holders, on the one hand, and
----------------------
the Company, on the other hand, will share equally in all Registration Expenses
of all registrations under Section 2 of this Agreement; provided, however, that
if a registration is withdrawn at the request of the Rightsholders requesting
such registration and if the requesting holders elect not to have such
registration counted as a registration requested under Section 2, the requesting
Rightsholders shall pay the Registration Expenses of such registration pro rata
in accordance with the number of their Registrable Shares included in such
registration. For purposes of this Section 5, the term "Registration Expenses"
shall mean all expenses incurred by the Company in complying with this
Agreement, including without limitation all registration and filing fees,
exchange listing fees, printing expenses, fees and disbursements of counsel for
the Company, state Blue Sky fees and expenses, and the expense of any special
audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions and the fees and expenses of the
Selling Holders' own counsel, all of which shall be borne by the Selling
Holders.
-6-
<PAGE>
6. Indemnification. In the event of any registration of any of the
---------------
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
-------- -------
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
-7-
<PAGE>
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such seller, specifically for use in connection with the preparation
of such Registration Statement, prospectus, amendment or supplement; provided,
--------
however, that the obligations of such Rightsholders hereunder shall be limited
- -------
to an amount equal to the proceeds to each Rightsholder of Registrable Shares
sold as contemplated herein.
Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
--------
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
-------- -------
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement unless and to the extent that the Indemnifying
Party is adversely affected by such failure. The Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
-------- -------
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation, and no Indemnified Party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party.
7. Indemnification with Respect to Underwritten Offering. In the
-----------------------------------------------------
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to Section 2(a), the Company agrees to enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered
-8-
<PAGE>
and customary covenants and agreements to be performed by such issuer, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering.
8. Information by Holder. Each Rightsholder of Registrable Shares
---------------------
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
9. "Stand-Off" Agreement. Each Rightsholder, if requested by an
--------------------
underwriter of Common Stock or other securities of the Company, shall agree not
to sell or otherwise transfer or dispose of any Registrable Shares or other
securities of the Company held by such Rightsholder for a specified period of
time (not to exceed 180 days) following the effective date of a Registration
Statement. Any such Stand-Off Agreement shall be in writing in a form
satisfactory to the Company and such underwriter. The Company may impose stop-
transfer instructions with respect to the Registrable Shares or other securities
subject to the foregoing restriction until the end of the stand-off period.
10. Effectiveness. This Agreement shall become effective upon the
-------------
occurrence of the Closing under the Purchase Agreement. If the Purchase
Agreement shall be terminated without the occurrence of such a Closing, this
Agreement (and all of the rights and obligations of the parties hereunder) shall
terminate simultaneously.
11. Transfers of Certain Rights; Additional Rightsholders.
-----------------------------------------------------
(a) General. The rights granted to each Rightsholder pursuant to
-------
the terms of this Agreement may be transferred by such Rightsholder to another
Rightsholder, to any affiliate of such Rightsholder, or to any member of the
immediate family of such Rightsholder, or any trust established for the benefit
of any of the foregoing; provided, however, that in the case of any transfer
-------- -------
referred to in this paragraph (a), the Company is given written notice by the
transferor at the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which such rights are
being assigned.
(b) Transferees. Any transferee to whom rights hereunder are
-----------
transferred shall, as a condition to such transfer, deliver to the Company a
written instrument by which such transferee agrees to be bound by the
obligations imposed
-9-
<PAGE>
upon Rightsholders under this Agreement to the same extent as if such transferee
were a party hereto.
(c) Subsequent Transferees. A transferee to whom rights are
----------------------
transferred pursuant to this Section 11 may not again transfer such rights to
any other person or entity, other than as provided in (a) and (b) above.
12. No Assignment. Except as provided in Section 11 hereof, the
-------------
rights granted pursuant to this Agreement may not be transferred or assigned by
any Rightsholder.
13. Amendments. The provisions of this Agreement may be modified or
----------
amended at any time and from time to time only by an agreement or consent in
writing executed by the Company and the holders of a majority of the Registrable
Shares then outstanding; provided, however, that the registration rights granted
under this Agreement may be amended only in a manner which affects all
Registrable Shares in the same fashion.
14. Notices. All notices, requests, consents and other
-------
communications required to be given pursuant to this Agreement shall be in
writing and shall be given by personal delivery or by certified or registered
mail, postage prepaid, return receipt requested. Notices shall be deemed
effective when personally delivered or five days after being so mailed, as the
case may be, to the parties at the following respective addresses or at such
other address of which either party shall notify the other in accordance with
this Section 14:
The Company: Renaissance Solutions, Inc.
Lincoln North
55 Old Bedford Road
Lincoln, Massachusetts 01773
Attention: President
With a copy to: Hal J. Leibowitz, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
-10-
<PAGE>
Any
Rightsholder: c/o C.M. Management Systems Ltd. Inc.
150 Federal Street
14th Floor
Boston, MA 02110
With a copy to: James C. Stokes, Esq.
Bingham, Dana & Gould LLP
150 Federal Street
Boston, Massachusetts 02110
15. Entire Agreement; Governing Law. This Agreement, together with
-------------------------------
the Purchase Agreement, embodies the entire agreement and understanding between
the parties, and supersedes all prior agreements and understandings relating to
the subject matter hereof. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to conflict of laws provisions.
16. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Headings. The headings of the sections, subsections, and
--------
paragraphs of this Agreement have been added for convenience only and shall not
be deemed to be a part hereof.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Renaissance Solutions, Inc.
By: /s/ William T. Jenkins
-------------------------------
Title: Vice President, Finance and
Administration
STOCKHOLDERS:
/s/ Mark R. Bruneau
----------------------------------
Mark R. Bruneau
/s/ Andrew R. Belt
-----------------------------------
Andrew R. Belt
/s/ Frederique Bouty
------------------------------------
Frederique Bouty
-12-
<PAGE>
Exhibit 21
Subsidiaries of the Company
Name Jurisdiction of Incorporation
- ---- -----------------------------
C.M. Management Systems Massachusetts
Ltd. Inc.
Coba Consulting Limited United Kingdom
International Systems Services Connecticut
Corporation
International Systems Services United Kingdom
(UK)
International Systems Services United Kingdom
(UK) Limited
Renaissance Securities Corp. Massachusetts
Renaissance Strategy Limited United Kingdom
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 33-
91942, 33-91944, 33-91946 and 333-16405 of Renaissance Solutions, Inc. on Forms
S-8 of our report dated February 28, 1997 (which expresses an unqualified
opinion and includes an explanatory paragraph relating to the accounting for an
acquisition as a pooling-of-interests) appearing in this Annual Report on Form
10-K of Renaissance Solutions, Inc. for the year ended December 31, 1996.
/s/Deloitte & Touche LLP
Boston, Massachusetts
March 3, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF RENAISSANCE SOLUTIONS, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 49,415 6,159
<SECURITIES> 17,910 4,890
<RECEIVABLES> 10,629 12,789
<ALLOWANCES> (807) (436)
<INVENTORY> 0 0
<CURRENT-ASSETS> 78,533 23,978
<PP&E> 6,122 4,481
<DEPRECIATION> (2,135) (1,396)
<TOTAL-ASSETS> 82,582 27,135
<CURRENT-LIABILITIES> 10,329 5,272
<BONDS> 0 720
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 71,640 27,134
<TOTAL-LIABILITY-AND-EQUITY> 82,582 27,135
<SALES> 52,450 35,536
<TOTAL-REVENUES> 52,450 35,536
<CGS> 0 0
<TOTAL-COSTS> 48,143 30,236
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 795 242
<INTEREST-EXPENSE> 139 80
<INCOME-PRETAX> 5,861 5,729
<INCOME-TAX> 4,091 1,894
<INCOME-CONTINUING> 1,770 3,835
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,770 3,835
<EPS-PRIMARY> .20 .53
<EPS-DILUTED> 0 0
</TABLE>
